Contact: Jon Pittam, ext 7400

(With the concurrence of the Chairman under Section 100(B)(4)(b) of the Local Government Act 1972, this matter is included on the agenda to enable the Cabinet to approve the final accounts for the County Council for 2001/02 for submission to full Council in September.)

1. Summary

1.1 There is a small overspending on service cash limits of just 0.03%, offset by a saving on other budgets, mainly from interest on additional revenue balances, leading to an overall saving of £2m.

1.2 It is proposed to utilise £1.6m of this for one-off pressures and investment during 2002/03 and to add £0.4m to balances.

1.3 The following decisions are sought:

(i) That adjustments for committee savings and overspendings, as set out in Table 4 of the report, be approved for carry forward to 2002/03.

(ii) That adjustments and variations on other budgets as set out in Table 5 be approved.

(iii) That the use of available resources as set out in Table 7 be approved.

(iv) That contributions to and from earmarked reserves be made as set out in Appendix 4.

(v) That the report on the County Council's treasury management activities as set out in Appendix 5 be approved, including the addition of two sterling money-market funds to the approved list of borrowers.

(vi) That the final accounts for the Hampshire Pension Fund as set out in Appendix 6 be approved.

(vii) That the internal audit assurance statement as set out in Appendix 7 be approved.

(viii) That the final accounts of the County Council for 2001/02 be approved and submitted to the Council.

2. Reason

2.1 The Cabinet needs to review the 2001/02 final accounts, make appropriate decisions about under and over spendings and submit the final accounts to the County Council for approval.

3. Other options considered and rejected

3.1 Not applicable.

4. Conflicts of interest declared by the decision maker or a member or officer consulted

4.1 Not applicable.

5. Dispensation granted by the Standards Committee

5.1 Not applicable.

6. Reason for the matter being dealt with if urgent

6.1 Not applicable.

Approved by: Date:

Councillor T K Thornber

Contact: Jon Pittam, ext 7400

1. Summary

1.1 Service cash-limited spending in 2001/02 is even closer to budget than predicted in the May projected outturn report, with a very small overall overspend of £243,000 (0.03%).

1.2 Despite the pressures during the year, Social Services has achieved a net underspending of £295,000 (0.2%) against its cash limit compared with the last estimate of pressures of some £0.2m.

1.3 An overspend of £0.6m has occurred on Recreation and Heritage mainly from

· the impact of the foot and mouth crisis (£0.2m)

· initial over-optimistic forecasts for the Milestones Museum following an initial surge of visitors when it was opened (£0.3m).

1.4 Commitments have been made to write off any remaining overspend on foot and mouth. It is proposed in addition to:

· carry forward the Milestones deficit to be met from future income, and to carry forward a very small overspend on Policy and Resources

· return 50% of underspendings to Education, Environment and Social Services in accordance with current Council policy, in addition to the planned savings of £651,000 on Education and £642,000 on Environment which have been achieved in full.

1.5 Savings have been achieved on other budgets, as previously projected, mainly from interest on balances. After adjustments for the carry forward on service cash limits a net overall underspending of just over £2m (0.2%) results, which is available for: one-off investment; to meet potential liabilities; or to add generally to balances because of the uncertain outlook for 2003/4.

1.6 Some pressures and a one-off investment utilises £1.6m of the balance. Contingencies and a contribution to the capital reserve are proposed and each will be subject to further specific reports to the relevant Executive Member; justifying the business case for the use of the contingency when appropriate.

	£'000
· Write-off of redundancy costs on Hampshire Training Solutions	55
· Initial contingency to fund specific initiatives to ensure the Council meets the Government's targets for electronic government and to provide an initial contingency and provision for transitional costs for Enterprise Project	200
· Advance funding to market and develop the new visitor education centre at Hillier's Arboretum	200
· Pump priming for sustainable development	25
· Contribution to capital reserve for additional locally financed capital programme	1,100 -------
	1,580 -------

1.7 This leaves about £0.4m to add to balances as a further protection against other external pressures and liabilities in 2002/03 and the uncertain budget outlook for 2003/04.

