NORTH EAST WALES INSTITUTE OF HIGHER EDUCATION FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 JULY 2005

Transcription

1 NORTH EAST WALES INSTITUTE OF HIGHER EDUCATION FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 JULY 2005 CONTENTS PAGE Report of the Board of Governors 2 6 Corporate Governance 7 8 Responsibilities of the Institute's Board of Governors 9 Key Elements of the Institute 10 Report of the Auditors Consolidated Income and Expenditure Account 13 Statement of Total Recognised Gains and Losses 14 Balance Sheets Cash Flow Statement 17 Notes to the Financial Statements 18 37

2 REPORT OF THE BOARD OF GOVERNORS 1 Annual Report At the dawn of a new era The past five years have seen a continuing and consistent transformation of NEWI as it heads towards obtaining taught Degree Awarding Powers. Each year brings further developments and a consequent growth in the confidence of the Institute. A major milestone in the history of NEWI was reached with the admission of the Institute as a full member of the University of Wales. This event, long foreseen, followed the recommendations of Professor Sir David Williams, former Vice Chancellor of the University of Cambridge in his report to the University of Wales. At the same time the Institute has been continuing its work to support its application for tdaps. QAA assessors have been in the Institute throughout the year reviewing its processes and activities. Physical manifestations of the Institute s commitment to being student centred came with the refurbishment of the Edward Llwyd Centre, partly financed through HEFCW. Reviews of assessment methods and the curriculum also took place to ensure that the needs of the students and other stakeholders are met by the Institute. This commitment remains at the forefront of all the Institute s activities and is the primary consideration in the development and implementation of all new policies. A review of the Institute s research and scholarship activities encapsulated the extent and range of the work undertaken at NEWI and reflects the market led nature of the Institute. One of many examples of this aspect of the Vision being realised is the development, with the WDA, of the Optic Technium in St Asaph. This exciting culmination of many years innovation relies heavily on the world class research in holograms undertaken by NEWI researchers based in the centre. The growth in NEWI s research activities led the Institute to embrace a culture of research and scholarship across all its subjects which enhances the quality of the curriculum in both its design and implementation. Income in excess of 7 million has been generated over the last three years from research activities and a number of research centres have been established as the Institute prepares for a confident submission for the Research Assessment Exercise

3 REPORT OF THE BOARD OF GOVERNORS Continued This flourishing research culture has had a significant impact on the Institute s growing international reputation. The last few years have seen a marked increase in the participation of NEWI staff in international conferences. Its international activities have also been directed at ensuring a significant increase in the number of international students attracted to study in Wrexham. Further international links are being developed to complement the existing partnerships with Georgetown University, the Bauman Moscow State Technical University and Harris Manchester College, University of Oxford, and considerable work has been undertaken to establish good relationships with institutions in India and China. The Institute has a proud record in opening up higher education to all sectors of society, and its activities over the year have helped to strengthen this reputation. With an intake from social classes IIIM, IV and V standing at 42.1%, the Institute is far exceeding the sector average of 28.4%. Similarly students from low participation areas make up 19% of the student population at NEWI compared to the sector average of 13%. With the implementation of a number of initiatives designed to bring people on to the campus, such as the Wrexham Science Festival, Mission: Stratosphere and the success of Techniquest@NEWI, the Institute expects this excellent performance to continue. A Business Plan for Stage II of the Techniquest@NEWI project was submitted to the Assembly Government and has been well received. A deep rooted curriculum review is being undertaken to ensure that the programmes offered continue to be relevant and demanded by employers and potential students alike. The financial standing of the Institute continues to be strong as the Institute maintains its category A status amongst higher educations institutions in Wales. This continuing transformation of the Institute into a confident post-modern university has been achieved through the commitment and hard work of a dedicated staff wedded to the vision of the Institute as a market led, student centred university of international significance which is open to all. 3

4 REPORT OF THE BOARD OF GOVERNORS Continued 2 Scope of the financial statements These financial statements cover the activities of the Institute and its subsidiary companies for the eighth period of operation, being the year ended 31 July Board of Governors The membership of the Board of Governors during the year has been as follows: Independent Members Mr T Jones CBE Chairman Professor J Last CBE MA DLitt Hon FMA FRSA Vice Chairman Mr T Burman C.Eng F.I.STRUCT.E Ms H Pepler RN, HV, Post Grad Health Education Dip His Honour Judge R Dutton BA Mr P Higginson Mr B Towers BA MIPR Mr R Hill BSc FRICS Mr A Robarts DL ACBA, FLJMU FRAS Dr H Ceri Jones CMG Mr C Burgoyne ACIB Mr G Andrews Term started 18/3/05 Co-opted Members Professor K Perera BA MA PhD LLD Professor E Baker OBE BA MSc PGCE DLitt FRSA Term started 18/3/05 Principal & Chief Executive Professor M Scott BA MA PhD FRSA REPORT OF THE BOARD OF GOVERNORS - Continued Academic Board Nominee Mr S Hughes BA MA Term ended 27/10/04 Dr Hastings McKenzie Term started 28/10/04 Students' Nominee Mr Wayne Edwards Term ended 14/7/05 Mr Jamie Scott Term started 15/7/05 Co-opted member of teaching staff Mr R Cropper BSc Co-opted member of operational staff Mr E Jones 4 Auditors The Institute has, for the year, appointed the firm PricewaterhouseCoopers LLP as its external auditors and Bentley Jennison as internal auditors for the year to 31 July Financial Highlights 4

