Archived decisions

Contact: Trevor Mansley Education Finance Unit (01962 847545)

1 Summary

1.1 This report summarises the expenditure and income of the education service for the year ended 31 March 2002.

1.2 It recommends that the final accounts for 2001/02 be approved and that £30,000 representing the Service's 50% share of the underspending be carried forward and added to the 2002/03 budget.

1.3 The education revenue expenditure, which is subject to a cash limit, shows an overall net under spending of £60,000 against the 2001/02 revenue cash limit of £545.612 million.

1.4 The net under spending is in line with earlier forecasts to the Education Policy Review Committee. The variations from the revised budget are summarised below and explained later.

	£000
Home to school transport (para 2.5)	-89
Inclusion (paras 2.6 to 2.10)	+340
Schools centrally-held budgets (para 2.11)	-155
Services to schools and support (para 2.12)	-59
Other (para 2.13)	-97
	-60

1.5 When approving the 2002/03 budget, the Cabinet allowed planned savings to be carried forward and included in services' budgets. For education a total of £651,000 was approved to be carried forward in this way. All of these savings were achieved or exceeded.

1.6 The County Council's policy is that 50% of any underspending should be added to the Service's budget in the following year. The Cabinet decides what use should be made of the other 50%. It is proposed, at this stage, to put the additional sum (£30,000) into the education general contingency and to review the position as part of budget monitoring.

1.7 Business and trading units with Financial Regulation 20 status are able to retain planned surpluses for purposes approved in their business plans or to take them into account in setting future budget strategies. The trading activities of the education business units resulting in an overall surplus of £333,000 for 2001/02.

1.8 During 2001/02 the overall level of school reserves under LMS increased in all sectors by a total of £6.1 million. (This includes, for the first time, £1.2 million of devolved Standards Fund carried forward). Primary balances increased by £3.4 million, secondary by £2.3 million and special schools by £0.4 million. They now stand at £31.0 million, which will be retained by the schools, and represents 6.9% of schools' budgets. 2001/02 saw a continuation and enhancement of direct allocations by the Government to schools totalling £14.7 million. In addition, devolved Standards Fund allocations to schools which can be used over a seventeen month period, amounted to some £32.0 million. These two elements have been the major factors in the significant increase in school balances.

1.9 On capital, schemes to the value of £56.7 million were started in the year and schemes to the value of £4.1 million have been approved by the Cabinet to be carried forward to start in 2002/03. In total, this amounts to £632,000 less than the approved cash limit for the capital programme.

1.10 Further details on the main differences between the actual revenue expenditure and the revised budget are given in Part A below whilst details of revenue expenditure, which is not included in the cash limit, are contained in the appendices at the end of the report. The results of the trading units are reported in Part B. Part C deals with capital. Part D explains the basis of the financial control assurance statement included for the first time this year as appendix 8.

2 Part A - Revenue Expenditure under the Service's Control

2.1 Revenue expenditure under the Service's direct control is subject to a cash limit. For 2001/02 the adjusted amount was £545.612 million as set out in appendix 1.

2.2 The final outturn was £545.552 million, which was £60,000 less than the cash limit. The overall position is analysed in appendices 2 and 3, and appendix 4 provides a more detailed statement of variations from the revised budget.

2.3 A comparison of actual expenditure with revised budgets over recent years is as follows:

2.4 The volatile areas of expenditure on schools are all in the non-delegated budget. The most significant variations are explained in the following paragraphs.

Home to School Transport -£89,000

2.5 The revised budget for home to school transport was set at £17.596 million which required £166,000 of the specific contingency. In the event the final outturn was £89,000 less than the revised budget, confirming the earlier report that expenditure would be contained within the budgetary provision for 2001/02. This under spending occurred in two main areas. First, an under spending of £28,000 on escorts reflecting continuing recruitment difficulties across the County. The remaining saving of £61,000 relates to contracts where the month-on-month cost increases since the revised budget was finalised have been significantly lower than anticipated. Work on the `spend to save' initiatives is progressing and continues to secure net savings which for 2001/02 amounted to £198,000, in line with the budget expectation.

Inclusion (SEN) +£340,000

2.6 Planning and controlling the expenditure on demand-led budgets for pupils with special educational needs continues to be a challenging management task. The outturn for the various non-delegated budgets in 2001/02 shows a net overspend of £340,000, made up as follows:

	£'000
Out-county placements	-80
Inter-authority special school recoupment	+193
Statements in mainstream/additional resources in special schools	+309
Education otherwise than at school	-82
	+340

2.7 The budget for out-county special (independent and non-maintained) school placements was increased by £371,000 to £6.9 million at revised estimate stage. The cost of these expensive placements has continued to rise faster than inflation but strict control and the fact that a number of high cost placements have moved out of Hampshire has resulted in this budget underspend of £80,000 (1.2%).

