Contact: Sheila Little, ext 7545, e-mail: [email protected]

1 Summary

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

1.2 This report recommends that the final accounts for 2003/04 be approved and that the £555,000 overspend be met from reserves as proposed by Cabinet in February 2004 and endorsed by Cabinet in June 2004.

1.3 Decisions on revenue expenditure and capital programmes and the allocation of the financial resources available contribute to all six corporate strategy aims. Most notably to Aim 1: maximising life opportunities; Aim 3: achieving economic prosperity and Aim 5: improving services.

1.4 Race and equality impact assessment has been considered in the development of this report and no adverse impact has been identified.

1.5 Although there is an overall net under spend of £487,000 (0.1%) against the 2003/04 adjusted revised revenue cash limit of £643.8m, this cash limit reflects the projected overspend of £1.042m as reported to the Cabinet in February 2004. As such the Education Service has managed a reduction in their overspend to £555,000.

1.6 The major variations against the revised cash limit are:

	£'000	£'000
Schools Budget		-283
· Central Management	-44
· Inclusion (SEN)	95
· Early Years	-334
LEA Budget		-205
· Other School Centrally held Budgets	47
· Access (including home to school transport and pupil support)	-235
· Youth Service	245
· Services to schools and support	-262
· Other minor variations	1
Total		-487

1.7 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.

1.8 The strategy agreed for Education by Cabinet in February 2004 involves the 2003/04 overspend being met from reserves up to a value of £1.042m. This was agreed because of the Government's restrictions on central spending in the Schools Budget for 2004/05 which meant that the Service was not able to set the 2003/04 overspend as a first call on the 2004/05 budget. In February 2004 the overspend was anticipated to be about £1m, but Education has continued to manage its spending down towards the cash limit for the remainder of 2003/04.

1.9 The Service's business and trading units operate under arrangements agreed by the County Council which permits them to retain planned surpluses for purposes approved in their business plans or to take into account in setting future budget strategies. The outturn position on these units indicates a 16% reduction in overall reserves to £1.177m which is in line with the projections reported on the 20 January 2004. Over the next two years this surplus will reduce further.

1.10 On capital, schemes to the value of £44.97m started in the year and schemes to the value of £11.07m have been approved to be carried forward to start in 2004/05. In total this amounts to £1.622m less than the approved cash limit for the capital programme. Capital receipts from earlier years together with other allocations have been retained to reduce the shortfall in funding identified in future years.

Local Management of Schools

1.11 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. During 2003/04 the overall level of school reserves under LMS increased by a total of £12,000 ( Primary balances by +£137,000, Secondary by -£324,000, Special by +£124,000 and Nursery by +75,000). The cumulative reserves now stand at £28.343m which represents 5.4% of schools' allocations as shown in the table below:

	Balance 1/4/03	Allocations 2003/04	Net Expend 2003/04	Cumul. Balance 31/3/04	As a % of Allcns
	£'000	£'000	£'000	£'000	£'000
Nursery Schools	82	863	788	157	18.2
Primary Schools	16,494	257,935	257,798	16,631	6.4
Secondary Schools	10,022	234,813	235,137	9,698	4.1
Special Schools	1,733	26,468	26,344	1,857	7.0
	28,331	520,079	520,067	28,343	5.4

1.12 The above figures are higher than anticipated from the indications received from schools earlier in the year, suggesting that they had plans to reduce balances. Despite this 55 schools were in deficit at 31 March 2004 after taking account of retrospective number on roll adjustments. This is the same total as at March 2003, although the mix between sectors is different. There are 33 primary (down from 35), 18 secondary (the same as last year) and 4 special (up from 2) schools in deficit situations. In line with good practice in previous years, officers will be asking all school governing bodies with surpluses for a plan indicating how they aim to use these surpluses.

1.13 One of the key criteria for the allocation of the one off Transitional Support Grant during 2004/05 was that all those schools in deficit (and those in receipt of more than £15,000 transitional support grant) have to produce an agreed, costed three year stability / recovery plan in order to be eligible to receive the grant. All except one school has done this and it is therefore expected that the level of deficits at the end of 2004/05 will be significantly reduced. Officers continue to assist the one school to finalise the required three year plan.

1.14 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 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 schemes. Part D explains the basis of the control assurance statement included 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 2003/04 the adjusted amount is £643.8m as set out in Appendix 1.

2.2 The final outturn was £487,000 less than the cash limit, although still £555,000 more than the original 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 2003/04 budget included a number of priority areas which were allocated additional funding by the County Council. Some enabled services to be maintained despite the withdrawal of central government funds because the service was essential to the County Council securing other funding e.g. three education welfare posts in Gosport linked to LPSA targets. Others reflected a new or existing statutory requirement e.g. revision of the Agreed Syllabus for Religious Education. One enabled a service to more closely reflect increased client demand e.g. Parent Partnership service.

