POLICE & CRIME COMMISSIONER AND GROUP STATEMENT OF ACCOUNTS 2013/14

Transcription

1 POLICE & CRIME COMMISSIONER AND GROUP STATEMENT OF ACCOUNTS 2013/14

2 STATEMENT OF ACCOUNTS 2013/14 CONTENTS Page Explanatory Foreword 3 Statement of Responsibilities 11 Auditor s Report 12 Group Statement of Accounts 15 Movement in Reserves Statement 16 Comprehensive Income and Expenditure Statement 18 Balance Sheet 19 Cash Flow Statement 20 Police Pension Fund 21 Notes to the Accounts 22 Police & Crime Commissioner Statement of Accounts 91 Movement in Reserves Statement 92 Comprehensive Income and Expenditure Statement 94 Balance Sheet 95 Cash Flow Statement 96 Police Pension Fund 97 Notes to the Accounts 98 Annual Governance Statement 148 Glossary of Terms 157 Page 2

3 THE EXPLANATORY FOREWORD Introduction The role of Police & Crime Commissioner (the Commissioner) is to act on behalf of the people of Cheshire and hold the Chief Constable to account for the delivery of efficient and effective policing in Cheshire. As the elected representative, the Commissioner represents the public when it comes to the police services they need. The Chief Constable is responsible for operational policing and the Commissioner works closely with him to ensure that he understands the public needs. The Commissioner has put victims at the centre of everything he does and sets the strategic direction and objectives for the Chief Constable to deliver through his Police & Crime Plan. He is also responsible for setting the police budget and for scrutinising performance. The role of Police & Crime Commissioners nationally has been expanding and covers elements of the whole criminal justice process. The Commissioner works closely with the Crown Prosecution Service, Courts, Prisons and Probation services as well as the police and partners such as the borough councils and Fire & Rescue Service to ensure that Cheshire is a safer place in which to live and work. Each year three sets of accounts are produced, the Commissioner s Statement of Account, the Chief Constable s Statement of Account and a Group Statement of Accounts which combines the previous two and reflects the complete financial picture of Cheshire Police. These published Group Accounts together with the attached Commissioner s Accounts are a vital aspect in demonstrating the Commissioner s stewardship of public money in the policing services delivered to the communities of Cheshire and provide information about the Commissioner s finances including: the cost of services provided in 2013/14; how those services were paid for; and what the Commissioner owned and owed at the end of the financial year. The Commissioner sets a budget and levies a council tax precept to finance expenditure that is not met by either Government grants or other income; details of the funding are shown on page 5. Responsibility for day to day financial management is undertaken by the Chief Constable within a framework and the annual budget set by the Commissioner. The explanatory foreword summarises the most significant matters reported in these accounts and provides an introduction to the detailed accounts that follow. The pages that follow include: Statement of Responsibilities sets out who is responsible for the various aspects of producing and approving these accounts. Auditor s Report the report from the Commissioner s External Auditor giving his opinion on the accounts and whether they have been prepared in accordance with proper practices. Movement in Reserves Statement this statement shows the movement in year on the different reserves held by the Commissioner, analysed into usable reserves (i.e. those that can be applied to fund expenditure or reduce local council tax) and other reserves. The Surplus or (Deficit) on the Provision of Services line shows the real economic cost of providing policing in Cheshire. Page 3

4 More details are shown in the Comprehensive Income and Expenditure Statement. These are different from the statutory amounts required to be charged to the General Fund Balance for council tax setting purposes. The net increase/decrease before transfers to earmarked reserves line shows the statutory General Fund Balance before any discretionary transfers to or from earmarked reserves made by the Commissioner. Comprehensive Income and Expenditure Statement this statement shows the accounting cost in the year of providing policing in Cheshire in accordance with accounting practices rather than the amount funded from taxation. The Commissioner raises council tax to cover expenditure in accordance with regulations; this may be different from the accounting cost. The taxation position is shown in the Movement in Reserves Statement. Balance Sheet shows the value as at the Balance Sheet date of the assets and liabilities recognised by the Commissioner. The net assets of the Commissioner (assets less liabilities) are matched by the reserves held by the Commissioner. Reserves are reported in two categories. The first category of reserves are usable reserves which are those reserves that the Commissioner may use to provide services, subject to the need to maintain a prudent level of reserves and any statutory limitations on their use. An example of a statutory limitation is the capital receipts reserve that may only be used to fund capital expenditure or repay debt. The second category of reserves is those that the Commissioner is not able to use to provide services. This category of reserves includes reserves that hold unrealised gains and losses (for example the revaluation reserve), where amounts would only become available to provide services if the assets are sold; and reserves that hold accounting entries such as the capital adjustment account which represents the difference between the current valuation and the historic costs of assets. These accounting entries are shown in the Movement in Reserves Statement line Adjustment between accounting basis and funding basis under regulations. Cashflow Statement shows the changes in cash and cash equivalents of the Commissioner during the reporting period. The statement shows how the Commissioner generates and uses cash and cash equivalents by classifying cash flows as operating, investing and financing activities. Cash equivalents are highly liquid investments that mature in no more than three months or less from the date of acquisition and that are readily convertible to known amounts of cash with insignificant risk of change in value. The amount of net cash flows arising from operating activities is a key indicator of the extent to which the operations of the Commissioner are funded by way of taxation and grant income or from the recipients of services provided by the Commissioner. Investing activities represent the extent to which cash outflows have been made for resources which are intended to contribute to the Commissioner s future service delivery. Cash flows arising from financing activities are useful in predicting claims on future cash flows by providers of capital (i.e. borrowing) to the Commissioner. Police Pension Fund shows the details of the police officers pension fund. The expenditure is met from three main sources; employees contributions, employer s contributions and any surplus or deficit paid to or by the Home Office. The only element funded by council tax is the employer s contribution which is included in the Comprehensive Income and Expenditure Statement. Notes to the Accounts provide additional information concerning items included within the core financial statements. Page 4

5 Annual Governance Statement provides assurance that the policies, procedures and controls to ensure corporate governance and internal control are working and highlights any areas requiring further action. Summary of 2013/14 year Cheshire Police spends its funding in two ways; revenue which pays for day to day expenses such as pay, building and vehicle running costs and capital which pays for the purchase of assets such as vehicles. Revenue Expenditure and Income The Comprehensive Income and Expenditure Statement on page 18 shows Cheshire Police spent 191m in 2013/14, in providing the following police services. Expenditure Police Services: Local Policing 93, % Dealing with the Public 14, % Criminal Justice Arrangements 16, % Roads Policing 6, % Specialist Operations 12, % Intelligence 13, % Specialist Investigations 25, % Investigative Support 6, % National Policing 3, % 190, % Corporate Costs & Accounting Adjustments * (3,186) Transfers to/(from) Reserves 10, ,041 Police Services * Accounting adjustments are for the non-cash expenditure such as depreciation actuarial pension costs together with the cash expenditure not allocated to a service, for example the minimum revenue provision for capital financing. This expenditure was funded from a number of sources including Police Grant, Department of Communities & Local Government (DCLG) funding and Council Tax as shown in the following table. Funding Government Grants (118,827) 60.0% Council Tax - Precept (52,085) 26.3% Interest on Balances (105) 0.1% Specific Grants (18,975) 9.6% Service Income (8,049) 4.1% (198,041) 100.0% Funding Page 5

6 Comparison of the accounts with the budget On the 1 February 2013, the Commissioner set a net budget of 177.2m for 2013/14 and approved a 1.99% increase to the council tax. At the end of the year, the actual expenditure was 163.7m giving an overall saving of 8m based on the revised year end budget as summarised in the table below. A reconciliation of this to the Comprehensive Income and Expenditure Statement is shown on pages 62 and 63. Budget Information Revised 2013/14 Budget Outturn Variance Areas 15,350 14,219 (1,131) Force Operations 21,336 18,532 (2,804) Police Officer Pay 98,656 95,540 (3,116) Central Departments 5,205 4,474 (731) Business Services 27,721 26,410 (1,311) Collaborations 4,015 3,959 (56) Contingency (216) Commissioning 287 (132) (419) Office of the PCC (175) Corporate Costs (1,993) (58) 1,935 Total Revenue Budget 171, ,730 (8,024) Contributions to/(from): (at Outturn) General & Earmarked Reserves (842) 7,182 8,024 Externally funded 170, ,912 0 Police Grant (68,420) (68,420) 0 DCLG Funding (50,407) (50,407) 0 Council Tax Precept (52,085) (52,085) 0 Outturn Position Performance Data While the above data shows how the money has been spent the following graph shows the Constabulary s performance for all recorded crime - a decrease of 3.9% over 2013/14. Total Number of Recorded Crime April to March Last Year This Year % change this year to last year 57,992 55, % Page 6

7 Capital Expenditure and Financing The following tables show how much the Commissioner invested in assets during 2013/14 and how this expenditure was financed. Capital Expenditure % Property Vehicles 1, Equipment 1, Intangibles , Capital Expenditure Property Vehicles Equipment Intangibles Capital Financing % Grants 1, Capital Receipts Earmarked Reserves 1, Other Contributions , Capital Financing Grants Earmarked Reserves Capital Receipts Other Contributions Balance Sheet The Balance Sheet shows the assets and liabilities of the Commissioner on the 31 March To help explain this, the key sections are described in more detail below and notes to the main items are included in pages 19, 44 and 49. Long Term Assets There are three items included in long term assets. The first entry is Property, Plant and Equipment which includes all the main assets held by the Commissioner. Capital expenditure as explained in the previous section is added increasing the value by 3.54m. In line with the accounting policies, the property held is valued and where there are significant changes in value the increases or decreases are included. For 2013/14 the value of property was increased by 1.142m. All assets are depreciated to represent the cost of using those assets in year and a charge of 4.84m is included in the Comprehensive Income and Expenditure Statement. In addition to these assets, Property, Plant & Equipment also includes work in progress which represents capital expenditure on projects not operational by the end of the year. Page 7

8 The second entry is Intangible Assets reflecting the software and licences held by the Commissioner. Intangible Assets are also depreciated to recognise the cost of their usage and 1.6m is included in the Comprehensive Income and Expenditure Statement. Details of both of these are found in Note 12. Finally the Long Term Debtor relates to a lease for land which was paid in advance and is being written off over the life of the lease. Working Capital Working capital is the total of current assets less current liabilities which shows an increase to 22.1m from 8.4m in 2012/13. The increase of 13.7m is predominately due to increases in cash and cash equivalent of 9.5m. The amount of cash held at any one time is dependent on a number of factors, such as pay dates falling at weekends, the timing of grants due etc. In 2012/13, year-end occurred over the Easter bank holidays resulting in payments being made before 31 March reducing cash levels held. At 31 March 2014, this was not an issue as cash levels returned to normal levels. Long Term Liabilities Although long-term liabilities include several items such as borrowing and finance leases which have decreased during 2013/14 as repayments are made, the main figure included here is the pension liability which has decreased by 18.3m. Reserves There are two types of reserves shown on the Balance Sheet as follows: Usable Reserves these reserves are an important means of providing working capital to finance spending while waiting for income or grants to be received a timing issue. Equally, they represent funding set aside for known expenditure planned for in the future, for example a capital scheme spent over a number of years. These are called earmarked reserves and are explained in Note 9. The Commissioner also holds a general reserve for the purpose of providing funding to cover specific and general risks identified in setting the budget and also any unforeseen risks and expenditure which may arise. In the case of emergency services such as the police, reserves are particularly helpful in funding any necessary unbudgeted operational activity. The Government will only consider reimbursing Commissioners for unforeseen operational expenditure in excess of 2m. At the end of 2013/14 general reserves are 5.4m which is in line with the agreed policy of keeping general reserves at approximately 3% of net budget. All reserves are reviewed regularly to ensure the levels held are proportionate, appropriate and within the approved Reserves Strategy. Unusable Reserves these reflect the accounting entries for the non-cash backed reserves. For example, when the property is re-valued any changes are reflected in the long term assets and balanced by an entry into the Revaluation Reserve. There is no cash involved and any additional value of an asset will only be realised when that asset is sold. Any reduction in value is written off against this reserve only to the extent a previous gain exists. Any remaining loss is charged to the Comprehensive Income and Expenditure Statement. Page 8

9 Overall the balance sheet shows a deficit position of 1.66bn which included 1.72bn for pension liabilities. This liability represents the potential cost of pensions for both current pensioners and those currently working who are members of the pension schemes. The liability is calculated by actuarial valuers based on current membership, life expectancy, market and financial factors. The actual amount paid will vary and is payable over many years. Without the pension liability, the Commissioner holds net assets of 66.4m compared to 54.3m in 2012/13. Prior Year Adjustment These accounts are produced in line with proper accounting practices which includes International Financial Reporting Standards. The standard relating to pensions (IFRS19 Employee Benefits) was amended with an effective date of 1 January 2013; as such this revised standard also now applies to last year s accounts. As a result last year s accounts have to be amended. The re-stated comparative figures have been used in this document and are marked on the primary statements and explained further in Note 35. The main point to highlight is that these changes do not affect the general fund nor the revenue budget used for police services. Group Accounts Under the Police Reform and Social Responsibility Act 2011 both the Commissioner and Chief Constable roles were created as separate Corporations Sole. This means each is a separate legal entity and required to produce their own set of accounts. This Statement of Accounts (Group Accounts) is the amalgamation of their Statements of Accounts recognising that the Chief Constable is a wholly owned subsidiary of the Commissioner. Where there have been inter-organisation transactions between the Commissioner and the Chief Constable, these have been removed from the Group Accounts as detailed in Note 3. Future Developments Stage 2 A transfer proposal was submitted and approved by the Home Secretary on 28 March 2014 which transfers all staff with the exception of the Office of the Police & Crime Commissioner to the Chief Constable from the 1 April These accounts follow the principle of substance over form which means that although these staff were legally under the Commissioner during 2013/14, their costs are reflected in the Chief Constable s Statement of Accounts reflecting his day to day direction and control. From 2014/15 onwards this will be matched by legal responsibility. Funding Funding remains the one of the most important factors going forward. Although savings of 35m have already been made, further savings of 34m are forecast for the period Details of the plans to meet this challenging target are included in the medium term financial strategy and budget setting process. Page 9

10 Further Information Every effort has been made to ensure that the information provided in this Group Statement of Accounts is clear and informative. Should you require any further information or if you have any comments, please contact the Chief Finance Officer, Office of the Police & Crime Commissioner, Liz Lunn on telephone number or the Constabulary s Director of Finance & IT, Richard Muirhead on telephone number or via the Office of the Commissioner, Clemonds Hey, Oakmere Road, Winsford, Cheshire, CW7 2UA. Liz Lunn, BA CPFA Chief Finance Officer, Office of the Police & Crime Commissioner Page 10

11 STATEMENT OF RESPONSIBILITIES Responsibilities of the Commissioner for Cheshire The Commissioner is required to: make arrangements 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. For the Office of the Commissioner, that officer is the Chief Finance Officer. manage its affairs to secure economic, efficient and effective use of resources and safeguard its assets. approve the Statement of Accounts. I approve this Statement of Accounts. John Dwyer Commissioner for Cheshire 26 September 2014 Responsibilities of the Chief Finance Officer, Office of Commissioner The Chief Finance Officer is responsible for the preparation of the Statement of Accounts for the Commissioner and the Group Accounts incorporating the Chief Constable s Statement of Accounts, in accordance with the proper practices set out in the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom ( the Code ). In preparing this Statement of Accounts, the Chief Finance Officer has: selected suitable accounting policies and then applied them consistently made judgements and estimates that were reasonable and prudent complied with the Code. kept proper accounting records which were up to date taken reasonable steps for the prevention and detection of fraud and other irregularities. Chief Finance Officer s Certificate I certify that the Statement of Accounts presents a true and fair view of the financial position of the Commissioner as at 31 March 2014 and of the expenditure and income for the year ended 31 March Liz Lunn, BA CPFA Chief Finance Officer. Office of the Police & Crime Commissioner 26 September 2014 Page 11

