MPA accounts for the year ended 31 March 2009

Report: 9
Date: 15 June 2009
By: Treasurer

Summary

This report presents the Authority’s draft set of accounts for 2008-09 (Appendix 1), which is subject to audit. The report identifies key features of the accounts and explains the structure of the statements. The accounts will be forwarded to the next full Authority with any comments from this committee.

A. Recommendation

That members scrutinise the draft statement of accounts 2008-09 and agree any comments to be conveyed to the full Authority.

B. Supporting information

Introduction

1. This report presents and comments on the Authority’s draft accounts for the year ended 31 March 2009.

Approval process

2. The Accounts and Audit Regulations 2003 require the Authority to approve the final accounts for the year ending 31 March 2009 by the following 30 June, prior to the external auditor providing his opinion.

3. A requirement under the regulations is for the accounts to be signed and dated by the chair of the committee at which that approval is given. The accounts will therefore be presented to the full meeting of the MPA on 25 June 2009, the last scheduled meeting before the statutory deadline. The role of this committee is to scrutinise the draft accounts and advise the Authority.

4. The external auditor will then complete his audit, provide his audit opinion on the accounts and publish his annual audit letter. His audit letter will then need to be considered by this Committee. Members will appreciate that, until the audit is completed, there remains the possibility that the accounts may have to be amended.

Basis of the accounts

5. The accounts are compiled and presented in accordance with the Statement of Recommended Practice (SORP) – The Code of Practice on Local Authority Accounting published by the Chartered Institute of Public Finance and Accountancy (CIPFA), which has statutory force as representing proper accounting practice.

6. Unlike in 2007, the 2008 CIPFA SORP has made only minor changes in the presentation of the accounts for 2008/09. The key areas of change include:

• Provisions – inclusion of more comprehensive explanations.
• Government Grants and Contributions (Revenue) - explicit recognition that Area Based Grant (ABG), Private Finance Initiative (PFI) and Revenue Support Grant (RSG) are general grants and cannot be applied to individual services. The impact of this is that the net cost of services will not reflect this grant income.
• Tangible Fixed Assets – inclusion of more comprehensive explanations of asset categories.
• Financial Instruments – inclusion of more comprehensive explanations.

7. The MPA will be required to adopt International Financial Accounting Standards (IFRS) for the 2010/11 accounts and will also be required to restate the accounts for 2009/10 using IFRS to provide comparative information. Therefore next year will see further changes to the Statement of Recommended Practice (SORP) as we move closer to the adoption of International Accounting Standards.

Outturn

8. The provisional revenue outturn for 2008/09 will be reported to the Finance and Resources Committee on 18 June. The provisional outturn represents an underspend against budget of £29.6m. after taking account of proposed transfers to reserves totalling £33.11m which Finance and Resources Committee are being asked to specifically consider as follows:

• Service Improvement Fund £13.23m
• Budget Pressures £12.08m
• Dilapidations £3.75m
• Met Intelligence Bureau Project (Cobalt Square) £0.90m
• Youth & Violent Crime £0.80m
• Virtual Courts £0.62m
• Cell Accommodation £0.50m
• Facial Recognition System £0.30m
• MPA initiatives £0.28m
• Personal Insurance Indemnity Fund £0.34m
• MPA Partnership Funding £0.16m
• Climate Change Action Plan £0.12m
• Hate Crime Portal £0.03m
• Total £33.11m

9. Finance and Resources Committee will also be asked to approve the impairment of all the potentially irrecoverable losses incurred following the collapse of Landsbanki in one year rather than over a period of years and will reduce the underspend to £22.9m. This impairment has been provisionally calculated at £6.7m following CIPFA guidance, the methodology of which is subject to agreement by the Audit Commission.

10. The transfer of £22m of the underspend to an earmarked reserve to support the Capital Programme in 2009/10 and 2010/11 was agreed at Finance and Resources Committee on 20 November 2008 and members will be asked to approve the transfer of the balance of the underspend (approximately £0.9m) to the General Reserve.

Statement of Accounts

11. The Statement of Accounts follows a format prescribed by the 2008 SORP. The following paragraphs provide a brief commentary on each of the sections of the statement.

Foreword

12. The foreword provides contextual information to assist the understanding of the accounts. In particular, it refers to the budgetary setting within which the financial position reported in the accounts has been managed.

Audit opinion

13. This remains blank in the draft accounts awaiting the conclusion of the audit. Members will be aware that the auditor issued an unqualified opinion on last year’s accounts.

14. In addition there is a separate requirement for the Auditor to give a value for money conclusion, indicating whether the Authority has put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources.

Statement of responsibilities

15. This sets out the respective responsibilities of the Authority and the Treasurer in the production and approval of the final accounts. It also contains the Treasurer’s signed statement that the accounts present fairly the financial position of the MPA at 31 March 2009 and its income and expenditure for the reported accounting period.

Annual Governance Statement

16. The Annual Governance Statement includes details of the system of internal control and risk management, the key controls and how effectively they are being deployed highlighting any significant internal control issues and the relevant actions being taken to address them. An MPS Annual Assurance Statement, signed by the Commissioner, supports the statement. This Committee will be considering the contents of the Annual Governance Statement as a separate agenda item at today’s meeting.

Accounting policies

17. The accounting policies accord with the requirements of the SORP.

Revenue Accounts

18. For 2008/09 there have been no changes to the format of the presentation of the Authority’s income and expenditure for the year.