1.8 Earmarked reserves at 31 March 2002 have increased overall by £5.9m compared with those at 31 March 2001, including the additional £1.1m for the capital reserve. The main increase of £6.1m is on schools' reserves because of the increased amount of direct grants to schools and the use of standards fund over a 17 month period. This has been offset by the use of the fire pensions and invest to save reserves.

1.9 Figures may still be subject to some final changes, for example late notification of supplementary credit approvals (SCA) by Government. The 2001/02 final accounts and the draft statement of accounts will be presented to Cabinet in September and then the full Council meeting.

2. Service cash limits

2.1 There is a small net overspend of £243,000 (0.03%) compared with the previous forecast of about £0.7m (0.1%). Variations in service spending against the cash limits reported in February, May and now are as follows:

Table 1 - 2001/02 estimated outturn	February 2002	May 2002 (monitoring report)	July 2002 outturn
	£'000	£'000	£'000
Education	-651	-35	-60
Environment	-642	-	-35
Policy and Resources	-	200	40
Recreation and Heritage	-	516	593
Social Services	*	*	-295
	--------	--------	--------
	-1,293	681	243
	--------	--------	--------

Note: In February 2002 Education and Environment planned
underspendings - 100% carried forward into 2002/03 budget

* Social Services had identified spending pressures of about £0.5m at the end
of January and £0.2m in May, but planned to keep within the cash limit

2.2 Variations compared with the 2000/01 outturn and from revised cash limits (as explained in Appendix 1) are as follows:

Table 2 - 2001/02 outturn - variations
2000/01 outturn variation		2001/02 cash limit	2001/02 outturn variation
£'000		£'000	£'000		%
-367	Education	545,612	-60		0.01
257	Environment	71,359	-35		0.05
-30	Policy and Resources	32,079	40		0.13
27	Recreation and Heritage	24,558	593		2.41
1,490	Social Services	179,402	-295		0.16
--------		----------	--------		--------
1,377		853,010	243		0.03
--------		----------	--------		--------

2.3 Overall this is another close result, a net overspending of just £243,000 (0.03%), mainly because of one-off factors affecting Recreation and Heritage. Comparative figures for previous years are:

Table 3 - Trends in service spending
	£m	%
1996/97	-6.9	-0.8
1997/98	-1.6	-0.3
1998/99	-0.5	-0.1
1999/00	0.5	0.1
2000/01	1.4	0.2
2001/02	0.2	0.03

Policy on carry-forward of other under and overspendings

2.4 As the County Council has small balances, its policy remains to carry forward all overspendings to the next financial year to maintain financial control. The Council's policy allows for the carry forward of 100% of planned savings identified specifically in terms of budget items and amount, no later than when budgets are set by service committees in January. Education has carried forward £651,000 (mainly for home to school transport and inclusion costs) and Environment £642,000 (for deferred expenditure from 2001/02 on IT systems, office accommodation and planning projects, community transport initiatives, country towns initiative and Dibden Bay, etc).

2.5 The Council's policy on the remaining (unplanned) underspendings is to return 50% to the service and consider the use of the balance for corporate purposes. Given the additional resources allocated to Social Services during both 2001/02 and 2002/03, the commitments to deal with foot and mouth costs centrally, the planned savings already carried forward and the relatively small amounts at stake for Education and Environment, it is recommended that the policy be confirmed that 50% only of remaining underspends be returned to services in 2002/03.

Education (-£60,000)

2.6 The small net underspending of £60,000 (0.01%) is in line with earlier forecasts, with extra commitments on inclusion (special educational needs) offset by underspendings on schools' centrally held budgets and home to school transport.

Environment (-£35,000)

2.7 There is a very small net underspending of £35,000 (0.05%).

Policy and Resources (£40,000)

2.8 Overall there is a net overspending of £40,000 (0.1%), mainly on Personnel and Training from the impact of one-off redundancy costs (£120,000) as part of Hampshire Training Solutions recovery plan, offset by savings elsewhere. The net overspending will be carried forward to be recovered in 2002/03.