2.8 In the case of inter-authority recoupment for special education, there has been a net overspend of £193,000. There has been an increase in costs and in the number of Hampshire pupils attending other local authority establishments (OLEAs), resulting in additional expenditure of £251,000 on a revised budget of £2.1 million. This has, however, been partially offset by additional OLEA pupils using special schools in Hampshire, generating extra income of £58,000 on a revised budget of £1.7 million.

2.9 As highlighted in the last budget monitoring report, despite intensive management action, and largely as a result of the impact arising from the restructuring of the Learning Support Assistant salary scales, increased staffing costs have been incurred in support of pupils with a statement of special education needs in mainstream and special schools. The final outturn in this area for 2001/02 reflects a net overspending of £309,000 against a revised budget of £4.3 million.

2.10 The level of spending on the provision of education otherwise than at school (EOTAS) continues to be volatile and difficult to predict because it is subject to individual decisions by schools and exclusions appeal panels. The final outturn for 2001/02 shows an overall underspending of £82,000 against a revised budget of £4.6 million resulting, mainly, from delays and difficulties in adapting new accommodation for EOTAS pupils.

Other School Centrally-held Budgets - £155,000

2.11 In total, budgets managed centrally on behalf of schools, excluding elements of special education needs and home to school transport dealt with above, show a net underspending of £155,000. The major contributors to the overall position are summarised below, with the balance being made up of numerous smaller variations across a number of headings.

Premature Retirements £000

Expenditure on premature retirements in schools was £127,000

below the revised budget of £2.4 million. There were fewer new

cases, largely as a result of successful redeployments -127

Teachers' Maternity Cover

As forecast in the last monitoring report, the final outturn in

respect of Teachers' maternity cover showed an overspending

of £110,00 against a revised budget of £0.7 million +110

Union and Public Duties/Staff Suspended from Duty

Trade unions sought funding for fewer roles in 2001/02 resulting in an underspending of £59,000 on the union and public duties

budget of £300,000, whilst the early resolution of suspended

staff issues produced a further saving of £27,000 against a revised budget of £82,000 -86

Services to Schools and Support -£59,000

2.12 The majority of the support services budgets have been managed within the cash limit despite the continuing impact of numerous government initiatives. This tight control has resulted in a relatively slight overall underspending of £59,000 against a revised budget of £20.3 million, mainly as a result of staff turnover.

Other Variations -£97,000

2.13 The other variations produced a further net underspending of £97,000 of which the following were the (three) most significant:

(a) School Catering £000

As a result of a decline in the number of free meals, school catering shows a net underspending of £19,000 against a revised budget of £3.4 million -19

(b) School Crossing Patrols

Continuing difficulties in the recruitment of school crossing patrols has resulted in an underspending of £39,000 against

the revised budget of £0.8 million. -39

(c) Nursery Grants for 4-Year-Olds

Grants paid to private and voluntary providers of nursery education for 4-year-olds were £49,000 less than the revised budget of £4.8 million -49

3 Local Management of Schools

3.1 Any balance of budget allocation held by schools at the year end, whether surplus or deficit, must be carried forward into the next financial year. At 1 April 2001 the schools in Hampshire had accumulated reserves of £24.869 million. By the end of the 2001/02 financial year schools' balances had increased in all sectors, in total, by £6,085,000 (nursery £17,000, primary £3,380,000, secondary £2,304,000, special £384,000). The cumulative reserve balance at 31 March 2002 amounts to £30.953 million as shown in the table below:

3.2 The above figures reflect not only the significant additional direct funding made available to schools by the government during 2001/02 but also the fact that Standards Fund devolved to schools which remained unused at 31 March 2002 was, for the first time, able to be carried forward for use in the summer term. This latest new arrangement has effectively increased school balances by £1,249,000 (primary £565,000, secondary £633,000, special £51,000) The position has been further exacerbated in 2001/02 by schools' inability to recruit additional teachers, the essential element in improving standards. These inter-related factors have tended to enhance school balances.

