Contact: Anne Hibbert, (01962) 847533; [email protected]

1 Summary

1.1 This report summarises Policy and Resources' spending in 2005/06.

1.2 It recommends that the final accounts for 2005/06 be approved together with adjustments to 2006/07 cash limits arising from the decisions of the Cabinet on 26 June relating to the carry forward of over and underspendings.

1.3 Decisions on Policy and Resources revenue expenditure and capital programmes impact on the financial resources available to Policy and Resources direct services and to the central services that support all of the County Council's services. As such these decisions impact on the full range of corporate strategy aims:

a) maximizing life opportunities

b) stewardship of the environment

c) achieving economic prosperity

d building strong and safe communities

e) improving services

f) developing councillors and staff.

1.4 Overall there is a net overspending of £139,000 (0.3%) against the 2005/06 adjusted revised revenue cash limit of £46.9m.

1.5 The major variations against the cash limit are:

Chief Officer controlled budgets:	£'000	£'000
Chief Executive:
Hampshire Now Emergency Planning Health Scrutiny Wellbeing Services Consultation and communications Pilot Area & Select Committees	+17 -7 -22 -7 -10 -4	-33
Human Resources		-7
Property Business and Regulatory Services:
Departmental budget County Farms Corporately held land Sites for gypsies and travellers Regulatory services Community Safety Officers Castle Restaurant Repair and maintenance	+3 +19 +103 +49 +41 +77 -8 -138	+146
County Treasurer		-2
Other budgets:
Coroners County Council elections Members' support costs Audit fee Other services	+82 +112 -41 -49 -69	+35
Total for Policy and Resources		+139

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 £139,000 will be deducted from the Policy and Resources cash limit for 2006/07.

1.7 The proposals for dealing with the carry forward of over and underspendings are based on the following assumptions:

· that in accordance with corporate policy, 50% of any underspendings on chief officer controlled budgets and any overspendings should be carried forward to 2006/07

· that there should be no automatic policy of carrying forward either under or overspendings on non-Chief Officer controlled budgets unless an overspending is likely to lead to an underspending in the following year or vice-versa.

1.8 Applying these assumptions, savings of £14,000 would be required in 2006/07. It is proposed to cover this with a virement from the unallocated sum within the capital programme.

1.9 On the basis outlined in paragraphs 1.7 and 1.8 above, the amendments to the 2006/07 budget to reflect carry forwards are:

	Overspending (+) Underspending (-)	Reduction (-) Addition (+) Carry forward to 2006/07
	£'000	£'000
Chief Executive	-33	+16.5
Human Resources	-7	+3.5
Property Business and Regulatory Services	+146	-146
County Treasurer	-2	+1
Other budgets	+35	-
Unallocated capital programme		-14
		-139

1.10 The outturn position on the Service's business and trading units are in summary:

	Revised budget £'000		Actual £'000
Property, Business and Regulatory Services Business Services Group	171	surplus	262	surplus
Other PBRS	24	surplus	9	deficit
IT Services	667	deficit	961	deficit

1.11 All of the units operate under arrangements agreed by the County Council which permit them to retain planned surpluses for purposes approved in their business plans or to take into account in setting future budget strategies.

1.12 The final trading results for the Property, Business and Regulatory services business units reflect a successful overall outcome for the year with a surplus above the revised target and close to the original forecast, representing just under 1% of income.

1.13 In 2005/06, IT Services trading deficit increased by £294,000 from the revised budget forecast. This was due to a combination of factors including some investment late in the year which will give rise to increased income in future years. Additionally, some income anticipated in 2005/06 will now be recovered in 2006/07.

1.14 On capital, schemes to the value of £37.3m were committed in the year and schemes to the value of £9.3m have been approved to be carried forward to start in 2006/07 representing the balance of the approved cash limit for the capital programme, totalling £46.6m.

1.15 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. Trading Units' performance is covered in Part B. Part C deals with capital schemes. Part D explains the basis of the control assurance statement included as Appendix 9.

1 Part A - revenue expenditure under the Service's control

1.1 Revenue expenditure under the Service's direct control is subject to a cash limit. For 2005/06 the adjusted amount is £46.9m as set out in Appendix 1.

1.2 The final outturn was £139,000 more than the cash limit. This is an improvement on the prediction in the last budget monitoring report. An underspending would have arisen but for the planned underspending of £225,000 carried forward to 2006/07, incorporated in the revised budget. The overall position is analysed in Appendices 2 and 3. Appendix 4 includes a more detailed statement of variations from the revised budget.

1.3 This year's outturn is in contrast to previous year's underspendings, although, as in previous years, the variation represents a very small percentage of the budget.

