Cabinet

Lloyd White Head of Democratic Services London Borough of Hillingdon, 3E/05, Civic Centre, High Street, Uxbridge, UB8 1UW www.hillingdon.gov.uk Audit Committee Date: MONDAY, 28 JUNE 2010 Time: 5.00 PM Venue: COMMITTEE ROOM 3 - CIVIC CENTRE, HIGH STREET, UXBRIDGE UB8 1UW Meeting Details: Members of the Public and Press are welcome to attend this meeting Members on the Committee John Morley (Chairman) George Cooper Phoday Jarjussey (Labour Lead) Richard Lewis Raymond Graham Published: 18 June 2010 This agenda and associated reports can be made available in other languages, in Braille, large print or on audio tape on request. Please contact us for further information. Contact: Khalid Ahmed Tel: 01895 250833 Fax: 01895 277373 Email: kahmed@hillingdon.gov.uk This Agenda is available online at: http://modgov.hillingdon.gov.uk/ieListDocuments.aspx?CId=256&MId=661&Ver=4 Public Document Pack Useful information Bus routes 427, U1, U3, U4 and U7 all stop at the Civic Centre. Uxbridge underground station, with the Piccadilly and Metropolitan lines, is a short walk away. Limited parking is available at the Civic Centre. For details on availability and how to book a parking space, please contact Democratic Services Please enter from the Council’s main reception where you will be directed to the Committee Room. An Induction Loop System is available for use in the various meeting rooms. Please contact us for further information. Please switch off any mobile telephones and BlackBerries™ before the meeting. Any recording of the meeting is not allowed, either using electronic, mobile or visual devices. If there is a FIRE in the building the alarm will sound continuously. If there is a BOMB ALERT the alarm sounds intermittently. Please make your way to the nearest FIRE EXIT. This Committee This Committee will be responsible for ensuring that th e financial management of the Council is adequate and effective an d that the Council has a sound system of internal control. This Committee wi ll also consider risk management issues and performance reports. Terms of Reference The Constitution defines the terms of reference for the Audit Committee as: Statement of Purpose The purpose of Audit Committee is to: • provide independent assurance of the adequacy of the C ouncil’s risk management framework and the associated control environment • provide independent scrutiny of the authority’s fina ncial and non-financial performance to the extent that it affects the authority’s exposure to risk and weakens the control environment • oversee the financial reporting process. Audit Activity The Audit Committee will: 1. Approve but not direct Internal Audit’s strategy a nd plans, ensuring that work is planned with due regard to risk, materiality and coverage. This will not prevent Cabinet directing internal audit to review a particular matter. 2. Review the Head of Internal Audit’s Annual Report and Opinion and Summary of Internal Audit Activity (actual and proposed) and the level of assurance this can give over the Council’s corporate governance arrangements. 3. Review summaries of Internal Audit reports and the main recommendations arising. 4. Review a report from Internal Audit on agreed re commendations not implemented within a reasonable timescale. 5. Consider reports dealing with the management and p erformance of the providers of internal audit services. 6. Receive and consider the External Auditor’s annual letter, relevant reports and the report to those charged with governance. 7. Monitor management action in response to issues raised by External Audit. 8. Receive and consider specific reports as agreed with th e External Auditor. 9. Comment on the scope and depth of External Audit w ork and ensure that it gives value for money. 10. Liaise with the Audit Commission over the appointm ent of the Council’s External Auditor. 11. Commission work from Internal and External Audit, following a formal request by the Committee to and a joint decision from the Leader of the Council and Cabinet Member for Finance & Business Services. 12. Ensure that there are effective arrangements for ensuring liaison between Internal and External audit. Regulatory Framework The Audit Committee will: 1. Maintain an overview of the Council’s Constitution i n respect of contract procedure rules, financial regulations and codes of conduct and behaviour. And, where necessary, bring proposals to the Cabinet and/or Council for their development. 2. Review any issue referred to it by the Chief Execut ive or a Director, or any Council body. 3. Approve and regularly review the authority’s risk m anagement arrangements, including regularly reviewing the corporate risk register and seeking assurances that action is being taken on risk related issues. 4. Review and monitor Council policies on ‘Raising Conce rns at Work’ and anti- fraud and anti-corruption strategy and the Council’s complaints process. 5. Oversee the production of the authority’s Statement of Internal Control and recommend its adoption. 6. Review the Council’s arrangements for corporate gov ernance and agree necessary actions to ensure compliance with best practice. 7. Consider the Council’s compliance with its own and oth er published standards and controls. Accounts The Audit Committee will: 1. Review and approve the annual statement of account s. Specifically, to consider whether appropriate accounting policies have been followed and whether there are concerns arising from financial statements or from the auditor that need to be brought to the attention of the Council. 2. Consider the External Auditor’s report to those cha rged with governance on issues arising from the audit of the accounts. Agenda 1 Apologies for absence and to report the presence of any substitute members 2 Declarations of Interest in matters coming before this meeting 3 Minutes of previous meetings - 11 March and 13 May 2010 (Page 1) 4 Exclusion of Press and Public To confirm that all items marked Part I will be conside red in public and that any items marked Part II will be considered in private. 5 Approval of the 2009/10 Statement of Accounts (Page 13) 6 Indicative Stage Use of Resources Report (Page 117) 7 Head of Audit Annual Assurance Statement (Page 151) 8 Annual Review of the Effectiveness of the Systems of Internal Audit (Page 185) 9 Fraud Awareness Survey 2010 (Page 191) 10 Consolidated Fraud Report (Page 201) 11 Review Progress on Implementing Actions Arising from Committee Self Assessment (Page 207) 12 Update on International Financial Reporting Standards (IFRS) (Page 215) 13 Audit Committee Work Programme (Page 217) 14 Report to Council on Work of Audit Committee (Page 221) 15 Changing Legislation and Current Issues • Audit Commission – The National Fraud Initiative 200 8/9 • CIPFA – Leading in Hard Times, Guidance for everyon e involved in the leadership of public services • CIPFA / SOLACE – After the downturn, managing a sign ificant and sustained adjustment in public sector funding. 16 Key Financial Audit Risk Relating to the Valuation of Icelandic Investments (Page 227) 17 Internal Audit Progress Report (Page 237) This page is intentionally left blank Audit Committee 11 March 2010 Minutes Independent Member: John Morley (Chairman) Members Present: Councillors George Cooper, Tony Eginton, Liz Kemp and Mary O’Connor. Also Present: Councillors Phoday Jarjussey and Mo Khursheed. Apologies: None Officers Present: Sarah Harty (Head of Resources, Policy and Performance, Education and Children Services), David Kidner (Interim Manager of Hillingdon Grid for Learning (HGfL) Education and Children’s Services), Nancy Le Roux (Senior Finance Manager – Corporate Finance), Rob Mackenzie-Wilson (Policy Officer, Deputy Chief Executive’s Office), Christopher Neale (Director of Finance & Resources), Chris Spencer (Director of Education and Children’s Services), Helen Taylor (Head of Internal Audit and Corporate Governance), Steve Wilkins (Risk & Insurance Manager), (Head of Accountancy Services) and Khalid Ahmed (Democratic Services Manager). Others Present: Paul Hutt (Deloitte) and Gus Miah (Deloitte) Agenda Item 3 Page 1 42. Declarations of Interest: John Morley and Councillor Liz Kemp declared Personal Interests in Agenda Item 10 – Internal Audit Operational Plan as they were Members of the Board of Hillingdon Homes. They both remained in the room and took part in discussions on the item. Councillor George Cooper declared Personal Interests in Agenda Item 8 – Internal Audit Progress Report as he was a Governor of St Mary’s School, and in Agenda Item 5 – Deloitte – 2009/10 – Annual Audit Plan, as he was a Member of the Pensions Committee. He remained in the room and took part in discussions on the items. Councillor Tony Eginton declared a Personal Interest In Agenda Item 8 – Internal Audit Progress Report as he was a Governor of Hillside Junior School and Minet Nursery and Infant School. In addition his wife was a Governor at Harlyn Primary School. He left the room and did not participate in discussion on the item. Councillor Mary O’Connor declared a Personal Interest in Agenda Item 8 – Internal Audit Progress Report as she was a Governor of Botwell School and Moorcroft School. She remained in the room and took part in discussions on the item. 43. Minutes of the meeting held on 16 December 2009 Agreed as an accurate record. [During discussion on the item, Councillor Eginton advised the Committee that he would be resigning as a Member of the Committee. Councillor Eginton left the meeting at this point.] 44. Exclusion of the press and public: It was agreed that Items 16, 17 and 18 be considered in private. 45. Deloitte – 2009/10 – Annual Audit Plan Paul Hutt and Gus Miah from Deloitte attended the m eeting and introduced the report to Members. Members were informed that the report set out the ini tial plans for the audit of the Statement of Accounts 2009/10. Th e plan highlighted the key financial and non-financial audit risks which were:- Financial risks • Grant income recognition • Property valuations • Valuation of Icelandic Investments Action By: Page 2 • Pension liability assumptions • Accounting for local taxes • Bad debt provisions Non-Financial risks • Contract procurement • Partnership working In addition the report set out an audit plan for the Pension Fund audit which highlighted three risks:- • Contributions • Benefits • Financial instruments Issues raised by Members were:- • An update report be submitted to the next meeting o f this Committee on the key financial audit risk relating to the valuation of Icelandic investments • In relation to Contract Procurement and the comment that this was considered a wider risk across the Council, the Head of Internal Audit and Corporate Governance reported that a number of audits had been undertaken and the arrangements around procurement were complex • The next Pensions Committee was prior to the next meeting of this Committee which would mean the Pension Fund Annual Report would be agreed before this Committee received it Resolved - 1. That the information contained in the report be n oted. Action By: Deloitte 46. Deloitte – Annual Grant Audit Letter Members were informed that a report by the Audit Com mission in September 2009 recommended that auditors should rep ort annually to those charged with governance in order to highlight the errors, adjustments and qualifications arising in clai ms and returns in relation to grants. There had been a total of 9 grant claims which had bee n audited. Deloitte reported that all claims had been submitted on time and a number of non significant adjustments had be en made to five of the grant claims. Only one grant claim had been given a qualification letter which was a significant imp rovement on last year which demonstrated the efforts of the Fina nce Team. An Issue raised by Members was in relation to Deloitte’s testing Page 3 of the Housing and Council Tax Benefits Scheme grant an d the issuing of a qualification letter, Members were informe d that an error of £224.91 had been identified in relation to one claim. This was taken from a sample of up to 100 where 3 or 4 errors would be found. This was an immaterial sum on which to base a qualification but Deloitte confirmed that qualifica tion in this context was just a record of errors found and not the same as a set of qualified accounts. Resolved – 1. That the information contained in the report be n oted and Internal Audit officers be congratulated for their imp roved performance in relation to grant claims. Action By Helen Taylor 47. Delivering the Annual Governance Statement Members were informed that the Council was rolling for ward the existing framework which had been developed over t he past two years to evaluate the management of internal controls, risk and control assurances across all services. The Corporate Governance Working Group would provide the leadership and support to compile the Statement. Resolved – 1. That the information contained in the report be noted. 