Recreation and Heritage (£593,000)

2.9 The net overspending of £593,000 (2.4%) results from:

· an overspend on Milestones of £324,000 following difficulties in forecasting visitor numbers (after the initial increase when the Museum opened, compared with those expected) which led to over optimistic forecasts over the longer period. The overspend will be carried forward to 2002/03 or later years to be met from future income, and Basingstoke and Deane Borough Council are being asked to fund their 50% share of the deficit in the interim

· an overspend of £46,000 on the Museums Service to be carried forward

· a remaining net overspend of £223,000 which relates to costs arising from the foot and mouth outbreak. Allowance was made in the 2001/02 budget for 50% of the projected overspending from the impact of foot and mouth to be met corporately, then estimated at £188,000. In May the Cabinet confirmed that it would wish to write-off any remaining overspending - now £35,000 more than provided, rather than carry this forward to be recovered in 2003/04.

Social Services

2.10 There is now a net underspending of £295,000 (0.2%) against the cash limit. This reverses the overspend of £1.5m in 2000/01 which was written off during 2001/02. Additional costs on children's services and adults with physical or learning difficulties, collectively about £1.6m, have been offset by savings on support services and management costs, due to difficulties in recruitment and slippage in training costs, together with a saving on public liability insurance costs.

2.11 It is recommended that £147,500, the 50% share of this underspending, be carried forward to 2002/03.

Proposed carry forward of under and overspendings

2.12 These can be summarised as follows:

Table 4 - Carry forward of over and underspendings to 2002/03
	£'000	£'000
Overspending by committees		243
100% recovery of overspendings: · Policy and Resources · Recreation and Heritage	-40 -370 ----- -410 -----
50% return of unplanned underspendings: · Education · Environment · Social Services	30 18 148 ----- 196 -----
Adjusted carry forward of overspendings to 2002/03		-214 -----
		29 -----

2.13 Underspendings will be added to the earmarked reserves for designated underspendings for use by the relevant service. Overspendings will be met from balances in 2001/02 and will then be reinstated in 2002/03 by reducing the cash limits for Policy and Resources and Recreation and Heritage.

2.14 Appendix 1 shows the adjustments made to cash limits since the original budget for 2001/02 and Appendix 2 shows the variations from those approved cash limits for each service.

3. Other budgets

3.1 The overall underspend on other budgets is just over £2m compared with the sum provisionally projected of around £1m. A full analysis of the variations on other budgets is contained in Appendix 3.

Hampshire Fire and Rescue Authority (HFRA) levy (-)

3.2 The Authority has brought its outturn level with its budget by making an additional revenue contribution of £164,000 towards additional building repairs work. Underspendings of £194,000 on pensions have been offset by this additional contribution and a small net overspend on other cash limited budgets.

3.3 £0.8m was drawn from the Fire pensions reserve during 2001/02 to meet the costs of the budgeted increase in pensions in that year. £155,000 would normally have been ring-fenced and returned to the County Council (its share of the pensions underspend). This additional spending could now fall in 2002/03 or later years, further reducing the remaining reserve of £1.4m, none of which was projected to be used in 2002/03. The Local Government Bill proposes establishing combined fire authorities as separate precepting authorities rather than as authorities levying on constituent councils as now. Legislation is required for this change and it appears that this may not occur until 2005/06 at the earliest. The retention of a separate reserve for pensions by the County Council will become unnecessary so it is recommended that the balance of the reserve is applied to meet part of the anticipated increase in the levy for 2003/04. The 2003/04 increase is likely to be in excess of the increase in Government support because of the costs of rolling forward the existing Fire budget, including providing for the full year growth arising from the 2002/03 budget.

Business rates (-)

3.4 No significant variations were expected but a late valuation appeal has resulted in a net saving of £176,000.

3.5 The Executive Member, Policy and Resources agreed on 11 July 2002 to extend the approval given in May 2000 to allocate £75,000 per annum to resource revaluation work on non-domestic rates on an "invest to save" basis. It is therefore proposed to apply the saving of £176,000 to the invest to save reserve to repay expenditure incurred in 2001/02 and 2002/03 (a total of £150,000), leaving £26,000 to be allocated towards the cost of rate revaluation during 2003/04. Further application of anticipated savings, which are projected to total £500,000 by 2005, to cover the balance of costs in 2003/04 and the proposed extension to 2004/05 will be required when closing the 2002/03 accounts.