19. The revenue accounts are:

• The Income and Expenditure Account - summarising the resources generated and consumed in the year;
• Statement of the Movement on the General Fund Balance - showing how the balance of resources generated and consumed in the year links with the statutory requirements for raising funding through council tax;
• Statement of Total Recognised Gains and Losses - bringing together the gains and losses in the balance sheet with the outturn on the income and expenditure account to show the total movement in the Authority’s net worth for the year;

To gain a true understanding of the Authority’s financial performance for the year it is necessary to view all three statements together. The Income and Expenditure account, as shown at page 25 of the accounts, shows a deficit of £1,159m. Following accounting adjustments and transfers to reserves, (as detailed in the Statement on the Movement on the General Fund Balance and the Statement of Total Recognised Gains and Losses), the deficit translates to a surplus of £0.9m which is transferred to the general reserve. This is subject to any decision re the impairment of losses for Landsbanki.

Balance sheet

20. The balance sheet shows the financial position of the Authority as at 31 March 2009.

21. Despite a number of acquisition in 2008/09 amounting to £154m, the value of the Authority’s Land and Buildings reduced by £181m, primarily because of the deteriorating market conditions. The net book value of land and buildings take into account a review undertaken by our external surveyors, which indicated that the value of specialised properties had fallen by an average of 5% for buildings and 30% for land. For non specialised properties values had fallen by an average of 30% for both land and buildings and the value of residential properties fell by 15%.

22. The value of assets under construction increased by £30m primarily because of a number of property schemes that are currently underway.

23. In line with UK GAAP, a number of assets have now been reclassified as investment properties, resulting in a value of £36m now being included in the balance sheet.

24. The Audit Commission advised local authorities that all properties should be revalued a second time to reflect the fall in market conditions at 31 March 2009 on a ‘property by property’ basis. This resulted in additional work at the year end, involving complex accounting treatment to record the gains and subsequent losses on individual properties during the year. In view of the time constraints, the MPS wishes to continue to validate the accounting assumptions made on each property, prior to the auditors’ review of fixed assets. Should any adjustments result, these would only relate to the value of the estate as at 31 March and would have no material impact on the financial position of the MPA or its outturn position.

25. The Authority’s debtors position increased by almost £53m to £226m, primarily the result of increases in the amounts owed by government departments (£54m) and other local authorities (£3.5m) offset by a reduction in payments made in advance and accrued income.

26. Short term investors saw a significant reduction in value of £172m, to £61m primarily because of the decision to use cash balances in the short term to fund the purchase of New Scotland Yard. Of the remaining £61m, £25m of this represents the realisable present value of the two investments in Landsbanki made in 2008.

27. Government Grant Deferred increased by £33m to £149m primarily because £26m was used to fund capital purchases while capital grants and third party contributions of £59m were added to the account.

28. Unapplied capital grants increased by almost £7m primarily because unapplied grants were received in year of £21m while £14m was used to fund capital expenditure from this account.

29. The revaluation reserve and capital adjustment account saw a significant reduction, which in total amounted to £277m reflecting the large reduction in value of the property portfolio during 2008/09.

30. During 2008/09 the Authority used £83m of useable capital receipts to finance the capital programme, however given the downturn in the economic climate they were only able to generate additional receipts (through the disposal of properties) of £28m. Therefore overall there was a reduction in the balance of usable capital receipts of £55m.

31. The capital grant reserve reduced by almost £7m due to a transfer of £45m for financing of capital expenditure which was offset by £38m in respect of capital grant received.

32. Earmarked revenue reserves, are shown as £224.6m at 31 March 2009 compared with £169.8m twelve months earlier. The increase in reserves is mainly due to proposed transfers into the operational costs, budget pressures and modernisation programme reserves and the creation of a reserve to support the capital programme. The main transfers from reserves during the year were in relation to the operational costs and Proceeds of Crime Act.

33. The General Reserve of £47.7m is supported by another uncommitted reserve – the emergencies contingency fund of £23.1m – totalling £70.8m, which is 2.7% of net budgeted expenditure.

Cash flow statement

34. This statement summarises the inflows and outflows of cash arising from transactions with third parties.

Notes to the Financial Statements

35. Notes accompany these accounts to provide explanations of specific lines as well as additional information in accordance with the requirements of the Code.

36. Note 3 to the accounts identifies the estimated cost and funding related to National, International and Capital City activity. The Service has been reviewing its model for estimating these costs and the work is not completed. The estimated costs will be included in the accounts presented to the Full Authority on 25 June 2009. This is not a statutory note to the Accounts and does not affect the 'true and fair view' of the Authority accounts.

Police Pension Scheme Statements

37. The statements provide information on the accounting transactions of two pension schemes – the Police Pension Scheme, set up in 1987, and the New Police Pension Scheme, created by the Home Office under the Police Pension Regulations 2006.

38. The Police Pension Fund Regulations 2007 specify the statutory transfers between the police fund and the police pension fund. The essence of the regulation is that any year-end deficit or surplus on the police pension fund is transferred back to the police fund revenue account. There was a deficit of £51.6m that has been transferred. The Secretary of State is responsible for reimbursing year-end deficits and a Home Office debtor of £51.6m has been set up in the balance sheet to recover this sum. The effect is therefore budget neutral.

C. Race and equality impact

None specific to this report.

D. Financial implications

None other than comments included in the report above.

E. Background papers

• Code of Practice on Local Authority Accounting in the United Kingdom 2008 - A Statement of Recommended Practice

F. Contact details

Report author: Ken Hunt, Treasurer

For information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

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