Statement of accounts for year ended 31 March 2010

Report: 8
Date: 14 June 2010
By: Treasurer and Director of Resources on behalf of the Commissioner

Summary

This report presents the Authority’s draft set of accounts for 2009/10 (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

Members are invited to:

1. Scrutinise the draft statement of accounts 2009/10 and agree any comments to be conveyed to the full Authority.

B. Supporting information

Background

1. This report presents and comments on the Authority’s draft accounts for the year ended 31 March 2010.

Approval process

2. The Accounts and Audit Regulations 2003 require the Authority to approve the final accounts for the year ending 31 March 2010 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 24 June 2010, 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. There are a number changes required by the 2009 CIPFA SORP in the presentation of the 2009/10 accounts. Where necessary the MPA has restated the 2008/09 figures to ensure appropriate comparison. The changes are described below:

• The MPA has accounted for its two PFI contracts as assets on the balance sheet as well as showing a liability for payments to the contractor for these contracts. This SORP requirement is consistent with the International Financial Accounting Standards (IFRS) for PFI contracts and therefore helps to smooth the transition to IFRS based accounts in 2010/11. The MPA has restated the prior year comparatives in the balance sheet;
• The Best Value Accounting Code of Practice (BVACOP), which is issued by CIPFA has stated that for 2009/10 the figure for Total Policing Services in the Income and Expenditure Account must be analysed between nine new divisions of service to provide greater transparency of how the costs of the MPA are used to support its’ operations. The MPA has restated the prior year comparatives in the Income and Expenditure Account;
• Guidance notes published by CIPFA in relation to the nine BVACOP divisions of service have also provided greater clarity on the treatment of special and supplementary grants (previously reported under the heading ‘Other Grants’ in the Income and Expenditure Account). This has led the MPA to reclassify some of the grants as directly attributed to services and to report them within the ‘Net Cost of Policing Services’. The MPA has restated the prior year comparatives in the Income and Expenditure Account;
• In recognition of the significant number of additional disclosures which will be required under IFRS next year, the 2009 CIPFA SORP has removed the need to disclose less essential information in the form of publicity costs, on the basis that information does not directly contribute to the understanding of the overall financial transactions of the Authority;

7. There is also a new requirement within the Accounts and Audit (Amendment No 2) Act 2009 which requires the MPA to provide greater disclosure of the individual remuneration details of senior police officers and senior staff in the Statement of Accounts in line with Central Government practice.

Next year

8. Next year will see significant changes to the Statement of Accounts, as we adopt the International Accounting Standards.

Outturn

9. The provisional revenue outturn for 2009/10 will be reported to the Finance and Resources Committee on 17 June. The provisional outturn represents a balanced budget position after taking account various contributions totalling £21.9m to earmarked reserves which Finance and Resources Committee are being asked to specifically consider on the 17 June.

10. Members should note that the proposed transfer to the Modernisation Reserve (above) includes £3.3m from the provision for third party liabilities accident and legal claims to be transferred to the modernisation reserve. The revised provision for legal and accident claims follows a review of the accounting methodology used to estimate the costs of outstanding legal claims and is subject to Audit Commission agreement.

11. The balanced budget position also assumes a reduction in interest receivable relating to Icelandic investments which had previously been accrued on the advice of earlier CIPFA guidance at the penalty interest rate of 22% but which is now more likely to be paid at the reduced contractual rate. The write off which has been provisionally calculated at £1.7m is subject to approval by the Finance and Resources Committee on the 17 June and Audit Commission agreement.

Statement of Accounts

12. The Statement of Accounts follows a format prescribed by the 2009 SORP. The following paragraphs provide a brief commentary on each of the sections of the statement.

13. Foreword - 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.

14. Audit opinion - 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.

15. The Auditor also issues a statement which provides 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.

16. Statement of responsibilities - 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 2010 and its income and expenditure for the reported accounting period.

17. Annual Governance Statement - 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.

18. Accounting Policies - The accounting policies accord with the requirements of the SORP.

19. Revenue Accounts - The revenue accounts are:

• The Income and Expenditure Account - summarising the resources generated and consumed in the year. This year the presentation has changed to reflect the new BVACOP divisions of service;
• 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.

20. 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 26 of the accounts, shows a deficit of £928m. 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 balanced budget position. This is subject to Finance and Resources Committee approval of the proposed transfers to reserves, the write down of interest receivable from Landsbanki and the provision for third party liabilities (both subject to Audit Commission agreement).

21. Balance Sheet - The balance sheet shows the financial position of the Authority as at 31 March 2010.

22. In accordance with SORP 2009, the Authority has recognised assets and liabilities arising from its PFI contracts in its balance sheet for 2009/10 and also for the comparative year. There are two PFI contracts, one in respect of four police stations and the other for a police training ground. The contracts involved the construction of appropriate buildings and to provide continuing support services over the lease period. The PFI contracts have been restated from the beginning of their contracts to present in the balance sheet as assets and liabilities of the MPA. The PFI assets for 2009/10 and comparative year have been written down to reflect fair values, and the liabilities to the contractors have been simultaneously adjusted for repayments made. It is considered that the overall impact of this accounting treatment for PFIs is not significant in terms of increasing the net worth of the Authority.

