The 2019-20 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 “R”  which presents the 2019-20 audited Statement of Accounts (Appendix A) and summarises the key financial points.

Recommended-

That the 2019-20 Statement of Accounts be approved and signed by the Chair of the Committee.

                                                  (James Hopwood - 01274 432882)

The 2019-20 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 submitted Document “R”  which presented the 2019-20 audited Statement of Accounts (Appendix A) and summarised the key financial points.

It was reported that the key financial implications as at 31 March 2020 from the 2019-20 statement of accounts were that:

·         The General Fund Balance ended the year at £15m and earmarked reserves on £192m. 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 £81m on long term infrastructure, as part of its Capital Programme. £11m of this spend was financed by borrowing. £2m was financed by receipts from the sale of property. £45m was financed by grants, with the remainder from miscellaneous sources.

·         At the end of the year, the Council also held £34m 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 £711m of borrowing for infrastructure spend. £210m was temporarily borrowed from the Council’s own cash held in earmarked reserves in order to reduce interest payments. £3m related to miscellaneous historical debt. £336m 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. However, a reserve was earmarked to mitigate these future costs.

·         Borrowing was slightly lower than estimated. 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 2019-20 from these amounts set aside, transferring £5m cash amount into earmarked reserves.

·         Against the £711m of borrowing, the Council had £1,030m 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, 4 schools converted to academies in 2019-20, removing land and buildings to the value of £27.4m from the Council’s balance sheet. Another consideration, though, was that borrowing would be expected to be lower than the Council’s infrastructure value because it had been partially financed by grants.

·         The Council’s estimated pension fund deficit had increased to £1,046m, based on an estimate made in accordance with accounting rules. This 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. The actual cost of funding employees’ pensions over the short term is determined by a different valuation, the results of which were already factored into the Council’s Medium Term Financial Strategy. This separate valuation gave a different result: which suggested the current value of the balance between pension benefits and investments was closer to breakeven.

·         The Council maintains a separate fund for Business Rates and Council Tax, from which it distributed pre-agreed shares to itself, the Government, West Yorkshire Fire and Rescue Authority and the Police and Crime Commissioner. Overall the fund ended 2019-20 close to a £1.5m surplus for Business Rates and Council Tax combined. However, the Council’s own share was a £1.4m surplus on Business Rates, with the Government holding a £0.3m surplus. 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 all misstatements in the draft accounts had been corrected. The most significant adjustment was in relation to the recalculation of the Council’s pension liability. This arose due an actuarial adjustment, and was not related to the Council’s internal processes.

Members were informed that there had been no significant findings in the audit process which was a tribute to officers in the Finance Team; there had been a national update to actuary which resulted in an adjusted value of assets which was shown in the revised set of accounts; the accounts showed positive financial results and there were strong cash reserves as at 31 March.

In response to a Members question relating to reserves it was reported that £15 million was held in general balances and £10 million had been allocated; both figures combined were quite small in terms of the Councils cash flow given the volatility that could occur, and a substantial amount was set aside for future risks which was sensible and prudent.

Resolved-

That the 2019-20 Statement of Accounts be approved and signed by the Chair of the Committee and that any subsequent changes that need to be made following this meeting are delegated to the Director of Finance in consultation with the Chair for approval.

Action:  Director of Finance