Statement of Accounts 2009 to 2010

Explanatory Foreword

Introduction

The purpose of this foreword is to provide the reader with an understanding of the accounting statements, a review of the Council’s financial performance in 2009/10 and an explanation of the overall financial position.

Accounting Statements

The accounts have been prepared in accordance with the Accounts and Audit Regulations and the Code of Practice and guidance issued by the Chartered Institute of Public Finance and Accountancy (CIPFA). The accounting policies adopted by the Council are outlined in this document and have been fairly and consistently applied. 

The statements comprise: 

The Core Statements

Income and Expenditure Account – This statement is fundamental to the understanding of a local authority’s activities, in that it 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. 

Statement of Movement on the General Fund Balance – This compares the Council’s spending against its council tax requirement for the year, taking into account the use of reserves built up in the past and contributions to reserves earmarked for future expenditure. 

Statement of Total Recognised Gains and Losses – It is necessary to consider all gains and losses recognised in a period when assessing the financial result for the year. This statement brings together all the recognised gains and losses of the Council during 2009/10. 

Balance Sheet – This statement is fundamental to the understanding of the Council’s year-end financial position. It shows the balances and reserves of the Council and its long-term indebtedness and its fixed and net current assets employed in its operations all as at 31 March. 

Cash Flow Statement – This summarises the inflows and outflows of cash during the year. 

Notes to the Core Statements – These are set out after the above core statements. They provide further information and interpretation of the content of the individual statements. 

The Supplementary Financial Statements 

Housing Revenue Account – The Council is required by law to account separately for the provision of housing. This account shows the expenditure on managing, maintaining and providing the Council’s housing stock and how this is financed by rents and other income. 

Collection Fund Account – This shows the transactions of the Council relating to its responsibilities for collecting Council Tax and National Non-Domestic Rates within the District and the way in which these have been distributed to precepting authorities. 

Annual Governance Statement – This Statement replaces the Statement of Internal Control of previous years. It recognises, records and publishes the Council’s governance arrangements. It also reports on any significant identified weaknesses and actions planned to rectify them. 

Context for the 2009/10 Accounts 

Corporate Aims and Objectives

The Council is committed to the delivery of its Corporate Plan. This plan is integrated into the Council’s budget, which allocates the resources available to meet these objectives. The main headings of the plan are shown below: 

Improving Thanet’s Economic Prosperity – attracting quality employment opportunities to the area, helping those who are unemployed and attracting inward investment. 

Safe Neighbourhoods – making Thanet a safe place to live and reducing people’s fear of crime. 

Keeping Thanet Beautiful– improving and maintaining high levels of cleanliness in Thanet. 

Decent Quality Housing – ensuring the people in Thanet have access to good quality and secure accommodation that they can afford. 

Supporting Healthy and Cohesive Communities – improving the health and wellbeing of the people who live in Thanet, creating a sense of community within the local towns and villages of Thanet and promoting a feeling of belonging for all residents. 

Modern Council – making the best use of our resources to provide residents with high quality, consistent and efficient services. 

Financial Context

Sitting alongside the Corporate Plan is the Council’s Medium Term Financial Plan (MTFP). This forecasts the Council’s resources (income) and spending commitments over a rolling five-year period, taking account of external factors (government grants, new legislation, inflation and contractual commitments). Each year the budget evolves from the Council’s Corporate Plan and the MTFP.

Changes in Presentation and Accounting Policies

Local government accounting standards and policies are set out in the Code of Practice on Local Authority Accounting in the United Kingdom: A Statement of Recommended Practice (SORP), which is issued by the Chartered Institute of Public Finance and Accountancy (CIPFA) and updated on an annual basis. The main changes in the SORP 2009 affecting the Statement of Accounts are detailed below.

  • The SORP now recognises that Council Tax and Business Rate income are collected by billing authorities on an agency basis for major preceptors and the Government respectively. The main impact of this change is on the balances reflected in the Balance Sheet. The Council is no longer required to reflect the total value of Council Taxpayer arrears (net of bad debt provision) and overpayments, but only it’s share (the remainder being reflected in the Balance Sheets of major preceptors) or Business Ratepayer arrears, but now shows this balance as overpaid to Government at the Balance Sheet date. The net effect is a reduction to both debtors and creditors of £2.251m (£2.179m in 2008/09).