2.4 The most significant elements within the total net under/overspending are explained in the following paragraphs.

Central Management -£44,000

Minor variations on a number of school specific budgets including contingencies, supply cover and copyright licenses make up this under spend, which represents 1.2% of a total cash limit of £3,664,000

Inclusion (SEN) £95,000

Planning and controlling expenditure on demand-led budgets for pupils with special education needs continues to be a challenging management task. The outturn for the various non-delegated budget in 2003/04 shows a net overspend of £95,000 made up as follows:

	£'000
Statements in mainstream education	129
Out -county placements	-291
Inter-authority special school recoupment	-6
Education otherwise than at school (EOTAS)	270
Behaviour support implementation	-7
	95

· the reduction in out-county costs relates to a number of issues, for example two pupils moved out of need, 6 pupils were either not placed or placements were delayed, 1 pupil was permanently excluded.

· the increase in "statements in mainstream" is the result of some of the out-county pupils above receiving local provision, in addition to general pressure of more complex / more expensive provision.

· The increase in EOTAS partly relates to the circumstances surrounding Hawthorns School as reported to the committee previously. In addition it proved not possible to secure the necessary funding from the Capital Programme to reimburse the service for the cost incurred in providing additional classroom provision at one centre.

Early Years -£334,000

This represents a 2% variation in the budget and reflects lower than expected take-up , in particular by 3 year olds.

Other School Centrally held Budgets £47,000

In total, budgets managed centrally on behalf of schools, excluding elements of special education needs and home to school transport dealt with elsewhere, show a net overspend of £47,000. The most significant variations resulted from additional expenditure on premature retirements of staff in schools (£115,000), partially off set by under spending on boiler insurance being paid for via a schools Service Level Agreement rather than this central budget (-£28,000) and increased income from school balances due to higher interest rates (-£28,000).

Access (i.e. Home to School Transport and Pupil Support) -£235,000

The majority of this under spend relates to home to school transport (£189,000 against the revised budget of £18.663m) and reflects the continuing success of spend to save initiatives in reducing contract costs and higher levels of income, following management action to increase revenue. A further under spend of £60,000 on pupil support reflects lower than expected claims for school clothing allowances.

Youth Service £245,000

Whilst this is the first year for several years that this budget has overspent, a number of unique factors have caused this situation: improved staff recruitment and retention relatively late in the year (£75,000); an income miscoding of £88,000 which was not picked up until the end of the financial year; higher than expected relocation accommodation costs (£60,000). Management action has already been taken including a review of the budget monitoring within the service to ensure that the situation is not repeated.

Services to Schools and Support -£262,000

In total a net under spend of £262,000 resulted on a revised budget of £24.797m. This situation arises mainly from delays in replacing outdated ICT systems (£82,500), the lower than expected staffing related costs in a number of areas including: the Behaviour Support Teams (£20,900); the SEN Teacher Advisor budget (£28,500); Early Years core budget (£63,400). The remaining under spend is made up of small variations on a number of headings.

3 Part B - Trading Units

3.1 The trading activities of the Education business units during 2003/04 have resulted in an overall in-year deficit of £231,000, compared with a planned deficit of £182,000, on a gross budget of £24.8m. The outturn position on the Service's business and trading units are set out, in summary, below:

3.2 As a result of the a 2003/04 outturn, business units' cumulative surplus as at 31 March 2004 amounts to £1.177million. Current business plan for EFS, EPS and EdICT are forecasting deficits for 2004/05 as a result of additional costs necessary to provide medium term support to schools in respect of resource management, technological change and workforce remodeling. That and other service developments indicate a significant reduction in the overall surplus over the next three years.

3.3 In addition Minstead Study Centre will be using its reserves to part fund the improvement work at the centre which is due to commence in October 2004, while the Stubbington Study Centre will be using its reserves to fund further building work in 2005/06.

3.4 The summarised trading accounts of the individual business units and a comparison with the revised budget are shown at Appendix 5

3.5 Appendix 6 lists those items of expenditure which effect the Education Service but are not within the direct control of the service.

4 Part C - Capital expenditure 2003/04

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

			Total
			£'000
Total resources			57,660
Value of schemes started in 2003/04			44,969
Value of schemes carried forward to 2004/05			11,069
Under commitment against the cash limit			1,622

4.2 The total starts limit for 2003/04 amounted to £57.66m and schemes to the value of £44.97m were started in the year.

4.3 Schemes approved to be carried forward to start in 2004/05 totalled £11.07m and included work at Brune Park Community School, Priestlands Community School, Eggars Secondary School and the Lanterns Early Years Centre, Winchester. The list of schemes started and carried forward are included in Appendix 7.