5 Results for the year The Institute's consolidated Income and Expenditure account for the year ended 31 July 2005 is summarised as follows: Year ended Year ended 31 July July 2004 Income 25,551 24,188 Expenditure (24,327) (23,012) Surplus for year 1,224 1,176 The continued high level of performance is due to increased HEFCW grant, (including grants for specific initiatives) and increased levels of trading activities reflecting the continual student growth during the period. The following items have been charged during the year: Fully funded pensions provision for early retirements Depreciation on assets funded from Revaluation Reserve (Profit) on sale of fixed assets -- (4) Cash Flow The cash flow statement shows that there was a net decrease in cash and cash equivalents of 1,445,000 (2004-1,001,000). The increase from 2004 in the net cash inflow from operating activities at 1,686,000 (2004-1,358,000) is largely due to the movement on creditors year on year at 338,000. This was partly offset by the continued investment in fixed assets at 1,055,000 ( ,000) and repayments of both inherited debt and student village loans of 2,832,000. Balance Sheet The net assets position has increased by 2,374,000 (2004-1,285,000) during the year. Debtors have increased year on year partly due to an increase in amounts owed by corporate non-students debtors. Creditors as at 31 July 2005 are slightly lower than This change is due to a number of factors including: Unpresented cheques have reduced to 17,769 ( ,555) Higher levels of franchise creditors at 569,455 ( ,547) Deferred income has offset the overall reduction with an increase to 3,416,639 (2004-2,980,655). The main movement is due to the repayment of the student village loan balance of 1.8m and the repayment of inherited debt of 1.9m. The inherited debt repayment to Flintshire County Council was subsequently reimbursed by HEFCW to NEWI. REPORT OF THE BOARD OF GOVERNORS Continued 5

6 6 Fixed Asset movements During the financial year there were minor fixed asset disposals. The Institute purchased and improved assets totalling 1,055,000 ( ,000) (partially funded by HEFCW grants), and depreciation charged during the year totalled 963,000 ( ,000). 7 Employment of disabled persons Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of existing employees becoming disabled every effort is made to ensure that their employment with the Institute continues and that appropriate training is arranged. It is the policy of the Institute that the training, career development and promotion of disabled persons, should, as far as possible, be identical with that of other employees. 8 Employee involvement The Institute places considerable value on the involvement of its employees and on good communication with them. Staff are encouraged to participate in formal and informal consultation at Institute, School and Departmental level, sometimes through the membership of formal committees. 9 Corporate Governance The Governing Body is responsible for internal control and overseeing the embedding of risk management processes during the period. 10 Payment of Creditors It is the Institute s policy to obtain the best terms for all business and, thus there is no single policy as to the terms used. In agreements negotiated with suppliers, the Institute endeavours to include and abide by specific payment terms. Signed on behalf of the Board: Mr T Jones CBE Date: 16 th December 2005 Chairman 6

7 CORPORATE GOVERNANCE As the governing body of the North East Wales Institute of Higher Education ( the Institute ), we have responsibility for maintaining a sound system of internal control that supports the achievement of policies, aims and objectives, while safeguarding the public and other funds and assets for which we are responsible, in accordance with the responsibilities assigned to the governing body in the instrument and articles and the Financial Memorandum with HEFCW. The system of internal control is designed to manage rather than eliminate the risk of failure to achieve policies, aims and objectives; it can therefore only provide reasonable and not absolute assurance of effectiveness against material misstatement or loss. The system of internal control is based on an ongoing process recorded as the risk register designed to identify the principal risks to the achievement of policies, aims and objectives, to evaluate the nature and extent of those risks and to manage them efficiently, effectively and economically. A strategic risk register has been in place all year up to 31 July Risk management and control processes have been in place throughout the period and risk review is embedded within the management culture and applied to the risks on the register and to all new initiatives identified during the year. These processes have been applied up to the date of approval of the financial statements and accords with HEFCW guidance. As the governing body, we have responsibility for reviewing the effectiveness of the system of internal control. The following processes have been established: We meet at regular intervals to consider the plans and strategic direction of the Institute. We receive periodic reports from the Chair of the Audit Committee concerning internal control and we require regular reports from managers on the steps they are taking to manage risks in their areas of responsibility, including progress reports on key projects and issues. We have requested the Audit Committee to provide oversight of the Institute s management of risks. The Audit Committee receives regular reports from the independent internal audit provider, Bentley-Jennison, which include the internal audit s independent opinion on the adequacy and effectiveness of the Institute s system of internal control, together with recommendations for improvement. A programme of facilitated workshops is held for Governors, senior and other managers to identify and keep up to date the key issues and risks for the Institute. The Institute-wide risk register is maintained and a system of reporting on risk management has been agreed by the Board and Audit Committee. This involves a range of formal reports received during the year. In addition an internal audit review of Risk Management in July 2005 has given substantial assurance and recommended some improvements to embed the management of risk. At the end of the year the Chair of the Audit Committee formally reports to the full Board on the Committee s activities during the year in accordance with relevant guidance. This report includes an assessment of the effectiveness of the Internal Control System (including risk management) during the year. A risk prioritisation methodology based on risk ranking has been established and reviewed. Each risk is assigned to a relevant director or the Academic Provost who report regularly to the Senior Executive on the actions taken. Our review of the effectiveness of the system of internal control is informed by internal audit, which operates to standards defined in the HEFCW Audit Code of Practice, and was itself audited by the ELWa Audit Service in October The internal auditors submit regular reports, which include the internal auditor s independent opinion on the adequacy and effectiveness of the Institute s system of internal control, with recommendations for improvement. In summer 2005 a review of corporate governance was undertaken and the internal auditor s opinion was that the controls within the system provide substantial assurance that risks are adequately managed and controlled. The overall opinion of the internal auditors was that the Institution has adequate and effective risk management, governance and control processes to manage the achievement of the institution s objectives. 7