48. Internal Audit Progress Report The report provided Members with details of the summa ry of Internal Audit activity for the period to 19 February 2010. The Head of Internal Audit and Corporate Governance reported there was no cause for concern at this time with the leve ls of assurance. There was one audit with limited assurance whi ch related to the Customer Relationship Management (CRM) application where weaknesses were identified in relatio n to password controls. Plans were in place to address these weaknesses. Areas discussed included:- • School audits – Haydon Secondary School was limited assurance. The Head of Internal Audit and Corporate Governance would send Members details of the audit on this school • School audits – Holy Trinity and Bourne Primary had achieved Financial Management in Schools Standard, which had to be met every 3 years • School audits – Members noted the full assurance level which Queensmead Secondary School had Helen Taylor Page 4 achieved. • Follow up audits – Website Content Management – The outstanding recommendation was partially completed and this related to the strategy for standardised access. Members asked that if this outstanding recommendation had not been implemented before the next meeting, that officers be asked to attend to provide further details and target dates for completion Members were reminded that at their last meeting it w as agreed that a representative from Hillingdon Grid f or Learning (HGfL) be invited to provide reassurance on outstanding recommendations. The Director of Education and Childre n’s Services, the Head of Resources, Policy and Performance, Education and Children Services and the Interim Manage r of HGfL attended the meeting to provide Members with d etails of progress made. Most of the outstanding recommendations contained in th e action plan had been implemented but there were still concerns around procurement. Monthly meetings were taki ng place with the Corporate Procurement Board, but the broader remit was looking at value for money. The Head of Int ernal Audit and Corporate Governance reported that a forma l follow up audit would take place. Members thanked officers of Education and Children’s Services for attending the mee ting and it was agreed that sufficient re-assurance had been given that outstanding recommendations should be implemented. Resolved- 1. That the in-year progress against the Internal Audi t Plan for 2009-10, and the updated position of those audits undertaken in 2007-8 and 2008-9 be noted and the Internal Audit Team be thanked for all their efforts and the results they have achieved. Action By: Helen Taylor 49. Internal Audit Strategy Members were informed that the report set out the str ategy for delivery and development of the Internal Audit Serv ice 2010-11 and the associated Internal Audit Plan. This detailed how the service would be delivered, the assurance that it would p rovide and how the Head of Internal Audit and Corporate Go vernance would contribute to corporate governance arrangements, risk management processes and key internal control systems. The Head of Internal Audit and Corporate Governance reported that the audit of IT systems would continue to be contracted out to an outside contractor. A retender of the contract wa s currently underway which would be in place before the start of Page 5 the new financial year. Reference was made to the Internal Audit team now be ing fully staffed and officers were asked to look at again the descriptions of the skills in the team detailed on page 1 22 of the agenda. Resolved- 1. That approval be given to the internal audit strategy. Action By: Helen Taylor 50. Internal Audit Operational Plan 2010-11 The Chartered Institute of Public Finance and Account ancy (CIPFA) Code of Practice for Internal Audit in Local Government required the Head of Internal Audit and Corporate Governance to produce a risk based plan which was fixed f or no longer than a year and was designed to implement the Audit Strategy. Reference was made to the planned audit work for the year but changes in service delivery arising from the Business Improvement Delivery process would mean that there was a much greater likelihood that audits would be added or deleted than there had been in previous years. Members were informed that Housing Management would be brought ba ck into the Council. Hillingdon Homes’ internal audit ser vices were currently provided by Mazars and the Head of Internal Audit and Corporate Governance was asked to work closely with th e Director of Finance of Hillingdon Homes to ensure a smo oth transition. Discussion took place on Human Resources – CRB checks and re-checks. Some Members believed there was a possibilit y that documentation provided to support CRB checks was held for longer than it should be under regulations. The Head of Internal Audit and Corporate Governance undertook to clarify the procedure with HR. Resolved- 1. That approval be given to the Internal Audit Op erational Plan 2010-11 and the comments made be noted. Helen Taylor Helen Taylor 51. International Financial Reporting Standards (IF RS) Members were reassured that the Council was on track to implement the transition to report its Statement of A ccounts under the IFRS based Code of Practice on Local Authorit y Accounting. Resolved – Page 6 1. That the report be noted and consideration be giv en to providing customised training to newly appointed Members at an appropriate time. Action By: 40. Treasury Management Strategy Statement and Inve stment Strategy 2010-11 To 2012-13 Members were informed that the Treasury Management Strategy was agreed by Council as part of the Budget s etting process in February and it was brought to this Committee to allow greater scrutiny of the strategy. The strategy for 2010/11 had been written with the a ssistance of Arlingclose, the Council’s Treasury Advisors and the strategy had been developed to increase the range of permitted investment vehicles to allow greater diversification whil st maintaining a high degree of caution. Reference was made to the impact of interest on balan ces and Members were informed that this Council had not been t oo reliant on high interest returns which meant there ha d not been a huge impact during this difficult economic period. The Council had spent on capital developments rather than looking for active financial management opportunities. Members discussed the role of this Committee in scrutinising the strategies and it was felt it would be more benefi cial for this Committee to consider the strategies before they were a greed by the Council. It was agreed that a representative fr om Arlingclose Ltd be invited to the December 2010 meeting of this Committee to enable Members to be provided with deta ils of the strategies before they were agreed by Council. Resolved - 1. That the information contained in the report be noted. Nancy Le Roux 41. Budget Setting Process Members were reminded that at the last meeting of thi s Committee a request was made for a report to be submi tted providing details on the budget setting process within t he Council. An informative report was considered which gave Members assurances that the budget setting process was subject to sufficient scrutiny elsewhere within the Council. Resolved – 1. That the information contained in the report be noted and the report be included in the information pack which w as given to new Members of this Committee. Helen Taylor Page 7 Action By: 42. Review of Internal Audit Terms of Reference Minor amendments were suggested to the Internal Audit Terms of Reference and these were noted. 43. Changing Legislation and Current Issues Members were informed that this year’s Internal Audit review would be carried out by means of a self review. A repo rt would be submitted to the Committee for information. 44. Balances and Reserves Statement 2010/11 The report on this item was included in Part II as it co ntained information relating to the financial or business affai rs of any particular person (including the Authority holding tha t information) and the public interest in withholding the information outweighed the public interest in disclosing it (exempt information under paragraph 3 of Part 1 of Schedule 12 A to the Local Government (Access to Information) Act 1985 as amended. Members were provided with details on the Council’s app roach to management and measurement of the requirement to hold balances and reserves. Resolved – 1. That the information contained in the report be noted. 45. Risk Management Report The report on this item was included in Part II as it co ntained information relating to the financial or business affai rs of any particular person (including the Authority holding tha t information) and the public interest in withholding the information outweighed the public interest in disclosing it (exempt information under paragraph 3 of Part 1 of Schedule 12 A to the Local Government (Access to Information) Act 1985 as amended. The report provided details of the reporting arrange ments in place for the most significant risks identified by officers and the most recent quarterly report. Resolved – 1. That the information contained in the report be noted. Page 8 46. Internal Audit Progress Report The report on this item was included in Part II as it co ntained information relating to the financial or business affai rs of any particular person (including the Authority holding tha t information) and the public interest in withholding the information outweighed the public interest in disclosing it (exempt information under paragraph 3 of Part 1 of Schedule 12 A to the Local Government (Access to Information) Act 1985 as amended. Consideration was given to a progress report on four Int ernal Investigations. Resolved – 1. That the information contained in the report be noted. Action By: Meeting closed at: 6.55pm Next meeting: 28 June 2010 at 5.00pm These are the minutes of the above meeting. For more information on any of the resolutions please contact Khalid Ahmed on 01895 250833 . Circulation of these minutes are to Councillors, Officers, the Press and Members of the Public. Page 9 Page 10 This page is intentionally left blank _________________________________________________________________________ - Page 1 - Minutes Audit Committee 13 May 2010 Meeting held at the Civic Centre, Uxbridge Committee Members Present: George Cooper, Phoday Jarjussey, Richard Lewis and Raymond Graham. Officers Present: Lloyd White and Nikki Stubbs. 1. Election of Chairman Resolved – That Mr John Morley be elected Chairman of the Committee for the ensuing municipal year. Meeting closed at: 8.58pm Next meeting: 28 June 2010 These are the minutes of the above meeting. For more information on any of the resolutions please contact Khalid Ahmed on 01895 250833 . Circulation of these minutes is to Councillors, Officers, the Press and Members of the Public. Page 11 Page 12 This page is intentionally left blank Audit Committee 28 June 2010 PART 1 – MEMBERS, PUBLIC & PRESS APPROVAL OF THE 2009/10 STATEMENT OF ACCOUNTS Contact Officers: Harry Lawson & Nancy Leroux Telephone: 01895 556578 REASON FOR REPORT The report presents the 2009/10 Statement of Accounts for approval by the Audit Committee as required by the Accounts and Audit Regulations 2003. It sets out the requirement for members to approve the Statement of Accounts and provides an update on key technical changes and the key issues raised in the Council’s accounts for 2009/10. The Pension Fund accounts from part of these accounts, whilst the Pension Fund Annual Report has been approved by Pensions Committee on 23 June 2010. RECOMMENDATIONS That Committee approves the Statement of Accounts for the financial year ended 31 March 2010. INFORMATION Requirement for Approval The Director of Finance & Resources is responsible for the preparation of the Council’s Statement of Accounts that present fairly the financial position of the authority at the accounting date and its income and expenditure for the year ended 31 March 2010. The 2009/10 accounts were released by the Director of Finance & Resources for approval by the Audit Committee on 17 June 2010. By formally approving the accounts the Audit Committee is demonstrating their ownership of the accounting statements and their confidence in the process by which the accounting records are maintained and the statements prepared. Audit Committee, under its terms of reference, have been tasked to review, challenge and approve the annual Statement of Accounts. The draft Statement of Accounts for 2009/10 is attached to this report. The accounts take the form as prescribed in the Statement of Recommended Practice for local authority accounting. Although the pension fund accounts form part of the Council’s main accounting statements, the pension fund is subject to a separate audit. The Pension Fund Annual Report has been approved by the Pensions Committee on 23 June 2010. Technical Changes to the Accounts 2009/10 is the last year for Local Authority accounts to be prepared under the SORP prior to full IFRS adoption in 2010/11. Consequently changes have been kept to a minimum for this year and include:- Agenda Item 5 Page 13 Audit Committee 28 June 2010 PART 1 – MEMBERS, PUBLIC & PRESS • Collection Fund . Non Domestic Rates (Business Rates) are now accounted on an ‘agency’ basis to reflect the fact that a billing authority is merely collecting these rates to passport straight to central government. This removes any individual NNDR debtors or creditors from the Council’s balance sheet, leaving only the amount still payable to central government on 31 March 2010. The Council Tax Income and Expenditure account is adjusted to reflect council tax income on an accruals basis with the balance sheet adjusted to reflect the agency nature of deficits / surpluses pertaining to the GLA. Previously this was attributable to the billing authority. • Senior Officer Remuneration. Greater detailed disclosure is now required for senior officers’ remuneration published alongside posts considered to be the equivalent of a listed company board. • Removal of Notes. A few notes to the accounts are no longer required to be published including Building Control, S137 Expenditure and publicity notes. • IFRIC12. Early implementation of IFRS regarding the accounting treatment of PFI schemes. Hillingdon already had the one PFI scheme it possesses on its balance sheet. • True and Fair. The accounts now must give a ‘true and fair’ view of the Council’s financial position rather than ‘presents fairly’ Key Movements in the Accounts • A revenue surplus of £2,477k was achieved, however much of this is attributable to crediting revenue with amounts previously lying on the balance sheet. • The deficit shown on the face of the Income and Expend iture account of £125,690k is another ‘accounting treatment’ loss attributable to significant downward revaluation of the Council’s schools. Such losses would normally be offset by historic revaluation gains not yet realised, however the Revaluation Reserve only came into existence for local authorities in 2007 and so does not contain previous gains to which to charge any impairments. • Liabilities related to the pension scheme grew by a fu rther £204million. These are actuarial losses and do not represent the actual change in liabilities of the fund which actually increased in value by £145.4million. The actuarial loss is somewhat counter intuitive in that whilst 2009/10 saw the value of investments increase significantly, assumptions around future inflation, longevity and the use of historically low Gilt-based rates to determine the discount rate, saw the future liabilities of the fund rise significantly also. • As a result of these factors the Council’s net worth fe ll from £960,185k to £651,078k. • The HRA were able to contribute £1,484k to its reserve s. Page 14 Audit Committee 28 June 2010 PART 1 – MEMBERS, PUBLIC & PRESS Audit of the Accounts and Public Inspection The audit of the accounts by Hillingdon’s external auditor, Deloitte, is due to start at the beginning of July and will be completed during the summer of 2010. The deadline for publishing the audited accounts is 30 September 2010 and the auditor’s findings are due to be reported to Audit Committee in September 2010. The report will include any changes that are made to the accounts between approval and the final published audited version that are deemed to be ‘non-trifling’; that is adjustments of £120k or more. It will also highlight any control issues found and provides an opinion of on the Council’s value for money. The statutory inspection period for the 2009/10 accounts will be 5 July to 30 July 