12 INDEPENDENT AUDITOR S REPORT TO THE POLICE AND CRIME COMMISSIONER FOR CHESHIRE Opinion on the financial statements Page 12 Group Statement of Accounts 2013/14 We have audited the financial statements for the Police and Crime Commissioner for Cheshire for the year ended 31 March 2014 under the Audit Commission Act The financial statements comprise the Police and Crime Commissioner Single Entity and Group Movement in Reserves Statement, the Police and Crime Commissioner Single Entity and Group Comprehensive Income and Expenditure Statement, the Police and Crime Commissioner Single Entity and Group Balance Sheet, the Police and Crime Commissioner Single Entity and Group Cash Flow Statement and the related notes 1 to 38 and include the police pension fund financial statements comprising the Pension Fund Account and Net Assets Statement and the related notes 35 and 36. The financial reporting framework that has been applied in their preparation is applicable law and the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2013/14. This report is made solely to the Police and Crime Commissioner for Cheshire in accordance with Part II of the Audit Commission Act 1998 and for no other purpose, as set out in paragraph 48 of the Statement of Responsibilities of Auditors and Audited Bodies published by the Audit Commission in March To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Police and Crime Commissioner for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the Chief Finance Officer and auditor As explained more fully in the Statement of the Chief Finance Officer s Responsibilities, the Chief Finance Officer is responsible for the preparation of the Statement of Accounts, which includes the financial statements, in accordance with proper practices as set out in the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom, and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Police and Crime Commissioner Single Entity and Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Chief Finance Officer; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the explanatory foreword to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

13 INDEPENDENT AUDITOR S REPORT TO THE POLICE AND CRIME COMMISSIONER FOR CHESHIRE Opinion on financial statements In our opinion the financial statements: Group Statement of Accounts 2013/14 give a true and fair view of the financial position of the Police and Crime Commissioner for Cheshire as at 31 March 2014 and of its expenditure and income for the year then ended; give a true and fair view of the financial position of the Group as at 31 March 2014 and of its expenditure and income for the year then ended; and have been properly prepared in accordance with the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2013/14 and applicable law. Opinion on other matters In our opinion, the information given in the explanatory foreword for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we report by exception We report to you if: in our opinion the annual governance statement does not reflect compliance with Delivering Good Governance in Local Government: a Framework published by CIPFA/SOLACE in June 2007; we issue a report in the public interest under section 8 of the Audit Commission Act 1998; we designate under section 11 of the Audit Commission Act 1998 any recommendation as one that requires the Police and Crime Commissioner to consider it at a public meeting and to decide what action to take in response; or we exercise any other special powers of the auditor under the Audit Commission Act We have nothing to report in these respects. Conclusion on the Police and Crime Commissioner's arrangements for securing economy, efficiency and effectiveness in the use of resources Respective responsibilities of the Police and Crime Commissioner and the auditor The Police and Crime Commissioner is responsible for putting in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources, to ensure proper stewardship and governance, and to review regularly the adequacy and effectiveness of these arrangements. We are required under Section 5 of the Audit Commission Act 1998 to satisfy ourselves that the Police and Crime Commissioner has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources. The Code of Audit Practice issued by the Audit Commission requires us to report to you our conclusion relating to proper arrangements, having regard to relevant criteria specified by the Audit Commission. Page 13

14 INDEPENDENT AUDITOR S REPORT TO THE POLICE AND CRIME COMMISSIONER FOR CHESHIRE Group Statement of Accounts 2013/14 We report if significant matters have come to our attention which prevent us from concluding that the Police and Crime Commissioner has put in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources. We are not required to consider, nor have we considered, whether all aspects of the Police and Crime Commissioner s arrangements for securing economy, efficiency and effectiveness in its use of resources are operating effectively. Scope of the review of arrangements for securing economy, efficiency and effectiveness in the use of resources We have undertaken our audit in accordance with the Code of Audit Practice, having regard to the guidance on the specified criteria, published by the Audit Commission in October 2013, as to whether the Police and Crime Commissioner has proper arrangements for: securing financial resilience; and challenging how it secures economy, efficiency and effectiveness. The Audit Commission has determined these two criteria as those necessary for us to consider under the Code of Audit Practice in satisfying ourselves whether the Police and Crime Commissioner put in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources for the year ended 31 March We planned our work in accordance with the Code of Audit Practice. Based on our risk assessment, we undertook such work as we considered necessary to form a view on whether, in all significant respects, the Police and Crime Commissioner had put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources. Conclusion On the basis of our work, having regard to the guidance on the specified criteria published by the Audit Commission in October 2013, we are satisfied that, in all significant respects, the Police and Crime Commissioner for Cheshire put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ended 31 March Certificate We certify that we have completed the audit of the financial statements of the Police and Crime Commissioner for Cheshire in accordance with the requirements of the Audit Commission Act 1998 and the Code of Audit Practice issued by the Audit Commission. Mick Waite Engagement Lead for and on behalf of Grant Thornton UK LLP, Appointed Auditor 4 Hardman Square Spinningfields Manchester M3 3EB 26 September 2014 Page 14

15 GROUP STATEMENT OF ACCOUNTS 2013/14 Page 15

16 MOVEMENT IN RESERVES STATEMENT 2013/14 General Earmarked Capital Total Unusable Fund Reserves Receipts Usable Reserves Total Balance Reserve Reserves Reserves Balance at 1 April ,287 8,412 6,700 20,399 (1,704,845) (1,684,446) Surplus or (deficit) on provision of services (accounting basis) (70,081) (70,081) (70,081) Other Comprehensive Expenditure and Income 0 100, ,443 Total Comprehensive Expenditure and Income (70,081) 0 0 (70,081) 100,443 30,362 Adjustments between accounting basis & funding basis under regulations see Note 8 81,769 (1,821) ,825 (80,825) 0 Net Increase/(Decrease) before transfers to Earmarked Reserves 11,688 (1,821) ,744 19,618 30,362 Transfers to/(from) Earmarked Reserves (11,100) 11, Increase/(Decrease) in year 588 9, ,744 19,618 30,362 Balances at 31 March ,875 17,691 7,577 31,143 (1,685,227) (1,654,084) Details of the above reserves are in Notes 9 and 21. Page 16

17 MOVEMENT IN RESERVES STATEMENT 2012/13 General Earmarked Capital Total Unusable [restated] 1 Fund Reserves Receipts Usable Reserves Total Balance Reserve Reserves Reserves Balance at 1 April ,176 10,403 4,355 19,934 (1,422,269) (1,402,335) Surplus or (deficit) on provision of services (accounting basis) (72,012) (72,012) (72,012) Other Comprehensive Expenditure and Income 0 (210,097) (210,097) Total Comprehensive Expenditure and Income (72,012) 0 0 (72,012) (210,097) (282,111) Adjustments between accounting basis & funding basis under regulations see Note 8 73,946 (3,814) 2,345 72,477 (72,477) 0 Net Increase/(Decrease) before transfers to Earmarked Reserves 1,934 (3,814) 2, (282,574) (282,111) Transfers to/(from) Earmarked Reserves (1,823) 1, Increase/(Decrease) in year 111 (1,991) 2, (285,574) (282,111) Balances at 31 March ,287 8,412 6,700 20,399 (1,704,845) (1,684,446) 1 The comparative figures for 2012/13 have been amended to reflect the changes to the IAS19 pension actuarial costs. Details of these changes can be found in Note 35. Details of the above reserves are in Notes 9 and 21. Page 17

18 COMPREHENSIVE INCOME & EXPENDITURE STATEMENT 2012/ /14 Notes Net Expenditure Income Net [restated] Police Services: 82,546 Local Policing 93,168 (8,640) 84,528 14,845 Dealing with the Public 14,258 (775) 13,483 13,770 Criminal Justice Arrangements 16,493 (4,171) 12,322 4,358 Roads Policing 6,649 (3,306) 3,343 10,663 Specialist Operations 12,094 (2,005) 10,089 12,736 Intelligence 13,928 (1,248) 12,680 25,325 Specialist Investigations 25,119 (2,246) 22,874 6,606 Investigative Support 6,227 (432) 5, National Policing 3,052 (2,200) , ,988 (25,022) 165,966 1,117 Corporate and Democratic Core 931 (226) Non Distributed Cost Exceptional Items 0 172,671 Cost of Services 167,096 1,516 Other Operating Expenditure (168) 10 74,638 Financing & Investment Income & Expenditure 1 78, (176,813) Taxation & Non-Specific Grant Income (175,023) 10 72,012 Deficit / (Surplus) on Provision of Services 70, ,906 (Surplus)/Deficit on revaluation of fixed assets (1,142) 0 (Surplus)/Deficit on revaluation of "available for sale" assets 0 208,191 Actuarial (gains)/losses on pension assets/ liabilities 1 (99,301) 210,097 Other Comprehensive Income and Expenditure (100,443) 282,109 Total Comprehensive Income and Expenditure (30,362) 1 The comparative figures for 2012/13 have been amended to reflect the changes to the IAS19 pension actuarial costs. Details of these changes can be found in Note 35. Page 18

19 BALANCE SHEET AS AT 31 MARCH March 31 March Notes 81,300 Property, Plant & Equipment 79, ,350 Intangible Assets 5, ,849 Long Term Debtors 2, ,499 Long Term Assets 87, Stock ,886 Short Term Debtors 19, ,981 Cash and Cash Equivalents 18, Assets (held for sale) ,580 Current Assets 38,217 (2,900) Short Term Borrowing (200) 13 (14,241) Short Term Creditors (15,897) 18 (17,141) Current Liabilities (16,097) (26,127) Long Term Creditors (25,436) (1,202) Provisions (936) 19 (17,078) Long Term Borrowing (16,876) 13 (1,738,977) Other Long Term Liabilities (1,720,695) (1,783,384) Long Term Liabilities (1,763,943) (1,684,446) Net Assets (1,654,084) Represented By: 20,399 Usable Reserves 31,143 9 (1,704,845) Unusable Reserves (1,685,227) 21 (1,684,446) Total Reserves (1,654,084) The un-audited accounts were issued on 24 June 2014 with this audited version authorised for issue on the 26 September Liz Lunn, BA CPFA Chief Finance Officer, OPCC Date: 26 September 2014 Page 19

20 CASHFLOW STATEMENT (See Note 22) 31 March March 2014 Notes 72,012 Net (surplus) or deficit on the provision of services 70,081 Adjust net (surplus) or deficit on the provision of services for non-cash movement: (7,324) Depreciation (6,379) (70,805) Pensions - actuarial movement (81,084) 1,516 Movement in Creditors 6,380 2,984 Movement in Debtors (4,587) 37 Movement of Stock (20) 14 (2,367) Other non-cash items Adjust for items included in the net (surplus) or deficit on the provision of services that are investing and financing activities 203 (3,744) Net cashflow from operating activities (14,539) 5,443 Investing Activities 1, ,017 Financing Activities 3, ,716 Net (increase) or decrease in cash and cash equivalents (9,481) (11,697) (8,981) Cash and cash equivalents at the beginning of the reporting period Cash and cash equivalents at the end of the reporting period (8,981) (18,462) 2,716 Net (increase) or decrease in cash and cash equivalents (9,481) Page 20

21 POLICE PENSION FUND The Government introduced new arrangements for the funding of Police Officers Pensions with effect from 1 April Under these arrangements income and expenditure on Police Pensions is charged to a separate fund account. The overall net cost of the fund is met by specific grant from Government; see Notes 35 and 36 for further details. 2012/13 FUND ACCOUNT Contributions Receivable from: 2013/14 (17,916) Employer at 24.2% of pensionable pay (17,148) (474) Early Retirements (627) (8,822) From current employees (9,388) (27,212) (27,163) (126) Transfers in from other police authorities (6) (295) Transfers in from other pension schemes (411) (27,633) (27,580) Benefits Payable: 35,500 Pensions 37,344 7,117 Commutations and lump sum retirement benefits 8,276 - Lump sum death benefits 73 Payments to and on account of leavers 270 Transfers out to other schemes Refunds of contributions 0 42,893 46,315 15,260 Net amount payable for the year 18,735 (15,260) Additional Contribution from the Commissioner 1 (18,735) Nil Net balance on fund in year Nil NET ASSET STATEMENT - Unpaid Pensions Due - - Amount Owing to General Fund Note 1 : the additional contribution from the Commissioner is reimbursed by specific grant from the Home Office. Page 21

22 Note Description NOTES TO THE ACCOUNTS INDEX 1 Accounting Policies and Principles 23 2 Accounting Standards issued, not yet adopted 39 3 Group Accounts 39 4 Critical Judgements in applying Accounting Policies 39 5 Assumptions made about the future & other major sources of estimation 40 6 Material Items of Income and Expense 41 7 Post Balance Sheet events 41 8 Adjustments between accounting basis and funding basis under regulations 41 9 Transfers to/from Earmarked and General Reserves Notes to the Comprehensive Income & Expenditure Statement Property, Plant & Equipment Intangible Assets Financial Instruments (including Borrowing) Stock Analysis of Debtors (including Prepayments etc.) Cash and Cash Equivalents Assets Held for Sale Analysis of Creditors Provisions Usable Reserves Unusable Reserves Notes to the Cashflow Statement Reports for Decision-Making Purposes Partnerships & Collaborations Members Allowances & Expenses Officer Remuneration External Audit Fees Grant Income Related Parties Capital Expenditure & Financing Leases: Finance and Operating Private Finance Initiative Impairment Losses Capitalisation of Borrowing Costs Employee Benefits Notes relating to the Police Pension Fund Contingent Assets & Liabilities Authorisation of Accounts 90 Page Page 22

23 NOTES TO THE ACCOUNTS Group Statement of Accounts 2013/14 1. Accounting Policies and Principles 1.1 General Principles (IAS8) This Statement of Accounts summarises the Police and Crime Commissioner s (the Commissioner) transactions for the 2013/14 financial year and its position at 31 March The Commissioner is required to prepare an Annual Statement of Accounts by the Accounts and Audit (England) Regulations 2011 which require such accounts to be prepared in accordance with proper accounting practices. These practices comprise the Code of Practice of Local Authority Accounting in the United Kingdom 2013/14 and the Service Reporting Code of Practice 2013/14, supported by International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) Accounting Conventions These financial statements have been prepared under the historical cost convention, modified by the revaluation of certain categories of non-current assets and where material, financial instruments as determined by the relevant accounting standard. Activity is accounted for in the year that it takes place, not simply when cash payments are made or received. In particular: Revenue from sale of goods is recognised when the Commissioner transfers the significant risks and rewards of ownership to the purchaser and it is probable that economic benefits or service potential associated with the transaction will flow to the Commissioner. Revenue from the provision of services is recognised when the Commissioner can measure reliably the percentage of completion of the transaction and it is probable that economic benefits or service potential associated with the transaction will flow to the Commissioner. Supplies are recorded as expenditure when they are consumed. Where there is a gap between the date supplies are received and their consumption they are carried as stock on the Balance Sheet. Expenses in relation to services received (including services provided by employees) are recorded as expenditure when the services are received rather than when payments are made. Interest receivable on investments and payable on borrowings is accounted for respectively as income and expenditure on the basis of the effective interest rate for the relevant financial instrument rather than the cashflows fixed or determined by the contract. Where revenue and expenditure have been included in the Comprehensive Income & Expenditure Statement but cash has not been received or paid, a debtor or creditor for the relevant amount is recorded in the Balance Sheet. Where debts may not be settled, the balance of debtors is written down and a charge made to revenue for the income that might not be collected. All sums due to the Commissioner are recorded at the time they become payable and any outstanding items at the end of the year are shown on the Balance Sheet as debtors. The only significant change to this relates to Government Grants where estimates are made at the end of year for any further amounts due to the Commissioner and then recorded as debtors. Page 23

24 Creditors are accrued for on an actual basis where invoices have been received, on a purchase order basis where goods have been received but not invoiced or on an estimated basis where neither the invoice or purchase order is available (e.g., utility charges). In addition, this Statement of Accounts assumes the Commissioner will continue in operational existence for the foreseeable future under the Going Concern concept as a statutory Corporation Sole. 1.2 Cash and Cash Equivalents Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24 hours. Cash equivalents are highly liquid investments that mature in no more than three months or less from the date of acquisition and that are readily convertible to known amounts of cash with insignificant risk of change in value. In both the Balance Sheet and Cashflow Statement, cash and cash equivalents are shown net of bank overdrafts that are repayable on demand and form an integral part of the Commissioner s cash management. 1.3 Exceptional Items When items of income and expenditure are material and exceptional, their nature and amount is disclosed separately, either on the face of the Comprehensive Income and Expenditure Statement or in the Notes to the Accounts, depending on how significant the items are to the understanding of the Commissioner s financial performance. 1.4 Prior Period Adjustments, Changes in Accounting Policies and Estimates and Errors Prior period adjustments may arise as a result of a change in accounting policies or to correct a material error. Changes in accounting estimates are accounted for prospectively, i.e. in the current and future years affected by the change and do not give rise to a prior period adjustment. Changes in accounting policies are only made when required by proper accounting practices or the change provides more reliable or relevant information about the effect of transactions, other events and conditions on the Commissioner s financial position or financial performance. Where a change is made, it is applied retrospectively (unless otherwise stated) by adjusting opening balances and comparative amounts for the prior period as if the new policy has always been applied. Material errors discovered in prior period figures are corrected retrospectively by amending opening balances and comparative amounts for the prior period. Items are material if they could, individually or collectively, influence the decisions or assessments of users made on the basis of the financial statements. Materiality depends on the nature and/or size of the omission or misstatement judged in the surrounding circumstances. 1.5 Charges to Revenue for Non-Current Assets Services, support services and trading accounts are debited with the following amounts to record the cost of holding non-current assets during the year: Page 24