8 The key risks for NEWI arise from the potential failure to recruit and retain students, retain key staff capability and maintain business systems. Student recruitment was buoyant in 2004/05 and NEWI met funded student numbers. These risks are of sufficient concern to be the subject of regular review at meetings of both Senior Executive and the Governing Body. Our review of the effectiveness of the system of internal control is also informed by the work of the executive directors within the Institute, who have responsibility for the development and maintenance of the internal control framework and by comments made by the external auditors in their management letter and other reports from external bodies such as the National Audit Office. 8

9 RESPONSIBILITIES OF THE INSTITUTE'S BOARD OF GOVERNORS In accordance with the Institute's Financial Memorandum, the Governing body is responsible for the administration and management of the affairs of the Institute and is required to present audited financial statements for each financial year. The Governing body is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time, the financial position of the Institute and to enable it to ensure that the financial statements are prepared in accordance with the Financial Memorandum, the Statement of Recommended Practice on Accounting in Higher Education Institutions and other relevant accounting standards. In addition, within the terms and conditions of a Financial Memorandum agreed between the Higher Education Funding Council for Wales and the Board of Governors of the Institute, the Board of Governors, through its designated office holder, is required to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Institute and of the surplus or deficit and cash flows for that year. In causing the financial statements to be prepared, the Board of Governors has ensured that: suitable accounting policies are selected and applied consistently judgements and estimates are made that are reasonable and prudent applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements financial statements are prepared on the going concern basis unless it is inappropriate to presume that the Institute will continue in operation. The governing body is satisfied that it has adequate resources to continue in operation for the foreseeable future: for this reason the going concern basis continues to be adopted in the preparation of the financial statements. The Governing body has taken reasonable steps to: ensure that funds from the Higher Education Funding Council for Wales are used only for the purposes for which they have been given and in accordance with the Financial Memorandum and any other conditions, which the Funding Council may from time to time prescribe ensure that there are appropriate financial and management controls in place to safeguard public funds and funds from other sources safeguard the assets of the Institute and prevent and detect fraud secure the economical, efficient and effective management of the Institute's resources and expenditure. 9

10 THE KEY ELEMENTS OF THE INSTITUTE S SYSTEM OF INTERNAL FINANCIAL CONTROLS The key elements of the Institute s system of internal financial control, which is designed to discharge the responsibilities set out above, include the following: clear definitions of the responsibilities of, and the authority delegated to, directors of academic and operational areas; a comprehensive medium and short-term planning process, supplemented by detailed annual income, expenditure, capital and cash flow budgets; regular reviews of student recruitment and monthly reviews of financial results involving variance reporting and updates of forecast outturns; clearly defined and formalised requirements for approval and control of expenditure, with investment decisions involving capital or revenue expenditure being subject to formal detailed appraisal and review according to approved levels set by the Board of Governors or HEFCW; comprehensive Financial Regulations, detailing financial controls and procedures, approved by the Audit Committee and Board of Governors; a professional independent Internal Audit team whose annual programme is approved by the Audit Committee. The Audit Committee, on behalf of the Board of Governors, has reviewed the effectiveness of the system of internal control of both the Institute and the group. Any systems of internal financial control can, however, only provide reasonable, but not absolute, assurance against material misstatement or loss. 10

