Aberdeen City Council Annual Accounts 2005/2006
This page consists of the foreword by the City Chamberlain. A full index is available at the right of this page, which provides links to the individual documents within the Statement.
Introduction
On an annual basis the Council publishes a set of Financial Statements which comply with recognised Accounting Codes of Practice. The purpose of the Financial Statements is to demonstrate the Council's proper stewardship and accountability of the public funds to which it is entrusted.
This foreword provides an explanation of the Council's Financial Statements, along with a summary of the financial out-turn for the year ended 31 March 2006.
Financial Statements
Consolidated Revenue Account
Provides a summary of expenditure and income in delivering services within the City. Information is also provided as to how the net cost of these services is financed from Revenue Support Grant, Non-Domestic Rates and Council Tax. It also identifies the General Fund surplus/deficit and the balance that is to be carried forward to next financial year.
Housing Revenue Account (HRA)
Reflects the statutory requirement to account for local authority housing provision, as defined in the Housing (Scotland) Act 1987. It shows the major elements of housing revenue expenditure and capital financing costs and how these are funded through rents, housing support grant and other income.
Non-Domestic Rate Income & Council Tax Income Accounts
Provides details of the gross and net income raised from Non-Domestic Rates and Council Tax. The Non-Domestic Rate income account also details the net contribution to the National Non-Domestic Rate Pool.
Consolidated Balance Sheet
This brings together the balances in the Council's Accounts and covers the General Fund, Housing Revenue Account, Loans Fund and the Trading Account Balance Sheets. It excludes the Pension Funds, Trust Funds, and the Common Good. These are separately accounted for.
Notes to Consolidated Balance Sheet
Provides additional information on the various financial transactions that are not separately detailed in these statements.
Statement of Total Movement of Funds and Reserves
Provides for the various capital and revenue reserves details of the movements, that is the gains or losses, during the year.
Cash Flow Statement
Provides details of the inflows and outflows of cash, for both revenue and capital items, which arise from transactions with third parties.
Group Accounts
As a result of increased interaction between the public services and private sector, the Statement of Recommended Practice (SORP) on Local Authority Accounting has been revised. This revision requires Councils to provide more information about their interest in subsidiaries, associates and joint ventures by way of publication of a set of Group Accounts.
Additional information is also required covering the comprehensive accounting requirements for consolidation of the transactions and balances of subsidiaries and of interests in associates and joint ventures that will ensure group accounts provide a complete picture of the authority’s control over other entities.
This Council’s Group Accounts are shown on pages 54 to 64.
Trading Operations - Summary of Results
Summarises the expenditure and income of the Council's significant trading operations as required under the Local Government Scotland Act 2003. The significant trading operations fall into six sections - building maintenance; environmental services (formerly street cleansing and refuse collection); road maintenance; the letting of industrial, commercial and other properties; maintenance of grounds, and the provision and management of car parking facilities.
Pension Fund Accounts
Provides details of the accounting policies, the financial transactions including the disposition of the funds and the net asset statements at the year-end for the two pension funds that the Council administers on behalf of a number of local authorities, public sector bodies and other admitted bodies.
Trust Funds and Common Good Account
Provides details of expenditure and income, along with the valuation of the respective funds.
Financial Out-turn 2005/06
General Fund - Revenue Expenditure
In 2005/06 Aberdeen City Council approved a General Fund revenue budget of £359.975 million. The principal sources of finance to meet this level of expenditure are the Revenue Support Grant (RSG) and Non-Domestic Rate Income (NDRI), both of which are determined by the Scottish Parliament. The Non-Domestic Rate poundage set for 2005/06 was 46.1 pence. There is also a small supplement on the poundage rate (0.45p) for subjects with a rateable value greater than £29,000 to cover the additional costs of the Scheme.
The balance of funding is met mainly through the Council Tax. For 2005/06 this was set at a level of £1,162.08, for Band D properties, which represented a 4.9% increase from the prior year equivalent figure of £1,107.81.
In order to fund a balanced budget it was also proposed and approved that £5.540 million would be used from reserves and balances. This comprised a sum of £2.840 million from balances on the General Fund Reserve, and £2.700 million through a transfer from the Capital Fund.
Further to setting and approving a base budget, on 10 February 2005, of £359.975 million this was increased by £12.3 million, reflecting adjustments for Revenue Support Grant and commitments brought forward from 2004/05, and additional expenditure approved by the Council during the year.
Furthermore, there were adjustments to the budget following a review of the financial provision for Single Status.
