Aberdeen City Council Annual Accounts 2006/2007
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 2007.
Core Financial Statements
These statements represent a substantial change from the statements presented in previous years, when the main focus of attention was on the Consolidated Revenue Account.
That account had a dual role of setting out the Councils financial performance in accordance with proper accounting practice and determining the level of expenditure to be charged against Council Tax in the year.
The statements presented herein split up these roles and show a set of statements each with a single clear objective. The three main statements are (i) the Income & Expenditure Account, (ii) the Statement of Movement on the General Fund Balance, and (iii) the Statement of Total Recognised Gains & Losses.
This change means that the presentation of the financial statements previously published for 2005/06 have been restated to comply with the new accounting requirements.
Income & Expenditure Account
This provides a summary of the financial resources that the Council has generated and consumed in delivering services within the City. It also shows how the costs are financed, from Government Grants, Non-Domestic Rates and Council Tax.
Statement of Movement on the General Fund Balance & Statement of Total Recognise
Statement of Movement on the General Fund Balance
This summarises the difference between the out-turn reported in the Income & Expenditure Account and the General Fund Balance. The General Fund Balance reflects the expenditure of the Council compared to the Council Tax that it has raised.
Statement of Total Recognised Gains and Losses
This brings together all the gains and losses for the Council in the year and shows the aggregate increase in its net worth.
The 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.
Cashflow Statement
This provides details of the inflows and outflows of cash, for both revenue and capital items, which arise from transactions with third parties.
Notes to the Core Financial Statements
The notes provide additional information on the various financial transactions that are not separately detailed in the above statements.
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 how these are funded through rents, housing support grant and other income.
Non Domestic Rate Income Account & Council Tax Income Account
This 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.
Group Accounts
The Council is required to provide more information about its 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 56 to 71.
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.
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.
Loans Fund
A statutory Fund that acts as an internal bank, borrowing externally to provide long-term loans to the Council, which it then uses to fund the expenditure on capital projects.
Common Good and Trust Funds
This provides details of their expenditure and income, along with the valuation of the respective funds.
Financial Out-Turn 2006/07
Capital Fund
The Council is able, under the Local Government (Scotland) Act 1975, to operate a Capital Fund. The fund can only be used for defraying capital expenditure and the repayment of the principal on loans.
The Council during the year credited the net receipt (that is, after the cost of sales) from its industrial sites for approximately £56.3 million to this fund.
The Council then used the fund to repay debt for both the Housing Revenue Account (HRA) and the General Fund and to meet capital expenditure which would have been charged to the Housing Revenue Account.
By crediting the Housing Revenue Account with a contribution from the Capital Fund (to meet the capital expenditure) a large credit balance was generated which was credited to the General Fund. The HRA working balances will subsequently be restored through a similar process on 1 April 2007.
General Fund - Revenue Expenditure
In 2006/07 Aberdeen City Council approved a General Fund revenue budget of £374.121 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 2006/07 was 44.9 pence. There is also a small supplement on the poundage rate (0.4p) 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 2006/07 this was set at a level of £1,195.83, for Band D properties, which represented a 2.9% increase from the prior year equivalent figure of £1,162.08.
In order to fund a balanced budget it was also proposed and approved that £9.414 million would be used from reserves and balances. This comprised a sum of £8.814 million from balances on the General Fund Reserve, and £0.600 million through a transfer from the Insurance Fund.
Further to setting and approving a base budget, on 9 February 2006, of £371.196 million this was increased by £2.925 million, reflecting adjustments for Revenue Support Grant and commitments brought forward from 2005/06, and additional expenditure approved by the Council during the year.
In analysing the overall expenditure levels for all services, net expenditure amounted to £389.093 million and once income received from government grants and local tax payers is deducted there was a net operating deficit on General Fund of £19.698 million. This was principally because of the high levels of expenditure experienced in delivering Social Work and Waste Disposal services to the City.
These additional costs were reported to elected members on a regular basis during the financial year and while improvements were made towards the year end, in the area of Social Work Services, there remained a significant commitment to providing services beyond the amounts budgeted.
During 2006/07 compensatory payments were made to groups of staff under equal pay legislation and while the cost of this was included as part of the 2005/06 financial year, a cost has been provided for within the 2006/07 financial statements to meet a further cost, which is directly related to the outcome of the job evaluation process and implementation of the Single Status agreement.
The disposal of waste has been seen to be a difficult situation to deal with and costs have been escalating as the cost of disposal has increased through the taxing of landfill tonnages. The Council's position on incineration of waste in comparison to the approved Strategic Waste Fund plan adds further to these cost pressures.
In view of mounting costs and limited expansion of funding streams the Council has had to adopt a two pronged approach to addressing the rising costs. Firstly to target specific areas of the budget and seek to drive out savings through a process of modernisation and continuous improvement.
Secondly, in the short term, to approve a strategy to make the most efficient and effective use of proceeds received from the sale of assets.
This strategy has been applied to ensure that by utilising the monies held in the Capital Fund (sale proceeds) they are used for the purposes allowed, to fund capital expenditure and the repayment of debt (not interest thereon). A substantial sum, particularly in respect of debt repayments is charged to the General Fund and it is through this means that money has been brought into the General Fund, thereby removing a cost and improving the bottom line position.