3.3 Despite the extra funding made available there were still 31 (6%) schools in deficit at 31 March 2002 compared with 43 in March 2001. There is a reduction in the number of secondary schools in deficit from 16 to 12 after taking account of retrospective number on roll adjustments. Recovery plans have been, or are being agreed. There are 18 primary (down from 26) and 1 special school in similar positions. Of the schools with large balances, many have capital schemes in the pipeline towards which contributions will be made. There are just two nursery schools so care should be taken in interpreting these figures. The annual report analysing school balances will be presented later in the year.

4 Part B - Trading Units

4.1 The trading activities of the education business units during 2001/02 have resulted in an overall in-year surplus of £333,000, compared with a planned deficit of £120,000, on gross budgets of £21.0 million.

4.2 All business units have either achieved, or in most cases, improved on their original plans. In particular, the results of the new combined Education ICT Unit and HIAS (including the Professional Development and Training Service) have significantly exceeded their earlier forecasts.

4.3 As a result of the 2001/02 outturn, business units' cumulative surplus as at 31 March 2002 amounts to £1,275,000. Current business plans earmark significant parts of this for service developments. The summarised trading accounts of the individual business units and a comparison with the revised budget are shown at appendix 5.

5 Part C - Capital Expenditure 2001/02

5.1 The revised cash limit and outturn for 2001/02 are set out below with details of the individual schemes started in the year appearing in appendix 7.

5.2 The total starts limit for 2001/02 amounted to £61.5 million and schemes to the value of £56.7 million were started in the year. The programme included the new secondary school at John Hanson, Andover and the rebuilding of a special school at Lankhills, Winchester together with major extensions and alterations at a number of other schools. The programme also utilised funds provided by the Prices Trust as well as government initiatives such as New Deal for Schools and Devolved Formula Capital Allocations.

5.3 In addition to resources of £3.532 million deferred in November 2001, a further £4.157 million worth of schemes could not be started in 2001/02.

5.4 The combined value of the schemes started and those to be carried forward to start in 2001/02 is £60.854 million, which is £632,000 less than the cash limit. This amount comprises an, as yet, unutilised portion of the developers' contributions amounting to £120,000 and an undercommitment of £101,000 against the furniture and equipment allocation. These items and the resultant overall undercommitment of £411,000 will be addressed when the 2002/03 capital programme is reviewed later in the year.

5.5 Devolved capital allocations to schools, totalling some £5.6 million, were brought forward from 2000/01. Allocations during 2001/02 amounted to £6.2 million. Expenditure during the year amounted to £4.4 million. The unexpended balance of £7.4 million has been carried forward to 2002/03. Devolved capital has been made available to schools as a three year programme, with carry forward allowed to meet asset management plan priorities.

6 Part D - Departmental Assurance Statement

6.1 The Code of Practice on Local Authority Accounting with which the County Council's statement of accounts complies, introduces a new requirement from 2002/03 for the inclusion in the statement of accounts of an internal control statement, covering as a minimum the system of internal financial control. The statement sets out the framework within which financial control is managed and reviewed, including the arrangement for internal audit and reports on any identified weaknesses and the actions undertaken to rectify these.

6.2 It is proposed to introduce a statement of internal financial control in the 2001/02 statement of accounts. As part of the process of enabling the County Treasurer to form a view on the effectiveness of internal financial control the Chief Internal Auditor has produced an independent assurance statement on the adequacy and effectiveness of the system of internal control in each department. Appendix 8 contains the statement relating to the education service and concludes that the Education Department has an effective framework of control which provides reasonable assurance regarding the effective, efficient and economic achievement of the department's objectives.

Recommendations

That:

1 The final accounts for 2001/02 be approved.

2 The Cabinet be requested to approve the carry forward of £30,000 representing the Education Service's 50% share of the net underspending for 2001/02.

3 The departmental assurance statement as set out in Appendix 8 be approved.

Section 100 D - Local Government Act 1972 - background papers

The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.

NB the list excludes:

1. Published works.

2. Documents which disclose exempt or confidential information as defined in the Act.

TITLE FILE

None

Summaries of Actual Spending 2001/02

Appendix Contents

1 Construction of the cash limit

2 Summary of revenue expenditure

3 Analysis of cash limited revenue expenditure over services

4 Major variations in cash limited expenditure

5 Trading Units - summarised accounts 2001/02

6 Revenue expenditure 2001/02 not included in the cash limit

7 Capital expenditure 2001/02

8 Departmental assurance statement

Appendix 1

Education Service

Revenue Expenditure 2001/02

Construction of Cash Limit

1. Revenue expenditure under the service's direct control was subject to a cash limit set by the Cabinet of £554.252 million. Business rates are an exception because the level of business rates on the County Council's own properties could not be determined precisely when the revenue budget was set. As a result of revaluations actual expenditure on rates is £28,000 lower than was provided for in the revised budget and the cash limit has been adjusted accordingly. (The LM scheme provides that schools are funded for the actual costs of rates, so schools' delegated budgets were adjusted and there is no net cost or benefit to them).