25 Depreciation attributable to the assets used by the relevant service Group Statement of Accounts 2013/14 Revaluation and impairment losses on assets used by the service where there are no accumulated gains in the Revaluation Reserve against which the losses can be written off Amortisation of intangible assets attributable to the service The Commissioner is not required to raise council tax (via his precept) to fund depreciation, revaluation and impairment losses or amortisation. However he is required to make an annual contribution from revenue towards the reduction in its overall borrowing requirement in accordance with the Local Authorities (Capital Finance & Accounting) (England) Regulations 2003, as amended, known as the Minimum Revenue Provision. Depreciation, revaluation and impairment losses and amortisation are therefore replaced by the Minimum Revenue Provision contribution in the General Fund Balance by way of an adjusting transaction with the Capital Adjustment Account in the Movement in Reserves Statement for the difference between the two. 1.6 Employee Benefits Benefits payable during employment Under IAS19 short term employee benefits are those to be settled within 12 months of the year end. They include such benefits as salaries and wages, paid annual leave, paid sick leave, bonuses and nonmonetary benefits (for example cars) for current employees and are recognised as an expense for the service in the year in which employees render service to the Commissioner. An accrual is made for the cost of holiday entitlements, flexi leave and time off in lieu earned by employees but not taken before the year end, which employees can carry forward into the next financial year. The accrual is made at the salary rates applicable at year end. The accrual is charged to the Surplus or Deficit on the Provision of Services but then reversed out through the Movement in Reserves Statement so that such benefits are charged to revenue in the financial year in which the benefit occurs. Termination benefits Termination benefits are amounts payable as a result of a decision by the Commissioner to terminate employment before the normal retirement date or an employee s decision to accept voluntary redundancy. These are charged on an accruals basis to the Comprehensive Income and Expenditure Statement when the Commissioner is demonstrably committed to the termination of the employment or making an offer to encourage voluntary redundancy. Where termination benefits involve the enhancement of pensions, statutory provisions require the General Fund Balance to be charged with the amount payable by the Commissioner to the pension fund or pensioner in the year, not the amount calculated according to the relevant accounting standards. In the Movement in Reserves Statement appropriations are required to and from the Pensions Reserve to remove the notional debits and credits for pension enhancement termination benefits and replace them with the debits for the cash paid to the pension fund and pensioners and any such amounts payable but unpaid at the year end. Post employment benefits The Commissioner s employees may be members of one of two separate pension schemes: Page 25

26 Police Staff - the Local Government Pension Scheme administered by Cheshire West and Chester Council; or Police Officers - the Police Pension Scheme for Police Officers; the Police Pension Scheme is an unfunded scheme (Police Pension Fund Regulations 2007 (SI2007/1932)), meaning there are no investment assets built up to meet the pensions liabilities and cash has to be generated to meet actual pensions payments as they eventually fall due. The costs of the scheme are supported by an employer s contribution based on the costs of serving officers and central government grant. Both schemes provide defined benefits to members (retirement lump sums and pensions) earned as employees of the Commissioner. The impact of these two pension schemes is identified separately in the Comprehensive Income and Expenditure Statement and Balance Sheet and in the Notes to the Accounts. The Local Government Pension Scheme The Local Government Pension Scheme is accounted for as a defined benefits scheme with the liabilities attributable to the Commissioner included in the Balance Sheet on an actuarial basis using the projected unit method. This is an assessment of the future payments that will be made in relation to retirement benefits earned to date by employees, based on assumptions about mortality rates, employee turnover rates etc. and projections of projected earnings for current employees. Liabilities are discounted to their value at current prices in line with the actuaries agreed discount rate as stated in the relevant Note to the Accounts. The assets attributable to the Commissioner are also included in the Balance Sheet at fair value: - Quoted securities current bid price - Unquoted securities professional valuation - Utilised securities current bid price - Property market value The change in the net pensions liability is analysed as follows: Current service cost the increase in liabilities as a result of years of service earned this year. This is charged to the Comprehensive Income and Expenditure Statement and is apportioned across service headings according to numbers of employees. Past service cost the increase in liabilities as a result of a scheme amendment or curtailment whose effect relates to years of service earned in earlier years and charged to the Comprehensive Income and Expenditure Statement as part of the Non-Distributed Costs. Net Interest on the net defined benefit liability (asset), i.e. the net interest expense for the Commissioner the change during the period in the net defined benefit liability (asset) that arises from the passage of time charged to the Financing and Investment Income and Expenditure line of the Comprehensive Income and Expenditure Statement. This is calculated by applying the discount rate used to measure the defined benefit obligation at the beginning of the period to the net defined benefit liability (asset) at the beginning of the period taking into account any changes in the net defined benefit liability (asset) during the period as a result of contribution and benefit payments. The re-measurements comprise of: Page 26

27 º The return on plan assets excluding amounts included in net interest on the net defined benefit liability (asset) charged to the Pensions Reserve as Other Comprehensive Income and Expenditure. º Actuarial gains and losses changes in the net pensions liability that arise because events have not coincided with assumptions made at the last actuarial valuation or because the actuaries have updated their assumptions charged to the Pensions Reserve as Other Comprehensive Income and Expenditure. Contributions paid the pension funds cash paid as employer s contributions to the pension fund in settlement of liabilities, not accounted for as an expense. In relation to retirement benefits, statutory provisions require the General Fund Balance to be charged with the amount payable by the Commissioner to the pension fund or directly to pensioner in the year, not the amount calculated according to the relevant accounting standards. In the Movement in Reserves Statement, this means that there are appropriations to and from the IAS19 Pension Reserve to remove the notional debits and credits for the retirement benefits and replace them with debits for the cash paid to the pension fund and pensioners and any such amounts payable but unpaid at the year end. The negative balance that arises on the IAS19 Pension Reserve thereby measure the beneficial impact to the General Fund of being required to account for the retirement benefits on the basis of cashflows rather than as benefits are earned by employees. Discretionary benefits Local Government Pension Scheme The Commissioner also has restricted powers to make discretionary awards of retirement benefits in the event of early retirements. Any liabilities estimated to arise as a result of such an award are accrued in the year in which the decision was taken and accounted for using the same policies as applied to the Local Government Pension Scheme. Injury awards The Police Pension Scheme Injury awards under The Police (Injury Benefits) Regulations 2006 are not part of the Police Pensions Scheme and are funded direct from the Comprehensive Income and Expenditure Statement. However, liabilities in respect of injury awards are disclosed in the Statement of Accounts as part of the Commissioner s overall liability and are measured on an actuarial basis, using the projected unit method. 1.7 Events after the Balance Sheet Date (IAS10) Events after the Balance Sheet date are those events both favourable and unfavourable that occur between the end of the reporting period and the date when the Statement of Accounts is authorised for issue. Two types of events can be identified: Those that provide evidence of conditions that existed at the end of the reporting period the Statement of Accounts is adjusted to reflect such events Those that are indicative of conditions that arose after the reporting period the Statement of Accounts is not adjusted to reflect such events but, where a category of events would have a material effect, disclosure is made in the Notes of the nature of the events and their estimated financial effect. Events taking place after the date of authorisation of issue are not reflected in the Statement of Accounts. Page 27

28 1.8 Financial Instruments (IAS32/39 & IFRS7) Financial liabilities Financial liabilities are recognised on the Balance Sheet when the Commissioner becomes a party to the contractual provisions of a financial instrument and are initially measured at fair value and are carried at their amortised cost. Annual charges to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement for interest payable are based on the carrying amount of the liability, multiplied by the effective rate of interest for the instrument. The effective interest rate is the rate that exactly discounts estimated future cash payments over the life of the instrument to the amount at which it was originally recognised. For most of the borrowings that the Commissioner has, this means that the amount presented in the Balance Sheet is the outstanding principal repayable (plus accrued interest); and interest charged to the Comprehensive Income and Expenditure Statement in the amount payable for the year according to the loan agreement. Gain and losses on the repurchase or early settlement of borrowing are credited and debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement in the year of repurchase or settlement. However, where repurchase has taken place as part of restructuring of the loan portfolio that involves the modification or exchange of existing instruments, the premium or discount is respectively deducted from or added to the amortised cost of the new or modified loan and the write down to the Comprehensive Income and Expenditure Statement is spread over the life of the loan by adjustment to the effective interest rate. Where premiums and discounts have been charged to the Comprehensive Income and Expenditure Statement, regulations allow the impact on the General Fund Balance to be spread over future years. The Commissioner has a policy of charging the full effect of premiums and discounts to the Comprehensive Income and Expenditure Statement in the year in which they are incurred. Financial Assets Financial assets are classified into two types: Loans and receivables assets that have fixed or determinable payments but are not quoted in an active market Available for sale assets assets that have a quoted market price and/or do not have fixed or determinable payments Loans and receivables are recognised on the Balance Sheet when the Commissioner becomes a party to the contractual provisions of a financial instrument and are initially measured at fair value. They are subsequently measured at their amortised cost. Annual credits to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement for interest receivable are based on the carrying amount of the asset multiplied by the effective rate of interest for the instrument. For most of the loans the Commissioner has made this means that the amount presented in the Balance Sheet is the outstanding principal receivable plus accrued interest, and the interest credited to the Comprehensive Income and Expenditure Statement is the amount receivable for the year in the loan agreement. Page 28

29 Where assets are identified as impaired because of a likelihood arising from a past event that payments due under the contract will not be made, the asset is written down and a charge made in the Comprehensive Income and Expenditure Statement. The impairment loss is measured as the difference between the carrying amount and the present value of the revised future cashflows discounted at the asset s original effective interest rate. Any gains and losses that arise on the de-recognition of an asset are credited or debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement. Available for sale assets are recognised on the Balance Sheet when the Commissioner becomes a party to a contractual provision of a financial instrument and is initially measured and carried at fair value. When the asset has fixed or determinable payments, annual credits to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement for interest receivable are based on amortised cost of the asset multiplied by the effective rate of interest for the instrument. Where there are no fixed or determinable payments, income (e.g. dividends) is credited to the Comprehensive Income and Expenditure Statement when it becomes receivable by the Commissioner. Assets are maintained in the Balance Sheet at fair value. Values are based on the following principles: Instruments with quoted market prices the market price Other instruments with fixed and determinable payments discounted cash flow analysis Equity shares with no quoted market prices independent appraisal of company valuations Changes in fair value are balanced by an entry in the Available for sale Reserve and the gain/loss is recognised in the Surplus or Deficit on Revaluation of Available for sale Financial Assets. The exception is where impairment losses have been incurred and are debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement, along with any net gain or loss for the asset accumulated in the Available for sale Reserve. Where assets are identified as impaired because of a likelihood arising from a past event, that payments due under the contract will not be made (fixed or determinable payments) or fair value falls below cost, the asset is written down and a charge made to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement. If the asset has fixed or determinable payments, the impairment loss is measured as the difference between the carrying amount and the present value of the revised future cashflows discounted at the asset s original effective interest rate. Otherwise the impairment loss is measured as any shortfall of fair value against the acquisition cost of the instrument (net of any principal repayment and amortisation). Any gain and losses that arise on the de-recognition of the asset are credited or debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement along with any accumulated gains or losses previously recognised in the Available for sale Reserve. Where fair value cannot be measured reliably, the instrument is carried at cost less any impairment losses. Page 29

30 1.9 Government Grants and Contributions (IAS20) Group Statement of Accounts 2013/14 Whether paid on account, by instalments or in arrears, government grants and third party contributions and donations are recognised as due to the Commissioner when there is reasonable assurances that: The Commissioner will comply with the conditions attached to the payments, and The grants or contributions will be received. Amounts recognised as due to the Commissioner are not credited to the Comprehensive Income and Expenditure Statement until conditions attached to the grant or contribution, have been satisfied. Conditions are stipulations that specify that the future economic benefits or service potential embodied in the asset in the form of the grant or contribution are required to be consumed by the recipient as specified or future economic benefits or service potential must be returned to the transferor. Monies advanced as grants and contributions for which conditions have not been satisfied are carried in the Balance Sheet as creditors. When conditions are satisfied, the grant or contribution is credited to the appropriate service line or Taxation and Non-specific Grant Income (for non ring-fenced grants and all capital grants) in the Comprehensive Income and Expenditure Statement. Where capital grants are credited to the Comprehensive Income and Expenditure Statement they are reversed out of the General Fund Balance in the Movement in Reserves Statement. Where the grant has not been used to finance capital expenditure it is posted to the Capital Grants Unapplied Reserve. Where it has been used to finance capital expenditure it is posted to the Capital Adjustment Account. Amounts in the Capital Grants Unapplied Reserve are transferred to the Capital Adjustment Account once they have been used to finance capital expenditure Heritage Assets A tangible heritage asset is a tangible asset with historical, artistic, scientific, technological, geophysical or environmental qualities that is held and maintained principally for its contribution to knowledge and culture. An intangible heritage asset is an intangible asset with cultural, environmental or historical significance. Examples of intangible heritage assets include recordings of significant historical events. Such assets identified are to be carried separately on the balance sheet at valuation. The Commissioner sets a de-minimis value for such assets at 0.5m Intangible Assets (IAS38) Expenditure on non-monetary assets that do not have physical substance but are controlled by the Commissioner as a result of past events (e.g. software licences) is capitalised when it is expected that future economic benefits or service potential will flow from the intangible asset to the Commissioner. Internally generated assets are capitalised where it is demonstrable that the project is technically feasible and is intended to be completed (with adequate resources being available) and the Commissioner will be able to generate future economic benefits or deliver service potential by being able to sell or use the asset. Expenditure is capitalised where it can be measured reliably as attributable to the asset and is restricted to that incurred during the development phase. Research expenditure cannot be capitalised. Page 30

31 Expenditure on the development of websites is not capitalised if the website is solely or primarily intended to promote or advertise the Commissioner s services. Intangible assets are measured initially at cost. Amounts are only re-valued where the fair value of the assets held can be determined by reference to an active market. In practice no intangible asset held by the Commissioner meets this criterion and they are therefore carried at amortised cost. The depreciable amount of an intangible asset is amortised over its useful life to the relevant service lines in the Comprehensive Income and Expenditure Statement. An asset is tested for impairment whenever there is an indication that the asset might be impaired any losses recognised are posted to the relevant service in the Comprehensive Income and Expenditure Statement. Any gain or loss arising on the disposal or abandonment of an intangible asset is posted to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement. Where expenditure on intangible assets qualifies as capital expenditure for statutory purposes, amortisation, impairment losses and disposal gains and losses are not permitted to impact on the General Fund Balance. The gains and losses are therefore reversed out of the General Fund Balance in the Movement in Reserves Statement and transferred to the Capital Adjustment Account or for any sale proceeds over 10,000, the Capital Receipts Reserve Stock (IAS2) Stock is valued at the lower of cost or current replacement cost where it is held for distribution at no charge. The stock reflected in the Balance Sheet relates predominantly to uniforms and equipment which is distributed to officers as appropriate Jointly Controlled Operations (IAS31) Jointly controlled operations are activities undertaken by the Commissioner or Chief Constable in conjunction with other organisations that involve the use of assets and resources of those organisations rather than the establishment of a separate entity. The Commissioner or Chief Constable recognises on their respective Balance Sheets the assets the operation controls and the liabilities it incurs and debits and credits the Comprehensive Income and Expenditure Statement with the expenditure incurred and the share of income earned Leases (IAS17) Leases are classified as finance leases where the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the property, plant or equipment from the lessor to the lessee. All other leases are classified as operating leases. Where a lease covers both land and buildings, the land and building elements are considered separately for classification. Arrangements that do not have legal status of a lease but convey a right to use an asset in return for payment are accounted for under this policy where fulfilment of the arrangement is dependent on the use of specific assets. Finance Leases (taken out by the Commissioner) Property, plant and equipment held under finance leases are recognised on the Balance Sheet at the commencement of the lease at its fair value measured at the lease s inception or the present value of the minimum lease payments if this is lower. The asset recognised is matched by a liability for the obligation to pay the lessor. Initial direct costs of the Commissioner are added to the carrying amount of the asset. Premiums paid on entry into a lease are applied to writing down the lease liability. Contingent rents are charged as expenses in the periods in which they are incurred. Page 31