	Variations from Revised Budget
	£'000	%
2002/03	-334	-1.0
2003/04	-281	-0.7
2004/05	-129	-0.3
2005/06	+139	+0.3

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

Chief Executive's Department (-£33,000)

1.4 Overall there was a net underspend of £33,000 on budgets controlled by the Chief Executive's Department in 2005/06. The major variations within the overall underspend were:

· Hampshire Now (+£17,000)

· Consultation and communications (-£10,000)

· Health scrutiny (-£22,000).

1.5 The additional costs of Hampshire Now are largely offset by efficiencies elsewhere on the communications and consultation budget. The extra costs were incurred by the setting up and piloting of a new boundary matching service with the Royal Mail to prevent copies of the magazine being delivered to homes outside of the Hampshire County Council area. After a successful pilot it will now be possible to absorb these costs within the 2006/07 budget.

1.6 An underspend on Health Scrutiny is the result of a delay in appointing to the Health Review Officer post.

1.7 The department has made good progress in a number of new developments. There has been significant progress in the development of the decisions database which will enable HATs to track decisions and identify and contribute to plans and decisions in their own area and Scrutiny to prioritise pre-scrutiny items. The system is being tested during August for roll out in October. Other projects to support Members in their local area are progressing including an improvement of the "Your Council" web pages, the Members portal, and the development of email alerts.

1.8 £49,000 was allocated from the anticipated LPSA pump priming grant to undertake a market research project to provide benchmarking data to set LPSA targets. £30,000 was also allocated from the reward grant from the first LPSA to meet costs incurred in 2005/06 in setting up the Local Area Agreement.

1.9 As part of the second phase of the `Holding out for Hampshire' campaign a Hampshire Now special was produced which included a residents' questionnaire to be distributed to homes in the County. Additional budget of £60,000 covered the production of the magazine, its distribution and the cost of reply postage, collation, analysis and reporting of the findings.

1.10 Following a joint exercise with Internal Audit an integrated risk and audit management system has been purchased. The system is currently being implemented and will provide for better tracking and monitoring of risks across the County Council. When fully operational it will enable audit to link into the risk register to inform their audit planning processes.

Human Resources Department (-£7,000)

1.11 An underspending of £130,000 was achieved in recruitment advertising, despite a 20% increase in workload, through prudent stewardship of the budget, a thorough review of activity and maximising the appropriateness of all advertising undertaken on behalf of departments.

1.12 Development of the Future Leaders Programme and Graduate Programme commenced in 2005/06 with an underspending of £75,000 resulting mainly from a delay in appointing a programme co-ordinator.

1.13 These offset £200,000 additional expenditure resulting from a combination of ill-health problems in key positions and significantly high levels of maternity leave in senior posts which necessitated temporary short term contracts being put into place to sustain the department.

1.14 The additional Occupational Health Unit funding of £100,000 has enabled additional qualified nursing and administrative resources to be employed to reduce the backlog of pre-employment assessments.

County Treasurer's Department (-£2,000)

1.15 The Treasurer's Department was faced by a challenging SAP benefit realisation savings target of £250,000, and when other pressures developed during the year it was thought that some overspend might occur, but in the event turnover savings and additional income enabled a balanced result to be achieved.

Property, Business and Regulatory Services (+£146,000)

1.16 The department's overall expenditure in 2005/06 exceeded its budget by £146,000. The major variations within this total were:

· Corporately held land (+£103,000)

· Sites for gypsies and travellers (+£41,000)

· Regulatory Services (+£41,000)

· Community Safety Officers (+£77,000)

· Repair and maintenance (-£138,000)

1.17 With the exception of Corporately Held Land the Property budgets outturn were close to budget. This budget is, by the nature of it, volatile and subject to change both for rental income and costs. Security of vacant buildings proved to be a major cost pressure in 2005/06 and this is likely to be a continuing trend. Rent income from sites for gypsies and travellers was lower than budget causing net expenditure to exceed the budget.

1.18 The Regulatory Services budgets showed fairly significant overspends in the area of Community Safety Officers for which the budget was set against the original business plan and has now been revised and because of pressures on the income earned by the Scientific Service from external sources. A recovery plan is in place to address this issue.

1.19 The revenue repair and maintenance budget includes a winter contingency provision to mitigate against the financial consequences of severe weather conditions. For 2005/06, this was not required in full and in line with previous practice the unspent contingency will be carried forward.