11 REPORT OF THE AUDITORS TO THE BOARD OF GOVERNORS OF THE NORTH EAST WALES INSTITUTE OF HIGHER EDUCATION Independent auditors report to the Board of Governors of North East Wales Institute of Higher Education We have audited the financial statements which comprise the consolidated Income and Expenditure Account, the Balance Sheets, the consolidated Cash Flow Statement, the consolidated Statement of Total Recognised Gains and Losses and the related notes which have been prepared under the historical cost convention as modified by the revaluation of certain fixed assets and in accordance with the accounting policies set out in the Statement of Accounting Policies. Respective responsibilities of the Board of Governors and Auditors The Board of Governors responsibility for preparing the financial statements in accordance with the Accounts Direction issued by the Higher Education Funding Council for Wales, the Statement of Recommended Practice Accounting for Further and Higher Education Institutions, applicable United Kingdom law and accounting standards is set out in the Statement of the Board of Governors Responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements, and United Kingdom Auditing Standards issued by the Auditing Practices Board. This opinion has been prepared for and only for the Board of Governors of the institution. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or in to whose hands it may come save where expressly agreed by our prior consent in writing. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Accounts Direction issued by the Higher Education Funding Council for Wales and the Statement of Recommended Practice - Accounting for Further and Higher Education. We also report to you whether in our opinion, in all material respects, monies expended out of Higher Education Funding Council for Wales grants and other funds from whatever sources administered by the Institution for specific purposes and, if appropriate, managed in compliance with all relevant legislation and whether in our opinion, in all material respects, income has been applied in accordance with the financial memorandum with the Higher Education Funding Council for Wales. We also report to you if, in our opinion, the institution has not kept proper accounting records, the accounting records do not agree with the financial statements, or if we have not received all the information and explanations we require for our audit. We read the other information contained in the Financial Statements and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. We also review the statement of internal control included as part of the Corporate Governance Statement and comment if the statement is inconsistent with our knowledge of the institution. We are not required to consider whether the statement of internal control covers all risks and controls, or to form an opinion on the effectiveness of the institution's corporate governance procedures or its risk and control procedures 11

12 Basis of audit opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board and the Audit Code of Practice issued by the Higher Education Funding Council for Wales. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the governing body in the preparation of the financial statements, and of whether the accounting policies are appropriate to the institution s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are 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 financial statements. Opinion In our opinion: i. the financial statements give a true and fair view of the state of affairs of the institution and the group at 31 July 2005, and of the surplus of income over expenditure and cashflows for the year then ended, and have been properly prepared in accordance with the Accounts Direction issued by the Higher Education Funding Council for Wales and the Statement of Recommended Practice - Accounting for Further and Higher Education; ii. in all material respects, monies expended out of Higher Education Funding Council for Wales grants and other funds from whatever source administered by the Institution for specific purposes have been properly applied to those purposes and, if appropriate, managed in compliance with all relevant legislation; iii. in all material respects, income has been applied in accordance with the institution's Statutes and where appropriate in accordance with the financial memorandum dated 1 January 1997 with the Higher Education Funding Council for Wales. PricewaterhouseCoopers LLP 16 th December 2005 Chartered Accountants and Registered Auditors Liverpool 12

13 CONSOLIDATED INCOME AND EXPENDITURE ACCOUNT For the year ended 31 July 2005 Note INCOME Funding council grants 2 16,291 15,013 Academic fees and support grants 3 4,688 5,404 Other operating income 4 4,179 3,451 Interest receivable Total income 25,551 24,188 EXPENDITURE Staff costs 6 15,205 14,380 Depreciation Other operating expenses 7 7,950 7,398 Interest payable Total expenditure 24,327 23,012 Surplus after depreciation of assets at valuation and before tax 1,224 1,176 Taxation Surplus after depreciation of assets at valuation and 23 1,224 1,176 tax The consolidated income and expenditure account of the Institute and its subsidiaries relates wholly to its continuing operations. NOTE OF HISTORICAL COST SURPLUSES AND DEFICITS For the year ended 31 July 2005 Note Surplus after depreciation of assets at valuation and tax 1,224 1,176 Difference between historical cost depreciation charge and the actual depreciation charge for the year calculated on the revalued amount and historical cost profit for the year Historical cost surplus for the year after tax 1,558 1,510 The notes on pages 18 to 37 form an integral part of these financial statements. 13

14 STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 31 July 2005 Note Surplus after depreciation of assets at valuation and tax 1,224 1,176 New endowments Endowments released (8) -- Total recognised gains relating to the year 1,216 1,182 Reconciliation Opening reserves and endowments 23,641 22,386 Total recognised gains for the year 1,216 1,182 Inherited debt adjustment 1, Closing reserves and endowments 25,909 23,641 14

15 BALANCE SHEET AS AT 31 JULY 2005 CONSOLIDATED Note FIXED ASSETS Tangible assets 11 30,603 30,510 Investments ,603 30,510 ENDOWMENT ASSET INVESTMENTS CURRENT ASSETS Stocks Debtors 14 1,590 1,317 Cash at bank and in hand 8,667 10,106 _ 10,280 11,439 CREDITORS: AMOUNTS FALLING DUE 15 (6,180) (7,933) WITHIN ONE YEAR _ NET CURRENT ASSETS 4,100 3,506 TOTAL ASSETS LESS CURRENT LIABILITIES 34,712 34,031 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR (1,926) PROVISIONS FOR LIABILITIES AND 17 (4,948) (4,715) CHARGES _ NET ASSETS 29,764 27,390 == REPRESENTED BY: DEFERRED CAPITAL GRANTS 18 3,855 3,749 ENDOWMENTS SPECIFIC RESERVES Revaluation reserve 21 16,695 15,979 Specific reserve Income and expenditure account 23 9,005 7,447 TOTAL RESERVES 25,900 23,626 TOTAL FUNDS 29,764 27,390 == The notes on pages 18 to 37 form an integral part of these financial statements. The financial statements on pages 13 to 37 were approved by the Board of Governors on 16 th December 2005 and signed on its behalf by: Mr T Jones Professor M Scott Chairman Principal and Chief Executive 15

