Appendix A THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEE STATEMENT OF ACCOUNTS YEAR ENDED 31 MARCH 2005 THE ASSOCIATION OF LONDON GOVERNMENT - TRANSPORT AND ENVIRONMENT COMMITTEE CONTENTS Page Explanatory Foreword 1 - 4 Statement of Responsibilities for the Statement of Accounts 5 Statement on Internal Control 6-8 Report of the Auditors 9-10 Statement of Accounting Policies 11-12 Revenue Account 13 Notes to the Revenue Account 14- 19 Balance Sheet 20 Notes to the Balance Sheet 21 - 22 Cash Flow Statement 23 Notes to the Cash Flow Statement 24 THE ASSOCIATION OF LONDON GOVERNMENT - TRANSPORT AND ENVIRONMENT COMMITTEEPage 1 EXPLANATORY FOREWORD Introduction The Association of London Government Transport and Environment Committee (ALG- TEC) was formed on 1 April 2000 and first met on 20 June 2000 The responsibilities of ALG-TEC are as follows: In the field of accessible transport, ALG-TEC is responsible for: negotiating and operating London's concessionary fares scheme for elderly and disabled people, giving free travel on most of London's tube, train and bus services; operating the London Taxicard scheme (for 29 boroughs), which provides subsidised taxi travel for people with disabilities; providing general London-wide policies on accessible transport, including supporting the Commission on Accessible Transport which brings together funders for all types of door-to-door transport. In the field of traffic, ALG-TEC brings together a number of functions, including: a statutory responsibility to set decriminalised parking penalties and other additional parking charges within London; a statutory responsibility to operate the Parking Appeals Service, which allows individuals to appeal to the independent parking adjudicator over decriminalised parking penalties; the operating of the TRACE service, which provides 24 Hour information in the recovery of towed away cars; electronic link services between the London local authorities and the DVLA, County Court and Foreign & Commonwealth Office; training standards for parking control where the Committee is (together with SITO) the awarding body for a National Vocational Qualification; operation of the Health Emergency Badge scheme, giving front line medical staff parking privileges; general co-ordination of parking regulations and enforcement policies including the maintenance of a Code of Practice; provision of information on parking regulation and enforcement; operation and enforcement of the London night-time and weekend Lorry Ban (for 32 boroughs); In the field of Environmental and Planning, ALG-TEC is responsible for co- coordinating borough responses to issues concerning : land use planning; the environment and bio-diversity; consumer protection and trading standards; and waste. Review of the Year 2004-05 has been another very busy year for the Committee. In our direct services a number of important changes have taken place. During the year we successfully negotiated a three year settlement with TfL over Freedom Pass, thus securing the scheme until at least 2008. We also completed the change over of Freedom Passes to smart card technology, which has opened the way for more detailed data for costing and also for additional benefits for card holders such as top up payments. As a result we are now investigation different ways of apportioning the cost between boroughs for Freedom Pass to better reflect actual costs. In Taxicard we also successfully retendered the contract and have secured both a more economical contract but one which, for the first time guarantees a high standard of service to users. The scheme continues to represent a successful partnership between the boroughs and TfL. THE ASSOCIATION OF LONDON GOVERNMENT - TRANSPORT AND ENVIRONMENT COMMITTEE Page 2 EXPLANATORY FOREWORD (Continued) Operation Scrap-it, which enables boroughs to meet a 72 hour deadline for dealing with abandoned, untaxed and other nuisance vehicles, was launched and boroughs are successfully meeting their targets. The year has seen more than 30,000 vehicles scrapped under the free take back scheme and a further 45,000 vehicles removed from London’s streets. We successfully decriminalised the enforcement of the London Lorry Control Scheme, providing a more streamlined mechanism for ensuring a high level of compliance. The scheme continues to be a central part of the London freight strategy. The Parking and Traffic Appeals Service handled more than 90,000 appeals (including congestion charging) which is considerably higher than any previous year. While the backlog on congestion charging appeals has been substantially reduced with the introduction of new adjudicators in the autumn of 2004, the sudden growth in the number of parking appeals towards the end of the year has led to a backlog there. More adjudicators in this area are helping matters. The adjudicators have also started to consider appeals in connection with the London Local Authorities and Transport for London Act 2003. This Act, which decriminalised minor moving traffic offences, has been undergoing pilot trials since the summer of 2004. The policy unit successfully worked with TfL over the SR2004 review to secure a significant improvement in government support for transport in London with a fixed five year settlement. Work with TfL also took place to support boroughs’ production of Local Implementation Plans – an important new programme – and also to promote further bus priority in London, a freight strategy for London and coordinated traffic enforcement. The Traffic Management Act gained Royal Assent in July 2004 and a considerable effort was put into its implementation. This included the process, led by the Government Office for London, of designating a strategic road network for London and understanding, with TfL how this was to be operated in practice. The ALG also gave support to boroughs in their approach to their net6wolrk management duty and to permitting of road and street works. The policy team continued to work with the GLA over implementation of the London Plan and, in particular, the role of sub-regional development frameworks. This work was also involved with the implementation of the new planning framework in the Planning and Compulsory Purchase Act 2003. This Act has made radical changes to the planning system and, with ALG support, all London boroughs have successfully completed the first