4.4 The combined value of schemes which started in 2003/04 and those carried forward to start in 2004/05 is £56.966m which is £1.622m below the cash limit and the balance of the cash limit can also be carried forward to 2004/05.

4.5 The table below sets out the pattern of devolved capital allocations to schools since its introduction in 2000/01, together with the pattern of expenditure. This shows the time lag and that currently there is £10.7m remaining to be spent by schools. This is in addition to revenue school balances.

4.6 In accordance with the County Council's Financial Procedures, the final costs of capital schemes completed in 2003/04 are listed in Appendix 7. "Completed" in this context means when 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. Fourteen major schemes, with total contract values of £9.9m, were completed and included Whiteley Primary School, Brune Park Music / drama suite and laboratory refurbishment works at secondary schools.

4.7 Work continues on apportioning the final cost of the schemes completed in 2003/04 between the various funding arrangements. A statement will be submitted with the next monitoring report.

5 Part D - Departmental Assurance Statement

5.1 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 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 Education Service and concludes that Education Service has a framework of control which provides reasonable assurance regarding the effective, efficient and economic achievement of the County Council objectives.

Recommendations

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

2 That the £555,000 over spending in 2003/04 as compared to the original budget, but met from central reserves as agreed by Cabinet in February 2004 rather than forming the first pressure on the 2004/05 budget.

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 have 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

Summaries of actual spending 2003/04

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 2003/04

6 Revenue expenditure 2003/04 not included in the cash limit

7 Capital expenditure 2003/04

8 Departmental assurance statement

Appendix 1

Education service

Revenue Expenditure 2003/04

Construction of cash limit

1 In the revised budget, revenue expenditure under the service's direct control was subject to a cash limit set by Cabinet of £643.8m. Business rates was 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 £804,000 lower than was provided for in the revised budget and the cash limit has been adjusted accordingly.

2 Further adjustments to the cash limit have also been made in respect of:

£'000

Lower level of expenditure supported by specific

government grants -5,791

Carry forward of County Council contribution in

respect of unused Standards Fund -1,225

Overspending on teachers' sickness and maternity cover 95

Capital expenditure met from revenue in respect of

self-funded capital schemes -1,399

Net increase in schools' reserves -12

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

	£'000	£'000
Revised budget for 2003/04		643,822
Reduction for the lower level of business
rates payable		-804
Net reduction in level of expenditure
financed by Government grants:
Teachers' pay threshold payments	-814
Standards Fund	-2,886
Access and other grants	5
Early years and childcare	-2,096	-5,791
Carry forward of County Council
Contribution re Standards Fund		-1,225
Carry forward of overspending on teachers'
sickness and maternity cover		95
Revenue contributed to capital for
self-funded projects		-1,399
Net transfer to schools' reserve account		-12
Amended cash limit Net expenditure		634,686 634,199
Net underspending against Service's controllable expenditure.		-487

Appendix 2

Education service

Final Accounts 2003/04

Summary of Revenue Expenditure

Appendix 3

Education service

Revenue Expenditure 2003/04

Analysis of cash limited expenditure over services

Appendix 4

Education service

Revenue Expenditure 2003/04

Major variations in cash limited expenditure - underspending of £487,000

Appendix 6

Education service

Revenue Expenditure 2003/04 not included in the cash limit

1 Capital charges (£87.7m)

Capital charges are made to services for capital assets used in the provision of services. The actual charges are £9.1m more than the original budget. 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 (-£9.14m)

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 costs (£1.08m)

This adjustment represents 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 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.

4 Non distributed costs (recharge £3.07m)

These relate to the costs arising from early retirement decisions and the granting of compensatory added years (CAY) in the year of account. These are within this service's cash limited expenditure, but are recharged to "non distributed costs" as the Best Value Accounting Code of Practice requires them to be excluded from the cost of services, on the basis that the cost relates to past service.

5 Mandatory Awards (£0.85m)

The mandatory awards outturn for 2003/04 totals £850,000. 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 under expenditure.

Appendix 7

Education Service

Capital Expenditure 2003/04

Appendix 8

Education Service

Department assurance statement for the year ended 31 March 2004

1 Introduction

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

5.3 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.

6 Responsibilities

6.1 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.

7 Basis of opinion

7.1 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.

7.2 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.

8 Opinion

8.1 In my 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. Audit testing has shown that the controls are generally working in practice.

Ejner Knudsen

Chief Internal Auditor

County Treasurer's Department

Hampshire County Council 28 May 2004