Other Budgets

1.20 There was a net overspending on £35,000 on other budgets not under the direct control of chief officers. Spending on the Coroner's service is volatile because of variations in caseload and an overspending had been predicted during the year, but smaller than the £82,000 that occurred. The cost of the 2005 County Council Elections, which were organized by the relevant district councils, was also higher than budgeted by £112,000, a slightly smaller overspend than had been forecast in the last monitoring report, partly as a result of a change in the basis of paying deputy returning officers which was not reflected in the budget. Savings on members training expenses and corporate expenses, on the audit of grant claims and from higher miscellaneous income however offset the majority of these higher costs.

2 Part B - Trading Units

Business Services Group

2.1 Catering Services (HC3S) is currently experiencing a period of significant change for school meals services. The new menus from September 2005 which feature less choice and more healthy options have increased costs and have not proved universally popular with pupils. These factors resulted in a deficit of £124,000. This was slightly more (£15,000) than was forecast when the business plan was prepared. The deficit is equivalent to less than 1% of the income of HC3S.

2.2 2005/06 was another good year for Hampshire Transport Management with increases in income in all areas of activity taking the total to £7.59 million.

2.3 The Cleaning Services unit continued its improvement with a second year of financial surplus.

2.4 Total income for Hampshire Printing Services fell in 2005/06 as a result of lower volume through the main print works. However, the costs of outwork (sourced from the private sector), paper and equipment were also lower and the business returned a surplus of £32,000, which was similar to the previous year.

2.5 The overall surplus for Supplies was higher than anticipated at £116,000 and low catalogue production costs played a key role in this. Total income grew by around 2% with most of this coming from growth in the volume of business handled through the warehouse.

IT Services

2.6 During the latter half of 2005/06 IT Services trading activity increased and extra investment during the year gave rise to additional income of £250,000. IT Services were able to reduce service costs for customers in several areas as a result of efficiencies and savings achieved. However IT Services also incurred costs on a number of projects for which income had been anticipated in 2005/06 but which will not now be recovered until 2006/07. In addition, IT Services incurred costs on transfer of a joint business enterprise for which partner contributions will be recovered in 2006/07. Together, these developments increased the forecast trading deficit by £294,000.

2.7 IT Services expect to generate a modest trading surplus in 2006/07 which, with recovery of deferred income of £400,000, will eliminate the brought forward trading deficit.

3 Part C - Capital expenditure 2005/06

3.1 The outturn for 2005/06 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		46,596
Value of schemes started in 2005/06		37,274
Value of schemes carried forward to 2006/07		9,322
Undercommitment against the cash limit		0

3.2 The total programme limit for 2005/06 amounted to £46.6m and schemes to the value of £37.3 were committed in the year. Part of the capital programme relating to block votes is controlled on an expenditure basis, while other projects continue to be controlled on a starts basis. Commitments in the year therefore represent a combination of expenditure on block votes and starts relating to other projects.

3.3 Schemes approved to be carried forward to start in 2006/07 included £5.7m for New Deal for Schools and £1.2m capital repairs. The list of schemes started and carried forward are included in Appendix 8.

3.4 The combined value of schemes which started in 2005/06 and those carried forward to start in 2006/07 is £46.6m which is equal to the cash limit.

3.5 In accordance with the County Council's Financial Procedures, the final costs of capital schemes completed in 2005/06 are listed in Appendix 8. "Completed" in this context means when the final payment has been made. Some of these schemes may have been in operation prior to April 2005, but the final payment was only made in 2005/06. Equally, schemes which are operationally complete, including Alton Library still have outstanding final payments.

3.6 The final cost of the schemes completed in 2005/06 is £1,875,000, on target with the latest approved estimate for those schemes charged to the service's capital cash limit.

4 Part D - Departmental assurance statement

4.1 The Code of Practice on Local Authority Accounting in the UK requires the County Council within its Statement of Accounts to publish a Statement of Internal Control signed by the Leader and Chief Executive. 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 Governance Committee. Appendix 9 contains the statement relating to Policy and Resources and concludes that overall there is an appropriate framework of control which provides reasonable assurance regarding the effective, efficient and economic achievement of the County Council objectives.

5 Impact assessment

5.1 The proposals in this report are not considered to be discriminatory.

Recommendations

6 That the final acounts for 2005/06 be approved.

7 That the Chief Officer controlled under and overspendings be carried forward in accordance with the financial management policy and the overspendings on other budgets be covered by a virement of £14,000 from an unallocated sum in the capital programme.

Section 100 D - Local Government Act 1972 - background documents

The following documents discuss 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.

NONE.

