Agenda item

A report of the Section 151 Officer was presented for Members to consider the draft Statement of Accounts and the Annual Governance Statement for the 2023/24 financial year. 

 

Under the Accounts and Audit Regulations 2015, the 2023/24 accounts should have been published by 31 May 2024.   However, there was a major issue in terms of a national audit backlog of prior year audits that were still on-going, as previously reported to the  Audit Committee.   At the statutory publication date, very few local authorities were able to make their draft accounts available.   Central Government were in the process of re-setting the external audit process so that local authorities could publish their accounts in a timelier manner going forwards. However, this would take several audit cycles to resolve.

 

In addition, the S151 Officer, in response to a change to the relevant international accounting standard (IAS 37), requested a review of the methodology in relation to the Collection Fund bad debt provision to ensure that the accounts presented a true and fair view.

 

At the end of 2021/22 financial year, the total collection fund debt was £47.2m with a provision for bad debts totalling £33.99m, an assumption that 72% of debt outstanding at that point would not be collected.  The calculation of the bad debt provision was based upon a profile of the aged debt outstanding but involved an element of officer judgement.  Any debt over 5 years old was also provided for at 100%.  The change in requirements around IAS37 (which required a determination of any impairment involved on the carrying value of the debt) meant that this was not an appropriate methodology for the provision.  It should be based on historical evidence and actual debt recovery levels informed by actual collection performance data.

 

Since recovery of outstanding debt typically took 10 years and debt was still being actively recovered for debt older than 10 years, the provision of £34.005m (at 31 March 2022) was assessed to be overly prudent.  A new methodology based up on long term collection rates (adjusted to account for previous debt write off) over the last 30 years was developed and applied to both 2021-22 and 2022-23 collection fund debt.  The change in methodology was then applied to 2021/22 and 2022/23 accounts and resulted in a release of £9.617m from the bad debt provision. Middlesbrough’s share of this was £7.160m which was then transferred to the Collection Fund Adjustment Account.  At this point, the revised bad debt provision for the Collection Fund totalled £24.388m.

 

An existing surplus of £1.7m against other changing factors within the collection fund resulted in a total available of £8.9m at the end of 2022/23. Current forecasts for the 2023/24 Collection Fund outturn position were predicting that there would be a net in-year deficit of £0.6m on the Collection Fund.   £8.3m was therefore available to the Council at the end of the 2023/24 financial year and for budgeting purposes in 2024/25.

 

Although the draft accounts for 2021/22 and 2022/23 had not been audited fully, the amendments on the bad debt provision plus some other minor changes in narrative due to the passage of time, meant that the revised statement of accounts needed to be recertified and reissued to comply with statutory regulation.  This was done by the Director of Finance on 24 September 2024, and these have been updated on the Council website.

 

The importance of reissuing these accounts was that the balances on assets and liabilities roll forward and had an impact on the opening position for the 2023/24 financial year.  Even though the management accounts and financial statements for the latest full financial year had been complete for some time, it was important to confirm the position on the bad debt provision with EY before the accounts were finalised and released to stakeholders.  It was highlighted that whilst the previous year’s accounts were unaudited, the figures, totals and narrative that accompanied these had been produced to a high-quality standard and a significant degree of professional compliance.

 

The draft accounts for 2023/24 had also been certified as a true and fair view of the Council’s financial position by the Director of Finance and were opened for public inspection on 30 September 2024, for a period of 30 working days.   Any enquiries from members of the public would be responded to and resolved in a timely manner and reported to Members as appropriate.

 

The Draft Statement of Accounts 2023/2024 was attached to the submitted report and included the following: a Narrative Report, Financial Statements, Notes to the Accounts, Group Accounts, Collection Fund Accounts and Collection Fund Income and Expenditure Account, Teesside Pension Fund Accounts and Notes and the Annual Governance Statement.

 

Members’ attention was drawn to some significant differences between the Council’s financial statements, which were part of the Statement of Accounts document and its management accounts which were reported for budget and operational purposes.  This related to technical accounting adjustments and timing issues in how certain totals were reported.  Two important areas to note were the presentation of reserves and the net worth of the Council’s balance sheet.

 

The total value of usable reserves in the Balance Sheet as of 31st March 2024 was £75.702m. This was much higher than the £12.055m total that had been reported in the budget monitoring process for 2024/25 and lower  than the amount recommended by the S151 Officer.    The reason for the higher total figure included capital and revenue grants unapplied (those amounts paid over in past financial years but to be expended on committed

items), as well any other committed revenue reserves, such as school reserves and the Better Care Fund from the NHS.  In particular, capital grants being rolled forward to future year’s capital schemes was a significant value at £51.760m. 

 

The net worth of the Council’s balance sheet at the 31 March 2023 was a positive one totalling £279.3m.  Assets available exceeded liabilities due by a significant margin.  The net worth position overall though had decreased in year of £130.1m (31.8%).    The decrease predominantly related to retirement benefits under IAS 19 and a change in the discount rate applied to the liabilities that formed part of the local government pension scheme, making this arrangement comparatively more expensive.  Any pensions movements would not affect the Council’s financial position for revenue budget purposes as it would influence future pensions payments over the next 20-40 years.

 

A Member queried the significant increase in the number of employees in receipt of an annual salary over £50K.  It was explained that this was due to the latest pay award. 

 

In relation to the accounting standards issued but not yet adopted, it was clarified that the statutory override was still being applied to the valuation of roads.

 

Members requested further information in relation to: the total cost of the latest pay award and associated pension cost , loss of income from planning fees to the Middlesbrough Development Corporation, costs associated with the Best Value Notice and the value of The Crown building on the Balance Sheet and where it was referenced.

 

AGREED as follows that:

 

1.     Audit Committee noted the draft Statement of Accounts for 2023/24 had been approved by the Director of Finance for publication on 24 September 2024 and were currently on the Council website and out to public inspection until 8 November 2024.

 

2.     The Head of Finance and Investment would provide Committee Members with further information in response to the queries raised at the meeting regarding:

 

·        The total cost of the latest pay award and associated pension costs.

·        Loss of income from planning fees to the Middlesbrough Development Corporation.

·        Costs of the measures put in place to address the issues that led to the Best Value Notice in 2023.

·        Value of The Crown building on the Balance Sheet and where it was referenced in the Statement of Accounts.