MPA accounts for the year ended 31 March 2005

Report: 8
Date: 28 July 2005
By: Treasurer

Summary

This report presents the Authority’s draft set of accounts for 2004-05 (Appendix 1) 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 Corporate Governance Committee at its meeting on 11 July and are forwarded to the full Authority for approval. The accounts now presented reflect the Corporate Governance Committee’s comments.

A. Recommendation

That members

1. approve the draft statement of accounts 2004/05, following review by the Corporate Governance Committee, for onward submission by 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 2005. This is the fifth set of annual accounts produced by the MPA.

Approval process

2. The Accounts and Audit Regulations 2003 require the Authority to approve the final accounts for the year ending 31 March 2005 by the following 31 July, prior to the external auditor providing his opinion. This approval date has been getting progressively earlier (formerly 30 September) and by 2006, the accounts will have to be approved by 30 June.

3. The draft accounts were presented to the Corporate Governance Committee on 11 July for scrutiny and their comments are reflected in the draft accounts now before the Authority for approval. 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. This is the last scheduled meeting before the statutory deadline.

4. 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 meeting of this committee scheduled for 5 December 2005. Members will appreciate that, until the audit is completed, there remains the possibility that the accounts will 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.

Outturn

6. The provisional revenue outturn for 2004-05 was reported to the Finance Committee on 23 June with the final revenue and capital outturn being reported on 21 July. The provisional outturn represents an underspending against budget of £11.96 million, before reflecting a transfer to reserves in respect of tasking (£4 million) and the centrally held Revenue Budget Resilience Reserve (£ 7.96 million). The outturn was also before accrual of income for the work undertaken in respect of the S.E. Asia Tsunami, for which a prudent 85% assessed provision pending settlement has been made (£12.5 million) against the bill of £14.66 million submitted to the Home Office on 7 June. This sum has also been transferred to the new Budget Resilience Reserve, making a total of £20.46 million. A number of other transfers to reserves (totalling £10.3 million) have been included in these draft accounts (see p.36) and met from within the provisional outturn previously reported to Finance Committee on 23 June. The items are principally for rent smoothing (£3 million), vehicle recovery services (£3.2 million) and operational costs (£2.6 million) and details will be reported to the July meeting of Finance Committee.

7. A report recommending that members agree to contribute a sum of £456,000 towards the cost of anti viral drugs is also due to be considered at Full Authority on 28 July. If members agree to make this contribution ammendments will need to be made to the draft statement of accounts prior to their submisision to the external auditors for approval. Ammendments are as follows; a reduced sum of £20m will be transferred to the Budget Resiliance Reserve and a new reserve of £496,000 will be set up to meet the costs of the anti viral drugs.

Statement of accounts

8. 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

9. 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

10. 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 for the second time. I expect this position to be maintained for the 2004-05 accounts.

Statement of responsibilities

11. 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 2005 and its income and expenditure for the reported accounting period.

Statement on the system of internal control

12. This statement builds upon the interim statement on the system of internal control included in the accounts for 2003-04 and reflects a developing situation in relation to the effectiveness of internal control and risk management. It is backed by a signed MPS statement of internal control due to be signed by the Commissioner prior to the 28 July Full Authority meeting.

Accounting policies

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

Revenue account and notes to the revenue account

14. The revenue account summarises the Authority’s income and expenditure for the year 2004-05. The statutory presentation, as required by the Best Value Accounting Code of Practice and set out on page 20, is an objective analysis of net expenditure by broad policing activity. Note 1 to the revenue account shows a supplementary subjective analysis of net expenditure by input costs.

15. The notes to the revenue account provide explanations of specific lines as well as additional information in accordance with the requirements of the Code.

16. The methodology for generating the Best Value accounting analysis Is based on activity based costing methodology used to produce the Home Office return.

Balance sheet and notes to the balance sheet

17. The balance sheet shows the financial position of the Authority as at 31 March 2005. Again the notes provide additional information as well as clarification of specific figures in the balance sheet.

18. ’Police Officer Pension Liability’ and ‘Police Officer Pension Reserve’ reflect the full implementation of FRS17. The pension liability shows the underlying commitments that the Authority has in the long-run to pay retirement benefits. Recognition of the total liability of £12.496 billion has a substantial impact on the net worth of the Authority as recorded in the balance sheet. This has increased from £9.4 billion in 2003/4 mainly due to changes in the discount rates used by the Actuaries (see page 15 of the accounts). However statutory arrangements for funding the deficit mean that the financial position of the Authority remains healthy because finance is only required to be raised to cover police pensions when they are actually paid. If the pension liability is excluded the Authority’s net worth would show a modest decrease from £1.8 billion in 2003-04 to £1.7 billion in 2004-05.

19. Earmarked capital reserves have increased from £14.2 million at 31 March 2004 to £23.7 million in 2005. The increase reflects the carry forward of unspent C3i/Airwave capital reserve to support capital expenditure during the year.

20. Earmarked revenue reserves are shown as £91.9 million at 31 March 2005 compared with £111.4 million twelve months earlier. This decrease reflects the use of earmarked reserves during the year.

21. The General Reserve is shown at £28.4 million, which at 1.1% of the total net expenditure satisfies the policy of holding at least 1% in the General Reserve to meet unforeseen and unfunded emergency expenditure or financial demands, provided that there are appropriate accounting provisions and earmarked reserves, reasonable insurance arrangements, a well funded budget and effective budgetary control.

Statement of total movements in reserves

22. 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 and the majority are expected to be utilised in the short term. The requirement for pensions reserves will continue to be reviewed during 2005-06 in the light of changes to the police pension financing arrangements.

Cash flow statement and notes to the cash flow statement

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

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 2004 - A Statement of Recommended Practice.

F. Contact details

Report author: Ken Hunt, MPA.

For more information contact:

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

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