Contact: Ejner Knudsen, ext 7403, e-mail: [email protected]

1 Summary

1.1 The following decisions are sought:

i) That the final accounts for 2003/04 be approved.

ii) That 50% (£18,000) of the revenue underspending in 2003/04 be carried forward and added to the 2004/05 budget.

iii) That the departmental assurance statement of the Chief Internal Auditor be noted.

1 Reason

1.1 To approve the final accounts for the Environment service for 2003/04 and agree the carry forward of underspendings to 2004/05.

1.2 Decisions on the Environment service's revenue expenditure and capital programme's impact on the financial resources available to this service to contribute to the following corporate aims:

i) Maximising life opportunities

ii) Stewardship of the environment

iii) Achieving economic prosperity

iv) Building strong and safe communities

v) Improving services

vi) Developing councillors and staff.

2 Other options considered and rejected - not applicable.

3 Conflicts of interest declared by the decision maker or a member or officer consulted - not applicable.

4 Dispensation granted by the Standards Committee - not applicable.

5 Reasons(s) for the matter being dealt with if urgent - not applicable.

Approved by: Date:

............................................. ............................

Councillor K B Estlin

Contact: Ejner Knudsen, ext 7403, e-mail: [email protected]

1 Summary

1.1 This report summarises the Environment service's spending in 2003/04.

1.2 It recommends that the final accounts for 2003/04 be approved and that the appropriate share of the underspending be carried forward to 2004/05 based on current policy and aided by the use of other resources to meet new pressures in that year.

1.3 Decisions on the Environment service's revenue, expenditure and capital programmes impact on the financial resources available to this service to contribute to the following corporate strategy aims:

i) maximising life opportunities

ii) stewardship of the environment

iii) achieving economic prosperity

iv) building strong and safe communities

v) improving services

vi) developing councillors and staff.

1.4 Overall there is a net underspending of £36,000 (0.04%) against the 2003/04 adjusted revenue cash limit of £83m. This represents a small variation on the position reported in April which assumed that the revenue budget would be fully spent.

1.5 The major variations are:

	£'000
Highways maintenance	+40
School crossing patrols	+16
Management and support services	-44
Waste management non-contract services	-32
Other minor variations	-16
	-36

1.6 The County Council's policy is to carry forward into the following year 100% of net overspendings and 50% of net unplanned underspendings. Cabinet decides what use should be made of the other 50% underspending. On this basis £18,000 will be added to Environment service's cash limit for 2004/05. It is proposed that this be allocated to the management and support services' budget, to assist in meeting likely pressures on this division of service during 2004/05. This recommended carry forward of £18,000 to the 2004/05 budget would be in addition to planned savings of £100,000 for IT and e-Government developments and £311,000 for the waste management budget for the disposal of abandoned vehicles, which have already been carried forward and were included in the 2004/05 budget when it was prepared in January.

1.7 In considering the final outturn position compared to the service's cash limit, variations in expenditure on highways winter maintenance (salting and snow clearance) are excluded. This is because special budgetary arrangements apply whereby any underspendings or overspendings against the winter maintenance budget provision, which is set at a level equivalent to average expenditure during the past four years, are reflected against the County Council's central balances.

1.8 During 2003/04 winter maintenance expenditure totalled £3,113,000, which was £1,261,000 above the revised budget provision. This higher outturn figure included additional expenditure of £980,000 incurred in extensively treating the network before, during and after the two periods of snowfall on 28 January 2004 and 26 February 2004. This required 24 hour shift working for extended periods by the County Council's maintenance contractor. In addition, county wide salting operations were carried out on 71 days during the winter period, which was also significantly in excess of the average of 45 days salting experienced during the past few winters.

1.9 The final outturn on highways winter maintenance was somewhat higher than the initial assessment made in the last budget monitoring report which indicated excess expenditure against the budget provision of approximately £800,000. Although after each snowfall event the cost impact was reported, this was only a best estimate at the time based on an assessment of the number of salting runs and the likely costs of undertaking other emergency works. However, it was only possible to firm up these figures when the invoices from the term maintenance contractor were received.

1.10 On capital, schemes to the value of £65.5m were started in the year, including an allowance of £0.7m to cover additional costs of schemes started in previous years. The capital programme was regularly reviewed and updated during the course of the year, ensuring that there was no requirement to carry forward any schemes not started in the year to 2004/05.

1.11 In total, the value of schemes started during the year matched the overall level of resources of £65.5m. Additionally, capital schemes to the value of £6.3m, to be externally funded from developers and other contributions, were also started during the year.

