Aberdeen City Council Annual Accounts 2007/2008 - Draft
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Introduction
On an annual basis the Council by statute must publish 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 2008.
Core Financial Statements
Following a major change in the presentation of the financial statements in 2006/07, the core financial statements remain the same for 2008/09.
The statements presented herein show a set of statements each with a single clear objective. The three main statements are:
- (i) Income & Expenditure Account,
- (ii) Statement of Movement on the General Fund Balance, and
- (iii) Statement of Total Recognised Gains & Losses.
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
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, accounted for separately.
Cash Flow 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 & Council Tax Income Accounts
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 70.
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 2007/2008
General Fund - Revenue Expenditure
In 2007/08 Aberdeen City Council approved a General Fund revenue budget of £373.056 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 Government. The Non-Domestic Rate poundage set for 2007/08 was 44.1 pence. There is also a small supplement on the poundage rate (0.3p) 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 2007/08 this was set at a level of £1,230.39, for Band D properties, which represented a 2.89% increase from the prior year equivalent figure of £1,195.83.
Subsequent to the setting and approving of a base budget on 8 February 2007, of £373.056 million, it was increased during the year by £8.959 million, reflecting adjustments for Revenue Support Grant made by the Scottish Government, as well as commitments brought forward from 2006/07, and additional expenditure approved by the Council during the year. The revised budget for 2007/08 amounted to £382.015 million.
In analysing the overall expenditure levels for all services, net expenditure amounted to £393.218 million and once income received from Scottish Government and Council Tax payers was deducted there was a net adverse movement on the General Fund balance of £9.260 million. This was principally because of the continuing challenges in delivering essentially needs led social care services within resource constraints. Furthermore the on-going negotiations with the Trade Unions, in implementing the Equal Pay and Modernisation (EP&M) solution resulted in anticipated savings associated with staff terms and conditions changes not being realised.
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 in this area beyond the amounts budgeted.
Due to the delay in implementing EP&M an assessment was made of the ongoing costs that will have to be met due to the commitment to backdate outcomes for those with Equal Pay compromise agreements. As such, sums have been provided for within the accounts, however not all costs could be accrued so these are being earmarked from reserves and balances. This builds upon the compromise agreement reached with staff in certain areas of the Council, in response to claims made by them under Equal Pay legislation.
In view of increasing costs in Health & Care in particular and limited expansion of funding streams the Council has had to adopt a two pronged approach to addressing the rising costs.
Firstly, the Council is to target specific areas of the budget and seek to drive out savings through a process of modernisation and continuous improvement – the Transformation Programme.
The Council set out its strategic direction for many of the major services in Aberdeen during 2007/08 and this medium to long term review of the priorities and constraints has meant that not all of the savings targets that had been set by the Council in 2007/08 have been met. The Transformation Programme sets out where services delivery will focus and how they will change, including taking account of the resources available going forward.
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 principal (not interest thereon). A substantial sum, particularly in respect of debt principal repayments has been 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.
In closing the accounts for 2007/08, there has been a review of sums that need to be earmarked from the closing General Fund balance. These are set aside for use in 2008/09.
The primary earmarked sum is in respect of the Council’s Devolved Education Management (DEM) scheme, which covers Schools and Community Education Centres. A liability estimated to be in the sum of £3.300 million has been earmarked for this purpose.
As indicated above a sum, £1.923 million, in relation to the implementation of Equal Pay & Modernisation has been earmarked for carry forward into 2008/09. This sum had been budgeted to be spent in 2007/08 but due to the nature of the cost cannot be written up as a specific provision. It is recommended that it be earmarked to ensure that the total sum allocated for this purpose is maintained.
During the year the Council set aside an additional sum in respect to meeting the costs of workforce exit costs. The amount set aside was significantly utilised in 2007/08 and as well as earmarking the sum that remained unspent it is recommended that it is increased by a further £0.750 million. It is recommended that a total of £2.235 million is now set aside to fund the costs of the Council’s Voluntary Severance/Early Retirement Scheme in 2008/09 and future years.
