Contact: Jane Lovett, (01962) 847518, [email protected]

1 Summary

1.1 This report sets out for Members the Draft Statement of Accounts for Approval.

1 Recommendation

1.1 That the Statement of Accounts for 2008/09 be approved.

2 Introduction

2.1 The Accounts and Audit Regulations 2003 require the Authority's Statement of Accounts to be approved by the 30 June following the year end. The Authority has delegated responsibility for the approval of the draft statement of accounts to the Governance Committee. However, the timing of the Authority's annual meeting this year meant that there was insufficient time to appoint members to the Governance Committee and then hold a meeting by the end of June. The Accounts are therefore being presented at this meeting.

2.2 For the same reason, the final accounts report that would normally be considered by the Finance and General Purposes Committee is also on this agenda. The attached Income and Expenditure Account, Statement of Movement on the General Fund Balance, Balance Sheet and Pension Fund accounts are consistent with the accounts set out in that report.

3 Code of Practice on Local Authority Accounting

3.1 The draft Statement of Accounts has been drawn up in the form prescribed by the 2008 Code of Practice on Local Authority Accounting in the United Kingdom, which constitutes `proper accounting practice' under the terms of section 21(2) of the Local Government Act 2003. The code is updated each year to take account of changes in accounting standards. Some significant changes have been made to the format of the accounting statements over the last two years to separate the income and expenditure recorded in accordance with UK accounting standards from the adjustments to those standards applicable in Local Government for the purposes of setting council tax.

3.2 There are no significant changes in the Code of Practice which come into effect for the 2008/09 accounts which affect this Authority.

4 Statement of Accounts

4.1 The Statement of Accounts comprise a number of separate statements the key features of which are summarised in this paragraph.

Statement of Accounting Policies

4.2 This sets out the policies adopted by the Authority in preparing its accounts, which are largely determined by the Code of Practice.

Annual Governance Statement

4.3 The Accounts and Audit (Amendment) (England) Regulations 2006 require local authorities to conduct a review at least once a year of the effectiveness of the system of internal control and to include, with the statement of accounts, a statement of internal control, prepared in accordance with proper practices in relation to internal control. Based on revised guidance, this now takes the form of an Annual Governance Statement. A draft Statement has been presented for approval earlier on this meeting's agenda and requires the approval and signature of the Chief Officer and Chairman of the Authority.

Statement of responsibilities for the statement of accounts

4.4 This statement records the responsibility:

· of the Authority to appoint an officer (the Treasurer) with responsibility for the proper administration of its financial affairs:

· of the Treasurer to prepare the accounts in accordance with proper practices as set out in the Code of Practice, and to certify that the accounts present fairly the position of the Authority; and

· of the Chairman of the Authority to confirm that the accounts have been considered and approved by the Authority.

Income and Expenditure Account

4.5 The income and expenditure account reports the net cost for the year of all the functions for which the Authority is responsible and demonstrates how that cost has been financed from general government grants and income from local taxpayers. The expenditure recorded reflects the value of fixed assets consumed and the projected value of retirement benefits earned by employees in the year.

4.6 The account is divided into three categories:

· The net cost of services recording the costs allocated to a standard classification of services, net of specific grants and income from fees and charges.

· Items of income and expenditure relating to the Authority as a whole - such as interest payable and receivable and pensions interest cost and return on pension assets. Added to the net cost of services, this provides the Authority's net operating expenditure.

· The income from local taxation and general government grants in the period. Deducting net operating expenditure from this income provides a net deficit or surplus for the year.

4.7 In practice it is extremely unlikely that a surplus would be recorded, as the statutory requirements for setting the council tax do not require some of the costs recorded in the income and expenditure account to be taken into account. The guiding principles in determining the form of the income and expenditure account is that it should measure net operating costs in accordance with UK Generally Accepted Accounting Practice (GAAP), using essentially the conventions that would be applied to a company's audited annual financial statements.

Statement of Movement on the General Fund balance

4.8 This statement discloses the adjustments necessary to a UK GAAP compliant income and expenditure account in order to determine the movement in the General Fund balance for council tax setting purposes (commonly described as the Authority's unearmarked balance or just as balances). The inclusion of this statement reflects the importance in a local authority context of the movement in general fund balance as an aspect of the Authority's financial stewardship. The adjustments summarised in this statement are either determined by statute or reflect non-statutory proper accounting practices.