1.12 Further details on the main differences between the actual revenue expenditure and the revised budget for cash limited expenditure are given in Part A below, while detail of revenue expenditure which are not included in the cash limit are contained in the appendices at the end of the report. Part B deals with capital schemes. Part C explains the basis of the control assurance statement included as Appendix 8. Part D covers the requirement to report on the service's partnership accounts.

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 2003/04 the adjusted amount was £83m as set out in Appendix 1.

2.2 The final outturn was £36,000 less than the cash limit. The overall position is analysed in Appendices 2 and 3. Appendix 4 includes a more detailed statement of variations from the revised budget.

2.3 The underspending during 2003/04 compares with the outturns achieved in recent years for the Environment services (which were formerly under the control of the Planning and Transportation Committee and Policy and resources Committee prior to 2001/02) as set out in the following table.

	Variations from Revised Budget
	£'000	%
2000/01	251	0.3
2001/02	-35	-
2002/03	256	0.3
2003/04	-36	-

The more significant elements within the total net underspending are explained in the following paragraphs.

Highways and transportation services

Highways maintenance.

2.4 Expenditure on highways maintenance (excluding winter maintenance salting and snow clearance - see paragraphs 1.7 to 1.9 above) totalled £18,191.000. This represents excess expenditure of £40,000 (+0.2%) compared to the final approved cash limit for this division of service which, as mentioned in the final 2003/04 budget monitoring report, included an additional sum of £138,000 transferred from excess savings on management and support services. The overspending of £40,000 was mainly due to higher expenditure incurred by the highways units on routine maintenance of carriageways, together with additional footways running repairs, being partially offset by lower expenditure on minor maintenance works to bridges. Further analysis of the outturn on highways maintenance, in comparison to the final approved works programme is shown in Appendix 5.

School crossing patrols

2.5 Total expenditure of £950,000 was incurred during the year on the school crossing patrol service. The overall outturn position includes an underspending of £18,000 on the employment of school crossing patrol officers, reflecting continuing difficulties with the recruitment and retention of these staff. As in the previous year, the savings from staff vacancies were redirected to enhance the level of expenditure on the ongoing programme of infrastructure maintenance and improvements at the busiest and most needy locations of school crossing patrol sites. The final outturn figure reflects a small overspending of £16,000 (+1.7%) against the budget, as a number of the site enhancements were carried out by the County Council's term maintenance contractor earlier than had been anticipated.

Highways management and support services

2.6 Expenditure during 2003/04 on highways management and support services totalled £16,663,000 an underspending of £44,000 (-0.2%) against the revised budget. A number of variations contributed towards this outturn position including higher than anticipated expenditure on agency staff (+£27,000), staff advertising (+£30,000), telecommunications (+£68,000) and legal expenses (+£23,000). These were more than offset by additional income from road space charges (-£38,000), savings on consultants (-£132,000), printing and stationery (-£20,000) and other minor variations (-£2,000).

2.7 Expenditure during the year included £150,000 growth monies allocated in the 2003/04 budget to the Hampshire Natural Resources Initiative (HNRI). This enabled a small core team to be established to develop and implement the NRI vision. It also provided pump-priming support to research and development activities and to a number of demonstration projects, to help put NRI principals into practice. A key outcome has been the development of the philosophy for the Materials Resources Strategy, for which the NRI team are leading the societal change aspects.

Planning and development services

2.8 Expenditure during 2003/04 on the planning and development services totalled £3,397,000, reflecting the allocation to this division of services of staff and other costs from within the overall Environment departmental budget. Although the overall outturn was just £1,000 in excess of the 2003/04 revised budget, the apportionment of expenditure to the individual services within the planning and development heading shows higher expenditure on planning policy work, with largely offsetting reductions on the cost of environmental initiatives and economic development. These variations largely relate to a revised basis of cost apportionment, based on up-to-date staff time recording information, which has been used in the assessment of 2003/04 actual expenditure.

Public transport

2.9 Expenditure during 2003/04 on public transport bus subsides and other support amounted to £5,404,000, representing a small underspending of £2,000 (­0.04%) compared to the revised budget. The 2003/04 budget included the additional sum of £500,000 made available by the Cabinet to cover higher costs of bus subsidies during the year from service re-tendering, inflation and other changes to the supported network.

2.10 Without this additional growth there would have been an equivalent shortfall between the cost of maintaining existing bus services and the available base budget provision. The main outcome of the additional growth has therefore been to avoid making reductions in the supported bus network. This, in turn, will help to maintain progress towards the County Council's Public Service Agreement target for an increase of 10% in usage of the bus network by the year 2010, from year 2000 levels.