Additional sums which also require to be considered for earmarking, from the General Fund reserve, relate to £0.376 million for members Ward Budgets and a sum of £3.954 million to cover a number of known and other unspent commitments, such as provision for grants and risk management
At the 31 March 2008 there remain uncommitted balances of £6.989 million to meet unexpected items of expenditure that may have to be incurred in future years. The Council has previously agreed that an acceptable level of uncommitted General Fund balance is between 2.5% and 3% of the annual revenue budget, which amounts to between approximately £10.4 million to £12.5 million going forward into 2008/09.
The Resources Management Committee approved a strategy in September 2006, to tackle the restoration of General Fund balances over the medium term 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 2007/08, additional cost pressures during the year and the underlying assumptions underpinning the Transformation Programme.
Housing Revenue Account
The Housing Revenue Account (HRA), based on an average weekly rent of £56.29, generated a net deficit of £3.924 million during 2007/08 and had working balances of £4.407 million at the year end.
This out-turn position is broadly comparable with the budgeted out-turn deficit of £3.866 million and is the result of a number of favourable and adverse variances which broadly even out.
Additional spend relates mainly to the higher than budgeted expenditure in respect of housing repairs. In addition the provision for bad debts and the debt written off was higher than forecast.
However there were favourable movements in respect of capital financing costs, as a result of the pattern of capital spend and the pressures in the investment market have provided the Council with a better rate of interest. In addition the improvement in the void rates continued as the initiatives introduced in 2006/07 still remain successful.
Of these working balances of £4.407 million it is estimated that there are commitments amounting to £1.061 million that will fall to be met in 2008/09.
These include an anticipated £1 million for housing repairs and maintenance for costs arising from orders placed in 2007/08 but for which work did not progress or commence until after 31 March 2008 and £60,000 for further improvements to void management.
This effectively leaves an uncommitted working balance of £3.346 million for 2008/09 this is in accordance with the recommended level of working balances.
Capital Expenditure
Capital expenditure is undertaken by the Council having regard to the Prudential Code for Finance in Local Authorities and considerations, in all years, of affordability and sustainability.
Total capital expenditure in 2007/2008 was £87,304 million of which £33,926 million was spent on the Housing Programme and £53,378 million on the Non-Housing Programme. An outline of the main service elements and projects within this programme, in 2007/08, 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.
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 net receipts (that is, after the cost of sales) from sale of assets of approximately £4.6million to this fund.
The Council then used the fund to repay debt for 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.
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 2007/08 total expenditure amounted to £56.662 million for such trading operations with turnover of £65.710 million. A gross surplus of £3.756 million was generated prior to refunds of £1.100 million to client services. After taking account of these refunds, a net surplus of £2.656 million was generated and returned to the General Fund balance.
All of the services apart from Property Letting achieved a surplus in 2007/08 and 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 2005.
Summarised details of the performance of the Council's significant trading operations are provided on pages 84 to 89.
Pension Funds
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 2008 the total value of these funds was £1.824 billion with 23,511 monthly pensioners and deferred members. There are currently 25,804 members i.e. contributors to the Funds.
As a result of market volatility and the credit crunch in 2007/2008, Local Authority Pension Funds across the UK, saw an average fall in value over the year of 2.8%. The Aberdeen City Council Pension Fund (Main Fund) fell in value by 2.5% and the Transport Fund by 1.0%, reflecting their different investment strategies.
Over the 3 year period to 31 March 2008, the Main Fund saw a return of 9.1% and 10.4% for the Transport Fund. Long term performance relates mainly to the gain on valuation of equities, both UK and overseas, over the period.
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 £56.690 million as at 31 March 2008. This represents a net increase in value of £14.377 million from the prior year.
This favourable movement arose from two factors, an increase of £14.432 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 £55,000 on revenue expenditure.
Trust Funds
The Council administers a number of trust funds. The value of the trusts fund balances was £5.790 million at 31 March 2008. This represents a net increase of £425,000 compared to the previous year.
This increase arose from an upward revaluation of investments of £257,000, new funds of £8,000 and a net surplus of income over expenditure of £160,000.
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 Statements within the tight timescales.
- Susan E Cooper, BSc (Hons),CPFA,
City Chamberlain
19 June 2008
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