16 BALANCE SHEET AS AT 31 JULY 2005 (continued) INSTITUTE Note FIXED ASSETS Tangible assets 11 30,603 30,510 Investments 12 2,800 2,800 33,403 33,310 ENDOWMENT ASSET INVESTMENTS CURRENT ASSETS Stocks Debtors 14 1,502 1,411 Cash at bank and in hand 8,337 9,850 9,853 11,272 CREDITORS: AMOUNTS FALLING DUE 15 (6,378) (8,296) WITHIN ONE YEAR NET CURRENT ASSETS 3,475 2,976 _ TOTAL ASSETS LESS CURRENT LIABILITIES 36,887 36,301 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 16 (2,243) (4,169) PROVISIONS FOR LIABILITIES AND 17 (4,948) (4,715) CHARGES _ NET ASSETS 29,696 27,417 == REPRESENTED BY: DEFERRED CAPITAL GRANTS 19 3,855 3,749 ENDOWMENTS SPECIFIC RESERVES Revaluation reserve 21 16,695 15,979 Specific Income and expenditure account 23 8,937 7,474 _ 25,832 23,653 TOTAL FUNDS 29,696 27,417 = The notes on pages 18 to 37 form an integral part of these financial statements. The financial statements on pages 13 to 37 were approved by the Board of Governors on 16 th December 2005 and signed on its behalf by: Mr T Jones Professor M Scott Chairman Principal and Chief Executive 16

17 NET CASH INFLOW FROM OPERATING ACTIVITIES CASH FLOW STATEMENT For the year ended 31 July Note ,686 1,358 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received Interest paid (209) (351) Net cash outflow from returns on investments and servicing of finance 184 (31) TAX PAID CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Receipts from sale of tangible assets -- 4 Payments to acquire tangible assets (1,055) (613) Endowments received -- 6 Endowments released (8) -- Capital grant received Net cash outflow before use of liquid resources and financing (483) (141) ENDOWMENT ASSET INVESTMENTS Net cash inflow 1,387 1,186 FINANCING Loan repaid 25 (2,832) (185) Net cash outflow from financing (2,832) (185) (DECREASE)/INCREASE IN CASH 26 (1,445) 1,001 The notes on pages 18 to 37 form an integral part of these financial statements. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS (Decrease)/Increase in cash in the period (1,445) 1,001 Repayment of debt 3, Change in net funds 2,434 1,258 Net funds at 1 August 6,242 4,984 Net funds at 31 July 8,676 6,242

18 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 JULY STATEMENT OF ACCOUNTING POLICIES (a). Basis of preparation and accounting policies The financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain fixed assets. They are in accordance with both the Statement of Recommended Practice: Accounting for Further and Higher Education (SORP 2004) and applicable accounting and financial reporting standards in the United Kingdom. Where relevant the accounts adhere to the accounting directives of HEFCW. (b). Basis of consolidation The consolidated financial statements consolidate the financial statements of the Institute and its subsidiary undertakings for the financial year to 31 July 2005 namely Plas Coch Sports Ltd and NEWI Innovation Ltd (formerly trading as Plas Coch Enterprises Ltd) and North Wales Science Ltd (see note 12). The consolidated financial statements do not include those of the Institute s Students Union as it is a separate entity in which the Institute has no financial interest. (c). Recognition of Income Recurrent grants from the Funding Councils are recognised in the period in which they are receivable. Income from tuition fees is recognised in the period for which it is received and includes all fees chargeable to students or their sponsors, e.g. National Health Service. The cost of any fees waived by the Institute are included as expenditure in Note 7. Income from research grants, contracts and other services rendered is included to the extent of the expenditure incurred during the year or the completion of the contract or service concerned. This is generally equivalent to the sum of the relevant expenditure incurred during the year and any related contributions towards overhead costs. All income from short-term deposits is credited to the income and expenditure account in the period in which it is earned. Non-recurrent grants from Funding Councils or other bodies received in respect of the acquisition or construction of fixed assets are treated as deferred capital grants and amortised in line with depreciation over the life of the assets. Income from specific endowments is included to the extent of the relevant expenditure incurred during the year. NOTES TO THE FINANCIAL STATEMENTS (continued) 18