Four disclosure notes have been removed from the Notes to the Core Financial Accounts as they are no longer required by accounting standards or legislation as follows:

  • Section 137 Expenditure
  • Expenditure on Publicity
  • Building Control Account
  • Income under Local Authorities Goods and Services Act
  • The disclosure of officer remuneration now reflects current regulation whereby officers being paid a salary of between £50k – £150k require disclosure by post title, and the number of employees whose remuneration exceeded £50k are now disclosed in £5k bands.

Summary of the 2009/10 financial year

The Council provides a variety of services relating to both taxpayers and rent payers. It’s spending is further split between revenue and capital in accordance with statute and accounting practice. Revenue expenditure is generally incurred on items that are consumed within the year and is financed from Council Tax, National Non-Domestic Rates, Government grants, fees and charges and other miscellaneous income. Capital expenditure is incurred on items that provide value to the Council or community for more than one year and is generally financed by borrowing, grants, revenue balances and proceeds from the sale of capital assets. 

Revenue Outturn

The Council’s financial position has continued to be affected by the global credit crunch and the unsettled banking environment. This has impacted upon the Council’s expenditure levels and income streams. Investment income has fallen due to  reduced interest rates; planning fees and land charge income have fallen due to the decline in the housing market; and the number of housing benefit claimants has risen significantly. These have all been on an unprecedented scale. However, the Council has reacted quickly by controlling discretionary spend and containing overspends within existing budgets.

In February 2009 the Council approved a net revenue budget for 2009/10 of £22.689m. This resulted in an increase of £7.83 (3.99%) to the Band D rate over the previous year. 

The following table shows how the actual outturn compares to the original and projected budget position:  

 

2009/10

2009/10

2009/10

2009/10

2009/10

 

Gross

Gross

Net

Net Original

Variance

 

Expenditure

Income

Expenditure

Budget

 

 

£’000s

£’000s

£’000s

£’000s

£’000s

 

 

 

 

 

 

Net Cost of Services

136,410

115,884

20,526

21,446

(920)

 

 

 

 

 

 

(Gain)/Loss on the disposal of fixed assets

(220)

(219)

(1)

Other income not derived from asset disposal

-

-

-

Precepts paid to Parish Councils

631

-

631

(Surplus)/Deficit on Trading undertakings

(46)

(431)

385

Interest payable and similar charges

2,224

2,314

(90)

Contribution of Housing Capital receipts to Government Pool

301

301

-

Interest receivable and Investment income

(83)

(201)

118

Pension interest cost and expected return in pension assets

3,899

3,899

-

Net Operating Expenditure

27,232

27,109

123

 

 

 

 

 

 

Income from the Collection Fund including transfers to/from the Collection Fund

(10,162)

(9,531)

(631)

Government grants (not attributable to specific services)

(4,580)

(3,293)

(1,287)

Distribution from non-domestic rate pool

(10,695)

(10,070)

(625)

Budgeted contribution from balances

-

(500)

500

 

 

 

 

(Surplus)/Deficit for the year

1,795

3,715

(1,920)

Cabinet received regular budget monitoring information throughout the year. The last report in February 2010 showed a draft underspend on the General Fund for the year of £30.3k, this figure did not however include the £250k potential underspend on Maritime or the £200k on Pensions meaning the true position at February 2010 would have been a £480k underspend. A further £100k was as a result of reduced costs/targeted savings on Waste and Parks £61k, increased vacant post savings within Community Services £50k, a reduction in lost planning fees, additional licensing income offset by reduced property rental income giving a net £24k reduction. Finally, there were increased postage charges within Legal and Democratic Services of £10k and a requirement to undertake unplanned premises repairs £25k. 

Carry forwards requiring approval were reported to CMT as part of the April monitoring report and were subsequently approved. Although being reported to CMT from February, these were not reflected in the outturn position, this has therefore resulted in an additional £252k being included as a variance at year end.