stage. In turn this released additional funding to boroughs through the Planning Development Grant. The unit has continued to put a lot of effort into improving the public realm. The year saw a major conference – Liveable London – and Royal Assent given to the London Local Authorities Act 2004, which has strengthened boroughs’ powers in this area. Indeed, a number of the provisions in this Act were adopted by the Government in the Clean Neighbourhoods Act. Further work is being undertaken to make the Act work in practice, in particular, the enhanced powers to combat graffiti. Research into waste modeling has also been completed and more work is going into this area with the introduction of stricter government targets for recycling and the land-fill trading allowance system, which penalises excessive land-fill for waste disposal. The unit continued to work to support boroughs over the introduction of the Licensing Act which transfers responsibility for alcohol licensing from the magistrates’ courts to local councils. There is particular concern over the rigidity of the system prescribed by the Government and the level of fees, which are intended to make the system self-financing. Finally the ALG successful gained a contract from the Department for Trade and Industry to operate Consumer Direct service in the London region. This service – a consumer equivalent of NHS direct, is being rolled out through the country but London is unique in England in both using an association as a lead body and in acquiring the service through competitive tender. The ‘soft’ launch of the service was on March 15th 2005, with the formal launch taking place in June. THE ASSOCIATION OF LONDON GOVERNMENT - TRANSPORT AND ENVIRONMENT COMMITTEE Page 3 EXPLANATORY FOREWORD (continued) Looking forward to 2005/2006 Next year will see a number of significant challenges. These will include work on implementing and operating Consumer Direct in its full fashion and rolling out the enforcement of moving traffic offences across London. It is clear that some issues will become more important during 2005/06 than they have been previously. The whole issue of decriminalised enforcement has become more prominent and more work will be needed on this to make the scheme more acceptable to the public. Waste, also, is becoming more of an issue and a debate over the future of waste collection and disposal will take place. The autumn of 2005/06 will see the full scale implementation of the Licensing Act, which will stretch boroughs' resources and result in some issues being exposed. The year will also see new work coming up including starting work on the relet of our support contract for the Parking and Traffic Appeals Service. The Chief Finance Officer has pleasure in presenting the Statement of Accounts as set out on pages 13 to 24. The Statement of Accounts consist of the: Statement of Responsibilities for the Statement of Accounts - page 5. Statement of Internal Control – pages 6-8. Consolidated Revenue Account - which covers income and expenditure on Committee Services - page 13. Balance Sheet - which sets out its financial position - page 20. Cash Flow Statement - which summarises Committee capital and revenue inflows and outflows of cash - page 23. These accounts are supported by the Statement of Main Accounting Policies on pages 11-12 and various notes. Revenue expenditure Set out below is a comparison between the actual income and expenditure and the approved budget for the year. Budget Actual Variation £'000 £'000 £'000 Net cost of services 106 (1,234) (1,340) Interest Income (30) 76 106 Transfer from Reserves (118) (178) (60) Surplus for the year (42) (1,336) (1,294) Transfer to Specific Reserve - - - Adjusted Deficit (42) (1,336) (1,294) There have been a number of areas of underspending and overspending during the year which have offset each other to produce a provisional surplus of £1.336m for the year. Additional income has been raised in other areas which has offset the cost of increased expenditure, such as the payments to Northampton County Court for the registration of parking debt and other parking service, in particular in respect of Congestion Charging Appeals. Additional reserves of £66,000 (excluding transfer from the Pensions Reserve) in excess of the budgeted level have also been transferred to revenue to cover areas of additional expenditure , although this relates to carried forward balances for the TEC Research budget. THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEE Page 4 EXPLANATORY FOREWORD (continued) Budget for 2005/06 On 10 December 2004, the full TEC Committee approved a total expenditure budget for 2005/06 of £34,983m, exclusive of the borough payment of £188.5m to Transport for London (TfL) in respect of Concessionary Fares. Total income sources were estimated to be £34.634m , with a balanced budget achieved after the Committee approved the use of balances totaling £349,000, relating solely to a transfer from TOFIR to offset to costs of the non-TfL element of the Concessionary Fares Settlement for 2005/06. FRS17 Following the adoption of FRS 17 Retirement Benefits principles in the SORP, the ALG’s accounting policies for retirement costs have been revised significantly in 2003/04. In previous years, the ALG treated the employer's contributions amounts payable to the Local Government Pension Scheme as its expenditure for the year and only accrued for amounts payable to the Fund that had not been paid by 31 March. The new policy is to recognise the full liability that the ALG has for meeting the future cost of retirement benefits that will arise from years of service earned by employees up to the balance sheet date, net of the contributions paid into the Fund and the investment income they have generated. As a result, the closing balance sheet for 2004/05 includes a pensions liability of £1.307m, balanced by a pensions reserve of the same value. Charges to service revenue accounts are now based on a share of current service cost (the increase in future benefits arising from service earned in the current year) rather than employer's contributions. THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEE Page 5 STATEMENT OF RESPONSIBILITIES FOR THE STATEMENT OF ACCOUNTS The Committee's Responsibilities The Committee is required: to make arrangement for the proper administration of its financial affairs