4.9 The adjustments can be summarised as follows:

· To allow for capital investment to be accounted for as it is financed, rather than when the fixed assets are consumed. Revenue contributions to the financing of capital expenditure and the statutory provision for the repayment of debt are substituted for the depreciation charge in the income and expenditure account. The effect is to reduce expenditure and increase the general fund balance.

· To account for retirement benefits as payments become payable to pension funds and pensioners, rather than as future benefits are earned as required by Financial Reporting Standard 17 (FRS17). This adjustment also reduces expenditure and increases the general fund balance.

· To allow for transfers to and from the general fund to earmarked reserves.

· To reverse the gain on the disposal of assets reflected in the income and expenditure account to comply with UK GAAP, as local authorities are not permitted to apply any part of a capital receipt for revenue purposes.

Statement of total recognised gains and losses

4.10 The principle of this statement is that it brings together all the gains and losses that affect the Authority's net worth, including the gains and losses from the revaluation of assets and the actuarial valuation of the pension fund which do not pass through the income and expenditure account.

Balance sheet

4.11 The balance sheet is presented in a fairly standard format separating fixed assets from current assets and long-term liabilities from current liabilities in arriving at total net assets. Total net worth represents the reserve balances which match net assets.

4.12 The key distinction is between cash-backed and non cash-backed reserves. The Authority's management reporting gives greater prominence to the level of cash-backed reserves in the form of the general fund balance and earmarked reserves which are potentially useable to finance revenue and capital spending. The majority of the Authority's net worth is however tied up in the value of its fixed assets, primarily the replacement value of land and buildings, which to the extent that it exceeds outstanding borrowing is reflected in the value of the Revaluation Reserve and the Capital Adjustment account. This value would only become useable if the Authority was to dispose of all its fixed assets at their balance sheet value.

4.13 The pension accounting arrangements also introduced a negative reserve as a mechanism for recognising in the balance sheet the Authority's actuarially assessed pension liability as measured under FRS17, without requiring the liability to be recognised in setting council tax.

Cash flow statement

4.14 The cash flow statement is designed to demonstrate the changes that have taken place in the Authority's cash position over the year and to highlight the causes of that change.

4.15 Income from Government grant, national business rates and council tax, covers revenue activities, servicing of finance and capital activities, but cannot be readily analysed between the categories, and is therefore shown as an inflow relating to revenue activities. The final section of the statement headed `financing' shows the impact of borrowing decisions in the year on the cash position.

5 Pension fund account

5.1 All Fire Authorities are required by legislation to operate a Pension Fund Account and the amounts paid into and out of it are specified by regulation. They are the accounting requirements following the new financing arrangements.

5.2 Members will be aware that the Authority does no longer meet the pensions outgoings directly, instead it pays an employer's pension contribution based on a percentage of pay into the pension fund account. The Account is balanced to each year to nil by receiving cash in the form of a pension top-up grant from the Government equal to the amount by which the amount payable from the Account exceeded the amount receivable. This percentage is agreed on an annual basis and for 2008/09 was 100%.

6 Next Steps

6.1 The Audit Commission will present a report to the Governance Committee in September on the audit of the 2008/09 accounts, prior to the issue of an audit opinion on the accounts and their publication.

6.2 A set of summary accounts will also be produced and made available to the public condensing the information contained in the full statement of accounts.

7 Risk analysis

7.1 The statement of accounts is an important element of the Authority's corporate governance arrangements. It has been prepared in accordance with the appropriate statutory code. Together with the Budget Book and the report on the final accounts for 2008/09, it provides some evidence to the public that the Authority's financial affairs are being properly managed and in accordance with proper accounting practice.

8 People Impact assessment

8.1 The proposals in this report 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.

9 Resource implications

9.1 The cost of preparing the statement and for auditing it are provided for in the Authority's revenue budget.

10 Background papers

10.1 The following documents disclose the 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.

None

NB: the list excludes: (1) published works; and (2) Documents which disclose exempt or confidential information as defined in the Act.

I:\Treasurers\Corporate Finance\Jane\Fire\Final\final 08 09\HFRA - 24 06 09 - Draft Statement of Accounts 2008 09.doc