2010. Committee Action Committee is requested to approve the 2009/10 Statement of Accounts after which the Chairman is asked to sign and date the Statement of Accounts to formally complete the Council’s approval of the accounts. Page 15 Page 16 This page is intentionally left blank Unaudited Statement of Accounts for the year to 31 March 2010 Page 17 Unaudited 1 London Borough of Hillingdon Statement of Accounts for the Year ended 31 March 2010 Contents Page 1 Leader's Statement 2 2 Explanatory Foreword 3 3 Summary of the Authority's Financial Performance 5 4 Statement of Responsibilities for the Statement o f Accounts 12 5 Audit Certificate and Opinion 13 6 Statement of Accounting Policies 17 7 Income and Expenditure Account 27 8 Statement Of The Movement On The General Fund 28 9 Reconciliation Of The Movement On The General Fun d 29 10 Statement of Total Recognised Gains and Losses 3 0 11 Balance Sheet 31 12 Cash Flow Statement 32 13 Notes to Main Financial Statements 33 14 Housing Revenue Account and Notes 66 15 Collection Fund Account and Notes 69 16 Group Accounts and Notes 72 17 Pension Fund Accounts 81 18 Annual Governance Statement 87 19 Glossary 94 Page 18 Unaudited 2 1. Leader’s Statement Introduction by Councillor Ray Puddifoot, Leader of the Council Welcome to the London Borough of Hillingdon’s State ment of Accounts for 2009/10. This statement sets out how the Council spent your money and gives details about the Council’s financial position. Page 19 Unaudited 3 2. Explanatory Foreword This document sets out the annual accounts of the L ondon Borough of Hillingdon for the year ended 31 March 2010. The accounts are in the format for local authority accounts set by the Chartered Institute of Public Finance and Accountancy. The purpose of this foreword is to provide a guide to the most significant matters reported in the financial statements. Included are a number of tech nical terms that are specific to local government finance and a glossary has been provided on page 94 to assist the understanding of the financial statements. The core accounting statements comprise: The Income and Expenditure Account This reports the net cost for the year of all the f unctions for which the authority is responsible, an d demonstrates how that cost has been financed from g eneral government grants and income from taxpayers. The surplus or deficit on this account represents the amount by which income is greater than or less than expenditure. Both income and expenditu re are measured using essentially the same accounting conventions, UK Generally Accepted Accou nting Practices (UK GAAP), which a large unlisted company would use in preparing its accounts. The Statement of Movement on the General Fund Balance This reports items of income and expenditure that are required respectively to be credited or charged to the General Fund Balance by statute or non-statutor y practices other than in accordance with UK GAAP. These are items that are taken into account i n determining the Council’s budget requirement and its Council Tax demand. The Statement of Total Recognised Gains and Losses This reports all the gains and losses experienced by a local authority in addition to those reflected in the Income and Expenditure Account. It will include, fo r example, gains on revaluations of fixed assets an d pensions actuarial gains and losses. The Balance Sheet This shows the balances and reserves at the Council ’s disposal at the year-end, together with its long - term indebtedness, the net current assets employed in its operations and summarised information on the fixed assets held. It excludes funds held in trust for others and the Pension Fund. The Cash Flow Statement This summarises the cash movements arising from bot h revenue and capital transactions with third parties. It excludes funds held in trust for others and the Pension Fund. The supplementary accounting statements comprise: The Housing Revenue Account (HRA) Income and Expenditure Account There is a statutory duty to account separately for local authority housing provision. The HRA Income and Expenditure Account shows in detail the Income and Expenditure on HRA services included in the whole authority Income and Expenditure Account. It includes the major elements of Council housing Page 20 Unaudited 4 revenue expenditure on maintenance, administration, and capital financing costs, and major income sources such as rents and other income. The Statement of Movement on the Housing Revenue Account Balance This shows how the HRA Income and Expenditure Accou nt surplus or deficit for the year reconciles to the movement on the Housing Revenue Account balance for the year. The Collection Fund Revenue Account The Collection Fund is a separate account into which amounts raised from local taxation are paid. From this, the amounts due to preceptors including the C ouncil itself are paid. This account also collects and distributes the national business rates pool, which the Council collects on behalf of central government. The Pension Fund Accounts These show contributions to the Council’s Pension F und for employees during 2009/10, together with the pensions and other benefits paid from it, movem ents in investments during the year and the financial position of the Fund as at 31 March 2010. The accounts do not include liabilities to pay pensions and benefits after that date. The document also includes the following: Statement of Accounting Policies The accounts can be properly appreciated only if th e policies that have been followed in dealing with material items are understood. The Statement of Acc ounting Policies and the various notes to the accounting statements therefore form an integral part of the accounts. There is also a glossary of ter ms and abbreviations at the end of this document. The Annual Governance Statement This statement is required under the CIPFA/SOLACE f ramework ‘Delivering Good Governance in Local Government’. This sets out the systems, processes, culture and values, by which the Council is directed and controlled, and its activities through which it accounts to, engages with, and leads the community. The framework enables the Council to mon itor the achievement of its strategic objectives and to consider whether those objectives have led to the delivery of appropriate cost-effective services. Glossary of Terms The Glossary provides a definition of key terms used to aid understanding the Accounting Statements. Page 21 Unaudited 5 3. Summary of the Authority’s Financial Performance Summary Following the dramatic, almost unprecedented events in the global economy that characterised the financial year to 31 March 2009, the 2009/10 financ ial year began with the economy close to the lowest point of the recession. This continued to have a significant impact on the finances of the Council. The principal impacts of the recession had already been experienced by the Council in 2008/09, and are documented in our Statement of Accounts for the year to 31 March 2009. These effects continued into 2009/10, and the Council suffered depressed income from local land charges, development control, building control, interest receivable from short-te rm deposits of Council funds, and capital receipts due to unfavourable market conditions for the disposal of property interests. The Council was prepared for new effects of the rec ession to emerge during the year. However, as the year progressed the adverse effects of the recessio n began to be countered by new opportunities. The sharp decline in inflation towards the end of 2008/09 turned into deflation in the economy in the first half of 2009/10, which had a dampening effect on the Cou ncil’s costs, with pay inflation being below that assumed at the time of setting the 2009/10 budget. The global re-adjustments to the supply and demand of capital, meant that the Council was able to take advantage of opportunities in the first quarter of 2009/10 to re-finance long term debt at more favourable rates, leading to savings on borrowing costs. Therefore, by the end of 2009/10 the Council had fu lly adjusted to the impact of the recession. An overall underspend against the General Fund revenue budget allowed reserves to be increased, leaving the Council well placed to build upon emerging signs of recovery in the economy reported in the final quarter of the year. The Council achieved another success in the final q uarter of 2009/10 in our long-running campaign to secure a fair funding settlement from the UK Border Agency for the costs of services to unaccompanied asylum seeking children that arrive in the borough through Heathrow airport. Additional grant of £1.8 million for the 2008/09 and 2009/10 financial years was secured as a result of lobbying together with other authorities affected by this issue. The offe r of increased funding also applies to the 2010/11 financial year and beyond, but is not yet sufficien t to deliver a permanent funding settlement that ta kes this burden away from local Council Tax payers, who again contributed around £2 million to the cost of these services in 2009/10. This strengthened financial position meant that the Council was able to set a zero increase in Council Tax for 2010/11 for the second successive year for all residents and the third successive year for ove r 65s, whilst continuing to invest in and deliver imp roved services to residents. The capital programme outturn for the year included significant expenditu re on two key new leisure facilities in the borough , as well as an innovative library refurbishment program me, investment in schools, decent homes and environmental improvements. Underpinning all of this improvement had been a con tinual focus on efficiency in service delivery. A new business transformation programme – Business Im provement Delivery – has been developed during the year as part of the Hillingdon Improveme nt Programme, and is set to build further on the £1 3 million of savings and efficiencies delivered throu gh the previous programme of internal service reviews. These achievements are set out in more detail in the following sections. Page 22 Unaudited 6 Revenue Budget Hillingdon’s General Fund net budget requirement for 2009/10 was set at £189.2 million. Both the Council’s element of the Council Tax and the Greater London Authority precept were frozen at the 2008/09 level, meaning that there was a zero ‘doorstep’ increase in the local Council Tax. Throughout 2009/10 the Council’s decision-making Cabinet received reports each month showing forecast variances against the main service budgets. These reports highlighted where corrective action was to be taken to ensure plans were achieved and spending kept within approved levels. The outturn for the year was £186.8 million, which compared to the revised budget showed an under spend of £5 million (after taking into account the budgeted £2.6 million of drawings from balances for the year). The final outturn position for the General Fund revenue budget by Council department is set out in the following table: Table: General Fund Outturn 2009/10 Service Department Revised Budget 2009/10 (£000s) Actual Outturn 2009/10 (£000s) Outturn Variance 2009/10 (£000s) Adult Social Care Health & Housing 91,879 91,493 (3 86) Education & Children’s Services 158,696 157,290 (1, 406) Environment & Consumer Protection 37,351 37,483 132 Planning & Community Services 13,774 13,716 (58) Central Services (Deputy Chief Executive’s / Finance & Resources) 15,425 13,437 (1,988) Corporately Held Funds & Contingencies 1,213 0 (1,213 ) Sub-total - Service Budgets 318,338 313,419 (4,919) Asset Management Revenue Account (130,764) (130,763 ) 1 Appropriation to FRS 17 Pensions Reserve 9,091 9,09 1 0 Interest & Investment Income 7,204 7,087 (117) Corporate Government Grants (12,058) (12,066) (8) Contribution to / (from) Balances (2,566) 2,477 5,0 43 Budget Requirement 189,245 189,245 0 The main variances from the revised budget were: Adult Social Care, Health and Housing x Significant variances in demand-led budgets betwee n the major client groups for Adult Social Care, with excess demand for Older People’s Services (£0.9 million) and Mental Health Services (£0.5 million) offset by lower than expected demand for Learning Disability Services (£0.9 million) and Physical & Sensory Services (£0.4 million) producing a balanced outturn overall x Improvement arising from the finalisation of the 2 007/08 housing benefit grant claim as compared to the assumed position in last year’s accounts, contributing to an aggregate underspend on the benefits service of £0.4 million Education and Children’s Services x Schools collectively managed their net expenditure within individual budgets leading to an increase in aggregate schools balances (£0.4 million) x The Council also managed net expenditure on its re tained share of the schools budget within budget leading to an increase in the earmarked reserve held for unused ring fenced Dedicated Schools Grant (£0.5 million) x Use of earmarked reserves to meet planned redundan cy costs (£0.2 million) Page 23 Unaudited 7 x Management of demand for care placements enabling some high-cost placements to be deferred into the new financial year (£0.1 million) x Shortfall on funding of services to asylum seekers for the year (£1.1 million) x Retrospective funding of asylum services received for previous years (£1.3 million) Environment and Consumer Protection x Greater than planned activity levels in the street cleansing and recycling services leading to increased costs (£0.2 million) x Reduced charges from the waste disposal authority due to lower residual waste tonnages (£0.4 million) x Lower than expected reduction in trade waste volumes leading to over-achievement of income target (£0.2 million) x Lower than planned absorption of costs of Harlington Road Depot into other service budgets due to reduced intensity of depot usage (£0.2 million) x Greater than planned activity levels in the Streets Ahead Week of Action programme leading to increased costs (£0.2 million) Planning and Community Services x Additional costs incurred to maintain management a rrangements across the department and underachievement of income targets especially for the arts service (£0.2 million) x Policy decision not to fully commit expenditure fr om the Community Safety Fund (£0.2 million) Central Services x Underachievement of rent income targets from comme rcial property due to the continuing impact of the recession (£0.1 million) x Reduced income from schools and other external par ties for hire and services related to the Council’s facilities management (£0.1 million) x Rebates secured on the Council’s main agency staff contract (£0.2 million) x Underspend on the Leader’s Initiative carried forw ard in general reserves (£0.1 million) x Ward Budget Initiative expenditure funded