and to secure that one of its officers has the responsibility for the administration of those affairs. In this Committee, that officer is the Chief Finance Officer; to manage its affairs to secure economic, efficient and effective use of resources and safeguard its assets; to approve the Statement of Accounts. The Director of Finance and Administration's Responsibilities The Director of Finance and Administration is responsible for the preparation of the Committee's Statement of Accounts which, in terms of the CIPFA/LASAAC Code of Practice on Local Authority Accounting in Great Britain ("the Code"), is required to present fairly the financial position of the Committee at the accounting date and its income and expenditure for the year. In preparing this Statement of Accounts, the Director of Finance and Administration has: selected suitable accounting policies and then applied them consistently; made judgements and estimates that were reasonable and prudent; and complied with the Code. The Director of Finance and Administration has also: kept proper accounting records which were up to date; and taken reasonable steps for the prevention and detection of fraud and other irregularities. Responsible Finance Officer's Certificate The Statement of Accounts is that upon which the auditor should enter his certificate and opinion and has been prepared under the Local Government Finance Act 1982. It presents fairly the financial position of the Committee at 31 March 2005, and its income and expenditure for the year then ended. 2005 F Smith CPFA Director of Finance and Administration THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEE Page 6 STATEMENT ON INTERNAL CONTROL SCOPE OF RESPONSIBILITY The Association of London Government (ALG) is responsible for ensuring that its business is conducted in accordance with the law and proper standards, and that public money is safeguarded and properly accounted for, and used economically, efficiently and effectively. In discharging this overall responsibility, the ALG is also responsible for ensuring that there is a sound system of internal control which facilitates the effective exercise of the ALG’s functions and which includes arrangements for the management of risk. THE PURPOSE OF THE SYSTEM OF INTERNAL CONTROL The system of internal control is designed to manage risk to a reasonable level rather than to eliminate all risk of failure to achieve policies, aims and objectives; it can therefore only provide reasonable and not absolute assurance of effectiveness. The system of internal control is based on an ongoing process designed to identify and prioritise the risks to the achievement of the ALG’s policies, aims and objectives, to evaluate the likelihood of those risks being realised and the impact should they be realised, and to manage them efficiently, effectively and economically. The system of internal control has been in place at the ALG for the year ended 31 March 2005 and up to the date of approval of the accounts and, except for the details listed under significant internal control issues, accords with proper practice. THE INTERNAL CONTROL ENVIRONMENT The key elements of the internal control environment, include: Establishing and monitoring the achievement of the ALG’s objectives – each Division at the ALG currently produces a monthly update for discussion with the Chief Executive at their 1:1 meetings. A consolidated progress report is presented to the ALG’s Officer Management Team and to Elected Officers on a quarterly basis. The presentation of quarterly exception reports to Elected Officers, which started in October 2004, and highlighted significant achievements and reported on operational performance; the production of a key achievements document at year end; regular reports to Elected Officers on progress of the 50 tasks in the Corporate Improvement Plan The facilitation of policy and decision-making – the ALG’s officer Management Team, with input from other senior policy staff, discusses all areas of policy development as they arise and formulates draft responses to Central Government, the GLA and other bodies as appropriate. These responses are presented to elected members for approval prior to being made public. In accordance with the ALG’s Standing Orders and Financial Regulations, certain decision making functions have been delegated to the Chief Executive and/or the officer Management Team, which are exercised as appropriate; Ensuring compliance with established policies and procedures, laws and regulations – the ALG has comprehensive Financial Regulations and a comprehensive set of Human Resources Policies, which are reviewed at regular intervals. These arrangements ensure compliance with all applicable statutes, regulations and other relevant statement of best practice in order to ensure that public funds and properly safeguarded and are used economically, efficiently and effectively and in accordance with the statutory and other authorities that govern their use. Financial Management and Reporting - the ALG’s officer Management Team and the ALG’s Elected Officers receive regular financial management reports that monitor actual income and expenditure trends against approved budgets. This information is obtained from and reliance is, therefore, placed upon the Corporation of London’s accounting system. This system has adequate processes in respect of authorisation levels and hierarchical access controls and there is the necessary segregation of duties within the Finance Section at the ALG to complement these controls, although this will be further enhanced during 2005/06 when the additional staffing resources are in place. THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEE Page 7 STATEMENT ON INTERNAL CONTROL (Continued) In September2004, the ALG’s Elected Officers agreed to adopt a Risk Management Strategy, to be co-ordinated by the new Corporate Strategy and Performance (CSP) Division. The ALG’s officer Management Team subsequently delegated the responsibility for compiling the Divisional Risk Registers to the respective Director. This process in still evolving although it is a key aim of the ALG’s officer Management Team that Risk Management should become fully embedded in the Association’s procedures and practices during 2005/06. REVIEW OF EFFECTIVENESS The ALG has responsibility for conducting, at least annually, a review of the