32 Lease payments are apportioned between: A charge for the acquisition of the interest in the property, plant or equipment applied to write down the lease liability, and A finance charge (debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement). Property, plant and equipment recognised under finance leases is accounted for using the policies applied generally to such assets, subject to depreciation being charged over the lease term if this is shorter than the asset s estimated useful life (where the ownership of the asset does not transfer to the Commissioner at the end of the lease period). Operating Leases Rentals paid under operating leases are charged to the Comprehensive Income and Expenditure Statement as an expense of the services benefiting from use of the lease property, plant and equipment. Charges are made on a straight line basis over the life of the lease, even if this does not match the pattern of payments (for example if there is a rent free period at the start or end of the lease) Overhead and support services The costs of overheads and support services are charged to the service expenditure headings as defined in CIPFA Service Reporting Code of Practice (SeRCOP). The total absorption costing principle is used the full cost of overheads and support services are shared between users in proportion to the benefits received, with the exception of: Corporate and Democratic Core costs relating to the Commissioner s status as a democratic organisation Non Distributed Costs the cost of discretionary benefits awarded to employees retiring early and impairment losses chargeable on Assets Held for Sale These two categories are defined in SeRCOP and accounted for as separate headings in the Comprehensive Income and Expenditure Statement as part of the Net Expenditure on Services Property, Plant and Equipment Assets that have physical substance and are held for use in the production or supply of goods or services, for rental to others, or for administration purposes and that are expected to be used during more than one financial year are classified as property, plant and equipment in line with International Accounting Standard (IAS) 16 and International Public Sector Accounting Standard (IPSAS) 17. Recognition of the asset Expenditure on the acquisition, creation or enhancement of property, plant and equipment is capitalised on an accruals basis, provided that it is probable that the future economic benefits or service potential associated with the asset will flow to the Commissioner and the cost of the asset can be measured reliably. Expenditure that maintains but does not add to the asset s potential to deliver economic benefits or service potential (i.e. repairs and maintenance) is charged as an expense when it is incurred. The Commissioner s policy is also to capitalise only those assets which have a material value where the cost is 10,000 or more (de-minimis level). Page 32

33 Measurement of the asset Assets are initially measured at cost, comprising: the purchase price; any costs directly attributable to bringing the asset to the location and condition for it to be capable of operating in the manner intended by the Commissioner, including any directly attributable salary costs of the Commissioner s employees; and the initial estimate of the costs of dismantling and removing the items and restoring the site on which it is located. The Commissioner does not capitalise borrowing costs incurred whilst assets are under construction. The cost of assets acquired other than by purchase is deemed to be its fair value, unless the acquisition does not have commercial substance (i.e. it will not lead to a variation in the cashflows of the Commissioner). In the latter case where an asset is acquired via an exchange, the cost of the acquisition is the carrying amount of the asset given up by the Commissioner. Donated assets are measured initially at fair value. The difference between fair value and any consideration paid is credited to the Taxation and Non-specific Grant Income line in the Comprehensive Income and Expenditure Statement unless the donation has been made conditionally. In such cases until the conditions are satisfied the gain is held in the Donated Assets Account. Where gains are credited to the Comprehensive Income and Expenditure Statement they are reversed out of the General Fund Balance to the Capital Adjustment Account in the Movement in Reserves Statement. Assets are carried in the Balance Sheet using the following measurement bases: Assets under construction actual expenditure incurred (historical cost) until operational and then at fair value All other assets fair value, determined as the amount that would be paid for the asset in its existing use Where market based evidence of fair value is not available because of the specialist nature of an asset, Depreciated Replacement Cost (DRC) will be used as a proxy for fair value. For non property assets which have short useful lives, low value or both, depreciated historical cost will be used as a proxy for fair value. Assets included in the Balance Sheet at fair value are re-valued sufficiently regularly to ensure that their carrying amount is not materially different from their fair value at year end, but at a minimum of every five years. Increases in valuations are matched by credits to the Revaluation Reserve to recognise unrealised gains. Exceptionally gains might be credited to the Surplus or Deficit on the Provision of Services where they arise from the reversal of a loss previously charged to a service. Where decreases in value are identified, they are accounted for as follows: Page 33

34 where there is a balance of revaluation gains for the asset in the Revaluation Reserve, the carrying amount of the asset is written down against that balance up to the amount of the accumulated gains. where there is no balance in the Revaluation Reserve or an insufficient balance, the carrying amount of the asset is written down against the relevant service lines in the Comprehensive Income and Expenditure Statement. The Revaluation Reserve contains revaluation gains recognised since 1 April 2007 only, the date of its formal implementation. Gains arising before that date have been consolidated into the Capital Adjustment Account. Componentisation The Commissioner identifies any properties where it is considered that componentisation is appropriate and provides separate valuation of such components. Componentisation will only be applied routinely to new buildings or refurbishments completed after 1 April 2010 onwards and will not apply to historical assets that have not been refurbished. Specifically, componentisation is considered for: all properties over 1m those which have been the subject of significant refurbishment or improvement during the year those properties which are expected to be the subject of significant refurbishment or improvement during the next two years In this context significant expenditure is defined as greater than 25% of the total cost of the asset; and greater than 100,000. Impairment Assets are assessed at each year end as to whether there is any indication that an asset may be impaired. Where indications exist and any possible differences are estimated to be material, the recoverable amount of the asset is estimated and, where this is less than the carrying amount of the asset, an impairment loss is recognised for the shortfall. Where impairment losses are identified, they are accounted for as follows: where there is a balance of revaluation gains for the asset in the Revaluation Reserve, the carrying amount of the asset is written down against that balance up to the amount of the accumulated gains. where there is no balance in the Revaluation Reserve or an insufficient balance, the carrying amount of the asset is written down against the relevant service lines in the Comprehensive Income and Expenditure Statement. Where an impairment loss is reversed subsequently, the reversal is credited to the relevant service lines in the Comprehensive Income and Expenditure Statement up to the amount of the original loss and adjusted for depreciation that would have been charged if the loss has not been recognised. Page 34

35 Depreciation Group Statement of Accounts 2013/14 Depreciation is provided for on all property, plant and equipment assets by the systematic allocation of their depreciable amounts over their useful lives. An exception is made for assets without a determinable finite useful life (i.e. freehold land) and assets that are not yet available for operational use (i.e. assets under construction). Depreciation is calculated on the following bases: Land no depreciation applied Property (not land) straight-line allocation over the life of the property as estimated by the valuer Plant and Equipment straight-line allocation over the life of the asset as advised by a suitably qualified officer Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item will be depreciated separately. Where there is more than one significant part of the same asset which has the same useful life and depreciation method, such parts may be grouped in determining the depreciation charge. Revaluation gains are also depreciated with an amount equal to the difference between current value depreciation charged on assets and the depreciation that would have been chargeable based on the their historical cost being transferred each year from the Revaluation Reserve to the Capital Adjustment Account. Disposals and non-current Assets held for Sale When it becomes probable that an asset will be sold it is reclassified as an Asset held for Sale. The asset is re-valued immediately before reclassification and then carried at the lower of this amount and fair value less costs to sell. Where there is a subsequent decrease to fair value less costs to sell, the loss is posted to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement. Gains in fair value are recognised only up to the amount of any previous losses recognised in the Surplus or Deficit on Provision of Services. Depreciation is not charged on Assets held for Sale. If assets no longer meet the criteria to be classified as Assets held for Sale, they are reclassified back to non current assets and valued at the lower of their carrying amount before they were classified as held for sale; adjusted for depreciation, amortisation or revaluations that would have been recognised had they not been classified as held for sale and their recoverable amount at the date of the decision not to sell. Assets that are to be abandoned or scrapped are not reclassified as Assets held for Sale. When as asset is disposed of or decommissioned the carrying amount of the asset in the Balance Sheet (whether property, plant and equipment or assets held for sale) is written off to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement as part of the gain or loss on disposal. Receipts from disposals (if any) are credited to the same line in the Comprehensive Income and Expenditure Statement also as part of the gain or loss on disposal (i.e. netted off against the carrying value of the asset at the time of disposal). Any revaluation gains accumulated for the disposed asset in the Revaluation Reserve are transferred to the Capital Adjustment Account. Page 35

36 Amounts received for a disposal in excess of 10,000 are categorised as capital receipts and are required to be credited to the Capital Receipts Reserve. These can then only be used to fund new capital expenditure or set aside to reduce the Commissioner s underlying need to borrow. Receipts are appropriated to the Reserve from the General Fund Balance via the Movement in Reserves Statement. The written off value of disposals is not a charge against the council tax as the cost of non current assets is fully provided for under separate arrangement for capital financing. Amounts are appropriated to the Capital Adjustment Account from the General Fund Balance in the Movement in Reserves Statement Private Finance Initiative (PFI) PFI and similar contracts are agreements to receive services where the responsibility for making available the property, plant and equipment needed to provide the services passes to the PFI contractor. As the Commissioner is deemed to control the services that are provided under its PFI scheme and as ownership of the property, plant and equipment will pass to the Commissioner at the end of the contract, the Commissioner carries the assets used under the contract on its Balance Sheet as part of property, plant and equipment. The original recognition of these assets at fair value (based on the cost to purchase) was balanced by the recognition of a liability for the amounts due to the scheme operator to pay for the capital investment. Non current assets recognised on the Balance Sheet are re-valued and depreciated in the same way as property, plant and equipment owned by the Commissioner. The amounts payable to the PFI operator each year are analysed as follows: fair value of the services received during the year charged to the Comprehensive Income and Expenditure Statement finance cost an interest charge on the outstanding Balance Sheet liability charged to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement contingent rent increases in the amount to be paid for the property arising during the contract and charged to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement payment towards liability applied to write down the Balance Sheet liability towards the PFI operator (the profile of write downs is calculated using the same principles as for a finance lease) lifecycle replacement costs a proportion of the amounts payable is posted to the Balance Sheet as a prepayment and then recognised as additions to property, plant and equipment when the relevant works are eventually carried out Provisions, Contingent Assets and Liabilities (IAS37) Provisions Provisions are made when an event has taken place that gives the Commissioner a legal or constructive obligation that probably requires settlement of that obligation and a reasonable estimate of the amount can be made. For example, the Commissioner may be involved in a court case that could eventually result in the making of a settlement or the payment of compensation. Page 36

37 Provisions are charged to the Comprehensive Income and Expenditure Statement in the year in which the Commissioner becomes aware of the obligation, based on the best estimate of the likely settlement taking into account relevant risks and uncertainties. When payments are eventually made they are charged to that provision in the Balance Sheet. Estimated settlements are reviewed at the end of each financial year and where it becomes more likely than not that a settlement is no longer required (or a lower settlement than anticipated is made), the provision is adjusted and credited back to the Comprehensive Income and Expenditure Statement. Where some or all of the payment required to settle an obligation is expected to be met by another party (e.g. from an insurance claim) it is only recognised as income in the Comprehensive Income and Expenditure Statement when it is virtually certain that reimbursement will be received. Contingent Assets A contingent asset arises where an event has taken place that gives the Commissioner a possible asset whose existence will only be confirmed by the occurrence or otherwise of uncertain future events not wholly within the control of the Commissioner. Contingent assets are not recognised in the Balance Sheet but are disclosed in a Note to the Accounts where it is probable that there will be an inflow of economic benefits or service potential. Contingent Liability A contingent liability arises where an event has taken place that gives the Commissioner a possible obligation whose existence will only be confirmed by the occurrence or otherwise of uncertain future events not wholly within the control of the Commissioner. Contingent liabilities also arise in circumstances where a provision would otherwise be made but either it is not probable that an outflow of resources will be required or the amount of the obligation cannot be measured reliably. Contingent liabilities are not recognised in the Balance Sheet but are disclosed in a Note to the Accounts Reserves The Commissioner sets aside amounts as reserves for specific policy purposes through appropriations in the Movement of Reserves Statement. Expenditure funded by such reserves is charged directly to the Comprehensive Income and Expenditure Statement with the transfer from the reserve shown separately and accounted for in the Movement of Reserves Statement. Certain reserves are held to manage the accounting processes of assets and retirement benefits and do not represent usable resources for the Commissioner these reserves are explained in the relevant policies Value Added Tax (VAT) VAT payable is included as an expense only to the extent that it is not recoverable from Her Majesty s Revenue and Customs. VAT receivable is excluded from income. Page 37

38 1.21 Stage 1 Transition Accounting Policies and Principles Group Statement of Accounts 2013/ Introduction The Police Reform and Social Responsibility Act 2011 replaced police authorities with elected Commissioners and together with the role of Chief Constable, became corporations sole (separate legal entities). The transition to this new model is phased into two stages firstly the transfer of all resources, assets and liabilities of the former police authority to the Commissioner upon election (Stage 1) and then the consenting of resources, assets and liabilities to the Chief Constable from 1 April 2014 (Stage 2) Basis of transition Stage 1 transition impacts on the 2012/13 and 2013/14 Statement of Accounts (these accounts). The accounting for Stage 1 is in line with the CIPFA Code of Practice for Local Authority Accounting 2013/14 (the Code) and Local Authority Accounting Panel (LAAP) Bulletins. The statutory transfer of all resources, assets and liabilities from the former police authority to the Commissioner took place on the 21 November Accounting policies and principles (Stage 1) The Commissioner and Chief Constable have agreed the standard accounting policies and principles as set out above. For this Stage 1 transition period, there are a number of specific supporting policies and principles which are required and these are detailed below. These take precedent over the above policies should there be a conflict. Reserves All reserves transferred to and remain the property of the Commissioner at Stage 1. These include revenue and capital usable reserves and some unusable reserves which reflect the adjustments between accounting basis and funding basis under regulations, for example the revaluation reserve on property. Surplus/Deficit for year Any surplus or deficit shown in the Chief Constable s Comprehensive Income and Expenditure Statement will be either transferred to (in the case of a surplus) or reimbursed from (in the case of a deficit) the Commissioner s accounts. The exception being items permitted for reversal under the adjustments between accounting and funding basis under regulations. Use of Assets All assets (land, buildings, equipment etc.) transferred from the former police authority to the Commissioner under statute and remain in his possession. Therefore the costs of ownership for these assets such as depreciation are charged to the Commissioner s Statement of Accounts. However it is necessary to reflect the fact that the Chief Constable has had use of the majority of these assets during 2013/14. As such the Commissioner will charge the Chief Constable for the fair use of these assets which will be reflected in his Comprehensive Income & Expenditure Statement. Fair use is calculated on full recovery of the costs to the Commissioner for each asset used by the Constabulary. Contingent Assets & Liabilities As the Commissioner holds all usable reserves and is the responsible body for assets and liabilities, any contingent assets or liabilities will be recorded within his accounts. Page 38

39 2. Accounting Standards issued, not yet adopted Group Statement of Accounts 2013/14 During 2013/14 a number of accounting standards were amended: º IFRS13 Fair Value Measurement (May 2011) º IAS27 Separate Financial Statements (as amended in 2011) º IFRS10 Consolidated Financial Statements º IAS28 Investments in Associates and Joint Ventures (as amended in 2011) º IFRS11 Joint Arrangements º IAS32 Financial Instruments: Presentation º IFRS12 Disclosure of Interest in Other Entities º Annual Improvements to IFRSs Cycle The above changes have no impact on these accounts but will be reviewed during 2014/15 and any amendments required will be clearly shown in the 2014/15 Statement of Accounts. 3. Group Account Note Under the Police Reform and Social Responsibility Act 2011, the roles of Commissioner and Chief Constable became Corporations Sole (separate legal entities) and required individual Statement of Accounts. However, the Act also recognises that the Chief Constable is a wholly owned subsidiary of the Commissioner and proper accounting practices require group accounts to be produced. Basis of Consolidation The group accounts comprise of those of the Commissioner and his wholly own subsidiary the Chief Constable as at 31 March The financial statements of the subsidiary are prepared for the same reporting period as the parent company, using consistent accounting policies. They are fully consolidated from the date that the Commissioner obtains control until the date that such control ceases. These accounts are prepared in accordance with the Accounts and Audit Regulations with subsidiary companies being consolidated on a line-by-line basis. All intra-group trading, balances and unrealised gains and losses as at the end of each period, are eliminated in full as part of the consolidation process. The main intra-group transactions are the Commissioner fully funding the net expenditure of the Chief Constable and the recognition in the two Balance Sheets of the relevant pension liability in the Chief Constable s accounts matched by an agreement to fund by the Commissioner in the form of a long term debtor. There are no significant restrictions on the ability of the subsidiary to transfer funds to the parent company in any form. 4. Critical Judgements in applying Accounting Policies In applying the accounting policies set out in Note 1 the Commissioner has had to make certain judgements about complex transactions or those involving uncertainty about future events. The critical judgements made in the Statement of Accounts are: There is a high degree of uncertainty about future levels of Central Government funding. However, the Commissioner has determined that this uncertainty is not yet sufficient to provide an indication that the assets of the Commissioner might be impaired as a result of a need to close facilities and/or reduce levels of service provision. The Private Finance Initiative (PFI) accounting models used to calculate future liabilities for interest and capital repayments are based on the current Retail Price Index (RPI) and Utilities Price Index (UPI) as listed by the Office of National Statistics. These are reviewed annually with any change affecting the current and future years charges. Page 39

