To receive a report from the Executive Director Resources. The report is not attached to this agenda and will be circulated ‘to follow’.

                                                                                                                        To follow

Gareth Robinson, Head of Corporate Finance introduced the accounts and apologised for the lateness of these papers. He offered a separate formal or informal session to discuss the accounts to committee members should they require this.

NOTED:

1.    The Council have a statutory responsibility to produce accounts and have them audited by two clear deadlines. This year due to Covid 19 the dates for completion have been extended for sign off the draft accounts from 31 May to 30 September and the final accounts from 31 July to 30 November.

2.    The council always intending to have the accounts finalised before this date. Last year accounts were significantly extended due to major challenges relating to the HRA valuations and problems with the underlying production statement of accounts.

3.    The statement of accounts is four main statements from page 20 onwards in the actual statement of accounts.

4.    The balance sheet itself records the councils financial position showing what the council owes and is owed by organisations.

5.    The key point to review is council’s net assets or equity which is £428m at the end of 2019/20. This is what the Council itself is worth, albeit. that some of the assets are valued in a non-commercial manner but value in use.

6.    The comprehensive Income and Expenditure Statement is broadly equivalent to a profit and loss statement in the private sector. This records the income and expenditure in year. It is worth noting that the total income and expenditure shown at the bottom of the page shows the movement between the net equity or net assets between the years. This was £79m for 2019/20.

7.    The Movement in Reserves Statement records the details of the difference reserves areas in accordance with statute, this is really important to local government. It includes the usable reserves capital adjustment account, valuation reserve, pension reserve and collect fund reserve, etc. It is often referred to the triple lock. The Movement in Reserve Statement, the Comprehensive Income & Expenditure Statement (CIES) and Balance Sheet. They must all tally up perfectly.

8.    Following these statements and the note of the accounts is the Collection Fund which is how we record council tax and business rates, housing revenue account and group accounts as the council has four companies at present plus a dormant one. The pension fund is at the end

9.    As BDO referred last year there were some major problems with the account production and had concerns about the HRA dwellings. This caused the council to take a major overall of all its processes which identified historic weaknesses. There is a new CIPFA asset register, reviewing all the data, checking for existence, the classifications and asset lives. This involved cross checking with third party independent sources in property, housing and the land registry. This is industry standard for local government accounting.

10.The accounts previously were not consistent, now all entries are entered the ledger. Previously lots of entries had been recorded on an Excel spreadsheet and had not been entered into the SAP system.

11.It is very important to be consistent so now the three main statements reconcile under the triple lock approach. The future goal is to make the step forward and eventually have an automated overlay to produce the accounts automatically. The main focus now is continual improvement and getting it right first time

12.All major balances have been reviewed and the council is moving to a quarterly approach for all reconciliations.

13.The Council has gone out to hire for key vacancies at present as want to make ensure that there is in-house development and cut out no agency staff (preferably none).

14.All bad debt provisions have been produced and should now be IFRS -9 compliant.

15.There has been a big movement in last year’s accounts. This is due to £100m downward reduction in our net equity. This was driven by primarily the fact our infrastructure assets had very long lives which are inappropriate. They had been restated for the 17/18 and 18/19 accounts in the balance sheets. This meant a £72m downward movement on this specific asset group. The details of this are in note 43. You can also see the actual movements on note 12.

16.There is also very large reclassification of assets, particularly between investment properties, other land buildings and assets under construction categories.

17.By moving to the new asset register this will make the accounts more robust as it will reduce risk and will make the audit smoother and create greater confidence.

18.Last year there was one loan that was treated as a grant, so this had to be restated in the 18/19 accounts. This was for £2.5m and related to Meridian Water.

19.The ultimate focus is to have confidence in our balances and to have the auditor’s confidence throughout the process. The auditors have been very supportive of getting it right first time and our fundamental bottoming out of the issues.

20.Moving on to the current year, Covid19 has had a dramatic impact on accounts. BDO referred to the valuation changes. The council had gone through a robust data driven approach for 18/19 and 19/20. So, we have redone all the 416 different beacons to resent the entire estate on HRA dwellings for 31 March 19 and 31 December 19. This was then rolled forward for three months for market assessments with the assumption that there would be little difference. Due to the lockdown it has been very difficult to truly assess market valuations due to sparse data. The HRA valuers have landed on a 5% reduction. It is worth noting that Knight Frank choose 7%.

21.Four months onwards from March 31^st, there may be a different opinion and we always anticipated during the audit that we would review these entire processes. So, we would expect the valuation numbers to change, based on discussions with valuers and auditors.

22.By the end of August there will be four and a half months of data and much greater confidence in what the actual numbers should have been. This will likely be an upward revision to the estimated figures.

23.The other main difference is in pension fund liability there is a £216m pension movement downwards driven by gilt rates. This is the same for all local authorities.

24.In the future when gilt rates return closer to historical normalcy, it is likely that this liability will increase significantly.

25.Another issue was that there was a lot of cash at year end. The council received £50m to provide support for businesses, and other monies for care homes and also received monies for 20/21 earlier as government wanted to ensure that councils would not have cash problems and would be able to get money out to local businesses and pay them. Also £80m of loan monies were received at year-end. Over the last three to four months, monies have gradually been given out in relation to Covid-19 and capital expenditure has gradually taken place. More details on this are provided in note 8 on page 42 of the report.

26.The next steps:

·         In the coming weeks the production of the main audit will commence.

·         BDO have started work on Property, Plant and Equipment (PPE) queries earlier, will be reviewing the asset register. They have already been queries on this matter that the council has responded to and this allows the council more time to get back to the valuers and the auditors to resolve outstanding queries.

·         Very grateful for the collaborative working with BOD which is much improved from last year.

·         The next meeting of the Committee is the 15 October and hoping to have unqualified conclusion for then.

Questions, comments and queries,

·         Does the change in valuations affect the minimum revenue provision? Officers confirmed that there is no impact on any revenue position from a change in valuation figures.

·         What is a beacon)? The local authority has 10k properties across its entire estate. Obviously, the council does not value all of the properties instead beacons are selected to represent the estate. Previously we had 24 beacons; there are now 416 made up of different construction types, postcodes, no of bedrooms, dwelling types (flats/houses et al), different ages and potentially styles allowing a more representative and accurate view.

AGREED to note the Draft Statement of Accounts.