effectiveness of the system of internal control. The review of the effectiveness of the system of internal control is informed by the work of the officer management team within the organisation who have responsibility for the development and maintenance of the internal control framework, and of the internal auditors. We have also taken account of comments made by the external auditors and other review agencies in their annual audit letter and other reports. We have also taken account of: The work of Internal Audit, now fully undertaken by the Corporation of London under a Service Level Agreement, and the annual opinion of the Chief Internal Auditor at the Corporation of London. Internal Audit plays a central role in providing the required assurance on internal controls through its comprehensive risk-based audit of all auditable areas within the five-year planning cycle, including the ALG, – with key areas being reviewed annually. This is reinforced by consultation with the ALG’s Management Team and Elected Officers on perceived risk and by a rigorous follow-up audit regime. The Internal Audit Section of the Corporation of London operates, in all aspects, in accordance with the CIPFA Code of Practice, and achieved the highest possible score as part of the Comprehensive Performance Assessment (CPA) process. External Audit relies upon the work of Internal Audit. The role of the ALG’s Elected Officers in acting as the ALG’s Audit Committee, following recommendations from the external auditors in the last three Annual Audit Letters, although it is accepted that a meeting of the Audit Committee has not been held during the period under review; The Corporate Improvement Plan, which arose from findings of the voluntarily undertaken self-assessment exercise against the Corporate Self Assessment standards contained within the Comprehensive Performance Assessment framework, from a staff survey and from a review of the ALG conducted by three borough Chief Executives, has continued to be implemented. At the last progress report to Elected Officers in June 2005, 28 out of the 50 action points had been completed and the remaining 22 were underway or have been classified as part of a continuous process. SIGNIFICANT INTERNAL CONTROL ISSUES Risk Management The ALG’s risk management framework has progressed over the past 12 months but is still being finalised before becoming fully embedded during 2005/06 to provide the necessary evidence of an effective system of internal control. This will include improvements to: Identification of risks on a divisional basis from which a corporate risk register will be complied, which will be monitored quarterly by the officer management team, in addition to the monitoring of the objectives/priorities which is being done at director, management team and elected officer level since October 2004; THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEE Page 8 STATEMENT ON INTERNAL CONTROL (Continued) Ensuring the economical, effective and efficient use of resources and for ensuring continuous improvement in the way the ALG’s functions are exercised. This process will be informed by, firstly, the two Best Value type Reviews that are underway (Communications and Public Affairs and the contract for European Services undertaken by Greater London Enterprise Ltd). Secondly, the ALG is committed to undertaking a Fundamental Review of the entire organisation during 2005/06 to provide members with options as to the future direction of the ALG after the May 2006 local elections. Budget Monitoring Improvement to the type of budget monitoring information that is presented to the Grants Committee, TEC and LHUC will be introduced in relation to the first quarter results for 2005/06. Debt Management The ALG’s debt management process has improved over the past 12 months, with the level of outstanding debt owed to the ALG on the Corporation CBIS Accounts Receivable ledger as at 31 March 2004 was £5.053m; at 31 March 2005 it was £2.985m, a reduction of £2.068m. However, there is still room for considerable improvement, particularly in the area of borough parking related debt and effort will be concentrated on this particular area during 2005/06. In particular, all debts over 24 months should be either followed up or recommended for write off. PATAS Management Control – Adjudicators’ Claims Current management controls in respect of adjudicators’ monthly timesheets are deficient as: The practice of disposing of calendar sheets in support of claims after a few months means that no permanent record for audit examination of certification procedures exists; and Due to the lack of cell protection on the EXCEL spreadsheet used to record adjudicators’ claims, input could be overwritten and information corrupted as a consequence. Adequate controls must be put in place as a matter of urgency to address these two fundamental issues. 2005 M.G.Pilgrim Chief Executive THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEE Page 9 AUDITORS' REPORT TO THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEE We have audited the Statement of Accounts on pages 13 to 24 which have been prepared in accordance with the accounting policies applicable to local authorities as set out on pages 11 and 12. This report is made solely to The Association of London Government Transport and Environment Committee in accordance with Part II of the Audit Commission Act 1998 and for no other purposes, as set out in paragraph 54 of the Statement of Responsibilities of Auditors and of Audited Bodies, prepared by the Audit Commission. Respective responsibilities of the Chief Financial Officer and Auditors As described on page 5, the Director of Finance and Administration is responsible for the preparation of the Statement of Accounts in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom 2003. Our responsibilities as auditors, are established by statute, the Code of Audit Practice issued by the Audit Commission and our profession's ethical guidance. We report to you our opinion as to whether the Statement of Accounts presents fairly the financial position and results of operations of the Committee. We review whether the statement on internal control on pages 6-8 reflects compliance with CIPFA’s Guidance “The Statement on Internal Control in Local Government: Meeting the Requirements of the Accounts and Audit Regulations 2003” published