There are already a number of ear-marked commitments that have been set aside for 2007/08. Firstly and most significantly there is a liability estimated to be in the sum of £5.3 million to schools for which management has been devolved under the Council’s Devolved Education Management (DEM) Scheme.
In reviewing the costs associated with the Council’s Voluntary Severance Scheme, it has been estimated there is a shortfall in meeting the Strain on the Fund pension costs arising from restructuring. These costs are paid for over the five year period, following the employee leaving. A sum was earmarked within the General Fund balance as at the end of the financial year 2005/06 and this revision replaces that commitment, and it is recommended that a value of £1 million is earmarked.
Additional sums which also require to be considered for earmarking, from the General Fund reserve, relate to £434,000 for members Ward Budgets and a sum of £501,000 to cover a number of other unspent commitments, such as provision for roads initiatives, grants and risk management projects.
At the 31 March 2007 there remain uncommitted balances of £7.155 million to meet unexpected items of expenditure that have to be incurred during the next year, and this sum is not assessed to be sufficient for a Council of this size.
The Council has agreed that an acceptable level of uncommitted General Fund balance is between 2.5% and 3% of the annual revenue budget, which amounts to approximately £9.3 million to £11.2 million going forward into 2007/08.
The Resources Management Committee approved a strategy in September 2006, to tackle the restoration of General Fund balances and set out the way forward for making the most effective use of the balances in the Capital Fund.
This mechanism will have to be utilised over a number of years to re-establish sufficient uncommitted balances and as such there remains a high degree of financial constraint to ensure the recommended levels are reached and maintained as soon as is practicable.
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 the year (for instance in the provision of Social Work services) and underlying assumptions that a number of significant corporate cost reductions and savings included in the 2007/08 revenue budget are achieved.
Housing Revenue Account (HRA)
The Housing Revenue Account (HRA), based on an average weekly rent of £52.91, made a surplus that was transferred to the General Fund in accordance with the Housing (Scotland) Act 1987.
The out-turn position (prior to this transfer the HRA would have made a surplus of £1.7 million) compares favourably with the budgeted deficit of £0.741 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 during the year. In addition interest on revenue balances was higher than projected, again reflecting the pattern of spend during the year.
Whilst the spend on housing repairs was greater than budgeted reflecting work in relation to voids this was offset by a lower requirement for revenue support for capital funding.
The Council also dramatically improved its void rates such that considerable savings were achieved by ensuring these properties were let and so ensured an income stream could be derived.
The level of working balances that are available for the financial year 2007/08 are currently estimated to be to the restored level of £3.086 million.
This is based on the known commitments of £1 million for housing repairs, £77,000 for further improvements to void management, £300,000 for staff training, revenue budget support approved of £3.866 million along with a transfer into the HRA of £8.330 million from the capital fund.
This effectively leaves an uncommitted working balance of £3.086 million for 2007/08 which is in accordance with the recommended level of working balances.
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 2006/07 was £79.2 million of which £33.7 million was spent on the Housing Programme and £45.5 million on the Non-Housing Programme. An outline of the main service elements and projects within this programme, in 2006/07, is provided at pages 30 to 31.
The costs were funded from a combination of finance through external borrowing, the proceeds from the sale of assets, a contribution from the Capital Fund, and income from grants and contributions with the remainder being contributions from the revenue account.
Trading Operations
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 2006/07 total expenditure amounted to £58.766 million for such trading operations with turnover of £66.760 million. A gross surplus of £6.815 million was generated prior to refunds of £1.236million to client services. After taking account of these refunds, a net surplus of £5.579million was generated and returned to the General Fund balance.
All of the services apart from Building Maintenance achieved a surplus in 2006/07 and again with the exception of Building Maintenance, 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 2004.
Summarised details of the performance of the Council's significant trading operations are provided on pages 85 to 89.
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 2007 the total value of these funds was £1.841 billion with 22,324 monthly pensioners and deferred members. There are currently 24,907 members i.e. contributors to the Funds.
The total value of the funds has risen by some 93.6% since March 2003, with an annual increase of 7.5% between 2005/06 and 2006/07. This relates mainly to the gain on valuation of equities, both UK and overseas, reflecting the general continuing improvement 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 £45.313 million as at 31 March 2007. This represents a net increase in value of £6.403 million from the prior year.
This favourable movement arose from two factors, an increase of £6.254 million in the valuation of Common Good land and property reflecting the impact on values of market movements and transactions, together with a surplus of £149,000 on revenue expenditure.
Trust Funds
The Council administers a number of trust funds. The value of the trusts fund balances was £5.365 million as at 31 March 2007. This represents a net increase of £423,000 compared to the previous year.
This increase arose from an upwards revaluation of investments of £357,000, new funds of £15,000 and a net surplus of £51,000 after deducting income from expenditure.
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 E Cooper, BSc (Hons),CPFA
City Chamberlain
28 September 2007
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Aberdeen City Council Annual Accounts 2006/2007 Documents