from acc umulated balances (£0.4 million) x Unapplied grants and contributions were used to fu nd general Council expenditure (£2.3 million) Capital Spending in 2009/10 Capital expenditure is expenditure on the purchase, improvement or enhancement of assets, the benefit of which impacts for longer than the year i n which the expenditure was incurred. Capital spending for the year was £72.1m (£70.1m in 2008/09 ). This expenditure was financed from various sources including capital receipts (£1.4m), Housing revenue contributions (£10.2m), government grants (£33.8m), Section 106 (£0.9m) and other third party contributions (£2.6m). Major capital schemes in 2009 included the completi on of Hillingdon Sports and Leisure Complex, Charville Young People’s Centre, various Children’s Centres around the borough, Breakspear Crematorium investment project, investment in publi c conveniences including composting toilets at allotments, improvements to the Cedars and Grainges car parks, investment in the borough libraries and refurbishment of a youth bus. Construction of a new leisure centre at Botwell Green has continued, and in 2009 two new young people’s centres and the Merrifield Centre have been adapted to facilitate short breaks for disabled children. Section 106 has been invested in ongoing Longmead a nd Pinkwell School expansions, town centre initiatives and the Skidz vehicle workshops at West Drayton Young People’s Centre. The Local Government Act 2003 introduced the pruden tial code whereby the Council is responsible for deciding its own level of affordable borrowing. In doing so capital investment plans have to be affordable, prudent and sustainable. To demonstrate that the Council has fulfilled these objectives a Page 24 Unaudited 8 range of prudential indicators are set annually and performance against these indicators is monitored regularly. During 2009/10 the Council required unsupported bor rowing of £22.2m to finance the capital programme. The tables below show how the 2009/10 Capital Progr amme was financed and which services received Capital investment. Capital Financing 2009/2010 Grants 47% HRA (inc MRA) 14% Unsupported 31% Capital Receipts 2% Section 106 and other contributions 6% Capital Expenditure 2009/10 Major Construction Projects 36% Education & Children's Services 27% Finance & Resources 3% Deputy Chief Executive 2% Planning & Community Services 3% Adult Social Care, Health & Housing 6% HRA 13% Environment & Consumer Protection 10% Page 25 Unaudited 9 Reserves These are set aside to cover unexpected expenditure , for instance additional costs arising from such things as stormy weather or other business risks. Each year the Director of Finance reviews the level of the general reserve to ensure it is adequate, as th ere are restrictions on the Council’s ability to bo rrow to support revenue expenditure. At the time of budg et setting for 2009/10 it was assessed that the appropriate level of reserves needed to support the continuation of Hillingdon’s services was between £10m and £17m. Four years ago the general reserve h ad fallen to an unacceptably low level following retrospective charges in Central Government asylum grants and considerable effort has been placed on securing an increase. The general reserve for non-schools services now stands at £18.9m. Schools also hold reserves for similar purposes and to meet future project expenditure. These are committed to be spent on the education service. At 31 March 2010 school reserves amounted to £11.9m. This is approximately 7% of schools expenditure. In addition, the Council holds a number of earmarke d reserves. This is money that has been set-aside for specific purposes most of which are statutory. Treasury Management During 2009/10 the main focus for Treasury Management was to reduce the risk within the investment portfolio and to minimise borrowing costs. This was achieved by utilising investment balances to prematurely redeem loans and facilitate debt rescheduling. The prevailing market conditions for the financial year forced short-term interest rates to historic lows however conversely there was little movement in longer-term rates. The strategy applied by the Council was to reduce investment holdings by using liquid funds to prematurely redeem long-term debt. This approach not only lessened investment exposure but also lowered borrowing costs. In addition the year saw increased debt restructuring with the maturity profile of the portfolio shortened to take advantage of lower rates available at the short end of the investment curve. The Council achieved an average rate of return on its investments of 1.74% and earned interest of £1.13m (5.04% at £5.68m 2008/09). Outstanding debt was reduced by £25.4m with a further £60.0m being restructured. These actions had a material impact on costs with interest payments on outstanding loans totalling £6.87m at an average rate paid of 3.94%. (£9.36m at 4.24% 2008/09) The administration of Heritable Bank is proceeding as planned and during 2009/10 dividends were received of £5.28m. The latest estimate based on wi nding up the bank by 2012 shows an expected return of 84.98%. No dividends have been received f rom Landsbanki Bank and the final decision regarding the priority status of local authorities is under judicial review in the Icelandic courts. The latest information suggests local authorities will retain their priority status and based on that assumption the expected return is 94.86%. Accounting for Pensions The Council participates in two local government pe nsion schemes, one administered by the London Borough of Hillingdon and the other run by the London Pension Fund Authority. The London Borough of Hillingdon Fund’s actuary, Hymans Robertson, last c arried out an actuarial valuation of the fund on 31 March 2007. The triennial valuation calculated a d eficit of £50m, which resulted in an increase in th e employer’s contribution rate effective from 1 April 2008. The London Borough of Hillingdon common contribution rate during 2009/10 was 16.8%, and emp loyees' contributed at variable rates between 5.8% and 7.5% of pensionable salary. Teachers employed by the Council contribute to the Teachers Pension Scheme administered by the Department for Children, Schools and Families (Depa rtment of Education from 12 May 2010). Contributions are paid to this body reflecting empl oyee and employers contributions. More details are given at page 59. Page 26 Unaudited 10 The Council is required to adopt FRS17 on retiremen t benefits. The net liability in respect of the London Borough of Hillingdon and London Pension Fun d Authority funds at 31 March 2010 of £414.5m has been recognised, compared to £210.4m at 31 Marc h 2009. The movement during 2009/10 was primarily due to actuarial losses, which resulted f rom higher inflation assumptions, and a change in t he discount rate as set out in note 48 on page 62. Det ails of the disclosures are shown in the Statement of Accounting Policies (page 17) and in disclosures notes on pages 59 to 63. Collection Fund The Council has reported a deficit on the collectio n fund of £1,009k for 2009/10 (£175k for 2008/09). This will be recovered in future financial years fr om the Council and Greater London Authority (GLA) i n proportion to the value of the respective demands o n the Collection Fund, for 2009/10 this was 78.22% for the Council and 21.78% for the GLA. The Counci l Tax collection rate was 96.6% compared to 96.1% in 2008/09. Review of Staffing Recruiting and retaining high calibre employees is essential if the Council is to achieve its performa nce objectives. At 31 March 2010 the number of Council employees, excluding schools, totalled 2,919 full time equivalents (FTE). This is an increase of 57 F TE (2%) on 31 March 2009, due to the conversion of agency workers to permanent employment, thus reduci ng reliance on agency staff and overall costs. Agency expenditure in 2009/10 was £17.3m (£18.8m in 2008/09). The following chart shows the breakdown of the number of employees by department as at 31 March 2010. Number of Employees (FTE) across departments 0 100 200 300 400 500 600 700 800 900 DEPUTY CHIEF EXECUTUVES OFFICE PLANNING AND COMMUNITY SERVICES FINANCE AND RESOURCES ENVIRONMENT & CONSUMER PROTECTION ADULT SOCIAL CARE HEALTH & HOUSING EDUCATION & CHILDREN SERVICES Voluntary labour turnover decreased from 7.2% in 2008/09 to 6.14% in 2009/10. The Council performance on a range of employee best value performance indicators show: 2009/10 2008/09 Working days lost due to sickness 8.45 days 8.10 da ys Proportion of the top 5% earners who are women 40.8 5% 39.84% Proportion of the top 5 % earners who are from ethnic minorities 12.68% 12.13% Percentage of employees with disability 2.00% 2.06% Ethnic minority representation in the workforce. 22 .47% 23.44% Outlook for the Future Hillingdon’s budget requirement for 2010/11 as agre ed by Council on 25th February 2010 is £194.2 million, and was set at that amount in order to free ze Council Tax at 2008/09 levels. Along with the Page 27 Unaudited 11 zero increase in the precept set by the Greater Lon don Authority, this resulted in no change in the to tal level of Council Tax per band paid by Hillingdon residents. The impact of the recession in the national and glo bal economy has meant that the Government has indicated that severe restrictions on public expend iture will be applied from 2011/12 onwards, and the Council is planning on the basis that there will be significant cuts in Government grants over the nex t three to four years. The Council has responded pro-actively to the exceptional level of challenge that these funding cuts will impose, by developing the Business Improvement Deli very programme as its major transformation project. This programme will review the Council’s whole operations and service delivery, and has been set a target to identify £30 million of savings and efficiencies over the next four years. The Counci l is confident that the principles of sound financial management and efficient service delivery that have built up the current position of financial strength will continue to provide the basis for delivering improv ed service outcomes for the residents of Hillingdon. Page 28 Unaudited 12 4. Statement of Responsibilities for the Statement of Accounts 1. Council’s Responsibilities The Council is required to: x Make arrangements for the proper administration of its financial affairs and to secure that one of its officers has the responsibility for the adminis tration of those affairs. In this Council that officer is the Director of Finance & Resources; and x Manage its affairs to secure economic, efficient a nd effective use of resources and safeguard its assets. 2. Director of Finance & Resources Responsibilities The Director of Finance & Resources is responsible for the preparation of the Council’s statement of accounts that present a true and fair view of th e financial position of the authority at the accounting date and its income and expenditure for the year ended 31 March 2010. In preparing this statement of accounts the Director of Finance & Resources has: x Selected suitable accounting policies and then app lied them consistently; x Made judgements and estimates that were reasonable and prudent; and x Complied with the code of practice. The Director of Finance & Resources has also: x Kept proper accounting records that were up to dat e; and x Taken reasonable steps for the prevention and dete ction of fraud and other irregularities. 3. Director of Finance & Resources Approval of Acco unts I certify that these accounts present a true and fa ir view of the financial position of the London Borough of Hillingdon, in terms of the CIPFA/LASAAC Code of Practice on Local Authority Accounting in Great Britain (‘the code of practice’ ), as at 31 March 2010 and its income and expenditure for the year then ended. Christopher Neale DIRECTOR OF FINANCE & RESOURCES 21 September 2010 Audit Committee Certificate for the Approval of the Accounts I confirm that these accounts were considered and a pproved by the Audit Committee at the meeting held on 28 June 2010. Signed on behalf of London Borough of Hillingdon John Morley CHAIRMAN (AUDIT COMMITTEE) 28 June 2010 Page 29 Unaudited 13 5. Audit Certificate and Opinion Independent auditor’s report to the Members of London Borough of Hillingdon Opinion on the Authority accounting statements Page 30 Unaudited 14Page 31 Unaudited 15Page 32 Unaudited 16Page 33 Unaudited 17 6. Statement of Accounting Policies The Accounts have been prepared in accordance with the 2010 Code of Practice on Local Authority Accounting and Statement of Recommended Practice, i ssued by the Chartered Institute of Public Finance and Accountancy (CIPFA), Statements of Stan dard Accounting Practice (SSAP) and Financial Reporting Standards (FRS). Any departures from reco mmended practices are stated within this section and/or within the notes to the accounts. CAPITAL 1. Tangible Fixed Assets Recognition: All expenditure on the acquisition, creation or e nhancement of tangible fixed assets is capitalised on an accruals basis in the accounts, p rovided that the asset yields benefits to the autho rity for a period of more than one year. This excludes expenditure on routine repairs and maintenance of fixed assets that is charged direct to service revenue accounts. Measurement: Assets are initially measured at cost, comprising all expenditure that is directly attributable to bringing the asset into working con dition for its intended use. Assets are then carrie d in the balance sheet valued on the basis recommended b y CIPFA and in accordance with the Statements of Asset Valuation Principles and guidance notes is sued by the Royal Institution of Chartered Surveyors (RICS). Fixed assets are included in the balance sheet on the following basis: x Land, operational properties and other operational assets are included in the balance sheet at the lower of net current replacement cost or net realisable value in existing use, x Non-operational assets, including investment prope rties and assets that are surplus to requirements, are included in the balance sheet at the lower of n et current replacement cost or net realisable value . In the case of investment properties this is normal ly open market value. In some cases where a Depreciated Replacement Cost (DRC) figure has been used, an additional opinion has been sought as to the Open Market Valuation (allowing for alter native uses) if it was at a figure significantly hi gher or lower than the DRC figure, x Infrastructure assets and community assets are inc luded in the balance sheet at historical cost, net of depreciation, x Plant and machinery forming an integral part of th e property is included in the valuation of the buildings. Other plant and machinery has been given a value on