on 2 April 2004. We report if it does comply with proper practices specified by CIPFA or if the statement is misleading or inconsistent with other information we are aware of from our audit of the statement of accounts. We are not required to consider, nor have we considered, whether the statement on internal control covers all risks and controls. We are also not required to form an opinion on the effectiveness of the Committee’s corporate governance procedures or its risk and control procedures. Our review was not performed for any purpose connected with any specific transaction and should not be relied upon for any such purpose. We read the other information published with the statement of accounts and consider the implications for our report if we became aware of any apparent misstatements or material inconsistencies with the statement of accounts. The other information comprises only the explanatory foreword. Basis of audit opinion We conducted our audit in accordance with the Audit Commission Act 1998 and the Code of Audit Practice issued by the Audit Commission, which requires compliance with relevant audit standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the statement of accounts. It also includes an assessment of the significant estimates and judgements made by the Committee in the preparation of the statement of accounts and of whether the accounting policies are appropriate to the Committee's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we consider necessary in order to provide us with sufficient evidence to give reasonable assurance that the statement of accounts is free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the statement of accounts. Opinion In our opinion the statement of accounts presents fairly the financial position of the ALG Transport and Environment Committee at 31 March 2005 and its income and expenditure for the year then ended. THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEEPage 10 AUDITORS' REPORT TO THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEE Certificate We certify that we have completed the audit of accounts in accordance with the requirements of the Audit Commission Act 1998 and the Code of Audit Practice issued by the Audit Commission. 2005 PricewaterhouseCoopers LLP Southwark Towers, 32, London Bridge Street London, SE1 9SY THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEEPage 11 STATEMENT OF ACCOUNTING POLICIES A General The Committee has adopted the following accounting policies which should be read in conjunction with the statement of accounts set out on pages 13 to 24. The general principles adopted in the preparation of these statement of accounts are those recommended by the Chartered Institute of Public Finance and Accountancy (CIPFA) in the ‘Code of Practice on Local Authority Accounting in the United Kingdom: A Statement of Recommended Practice (SORP) 2003’ and are in accordance with the Accounts and Audit Regulations 2003. The only exception is that for capital accounting purposes, fixed assets are valued in the accounts at their historic cost, rather than their estimated current cost. B Income and expenditure Income and expenditure is accounted for on an accruals basis, except for court fees received in respect of the London Wide Lorry Ban, which are dealt with on a cash basis, as the penalties payable by lorry owners are at the discretion of the Court. C Fixed assets and depreciation All fixed assets are subject to a de minimis level of £1,000 for capital accounting purposes. Fixed Assets are depreciated on a straight line basis, starting the year after acquisition, over their useful economic lives: Leasehold Property – 10 years (period of lease); Furniture and Fittings – 5 years; Computer Equipment – o Desktop Hardware – charged to revenue in year of purchase; o Infrastructure Hardware – 3 years; and o Software Licences – over the life of the licence. D Leased assets and obligations Where assets are financed by leasing agreements that give rights approximating to ownership ("finance leases"), the assets are treated as if they had been purchased outright. The amount capitalised is the present value of the minimum lease payments payable during the lease term. The corresponding leasing commitments are shown as obligations to the lessor. Depreciation on the relevant assets is charged to the consolidated revenue account. Lease payments are treated as consisting of capital and interest elements, and the interest is charged to the consolidated revenue account using an approximation to the annuity method. All other leases are "operating leases", and the annual rentals are charged to the consolidated revenue account on a straight line basis over the lease term. E Debtors and creditors The accounts of the Committee are maintained on an accruals basis. Sums due to or from the Committee during the year are included whether or not the cash was actually received or paid in the year. THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEEPage 12 STATEMENT OF ACCOUNTING POLICIES (continued) F Provisions and Reserves The Committee sets aside provisions for specific liabilities which are recognised but the amount or timing of cannot yet be determined accurately. A provision is recognised when the Committee has a present obligation as a result of a past event and it is probable that the obligation will be settled by a transfer of economic benefits and a reliable estimate can be made of the amount of the obligation. Money prudently held as a general sum against future need is classed as a reserve and payments to it do not count as service expenditure. Money held in reserve is transferred back to revenue to meet needs as they arise. G Interest income Interest is credited to the accounts based on average cash balances held by the Corporation of London and invested in the London Money Markets. H Pension costs - pension funds The 2003 Code of Practice on Local Authority Accounting requires Local Authorities to fully reflect the requirements of FRS 17 in their accounts for 2004/05. These requirements represent a substantial change in the way that retirement benefits are accounted for. The policy detailed below complies with the requirements of FRS 17. As part of the terms and conditions of employment of its officers and employees, the Association of London Government offers retirement benefits. Although these will not