2. Further adjustments to the cash limit are required. A net reduction of £572,000 is necessary to reflect the fact that expenditure supported by specific government grants was, overall, less than expected. In addition, as unused Standards Fund can now be carried forward to be spent by the end of the summer term the equivalent County Council contribution (for centrally managed schemes) amounting to £777,000 also needs to be carried forward. There has also been a small supplementary inflation allocation of £23,000 to cover additional pay costs reflected in charges from IT Services.

3. Finally, adjustments are required to delegated budgets in respect of self-funded capital schemes (-£1,201,000) and net transfers to schools' reserves reflecting actual spending (-£6,085,000)

4. The adjustments referred to above are incorporated in the table below which summarises the position for the service in the year.

Appendix 1

Appendix 2

Education Service

Final Accounts 2001/02

Summary of Revenue Expenditure

* Net of funds delegated to schools.

Appendix 3

Education Service

Revenue Expenditure 2001/02

Analysis of Cash Limited Expenditure over Services

Appendix 4

Education Service

Revenue Expenditure 2001/02

Major variations in cash limited expenditure - underspending £60,000

Appendix 6

Education Service

Revenue Expenditure 2001/02 not included in the Cash Limit

1. Mandatory Awards (£3,209,000)

The mandatory awards outturn for 2001/02 totals £3,209,000. Apart from the non -recovery of any overpayments, mandatory awards are 100% grant aided, so the County Council is not affected by any over or underspendings.

2. Capital charges (£115,398,000)

Capital charges are made to services for capital assets used in the provision of services. The actual charges are £638,000 more than the budget. This will have no direct effect upon the overall budget requirements of the County Council as the capital charges are replaced by actual financing costs in the central asset management revenue account.

3. Central support services, repairs and maintenance of buildings (£6,831,000)

These items are within the control of Policy and Resources. Support services are apportioned to services in accordance with the level of services provided and office accommodation occupied. Control of the budget for repairs and maintenance of buildings is by the nature of work and where it is most required rather than by service.

Appendix 7

Education Service

Capital Programme 2001/02

Appendix 8

Education Service

Departmental Assurance Statement

1. Introduction

1.1 The Accounts and Audit Regulation 1996 require the County Treasurer to maintain an adequate and effective internal audit.

1.2 The County Treasurer employs an in-house internal audit section to provide an independent and objective appraisal function of reviewing the system of internal control. It examines, evaluates and reports to Chief Officers and the County Treasurer on the adequacy of the internal control as a contribution to the proper economic, efficient and effective use of resources.

1.3 From 2002/03 The Code of Practice on Local Authority Accounting in the UK requires that the Chief Internal Auditor providers an independent opinion on the adequacy and effectiveness of the system of internal financial control operating in the County Council. The County Treasurer has sought to develop this for 2001/02 in preparation for the full requirement next year. To enable him to do this, an independent opinion on the adequacy and effectiveness of the system of internal control has been prepared for each department.

2 Responsibilities

2.1 It is a management responsibility to develop and maintain the internal control framework, and to ensure that resources are properly applied in the manner and on the activities intended. It is the responsibility of Internal Audit to form an independent opinion, based on reviews during the year, on the adequacy and effectiveness of the system of internal control.

3 Basis of opinion

3.1 The strategic and annual internal audit plans were prepared by the Chief Internal Auditor to take account of the characteristics and relative risks of the activities involved and were approved by the County Treasurer.

3.2 The internal audit plan has been delivered in accordance with the Auditing Practices Board's Guideline number 308, `Guidance for Internal Auditors'.

3.3 Work has been planned and performed so as to obtain all the information and explanations which were considered necessary in order to provide sufficient evidence to give reasonable assurance that the internal control system is operating effectively. However, this assurance can never be absolute. The most that the internal audit service can do is to provide reasonable assurance that there are no major weaknesses in the system of control.

4 Opinion

4.1 In our opinion the Education Department has an effective framework of control which provides reasonable assurance regarding the effective, efficient and economic achievement of the department's objectives.

Chief Internal Auditor

County Treasurer's Department

Hampshire County Council