19 (d). Pension contributions The Institute has adopted the transitional provision of FRS 17 set out in note 94 of the standard. Retirement benefits to employees are provided by The Teachers Pension (TPS), the Universities Superannuation Scheme (USS) and the Local Government Pension Scheme (LGSS). These are defined benefit schemes which are externally funded and contracted out of the State Earnings Related Pension Scheme. Contributions to the scheme are charged to the income and expenditure account so as to spread the cost of pensions over the employees' working lives with the Institute in such a way that the pension cost is a substantially level percentage of current and future pensionable payroll. Variations from regular costs are spread over the expected average remaining working lifetime of members of the schemes after making allowances for further withdrawals. The contributions are determined by qualified actuaries on the basis of triennial valuations using the projected unit method. (e). Leases Rental costs under operating leases are charged to expenditure in equal instalments over the period of the lease. (f). Foreign Currencies Transactions denominated in foreign currencies are recorded at the rate of exchange ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into sterling at year end rates. The resulting exchange differences are dealt with in the determination of income and expenditure for the financial year. (g). Tangible Fixed Assets i. Land and Buildings The Institute s buildings are specialised buildings and therefore it is not appropriate to value them on the basis of open market value. Land and buildings inherited on incorporation are stated at valuation. Sites used by NEWI during the period are valued at depreciated replacement cost on an existing education use basis. In accordance with FRS15 the Institute is to revalue its properties every three years. The last valuation was carried out during the year ended 31 July 2004 by Messrs. Gerald Eve. The properties were valued at 29,968,000. Land and buildings acquired since incorporation and the subsequent revaluations are to be included in the balance sheet at cost. Freehold land is not depreciated. Freehold buildings are depreciated over the expected useful economic life to the Institute of 50 years. Capital expenditure applied to existing buildings is depreciated over its estimated useful life of 10 years. Where land and buildings are acquired with the aid of specific grants they are capitalised and depreciated as above. The related grants are credited to a deferred capital grant account and are released to the income and expenditure account over the expected useful economic life of the related asset on a basis consistent with the depreciation policy. NOTES TO THE FINANCIAL STATEMENTS (continued) A review for impairment of a fixed asset is carried out if events or changes in circumstances indicate that the carrying amount of the fixed asset may not be recoverable. 19

20 ii. Equipment Equipment including microcomputer software costing less than 10,000 per individual item or group of related items is written off to the Income and Expenditure account in the period of acquisition. All other equipment is capitalised at cost. Equipment inherited from the local Education Authority is included in the balance sheet at valuation. The value of equipment included in the balance sheet is depreciated on a straight-line basis over its remaining useful economic life to the Institute of 5 years. Where equipment is acquired with the aid of specific grants it is capitalised and depreciated in accordance with the above policy, with the related grant being credited to a deferred capital grant account, released to the income and expenditure account over the expected useful life of the related equipment. iii. Motor Vehicles Vehicles are capitalised at cost and depreciated over three years factoring in a residual value. (h). Stocks Stocks consist of provisions and resources stock and are stated at the lower of their cost and net realisable value. (i). Maintenance of Premises The Institute has a ten-year rolling maintenance plan, which is reviewed on an annual basis. The cost of maintenance is charged to income and expenditure account as incurred. (j). Cash flows and liquid resources Cash flows comprise increases or decreases in cash. Cash includes cash in hand and deposits repayable on demand. Deposits are repayable on demand if they are in practice available within 24 hours without penalty. Liquid resources include sums on short-term deposit with recognised banks. (k). Taxation status The Institute is an exempt charity within the meaning of Schedule 2 of the Charities Act 1993 and as such is a charity within the meaning the Section 506(1) of the Income & Corporation Taxes Act Accordingly, the Institute is potentially exempt from taxation in respect of income or capital gains received within categories covered by Section 505 of the Income & Corporation Taxes Act 1988 or Section 256 of the Taxation of Charitable Gains Act 1992 to the extent that such income or gains are applied to exclusively charitable purposes. The Institute receives no similar exemption in respect of Value Added Tax. The Institute s subsidiary companies are subject to corporation tax and VAT in the same way as any commercial organisation. NOTES TO THE FINANCIAL STATEMENTS (continued) (l) Provisions 20

21 Provisions are recognised when the Institution has a present legal or constructive obligation as a result of a past event. It is probable that a transfer of economic benefit will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. 2. FUNDING COUNCIL GRANTS (HEFCW) Year Ended Year Ended 31 July July 2004 Recurrent grant 13,434 12,960 Specific grants: Research grants Other 2,298 1,469 Deferred capital grants released in year: Buildings (Note 18) Equipment (Note 18) ,291 15, ACADEMIC FEES AND SUPPORT GRANTS Year Ended Year Ended 31 July July 2004 UK Higher Education students 2,743 2,863 European Union (excluding UK) students Non-EU students Higher education contract 1,195 1,825 4,688 5, OTHER OPERATING INCOME Note Year Ended Year Ended 31 July July 2004 Residences, catering and conferences 1,469 1,406 Other services rendered 1,870 1,156 Research grants and contracts and other income Release from deferred capital grant ,179 3,451 ==== ==== NOTES TO THE FINANCIAL STATEMENTS (continued) 5. INTEREST RECEIVABLE 21

22 Year Ended Year Ended 31 July July 2004 Other interest receivable * ==== ==== * This includes interest receivable in respect of specific reserves. 6. STAFF COSTS Staff costs: Year Ended Year Ended 31 July July 2004 Wages and salaries 12,108 11,571 Social security costs Other pension costs (Note 26) 1,976 1,777 Restructuring costs Total Staff Costs 15,205 14,380 Year Ended 31 July 2005 Year Ended 31 July 2004 The average weekly number of persons (including senior postholders) employed by the Institute during the year, expressed as full-time equivalents: Teaching Departments Teaching Support Services Other Support Services Administration & Central Services * Premises TOTAL ==== ==== * Administration & Central Services staff numbers for 2004 have been restated to reflect staff numbers from Plas Coch Sports Ltd and North Wales Science Ltd. NOTES TO THE FINANCIAL STATEMENTS (continued) Senior post holders (including the Principal): The number and remuneration of senior post-holders in the year was as follows: Emoluments Band No of Post Holders 22