Subsequent to this a number of underspends were identified:

  • Underspend on salary related costs over and above that projected £437k
  • Underspend on Corporate IT of £100k
  • Increase in costs recovered associated with summonses of £130k
  • Underspend on Corporate Plan activity £75k
  • Additional recycling income £15k
  • Underspend on Maritime due in the most part to work boat income £589k

There have been a number of required contributions to and from reserves to deliver a balanced budget position. These are detailed in the following table: 

Movement on Reserves

£’000s

Revenue Project Reserve: Budgets carried forward for specific commitments/projects, without which a future year revenue impact would be created

498

Maritime Reserve: It was reported to Members in February 2010 that there would be significant underspend within Maritime as a result of increased work boat traffic. Additional income was still higher than anticipated, all of which has been transferred into the above reserve to fund one off costs at the Port and Harbour in 2010/11

865

Waste Vehicle Maintenance Reserve: It was reported to Members in April 2009 that a rolling programme of vehicle maintenance would be required, as a result a further contribution has been made in 2009/10

150

Pension Earmarked Reserve: It was reported to Members in February 2010 that due to the uncertainty around Pensions any underspend would be moved to an earmarked reserve

200

IT Reserve: This reserve was set up to enhance the development of new Information Technology initiatives with the object of improving efficiency throughout the Councils activities. As a result an amount has been set aside for system upgrades and potential investment in server enhancement

100

Cremator Reserve: The Council has an obligation to be environmentally compliant by the year 2012. Additional contributions of £32k were achieved over and above the £118k budgeted

32

Corporate Plan: Slippage on the Corporate Plan growth is carried forward on this reserve to enable the activities within the Plan to be adequately funded

75

 

1,920

The General Fund balance as at 31 March 2010 is £2.076m. This represents 9.1% of the budget requirement which is slightly below the Council’s reserves strategy to maintain a balance of 10% of the budget requirement. It is intended to bring the reserves up to the recommended level over the next few years. 

Housing Revenue Account

The increase in the Housing Revenue Account balance for the year was £44k. The Council had budgeted to take £308k to reserves. The main reason for the variance is an increase in Housing Repairs expenditure of £337k. This is primarily due to void and re-let properties, particularly in relation to the decanting of the units on the Newington Estate for regeneration which has left a number of units vacant within the block resulting in an increase in expenditure.  The authority restructured some of its debt during the year - the reduced capital charges to the HRA resulted in a greater pay-over for Housing Subsidy of £286k against that budgeted. 

The variance of £264k is detailed below: 

Comparison of Budget to Final Outturn – Major Variances

£’000s

Increase in repairs expenditure

339

Reduction in home loss/disturbance Payments

(14)

General underspend on supervision and management (special)

(45)

General underspend on supervision and management services

(38)

Reduction in communications & computing costs

(54)

Increased Housing Subsidy payable

286

Increased voids resulting in reduced non-dwelling rentals

41

Reduction in communal heating and lighting costs

(31)

Reduction in leaseholders contributions

70

Reduction in employee costs

(79)

Reduced bad debt provision

(26)

General small underspend across the service

(88)

Reduced costs for Tenant Liaison

(37)

Reduction in interest received on balances

54

Other Income

(23)

Redundancy costs

  (91)

 

(264)

The accumulated HRA reserve balance at 31 March 2010 is £8.018m. The balance provides flexibility for delivery of the Housing Business Plan which has recently been reviewed. 

Capital Expenditure

The Capital Programme has also been affected by the national economic situation, particularly in regard to the Council’s ability to generate capital receipts to fund the programme. As a consequence, schemes have been deferred to later years and spend slowed down to ensure the programme could be funded.

Total expenditure on capital items, including grants and loans, amounted to £8.781m, of which £2.805m was met by capital grants, £0.004m from revenue resources, £0.684m from capital receipts, £1.358m from the major repairs reserve, £0.166m from the capital projects reserve, £0.949m from developers’ contributions (S106 receipts) and £2.815m from borrowing. 

Unallocated capital resources as at 31 March 2010 were £1.93m, which comprise of £0.023m capital receipts taking into account allocated resources against the 2009-10 capital programme slippage, £0.405m Capital Project Reserves and £1.5m Capital Grants. 

The main items of capital expenditure are set out below: 

 

£’000s

Fixed Assets

 

Council Dwellings

2,940

General Fund assets

1,560

Expenditure not resulting in assets

4,281

Total Capital Expenditure

8,781

Revenue expenditure funded from capital under statute (expenditure not resulting in assets per the above table) is included as part of the deficit on the Income and Expenditure Account. 