Capital financing charges (-£156,000) and interest on revenue balances
(-£2.2m)

3.6 There has been no significant variation in interest rates which have remained unchanged since November 2001. However as predicted, favourable cash flow trends were likely to result in higher levels of interest on balances than forecast including the additional grants targeted at schools. This has now resulted in £1.8m more interest than budgeted.

3.7 Another pick-up of around £0.3m has resulted from interest on purchase money which was accrued when land was obtained in the past for new roads. Creditors were set up for accrued interest due to landowners but final agreements (some dating back to 1990) have been less than estimated.

3.8 Finally, capital financing charges are £156,000 lower than budgeted.

Winter maintenance (£80,000)

3.9 A small underspend was previously forecast but there was a small overspend of £80,000 in practice.

Waste management contract contingency (£97,000)

3.10 The outturn was £97,000 more than the contingency, much as predicted. This includes the costs of £112,000 relating to the collection and storage of refrigerators since 1 January 2002. As previously reported, this will be carried forward to 2002/03 and met from additional Government grant support allocated in that year but for the period 1 January 2002 to 31 March 2002. Extra funding has not yet been announced by Government for 2002/03.

Insurance (-)

3.11 The contribution to or from the insurance provision is based upon the value of claims paid in the year and the assessed value of outstanding liabilities for the year. As a result of the increase in premiums charged to services of £2m in 2001/02 an additional allocation was thought unlikely to be required and an underspend of £980,000 has resulted.

3.12 However, buildings cover has been extended to cover major storm and flood damage as well as fire in 2002/03 without any increase in premiums. This, together with a major claim on the insurance reserve because of fire damage, needs to be taken into account in reviewing the level of this reserve at the year end. It is therefore proposed to make a contribution of £980,000 to the insurance reserve which will increase its value from £4m to £5m at the end of March 2002, but it is anticipated that the reserve will be reduced to £2.5m as fire claims are settled.

Revenue contributions to capital (-)

3.13 As explained in the accompanying report on 2001/02 capital spending and financing, after allowing for borrowing, grants and contributions, revenue contributions to capital of £22.9m are required to finance capital payments in 2001/02. This is £1.2m lower than the budgeted revenue contributions and this sum can be transferred to the capital reserve to meet capital payments in 2002/03.

Summary - other budgets

3.14 These variations can be summarised as follows:

Table 5 - Summary of variations on other budgets
	£'000
Fire levy	-
Winter maintenance	80
Business rates	-176
Contribution to invest to save reserve	176
Waste contingency	97
Capital financing charges	-156
Interest on revenue balances	-2,164
Revenue contributions to capital	-1,221
Contribution to capital reserve	1,221
Insurance provision	-980
Contribution to insurance fund reserve	980
Other, specific grants, etc	-214
	--------
Net saving	-2,357 --------

Overall summary

3.15 It would be prudent to transfer the Milestones deficit in 2001/02 to a contingency, pending a 50% contribution from Basingstoke and Deane Borough Council and in the likelihood that it will not be recovered fully by extra income during 2002/03 with a subsequent need to carry it forward into 2003/04. Assuming the proposed earmarking of 50% of savings for services and the carry forward of 100% of overspendings, the overall position for 2001/02 can be summarised as follows:

Table 6 - 2001/02 outturn
	£'000	£'000
Service overspending		243
Other budgets		-2,357
Earmarking:
- service underspends	196
- service overspends, Milestones contingency	-86	110
	-------	--------
Potential increase in balances		2,004 --------

4. Additional spending pressures in 2002/03

4.1 There is potentially £2m to add to balances as further protection against the introduction of the new Government formula grant (from the existing standard spending assessment methodology) and the other uncertainties associated with the 2003/04 budget. Some or all of this resource could also be used for one-off investment, or to meet potential liabilities during 2002/03. There are a number of additional spending pressures in 2002/03 which could be met centrally (although provision does not need to be made for all these at this stage of the financial year) and these are set out in the following paragraphs.

