The 2018-19 Statement of Accounts (SOA) have been externally audited and are now presented to the Committee for approval. The External Auditor (Mazars) has reported their findings in two separate Audit Completion Reports, one for the Council and another for the West Yorkshire Pension Fund. Members are asked to consider these before approving the SOA.

The Director of Finance will submit Document “K”  which presents the 2018-19 audited Statement of Accounts (Appendix A) and summarises the key financial points.

Recommended-

That the 2018-19 Statement of Accounts be approved and signed by the Chair of the Committee.

                                                  (James Hopwood - 01274 432882)

The 2018-19 Statement of Accounts (SOA) had been externally audited and were now presented to the Committee for approval. The External Auditor (Mazars) had reported their findings in two separate Audit Completion Reports, one for the Council and another for the West Yorkshire Pension Fund. Members were asked to consider these before approving the SOA.

The Director of Finance submit Document “K”  which presented the 2018-19 audited Statement of Accounts (Appendix A) and summarised the key financial points.

The key financial implications as at 31 March 2019 from the 2018-19 statement of accounts were summarised:

·         The General Fund Balance ended the year at £15m and earmarked reserves on £166m. Both these amounts represented cash funds, but which could be spent once only. The General Fund Balance was held in accordance with statute; the purpose was as a safety net against unexpected variations in the Council’s annual expenditure – which was £1.1 billion as shown in the cost of services in the Comprehensive Income and Expenditure Statement. The earmarked reserves were held to protect against specific risks and commitments. For example, this included the increasing volatility of the Council’s funding as Government grants reduce.

·         The Council spent £84m on long term infrastructure, as part of its Capital Programme. £31m of this spend was financed by borrowing. £5m was financed by receipts from the sale of property. £43m was financed by grants, with the remainder from miscellaneous sources.

·         At the end of the year, the Council also held £47m of grants provided by external public sector bodies, which would be used in the future to finance the Capital Programme.

·         Working capital was positive with short-term debtors and available cash higher than short-term creditors.

·         The Council had £700m of borrowing for infrastructure spend. £220m was temporarily borrowed from the Council’s own cash held in earmarked reserves in order to reduce interest payments. £4m relates to miscellaneous historical debt. £314m was actual borrowing from the Public Works Loan Board. £162m was in the form of contractual Private Finance Initiative liabilities. This last part of the borrowing was funded by an annual revenue grant from the Government, so currently there was no cost to the Council. However, this grant would be used up over a shorter period than was being used to repay the borrowing, so eventually there would be an annual cost arising from Private Finance Initiative Liabilities.

·         Borrowing was in line with projections. Amounts previously set aside to pay for it were estimated at a higher proportion than outstanding usage on related land and buildings. As a result, the Council paid back to itself £23m in 2018-19 from these amounts set aside, transferring the cash amount into earmarked reserves. This followed a transfer for a similar amount in the 2017-18 financial year.

·         Against the £700m of borrowing, the Council had £1,050m of land, buildings, equipment and other infrastructure. The value of the Council’s long-term property was therefore significantly higher than the outstanding debt relating to it.

·         Other considerations in any comparison between borrowing and infrastructure were that the Council’s schools were converting to academies: accounting rules meant that as these academies were independent, their buildings could no longer be shown in the Council’s accounts. For instance, 17 schools converted to academies in 2018-19, removing land and buildings to the value of £40m from the Council’s balance sheet. Another consideration, though, was that borrowing would be expected to be lower than the Council’s infrastructure because it had been partially financed by grants.

·         The Council’s estimated pension fund deficit had increased to £1,007m, based on an estimate made in accordance with accounting rules. However, this estimate was theoretical and was based on an extrapolation, looking into the future. It compared promised pension benefits to employees with the investments set aside to pay for them. Pension experts regard the assumptions used in the extrapolation as cautious. In reality, the actual cost of funding employees’ pensions was determined by a different valuation, the results of which were already factored into the Council’s Medium Term Financial Strategy. This separate valuation also suggested the current value of the balance between pension benefits and investments was nearer breakeven.

·         The Council maintained a separate fund for Business Rates and Council Tax, from which it distributes pre-agreed shares to itself, the Government, West Yorkshire Fire and Rescue Authority and the Police and Crime Commissioner. Overall the fund ended 2018-19 close to a break even position for both Business Rates and Council Tax. However, the Council’s own share was a £1.1m surplus on Business Rates, with the Government holding a £1.1m deficit. This arose due to differences in the ratios of the amounts to be distributed between the Council and the Government in previous years. The Council’s surplus would help support the budget in future years.

It was reported that this was the second year in which the Statement of Accounts were prepared and audited in line with the earlier timetable. The Council continued to streamline its processes to improve and develop the production of its accounts.

All misstatements in the draft accounts had been adjusted for. The most significant adjustment was in relation to the recalculation of the Council’s pension liability. This arose due to recent court judgements and the outcome of professional discussions about how to reflect these in Local Authority’s accounting statements.

The Head of Financial Accounting and Systems thanked External Audit for the work they had completed and the professional manner in which the audit was conducted.

In response to a Members’ question it was reported that officers were working on a comprehensive investment strategy. A new prudential framework was being developed to stop authorities making unsound decisions on investments.

Resolved-

That the 2018-19 Statement of Accounts be approved and signed by the Chair of the Committee.

Action:           Director of Finance