Contacts: Paul Carey-Kent, Deputy Treasurer, 01962 847525

David Howells, Director of Corporate Services, 023 8064 6834

1 Summary

1.1 This report summarises the spending of the Authority for the last financial year. Overall there was a considerable underspending of £4.3m (7.4%) against the original budget. This continues a trend seen in 2003/04, in which there was an underspending of £400,000 despite having to allow for the likelihood of considerable increased claims against the Authority for uninsured costs. This favourable position reflects three main factors:

· a precautionary approach to setting up the Authority's financial position on moving to precepting status from 2004/05

· a number of difficult-to-predict spending and income areas which have all moved in the same direction over 2004/05 and

· efforts made by the service to minimise spending in order to achieve the best possible position for future development and in particular to move towards financing vehicle acquisition without the need to borrow.

1.2 Some of these factors are likely to continue into 2005/06 and subsequently. Consequently, it is possible to invest much of the underspend in order to deliver members' previously expressed preferences for both substantial levels of balances and a move to obtaining all new vehicles through cash purchase rather than borrowing. It should also be possible to position the Authority for minimal, council tax rises in the coming years.

2 Revenue expenditure excluding pensions

2.1 Overall revenue expenditure excluding pensions underspent by a total of £3,434,000 - of which £1,016,000 has been previously reported. The reasons for the remaining balance of £2,418,000 are set out in full on appendix 1 and summarised in the following paragraphs.

Training

2.2 Training underspent by £158,000. This is due to a combination of delays in implementing specialist training and savings resulting from using alternative suppliers to the Fire Service College.

Operational Equipment

2.3 Operational equipment underspent by £259,000 due a combination of the late receipt of an ODPM grant for Home Fire Safety Checks which was spent in preference to the Authority's own revenue budget provided for the same purpose and £115,000 underpending on partnership funding due to a delay in resourcing partnership initiatives pending the setting up of the partnership evaluation project.

Clothing and uniforms

2.4 Clothing and uniforms underspent by £166,000 due to delays awaiting the decision on changing the insignia on helmets during 2005/06 and the non-purchase of light weight fire tunics that was originally planned.

IT and communications

2.5 This budget head underspent by £429,000 as a result of delays in implementing e-government and Technical Fire Safety replacement database for Regulatory Reform Order (RRO) projects (£250,000), Command and Control (£130,000) and other communications (£150,000).

Income

2.6 Additional income totalling £343,000 was received during the year. The largest of these was the grant for New Dimensions of £159,000.

External Interest

2.7 Additional external interest of £165,000 was received mainly as a result of the overall underspending of the Authority.

Provision for uninsured losses

2.8 A reassessment of the risks has resulted in a reduction to the balance of £499,000.

3 Pensions

3.1 The pensions budget underspent by a total of £867,000 - of which £552,000 has been previously reported. The balance of £315,000 is due mainly to five fewer retirements taking place during the year than budgeted for.

4 Capital

4.1 Capital payments during the year totalled £1,574,000 compared with the £2,019,000 forecast in December 2004. Full details are given on a scheme by scheme basis in Appendix 2. It can be seen that all schemes except vehicles were broadly in line with the budget except the 2003/04 and 2004/05 vehicles where expenditure has slipped. The reason for this slippage is a combination of late delivery and a later tender process than originally anticipated.

Financing of 2004/05 payments

4.2 Capital payments can be financed as follows:

4.3 The Authority received an allocation of £1,504,000 for supported borrowing for 2004/05. At the start of the year the balance of unused supported borrowing was £2,362,000. The excess of supported borrowing over payments for the year leaves a balance at the end of the year of £2,442,000.

5 Treasury Management

5.1 The debt management strategy, approved by the Authority in February 2004 was followed throughout the year.

5.2 Four new long-term loans were taken during the year totalling £1.85m at an average interest rate of 4.81%.

5.3 Daily surpluses and deficits on the bank balance were lent to or borrowed by the County Council on a rate based on the local authority seven-day notice rate which averaged 4.53% over the year.