40 5. Assumptions made about the future & other major sources of estimation uncertainty The Statement of Accounts contains estimated figures that are based on assumptions made by the Commissioner about the future or that are otherwise uncertain. Estimates are made taking into account historical experience, current trends and other relevant factors. However, because balances cannot be determined with certainty, actual results could be materially different from the assumptions and estimates. The items in the Commissioner s Balance Sheet at 31 March 2014, for which there is a significant risk of material adjustment in the forthcoming financial year, are as follows: Item Uncertainties Effect if actual results differ from assumptions Property, Plant and Equipment Provisions Pensions Liability Assets are depreciated over useful lives and are dependent on assumptions about the level of repairs & maintenance that will be incurred. The current economic climate makes it uncertain that the Commissioner will be able to sustain current spending on repairs & maintenance, bringing into doubt the useful lives assigned to assets. Provisions are based on best estimates and professional judgements. The Commissioner has made provision of 0.9m for the settlement of civil and motor claims. Estimation of net liability to pay pensions depends on a number of complex judgements relating to the discount rate used, the rate at which salaries are projected to increase, changes in retirement ages, mortality rates and expected returns on pension fund assets (where applicable). If the useful life of assets is reduced, depreciation increases and the carrying amount of the assets falls. It is estimated that the annual depreciation charge would increase by 1.88m for every year that useful lives have to be reduced. An increase over the forthcoming year of 10% in either the total number of claims or the estimated average settlement would each have the effect of adding 0.09m to the provision needed. The effects on the net pension liability of changes in individual assumptions can be measured. For instance a 0.5% increase in the discount rate assumption would result in a decrease in the pension liability of 24.3m for the Local Government Pension Scheme. The Government s Actuary Department is engaged to provide the Commissioner with expert advice about the assumptions to be applied for Police Pensions and Cheshire West & Chester Council provide information on the Local Government Pension Scheme. However, the assumptions interact in complex ways. Where assumptions do change these are reported as actuarial gains and losses within the Other Income and Expenditure line in the Comprehensive Income & Expenditure Statement. These changes only impact on the Pension Reserve and Liability and have no impact on general reserve. Page 40

41 Item Uncertainties Effect if actual results differ from assumptions Arrears At 31 March 2014 the Commissioner had a balance of sundry debtors for 1.2m. A review of significant balances suggested that an impairment of doubtful debts over six months old was appropriate. If collection rates were to deteriorate, further impairment would be required. An average monthly debt is 1.7m. This list does not include assets and liabilities that are carried at fair value based on a recently observed market price. 6. Material Items of Income and Expense There are no material items of income and expense for 2013/ Post Balance Sheet events At the Joint Management Board on 4 June 2014, the Commissioner approved as part of the 2013/14 outturn to transfer 8.1m to earmarked reserves to fund agreed budget carry forwards and to support the Medium Term Financial Strategy. This has been reflected in this Statement of Accounts and Note 9. Additionally, HMRC accepted a claim for repayment of Value Added Tax which has now been recognised as a debtor rather than a contingent asset. 8. Adjustments between Accounting Basis and Funding Basis under Regulations This note details the adjustments that are made to the total comprehensive income and expenditure recognised by the Commissioner in the year in accordance with proper accounting practice to the resources that are specified by statutory provisions as being available to the Commissioner to meet future capital and revenue expenditure. The following sets out a description of the reserves that the adjustments are made against: General Fund The General Fund is the statutory fund into which all the receipts of the Commissioner are required to be paid and out of which all liabilities of the Commissioner are to be met, except to the extent that statutory rules provide otherwise. These rules can also specify the financial year in which liabilities and payments should impact on the General Fund balance, which is not necessarily in accordance with proper accounting practice. The General Fund balance therefore summarises the resources that the Commissioner is statutorily empowered to spend on police services or on capital investment. Capital Receipts Reserve The Capital Receipts Reserve holds the proceeds from the disposal of land or other assets which are restricted by statute from being used other than to fund new capital expenditure or to be set aside to finance historical capital expenditure. The balance on the reserve shows the resources that have yet to be applied for these purposes at year end. Unapplied Capital Grants Reserve The Unapplied Capital Grants Reserve hold the grant and contributions received towards capital projects for which the Commissioner has met the conditions that would otherwise require repayment of the money but which has yet to be applied to meet expenditure. The balance is restricted by grant terms as to the capital expenditure against which it can be applied and/or the financial year in which this can take place. Page 41

42 8. Adjustments between Accounting Basis and Funding Basis under Regulations General Earmarked Capital Total Unusable 2013/14 Fund Reserves Receipts Usable Reserves Total Balance Reserve Reserves Reserves Reversal of items debited or credited to the CI&E Statement Other Comprehensive Expenditure and Income: Revaluation of Property Plant & Equipment (1,142) (1,142) Pensions: Actuarial Gains and Losses (99,301) (99,301) Sub-total (100,443) (100,443) Adjustments between accounting basis & funding basis under regulations: Pensions Current Service Costs (48,971) (48,971) 48,971 0 Employers Contributions under IAS19 43,081 43,081 (43,081) 0 Past Service Costs (199) (199) Curtailments Pensions Net Interest (74,995) (74,995) 74,995 0 Depreciation Property (2,340) (2,340) 2,340 0 Equipment (1,757) (1,757) 1,757 0 Vehicles (731) (731) Amortisation Intangible Assets (1,550) (1,550) 1,550 0 (Gain)/Loss on Sale of Assets 124 (975) (851) Capital Grants/Contributions General Capital Grant 1,495 (1,495) Specific Capital Grants/Contribution 126 (126) Insertion of items not debited or credited to the CI&E Statement Adjustments between accounting basis & funding basis under regulations: Capital Financing Statutory Provision for repayment of debt 1,892 1,892 (1,892) 0 Capital Grant Applied 1,620 1,620 (1,620) 0 Capital Receipts applied (98) 0 Earmarked Reserves applied 1,822 1,822 (1,822) 0 Other Adjustments Collection Fund Adjustment Account (615) 0 Accumulated Absences Account 1,441 1,441 (1,441) 0 Sub-total (81,769) 1,821 (877) (80,825) 80,825 0 Total (81,769) 1,821 (877) (80,825) (19,618) (100,443) Page 42

43 Comparative figures for 2012/13 are shown below: General Earmarked Capital Total Unusable 2012/13 Fund Reserves Receipts Usable Reserves Total Balance Reserve Reserves Reserves Reversal of items debited or credited to the CI&E Statement Other Comprehensive Expenditure and Income: Revaluation of Property Plant & Equipment 1,908 1,908 Pensions: Actuarial Gains and Losses 208, ,189 Sub-total , ,097 Adjustments between accounting basis & funding basis under regulations: Pensions Current Service Costs (39,163) (39,163) 39,163 0 Employers Contributions under IAS19 39,653 39,653 (39,653) 0 Past Service Costs (226) 0 Curtailments (49) (49) 49 0 Pensions Net Interest (71,471) (71,471) 71,471 0 Depreciation Property (2,449) (2,449) 2,449 0 Equipment (2,486) (2,486) 2,486 0 Vehicles (1,057) (1,057) 1,057 0 Amortisation Intangible Assets (1,331) (1,331) 1,331 0 (Gain)/Loss on Sale of Assets (1,516) (2,345) (3,861) 3,861 0 Capital Grants/Contributions General Capital Grant 1,667 (1,667) 0 (0) 0 Specific Capital Grants/Contribution 63 (63) 0 (0) 0 Insertion of items not debited or credited to the CI&E Statement Adjustments between accounting basis & funding basis under regulations: Capital Financing Statutory Provision for repayment of debt 1,863 1,863 (1,863) 0 Capital Grant Applied 1,671 1,671 (1,671) 0 Revenue Contribution to Capital 2,230 (2,230) 0 (0) 0 Capital Receipts applied 0 (0) 0 Earmarked Reserves applied 6,101 6,101 (6,101) 0 Other Adjustments Collection Fund Adjustment Account (106) 0 Accumulated Absences Account (230) (230) Repayment of Debt from General Reserves 0 (0) 0 Sub-total (73,946) 3,814 (2,345) (72,477) 72,477 0 Total (73,946) 3,814 (2,345) (72,477) 282, ,097 Page 43

44 9. Transfers to / from Earmarked & General Reserves The Commissioner holds a number of reserves that are classified as usable (can be used to fund the Commissioner s future activities). This note sets out the amounts set aside from the general fund in earmarked reserves to provide financing for future expenditure plans and the amounts posted back from earmarked reserves to meet General Fund expenditure 2013/14. General Fund (Usable) The General Fund is available to support general revenue expenditure. 2013/ / /12 Balance at 1 April (5,287) (5,176) (7,838) Transfers to General Fund (588) (111) (7,553) Transfers from General Fund ,215 Balance at 31 March (5,875) (5,287) (5,176) Revenue Reserve for Capital Expenditure (Earmarked) This is used to finance capital expenditure in future years. The Commissioner s budget includes a revenue contribution to this reserve each year to support capital expenditure without further borrowing. For 2013/14 this amounted to 1m. 2013/ / /12 Balance at 1 April (696) (3,331) (263) Transfers to Earmarked Reserve (2,205) (2,468) (4,642) Transfers from Earmarked Reserve 2,796 5,103 1,574 Balance at 31 March (105) (696) (3,331) Medium Term Financial Strategy Reserve (Earmarked) This reserve was created to support the Medium Term Financial Strategy in recognition of the challenging financial scenario. This will be used to support transition projects and changes required to meet the savings required over the next four years. 2013/ / /12 Balance at 1 April (2,367) - - Transfers to Earmarked Reserve (6,859) (2,367) - Transfers from Earmarked Reserve Balance at 31 March (9,205) (2,367) - Carry Forward Reserve (Earmarked) At the Management Board meeting on 4 June 2014 a number of carry forward budgets were approved for spend in 2014/15 including additional ill health retirements. 2013/ / /12 Balance at 1 April Transfers to Earmarked Reserve (1,166) - - Balance at 31 March (1,166) - - Page 44

45 Underwater Search Unit Reserve (Earmarked) The Commissioner acts as the lead body for the regional underwater search unit. The reserve holds resources that the unit can use to support its operations. 2013/ / /12 Balance at 1 April (565) (256) (339) Transfers to Earmarked Reserve (131) (309) (143) Transfers from Earmarked Reserve Balance at 31 March (649) (565) (256) Local Resilience Forum Reserve (Earmarked) This represents the contributions from the collaboration of agencies representing the Local Resilience Forum. The reserve is held on behalf of the forum. 2013/ / /12 Balance at 1 April Transfers to Earmarked Reserve (80) - - Balance at 31 March (80) - - Capital Systems Reserve (Earmarked) This holds resources set aside for the creation of the Multi-force Shared Service and the implementation of an enterprise resource planning system (Oracle). This reserve was utilised in 2013/14. This reserve was fully utilised in 2013/14 and closed. 2013/ / /12 Balance at 1 April (83) (724) (3,723) Transfers from Earmarked Reserve ,999 Balance at 31 March - (83) (724) IT Reimbursement Reserve (Earmarked) This represents resources that can be used for the replacement of computer equipment. 2013/ / /12 Balance at 1 April (22) (208) (172) Transfers to Earmarked Reserve (208) (171) (180) Transfers from Earmarked Reserve Balance at 31 March (88) (22) (208) Localisation of Council Tax Reserve (Earmarked) This reserve is to cover the potential impact of changes to council tax benefit payments. 2013/ / /12 Balance at 1 April Transfers to Earmarked Reserve (1,109) - - Balance at 31 March (1,109) - - Page 45

46 Redundancy Reserve (Earmarked) This reserve is to fund the cost of redundancies resulting from the savings required. 2013/ /13 Page 46 Group Statement of Accounts 2013/ /12 Balance at 1 April (2,811) (3,109) (5,000) Transfers to Earmarked Reserve - (901) - Transfers from Earmarked Reserve 546 1,199 1,891 Balance at 31 March (2,265) (2,811) (3,109) One-Off Revenue Costs (Earmarked) This reserve was created to fund specific one-off revenue costs. The remaining balance has been used to fund the current actuarial valuation pension costs. 2013/ / /12 Balance at 1 April (1,834) (2,544) - Transfers to Earmarked Reserve - - (2,544) Transfers from Earmarked Reserve 1, Balance at 31 March - (1,834) (2,544) Actuarial Valuation Deficit Reserve (Earmarked) This reserve is to fund the actuarial valuation pension deficit costs over the next three years. 2013/ / /12 Balance at 1 April Transfers to Earmarked Reserve (2,965) - - Transfers from Earmarked Reserve Balance at 31 March (2,965) - - Unapplied Capital Grants Reserve (Earmarked) This is specific capital grants received but not yet applied to finance capital expenditure. 2013/ / /12 Balance at 1 April (36) (231) (637) Transfers to Earmarked Reserve (2,736) (1,666) (1,491) Transfers from Earmarked Reserve 2,741 1,861 1,897 Balance at 31 March (31) (36) (231) Capital Receipts Reserve (Usable) This contains the proceeds of asset sales and can be used to finance new investment. 2013/ / /12 Balance at 1 April (6,700) (4,355) (2,372) Transfers to Earmarked Reserve (1,192) (2,345) (2,160) Transfers from Earmarked Reserve Balance at 31 March (7,577) (6,700) (4,355)

47 Multi Force Shared Service Development Fund Reserve (Earmarked) Under the initial agreement a development fund would be created as and when the Multi Force Shared Service expanded. This will be used to develop the services offered. 2013/ / /12 Balance at 1 April Transfers to Earmarked Reserve (30) - - Balance at 31 March (30) Notes to the Comprehensive Income and Expenditure Statement The Comprehensive Income and Expenditure Statement shows expenditure and income under the mandatory headings required by the CIPFA Service Reporting Code of Practice. To understand further the following table shows the type of expenditure and income incurred. Subjective Analysis of Expenditure 2013/ /13 Employees - Police Pay and Allowances 103, ,716 - Civilian Pay and Allowances 44,393 47,052 - Other Pay and Allowances 2,011 5,691 Premises 8,055 8,121 Transport 3,853 4,900 Supplies and Services 13,996 17,509 Third Party Payments 5,591 4,563 IAS19 Pension costs 6,089 (667) Depreciation and Amortisation of Assets 6,379 7,323 Movement in Accumulated Absences Reserve (1,441) 230 Total Service Expenditure 192, ,438 Service Income (see next table for analysis) (25,025) (27,767) Net Cost Of Service 167, ,671 Interest Payable and Similar Charges 3,286 3,387 Interest and Investment Income (105) (221) IAS 19 Pension Net Interest Cost 74,995 71,472 (Profit)/Loss on Disposal of Assets (125) 1,516 Net Operating Expenditure 245, ,825 Police Grant (68,420) (64,291) DCLG Funding (50,407) (51,588) Precept on Council Tax Collection Funds (52,037) (56,663) Movement On Collection Fund Debtors/Creditors (49) (14) PFI Grant Interest Element (2,489) (2,527) Capital Grants (1,621) (1,667) Capital Contributions - (63) Deficit /(Surplus) on Provision of Services 70,081 72,012 Page 47

48 Subjective Analysis of Service Income 2013/ /13 Fees & Charges 5,220 4,897 Sales Reimbursements - Casualty Reduction Partnership, Hypothecated Fines Central Services 1,772 1,136 - Regional Services - 5,947 - Private Finance Initiative Reimbursements Reimbursements - Asset Recovery Other Reimbursements Sub-total 8,667 13,474 Analysis of Grants - Private Finance Initiative (PFI) 4,740 4,702 - Community Support Officers - 4,465 - DCLG New Burden Grant Localisation of Council Tax Grant 6, Counter Terrorism 1,011 1,006 - Drugs Interventions Programme Community Safety Grant & Victims Commissioning 1, Other Grants 868 1,328 - Neighbourhood Policing Fund Discretionary Payments Sub-total Grants 14,067 11,992 Other Income - Mutual Aid External Agency Funding 2,124 2,177 Total Service Income 25,025 27,767 Within the Comprehensive Income and Expenditure Statement there are three summary lines which are explained in more detail within the next three tables. Other Operating Expenditure 2013/ /13 (Profit)/Loss on Sale of Fixed Assets (125) 1,516 Balance of provision returned to revenue account (43) - Home Office Top Up Grant Police Pensions (18,734) (15,261) Police & Crime Commissioner contribution to Pension Account 18,734 15,261 Total (168) 1,516 Page 48