2.11 During 2003/04, the Government made available rural bus subsidy grant of £1,335,000 in support of the provision of rural bus services, which was fully consumed in supporting these services during the year.

Waste management

Contract related services

2.12 The final 2003/04 cash limit for the waste management contract related services was £34,009,000. This figure includes the final quarter's allocation of £1,189,000 from the central waste management contingency of £3,700,000, which was included in the 2003/04 budget to cover inescapable cost increases arising from contract prices increases, higher waste volumes, increases in landfill tax and other waste contract cost pressures including contractual claims. Overall allocations from the waste management contingency during 2003/04 totalled £2,912,000, producing an outturn saving of £788,000 against this central provision. This is somewhat lower than the estimated saving of approximately £1.3m mentioned in the most recent budget monitoring report, reflecting the inclusion in the 2003/04 final accounts of prudent provision in respect of unresolved contract claims.

2.13 Nevertheless, there were significant savings from lower than anticipated waste volumes during 2003/04, compared with the assumption built into the calculation of the central contingency sum. As an illustration, residual household waste volumes during the year were 2.7% lower than during 2002/03, compared to the assumption in the budget that volumes would increase by 2.5%. Similarly, disposal tonnage levels from household waste recycling centres also decreased during 2003/04 by 5.2%, against budgeted growth of 4.4%, although this was partially due to increased levels of recycling.

Fridges

2.14 Additional funding of £700,000 was included in the construction of the 2003/04 waste management contingency to meet the anticipated cost of storage and disposal of fridges during the year. A call of £745,000 was made against the contingency to cover actual expenditure on this activity during 2003/04.

2.15 The main outcome was to ensure that the County Council continued to meet its statutory obligations under the ozone depleting substances regulations. In addition, the operation to capture CFCs from redundant fridges results in 90% of each fridge being recycled, thus contributing to an increase in the County Council's annual recycling rate.

Non-contract related services

2.16 Expenditure during 2003/04 on the other waste management services was contained within the revised budget of £2,555,000. The final outturn shows an underspending of £32,000 (-1.3%) reflecting lower than estimated final claims from district councils in respect of costs of abandoned vehicles disposal.

Carry forward to 2003/04 of underspending

2.17 As mentioned in paragraph 1.6, it is the County Council's policy that 50% of any underspendings should be added to the service's budget in the following year, with the Cabinet deciding what use should be made of the other 50%. On this basis the Environment service's share of the underspending would be £18,000 and it is proposed that this sum be added to the 2004/05 management and support services budget. As in 2003/04, there will be a need for savings, currently assessed at £634,000, to be achieved on the management and support services budget from staff turnover and other housekeeping efficiencies. It is also likely that further cost pressures may emerge from the forthcoming review of office accommodation in Ashburton Court.

3 Part B - Capital expenditure 2003/04

Capital schemes started in 2003/04

3.1 The outturn for 2003/04 is set out below with details of the total resources and the individual schemes started in the year appearing in Appendix 7.

	Locally resourced programme	Supported by Government approvals	Total
	£'000	£'000	£'000
Total resources	15,982	49,472	65,454
Value of schemes started in 2003/04	15,982	49,472	65,454
Value of schemes carried forward to 2004/05	-	-	-
Over/under commitment against the cash limit	-	-	-

3.2 The value of schemes started during 2003/04 amounted to £65.5m which was equal to the value of the starts programme limit for the year. Allowance of £0.7m was made within the 2003/04 programme for additional costs of schemes started in earlier years.

3.3 Schemes started within the locally County Council funded programme exactly matched the level of capital resources of £16.0m. Additionally, the Government accepted the A3 Bus Priority Corridor as a major scheme during the year, providing capital resources of £25.1m over the life of the project. The balance of the starts programme, £24.4m, was supported by resources made available from Government borrowing approvals.

3.4 In addition, schemes to the value of £6.3m, to be externally funded from developers' and other external contributions, were started during the year.

3.5 The capital programme was regularly reviewed and updated during the year and a number of schemes in the original 2003/04 programme were carried forward and included in the new capital programme for 2004/05 to 2007/08 when this was prepared in January 2004. All schemes in the amended 2003/04 programme were started before the end of the year meaning that there was no requirement to carry forward any schemes to the 2004/05 programme.

Capital payments 2003/04

3.6 Total capital payments during 2003/04 amounted to £59.5m of which £5.1m is to be funded from external sources including contributions from developers, district and parish councils, and Government and European grants. Payments on those capital programme schemes funded from local County Council resources totalled £21.3m.

3.7 The balance of the expenditure, £33.1m, is to be funded from credit approvals provided by the Government. This includes spending of £14.2m on integrated transport projects, £13.4m on capitalised highways maintenance and £3.6m on the A3 Bus Priority Corridor.