23 , , , , , , ,001-90, ,001-80, Emoluments include salaries, employer pension contributions and benefits in kind. Year Ended 31 July 2005 Year Ended 31 July 2004 The total number of senior post-holders including the Principal was ==== ==== Senior post-holders emoluments are made up as follows: Salaries 710, ,818 Benefits in kind 13,049 12,051 Pension contribution 104,573 _99, , ,534 == Emoluments of the Principal Salary 130, ,798 Benefits in kind 9,563 8, , ,734 == The emoluments of the Principal are shown on the same basis as those for staff. The Institute's pension contributions are paid at the same rate as for other academic staff and amount to 21,949 ( ,065). 23

24 NOTES TO THE FINANCIAL STATEMENTS (continued) 7. OTHER OPERATING EXPENSES Year Ended Year Ended 31 July July 2004 Residences, catering and conferences operating expenses Books and periodicals Heat, light, water and power Repairs and general maintenance Grants to NEWI Students Union Rents Auditors' remuneration (external) Auditors' remuneration (internal) Auditors' remuneration in respect of non-audit services (external) -- 2 Equipment operating lease rentals Other expenses 5,905 5,392 7,950 7, INTEREST PAYABLE Year Ended Year Ended 31 July July 2004 Loans not wholly repayable within five years ==== ==== 9. ANALYSIS OF DEPRECIATION CHARGE The depreciation charge has been funded by: Year Ended Year Ended 31 July July 2004 Deferred capital grants released Revaluation reserve released General income ==== ==== 10. TAXATION In the opinion of the Board of Governors, the criteria of S505 ICTA 1988 and S256 TCGA 1992 are fulfilled and there is no corporation tax liability arising on the Institute's activities for the period ended 31 July

25 NOTES TO THE FINANCIAL STATEMENTS (continued) 11. TANGIBLE ASSETS Consolidated Freehold Land And Buildings Equipment Motor Vehicles Total Cost or Valuation As at 1 August 2004 Valuation 28, ,457 Cost 1,804 3, ,786 30,271 4, ,243 Additions at cost ,055 As at 31 July 2005 Valuation 28, ,457 Cost 2,531 4, ,841 Total 30,998 5, ,298 Depreciation Depreciation as at 1 August , ,733 Charge for the year As at 31 July ,151 4, ,695 Net Book Value As at 31 July , ,603 = = As at 31 July , ,510 = = All properties were revalued in July Buildings with a net book value of 13,899,650 ( ,075,000) and a valuation of 14,108,723 ( ,075,000), have been funded from Treasury sources; should these particular buildings be sold, the Institute would either have to surrender the proceeds to the Treasury or use them in accordance with the Financial Memorandum with the Higher Education Funding Council for Wales. 25

26 NOTES TO THE FINANCIAL STATEMENTS (continued) TANGIBLE ASSETS Institute Freehold Land Equipment Motor Total and Buildings Vehicles Cost or Valuation As at 1 August 2004 Valuation 28, ,457 Cost 1,804 3, ,714 30,271 4, ,171 Additions at cost ,055 As at 31 July 2005 Valuation 28, ,457 Cost 2,531 4, ,769 Total 30,998 5, ,226 = = Depreciation Depreciation as at 1 August , ,661 Charge for the year As at 31 July ,151 4, ,623 Net Book Value As at 31 July , ,603 = = As at 31 July , ,510 = = 26

27 NOTES TO THE FINANCIAL STATEMENTS (continued) 12. INVESTMENTS The Institute owns 100% of the issued share capital of NEWI Innovation Ltd (formerly trading as Plas Coch Enterprises Ltd) and Plas Coch Sports Ltd. North Wales Science is a company limited by guarantee. All companies are registered in Wales. The number of shares held is as follows: NEWI Innovation Ltd 2 x 1 ordinary shares Plas Coch Sports Ltd. 2,800,000 x 1 ordinary shares The principal activity of NEWI Innovation Ltd is consultancy and other trading activities not associated with NEWI s charitable purposes. The principal activity of Plas Coch Sports Ltd is the management of a sports centre. The principal activity of North Wales Science is a science discovery centre. 13. ENDOWMENT ASSET INVESTMENTS (Consolidated and Institute) Balance as at 1 August 15 8 Additions -- 6 Releases (8) -- Appreciation of endowment asset investments 1 1 === === Bank balance 9 15 === === 14. DEBTORS Amounts falling due within one year: Consolidated Institute Debtors 1,420 1,075 1,338 1,055 Amounts owed by subsidiary undertakings Prepayments and accrued income ,590 1,317 1,502 1,411 27

28 NOTES TO THE FINANCIAL STATEMENTS (continued) 15. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Consolidated Institute Bank loans and overdrafts * Due to subsidiary undertaking Unsecured loans Mortgages secured on property** -- 1, ,830 Other creditors 1,649 1,588 1,574 1,534 Accruals and Deferred Income 4,513 4,096 4,489 4,062 6,180 7,933 6,378 8,296 ==== ==== ==== ==== * This relates to unpresented cheques as at year-end. ** The balance of the secured loan was repaid in full at the September 2005 option point. 16. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR Consolidated Institute Due to subsidiary undertaking ,243 2,243 Mortgages secured on property Unsecured loans -- 1, , ,926 2,243 4,169 ==== ==== ==== ==== 28

