Contact: Paul Carey-Kent, Deputy Treasurer 01962 847525
David Howells, Director of Corporate Services 023 8064 4000 ext 203

1 Summary

1.1 This report summarises the spending of the Authority for the last financial year.

1.2 Overall there is an underspending of £401,000 against the original budget and the supplementary levy (totalling £52,095,000), including allowing for the likelihood of increased claims against the Authority for uninsured items. The extent of the change agenda for the Authority made forecasting difficult, and a prudent approach was taken. This reflects additional income together with underspends in several areas, principally pensions, which had looked less likely earlier in the year. Reasons for the underspending are set out in detail in Appendix 1 with the major variances explained in the following paragraphs. In accordance with the legislation in place for the last time in 2003/04, this underspend will be returned to constituent authorities, and no claim is due under the arrangements for funding exceptional numbers and costs of incidents. Some of the factors behind the underspend should continue into 2004/05. If they do, then it may be possible to increase reserves towards achieving Members' preferred level of £2m rather than the current £1.4m in line with the risk assessment reported to the Authority. This would in turn put the Authority in a better position for any requirement to repay transitional funding in 2005/06.

1 Part A - Revenue Expenditure excluding pensions

Utilities, rents and rates (£147,000 underspent)

1.1 This underspending occurred mainly as a result of successfully challenging the rateable values of a number of properties. These savings will continue into the new financial year.

Clothing and uniforms (£121,000 overspent)

1.2 Increased expenditure were incurred replacing fire-coats and fire-trousers. The growth bid approved for 2004/05 will cover on-going costs.

Training expenses (£135,000 underspent)

1.3 Training expenses were underspent partly as a result of a reduction in grant related expenditure (offset by reduced grant income) and partly due to fewer course places being offered by the Fire Service College.

IT and Communications (£224,000 overspent)

1.4 The overspend is partly due to the final payment for the Vivista FIRE CAT development and partly due to unexpected equipment network failures which required maintenance outside the annual maintenance contract. This overspend is offset by reduced expenditure of £104,000 on hired and contracted services.

Income (£299,000 additional income)

1.5 Training Course income exceeded the budget by £167,000 which was mainly due to receiving £117,000 for training retained firefighters from the ODPM at the end of the financial year, which was not thought likely to be received.

1.6 Miscellaneous income including sales, rents and secondments exceeded the budget by £106,000. This was due to a combination of unbudgeted income received for expenditure reimbursement (£34,000) and a successful sales of surplus assets such as vehicles, IT equipment and charging for the use of the Authority's assets (£38,000) including private telephone calls and use of mobile phones.

External interest (£183,000 underspent)

1.7 Payments lower due to a more favourable cash flow than anticipated.

Provision for uninsurable and other claims (additional (£866,000)

1.8 The annual review of all possible claims against the Authority in respect of uninsurable and other claims has resulted in an additional £866,000 being added to the provision. This covers a risk assessment of the possible impact of several cases, for example costs which may arise from when the Authority was uninsured for a period (one of the Authority's insurers went into liquidation), possible tribunals and their associated costs and other claims made against the Authority.

2 Part B - Pensions (£694,000 underspent)

2.1 Overall the pensions budget has underspent by £694,000. Lump sum payments were underspent by £697,000. A total of 16 firefighters retired (15 ordinary and 1 ill-health) compared with the budgeted 30 (20 ordinary and 10 ill-health).

3 Part C - Capital

3.1 Capital payments during the year totalled £1,539,000 compared with the £1,465,000 forecast in January. Full details are given on a scheme by scheme basis in Appendix 2. It can be seen that all schemes except the 2003/04 vehicles are broadly in line with the budget. The reason for the higher spend on vehicles is that, as reported to the Authority in February, the 2003/04 programme of vehicles was purchased rather than leased, with the first stage payments being made during 2003/04 rather than the lease being drawn-down in 2004/05.

3.2 Financing of 2003/04 payments

Capital payments can be financed as follows:

3.3 The Authority received £1,401,000 basic credit approvals (BCA) for 2003/04, which enables borrowing to cover capital spending. £973,000 of this will be used. The remaining balance of £428,000 together with the £1,934,000 returned by Hampshire County Council represents the amount of supported borrowing for which the Authority has received revenue support but has not used (£2,907,000).

4 Part D - Treasury Management

4.1 At its meeting in February 2003, the Authority set limits on total and temporary external debt of £12.544m and £9.378m respectively and borrowing levels remained within these limits during the year.

4.2 The following strategy was followed throughout the year:

· That long and short-term rates are closely monitored

· That long-term fixed rate borrowing be considered if long-term rates stand at 5% or below

· That long-term fixed rate borrowing be considered at rates higher than this if clear signs of a rising trend in rates occur.

4.3 No long-term loans were taken during the year.

4.4 Daily surpluses or deficits on the cash balance were lent to or borrowed from the County Council. Overall interest was received from the County Council on a rate based on the local authority seven-day notice rate which averaged 3.58% over the year.

4.5 Although not yet a statutory requirement, the final prudential indicators for 2003/04 are set out on appendix 3.

5 Impact on constituent authorities

5.1 As a result of this underspend constituent authorities will receive the following refunds of levies paid:

6 Part E - Authority Assurance Statement

6.1 The Chief Internal Auditor is required to provide an independent opinion on the adequacy and effectiveness of the system of internal control operating in the Authority. Appendix 4 contains the statement and concludes that the Authority has a framework of control which provides reasonable assurance regarding the effective, efficient and economic achievement of the Authority's objectives.

7 Determinations by the Authority

7.1 Part IV of the Local Government Housing Act 1989 requires the Authority to make determinations for each year on certain capital issues. These are set out in the recommendations below.

8 European Convention on Human Rights and the Human Rights Act 1988.

8.1 The proposals within this report are compatible with the provision of the European Convention on Human Rights and considered in the light of the Race Relations (Amendment) Act 2000.

Recommendations

1 That the accounts for 2003/04 be approved

2 That capital payments for the year be financed as set out in paragraph 4.2

3 That it be determined that:

i) £546,951 of capital receipts be used to meet capital expenditure in 2003/04

ii) £141,672 be set aside as provision for credit liabilities from the revenue account and applied to avoid new loans authorised by credit approvals

4 That the treasury management activities set out in part D be approved.

5 That the Authority Assurance Statement set out in Appendix 4 be noted.

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

Fire final accounts 2003/04 - General Papers

Appendix 1

Appendix 2

Capital Payments 2003/04

Appendix 3

Prudential indicators - final 2003/04

Appendix 4

Annual assurance statement for the year ended 31 March 2004

Introduction

The Accounts and Audit Regulation 2003 require the 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 Treasurer to sign a statement on the system of internal financial control as a note to the published accounts. From 2003/04, the Chairman of Hampshire Fire and Rescue Authority and Chief Fire Officer 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 HFRA as a whole.

Responsibilities

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.

Basis of opinion

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 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.

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.

Opinion

In my opinion Hampshire Fire and Rescue Authority has an effective framework of control that provides reasonable assurance regarding the effective, efficient and economic achievement of HFRA's objectives. Audit testing has shown that the controls are generally working in practice.

Ejner Knudsen

Chief Internal Auditor

Hampshire Fire and Rescue Authority

7 July 2004