actually be payable until employees retire, the ALG has a commitment to make the payments in the future. This commitment is accounted for in the year that the employee earns the right to receive a pension in the future. I Allocation of Income Income, where possible, has been apportioned to expenditure in accordance with the levies and charges due from boroughs in respect of specific service areas. Income that is not directly attributable to a particular service is apportioned to other expenditure categories based on budgeted expenditure for the year. J Apportionment of Overheads Central overhead costs incurred by the ALG are apportioned to the Grants, TEC and LHUC funding streams as follows: o Salary Costs - in accordance with the budgetary provision set aside for such costs in the funding stream budget for the years of account; and o Non-salary costs - where expenditure has been identified as directly attributable to a particular funding stream, it has been allocated in full to that funding stream. Where such costs are not directly attributable, they have been allocated in accordance with the number of desk spaces used by the funding streams. THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEEPage 13 REVENUE ACCOUNT FOR THE YEAR ENDED 31 MARCH 2005 2004/2005 2004/2005 2004/2005 2003/2004 Expenditure Income Net Expenditure Note £'000 £'000 £'000 £'000 Direct Revenue Expenditure: Payments to operators 1a20,347(20,519) (172) (263) Vivista services 1b3,816 (3,816) - - Parking adjudication 1c 1,485 (1,485) - - Payments to Northampton County Court 1d 4,534 (4,534) - - Reimbursement of parking penalty notices to boroughs 1e26(26) - - Total Direct Revenue Expenditure 30,208 (30,380) (172) (263) Administration and other expenditure: Staff costs 42,192 (2,394) (202) (88) Premises 3829 (905) (76) (29) Central Support Services 7,421 (8,174) (753) 74 Consultancy 342 (373) (31) 86 Total Administration and Other Expenditure 10,784 (11,846) (1,062) 43 Net Revenue Cost of Services 40,992 (42,226) (1,234) (220) Interest and Investment income 5 85 7 Net Return on Pension Scheme (Assets)/Liabilities 4 (9) 18 Net revenue expenditure to be met from sources of finance (1,158) (195) Transfer from Earmarked Reserve (118)349 Transfer from Revenue Reserve (66) (915) Transfer to Pensions Reserve 6 (16) NET (SURPLUS)/DEFICIT FOR THE YEAR (1,336) (777) F Smith CPFA 2005 THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEEPage 14 NOTES TO THE REVENUE ACCOUNT FOR THE YEAR ENDED 31 MARCH 2005 1 Terminology Due to the unique nature of the Committee's activities, a brief description of some of the main headings contained in the consolidated revenue account are detailed below: a) Payments to Operators - Amounts paid to transport operators under the Concessionary Fare and Taxicard agreements. b) Vivista Services - payments to the contractors who provided the parking facilities management contract in 2004/2005. c) Parking Adjudication - direct cost of the Parking and Traffic Appeals Service and Congestion Charging Appeals Service, including payment to adjudicators, adjudicators training and purchase of instructional materials. d) Payments to Northampton County Court - payments made to the court for the registration of the debt of persistent evaders of the payment of parking penalties. The £5 unit charge is recharged direct to the boroughs. e) Reimbursement of parking penalty notices - reimbursements to boroughs in respect of parking penalties collected at New Zealand House. 2 Leases The Committee uses leased properties under the terms of operating leases. The amounts paid under these arrangements during the year amounted to £360,000 (2003/04: £360,000). These payments relate to the occupation of the premises at New Zealand House, the lease to which expires in February 2009. The future annual cash payments under leases are: Properties £'000 Due within one year 360 Due within two-five years 360 No assets were acquired during the year through finance leases. 3 Pension costs – FRS17 Employees of Association of London Government (ALG) may participate in the London Pensions Fund Authority (LPFA) Pension Fund, part of the Local Government Pension Scheme (LGPS), a defined benefit statutory scheme. The Fund is administered by LPFA in accordance with the LGPS Regulations 1997, as amended. On 1 May 2000, all ALG-TEC staff transferred to the LPFA scheme as the ALG was granted Admitted Body status. The accumulated benefits of staff from the Corporation of London pension scheme have not yet been transferred to the LPFA scheme, as the actuarial valuation of the transfer values for each of the former schemes is currently being finalised. THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEEPage 15 NOTES TO THE REVENUE ACCOUNT FOR THE YEAR ENDED 31 MARCH 2005 (continued) 4 Pension costs (continued) Employees are eligible to contribute to the scheme at the rate of 6% of pensionable pay, which is a fully funded defined benefits scheme. In accordance with statutory regulations, a triennial valuation of the Pension fund as at 31 March 2004 was completed by the Fund's actuary Hymans Robertson, with the next formal valuation due as at 31 March 2007. The certified employers contribution rate expressed as a percentage of pensionable pay for the ALG for the period 1 April 2005 to 31 March 2008 is 15.4%. The advised rate may vary further once the bulk transfer of accumulated benefits from previous funds has been completed. In 2004/05, the employer's contribution to the Fund amounted to £168,110, which equates to 7.9% of the employees pensionable pay . In 2003/2004, the comparable figures were 11.2% of pensionable pay amounting to £146,311. Following the adoption of FRS 17 Retirement Benefits principles in the SORP, the ALG’s accounting policies for retirement costs have been revised significantly in 2003/04. In previous years, the ALG treated the employer's contributions amounts payable to the Local Government Pension Scheme as its expenditure for the year and only accrued for amounts payable to the Fund that had not been paid by 31 March. The new policy is to recognise the full liability that the ALG has for meeting the future cost of retirement benefits that will arise from years of service earned by employees up to the balance sheet date, net of the contributions paid into the Fund and the investment income they have generated. As a result, the