Lloyd White Head of Democratic Services London Borough of Hillingdon, 3E/05, Civic Centre, High Street, Uxbridge, UB8 1UW www.hillingdon.gov.uk Audit Committee Date: MONDAY, 28 JUNE 2010 Time: 5.00 PM Venue: COMMITTEE ROOM 3 - CIVIC CENTRE, HIGH STREET, UXBRIDGE UB8 1UW Meeting Details: Members of the Public and Press are welcome to attend this meeting Members on the Committee John Morley (Chairman) George Cooper Phoday Jarjussey (Labour Lead) Richard Lewis Raymond Graham Published: 18 June 2010 This agenda and associated reports can be made available in other languages, in Braille, large print or on audio tape on request. Please contact us for further information. Contact: Khalid Ahmed Tel: 01895 250833 Fax: 01895 277373 Email: kahmed@hillingdon.gov.uk This Agenda is available online at: http://modgov.hillingdon.gov.uk/ieListDocuments.aspx?CId=256&MId=661&Ver=4 Public Document Pack Useful information Bus routes 427, U1, U3, U4 and U7 all stop at the Civic Centre. Uxbridge underground station, with the Piccadilly and Metropolitan lines, is a short walk away. Limited parking is available at the Civic Centre. For details on availability and how to book a parking space, please contact Democratic Services Please enter from the Council’s main reception where you will be directed to the Committee Room. An Induction Loop System is available for use in the various meeting rooms. Please contact us for further information. Please switch off any mobile telephones and BlackBerries™ before the meeting. Any recording of the meeting is not allowed, either using electronic, mobile or visual devices. If there is a FIRE in the building the alarm will sound continuously. If there is a BOMB ALERT the alarm sounds intermittently. Please make your way to the nearest FIRE EXIT. This Committee This Committee will be responsible for ensuring that th e financial management of the Council is adequate and effective an d that the Council has a sound system of internal control. This Committee wi ll also consider risk management issues and performance reports. Terms of Reference The Constitution defines the terms of reference for the Audit Committee as: Statement of Purpose The purpose of Audit Committee is to: • provide independent assurance of the adequacy of the C ouncil’s risk management framework and the associated control environment • provide independent scrutiny of the authority’s fina ncial and non-financial performance to the extent that it affects the authority’s exposure to risk and weakens the control environment • oversee the financial reporting process. Audit Activity The Audit Committee will: 1. Approve but not direct Internal Audit’s strategy a nd plans, ensuring that work is planned with due regard to risk, materiality and coverage. This will not prevent Cabinet directing internal audit to review a particular matter. 2. Review the Head of Internal Audit’s Annual Report and Opinion and Summary of Internal Audit Activity (actual and proposed) and the level of assurance this can give over the Council’s corporate governance arrangements. 3. Review summaries of Internal Audit reports and the main recommendations arising. 4. Review a report from Internal Audit on agreed re commendations not implemented within a reasonable timescale. 5. Consider reports dealing with the management and p erformance of the providers of internal audit services. 6. Receive and consider the External Auditor’s annual letter, relevant reports and the report to those charged with governance. 7. Monitor management action in response to issues raised by External Audit. 8. Receive and consider specific reports as agreed with th e External Auditor. 9. Comment on the scope and depth of External Audit w ork and ensure that it gives value for money. 10. Liaise with the Audit Commission over the appointm ent of the Council’s External Auditor. 11. Commission work from Internal and External Audit, following a formal request by the Committee to and a joint decision from the Leader of the Council and Cabinet Member for Finance & Business Services. 12. Ensure that there are effective arrangements for ensuring liaison between Internal and External audit. Regulatory Framework The Audit Committee will: 1. Maintain an overview of the Council’s Constitution i n respect of contract procedure rules, financial regulations and codes of conduct and behaviour. And, where necessary, bring proposals to the Cabinet and/or Council for their development. 2. Review any issue referred to it by the Chief Execut ive or a Director, or any Council body. 3. Approve and regularly review the authority’s risk m anagement arrangements, including regularly reviewing the corporate risk register and seeking assurances that action is being taken on risk related issues. 4. Review and monitor Council policies on ‘Raising Conce rns at Work’ and anti- fraud and anti-corruption strategy and the Council’s complaints process. 5. Oversee the production of the authority’s Statement of Internal Control and recommend its adoption. 6. Review the Council’s arrangements for corporate gov ernance and agree necessary actions to ensure compliance with best practice. 7. Consider the Council’s compliance with its own and oth er published standards and controls. Accounts The Audit Committee will: 1. Review and approve the annual statement of account s. Specifically, to consider whether appropriate accounting policies have been followed and whether there are concerns arising from financial statements or from the auditor that need to be brought to the attention of the Council. 2. Consider the External Auditor’s report to those cha rged with governance on issues arising from the audit of the accounts. Agenda 1 Apologies for absence and to report the presence of any substitute members 2 Declarations of Interest in matters coming before this meeting 3 Minutes of previous meetings - 11 March and 13 May 2010 (Page 1) 4 Exclusion of Press and Public To confirm that all items marked Part I will be conside red in public and that any items marked Part II will be considered in private. 5 Approval of the 2009/10 Statement of Accounts (Page 13) 6 Indicative Stage Use of Resources Report (Page 117) 7 Head of Audit Annual Assurance Statement (Page 151) 8 Annual Review of the Effectiveness of the Systems of Internal Audit (Page 185) 9 Fraud Awareness Survey 2010 (Page 191) 10 Consolidated Fraud Report (Page 201) 11 Review Progress on Implementing Actions Arising from Committee Self Assessment (Page 207) 12 Update on International Financial Reporting Standards (IFRS) (Page 215) 13 Audit Committee Work Programme (Page 217) 14 Report to Council on Work of Audit Committee (Page 221) 15 Changing Legislation and Current Issues • Audit Commission – The National Fraud Initiative 200 8/9 • CIPFA – Leading in Hard Times, Guidance for everyon e involved in the leadership of public services • CIPFA / SOLACE – After the downturn, managing a sign ificant and sustained adjustment in public sector funding. 16 Key Financial Audit Risk Relating to the Valuation of Icelandic Investments (Page 227) 17 Internal Audit Progress Report (Page 237) This page is intentionally left blank Audit Committee 11 March 2010 Minutes Independent Member: John Morley (Chairman) Members Present: Councillors George Cooper, Tony Eginton, Liz Kemp and Mary O’Connor. Also Present: Councillors Phoday Jarjussey and Mo Khursheed. Apologies: None Officers Present: Sarah Harty (Head of Resources, Policy and Performance, Education and Children Services), David Kidner (Interim Manager of Hillingdon Grid for Learning (HGfL) Education and Children’s Services), Nancy Le Roux (Senior Finance Manager – Corporate Finance), Rob Mackenzie-Wilson (Policy Officer, Deputy Chief Executive’s Office), Christopher Neale (Director of Finance & Resources), Chris Spencer (Director of Education and Children’s Services), Helen Taylor (Head of Internal Audit and Corporate Governance), Steve Wilkins (Risk & Insurance Manager), (Head of Accountancy Services) and Khalid Ahmed (Democratic Services Manager). Others Present: Paul Hutt (Deloitte) and Gus Miah (Deloitte) Agenda Item 3 Page 1 42. Declarations of Interest: John Morley and Councillor Liz Kemp declared Personal Interests in Agenda Item 10 – Internal Audit Operational Plan as they were Members of the Board of Hillingdon Homes. They both remained in the room and took part in discussions on the item. Councillor George Cooper declared Personal Interests in Agenda Item 8 – Internal Audit Progress Report as he was a Governor of St Mary’s School, and in Agenda Item 5 – Deloitte – 2009/10 – Annual Audit Plan, as he was a Member of the Pensions Committee. He remained in the room and took part in discussions on the items. Councillor Tony Eginton declared a Personal Interest In Agenda Item 8 – Internal Audit Progress Report as he was a Governor of Hillside Junior School and Minet Nursery and Infant School. In addition his wife was a Governor at Harlyn Primary School. He left the room and did not participate in discussion on the item. Councillor Mary O’Connor declared a Personal Interest in Agenda Item 8 – Internal Audit Progress Report as she was a Governor of Botwell School and Moorcroft School. She remained in the room and took part in discussions on the item. 43. Minutes of the meeting held on 16 December 2009 Agreed as an accurate record. [During discussion on the item, Councillor Eginton advised the Committee that he would be resigning as a Member of the Committee. Councillor Eginton left the meeting at this point.] 44. Exclusion of the press and public: It was agreed that Items 16, 17 and 18 be considered in private. 45. Deloitte – 2009/10 – Annual Audit Plan Paul Hutt and Gus Miah from Deloitte attended the m eeting and introduced the report to Members. Members were informed that the report set out the ini tial plans for the audit of the Statement of Accounts 2009/10. Th e plan highlighted the key financial and non-financial audit risks which were:- Financial risks • Grant income recognition • Property valuations • Valuation of Icelandic Investments Action By: Page 2 • Pension liability assumptions • Accounting for local taxes • Bad debt provisions Non-Financial risks • Contract procurement • Partnership working In addition the report set out an audit plan for the Pension Fund audit which highlighted three risks:- • Contributions • Benefits • Financial instruments Issues raised by Members were:- • An update report be submitted to the next meeting o f this Committee on the key financial audit risk relating to the valuation of Icelandic investments • In relation to Contract Procurement and the comment that this was considered a wider risk across the Council, the Head of Internal Audit and Corporate Governance reported that a number of audits had been undertaken and the arrangements around procurement were complex • The next Pensions Committee was prior to the next meeting of this Committee which would mean the Pension Fund Annual Report would be agreed before this Committee received it Resolved - 1. That the information contained in the report be n oted. Action By: Deloitte 46. Deloitte – Annual Grant Audit Letter Members were informed that a report by the Audit Com mission in September 2009 recommended that auditors should rep ort annually to those charged with governance in order to highlight the errors, adjustments and qualifications arising in clai ms and returns in relation to grants. There had been a total of 9 grant claims which had bee n audited. Deloitte reported that all claims had been submitted on time and a number of non significant adjustments had be en made to five of the grant claims. Only one grant claim had been given a qualification letter which was a significant imp rovement on last year which demonstrated the efforts of the Fina nce Team. An Issue raised by Members was in relation to Deloitte’s testing Page 3 of the Housing and Council Tax Benefits Scheme grant an d the issuing of a qualification letter, Members were informe d that an error of £224.91 had been identified in relation to one claim. This was taken from a sample of up to 100 where 3 or 4 errors would be found. This was an immaterial sum on which to base a qualification but Deloitte confirmed that qualifica tion in this context was just a record of errors found and not the same as a set of qualified accounts. Resolved – 1. That the information contained in the report be n oted and Internal Audit officers be congratulated for their imp roved performance in relation to grant claims. Action By Helen Taylor 47. Delivering the Annual Governance Statement Members were informed that the Council was rolling for ward the existing framework which had been developed over t he past two years to evaluate the management of internal controls, risk and control assurances across all services. The Corporate Governance Working Group would provide the leadership and support to compile the Statement. Resolved – 1. That the information contained in the report be noted. 