Draft MPA accounts for the year ended 31 March 2003

Report: 10
Date: 25 September 2003
By: Treasurer

Summary

This report presents the Authority’s draft set of accounts for 2002/03 which are subject to audit. The report identifies key features of the accounts and explains the structure of the statements. The accounts have been scrutinised by the Audit Panel at its meeting on 15 September 2003. Some changes will be required to the draft accounts to reflect the Audit Panel’s comments, and they will be sent to follow once these changes have been made.

A. Recommendation

That the Authority approve the draft statement of accounts 2002/03, following review by the Audit Panel, for onward submission to the Authority’s external auditors.

B. Supporting information

Introduction

1. This report presents and comments on the Authority’s draft accounts for the year ended 31 March 2003. This is the third set of annual accounts produced by the MPA and the second set relating to a full twelve month period.

Approval process

2. The Accounts and Audit Regulations 2003 require the Authority to approve the final accounts for the year ending 31 March by the following 30 September, prior to the external auditor providing his opinion. The draft accounts were presented to the Audit Panel on 15 September for scrutiny. The Panel made a number of comments to be included in the draft accounts. The draft accounts will, therefore, be sent to follow once these amendments have been made. A new 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.

3. The external auditor will then complete his audit, provide his audit opinion on the accounts and publish his annual audit letter. His intention is to report the audit letter to the next meeting of the Audit Panel on 1 December. Members will appreciate that, until the audit is completed, there remains the possibility that the accounts will have to be amended.

4. Over the next three years the Authority will have to comply with progressively earlier reporting deadlines such that, by 2006, the accounts will have to be approved by 30 June. Commencing with the 2003/04 accounts we will be putting in place processes to enable the MPA to meet these requirements.

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.

Outturn

6. The final revenue outturn for 2002/03 was reported to the Finance Committee on 10 July 2003. The outturn represents an underspending against budget of £25.6 million after making a number of accounting provisions and transfers to earmarked reserves previously agreed by the Finance Committee during the year. The Committee agreed a number of further transfers to earmarked reserves and to the general reserve in order to maintain it at its minimum policy level, and these are now reflected in the final accounts.

Statement of Accounts

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

Foreword

8. 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

9. This remains blank in the draft accounts awaiting the conclusion of the audit. Members will be aware that the auditor’s opinion on last year’s accounts was qualified because of the inadequacy of provisions for police pension and third party liabilities and failure to revalue fixed assets. The current set of accounts reflects both significant strengthening of the provisions and fixed asset valuations resulting from a revaluation exercise undertaken during the year.

Statement of responsibilities

10. This sets out the respective responsibilities of the Authority and the Treasurer in the production and approval of the final accounts. It also contains my signed statement that the accounts present fairly the financial position of the MPA at 31 March 2003 and its income and expenditure for the reported accounting period. This reflects my view that the steps taken since the previous statement of accounts was reported have adequately addressed the issues referred to in the external auditor’s qualified opinion.

Statement on the system of internal financial control

11. This statement represents a new requirement for this year for all local authorities. It reflects a developing situation in relation to the effectiveness of internal financial control.

Accounting policies

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

Revenue account and notes to the revenue account

13. The revenue account summarises the Authority’s income and expenditure for the year 2002/03. The revenue account is shown in two analyses:

• an objective analysis in accordance with the Best Value Accounting Code of Practice which is set out on page 12. This analyses net expenditure by broad policing activity.
• a subjective presentation at page 13 which analyses net expenditure by input costs.

The revenue account statements are identical below the line headed Net Expenditure. The notes to the revenue account provide explanations of specific lines as well as additional information in accordance with the requirements of the Code.

14. The methodology for generating the Best Value accounting analysis continues to be developed to ensure a robust allocation and apportionment of costs. The implementation of activity based costing should provide an important underpinning for this analysis.

Balance sheet and notes to the balance sheet

15. The balance sheet shows the financial position of the Authority as at 31 March 2003. Again the notes provide additional information as well as clarification of specific figures in the balance sheet.

16. Members will note some significant movements between the opening and closing balance sheets and the principal explanations are as follows:

• The value of fixed assets has increased from £730.9 million at 31 March 2002 to £1,713.5 million in the closing balance sheet. This is a direct result of the major valuation exercise which has been carried out in response to the external auditor’s qualification of last year’s accounts. The balance sheet now reflects current valuations at 31 March 2003. The opposite entry in the balance sheet is reflected in the fixed asset restatement reserve.
• Short term investments have increased from £190.6 million to £322.6 million. These represent the temporary investment of cash balances, which derive from a favourable cash flow and the holding of cash-backed reserves and provisions. The increase largely reflects the improvement in reserves and provisions referred to below.
• Total provisions have increased from £49.5 million to £81 million. This reflects the enhancement of provisions in respect of pension and third party liabilities in order to address the external auditor’s qualification.
• Usable reserves are shown as £160.1 million at 31 March 2003 compared with £88.8 million twelve months earlier. This increase arises partly from the specific decisions of the Authority in relation to general and earmarked reserves but also includes a sum of £40.7 million grant for Airwave received one year in advance of requirement.

17. Taken together these changes represent a significant strengthening of the Authority’s balance sheet.

18. Note 13 to the balance sheet on police pension liabilities fulfills the requirements for the 2002/03 accounts to comply with FRS17. As last year, Hymans Robertson carried out the actuarial valuation which identifies a total accrued police pension liability at the balance sheet date of £8,815 million. From 2003/04 there will be full adoption of FRS17 and this liability will actually be shown on the face of the balance sheet with an offsetting reserve. It will be necessary to review the nature of the Police pensions provision (of £35 million) in the light of this change.

Statement of total movements in reserves

19. This statement provides detailed information on the Authority’s reserves. The accounting reserves reflect the requirements of the capital accounting arrangements and do not represent real resources. The usable capital reserves support the funding of the Authority’s five year capital programme. The earmarked revenue reserves relate to purposes which have been approved by the Finance Committee.

Cash flow statement and notes to the cash flow statement

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

C. Equality and diversity implications

None related to this report identifying relevant issues.

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 2002 - A Statement of Recommended Practice

F. Contact details

Report author: Peter Martin, Treasurer, MPA.

For more information contact:

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

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