3.8 The following table summarises capital payments during 2003/04 and the main sources of funding:

Capital payments	£'000
Major transport projects	5,076
Other transport improvements	23,193
Structural maintenance of roads and bridges	29,104
Regeneration of older urban areas	568
Environmental improvements	402
Waste management projects	1,050
Coast protection act contributions	109
	59,502
Sources of funding
Supplementary credit approvals	5,529
Basic credit approvals (single capital pot)	27,549
Government grants	340
Developer and other contributions	4,769
On-street parking reserve	4,036
Other local resources	17,279
	59,502

3.9 Additional funding of £3.5m for highways structural maintenance was allocated by the Cabinet and included in the 2003/04 capital maintenance programme, because improving the state of footways and minor roads in Hampshire is seen by the public as a priority for additional spending on County Council services. In utilising the additional sum, priority was given to works on urban footways and minor rural roads, which have suffered the worst deterioration over the past few years. The additional resources enabled over 150 footways resurfacing and reconstruction schemes to be undertaken, together with an extra 16 schemes involving carriageway repairs.

Completed capital schemes

3.10 In accordance with the County Council's Financial Procedures, the final costs of capital schemes with a value of £250,000 or more which were completed in 2003/04 are listed in Appendix 7, together with details of the completed cost of schemes and block allocations under £250,000, included in the 2003/04 starts programme. "Completed" in this context means where the final payment has been made. Some of these schemes may have been in operation prior to April 2003, but the final payment was only made in 2003/04.

3.11 The final cost of the schemes completed in 2003/04 is £136,000 less than the latest approved estimate for those schemes charged to the service's capital cash limit. This underspending has already been taken into account in assessing resources available to support other schemes in the capital programme.

4 Part C - Departmental assurance statement

4.1 From 2002/03 the Code of Practice on Local Authority Accounting in the UK has required the County Treasurer to sign a statement on the system of internal financial control as a note to the published accounts. From 2003/04, the Leader and the Chief Executive will also be required to sign a more general statement of internal control. As part of this process, the Chief Internal Auditor is required to provide an independent opinion on the adequacy and effectiveness of the system of internal control operating in each department and in the County Council as a whole. These opinions are reviewed by the Standards Committee. Appendix 8 contains the statement relating to the Environment service and concludes that the service has a framework of control which provides reasonable assurance regarding the effective, efficient and economic achievement of the County Council objectives.

5 Part D - Partnership accounts

5.1 Details are given in Appendix 9 for the Safety Camera, Life 3 and ESPACE partnerships in 2003/04. These are partnerships for which the County Council is the accountable body, but where no report is made to another committee or partnership board including members of the County Council and where the full expenditure and income is not included in the service's accounts.

Recommendations

1 That the final acounts for 2003/04 be approved.

2 That £18,000 of the underspending in 2003/04 be carried forward and added to the 2004/05 budget as set out in paragraph 1.6.

3 That the departmental assurance statement of the Chief Internal Auditor be noted.

Section 100D - 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

1 Summary of accounts.

Summaries of actual spending 2003/04

Appendix 1

Environment service

Revenue Expenditure 2003/04

Construction of cash limit

1 Revenue expenditure under the service's direct control was subject to a cash limit of £81,314,000 (excluding highways winter maintenance), reflecting the 2003/04 revised budget presented as part of the 2004/05 revenue budget report to the Environment Policy Review Committee on 21 January 2004 and to the Executive Member - Environment at his decision day meeting on 23 January 2004.

2 The 2003/04 revised budget, which was approved for submission to the Cabinet, included proposals for the carry forward to the 2004/05 budget of savings of £100,000 on management and support services, in support of planned additional expenditure in 2004/05 on IT and e-Government developments, and a projected underspending of £311,000 on the waste management budget for the disposal of abandoned vehicles.

3 A revised budget of £1,852,000 was set for highways winter maintenance salting and snow clearance, based on the average level of expenditure during the past four years. The special budgetary arrangements that apply to highways winter maintenance expenditure enable any underspendings or overspendings against the budget provision to be reflected against the County Council's central balances.

4 Following approval of the budget by the County Council in February, a reduction of £5,000 was made to the 2003/04 revised budget to reflect agreed departmental contributions towards the funding of additional occupational health expenditure.

5 The overall County Council budget for 2003/04 included a contingency sum of £3,700,000 to cover anticipated higher expenditure on the waste management contract from growth in waste volumes beyond 2002/03 levels, future price increases, increases in landfill tax and other cost pressures. Periodic allocations are made from this contingency to the waste management budget, based on quarterly assessments of cost increases to the contract and related budgets.