48. Internal Audit Progress Report The report provided Members with details of the summa ry of Internal Audit activity for the period to 19 February 2010. The Head of Internal Audit and Corporate Governance reported there was no cause for concern at this time with the leve ls of assurance. There was one audit with limited assurance whi ch related to the Customer Relationship Management (CRM) application where weaknesses were identified in relatio n to password controls. Plans were in place to address these weaknesses. Areas discussed included:- • School audits – Haydon Secondary School was limited assurance. The Head of Internal Audit and Corporate Governance would send Members details of the audit on this school • School audits – Holy Trinity and Bourne Primary had achieved Financial Management in Schools Standard, which had to be met every 3 years • School audits – Members noted the full assurance level which Queensmead Secondary School had Helen Taylor Page 4 achieved. • Follow up audits – Website Content Management – The outstanding recommendation was partially completed and this related to the strategy for standardised access. Members asked that if this outstanding recommendation had not been implemented before the next meeting, that officers be asked to attend to provide further details and target dates for completion Members were reminded that at their last meeting it w as agreed that a representative from Hillingdon Grid f or Learning (HGfL) be invited to provide reassurance on outstanding recommendations. The Director of Education and Childre n’s Services, the Head of Resources, Policy and Performance, Education and Children Services and the Interim Manage r of HGfL attended the meeting to provide Members with d etails of progress made. Most of the outstanding recommendations contained in th e action plan had been implemented but there were still concerns around procurement. Monthly meetings were taki ng place with the Corporate Procurement Board, but the broader remit was looking at value for money. The Head of Int ernal Audit and Corporate Governance reported that a forma l follow up audit would take place. Members thanked officers of Education and Children’s Services for attending the mee ting and it was agreed that sufficient re-assurance had been given that outstanding recommendations should be implemented. Resolved- 1. That the in-year progress against the Internal Audi t Plan for 2009-10, and the updated position of those audits undertaken in 2007-8 and 2008-9 be noted and the Internal Audit Team be thanked for all their efforts and the results they have achieved. Action By: Helen Taylor 49. Internal Audit Strategy Members were informed that the report set out the str ategy for delivery and development of the Internal Audit Serv ice 2010-11 and the associated Internal Audit Plan. This detailed how the service would be delivered, the assurance that it would p rovide and how the Head of Internal Audit and Corporate Go vernance would contribute to corporate governance arrangements, risk management processes and key internal control systems. The Head of Internal Audit and Corporate Governance reported that the audit of IT systems would continue to be contracted out to an outside contractor. A retender of the contract wa s currently underway which would be in place before the start of Page 5 the new financial year. Reference was made to the Internal Audit team now be ing fully staffed and officers were asked to look at again the descriptions of the skills in the team detailed on page 1 22 of the agenda. Resolved- 1. That approval be given to the internal audit strategy. Action By: Helen Taylor 50. Internal Audit Operational Plan 2010-11 The Chartered Institute of Public Finance and Account ancy (CIPFA) Code of Practice for Internal Audit in Local Government required the Head of Internal Audit and Corporate Governance to produce a risk based plan which was fixed f or no longer than a year and was designed to implement the Audit Strategy. Reference was made to the planned audit work for the year but changes in service delivery arising from the Business Improvement Delivery process would mean that there was a much greater likelihood that audits would be added or deleted than there had been in previous years. Members were informed that Housing Management would be brought ba ck into the Council. Hillingdon Homes’ internal audit ser vices were currently provided by Mazars and the Head of Internal Audit and Corporate Governance was asked to work closely with th e Director of Finance of Hillingdon Homes to ensure a smo oth transition. Discussion took place on Human Resources – CRB checks and re-checks. Some Members believed there was a possibilit y that documentation provided to support CRB checks was held for longer than it should be under regulations. The Head of Internal Audit and Corporate Governance undertook to clarify the procedure with HR. Resolved- 1. That approval be given to the Internal Audit Op erational Plan 2010-11 and the comments made be noted. Helen Taylor Helen Taylor 51. International Financial Reporting Standards (IF RS) Members were reassured that the Council was on track to implement the transition to report its Statement of A ccounts under the IFRS based Code of Practice on Local Authorit y Accounting. Resolved – Page 6 1. That the report be noted and consideration be giv en to providing customised training to newly appointed Members at an appropriate time. Action By: 40. Treasury Management Strategy Statement and Inve stment Strategy 2010-11 To 2012-13 Members were informed that the Treasury Management Strategy was agreed by Council as part of the Budget s etting process in February and it was brought to this Committee to allow greater scrutiny of the strategy. The strategy for 2010/11 had been written with the a ssistance of Arlingclose, the Council’s Treasury Advisors and the strategy had been developed to increase the range of permitted investment vehicles to allow greater diversification whil st maintaining a high degree of caution. Reference was made to the impact of interest on balan ces and Members were informed that this Council had not been t oo reliant on high interest returns which meant there ha d not been a huge impact during this difficult economic period. The Council had spent on capital developments rather than looking for active financial management opportunities. Members discussed the role of this Committee in scrutinising the strategies and it was felt it would be more benefi cial for this Committee to consider the strategies before they were a greed by the Council. It was agreed that a representative fr om Arlingclose Ltd be invited to the December 2010 meeting of this Committee to enable Members to be provided with deta ils of the strategies before they were agreed by Council. Resolved - 1. That the information contained in the report be noted. Nancy Le Roux 41. Budget Setting Process Members were reminded that at the last meeting of thi s Committee a request was made for a report to be submi tted providing details on the budget setting process within t he Council. An informative report was considered which gave Members assurances that the budget setting process was subject to sufficient scrutiny elsewhere within the Council. Resolved – 1. That the information contained in the report be noted and the report be included in the information pack which w as given to new Members of this Committee. Helen Taylor Page 7 Action By: 42. Review of Internal Audit Terms of Reference Minor amendments were suggested to the Internal Audit Terms of Reference and these were noted. 43. Changing Legislation and Current Issues Members were informed that this year’s Internal Audit review would be carried out by means of a self review. A repo rt would be submitted to the Committee for information. 44. Balances and Reserves Statement 2010/11 The report on this item was included in Part II as it co ntained information relating to the financial or business affai rs of any particular person (including the Authority holding tha t information) and the public interest in withholding the information outweighed the public interest in disclosing it (exempt information under paragraph 3 of Part 1 of Schedule 12 A to the Local Government (Access to Information) Act 1985 as amended. Members were provided with details on the Council’s app roach to management and measurement of the requirement to hold balances and reserves. Resolved – 1. That the information contained in the report be noted. 45. Risk Management Report The report on this item was included in Part II as it co ntained information relating to the financial or business affai rs of any particular person (including the Authority holding tha t information) and the public interest in withholding the information outweighed the public interest in disclosing it (exempt information under paragraph 3 of Part 1 of Schedule 12 A to the Local Government (Access to Information) Act 1985 as amended. The report provided details of the reporting arrange ments in place for the most significant risks identified by officers and the most recent quarterly report. Resolved – 1. That the information contained in the report be noted. Page 8 46. Internal Audit Progress Report The report on this item was included in Part II as it co ntained information relating to the financial or business affai rs of any particular person (including the Authority holding tha t information) and the public interest in withholding the information outweighed the public interest in disclosing it (exempt information under paragraph 3 of Part 1 of Schedule 12 A to the Local Government (Access to Information) Act 1985 as amended. Consideration was given to a progress report on four Int ernal Investigations. Resolved – 1. That the information contained in the report be noted. Action By: Meeting closed at: 6.55pm Next meeting: 28 June 2010 at 5.00pm These are the minutes of the above meeting. For more information on any of the resolutions please contact Khalid Ahmed on 01895 250833 . Circulation of these minutes are to Councillors, Officers, the Press and Members of the Public. Page 9 Page 10 This page is intentionally left blank _________________________________________________________________________ - Page 1 - Minutes Audit Committee 13 May 2010 Meeting held at the Civic Centre, Uxbridge Committee Members Present: George Cooper, Phoday Jarjussey, Richard Lewis and Raymond Graham. Officers Present: Lloyd White and Nikki Stubbs. 1. Election of Chairman Resolved – That Mr John Morley be elected Chairman of the Committee for the ensuing municipal year. Meeting closed at: 8.58pm Next meeting: 28 June 2010 These are the minutes of the above meeting. For more information on any of the resolutions please contact Khalid Ahmed on 01895 250833 . Circulation of these minutes is to Councillors, Officers, the Press and Members of the Public. Page 11 Page 12 This page is intentionally left blank Audit Committee 28 June 2010 PART 1 – MEMBERS, PUBLIC & PRESS APPROVAL OF THE 2009/10 STATEMENT OF ACCOUNTS Contact Officers: Harry Lawson & Nancy Leroux Telephone: 01895 556578 REASON FOR REPORT The report presents the 2009/10 Statement of Accounts for approval by the Audit Committee as required by the Accounts and Audit Regulations 2003. It sets out the requirement for members to approve the Statement of Accounts and provides an update on key technical changes and the key issues raised in the Council’s accounts for 2009/10. The Pension Fund accounts from part of these accounts, whilst the Pension Fund Annual Report has been approved by Pensions Committee on 23 June 2010. RECOMMENDATIONS That Committee approves the Statement of Accounts for the financial year ended 31 March 2010. INFORMATION Requirement for Approval The Director of Finance & Resources is responsible for the preparation of the Council’s Statement of Accounts that present fairly the financial position of the authority at the accounting date and its income and expenditure for the year ended 31 March 2010. The 2009/10 accounts were released by the Director of Finance & Resources for approval by the Audit Committee on 17 June 2010. By formally approving the accounts the Audit Committee is demonstrating their ownership of the accounting statements and their confidence in the process by which the accounting records are maintained and the statements prepared. Audit Committee, under its terms of reference, have been tasked to review, challenge and approve the annual Statement of Accounts. The draft Statement of Accounts for 2009/10 is attached to this report. The accounts take the form as prescribed in the Statement of Recommended Practice for local authority accounting. Although the pension fund accounts form part of the Council’s main accounting statements, the pension fund is subject to a separate audit. The Pension Fund Annual Report has been approved by the Pensions Committee on 23 June 2010. Technical Changes to the Accounts 2009/10 is the last year for Local Authority accounts to be prepared under the SORP prior to full IFRS adoption in 2010/11. Consequently changes have been kept to a minimum for this year and include:- Agenda Item 5 Page 13 Audit Committee 28 June 2010 PART 1 – MEMBERS, PUBLIC & PRESS • Collection Fund . Non Domestic Rates (Business Rates) are now accounted on an ‘agency’ basis to reflect the fact that a billing authority is merely collecting these rates to passport straight to central government. This removes any individual NNDR debtors or creditors from the Council’s balance sheet, leaving only the amount still payable to central government on 31 March 2010. The Council Tax Income and Expenditure account is adjusted to reflect council tax income on an accruals basis with the balance sheet adjusted to reflect the agency nature of deficits / surpluses pertaining to the GLA. Previously this was attributable to the billing authority. • Senior Officer Remuneration. Greater detailed disclosure is now required for senior officers’ remuneration published alongside posts considered to be the equivalent of a listed company board. • Removal of Notes. A few notes to the accounts are no longer required to be published including Building Control, S137 Expenditure and publicity notes. • IFRIC12. Early implementation of IFRS regarding the accounting treatment of PFI schemes. Hillingdon already had the one PFI scheme it possesses on its balance sheet. • True and Fair. The accounts now must give a ‘true and fair’ view of the Council’s financial position rather than ‘presents fairly’ Key Movements in the Accounts • A revenue surplus of £2,477k was achieved, however much of this is attributable to crediting revenue with amounts previously lying on the balance sheet. • The deficit shown on the face of the Income and Expend iture account of £125,690k is another ‘accounting treatment’ loss attributable to significant downward revaluation of the Council’s schools. Such losses would normally be offset by historic revaluation gains not yet realised, however the Revaluation Reserve only came into existence for local authorities in 2007 and so does not contain previous gains to which to charge any impairments. • Liabilities related to the pension scheme grew by a fu rther £204million. These are actuarial losses and do not represent the actual change in liabilities of the fund which actually increased in value by £145.4million. The actuarial loss is somewhat counter intuitive in that whilst 2009/10 saw the value of investments increase significantly, assumptions around future inflation, longevity and the use of historically low Gilt-based rates to determine the discount rate, saw the future liabilities of the fund rise significantly also. • As a result of these factors the Council’s net worth fe ll from £960,185k to £651,078k. • The HRA were able to contribute £1,484k to its reserve s. Page 14 Audit Committee 28 June 2010 PART 1 – MEMBERS, PUBLIC & PRESS Audit of the Accounts and Public Inspection The audit of the accounts by Hillingdon’s external auditor, Deloitte, is due to start at the beginning of July and will be completed during the summer of 2010. The deadline for publishing the audited accounts is 30 September 2010 and the auditor’s findings are due to be reported to Audit Committee in September 2010. The report will include any changes that are made to the accounts between approval and the final published audited version that are deemed to be ‘non-trifling’; that is adjustments of £120k or more. It will also highlight any control issues found and provides an opinion of on the Council’s value for money. The statutory inspection period for the 2009/10 accounts will be 5 July to 30 July 