opening balance sheet for 2004/05 includes a pensions liability of £384,000, balanced by a pensions reserve of the same value (which reflects the fact that the ALG is not required to raise ALG subscriptions to cover the liability). The replacement of employers contributions by the current service cost has resulted in an increase in the net cost of services of £3,000 and the inclusion of £9,000 income relating to the net return on pension scheme assets and liabilities for 2004/05. A transfer of £6,000 has been made to the pensions reserve in 2004/05, resulting in an unchanged deficit. The LPFA, as administering authority to the LPFA Pension Fund provided Hymans Robertson, an independent firm of qualified actuaries with scheme membership information as at 31 March 2004 for all employees within ALG. This membership data contained details of any transferred in service. Hymans included this service when valuing ALG's liabilities as at 31 March 2004. Assets were allocated within the LPFA Pension Fund based on these calculated liabilities. This position was then the starting point for the ‘roll forward' FRS17 valuations. In order to assess the actuarial value of the LPFA Pension Fund’s liabilities as at 31 March 2005 attributable to the ALG, scheme liabilities have been assessed by Hymans on an actuarial basis using the projected unit method, and estimate of pensions that will be payable in future years dependent on assumptions about mortality rates, salary levels etc. As the actual pension contributions for ALG-TEC staff of £168,110 for the year equated to 21.84% of the total actual pension contribution made by the ALG in 2004/05, all assets, liabilities, charges, return and other costs have been allocated in accordance with this proportion to give an estimate of the affect on these accounts. THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEEPage 16 NOTES TO THE REVENUE ACCOUNT FOR THE YEAR ENDED 31 MARCH 2005 (continued) 4 Pension costs (continued) The financial assumptions used for the purposes of the FRS17 calculations as at 31 March 2005 are as follows: Assumptions as at: 31 March 2005 31 March 2004 (% per annum) (% per annum) Price Increases 2.9% 2.9% Salary Increases 4.4% 4.4% Pension Increases 2.9% 2.9% Discount Rate 5.4% 6.5% The accounts are prepared in accordance with CIPFA guidance and therefore a discount rate for scheme liabilities of 6.5% pa has been used. This represents a 3.5% pa real discount rate as required by the Code of Practice on Local Authority Accounting in the United Kingdom 2003 - A statement of Recommended Practice 2003. The assets of the whole of the LPFA Pension Fund and the expected returns on those assets, as at 31 March 2005 and 31 March 2004 were as follows: Asset Long Value as Long Value at Class term at 31 term 31 March rate of March rate of 2004 return 2005 return £000 expected £000 expected (% per (% per annum) annum) as at 31 as at 31 March March 2005 2004 Equities 7.7% 1,215,800 7.7% 1,134,500 Bonds 4.8% 166,500 5.1% 166,800 Property 5.7% 109,800 6.5% 80,400 Cash 4.8% 51,700 4.0% 23,700 Total 7.1% 1,543,800 7.3% 1,405,400 As at 31 March 2005, the fair value of the pension scheme assets and liabilities attributable to the Transport and Environment Committee were as follows: Net Pension Asset At 31 March At 31 March 2004(£000) 2005(£000) Estimated Market Value of 2,323 1,744 Assets Present Value of Scheme (3,585) (2,113) Liabilities Present Value of Unfunded (14) (16) Liabilities Total Present Value of (3,599) (2,129) Liabilities Net Pension Asset (1,276) (385) THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEEPage 17 NOTES TO THE REVENUE ACCOUNT FOR THE YEAR ENDED 31 MARCH 2005 (continued) 4 Pension costs (continued) The analysis of the amount charged to the Revenue Account for the year ended 31 March 2005 is as follows: Amount Charged to Year to 31 March 2005 Year to 31 March 2005 Consolidated Revenue (£000) (% of Payroll) Account Service Cost 171 14.7% Past Service Costs - - Curtailment and - - Settlements Total Operating Charge 171 14.7% (A) Amount Credited to Other Year to 31 March 2005 Year to 31 March 2005 Finance Income (£000) (% of Payroll) Expected Return on 116 10.0% Employer Assets Interest on Pension (107 (9.2%) Scheme Liabilities Net Return (B) 9 (0.8%) Net Revenue Cost (A)-(B) 162 13.9% The analysis of the amount recognised in the Statement of Total Movement in Reserves (STMR) is as follows: Actual Return less expected return on pension 62 scheme assets Experience gains and losses arising on the (271) scheme liabilities Changes in financial assumptions underlying the present value of the scheme liabilities (714) Actual gain/ (loss) in pension plan (923) Actual gain/(loss) recognised in STMR (923) The following tables show the movement in the surplus/deficit over the year and the history of experience gains and losses, expressed as a percentage of assets and/or liabilities. THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEEPage 18 NOTES TO THE REVENUE ACCOUNT FOR THE YEAR ENDED 31 MARCH 2005 (continued) 4 Pension costs (continued) Movement in Surplus/Deficit During the Year Year to 31 March 2005 (£000) Surplus/(Deficit) at the beginning of the year (384) Current Service Cost (171) Employer Contributions 167 Contributions in respect of Unfunded Benefits 1 Other Income - Other outgo (e.g. expenses etc) - Past Service Costs - Impact of Settlements and Curtailments - Net Return on Assets 9 Actuarial Gains/(Losses) (293) Surplus/(Deficit) at end of the year (1,301) History of Experience Gains and Losses Year to 31 March 2005 (£000) Difference between the expected and actual 62 return on assets Values of Assets 2,323 Percentage of Assets 2.67% Experience gains/(losses) on liabilities (271) Present Value of Liabilities 3,599 Percentage of the present value of liabilities (7.53%) Actuarial gains/losses recognised in STMR (923) Present value of Liabilities 3,599 Percentage of the Present Value of Liabilities (25.65%) 5 Interest and investment income 2004/2005 2003/2004 £'000 £'000 Bank interest received (85) (7) 6 Officers emoluments The number of employees whose remuneration, excluding pension contributions, was £50,000 or more in bands of £10,000 was: Remuneration Band Number of Employees 2004/2005 2003/2004 £50,000-£59,999 4 6 £60,000-£69,999 6 2 £70,000-£79,999 2 0 £80,000-£89,999 2 0 £90,000-£99,999 1 3 £100,000 - £109,999 2 - THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEEPage 19 NOTES TO THE REVENUE ACCOUNT FOR THE YEAR ENDED 31 MARCH 2005 (continued) 7 Publicity expenditure The Committee is required by provision of the Local Government Act 1986 to keep three separate accounts of expenditure and income on publicity. The total net expenditure for the year was £451,000; the difference is attributable to the fact there was not a Concessionary Fares Freedom Pass reissue during 2004/05 and the publicity costs associated with Operation Scrap-IT . The expenditure is analysed as follows: 2004/2005 2003/2004 £'000 £'000 Publicity 347 309 Recruitment Advertising 42 49 Surveys 62 280 451 638 8 Members allowances The elected representative from each of the 33 London boroughs do not receive any allowances from the Committee. Reimbursement of expenses, if appropriate, are made direct by the London boroughs. 