4.2 It is suggested that provision should be established for some of these items and additional budget allocations for 2002/03 made after the Executive Member, Policy and Resources has received reports setting out the business case and justification for additional resources in each case.

Additional balances in 2002/03 budget

4.3 The 2002/03 budget included a £3.6m contribution to balances to cover both the uncertain budget outlook for 2003/04 but also a range of external factors and pressures which had been identified at that time, totalling about £10m. These included:

· potential remedial works at landfill sites

· VAT dispute on use of material to line landfill sites

· storage and disposal of refrigerators, pending any additional Government support

· VAT ruling on mileage expenses

· increased pensions costs in 2003/04

· £2.5m financing gap in the capital programme

· bus contract price increases

· foot and mouth consequences.

4.4 In closing the 2001/02 accounts, the only adjustment has been to write off the remaining overspend on foot and mouth for Recreation and Heritage.

Hampshire Training Solutions

4.5 Personnel and Training's cash limit was overspent by £102,000 and this will be carried forward to be recovered in 2002/03. A significant element of this results from the continuing problems in balancing the budget for Hampshire Training Solutions. The deficit for 2001/02 was £170,000, £55,000 more than the cash limit, mainly because of redundancy costs of £120,000. A further £40,000 resulted from unbudgeted commitments incurred with the implementation of phase 2 of the human resources (HR) module of SAP.

4.6 Additional support has previously been given to Hampshire Training Solutions (HTS) by writing off £116,000 in 2000/01 and providing transitional budget relief of £100,000 in 2001/02. In setting aside £100,000 in closing the 2000/01 accounts in July 2001, the Policy and Resources Committee confirmed that any further shortfall in 2001/02 or later years would fall on the overall Personnel and Training cash limit to ensure sound financial control in line with that applied to all the other activities of the Council. However, the Cabinet may still wish to write off the additional cost of £55,000 for redundancies over the cash limit as they are unlikely to be fully recovered in 2002/03, provided that any further redeployment or redundancy costs are met in 2002/03 without HTS exceeding its budget.

Corporate training

4.7 Extra resources may be required later in 2002/03 and 2003/04 to supplement the existing management development programme of £150,000. This would be used to develop leadership training as part of the pay strategy. A business case analysis for the provision of relevant training associated with the development of the pay strategy project will need to be developed. Funding is not proposed at this stage.

E-government

4.8 The Council in common with all councils has received a flat-rate capital grant of £200,000 towards the Government's implementing electronic government (IEG) targets. In addition there has been a successful bid through the Hampshire and Isle of Wight Local Authorities Association which has resulted in funding of £2m over three years split between all the partners. These external resources while welcome, only meet a very small part of the total costs associated with E-government and in meeting the targets required by 2005.

4.9 The Corporate ICT and E-Government Steering Group has identified a need for further funding of around £300,000 in 2002/03. Departments are identifying transactions which are capable of being carried out electronically and these will be analysed by the end of July. The Council has to submit its plans for meeting the IEG targets by the end of September. Additional funding, for the development of electronic forms in particular, may be necessary. Any business case will be presented to the Executive Member, Policy and Resources.

Enterprise Project

4.10 A business case was prepared for the project which is implementing the replacement of most of the Council's obsolete business systems, including financial systems, procurement and payroll/human resources. An invest to save reserve was established in 2000 to provide the capital resources for the implementation of the project over the period 2000 to 2002. It was recognised that further capital resources would be required to complete the later phases of this project, together with the establishment of appropriate revenue contingencies and provision for training and support costs.

4.11 A full report will be made to the Executive Member, Policy and Resources on progress of the project and the next stages. An immediate contingency is however required to meet change control requirements and the additional support costs required for an extended transitional period in managing existing and new systems simultaneously to ensure stability in the Council's financial and other business processes.

4.12 Within the resources available in closing the 2001/02 accounts, an initial contingency of £200,000 is proposed to cover both E-Government and the Enterprise project which will be the priority, but further resources will be required during 2002/03.