2010. Committee Action Committee is requested to approve the 2009/10 Statement of Accounts after which the Chairman is asked to sign and date the Statement of Accounts to formally complete the Council’s approval of the accounts. Page 15 Page 16 This page is intentionally left blank Unaudited Statement of Accounts for the year to 31 March 2010 Page 17 Unaudited 1 London Borough of Hillingdon Statement of Accounts for the Year ended 31 March 2010 Contents Page 1 Leader's Statement 2 2 Explanatory Foreword 3 3 Summary of the Authority's Financial Performance 5 4 Statement of Responsibilities for the Statement o f Accounts 12 5 Audit Certificate and Opinion 13 6 Statement of Accounting Policies 17 7 Income and Expenditure Account 27 8 Statement Of The Movement On The General Fund 28 9 Reconciliation Of The Movement On The General Fun d 29 10 Statement of Total Recognised Gains and Losses 3 0 11 Balance Sheet 31 12 Cash Flow Statement 32 13 Notes to Main Financial Statements 33 14 Housing Revenue Account and Notes 66 15 Collection Fund Account and Notes 69 16 Group Accounts and Notes 72 17 Pension Fund Accounts 81 18 Annual Governance Statement 87 19 Glossary 94 Page 18 Unaudited 2 1. Leader’s Statement Introduction by Councillor Ray Puddifoot, Leader of the Council Welcome to the London Borough of Hillingdon’s State ment of Accounts for 2009/10. This statement sets out how the Council spent your money and gives details about the Council’s financial position. Page 19 Unaudited 3 2. Explanatory Foreword This document sets out the annual accounts of the L ondon Borough of Hillingdon for the year ended 31 March 2010. The accounts are in the format for local authority accounts set by the Chartered Institute of Public Finance and Accountancy. The purpose of this foreword is to provide a guide to the most significant matters reported in the financial statements. Included are a number of tech nical terms that are specific to local government finance and a glossary has been provided on page 94 to assist the understanding of the financial statements. The core accounting statements comprise: The Income and Expenditure Account This reports the net cost for the year of all the f unctions for which the authority is responsible, an d demonstrates how that cost has been financed from g eneral government grants and income from taxpayers. The surplus or deficit on this account represents the amount by which income is greater than or less than expenditure. Both income and expenditu re are measured using essentially the same accounting conventions, UK Generally Accepted Accou nting Practices (UK GAAP), which a large unlisted company would use in preparing its accounts. The Statement of Movement on the General Fund Balance This reports items of income and expenditure that are required respectively to be credited or charged to the General Fund Balance by statute or non-statutor y practices other than in accordance with UK GAAP. These are items that are taken into account i n determining the Council’s budget requirement and its Council Tax demand. The Statement of Total Recognised Gains and Losses This reports all the gains and losses experienced by a local authority in addition to those reflected in the Income and Expenditure Account. It will include, fo r example, gains on revaluations of fixed assets an d pensions actuarial gains and losses. The Balance Sheet This shows the balances and reserves at the Council ’s disposal at the year-end, together with its long - term indebtedness, the net current assets employed in its operations and summarised information on the fixed assets held. It excludes funds held in trust for others and the Pension Fund. The Cash Flow Statement This summarises the cash movements arising from bot h revenue and capital transactions with third parties. It excludes funds held in trust for others and the Pension Fund. The supplementary accounting statements comprise: The Housing Revenue Account (HRA) Income and Expenditure Account There is a statutory duty to account separately for local authority housing provision. The HRA Income and Expenditure Account shows in detail the Income and Expenditure on HRA services included in the whole authority Income and Expenditure Account. It includes the major elements of Council housing Page 20 Unaudited 4 revenue expenditure on maintenance, administration, and capital financing costs, and major income sources such as rents and other income. The Statement of Movement on the Housing Revenue Account Balance This shows how the HRA Income and Expenditure Accou nt surplus or deficit for the year reconciles to the movement on the Housing Revenue Account balance for the year. The Collection Fund Revenue Account The Collection Fund is a separate account into which amounts raised from local taxation are paid. From this, the amounts due to preceptors including the C ouncil itself are paid. This account also collects and distributes the national business rates pool, which the Council collects on behalf of central government. The Pension Fund Accounts These show contributions to the Council’s Pension F und for employees during 2009/10, together with the pensions and other benefits paid from it, movem ents in investments during the year and the financial position of the Fund as at 31 March 2010. The accounts do not include liabilities to pay pensions and benefits after that date. The document also includes the following: Statement of Accounting Policies The accounts can be properly appreciated only if th e policies that have been followed in dealing with material items are understood. The Statement of Acc ounting Policies and the various notes to the accounting statements therefore form an integral part of the accounts. There is also a glossary of ter ms and abbreviations at the end of this document. The Annual Governance Statement This statement is required under the CIPFA/SOLACE f ramework ‘Delivering Good Governance in Local Government’. This sets out the systems, processes, culture and values, by which the Council is directed and controlled, and its activities through which it accounts to, engages with, and leads the community. The framework enables the Council to mon itor the achievement of its strategic objectives and to consider whether those objectives have led to the delivery of appropriate cost-effective services. Glossary of Terms The Glossary provides a definition of key terms used to aid understanding the Accounting Statements. Page 21 Unaudited 5 3. Summary of the Authority’s Financial Performance Summary Following the dramatic, almost unprecedented events in the global economy that characterised the financial year to 31 March 2009, the 2009/10 financ ial year began with the economy close to the lowest point of the recession. This continued to have a significant impact on the finances of the Council. The principal impacts of the recession had already been experienced by the Council in 2008/09, and are documented in our Statement of Accounts for the year to 31 March 2009. These effects continued into 2009/10, and the Council suffered depressed income from local land charges, development control, building control, interest receivable from short-te rm deposits of Council funds, and capital receipts due to unfavourable market conditions for the disposal of property interests. The Council was prepared for new effects of the rec ession to emerge during the year. However, as the year progressed the adverse effects of the recessio n began to be countered by new opportunities. The sharp decline in inflation towards the end of 2008/09 turned into deflation in the economy in the first half of 2009/10, which had a dampening effect on the Cou ncil’s costs, with pay inflation being below that assumed at the time of setting the 2009/10 budget. The global re-adjustments to the supply and demand of capital, meant that the Council was able to take advantage of opportunities in the first quarter of 2009/10 to re-finance long term debt at more favourable rates, leading to savings on borrowing costs. Therefore, by the end of 2009/10 the Council had fu lly adjusted to the impact of the recession. An overall underspend against the General Fund revenue budget allowed reserves to be increased, leaving the Council well placed to build upon emerging signs of recovery in the economy reported in the final quarter of the year. The Council achieved another success in the final q uarter of 2009/10 in our long-running campaign to secure a fair funding settlement from the UK Border Agency for the costs of services to unaccompanied asylum seeking children that arrive in the borough through Heathrow airport. Additional grant of £1.8 million for the 2008/09 and 2009/10 financial years was secured as a result of lobbying together with other authorities affected by this issue. The offe r of increased funding also applies to the 2010/11 financial year and beyond, but is not yet sufficien t to deliver a permanent funding settlement that ta kes this burden away from local Council Tax payers, who again contributed around £2 million to the cost of these services in 2009/10. This strengthened financial position meant that the Council was able to set a zero increase in Council Tax for 2010/11 for the second successive year for all residents and the third successive year for ove r 65s, whilst continuing to invest in and deliver imp roved services to residents. The capital programme outturn for the year included significant expenditu re on two key new leisure facilities in the borough , as well as an innovative library refurbishment program me, investment in schools, decent homes and environmental improvements. Underpinning all of this improvement had been a con tinual focus on efficiency in service delivery. A new business transformation programme – Business Im provement Delivery – has been developed during the year as part of the Hillingdon Improveme nt Programme, and is set to build further on the £1 3 million of savings and efficiencies delivered throu gh the previous programme of internal service reviews. These achievements are set out in more detail in the following sections. Page 22 Unaudited 6 Revenue Budget Hillingdon’s General Fund net budget requirement for 2009/10 was set at £189.2 million. Both the Council’s element of the Council Tax and the Greater London Authority precept were frozen at the 2008/09 level, meaning that there was a zero ‘doorstep’ increase in the local Council Tax. Throughout 2009/10 the Council’s decision-making Cabinet received reports each month showing forecast variances against the main service budgets. These reports highlighted where corrective action was to be taken to ensure plans were achieved and spending kept within approved levels. The outturn for the year was £186.8 million, which compared to the revised budget showed an under spend of £5 million (after taking into account the budgeted £2.6 million of drawings from balances for the year). The final outturn position for the General Fund revenue budget by Council department is set out in the following table: Table: General Fund Outturn 2009/10 Service Department Revised Budget 2009/10 (£000s) Actual Outturn 2009/10 (£000s) Outturn Variance 2009/10 (£000s) Adult Social Care Health & Housing 91,879 91,493 (3 86) Education & Children’s Services 158,696 157,290 (1, 406) Environment & Consumer Protection 37,351 37,483 132 Planning & Community Services 13,774 13,716 (58) Central Services (Deputy Chief Executive’s / Finance & Resources) 15,425 13,437 (1,988) Corporately Held Funds & Contingencies 1,213 0 (1,213 ) Sub-total - Service Budgets 318,338 313,419 (4,919) Asset Management Revenue Account (130,764) (130,763 ) 1 Appropriation to FRS 17 Pensions Reserve 9,091 9,09 1 0 Interest & Investment Income 7,204 7,087 (117) Corporate Government Grants (12,058) (12,066) (8) Contribution to / (from) Balances (2,566) 2,477 5,0 43 Budget Requirement 189,245 189,245 0 The main variances from the revised budget were: Adult Social Care, Health and Housing x Significant variances in demand-led budgets betwee n the major client groups for Adult Social Care, with excess demand for Older People’s Services (£0.9 million) and Mental Health Services (£0.5 million) offset by lower than expected demand for Learning Disability Services (£0.9 million) and Physical & Sensory Services (£0.4 million) producing a balanced outturn overall x Improvement arising from the finalisation of the 2 007/08 housing benefit grant claim as compared to the assumed position in last year’s accounts, contributing to an aggregate underspend on the benefits service of £0.4 million Education and Children’s Services x Schools collectively managed their net expenditure within individual budgets leading to an increase in aggregate schools balances (£0.4 million) x The Council also managed net expenditure on its re tained share of the schools budget within budget leading to an increase in the earmarked reserve held for unused ring fenced Dedicated Schools Grant (£0.5 million) x Use of earmarked reserves to meet planned redundan cy costs (£0.2 million) Page 23 Unaudited 7 x Management of demand for care placements enabling some high-cost placements to be deferred into the new financial year (£0.1 million) x Shortfall on funding of services to asylum seekers for the year (£1.1 million) x Retrospective funding of asylum services received for previous years (£1.3 million) Environment and Consumer Protection x Greater than planned activity levels in the street cleansing and recycling services leading to increased costs (£0.2 million) x Reduced charges from the waste disposal authority due to lower residual waste tonnages (£0.4 million) x Lower than expected reduction in trade waste volumes leading to over-achievement of income target (£0.2 million) x Lower than planned absorption of costs of Harlington Road Depot into other service budgets due to reduced intensity of depot usage (£0.2 million) x Greater than planned activity levels in the Streets Ahead Week of Action programme leading to increased costs (£0.2 million) Planning and Community Services x Additional costs incurred to maintain management a rrangements across the department and underachievement of income targets especially for the arts service (£0.2 million) x Policy decision not to fully commit expenditure fr om the Community Safety Fund (£0.2 million) Central Services x Underachievement of rent income targets from comme rcial property due to the continuing impact of the recession (£0.1 million) x Reduced income from schools and other external par ties for hire and services related to the Council’s facilities management (£0.1 million) x Rebates secured on the Council’s main agency staff contract (£0.2 million) x Underspend on the Leader’s Initiative carried forw ard in general reserves (£0.1 million) x Ward Budget Initiative expenditure funded from