49 Financing and Investment Income and Expenditure 2013/ /13 Interest and Investment Income (105) (221) Interest Payable and Similar Charges 3,286 3,387 Pension Net Interest 74,995 71,472 Total 78,176 74,638 Taxation and Non Specific Grant Income 2013/ /13 Police Grant (68,420) (64,291) DCLG Funding (50,407) (51,588) Precept on Council Tax Collection Funds (52,037) (56,663) Movement on Collection Fund Debtors/Creditors (49) (14) PFI Grant Interest Element (2,489) (2,527) Capital Grants (1,621) (1,667) Capital Contributions - (63) Total (175,023) (176,813) 11. Property, Plant & Equipment The following table shows the movement of assets classified as property, plant & equipment. 2013/14 Property Vehicles Equipment WIP Total Cost or Valuation At 1 April ,712 11,374 23, ,993 Additions 179 1,389 1,380-2,948 Revaluations (1,229) (1,229) Disposals (585) (760) (5) - (1,350) Reclassifications (219) (143) At 31 March ,858 12,079 25, ,219 Depreciation At 1 April 2013 (2,421) (8,942) (19,330) - (30,693) Prior Year Adjustments Charge in year (2,352) (731) (1,757) - (4,840) Disposals Revaluations 2, ,368 Reclassifications 0 (36) 0 - (36) At 31 March 2014 (2,397) (9,062) (21,082) - (32,541) Net Book Value at 1 April ,291 2,432 4, ,300 Net Book Value at 31 March ,461 3,017 4, ,678 Page 49

50 2012/13 Property Vehicles Equipment WIP Total Cost or Valuation At 1 April ,162 15,987 21,989 2, ,949 Additions 280 1,220 1,903-3,403 Revaluations (4,259) (4,259) Disposals (100) (5,833) - - (5,933) Reclassifications (371) - 15 (2,811) (3,167) At 31 March ,712 11,374 23, ,993 Depreciation At 1 April 2012 (2,392) (9,956) (16,844) - (29,192) Charge in year (2,410) (1,058) (2,486) - (5,954) Disposals - 2, ,072 Revaluations 2, ,366 Reclassifications At 31 March 2013 (2,421) (8,942) (19,330) - (30,693) Net Book Value at 1 April ,770 6,031 5,145 2,811 92,757 Net Book Value at 31 March ,291 2,432 4, ,300 In this financial year, the region has incurred 3.689m of capital expenditure on the purchase and refurbishment of a building to accommodate the Regional Crime Unit, the Regional Intelligence Unit and the Regional Asset Recovery Team. The cost of this asset has been fully funded by a 3.689m capital grant received from the Home Office. The premises have been purchased in the name of and are owned by the PCC for Merseyside and the full cost of this asset ( 3.689m) is reported as an asset under construction at the balance sheet date. The building became operational in May If the regional arrangements are ever terminated the Home Office has the option of recovering the 3.689m grant received to fund the building. If this option was not exercised, the sale proceeds would be divided between the participating Forces (Cheshire, Greater Manchester, Merseyside, Lancashire, Cumbria and North Wales). Cheshire Constabulary s share of this collaboration is 10.63%. Depreciation In line with IAS16, depreciation is defined as the systematic allocation of the depreciable amount of an asset over its useful life. Land and buildings are separable assets and are accounted for separately, even when they are acquired together. Land has an unlimited useful life and therefore is not depreciated. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. As stated in the accounting policies on page 35, depreciation is charged as follows: Land no depreciation applied Property (not land) straight-line allocation over 30 to 50 years Plant and Equipment straight-line allocation over 3 to 20 years Page 50

51 Significant commitments under capital contracts Group Statement of Accounts 2013/14 At 31 March 2014, there are no significant commitments under capital contracts. Similar commitments at 31 March 2013 were 0.770m. Revaluation Property (land and buildings) are revalued in detail every five years in accordance with the relevant standards and guidance issued by the Royal Institute of Chartered Surveyors. The last full valuation was carried out in 2010/11 with the next valuation due 2015/16. As part of the general review of property assets a desktop exercise was under taken by Graham J Cooke BSc (Hons) FRICS of Matthew & Goodman, Property Advisors, Manchester dated 31 March This showed there was a material change to the value of these assets since the valuation review last year resulting in a gain ( 1.142m) and this has been charged to the Comprehensive Income and Expenditure Statement. The value of assets has been amended on the balance sheet and the change reflected in the revaluation reserve. The desktop exercise predominately uses the depreciated replacement cost methodology which is a method of valuation that provides the current cost of replacing an asset with its modern equivalent asset less deductions for all physical deterioration and all relevant forms of obsolescence and optimisation, e.g. its wear and tear from usage. 12. Intangible Assets The Commissioner accounts for its software as intangible assets, to the extent that the software is not an integral part of a particular IT system and accounted for as part of the hardware item or property, plant and equipment. The intangible assets reflect the purchased software licences. All software is given a finite useful life, based on assessments of the period that the software is expected to be of use to the Commissioner. The useful lives generally assigned to the major software suites used by the Commissioner are: Non-police operational systems (e.g. finance system) 4 years Operational police systems (e.g. Airwave) 3 years The carrying amount of intangible assets is amortised on a straight line basis. The amortisation of 1.550m charged to revenue in 2013/14 was allocated to the IT department and then absorbed as an overhead across the service heading in the Net Expenditure of Services. Therefore, it is not possible to quantify exactly how much of the amortisation is attributable to each service heading. The movement on intangible assets during the year is as follows and includes the Multi-Force Shared Services Oracles licences and implementation costs in 2013/14: 2013/ /13 Carrying Amount Balance at start of year 13,156 6,025 Additions 609 4,336 Transfer from Work in Progress - 2,795 Disposals (21) - Balance at end of year 13,744 13,156 Page 51

52 Amortisation Balance at start of year (6,806) (5,475) Charge for the year (1,550) (1,331) Disposals 21 - Balance at end of year (8,335) (6,806) Net Book Value at 1 April , Net Book Value at 31 March ,409 6,350 The value of these intangible assets is based on cost less depreciation. Depreciation is calculated in accordance with the accounting polices set out in Note Financial Instruments (including Borrowing) The definition of a financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability, or equity instrument of another entity. The term financial instrument covers both financial assets and liabilities. These range from straight forward debtors and creditors to more complex investments and borrowings. The following categories of financial instruments are carried in the Balance Sheet, current is deemed to be under one year and long-term over one year. Long-term 31 March March March 2014 Current 31 March 2013 Investments Short-term Investments Total Investments Debtors Loans and receivables 2,651 2,849 19,047 15,886 Total Debtors 2,651 2,849 19,047 15,886 Borrowings Financial Liabilities 16,876 17, ,900 Total included in borrowings 16,878 17, ,900 Other Long-term Liabilities PFI & Finance Leases 23,939 24, Total other long term liabilities 23,939 24, Creditors Financial Liabilities ,897 14,241 Total Creditors ,897 14,241 Fair Values of Assets and Liabilities Financial liabilities, financial assets represented by loans and receivables and long-term debtors and creditors are carried in the Balance Sheet at amortised cost. Their fair value can be assessed by calculating the present value of the cash flows that will take place over their remaining life as follows: Page 52

53 Financial liabilities relate to the outstanding borrowing with the fair value being calculated by Capita Asset Services (the Commissioner s advisors). Capita use the Net Present Value (NPV) approach, which provides an estimate of the value of future payments in today s terms. The discount rate used in the NPV calculation is be equal to the current rate in relation to the same instrument from a comparable lender. This will be the rate applicable in the market on the date of valuation, for an instrument with the same duration i.e. equal to the outstanding period from valuation date to maturity. The structure and terms of the comparable instrument should be the same, although for complex structures it is sometimes difficult to obtain the rate for an instrument with identical features in an active market. In such cases, the prevailing rate of a similar instrument with a published market rate is used as the discount factor. The rates quoted in this valuation were obtained by Capita from the market on 30 March 2014, using bid prices where applicable. Assumptions: It is noted that the following assumptions do not have a material effect on the fair value of the instrument: Interest is calculated using the most common market convention Interest is not paid/received on the start date of an instrument, but is paid/received on the maturity date No adjustment made where a relevant date occurs on a non working day 31 March March 2013 Fair Carrying Value Amount Carrying Amount Fair Value Financial Liabilities 17,078 18,680 19,978 23,139 Long-term Creditors 25,437 25,437 25,824 25,824 42,515 44,117 45,802 48,963 Loans and Receivables 5,141 5,141 6,268 6,268 Long-term Debtors 2,652 2,652 2,849 2,849 7,793 7,793 9,117 9,117 The differences between carrying and fair value amounts are not material. No gains or losses have been recognised in the year. Short-term debtors and creditors are carried at cost as this is a fair approximation of their value. The Commissioner s activities in relation to financial instruments expose it to a variety of financial risks: Credit Risk the possibility that other parties might fail to pay amounts due to the Commissioner. Liquidity Risk the possibility that the Commissioner might not have funds available to meet its commitments and payments. Market Risk the possibility that financial loss might arise for the Commissioner as a result of changes in measures such as interest rates, foreign exchange rates or stock market movements. Page 53

54 The overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the resources available to fund police services. Risk management is carried out under policies approved by the Commissioner in the annual Treasury Management Strategy which was approved on 29/01/2014 and is published each year ( Meetings/2014/Agenda/ Agenda.pdf). The Strategy provides written principles for overall risk management as well as written policies covering specific areas such as interest rate risk, credit risk and the investment of surplus cash. Credit Risk Credit risk relates to deposits with banks and financial institutions as well as the Commissioner s debtors. This risk is minimised by treasury management that meets best practices, guidance and regulations. For example, with investments there are restrictions in both amounts and counterparties using recognised credit ratings. The credit criteria as set out in the 2013/14 Treasury Management Strategy in respect of financial assets held by the Commissioner are detailed below: Financial Asset Category Minimum Criteria Maximum Investment Deposits with major UK and non UK Banks and Building Societies Deposits with Money Market Funds Deposits with Other Local Authorities Deposits with Debt Management Agency Deposit Facility Long Term: A- Short Term: F1 Support: 1 Long Term: A- Short Term: F1 Support: 1 Not credit rated but are legally required to set a balanced budget. Not credit rated but deposits have the best possible credit through the HM Government guarantee. 10m per institution or group. 10m per fund. 10m per Local Authority. 10m total. In respect of debtors, action is taken when payments become overdue and may lead to legal action to recover the debt. The Commissioner provides for bad debts each year based on agreed debt management policy (non statutory debt only). The amount provided for in 2013/14 was 45,100 ( 86,000 in 2012/13). Invoiced Debt held by the Commissioner at the end of the financial year, analysed by age is as follows: 31 March March 2013 Current (0-30 days) 50 1,468 1 Month Months ,711 Overpayments (0) (0) Total 1,154 3,360 Page 54

55 Liquidity Risk Group Statement of Accounts 2013/14 Liquidity risk is that the Commissioner will be unable to meet his commitments and payments and this is mitigated in several ways. Firstly, by producing cashflow projections which allow for cash management including the repayment profile of borrowing, also by securing access to overdraft facilities and by utilising short-term borrowing through money markets if necessary. As such there is no significant risk that the Commissioner will be unable to raise finance to meet its commitments under financial instruments. Instead, the risk is that the Commissioner will be bound to replenish a significant proportion of its borrowings at a time of unfavourable interest rates. The Commissioner sets a limit on the proportion of its fixed rate borrowing during specified periods as set out in the Commissioner s Treasury Management Strategy prudential indicators. The following table shows the long-term borrowing outstanding at 31 March March March 2013 Analysis of loans by type Public Works Loans Board 10,878 11,078 Money Market 6,000 6,000 Total Outstanding 16,878 17,078 Analysis of loans by maturity Between 1 and 2 years Between 2 and 5 years Between 5 and 10 years 1,004 1,004 More than 10 years 15,774 15,774 Total Outstanding 16,878 17,078 Market Risk Interest Rates The Commissioner is exposed to risk in terms of movement in interest rates on its borrowings and investments. Movements in interest rates have a complex impact on the Commissioner. For instance, a rise in interest rates would have the following effects: Borrowing at variable rates the interest charged to the Comprehensive Income and Expenditure Statement will rise Borrowing at fixed rates the fair value of the borrowings will fall Investments at variable rates the income credited to the Comprehensive Income and Expenditure Statement will rise Investments at fixed rates the fair value of the investments will fall Borrowings are not carried at fair value so nominal gains and losses on fixed rate borrowings would not impact the Comprehensive Income and Expenditure Statement. However, changes in interest rates on variable borrowings and investments will have a direct impact on the Comprehensive Income and Expenditure Statement and affect the General Fund balance. The Commissioner takes into account interest rates as part of its investment strategy but recognises the need for security above return. Given the overall impact of the banking crisis of 2008, security has become an increasing area of risk and investments are only made with organisations that have Page 55

56 the highest credit rating and security. To ensure the maximum security, the current strategy favours short-term or instant access deposits. Interest rates on borrowing remained unchanged during 2013/14. Premiums and Discounts on Early Repayment of Debt The Commissioner did not make any early repayment of debt in 2013/14. Foreign Exchange Rates / Stock Markets The Commissioner has no material exposure to foreign exchange rates or stock market movements (price risk). 14. Stock The value of stocks held at 31 March 2014 is as follows: 31 March March March 2012 Distribution and Logistics Uniforms Other Items Total Analysis of Debtors (including Prepayments etc) Analysis of debtors and prepayments are shown below. 31 March March March 2012 Central Government Bodies 10,215 5,934 4,616 Other Local Authorities 7,945 5,188 5,156 NHS Bodies Public Corporations & Trading Boards Other entities and individuals 931 4,785 3,489 LESS: Provision for Bad Debts (45) (86) (26) Total 19,047 15,886 13, Cash and Cash Equivalents The balance of Cash and Cash Equivalents is made up of the following elements: 31 March March March 2012 Cash held Bank Current Accounts (740) (1,199) (4,340) Short-term deposits 19,158 10,136 15,993 Total 18,462 8,981 11,697 Page 56

57 In addition to the above, the Commissioner held 736k ( 709k 2012/13) of funds as follows: Police Property Act At the 31 March 2014, the Commissioner held 163k under the Police Property Act The Act applies to property that is in the possession of police where the owner of the property cannot be identified and where no order of a competent court has been made. The proceeds, after defraying the costs of handling the property, are available for distribution each year to local charities as directed by the Chief Constable. Proceeds of Crime Act At the 31 March 2014, the Commissioner held 573k under the Proceeds of Crime Act This is money seized in connection with possible criminal activity and held pending a decision, by the courts, on the lawful owner, or distribution if no legal owner is identified. These funds are not under the ownership of the Constabulary who acts as steward on behalf of various parties, and as such, does not form part of the Commissioner s accounts. 17. Assets Held for Sale The Commissioner s Estates Strategy is to review all property held and when advantageous to do so place surplus property for sale. The following table shows the property for sale at the Balance Sheet dates. When classified as for sale the asset is no longer subject to depreciation. 31 March March March 2012 Balance at the start of year ,494 Assets newly classified as held for sale Property, Plant & Equipment Other Assets Revaluations gains / (losses) Impairment losses (4) Assets sold (200) (0) (2,304) Balance at the end of year Analysis of Creditors Analysis of short-term creditors is shown below. 31 March March March 2012 Central Government Bodies (3,346) (4,237) (4,000) Other Local Authorities (3,108) (1,273) (2,810) NHS Bodies - (20) (4) Public Corporations & Trading Boards Other entities and individuals (9,443) (8,711) (6,834) Total (15,897) (14,241) (13,648) Page 57