5.4 The final prudential indicators for 2004/05 are set out in Appendix 3.

6 Proposals for use of the underspend

6.1 The authority has already set aside £2m in reserve to cover risks as assessed in setting the 2005/06 budget. In addition, £787,000 has been set aside, as previously agreed by Members, as a specific reserve to enable repayment of transitional funding as and when this is required by the Government. The evaluation of risks underlying these figures remains current, and there is no reason to add to these amounts.

6.2 The Authority has approved the recommendation from this Committee that £500,000 of underspendings be carried forward for specific purposes. These are areas where budget managers took the judgement that spending could more efficiently be delayed to 2005/06.

6.3 There remains some £3m to allocate and two uses are proposed:

· £2.5m to set up a capital payments reserve which will fund acquisition of all those vehicles which otherwise would have been financed by loan over the coming three-year capital programme. This is an established policy goal of members, building on the revenue contributions now built into the budget. In the long-term it represents the most economical method of acquiring vehicles as adopting this method of financing will, of course, flow into reduced loan financing and repayment costs. Funding vehicle purchases from revenue saves approximately £135,000 p.a. on each £1.5m of vehicles purchased.

· Set up a modernisation reserve of £0.5m to enable the Authority to take forward in the most efficient manner the range of initiatives required by the modernisation programme. The table below sets out some possible uses:

	£000
Contingency for transitional costs moving to regional control centres including staffing and IT costs	250
Supporting community-based partnership initiatives	100
Public notice boards at fire station sites	150
HQ development - accommodation and new urban search and rescue training facilities to complement ODPM funded civil protection resources building	165
ICT network - increase in capacity and resilience	400
Transitional costs arising from rank to role reviews	130
Consultancy support for Best Value reviews of `Partnerships' and `Service Level Agreements'	120
Project Management support for IRMP	30
Total	1,345

6.4

6.5

6.6 Whilst it is difficult to be sure about how much might usefully be spent in this way, the availability of £0.5m to be used over, say the next two years will be likely to prove justified in order to take forward this far reaching agenda. It is currently expected that the Authority will underspend in 2005/06 and this will also be available to fund modernisation costs in 2005/06. This is discussed further in the budget monitoring report elsewhere on the agenda.

6.7 The opportunity will be taken over the next few weeks to review and prioritise this list alongside any other emerging funding issues to determine which items should be progressed during the current year (essentially those involving unavoidable expenditure) and which could be deferred to 2006/07. The aim will be to pursue those initiatives that will do most to progress the modernisation agenda and achieve the Authority's corporate aims. The Committee will receive an update on how the underspending will be utilised as part of the next budget monitoring report.

6.8 In summary, the proposed use for the underspending is as follows:

7 Internal Control Statement

7.1 The Chief Internal Auditor is required to provide an independent opinion of 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.

8 Equality impact assessment

8.1 An impact assessment has been made on the proposals within this paper and shown that they are not discriminatory. They are considered compatible with the provisions of the European Convention on Human Rights, the Human Rights Act 1998 and the Race Relations (Amendment Act 2000).

Recommendations

1. That the accounts for 2004/05 be approved

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

3. That the Treasury Management activites set out in paragraph 5 and prudential indicators on appendix 3 be approved.

4. That the Internal Control Statement set out in Appendix 4 be noted.

5. That the Committee should receive a report on how the modernisation reserve will be spent over the next two years as part of the next budget monitoring report.

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 2004/05

Appendix 1

Analysis of Variances

Appendix 2

Capital payments 2004/05

Appendix 4

Annual assurance statement for the year ended 31 March 2005

1 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 Officer are now required to sign a more general statement of internal control replacing the previous one. To support this process, 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.

2 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.

3 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.

4 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 the Authority's objectives. Audit testing has shown that the controls are generally working in practice.

Ejner Knudsen

Chief Internal Auditor

Hampshire Fire and Rescue Authority

30 June 2005