29 NOTES TO THE FINANCIAL STATEMENTS (continued) 17. PROVISIONS FOR LIABILITIES AND CHARGES (Consolidated and Institute) Provision For pension Fund deficit Enhanced pension provision Total 000 As at 1 August ,792 4,715 Charged in the year As at 31 July ,157 3,792 4,948 ==== Pension Deficit The provision is to meet the additional costs in excess of current charges that arise in respect of certain pensions. (see note 27) Enhanced pension The change in the enhanced pension provision comprises a 9% interest charge on the opening balance net of the enhanced pensions actually paid and any adjustments required for pension provisions no longer necessary. 18. DEFERRED CAPITAL GRANTS (Consolidated) Funding Council Other Total 000 As at 1 August 2004 Buildings 2,079 1,012 3,091 Equipment Total 2,592 1,157 3,749 ==== Cash received Buildings Equipment Total ==== Released to Income and Expenditure Buildings (177) (25) (202) Equipment (234 (38) (272) Total (411) (63) (474) ==== As at 31 July 2005 Buildings 2, ,335 Equipment Total 2,754 1,101 3,855 == ====== 29

30 NOTES TO THE FINANCIAL STATEMENTS (continued) 19. DEFERRED CAPITAL GRANTS (Institute) Funding Council Other Total 000 As at 1 August 2004 Buildings 2,079 1,012 3,091 Equipment Total 2,592 1,157 3,749 == ====== Cash received Buildings Equipment Total == ====== Released to Income and Expenditure Buildings (177) (25) (202) Equipment (127) (38) (272) Total (411) (63) (474) == ====== As at 31 July 2005 Buildings 2, ,334 Equipment Total 2,754 1,101 3,854 == ====== 20. ENDOWMENTS (Group and Institute) Balance as at 1 August 15 8 Specific additions -- 6 Release of endowments (8) -- Appreciation of endowment asset investments 2 1 ==== ==== Representing scholarship fund 9 15 ==== ==== 21. REVALUATION RESERVE (Group and Institute) Reserves as at 1 August 15,979 16,241 Loan principal repaid 1, Revaluation adjustment Released in period (334) (334) Net revaluation amount as at 31 July 16,695 15,979 == 30

31 NOTES TO THE FINANCIAL STATEMENTS (continued) 22. SPECIFIC RESERVE (Group and Institute) Balance as at 1 August 2004 and 31 July * This balance represents a transfer of 200,004 in 2002/03 from the general I&E reserve for the sale of publicly funded assets. This value has been agreed with the Charity Commission. 23. INCOME AND EXPENDITURE ACCOUNT Consolidated Consolidated Institute Institute Balance at 1 August 7,447 5,937 7,474 5,952 Surplus after depreciation of assets at valuation and tax 1,224 1,176 1,129 1,188 Release from revaluation reserve Balance at 31 July 9,005 7,447 8,837 7,474 The surplus for the year includes the following items, which have been charged during the year. Profit on disposal of fixed assets ==== ==== ==== ==== 24. RECONCILIATION OF OPERATING SURPLUS TO NET CASH INFLOW FROM OPERATING ACTIVITIES Surplus for the year 1,224 1,176 Depreciation (Profit) on disposal of fixed assets -- (4) Capital grants released (474) (432) Interest paid Interest received (393) (320) (Increase)/Decrease in stocks (7) 1 (Increase) in debtors (273) (310) Increase / (Decrease) in creditors 204 (134) Increase in provisions Net cash inflow from operating activities 1,686 1,358 31

32 NOTES TO THE FINANCIAL STATEMENTS (continued) 25. ANALYSIS OF CHANGES IN FINANCING DURING THE YEAR Mortgages and Loans Balances at 1 August 3,882 4,139 Capital repayments (3,882) (257) Balances at 31 July -- 3,882 Inherited loan adjustment 1, Net cash outflow from financing (2,832) (185) 26. ANALYSIS OF CHANGES IN NET FUNDS At 1 August Cash Flows Other Changes At 31 July 2005 Cash at bank and in hand 10,106 (1,439) -- 8,667 Endowment assets 15 (6) ,121 (1,445) -- 8,676 Debt due within one year (1,957) 1, Debt due after one year (1,926) 1, _ 6,238 2, ,676 ===== ==== = 27. PENSION AND SIMILAR OBLIGATIONS The Institute's employees belong to three principal pension schemes, the LGPS (nonacademic staff), the USS (two members of staff) and the TPS (academic staff) which are the defined benefit type. The combined pension cost charged in the accounts for the period is 1,551,299 (2004-1,448,540). (i) Local Government Pension Scheme (Flintshire County Council Pension Fund). An actuarial valuation of the Fund was carried out as at 31 March This valuation showed that the required level of contributions to be paid to the Fund by the County Council with effect from 1 April 1998 was 275% of members' contributions. These rates of contribution are the rates, which, in addition to the contributions paid by the members, are sufficient to meet: 100% of the liabilities arising in respect of service after the valuation date; NOTES TO THE FINANCIAL STATEMENTS (continued) 32