58 19. Provisions The Commissioner has an insurance provision to meet the cost of known quantifiable liabilities arising from claims in respect of fire and consequential loss, public and employer liability and vehicle losses not covered by external insurance. When claims are settled the cost is met from the provision. Details of the provision are shown below. Insurance Provision 2013/ / /12 Balance at 1 April 1, Use of provision in the year (333) (493) (152) Charge to/(from) CI&E Statement Balance at 31 March 936 1, Due to the nature of the claims covered by the above provision, a clear projection of when the actual payments will be made is not available. However, based on past experience it is estimated that the current provision will be spent 0.1m within next financial year, 0.3m within 1-5 years and the remainder between 5 and 10 years. During 2011/12 a provision was created in respect of unresolved national negotiations regarding the implementation of a 250 per person one-off payment for staff earning less than 21,000 per annum. The reserve was cleared in 2013/14. Pay Provision 2013/ / /12 Balance at 1 April Use of provision in the year (43) Charge to/(from) CI&E Statement Balance at 31 March Usable Reserves Movement in the Commissioner s Usable Reserves are detailed in the Movement in Reserves Statement and Note Unusable Reserves The Commissioner also holds unusable reserves (technical accounting adjustment accounts reflecting the difference between the outcome of applying proper accounting practices and the statutory requirements for funding expenditure within the public sector). This note shows the movements in year. Revaluation Reserve (Unusable) The Revaluation Reserve contains the gains arising from increases in the value of Property, Plant and Equipment. The balance is reduced when assets with accumulated gains are: revalued downwards or impaired and the gains are lost; used in the provision of services and the gains are consumed through depreciation; or disposed of and the gains realised Page 58

59 The Reserve contains only revaluation gains accumulated since 1 April 2007, the date that the Reserve was created. Accumulated gains arising before that date are consolidated in the balance on the Capital Adjustment Account. 2013/ / /12 Balance at 1 April (8,454) (8,914) (10,250) Movement in year (2,375) 460 1,336 Balance at 31 March (10,829) (8,454) (8,914) Capital Adjustment Account (Unusable) The Capital Adjustment Account absorbs the timing differences arising from the different arrangements for accounting for the consumption of non-current assets and for financing the acquisition, construction or enhancement of those assets under statutory provisions. The Account is debited with the cost of acquisition, construction or enhancement and depreciation, impairment losses and amortisations are charged to the Comprehensive Income & Expenditure Statement (with reconciling postings from the Revaluation Reserve to convert fair value into historical cost). The Account is credited with the amounts set aside to finance the cost of acquisition, construction or enhancement. The Account also contains revaluation gains accumulated on Property, Plant & Equipment before 1 April 2007, and the date that the Revaluation Reserve was created to hold such gains. Note 30 provides details of the source of all the transactions posted to the Account apart from those involving the Revaluation Reserve. 2013/ / /12 Balance at 1 April (27,314) (30,310) (28,102) Depreciation & Amortisation 6,379 7,324 6,903 Revaluation losses and write down 1,374 1,446 1,065 Impact of disposals/sale of assets 749 3,861 1,426 Capital Financing see Note 30 (3,580) (7,772) (7,004) Minimum Revenue Provision/Debt Repayment (1,892) (1,863) (4,598) Balance at 31 March (24,284) (27,314) (30,310) IAS19 Pension Reserve (Unusable) The Pension Reserve absorbs the timing differences arising from the different arrangements for accounting for post-employment benefits and for funding those benefits in accordance with statutory provisions. Post-employment benefits are accounted for in the Comprehensive Income & Expenditure Statement as the benefits earned by employees accruing years of service, updating the liabilities recognised to reflect inflation, changing assumptions and investment returns on any resources set aside to meet the costs. Statutory arrangements however require benefits earned to be financed as the Commissioner makes employer s contributions to pension funds or eventually pays any pensions for which he is directly responsible. The debt balance on the Pension Reserve therefore shows a substantial shortfall in the benefits earned by past and current employees and the resources set aside to meet them. The statutory arrangements will ensure that funding will have been set aside by the time the benefits come to be paid. In the individual Accounts for the Commissioner and Chief Constable the balance of this reserve is split between usable and unusable reserves due to the Chief Constable being unable to utilise the statutory override available to local authorities. Page 59

60 2013/ / /12 Balance at 1 April 1,738,717 1,459,721 1,411,201 Movement in year (18,217) 278,996 48,520 Balance at 31 March 1,720,500 1,738,717 1,459,721 Collection Fund Adjustment Account (Unusable) The Collection Fund Adjustment Account is the difference between the precept income included in the accounts and the amount required by statute to be credited to the General Fund. The balance relates to the net creditor/debtor from billing authorities when accounting for collection fund balances on an accruals basis at the year end. 2013/ / /12 Balance at 1 April (218) (112) (19) Movement in year (615) (106) (93) Balance at 31 March (833) (218) (112) Accumulated Absences Reserve (Unusable) As part of working terms and conditions employees at any given time can hold entitlement to leave, time off in lieu or flexi leave for additional hours worked. This reserve shows the financial impact of such untaken leave at the balance sheet date. 2013/ / /12 Balance at 1 April 2,114 1,884 1,991 Movement in year (1,441) 230 (107) Balance at 31 March 673 2,114 1,884 Note: the decrease between 2012/13 and 2013/14 reflects the changes to time off in lieu and reduced staffing. 22. Notes to the Cashflow Statement The cashflow include the following items: Other Operating Expenditure 2013/ /13 Interest received (105) (221) Interest paid 3,286 3,387 Total 3,181 3,166 Investing Activities 2013/ /13 Purchase of Property, Plant & Equipment & Intangible Assets 2,072 7,772 Proceeds from sale of assets (728) (2,329) Total 1,344 5,443 Page 60

61 Financing Activities 2013/ /13 Cash receipts of short and long-term borrowing - - Cash payments for the reduction of outstanding liabilities relating to finance leases and on-balance sheet PFI contracts Repayment of short and long-term borrowing 2, Total 3,714 1, Amounts Reported for Decision-Making Purposes The analysis of income and expenditure shown in the Comprehensive Income & Expenditure Statement is that specified by the CIPFA Service Reporting Code of Practice. However, decisions about resource allocation are taken on the basis of budget reports analysed across various departments and Areas. These reports are prepared on a different basis from the accounting policies used in these financial statements. In particular: no charges are made for capital expenditure (whereas depreciation, revaluation & impairment losses in excess of the balance on the Revaluation Reserve & amortisations are charged to services in the Comprehensive Income & Expenditure Statement) the cost of retirement benefits is based on cashflows (payment of employer s contributions) rather than current service cost of benefits accrued in the year expenditure on some support services is budgeted for centrally and not charged directly to services The following table shows the details reported to the Commissioner on reconciled to the Comprehensive Income & Expenditure Statement. Page 61

62 Outturn Report 2013/14 reconciled to the Comprehensive Income and Expenditure Statement Service Analysis Police Officer Pay and Allowances Force Operations Directorate Collaborations Area Command Units Centrally Delivered Services Business Services Office of the Police & Crime Commissioner Commissioning Corporate Costs Total Fees, Charges & Other Service Income 0 (4,715) 0 (522) (187) (955) (5) 0 (105) (6,489) Government Grants (207) (5,126) 0 (1,689) (69) (4,082) 0 (1,424) (6,289) (18,886) Total Income (207) (9,841) 0 (2,211) (256) (5,037) (5) (1,424) (6,394) (25,375) Employee Expenses 95,747 20, ,246 3,558 12, , ,061 Other Operating Expenses 0 7,905 3,959 2,184 1,172 18, ,292 3,785 39,044 Total Operating Expenses 95,747 28,373 3,959 16,430 4,730 31, ,292 6, ,105 Cost of Services 95,540 18,532 3,959 14,219 4,474 26, (132) (58) 163,730 Reconciliation to Net Cost of Services in Comprehensive Income and Expenditure Statement Cost of Services in Service Analysis 163,730 Add: Services not included in the main analysis 0 Add: Amounts not reported to management (90,804) Less: Amounts reported to management and not included in Comprehensive Income & Expenditure Statement 2,845 (93,649) Deficit / (Surplus) on Provision of Services as shown in the Comprehensive Income and Expenditure Statement 70,081 Corporate Costs include debt management costs and interest on balances. The above adjustments are detailed on the following page. Page 62

63 Reconciliation to Subjective Analysis 2013/14 Reconciliation to Outturn Report Service Analysis Services not Included Amounts not Reported Not included in CI&E Total Fees, Charges & Other Service Income (6,489) 0 (497) 0 (6,986) Income from Council Tax 0 0 (52,085) 0 (52,085) Government Grants (18,886) 0 (120,498) 0 (139,384) Total Income (25,375) 0 (173,080) 0 (198,455) Employee Expenses 150,061 0 (2,965) 0 147,096 Movement in Accumulated Absences 0 0 (1,441) 0 (1,441) IAS19 Actuarial Pension Entries , ,084 Other Operating Expenses 37,169 0 (656) ,310 Depreciation and Amortisation 0 0 6, ,379 Minimum Revenue Provision & Capital Contributions ,642 (2,642) Gains and Losses on Disposal of Assets 0 0 (125) 0 (125) Transfers to/from Reserves Support Service Recharges 1, ,875 Total Operating Expenses 189, ,276 2, ,536 Deficit / (Surplus) on Provision of Services 163,730 0 (90,804) 2,845 70,081 Page 63

64 Outturn Report 2012/13 reconciled to the Comprehensive Income and Expenditure Statement Service Analysis Police Officer Pay & Allowances Neighbourhood Policing Specialist Policing Force Operations Collaborations Central Services Business Services Multi Force Shared Service Office of the Police & Crime Commissioner Corporate Costs Total Fees, Charges & Other Service Income 0 (705) (4,381) (3,602) (78) (1,470) (28) (1) (215) (10,480) Government Grants 0 (6,630) (5,888) (56) 0 (4,018) 0 (82) (27) (16,701) Total Income 0 (7,335) (10,269) (3,658) (78) (5,488) (28) (83) (242) (27,181) Employee Expenses 98,863 15,985 21,807 2,184 1,928 14, ,458 Other Operating Expenses 0 2,132 8,506 3,366 1,052 21, ,647 41,630 Total Operating Expenses 98,863 18,117 30,313 5,550 2,980 35, ,024 3, ,088 Cost of Services 98,863 10,782 20,044 1,892 2,902 30, , ,907 Reconciliation to Net Cost of Services in Comprehensive Income and Expenditure Statement Cost of Services in Service Analysis 169,907 Add: Services not included in the main analysis 0 Add: Amounts not reported to management (94,426) Less: Amounts reported to management and not included in Comprehensive Income & Expenditure Statement 3,469 (97,895) Deficit / (Surplus) on Provision of Services as shown in the Comprehensive Income and Expenditure Statement 72,012 The above adjustments are detailed on the following page. Page 64

65 Reconciliation to Subjective Analysis 2012/13 Reconciliation to Outturn Report Service Analysis Services not Included Amounts not Reported Not included in CI&E Total Fees, Charges & Other Service Income (10,480) 0 (341) 0 (10,821) Income from Council Tax 0 0 (56,783) 0 (56,783) Government Grants (16,701) 0 (117,610) 0 (134,311) Total Income (27,181) 0 (174,734) 0 (201,915) Employee Expenses 155, ,794 Movement in Accumulated Absences IAS19 Actuarial Pension Entries , ,805 Other Operating Expenses 41, ,453 Depreciation and Amortisation 0 0 7, ,324 Minimum Revenue Provision & Capital Contributions ,890 (3,890) Gains and Losses on Disposal of Assets 0 0 1, ,516 Transfers to/from Reserves (624) 624 Transfers to/from Provisions Total Operating Expenses 197, ,308 3, ,927 Deficit / (Surplus) on Provision of Services 169,907 0 (94,426) 3,469 72,012 1 Amended for the change to the IAS19 Employee Benefit Standard, see Note 35 Page 65

66 24. Partnerships & Collaborations Group Statement of Accounts 2013/14 The Commissioner worked with a number of partners during 2013/14. Agreements exist that define the role of each of the bodies involved. In all of these arrangements each party is responsible for their own liabilities and these cannot be passed or transferred to the other parties involved, they operate as jointly controlled operations in accordance with International Accounting Standard (IAS31). Underwater Search Unit The Underwater Search Unit (UWSU) serves the areas of Cheshire, Greater Manchester, Merseyside, Lancashire, Cumbria and North Wales and is staffed by police officers and one part time support staff from the six constituent police authorities with the overall expenditure being met by those authorities. For 2013/14 the Police and Crime Commissioner for Cheshire charged expenditure on the provision of police officers, police staff, equipment, vehicles and transport to the collaboration. This amounted to 0.3m ( 0.3m in 2012/13). The total cost of the UWSU collaboration was 1.0m and is apportioned based on each Commissioner s police grant allocation. Cheshire contribution amounted to 0.1m ( 0.1m in 2012/13). North West Motorway Policing Group The NWMPG serves the areas of Cheshire, Merseyside and Lancashire and Greater Manchester. It is currently staffed by Cheshire police officers and staff with the overall expenditure being met by the four constituent police forces. The staffing expenditure is apportioned based on specific agreement made in the Service Level Agreement. All other costs are apportioned based on the geographic share of the motorways being policed and the number of incidents occurring. For 2013/14 Cheshire charged expenditure of 1.0m ( 1.0m in 2012/13) to the collaboration. Cheshire s contribution amounted to 0.2m ( 0.2m 2012/13). National Police Air Service In 2009 a national review of how air support is delivered across England and Wales was conducted which recommended the formation of one single agency for the delivery of this service, the National Police Air Service (NPAS). NPAS and the delivery of aviation services to Police Bodies came into being from 29 th January The lead policing body for this collaboration is the Police and Crime Commissioner for West Yorkshire Police and they manage the service on behalf of all Forces in England and Wales and conduct most of the back office support. NPAS has 23 helicopters spread across 21 bases and consists of six regions, the South East, South West, London, Central, North East and North West. There is one Dispatch and Flight Monitoring Centre based at Bradford. For 2013/14 Cheshire charged expenditure of 0.4m ( 1.5m in 2012/13) to the collaboration. Cheshire s contribution is based on 500 flying hours costing 0.9m ( 1.1m in 2012/13). NW Regional Firearms Collaboration In April 2012, agreement was reached by the NW Region ACPO Group for the creation of a Regional Firearms Collaboration Unit to initially deliver in 3 key areas of business: 1. NW Firearms Policy and Compliance Unit (PCU), 2. NW Collaborative Firearms Training structure, 3. Fully interoperable soft border Armed Response Vehicle (ARV) capability. Page 66

67 In September 2012 the collaboration team (4 Police Officers and 1 Support Staff) commenced the work necessary to deliver the regional firearms function. The NPIA have been involved since the inception of this project. The collaboration commenced its work from a position whereby all 6 partner forces currently hold full NPIA Firearms Training Licences. The intention, in line with other regional firearms collaborations, is to move towards a single licence. In April 2013 the College of Policing (CoP) formerly NPIA - granted the NW region an interim Firearms Licence, which over time, pending the successful completion of an agreed development plan, will be superseded by a full Firearms Licence. The Firearms Collaboration continues to develop in the 3 key areas described. In addition regional agreement has been reached to develop operational firearms policies and procedures to deliver a more collaborative structure on the operational side of the business. All this work is aimed to deliver far closer working relationships between the 6 NW region forces along with the financial benefits that collaboration brings in terms of resources. For 2013/14, the Police and Crime Commissioner for Cheshire charged 0.2m ( 0.1m in 12/13) to the collaboration for the provision of police officers, police staff and expenses. The total cost of the Regional Firearms Training and Policy Collaboration was 0.3m ( 0.2m in 12/13) and is apportioned based on each Commissioner s police grant allocation. Cheshire contribution amounted to 0.03m. TITAN TITAN consists of the Regional Crime Unit (RCU), Regional Intelligence Unit (RIU) and the Regional Asset Recovery Team (RART), Cyber Crime (New February 2014), and Protective Persons Unit (New October 2013). The combined Unit serves the areas of Cheshire, Greater Manchester, Merseyside, Lancashire, Cumbria and North Wales. It is staffed by police officers and support staff from the six constituent forces with the overall expenditure being met by those authorities. The RART ( 1.1m) and Cyber Crime ( 0.3m) elements of TITAN are wholly Home Office funded and the RIU is partly funded by HO Grant ( 0.6m) the remaining costs of TITAN are apportioned based on each Commissioner s police grant allocation. There has also been a Capital Grant of 2.3m to purchase new accommodation coupled with a transfer of 1.5m of revenue to capital to assist with the refurbishment resulting in a total capital spend of 3.8m. Merseyside are the lead force and manage both the revenue and capital grants for TITAN and therefore there is no capital cost to Cheshire or the other four forces in this collaboration. For 2013/14 the total revenue cost of TITAN was 7.1m ( 6.1m in 12/13), however after reducing this by Home Office funding of 1.9m ( 1.6m in 12/13), the net cost of the collaboration was 5.2m ( 4.5m in 12/13). Cheshire s contribution amounted to 0.6m. Cheshire Road Safety Group The Cheshire Road Safety Group which commenced in April 2011 succeeds the former Cheshire Safer Roads Partnership. Financially contributing parties are Cheshire East Borough Council, Cheshire West and Chester Borough Council, Warrington Borough Council and the Police and Crime Commissioner for Cheshire. Non-financially contributing parties are Cheshire Fire and Rescue Service and Halton Borough Council. The aim of the partnership is to reduce the number of people seriously injured or killed on the roads through the operation and maintenance of speed and red light safety cameras on roads with a history of vehicle collisions. The Commissioner provides accommodation and management of the resources and staff of the partnership, employing all but one member of staff. In 2013/14 costs of 0.44m ( 0.42m 2012/13) were incurred which were fully reimbursed by the partnership. Page 67