Restatement of the 2008/09 figures on the balance sheet to reflect inclusion of PFI

23. The net book values of land and buildings are based on a rolling review programme, undertaken by external surveyors which assess a proportion of the estate each year. The value of residential and operational land and buildings on the Balance Sheet increased slightly by £27m for 2009/10, as property prices stabilised during the year.

24. The value of assets under construction increased by £67m reflecting the number of property schemes that are currently underway.

25. In line with UK GAAP, a number of assets have been reclassified as investment properties, resulting in a value of £45m in the balance sheet at the end of 2009/10.

26. The Authority’s debtors position decreased by £46m to £181m, primarily the result of decreases in the amounts owed by government departments (£44m) and a reduction in payments made in advance and accrued income (£2m)

27. The minor decrease in short term investments of £1.7m reflects the proposal to the Finance and Resources on the 17 June, to adjust the expected interest owing to the MPA in respect of the investments in Landsbanki made in 2008.

28. The MPA’s creditors fell by £47m due in combination to a fall in amounts owing to government departments by £11m and a reduction in other general creditors of around £37m.

29. Long term borrowing increased by £80m over the last 12 months. This partly reflects the MPA’s use of short term investments in the previous year to acquire new Scotland Yard, the acquisition of new assets/new project starts in 2009/10 not wholly financed by capital grants and sales and declining liquidity from reduced reserves.

30. Government Grants Deferred increased by £34m as capital grants and third party contributions were added to the account to fund capital purchases.

31. Unapplied capital grants decreased by almost £3m primarily because unapplied grants of £14m were received in year while £17m was used to fund capital expenditure from this account.

32. The Revaluation Reserve and Capital Adjustment Account balances as 1 April 2009 were restated to reflect the inclusion of PFI properties and respective liabilities. During the 2009/10 there was a decrease of £38m on the Capital Adjustment Account reflecting timing differences between the depreciation of fixed assets and financing of assets during 2009/10.

33. During 2009/10 the Authority used £34m 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 £29m. Therefore overall there was a reduction in the balance of usable capital receipts of £5m.

34. The Capital Grant Reserve reduced by £7m due to a transfer of £46m for financing of capital expenditure which was offset by just under £39m in respect of capital grant received.

35. Earmarked revenue reserves, are shown as £201.7m at 31 March 2010 compared with £223.5m twelve months earlier. The decrease in reserves is mainly due to transfers from reserves during the year were in relation to the operational costs and Proceeds of Crime Act. This is partially offset by various contributions to earmarked reserves for the Service Improvement Plan Fund, Climate Change Action Plan, Partnership Funding, Transforming HR and Modernisation Programmes.

36. The General Reserve of £47.5m is supported by another uncommitted reserve – the Emergencies Contingency Fund of £23.1m – totalling £70.6m, which is 2.7% of net budgeted expenditure.

37. Cash flow statement - This statement summarises the inflows and outflows of cash arising from transactions with third parties.

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

39. Note 3 to the accounts identifies the estimated cost and funding related to National, International and Capital City activity. This is not a statutory note to the Accounts and does not affect the 'true and fair view' of the Authority accounts.

40. Police Pension Scheme Statements - 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 2007.

41. The Police Pensions 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 for 2009/10 of £71.0m. The Secretary of State is responsible for reimbursing year-end deficits and a Home Office debtor has been set up in the balance sheet to recover this sum. The effect is therefore budget neutral.

Environmental implications

There are none specific to this report. Environmental impacts will be considered in the publication, printing and distribution of the Statement of Accounts

C. Race and equality impact

There are no equality or diversity implications arising directly from this report, however equality impact implications were identified (in business cases and reports) in respect of the key financial decisions made during 2009/10 through our normal decision making process. Equality and diversity impacts will be considered in the publication of the Statement of Accounts which will be available in large print, Braille and other formats and other languages.

D. Financial implications

The financial implications are set out in the main body of the report and the Statement of Accounts.

E. Legal implications

Regulatory requirements of the Authority and Treasurer are set out in Statement of Responsibilities for the Accounts (Statement of the Accounts 2009/10 page 9).

F. Background papers

• Revenue and Capital Budget Monitoring Report 2009/10 -Provisional Outturn Position – A Paper by the Director of Resources to the Finance and Resources Committee 17 June 2010.
• The Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice on Local Authority Accounting in the United Kingdom 2009 - A Statement of Recommended Practice.
• The Accounts and Audit Regulations 2003.
• The Best Value Accounting Code of Practice (BVACOP) 2009/10 published by the Chartered Institute of Public Finance and Accountancy (CIPFA).
• The Accounts and Audit (Amendment No 2) Act 2009
• The Police Pension Fund Regulations 2007.

G. Contact details

Report author: Bob Atkins, Treasurer, MPA

For information contact:

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

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