Hillier Gardens and Arboretum (£200,000)

4.13 There are start-up costs associated with getting the new Visitor and Education Centre ready for the proposed opening in 2003/04. The business plan for the Centre shows that costs will be covered by increased income from 2004/05, but that there is a requirement for transitional funding to cover initial staff recruitment, marketing and IT costs during 2002/03 and 2003/04. A contingency of £200,000 is proposed and a report was considered by the Executive Member, Policy and Resources on 11 July 2002.

Sustainable development (£25,000)

4.14 A small pump-priming sum was set aside in 2001. It is suggested that an equivalent sum is set aside in 2002 to maintain the momentum on small improvements to encourage more sustainable use of resources throughout the Council's own activities.

Refrigerators and abandoned cars

4.15 In setting the 2002/03 budget, balances were set at a slightly higher level than usual because of a large number of potential uncertainties and pressures. One of these was the cost of storage and disposal of refrigerators to meet EU regulations. The Government should contribute its share of grant support to these costs in 2002/03, but this has still not been forthcoming.

4.16 The estimated cost of refrigerator storage and disposal during 2002/03 is some £1.3m. The Government is expected to contribute £40m towards disposal nationally, which might leave a cost of about £0.4m for the County Council to pick up in 2002/03. When this amount is known, a transfer can be made from balances to a specific contingency for this purpose.

4.17 A further small contingency may be required at the same time to meet additional costs on the disposal of abandoned cars where spending is on a rising trend. This could be exacerbated by the Government's decision to extend until 2007 the principle that the "last owner pays" for the safe disposal of cars under EU regulations.

4.18 A further report will be made on these issues when appropriate.

Social Services income shortfall

4.19 When the 2002/03 budget was prepared it was reported that the funding position was made more difficult by the new Government guidance issued on charging policies for home care and other non-residential services, without any apparent recognition by Government of the consequential resource implications. The guidance prevents the Council from continuing to charge clients between the income support level and a buffer 25% above this. The implications are that charges either have to be increased for remaining clients above this 25% threshold level, or savings have to be found elsewhere to compensate for the loss of income, or any shortfall otherwise absorbed within the passported cash increase allocated for Social Services in 2002/03. The expected loss of income was £1m in 2002/03 and £2m in a full year. The budget assumed that charges would be increased to compensate for this loss.

4.20 The Executive Member, Social Services is considering a number of options for raising charges and it is understood that a report will be made to Cabinet in September. It is apparent that it will be difficult fully to recover the £1m loss in 2001/02. Plans need to be determined to deal with this on a continuing basis as any shortfall will have a full year effect in 2003/04. Representations can continue to be made to Government, but the scope for accommodating any shortfall in the 2003/04 budget will not be known until the amount of the cash increase in new formula grant for Social Services is announced in late November 2002.

4.21 £1m over the passported SSA cash increase to meet demand pressures and a contingency of £2.5m to meet price increases in the social care market were provided in the 2002/03 budget. It is assumed that the Cabinet will continue to expect Social Services to absorb the cost of not fully recovering its income during 2002/03, but the position can be reviewed later in the year when final decisions on charging have been made, and other pressures on the cash limit have been determined.

Capital reserve (£1.1m)

4.22 An additional revenue contribution of £1.1m to the capital reserve has been suggested to increase the locally financed capital programme. This will provide for extra one-off capital investment against new priorities in line with the Leader's 2002/03 budget speech to enhance the flexibility of the locally determined capital programme.

Proposals

4.23 These additional proposals can be summarised as follows:

Table 7 - Proposed use of underspending
	£'000
Policy and Resources
· Hampshire Training Solutions - write off of redundancies	55
· E-Government and Enterprise Project - initial contingency	200
· Hillier Gardens and Arboretum	200
· Sustainable development	25
· Contribution to capital reserve	1,100 -------- 1,580 -------

5. Balances

5.1 If just under £1.6m of the underspending is used as set out in table 7, this leaves just over £0.4m to be added to general balances.