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 Analysis of expenditure on Revenue Repairs and maintenance of buildings

6 Trading Units - summarised accounts 2005/06

7 Revenue expenditure 2005/06 not included in the cash limit

8 Capital expenditure 2005/06

9 Departmental assurance statement

Appendix 1

Policy and Resources service

Revenue Expenditure 2005/06

Construction of cash limit

1 In the revised budget revenue expenditure under Policy and Resources' direct control was subject to a cash limit set by Cabinet of £47.180m. Business rates other than relating to schools 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 £343,000 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 costs associated with the disposal of land and buildings which, in a similar manner to business rates cannot be predicted in advance and are adjusted at the end of the year. Other adjustments have been made in respect of:

· Refund of recruitment budget to Adult Services because recruitment activity was considerably lower than had been assumed when the original budget transfer to HR was calculated.

· Children's Services consultants fees relating to restructuring.

· Rephasing of expenditure to re-configure SAP payroll in line with Pay and Benefits proposals.

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 2005/06		47,180
- Refund of Recruitment budget to Adult Services	-130
- Costs of selling properties	41
- Salary Sacrifice Scheme	18
- Business Rates rebates	-343
- lower de minimis capital receipts than revised budget	14
- adjustment for Tsunami relief team	8
- Children's Services consultants fees	251
- adjustment to Local Area Agreement	-5
- c/f Pay & Benefits re-configure SAP	-77
- Transfer to Hillier's Development fund	-43	-266
Amended cash limit Net expenditure		46,914 47,053
Net overspending against Service's controllable expenditure.		139

Appendix 2

Policy and Resources service

Final Accounts 2005/06

Summary of Revenue Expenditure

Appendix 4

Policy and Resources service

Revenue Expenditure 2005/06

Major variations in cash limited expenditure - overspending of £139,000

Appendix 5

Appendix 6

Policy and Resources service

Revenue Expenditure 2005/06

Trading units - summarised Trading Accounts 2005/06

The trading units in this statement operate under Financial Regulation 20. This statement summarises their trading positions and shows the movement in their reserve accounts.

Appendix 7

Policy and Resources service

Revenue Expenditure 2005/06 not included in the cash limit

1 Capital charges (£6.049m)

Capital charges are made to services for capital assets used in the provision of services. The actual charges are £1.522m more than the budget due to a higher than expected level of deferred charges being written off in the year. 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 (-£25.951m)

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 exercised on a functional basis rather than service basis, but actual costs are allocated to the relevant service.

3 Adjustment for pension and early retirement costs (£1.164m)

This adjustment includes:

a) 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 2005/06, as assessed by the County Council's actuary. This adjustment is required by the Code of Practice on Local Authority Accounting in the UK and 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.

b) 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 £0.776m)

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 this service's cash limit. However, the Best Value Accounting Code of Practice requires these costs to be aggregated and separated from the cost of providing front line services.

Appendix 8

Policy and Resources service

Capital Expenditure 2005/06

Appendix 9

Policy and Resources

Departmental assurance statement for the year ended 31 March 2006

Introduction

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 United Kingdom 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 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 for each department and the County Council 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 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.

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

These are the opinions for the departments that are grouped together within the Policy and Resources group of services.

Chief Executive

The Chief Executive's department has an appropriate framework of control that provides reasonable assurance regarding the effective, efficient and economic achievement of the department's objectives. Audit testing has shown controls to be working in practice.

Human Resources

The Human Resources department has an incomplete framework of control that provides partial assurance regarding the effective, efficient and economic achievement of the department's objectives. Audit testing has shown that controls already in place are operating in practice and compliance has improved since 2004/05. Significant progress has also been made towards developing and implementing the control framework to address the issues raised.

IT Services

The IT Services department has an appropriate framework of control that provides reasonable assurance regarding the effective, efficient and economic achievement of the department's objectives. Audit testing has shown controls are operating in practice, with some non compliance.

Property, Business and Regulatory Services

The Property, Business and Regulatory Services department has an incomplete framework of control that provides partial assurance regarding the effective, efficient and economic achievement of the department's objectives. Audit testing has shown controls already in place to be working in practice.

Treasurer's

The County Treasurer's department has an appropriate framework of control that provides reasonable assurance regarding the effective, efficient and economic achievement of the department's objectives. Audit testing has shown controls to be working in practice with some exceptions.

Overall opinion

In order to provide an overall opinion for the Policy and Resources group of services, I have considered the overall impact for the whole group framework in achieving the County Council's objectives.

My overall opinion is that the Policy and Resources group of services has an appropriate framework of control that provides reasonable assurance regarding the effective, efficient and economic achievement of the County Council's objectives. Audit testing has shown that the controls are working in practice, with some exceptions in the IT Services and Treasurer's departments.

Ejner Knudsen

Chief Internal Auditor

County Treasurer's Department

Hampshire County Council

20 June 2006