For all services net expenditure amounted to £376.415 million and once income received from government grants and local tax payers is deducted there was a net adverse movement on the General Fund balance of £16.142 million. However, this was mainly the result of exceptional costs in the sum of £17.582 million to cover the cost of retrospective compensation payments to various employees of the Council. Accordingly, if this cost is excluded, there was a favourable movement in the General Fund balance of £1.440 million.
After taking into consideration the compensatory payments the out-turn compares favourably with the budgeted use of General Fund balances of £10.934 million and reflects firstly a number underspends which will be carried forward and treated as commitments for 2006/07 and secondly, additional contributions from the Capital Fund and the Insurance Fund. These have been offset by additional costs in relation to building repairs & maintenance and demands in respect of Social Work services for the cost of care management for residential and nursing home placements and for Children’s Services residential care. These additional costs were reported to elected members on a regular basis during the financial year.
Taking account of the foregoing movements, including the exceptional costs, the General Fund as at 31 March 2006 stands at £7.824 million. This is prior to known and proposed commitments in 2006/07.
There are already a number of ear-marked commitments that have been set aside for 2006/07. Firstly, as part of the Council’s approved budget strategy to support the General Fund Budget and Council Tax levels for 2006/07, £5.091 million has been ear-marked which includes a sum of £1.700 million in relation to budgeted savings in 2006/07 arising from the National Priorities Action Fund.
Furthermore, there is a liability estimated to be in the sum of £6.000 million to schools for which management has been devolved under the Council’s Devolved Education Management (DEM) Scheme.
In setting the 2006/07 Revenue Budget, it was anticipated that additional funding of £1.900 million would arise from a review and favourable adjustment to the provision for bad debts on the Council Tax account. This adjustment has now been made and, accordingly, the sum of £1.900 million will also require to be earmarked for 2006/07.
The Finance Monitoring Sub-Committee at its meeting on 9 May 2006 approved an additional budgeted sum of £2 million for 2006/07 to be spent on Health and Safety requirements in relation to the Control of Asbestos at Work Regulations 2003 and for works in relation Fire Risk assessment surveys. This additional budget provision was to be met by way of a transfer of £2 million from the Capital Fund to the General Fund. This has now been made and therefore, this sum of £2 million will require to be earmarked for 2006/07.
Under the Council’s Voluntary Severance Scheme, it is assumed that the cost of the Strain on the Fund arising from senior management restructuring will be met by way of five equal annual instalments rather than one lump sum which is permissible under the Pensions regulations. Provision for the total cost was made in 2005/06 but as the cost of the first instalment is only accounted for in 2005/06, provision for the cost of the remaining four years, estimated to be £1.720 million, will require to be earmarked from the General Fund Reserve.
Additional sums which also require to be considered for earmarking, from the General Fund reserve, relate to £847,000 for members Ward Budgets and a sum of £1.156 million to cover a number of other unspent commitments such as provision for roads initiatives, unspent grants and the Youth Diversionary Project.
Offsetting the approved and proposed commitments, outlined above, is a sum of £7 million, which will transfer to the General Fund Reserve from the Capital Fund. This will arise from the planned disposal of assets in 2006/07, to repay the prior years revenue costs for compensatory payments, as approved by the Council’s Resources Management Committee meeting of 30 March 2006.
The net effect of the items outlined above, would be deficit balance on General Fund of initially around £3.9 million during 2006/07 assuming that actual spend during the year matched the commitments outlined.
The fact that there is a potential forecast deficit on the General Fund is principally due to the exceptional costs arising from retrospective revenue costs in relation to compensatory payments already referred to above.
An overall strategy as to how best utilise the capital income, from the sale of assets to meet the retrospective revenue costs and restore revenue balances will be prepared and presented to Council in the Autumn 2006. This will be done as part of a short to medium term finance strategy ensuring that the General Fund balance is restored in 2007/08 working towards a level equivalent to 2% of the annual revenue budget.
The overall position will also require to be continually reviewed, using a risk based approach, taking into consideration past trends, any other identified exceptional items in 2006/07, additional cost pressures during that year, for instance in the provision of Social Work care, and underlying assumptions that a number of significant corporate cost reductions and savings included in the 2006/07 revenue budget are achieved.
Housing Revenue Account (HRA)
The Housing Revenue Account, based on an average weekly rent of £49.22, during 2005/06 had working balances of £6.598 million at the year-end with the level of income matching expenditure during the year.
This out-turn position compares favourably with the budgeted deficit of £1.255 million and has arisen from a number of contributing factors.