The economic climate has continued to subdue asset valuations. To ensure that the Council’s asset values are stated fairly within the accounts, revaluations were conducted and as a result, impairment losses of £2.5m were charged to the HRA to reflect housing values and impairments of £5.5m to the General Fund to reflect the fall in value of the Investment Properties and Operational Buildings. Impairments can be defined as a reduction to the value of a fixed asset (below its carrying amount in the Balance Sheet) due to a clear consumption of economic benefits or a general fall in market value. 

Capital Grants and Contributions

A comprehensive review of grant funded assets was carried out during 2009/10 and a number of cases where the net book value was significantly below the carrying value of the grant were identified. As a result £8.129m of government grant deferred was written down in the year, of which £5.352m related to prior years. This has been shown as an exceptional item in the Income and Expenditure account. 

Treasury Management

As at 31 March 2010, the Council had £9.203m in investments. As a result of the continuing difficulties in economic conditions, interest rates remained at historic lows, impacting adversely on investment returns. Concerns over the security of financial institutions continued, resulting in a defensive investment position. However, over the course of the financial year, the Council moved away from placing its surplus cash in its Debt Management Office Account (which is guaranteed by the Government but pays very low interest) to new call accounts and money market funds, which still provide minimal risk but offer better rates of return and instant access to funds. Investments were also restricted to short periods in order to keep funds relatively liquid and thereby allow investments to be switched to more secure institutions if necessary. 

The Council’s total borrowing at 31 March 2010 was £27.132m. The Council took out borrowing of £4m in year to repay maturing debt. 

Pensions Liability

As part of the Conditions of Employment, the Council offers retirement benefits in accordance with statutory requirements. These payments, investment assets and future liabilities are managed as part of the Kent County Pension Fund on behalf of all contributing member authorities. Local authorities are required to account for their share of the pension deficit, the impact of which can be seen in note 38 to the Core Financial Accounts. 

Thanet’s net liability on the Kent County Council Pensions Fund as at 31 March 2010 is £83.2m (£53.7m as at 31 March 2009), giving a significant increase in liability of £29.5m.

The actuaries have advised that whilst asset returns were favourable in 2009/10, it was the methodology that has to be used to determine the value of the liabilities that has led to the increased deficit.

The increase in pension liability has arisen principally due to the technical increase in the valuation of the liabilities. Financial Reporting Standard 17 (FRS17) requires the liabilities to be valued using assumptions based on gilt and corporate bond yield. The yield in excess of expected inflation (which in turn is based on gilt yields) from corporate bonds reduced from 3.7% to 1.5% during the year, in part due to the impact of quantitative easing and other technical factors on bond and gilt markets. However, the assets of the Kent County Council Pensions Fund are invested for the longer term with only a small percentage invested in corporate bonds.

FRS17 does not impact directly on the actual level of employer contributions paid to the Kent County Council Fund. Employers’ levels of contributions are determined by triennial actuarial valuations which are based on the Fund’s actual investment strategy (rather than being based on corporate bond yields).

The movement to the Fund is set out in more detail in note 38 to the Core Financial Accounts. The total liability has an impact on the net worth of the authority as recorded in the Balance Sheet. However, statutory arrangements for funding the deficit mean that the financial position of the authority remains sound. The deficit on the scheme will be recovered through increased contributions over the remaining life of the employees as assessed by the actuary.

Group Accounts

Local Authorities with interests in subsidiaries, associates and joint ventures are required since the 2005 SORP to prepare Group Accounts in addition to their financial statements. In determining whether it is necessary to publish Group Accounts a local authority should consider their interests in all types of organisations. Thanet District Council has considered their relationships with organisations and has concluded that there is a Group Accounts relationship in respect of East Kent Opportunities LLP (EKO). This is a Limited Liability Partnership between this Council and Kent County Council to bring forward the economic development and regeneration of Eurokent and Manston Park sites. EKO was incorporated on 4 March 2008. KCC and this Council each had 50:50 ownership, control and economic participation in the joint venture during 2009/10. Each partner has contributed 38 acres of land. For the purposes of Group Accounts, this arrangement is treated as a Joint Arrangement, Not an Entity (JANE). 

The EKO accounts for the period ended 31 March 2010 will be audited by external auditors Baker Tilley before being lodged at Companies House. 

Approval

In accordance with Regulations 10(3) and 10(4) of the Accounts and Audit Regulations 2003, the Governance and Audit Committee approved the 2009/10 Statement of Accounts on 29 June 2010. 

Signed :                                                        Date:            

Chair of the Governance and Audit Committee