Carolyn Haynes (Financial Controller) presented this item and highlighted the following:

a)   it is a legal requirement of the Accounts and Audit Regulations 2015 that the Statement of Accounts (Appendix A) is approved by a resolution of the Council or the relevant Committee of the Council by 31 July 2019. The Scheme of Delegation to Committees within the Council constitution delegates the responsibility to the Audit and Governance Committee to consider and approve the Council’s Statement of Accounts; 

b)    the Accounts and Audit Regulations require that the draft Statement of Accounts is signed by the Council’s Section 151 Officer by 31 May each year.  The pre-audited accounts were approved by the Service Director for Finance and published on the Council’s website on the 31 May 2019;

c)    formal audit of the accounts for 2018/19 commenced on 1st July. The 30 working days period in which the Council has to make the draft accounts available for public inspection started on 1 June; 

d)    as part of the final audit requirement, and prior to the issue of the audit certificate, the Council is required to complete and sign a formal letter of representation and submit this to the auditor.  This letter will be signed by the Service Director for Finance and the Chair of the Audit & Governance Committee;

e)    the Council’s outturn position was reported to Cabinet on 11 June 2019 showing an overspend of £1.117m (before any adjustments), which is a 0.6% variance on the budget; 

f)     the General Fund Balances (also known as the Working Balance) as at 31 March 2019 was £8.050m. The Working Balance has a recommended minimum set at 5% of the net revenue budget, as set by Council. However, due to the continued budget pressures in 2018/19, the Council had to make further use of its Working Balance reducing it to 4.3% of the net revenue budget;

g)    the Balance Sheet showed the Council’s assets, liabilities and reserves. The reserves are split in to usable and unusable reserves. The unusable reserves are not available to the council but are part of technical accounting requirements;

h)    the Council has a negative Balance Sheet as at 31 March 2019 which means that the Council’s liabilities are £156,513 million greater than its assets;

i)     the main movements on the Balance Sheet between 31 March 2018 and 31 March 2019 were summarised as:

Non-current Assets

·         Property, Plant and Equipment had increased by £40.505 million partly due to the revaluation of a number of assets and also due to the addition of assets through the capital programme.

·         Investment Property had increased by £60.104 million due to the Council’s Asset Investment fund. The Council’s Capital Programme included the provision for the purchase of Investment Properties. Investing more in these types of properties allows the Council to deliver wider benefits to the residents and economy of Plymouth.

·         Long Term Investments had increased by £1.635 million reflecting a movement from short to long term investment on the advice of the Council’s Treasury Management consultants Arlingclose.

Current Assets

·         Short Term Debtors had increased by £4.105 million due to:

o   Increase in commercial rent invoices

o   Various central government grants outstanding

o   Capital debtors for a variety of capital schemes

o   PCC’s share of Tamar Bridge debtors

·         Cash and Cash Equivalents had increased by £1.583 million to £31.863 million to reflect an increase in our cash investments.

Current Liabilities

·         Short Term Borrowing had increased by £85.224 million. This is to finance the Capital Programme in accordance with the 2018/19 approved budget and Treasury Management Strategy.

·         Short Term Creditors had increased by £8.416 million for the following reasons:

o   Outstanding payment to HMRC

o   Increase in revenue grants received in advance

o   Increase in the short term creditor for the NHS and for the Devon Pension Scheme

o   Capital creditor accruals have increased in line with the increase in capital expenditure

Long Term Liabilities

·           Long Term Creditors had decreased by £1.259 million. Most of the movement was reflected in the slight reduction in the liability for unfunded pension liabilities relating to pre Local Government Reorganisation.

·           Long Term Provisions had decreased by £1.704 million which related to a decrease in the provision for business rate appeals, insurance and landfill site provision

·           Long Term Borrowing had increased by £12.938 million. Some of this increase related to additional funding for the Capital Programme.

·           Long Term Liabilities Pensions had reduced by £20.625 million. The Council’s net liability had reduced due to a reduction in the present value of the defined benefit and an increase in the fair value of the plan assets.

Members discussed the following:

a)    the appropriateness of the Council tax collection rate target. It was clarified that the budget assumes a lower collection rate than the target and that performance reflects in-year performance as opposed overall performance. The Director of Finance undertook to explain the data more clearly within the report in future iterations

b)    the implications of the reduction in working balances to 4.3% in order to make-up the deficit, against the recommended level of 5%. The Director of Finance:

a.     confirmed that the generally accepted principle across local government is to retain a minimum of 5% of working balances to cover unforeseen events;

b.    that Council has agreed the 5% level for the organisation and that the implications for going below the threshold is that less is potentially available for unforeseen events.

c.    that the Medium Term Financial Plan is being developed to build back up the level of working balances to restore what was taken out in 2018/19.

c)    the increased provision made for the collection fund referenced in section 19.3. The Director of Finance clarified that this fund is an amalgamation of mainly business rates and that the increased provision was due to the downturn in the economy and subsequent impact on businesses in the city. 

d)    the appropriateness of investment in properties. The Director of Finance explained that any decision to invest in property is undertaken as part of the council’s capital investment programme. The decision-making processes resulting occur in line with the Constitution and there is a robust governance process of the asset portfolio. The Council’s Asset Investment Strategy sets out the areas of potential investment.

e)    the 46.9% reported spend on business in Plymouth postcode against the 55% target and actions in place to improve the performance. The Director of Finance explained that the 55% level was a self-imposed target and that the Council works within procurement regulations and relevant business law. The Council works with other major public sector organisations through a city-wide procurement forum, to make things as easy as possible for local providers/suppliers to access work with the council.

f)     the approach to capital infrastructure such as Next at March Mills and whether such investments take footfall from the city centre. Although an issue for Planning Committee, it was confirmed by the Financial Controller that there was a requirement for Next to maintain their presence in the city centre as part of their planning application for Marsh Mills. 

By way of consensus, the Committee:

1.    approved the Statement of Accounts for 2018/19 attached as Appendix A to the report, with the understanding that they are currently being audited by GTUK (Grant Thornton UK). Should any issues be identified during the GTUK audit and after the date of this committee, Members delegated the approval of the Statement of Accounts to the Chair of the Audit and Governance Committee, in consultation with the Service Director for Finance, to be done before the 31 July 2019. In the context of this approval, Councillor Kelly asked that his significant concerns about financial sustainability of the Council, based on the accounts, be noted in the minutes.

2.    noted the ‘Letter to Management’ responses attached as Appendix B of the report which were agreed with the Chair of Audit and Governance Committee prior to being sent to GTUK at the end of April 2019.

3.    noted the contents of the GTUK IT Audit Report attached at Appendix C of the report.