Favourable movements relate mainly to lower than budgeted expenditure in respect of capital financing costs, as a result of the pattern of capital spend and debt rescheduling exercises which were undertaken. In addition housing repairs and maintenance was slightly lower than budgeted and interest on revenue balances was higher than projected. Although, in overall terms, spending on housing repairs was less than budgeted it was still significant with spend in the order of £20 million.
These favourable movements were partially offset by a higher than budgeted revenue contribution to support the capital programme in working towards the achievement of the Scottish Housing Quality Standard. Other items included higher than budgeted costs arising from the loss of rent from the level of property turnover/voids and from the provision for former tenants’ arrears’ which is based on 95% of the rent outstanding as at 31 March 2006. Whilst the Council makes such provisions it is policy to pursue all debt owed.
Of these working balances of £6.598 million it is estimated that there are commitments amounting to £2.296 million that will fall to be met in 2006/07. These include a sum of £741,000 to support the 2006/07 Housing Revenue Account (HRA) and £335,000 for housing investment. In addition £1.050 million is required to meet commitments for housing repairs and maintenance for costs arising from orders placed in 2005/06 but for which work did not progress or commence until after 31 March 2006.
A further provision totalling £170,000 has been ear-marked to meet expected commitments carried forward which includes spend on members ward budgets and support for housing repairs new technology and void management.
This effectively leaves a working balance of £4.302 million.
Capital Expenditure
Since 1 April 2004, the capital expenditure system of funding has been replaced by the requirement for local authorities to have regard to the Prudential Code for Finance in Local Authorities and considerations, in all years, of affordability and sustainability.
Total capital expenditure in 2005/2006 was £60.9 million of which £27 million was spent on the Housing Programme and £33.9 million on the Non-Housing Programme. An outline of the main service elements and projects within this programme, in 2005/06, is provided at pages 36 to 37.
The majority of costs were funded from a combination of finance through net borrowing (£25.7 million), the proceeds from the sale of assets (£14 million) and income from grants and contributions (£9.8 million) with the remainder being contributions from the revenue account (£9.4 million).
Trading Operations - Summary of Results
Under the Best Value Requirements in the Local Government in Scotland Act 2003, Councils are required to maintain statutory trading accounts for “significant trading operations”.
In 2005/06 total expenditure amounted to £50.719 million for such trading operations and with turnover of £60.960 million. A gross surplus of £10.241 million was generated prior to refunds of £2.162 million to client services. After taking account of these refunds, a net surplus of £8.079 million was generated and returned to the General Fund balance.
All of the services achieved a surplus in 2005/06 and all six of the identified areas of significant trading operations have achieved, as the legislation requires, a cumulative surplus on an aggregate rolling basis over the three year period from 1 April 2003.
Summarised details of the performance of the Council's significant trading operations are provided on pages 65 to 68.
Pension Fund Accounts
The Council administers two pension funds on behalf of employees and former employees, for a number of local authorities and public sector organisations and a number of scheduled and admitted bodies.
At 31 March 2006 the total value of these funds was £1.713 billion with 21,368 monthly pensioners and deferred members. There are currently 24,531 members i.e. contributors to the Funds.
The total value of the funds has risen by some 80% since March 2003, with an annual increase of 27% between 2004/05 and 2005/06. This relates mainly to the gain on valuation of equities, both UK and overseas, reflecting the general continuing improvement and upward trend compared to the prior years’ position which reflected a substantial fall in world stock markets.
As the investments of the funds are spread across the available range of investment, both by type (equities, bonds, property etc) and geographically the risk of a sharp fall in one particular market having a substantial impact on the whole fund is reduced.
Common Good
The value of the Common Good rose to £38.910 million as at 31 March 2006. This represents a net increase in value of £7.029 million from the prior year.
This favourable movement arose from two factors, an increase of £7.067 million in the valuation of Common Good land and property reflecting the impact on values of market movements and transactions, offset by a small deficit of £38,000 on revenue expenditure.
Trust Funds and Endownments
The Council administers a number of trust funds. The value of the trusts fund balances was £4.942 million as at 31 March 2006. This represents a net increase of £246,000 compared to the previous year.
This increase arose from an upwards revaluation of investments of £162,000, a net surplus of £84,000 after deducting income from expenditure.
Financial Position
The detailed financial statements, set out on pages 10 to 84, present fairly the financial position of Aberdeen City Council for 2005/06 and its income and expenditure for the year ended 31 March 2006.
Acknowledgements
The production of the Annual Financial Statement is very much a team effort involving many staff from both my own and other services within the Council. I would like to take this opportunity to acknowledge the considerable efforts of all staff in the production of the Financial Statement within the tight timescales.
Susan Cooper, BSc (Hons),CPFA
City Chamberlain
29 September 2006