9 Audit Fees The amount charged to the Consolidated Revenue Account for the year in respect of external audit fees was £26,658, compared with £19,090 for 2003/04. THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEE Page 20 BALANCE SHEET 31 MARCH 2005 Notes 2004/2005 2003/2004 £'000 £'000 £'000 £'000 Current assets Debtors 1 5,603 5,357 Cash at bank and in hand 3,194 - 8,797 5,357 Total assets 8,797 5,357 Current liabilities Cash Overdrawn - (375) Creditors 2 (6,810) (6,810) (4,147) (4,522) Total assets less current liabilities 1,987 835 (excluding Pensions Liability) Pension Liability (1,301) (384) Total Assets less Liabilities (including Pensions Liability) 686 451 Reserves 3 General 1,638 368 Specific 349 467 Pensions Reserve (1,301) (384) 686 451 F Smith CPFA 2005 THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEE Page 21 NOTES TO THE BALANCE SHEET AS AT 31 MARCH 2004 1 Debtors: 31 March 31 March 2005 2004 £'000 £'000 Levies and charges due from Boroughs 2,028 2,005 Other debtors 3,707 3,599 Prepayments 174 278 Bad debt provision (306) (525) Total 5,603 5,357 2 Creditors: 31 March 31 March 2005 2004 £'000 £'000 Amounts due to Boroughs 1,507 1,905 Other Creditors 4,612 2,127 Receipts in Advance 3 91 Accruals 688 24 Total 6,810 4,147 3. Reserves The position of the reserves as at 31 March 2005 is as follows: General Specific Pensions Reserve Reserve Reserve Total £000 £000 £000 £000 Balance as at 1st April 2004 368 467 (384) 451 Transfer to Revenue Account (66) (118) - (184) Transfer from Revenue - - 6 6 Account Movement on Pension Fund - - (923) (923) Reserve (refer CRA Note 3) Surplus for the year 1,336 - - 1,336 Balance as at 31 March 2005 1,638 349 (1,301) 686 THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEEPage 22 NOTES TO THE BALANCE SHEET AS AT 31 MARCH 2005 (continued) The transfer of £184,000 to the revenue account was in respect of the following activities: £000 General Reserve Research Projects 66 Specific Reserve Concessionary Fares Subsidy 118 Total 184 The Transport Operators Fares Increase Reserve (TOFIR) is a specific reserve established during 1999/2000 to offset the likely above-inflation increase expected to arise out of future Concessionary Fares negotiations. This reserve will be used to solely offset the liability of boroughs to any future increases from transport operators in respect of the Concessionary Fares Scheme. The balance on the reserve is applied to offset the cost of future years settlements and can be increased by further contribution identified by the Committee. 4 Related party transactions This disclosure note has been prepared in accordance with FRS8 and its applicability to the public sector, utilising current advice and guidance. On the basis that the Committee comprises of one councillor from each of London's 33 local authorities, reliance has been placed on the Registers of Members' Declarations of Interest that exist at each of the individual boroughs. Based on that reliance, there are no declarable related party transactions with chief officers, members, or their related parties. All transactions with London Boroughs were conducted at arms length within the ordinary course of business. 5 Costs relating to the Euro The Committee transactions are undertaken in pounds sterling and, therefore, there have been no costs relating to the introduction of the Euro. There is expected to be no expenditure in 2005/2006. 6 Post Balance Sheet Events There are no significant events during 2005/06 which materially effect the activities of the Committee. 7 Consolidated Accounts These accounts form part of the consolidated accounts for the new ALG from 1 April 2000. A copy of the consolidated accounts for 2003/04 can be obtained from the Director of Finance and Administration, 59½ Southwark Street, London, SE1 0AL. THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEE Page 23 CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2005 2004/2005 2003/2004 £'000 £'000 REVENUE ACTIVITIES Cash Outflows Payments to Transport Operators (19,296) (12,720) Cash paid to and on behalf of employees (2,178) (1,876) Other operating cash payments (16,852) (11,504) (38,326) (26,100) Cash Inflows Borough levies and income 41,980 26,618 Revenue activities net cash flow (note 1) 3,654 518 SERVICING OF FINANCE Cash Inflows Interest received (85) (7) SERVICING OF FINANCE NET CASH FLOW (85) (7) (DECREASE)/INCREASE IN CASH (Note 2) 3,569 511 THE ASSOCIATION OF LONDON GOVERNMENT TRANSPORT AND ENVIRONMENT COMMITTEEPage 24 NOTES TO THE CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2005 1 Reconciliation of surplus to revenue activities net cash flow 2003/2004 2002/2003 £'000 £'000 £'000 £'000 Revenue surplus/(deficit) 1,336 777 Adjustments for: Earmarked reserve Transfer to/(from) reserves (184) (566) Depreciation Debtors: (Increase)/Decrease in Debtors (350) (1,925) (Increase)/Decrease in prepayments104 (216) (246) (2,141) Creditors: (Decrease)/Increase in Receipts in Advance (88) 91 (Decrease)/Increase in amounts due to boroughs 2,751 1,576 (Decrease)/Increase in other creditors 753 (Decrease)/Increase in accruals 2,663 21 2,441 3,569 511 Interest income classified separately 85 7 3,654 518 2 Analysis of decrease in cash At 31March 2005 Cash -Flow At 1 April 2004 £'000 £'000 £'000 Cash at bank and in hand 3,194 3,569 (375) 3 The liquid resources held by the ALG Transport and Environment Committee as at 31 March 2005 comprise solely of cash.
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