5.2 The impact on balances can be summarised as follows:

Table 8 - Balances
	£m
Estimated balances at 31 March 2002	6.2
Addition to balances on closing 2001/02 accounts	0.8
Additional transfer from Fire earmarked pensions reserve (see para 3.3)	1.4
	-------
Balances at 31 March 2002	8.4
Addition to balances in 2002/03 budget	3.5
Proposed recovery of overspendings, write-offs and contingencies in 2002/03	-0.4
	-------
Projected balances at 31 March 2003	11.5
Anticipated use by end of 2003/04	5.4
	--------
Projected balances at 31 March 2004	6.1
	--------

5.3 The minimum target level of balances is £6.1m (0.6% of budget). There remains £4m in balances which are available to support the anticipated difficulties in 2003/04 (when formula grant is introduced) and the potential liabilities of about £10m that were identified when the 2002/03 budget was prepared. In addition £1.4m will be available to meet anticipated increases in the Fire levy in 2003/04.

6. Earmarked reserves

6.1 Earmarked reserves have increased to £68.8m at 31 March 2002, which is £11.6m more than assumed when the 2001/02 budget was reviewed but £5.9m more than the reserves at the start of the year. These reserves are set aside for specific purposes and the main reason for the net increase is the rise in schools' reserves of £6.1m. Schools' reserves now stand at £31m, 6.9% of delegated budgets and have increased because of additional Government grants and the use of Standards Fund over 17 months rather than 12 months. The other significant changes during 2001/02 were the use of most of the £4.1m invest to save reserve, partly offset by the increase in the capital reserve.

6.2 If the proposals in this report are accepted, the Fire reserve will be transferred to general balances, the insurance reserve will increase by £1m and the capital reserve by a further £1.1m.

6.3 Variations in earmarked reserves are summarised below:

Table 9 - Earmarked reserves at 31 March
	2001 £m	2002 £m
Schools	24.9	31.0
Capital	19.5	23.7
Service designated underspendings	1.5	2.3
Fire designated underspendings	2.2	-
Invest to save	4.1	0.1
Insurance	4.0	5.0
On-street parking	4.6	4.6
Trading accounts	1.7	1.6
Other	0.4	0.5
	------	------
	62.9	68.8
	------	------

6.4 Other changes in earmarked reserves were explained during 2001/02 or factored into the 2002/03 budget and details are set out in Appendix 4.

7. Treasury management

7.1 The County Council's treasury management activities during 2001/02 must be approved by the Cabinet. Details are set out in Appendix 5.

8. Pension Fund accounts

8.1 The separate accounts for the Hampshire Pension Fund are also submitted for approval as Appendix 6.

9. County Council Assurance Statement

9.1 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 account 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.

9.2 It is proposed to introduce a statement of internal financial control in 2001/02's statement of account. 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 7 which is submitted for approval contains the statement relating to the County Council as a whole and concludes that there is an effective framework of control in place.

Recommendation

1. That adjustments for committee savings and overspendings, as set out in Table 4 of the report, be approved for carry forward to 2002/03.

2. That adjustments and variations on other budgets as set out in Table 5 be approved.

3. That the use of available resources as set out in Table 7 be approved.

4. That contributions to and from earmarked reserves be made as set out in Appendix 4.

5. That the report on the County Council's treasury management activities as set out in Appendix 5 be approved, including the addition of two sterling money-market funds to the approved list of borrowers.

6. That the final accounts for the Hampshire Pension Fund as set out in Appendix 6 be approved.

7. That the internal audit assurance statement as set out in Appendix 7 be approved.

8. That the final accounts of the County Council for 2001/02 be approved and submitted to the Council.

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:

Published works.

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

TITLE FILE

2001/02 Final Accounts file

Summaries of Actual Spending 2001/02

Appendix 7

Hampshire County Council

Assurance statement for the year ended 31 March 2002

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 for 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 provides 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 The County Council has an effective framework of control which provides reasonable assurance regarding the effective, efficient and economic achievement of the County Council's objectives.

Ejner Knudsen

Chief Internal Auditor

County Treasurer's Department

Hampshire County Council