acc umulated balances (£0.4 million) x Unapplied grants and contributions were used to fu nd general Council expenditure (£2.3 million) Capital Spending in 2009/10 Capital expenditure is expenditure on the purchase, improvement or enhancement of assets, the benefit of which impacts for longer than the year i n which the expenditure was incurred. Capital spending for the year was £72.1m (£70.1m in 2008/09 ). This expenditure was financed from various sources including capital receipts (£1.4m), Housing revenue contributions (£10.2m), government grants (£33.8m), Section 106 (£0.9m) and other third party contributions (£2.6m). Major capital schemes in 2009 included the completi on of Hillingdon Sports and Leisure Complex, Charville Young People’s Centre, various Children’s Centres around the borough, Breakspear Crematorium investment project, investment in publi c conveniences including composting toilets at allotments, improvements to the Cedars and Grainges car parks, investment in the borough libraries and refurbishment of a youth bus. Construction of a new leisure centre at Botwell Green has continued, and in 2009 two new young people’s centres and the Merrifield Centre have been adapted to facilitate short breaks for disabled children. Section 106 has been invested in ongoing Longmead a nd Pinkwell School expansions, town centre initiatives and the Skidz vehicle workshops at West Drayton Young People’s Centre. The Local Government Act 2003 introduced the pruden tial code whereby the Council is responsible for deciding its own level of affordable borrowing. In doing so capital investment plans have to be affordable, prudent and sustainable. To demonstrate that the Council has fulfilled these objectives a Page 24 Unaudited 8 range of prudential indicators are set annually and performance against these indicators is monitored regularly. During 2009/10 the Council required unsupported bor rowing of £22.2m to finance the capital programme. The tables below show how the 2009/10 Capital Progr amme was financed and which services received Capital investment. Capital Financing 2009/2010 Grants 47% HRA (inc MRA) 14% Unsupported 31% Capital Receipts 2% Section 106 and other contributions 6% Capital Expenditure 2009/10 Major Construction Projects 36% Education & Children's Services 27% Finance & Resources 3% Deputy Chief Executive 2% Planning & Community Services 3% Adult Social Care, Health & Housing 6% HRA 13% Environment & Consumer Protection 10% Page 25 Unaudited 9 Reserves These are set aside to cover unexpected expenditure , for instance additional costs arising from such things as stormy weather or other business risks. Each year the Director of Finance reviews the level of the general reserve to ensure it is adequate, as th ere are restrictions on the Council’s ability to bo rrow to support revenue expenditure. At the time of budg et setting for 2009/10 it was assessed that the appropriate level of reserves needed to support the continuation of Hillingdon’s services was between £10m and £17m. Four years ago the general reserve h ad fallen to an unacceptably low level following retrospective charges in Central Government asylum grants and considerable effort has been placed on securing an increase. The general reserve for non-schools services now stands at £18.9m. Schools also hold reserves for similar purposes and to meet future project expenditure. These are committed to be spent on the education service. At 31 March 2010 school reserves amounted to £11.9m. This is approximately 7% of schools expenditure. In addition, the Council holds a number of earmarke d reserves. This is money that has been set-aside for specific purposes most of which are statutory. Treasury Management During 2009/10 the main focus for Treasury Management was to reduce the risk within the investment portfolio and to minimise borrowing costs. This was achieved by utilising investment balances to prematurely redeem loans and facilitate debt rescheduling. The prevailing market conditions for the financial year forced short-term interest rates to historic lows however conversely there was little movement in longer-term rates. The strategy applied by the Council was to reduce investment holdings by using liquid funds to prematurely redeem long-term debt. This approach not only lessened investment exposure but also lowered borrowing costs. In addition the year saw increased debt restructuring with the maturity profile of the portfolio shortened to take advantage of lower rates available at the short end of the investment curve. The Council achieved an average rate of return on its investments of 1.74% and earned interest of £1.13m (5.04% at £5.68m 2008/09). Outstanding debt was reduced by £25.4m with a further £60.0m being restructured. These actions had a material impact on costs with interest payments on outstanding loans totalling £6.87m at an average rate paid of 3.94%. (£9.36m at 4.24% 2008/09) The administration of Heritable Bank is proceeding as planned and during 2009/10 dividends were received of £5.28m. The latest estimate based on wi nding up the bank by 2012 shows an expected return of 84.98%. No dividends have been received f rom Landsbanki Bank and the final decision regarding the priority status of local authorities is under judicial review in the Icelandic courts. The latest information suggests local authorities will retain their priority status and based on that assumption the expected return is 94.86%. Accounting for Pensions The Council participates in two local government pe nsion schemes, one administered by the London Borough of Hillingdon and the other run by the London Pension Fund Authority. The London Borough of Hillingdon Fund’s actuary, Hymans Robertson, last c arried out an actuarial valuation of the fund on 31 March 2007. The triennial valuation calculated a d eficit of £50m, which resulted in an increase in th e employer’s contribution rate effective from 1 April 2008. The London Borough of Hillingdon common contribution rate during 2009/10 was 16.8%, and emp loyees' contributed at variable rates between 5.8% and 7.5% of pensionable salary. Teachers employed by the Council contribute to the Teachers Pension Scheme administered by the Department for Children, Schools and Families (Depa rtment of Education from 12 May 2010). Contributions are paid to this body reflecting empl oyee and employers contributions. More details are given at page 59. Page 26 Unaudited 10 The Council is required to adopt FRS17 on retiremen t benefits. The net liability in respect of the London Borough of Hillingdon and London Pension Fun d Authority funds at 31 March 2010 of £414.5m has been recognised, compared to £210.4m at 31 Marc h 2009. The movement during 2009/10 was primarily due to actuarial losses, which resulted f rom higher inflation assumptions, and a change in t he discount rate as set out in note 48 on page 62. Det ails of the disclosures are shown in the Statement of Accounting Policies (page 17) and in disclosures notes on pages 59 to 63. Collection Fund The Council has reported a deficit on the collectio n fund of £1,009k for 2009/10 (£175k for 2008/09). This will be recovered in future financial years fr om the Council and Greater London Authority (GLA) i n proportion to the value of the respective demands o n the Collection Fund, for 2009/10 this was 78.22% for the Council and 21.78% for the GLA. The Counci l Tax collection rate was 96.6% compared to 96.1% in 2008/09. Review of Staffing Recruiting and retaining high calibre employees is essential if the Council is to achieve its performa nce objectives. At 31 March 2010 the number of Council employees, excluding schools, totalled 2,919 full time equivalents (FTE). This is an increase of 57 F TE (2%) on 31 March 2009, due to the conversion of agency workers to permanent employment, thus reduci ng reliance on agency staff and overall costs. Agency expenditure in 2009/10 was £17.3m (£18.8m in 2008/09). The following chart shows the breakdown of the number of employees by department as at 31 March 2010. Number of Employees (FTE) across departments 0 100 200 300 400 500 600 700 800 900 DEPUTY CHIEF EXECUTUVES OFFICE PLANNING AND COMMUNITY SERVICES FINANCE AND RESOURCES ENVIRONMENT & CONSUMER PROTECTION ADULT SOCIAL CARE HEALTH & HOUSING EDUCATION & CHILDREN SERVICES Voluntary labour turnover decreased from 7.2% in 2008/09 to 6.14% in 2009/10. The Council performance on a range of employee best value performance indicators show: 2009/10 2008/09 Working days lost due to sickness 8.45 days 8.10 da ys Proportion of the top 5% earners who are women 40.8 5% 39.84% Proportion of the top 5 % earners who are from ethnic minorities 12.68% 12.13% Percentage of employees with disability 2.00% 2.06% Ethnic minority representation in the workforce. 22 .47% 23.44% Outlook for the Future Hillingdon’s budget requirement for 2010/11 as agre ed by Council on 25th February 2010 is £194.2 million, and was set at that amount in order to free ze Council Tax at 2008/09 levels. Along with the Page 27 Unaudited 11 zero increase in the precept set by the Greater Lon don Authority, this resulted in no change in the to tal level of Council Tax per band paid by Hillingdon residents. The impact of the recession in the national and glo bal economy has meant that the Government has indicated that severe restrictions on public expend iture will be applied from 2011/12 onwards, and the Council is planning on the basis that there will be significant cuts in Government grants over the nex t three to four years. The Council has responded pro-actively to the exceptional level of challenge that these funding cuts will impose, by developing the Business Improvement Deli very programme as its major transformation project. This programme will review the Council’s whole operations and service delivery, and has been set a target to identify £30 million of savings and efficiencies over the next four years. The Counci l is confident that the principles of sound financial management and efficient service delivery that have built up the current position of financial strength will continue to provide the basis for delivering improv ed service outcomes for the residents of Hillingdon. Page 28 Unaudited 12 4. Statement of Responsibilities for the Statement of Accounts 1. Council’s Responsibilities The Council is required to: x Make arrangements for the proper administration of its financial affairs and to secure that one of its officers has the responsibility for the adminis tration of those affairs. In this Council that officer is the Director of Finance & Resources; and x Manage its affairs to secure economic, efficient a nd effective use of resources and safeguard its assets. 2. Director of Finance & Resources Responsibilities The Director of Finance & Resources is responsible for the preparation of the Council’s statement of accounts that present a true and fair view of th e financial position of the authority at the accounting date and its income and expenditure for the year ended 31 March 2010. In preparing this statement of accounts the Director of Finance & Resources has: x Selected suitable accounting policies and then app lied them consistently; x Made judgements and estimates that were reasonable and prudent; and x Complied with the code of practice. The Director of Finance & Resources has also: x Kept proper accounting records that were up to dat e; and x Taken reasonable steps for the prevention and dete ction of fraud and other irregularities. 3. Director of Finance & Resources Approval of Acco unts I certify that these accounts present a true and fa ir view of the financial position of the London Borough of Hillingdon, in terms of the CIPFA/LASAAC Code of Practice on Local Authority Accounting in Great Britain (‘the code of practice’ ), as at 31 March 2010 and its income and expenditure for the year then ended. Christopher Neale DIRECTOR OF FINANCE & RESOURCES 21 September 2010 Audit Committee Certificate for the Approval of the Accounts I confirm that these accounts were considered and a pproved by the Audit Committee at the meeting held on 28 June 2010. Signed on behalf of London Borough of Hillingdon John Morley CHAIRMAN (AUDIT COMMITTEE) 28 June 2010 Page 29 Unaudited 13 5. Audit Certificate and Opinion Independent auditor’s report to the Members of London Borough of Hillingdon Opinion on the Authority accounting statements Page 30 Unaudited 14Page 31 Unaudited 15Page 32 Unaudited 16Page 33 Unaudited 17 6. Statement of Accounting Policies The Accounts have been prepared in accordance with the 2010 Code of Practice on Local Authority Accounting and Statement of Recommended Practice, i ssued by the Chartered Institute of Public Finance and Accountancy (CIPFA), Statements of Stan dard Accounting Practice (SSAP) and Financial Reporting Standards (FRS). Any departures from reco mmended practices are stated within this section and/or within the notes to the accounts. CAPITAL 1. Tangible Fixed Assets Recognition: All expenditure on the acquisition, creation or e nhancement of tangible fixed assets is capitalised on an accruals basis in the accounts, p rovided that the asset yields benefits to the autho rity for a period of more than one year. This excludes expenditure on routine repairs and maintenance of fixed assets that is charged direct to service revenue accounts. Measurement: Assets are initially measured at cost, comprising all expenditure that is directly attributable to bringing the asset into working con dition for its intended use. Assets are then carrie d in the balance sheet valued on the basis recommended b y CIPFA and in accordance with the Statements of Asset Valuation Principles and guidance notes is sued by the Royal Institution of Chartered Surveyors (RICS). Fixed assets are included in the balance sheet on the following basis: x Land, operational properties and other operational assets are included in the balance sheet at the lower of net current replacement cost or net realisable value in existing use, x Non-operational assets, including investment prope rties and assets that are surplus to requirements, are included in the balance sheet at the lower of n et current replacement cost or net realisable value . In the case of investment properties this is normal ly open market value. In some cases where a Depreciated Replacement Cost (DRC) figure has been used, an additional opinion has been sought as to the Open Market Valuation (allowing for alter native uses) if it was at a figure significantly hi gher or lower than the DRC figure, x Infrastructure assets and community assets are inc luded in the balance sheet at historical cost, net of depreciation, x Plant and machinery forming an integral part of th e property is included in the valuation of the buildings. Other plant and machinery has been given a value on