6 The 2003/04 approved revised budget for waste management reflected the first and second quarter's calls on the contingency of £485,000 and £723,000 respectively. Further calls on the contingency of £515,000 for the third quarter and £1,189,000 for the final quarter of the year have now been made and these sums are reflected in the calculation of the adjusted 2003/04 cash limit.

7 A further minor cash limit reduction of £7,000 has been made in respect of lower business rates on the County Council's own properties, as this sum could not be estimated precisely when the revenue budget was set.

8 No adjustments are required in respect of rural bus subsidy grant as the 2003/04 grant allocation of £1,335,000 has been fully utilised during the accounting period. Similarly, the allocation of special Government grant of £374,000, relating to additional highways maintenance expenditure following the de-trunking of the A339, has also been fully consumed during the year.

9 The net effect of the above changes, which have been incorporated into the adjusted revised budget as shown in column 1 of Appendix 3, are summarised below:

	£'000
Cash limit approved in the revised budget	81,314
Departmental contribution towards occupational health	-5
Waste management contingency Q3 call	515
Waste management contingency Q4 call	1,189
Business rates - lower actual costs	-7
Adjusted cash limit (excluding winter maintenance)	83,006
Net expenditure	82,970
Net underspending against service's cash limited expenditure	36

Appendix 2

Environment service

Final Accounts 2003/04

Summary of Revenue Expenditure

Appendix 3

Environment service

Revenue Expenditure 2003/04

Analysis of cash limited expenditure over services

Appendix 4

Environment service

Revenue Expenditure 2003/04

Major variations in cash limited expenditure - underspending of £36,000

Appendix 5

Environment service

Summary showing detailed outturn on highways maintenance
revenue budget 2003/04

Appendix 6

Environment service

Revenue Expenditure 2003/04 not included in the cash limit

1 Capital charges (£24.2m)

Capital charges are made to services for capital assets used in the provision of services. The actual charges are £0.3m less than the budget due to lower deferred charges. However, 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.

2 Central support services, repairs and maintenance of buildings (£2.6m)

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.

3 Adjustment for pension and early retirement costs (-£38,000)

This adjustment includes:

i) The difference between the cash value of employer's contributions to the Local Government Pension Scheme (LGPS) (included within the service's cash limited expenditure) and the current cost of pension benefits earned by members of the LGPS during 2003/04, as assessed by the County Council's actuary. This adjustment is required by the Code of Practice on Local Authority Accounting in the UK, a Statement of Recommended Practice (2003) (SORP) with effect from 1 April 2003. The adjustment is calculated in accordance with the Financial Reporting Standard 17 (FRS 17) Retirement Benefits. It relates only to "defined benefit" schemes, including the LGPS, where the assets and liabilities of the scheme can be attributed to individual employers on a consistent and reasonable basis.

ii) The costs arising from early retirement decisions and the granting of compensatory added years. These are within this service's cash limited expenditure, but are excluded from the cost of services, on the basis that the cost relates to past service.

4 Corporate and democratic core (recharge £0.4m)

Corporate and democratic core covers management and support costs that relate to member support and advice. They are within the control of Policy and Resources and so are charged against that service's cash limit. But they are then recharged to other services outside of the cash limit as the Best Value Accounting Code of Practice requires these to be included in the cost of services.

5 Flood protection (£5.7m)

Flood defence expenditure representing annual levies on the County Council by the Environment Agency

Appendix 7

Environment service

Capital Expenditure 2003/04

Appendix 8

Environment service

Departmental assurance statement for the year ended 31 March 2004

1 Introduction

1.1 The Accounts and Audit Regulation 2003 require the County Treasurer to maintain an adequate and effective system of internal audit.

From 2002/03 the Code of Practice on Local Authority Accounting in the UK has required the County Treasurer to sign a statement on the system of internal financial control as a note to the published accounts. From 2003/04, the Leader and Chief Executive will also be required to sign a more general statement of internal control. To enable them to do this, the Chief Internal Auditor is required to provide an independent opinion on the adequacy and effectiveness of the control environment, comprising risk management, control and governance for each department and the County Council as a whole.

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. The internal audit plan has been delivered in accordance with the Code of practice for internal audit in local government in the United Kingdom, issued by CIPFA.

3.2 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 my opinion the Environment department has an effective framework of control that provides reasonable assurance regarding the effective, efficient and economic achievement of the department's objectives. Audit testing has shown that the controls are generally working in practice.

Ejner Knudsen

Chief Internal Auditor

County Treasurer's Department

Hampshire County Council

11 May 2004

Appendix 9