68 North West Strategic Roads Automatic Number plate Recognition This collaboration commenced in April 2011 with collaborative forces of Greater Manchester, Lancashire, Merseyside and Cumbria. North Wales joined the collaboration in January The collaboration has strong links to the North West Motorway Policing Group as Automatic Number Plate Recognition (ANPR) is identified as an effective method of providing protective services across the region s strategic road network. Funding bids to ACPO TAM and the NPIA secured funding amounting to 1.8m which has enabled the ANPR infrastructure to be built over the last 3 years. The total cost of the collaboration in 2013/14 was 0.06m ( 0.07m 2012/13) with Cheshire s share of costs amounting to 0.01m ( 0.01m 2012/13). Multi-Force Shared Services (MFSS) This collaboration commenced in April 2012 between Northamptonshire and Cheshire Constabularies. The areas of business include Human Resources, Accounts and Purchasing, Payroll, and Service Delivery. The costs are based on head count and charged out on a 60:40 split with Cheshire paying the higher percentage. This apportionment (as used in the project phase) was agreed at the MFSS Board for all technology and MFSS Costs. The costs of the accommodation was agreed to be paid by Cheshire for 12/13 and 13/14 but 14/15 onwards will be shared on the 60:40 split. It was agreed to create a MFSS development earmarked reserve which Cheshire would hold on behalf of the collaboration. The reserve balance for 13/14 is 0.06m realised from Intellectual Property Rights income. For 2013/14 the total cost of MFSS was 3.4m ( 4.9m 2012/13) with Cheshire s share of costs amounting to 2.1m ( 2.9m 2012/13). Overall Financial Details The following table shows the overall expenditure incurred by Cheshire Constabulary in relation to the above collaborations and partnerships alongside the actual contribution amount applicable to Cheshire Constabulary. The difference between the two is funded by income from the other partner organisations. 2013/14 Cheshire s Expenditure Cheshire s Contribution Underwater Search Unit North West Motorway Policing Group 1, National Police Aviation Service North West Regional Firearms Collaboration TITAN Regional Crime Unit Regional Intelligence Unit Regional Asset Recovery Team Cyber Crime 10 0 Protective Persons Unit Cheshire Road Safety Group North West Strategic Roads ANPR Multi-Force Shared Services 3,400 2,100 Page 68

69 25. Members Allowances & Expenses The Police Authority was abolished on 21 November For 2013/14 the amounts shown below relate to the Audit Committee Members only. Actual 2013/14 Actual 2012/13 Basic Allowances 3 45 Special Responsibility Allowances 0 70 Expenses 1 10 Total Officer Remuneration The Commissioner is required to detail the remuneration received by senior officers of the Constabulary and Commissioner which are shown in the following tables. The regulations require detailed disclosure for officers who comprise the Strategic Management Team of the Constabulary whose total remuneration excluding the employer s pension contribution exceeds 50,000. The following definitions apply: Salary including fees and allowances: the amount received under a contract of employment, including any allowances such as housing allowance before the deduction of employees pension contributions, but excluding payments such as bonuses and benefits in kind. The figures shown separately in the Pensions Contributions column refer to the employer s pension contributions. Bonuses: payments made under Police Reform Pay and Conditions Agreement 2002 & 2004 and payments for exceptional work. Benefits in kind: the estimated value of benefits received other than in cash, for example, use of a fleet vehicle. Compensation for loss of office: includes payments made to or receivable by the person as a result of their termination of employment such as voluntary/compulsory redundancy, voluntary early retirement, pay in lieu of notice, accrued salary or holiday pay etc. The number of employees whose remuneration, excluding employer's pension contribution and including compensation for loss of office, exceeding 50,000 or more in bands of 5,000 (including those shown on the next table Senior Officers and Relevant Police Officers emoluments) is set out below: Page 69

70 Remuneration band Number of Employees 2013/ / /12 50,000-54, ,000-59, ,000-64, ,000-69, ,000-74, ,000-79, ,000-84, ,000-89, ,000-94, ,000-99, , , , , , , , , , , , , , , , , , , , , , , , , , , Total Page 70

71 Senior Officers and Relevant Police Officers emoluments > 150, /14 Salary Inc Compensation Total Remuneration excl. Pension Total Remuneration incl. Pension Post title Fees & Allowances Bonuses Benefits in Kind for loss of office Contributions 2013/14 Pension Contributions contributions 2013/14 Chief Constable - D Whatton 146, , ,684 14, ,712 Senior Officers and Relevant Police Officers emoluments exceeding 50,000 to 150, /14 Salary Inc Fees & Allowances Police Reform Bonuses Benefits in Kind Compensation for loss of office Total Remuneration excl. Pension Contributions 2012/13 Pension Contributions Total Remuneration incl. Pension contributions 2012/13 Post title Deputy Chief Constable 119, , ,012 27, ,949 Assistant Chief Constable 103, , ,720 24, ,012 Assistant Chief Constable 104, , ,157 22, ,978 Assistant Chief Officer 104, ,875 15, ,501 Chief Executive 1 96, ,759 98,971 14, ,307 Chief Superintendent 82,530 2, ,645 19, ,786 Chief Superintendent 82, ,530 19, ,671 Chief Superintendent 78,673 2, ,788 18,623 99,411 Chief Superintendent 80, ,391 18,623 99,014 Chief Superintendent 74, ,891 18,124 93,015 Chief Superintendent 90, , ,503 Chief Superintendent 69, ,512 15,903 85,415 Chief Superintendent 2 41, ,101 9,531 50,632 Director of Finance & Procurement 77, ,849 11,599 89,448 Police and Crime Commissioner 75, ,176 11,175 86,351 Head of Multi-Force Shared Service 62, ,828 8,878 71,706 Chief Finance Officer, OPCC (0.5 FTE part time) 39, ,783 5,928 45,711 Director of Performance Development 3 19, , ,812 2, ,759 Note: 1 Chief Executive salary SM9 91,032, currently on pay protection; Chief Superintendent retired Sept 13; Director of Performance Development left June 13. Page 71

72 Senior Officers and Relevant Police Officers emoluments > 150, /13 Salary Inc Total Remuneration Total Remuneration Post title Fees & Allowances Bonuses Benefits in Kind excl. Pension Contributions 2012/13 Pension Contributions incl. Pension contributions 2012/13 Chief Constable - D Whatton 145, , ,153 33, ,820 Senior Officers and Relevant Police Officers emoluments exceeding 50,000 to 150, /13 Salary Inc Fees & Allowances Benefits in Kind Total Remuneration excl. Pension Contributions 2012/13 Pension Contributions Total Remuneration incl. Pension contributions 2012/13 Bonuses Post title Deputy Chief Constable 118, , ,999 27, ,696 Police and Crime Commissioner 26, ,875 6,504 33,379 Assistant Chief Constable 101, , ,123 23, ,029 Assistant Chief Constable 92, ,232 96,724 17, ,957 Chief Executive 6 96, , ,761 14, ,097 Assistant Chief Officer 1a 79, ,102 11,786 90,888 Assistant Chief Officer 1 18, ,920 2,718 21,638 Director of Corporate Services 79, ,506 82,611 11,787 94,398 Chief Finance Officer, OPCC (part time) 39, ,552 5,893 45,445 Director of Finance & Procurement 75, ,735 11,285 87,020 Chief Superintendent 86,889 6, ,329 7, ,303 Chief Superintendent 90, ,045 6,523 96,568 Chief Superintendent 85,712 3, ,644 19, ,555 Chief Superintendent 81,769 5, ,451 18, ,408 Chief Superintendent 87, ,108 18, ,678 Chief Superintendent 82, ,139 14,509 96,648 Chief Superintendent 2 80, ,530 18,657 99,187 Chief Superintendent 3 72,585 3, ,214 17,566 93,780 Chief Superintendent 4 75, ,938 17,961 93,899 Chief Superintendent 5 46,197 5, ,879 5,543 57,422 1 Assistant Chief Officer left March a part year only, 2 Promoted to Substantive Chief Supt in Oct 2012, 3 Acting Chief Supt from March 13th 2013, 4 Promoted to Chief Supt in Nov 2012, 5 Chief Supt transferred to another Police Force 6 relates to a specific tax liability for the individual on a ceased benefit Page 72

73 The number of termination benefits with total cost per band and total cost of the compulsory and other redundancies are set out in the table below: Exit package cost band (including special payments) Number of compulsory redundancies Number of other agreed departures Total number of exit packages by cost band Total cost of exit packages in each band 2013/ / / / / / / /13 nil - 20, , ,115 20,001-50, , ,849 50, , , ,670 Total ,052 1,068,634 Further information on the above is included in Note 35. Page 73

74 27. External Audit Fees In 2013/14 Grant Thornton LLP, the external auditors received the following fees. Fees payable to the Grant Thornton LLP with regard to external audit services carried out by the appointed Auditor 2013/ / The Audit Commission provided a fee rebate of 7,983 relating to 2012/ Grant Income The Commissioner credited the following grants, contributions and donations to the Comprehensive Income and Expenditure Statement in 2013/14. Credited to Taxation & Non-Specific Grant Income 2013/ /13 Police Grant (Home Office) 68,420 64,291 DCLG Funding 50,407 51,588 PFI Grant Interest Element 2,489 2,527 Capital Grants General Capital Grant (Home Office) 1,495 1,667 Total 122, ,073 Credited to Other Operating Expenditure Police Pension Grant (Home Office) 16,441 14,604 Total 16,441 14,604 Credited to Services Council Tax Freeze Grant 0 27 Local Council Tax Freeze Grant 6,289 0 Private Finance Initiative 4,740 4,702 Community Support Officers 0 4,465 Neighbourhood Policing Fund Discretionary Payments Olympics Counter Terrorism 1,011 1,009 Community Safety & Commissioning 1,159 0 Other Grants Total 13,719 11,724 The Commissioner has received a number of grants, contributions and donations that have yet to be recognised as income as they have conditions attached to them that will require the monies or property to be returned to the giver. The balances at the year-end are as follows: Grants Received in Advance (Revenue Grants) 2013/ /13 ANPR Phase 1&2 (185) (223) Early Adopters - (38) Total (185) (261) Page 74

75 29. Related Parties The Commissioner is required to disclose material transactions with related parties (i.e. bodies or individuals that have the potential to control or influence the Commissioner or be controlled or influenced by the Commissioner). Disclosure of these transactions allows readers to assess the extent to which the Commissioner might have been constrained in his ability to operate independently or might have secured the ability to limit another party s ability to bargain freely with the Commissioner. Central Government Central Government has effective control over the general operations of the Commissioner it is responsible for providing the statutory framework within which the Commissioner operates, provides the majority of the Commissioner s funding in the form of grants and prescribes the terms of many of the transactions that the Commissioner has with other parties (e.g. council tax bills). Grants received from Government departments are set out in Note 28. The Police Reform & Social Responsibility Act 2011 The above Act created two new corporations sole, the Police & Crime Commissioner for Cheshire and the Chief Constable for Cheshire. Each organisation is required to produce a Statement of Accounts which is subject to external audit under the Audit Commission Act The Chief Constable for Cheshire is a wholly owned subsidiary of the Commissioner for Cheshire. Office of the Police & Crime Commissioner Since November 2012 the Office of the Police and Crime Commissioner has maintained a Register of Interests for the Commissioner and Deputy Commissioner and members of the Audit Committee. It has also maintained a Register of Business Interests covering the staff employed therein. Officers and Staff The Constabulary maintains a Register of the Business Interests of Officers and Staff. These registers of business interests were compared to a full supplier listing for 2013/14 and in the Chief Finance Officer s opinion there are no material transactions recorded between the Office of the Police & Crime Commissioner or the Constabulary and any related parties. Other Public Bodies (subject to common control by Central Government) Since the creation of the Multi-Force Shared Service on 1 April 2012, there have been significant transactions with Northamptonshire Police as the partner force. The governance arrangements assure transparency over these transactions and are recorded in the Comprehensive Income & Expenditure Statement or as assets and contributions in the Balance Sheet. Material transactions with other public bodies such as the Borough Councils and the Cheshire Pension Fund have been disclosed within the Comprehensive Income and Expenditure Account and the Cashflow Statement. Separate specific disclosures have also been made in relation to partnerships and collaborations in Note 24. There are no other related party transactions to report. Page 75

76 30. Capital Expenditure & Financing The total amount of capital expenditure incurred in the year is shown in the table below including the value of assets acquired under finance leases and PFI contracts, together with the resources that have been used to finance it. Where capital expenditure is to be financed in future years by charges to revenue as assets are used, the expenditure results in an increase in the capital financing requirement (CFR), a measure of the capital expenditure incurred historically that has yet to be financed. The Capital Financing Requirement is analysed in the second part of this note. 2013/ /13 Opening capital financing requirement 52,227 54,084 Capital Expenditure in year: Property Plant (e.g. vehicles) 1,415 1,220 Equipment 1,354 1,903 Intangibles 609 4,336 3,541 7,772 Less: Capital Financing: Capital Grants 1,620 1,671 Borrowing - - Capital Receipts 98 - Contribution from reserves 1,639 3,680 Revenue and Other contributions 183 2,421 Revenue Provision for Repayment of Debt 1,892 1,857 Early Repayment of Debt - - 5,432 9,629 Closing capital financing requirement 50,336 52,227 Explanation of movement in year Decrease in underlying need to borrow (supported by Government direct funding) Decrease in underlying need to borrow (not supported by Government direct funding) 2013/ /13 (203) (392) (1,689) (1,465) Decrease in Capital Financing Requirement (1,892) (1,857) Page 76

77 31. Leases: Finance and Operating Finance Leases The Commissioner accounts for two finance leases, the Private Finance Initiative (PFI) scheme at Headquarters and Charles Stewart House an operational building located in Warrington. The lease for Charles Stewart House expires in 2021/22. Details of the PFI Scheme are shown in Note 32. Charles Stewart House is accounted for as part of the Commissioner s property, plant and equipment and is contractually subject to a full revaluation on a five year cycle. The last revaluation was in December 2011 with the next due in December The rentals payable in 2013/14 were 356,619 (2012/13 355,608). The fair value at 31 March 2014 is 0.8m (2012/13 1.1m) Outstanding obligations to make payments under these finance leases at 31 March 2014 accounted for as part of long term liabilities are as follows: Property Not later than one year 203 Later than one year, not later than five years 813 Later than five years 406 Total 1,422 IAS 17 requires the minimum lease payments to be reported. The following table shows the minimum lease payments relating to Charles Stewart House and PFI. 2013/ /13 Not later than one year 3,490 3,490 Later than one year, not later than five years 13,950 13,950 Later than five years 46,594 50,084 Total 64,034 67,524 Operating Leases The Commissioner rents properties and equipment, mostly on short term leases, which are accounted for as operating leases. The rentals payable in 2013/14 and 2012/13 were 156,802 and 189,219 respectively. The Commissioner was committed at 31 March 2014 to making payments of 108,293 under operating leases as follows: Property Equipment Total Not later than one year 13, ,000 Later than one year, not later than five years 78, ,538 Later than five years 6,589 10,166 16,755 Total 98,127 10, ,293 Page 77

78 32. Private Finance Initiative Group Statement of Accounts 2013/14 In 2002 the former Authority entered into a long term contractual agreement under a Private Finance Initiative (PFI) for its headquarters facilities. Under the agreement the contractor is responsible for providing the buildings and facilities at Headquarters in Winsford for a period of 30 years. The annual unitary charge is 5.2m and is subject to annual increases using indexation data agreed within the contract. The services provided under the contract are subject to periodic market testing. The contract provides the Commissioner with fully serviced headquarters accommodation throughout the contract period. These services include building & grounds maintenance, security, receptions, cleaning and catering. At the end of the 30 year contract the Commissioner has the right to purchase the Headquarters for a nominal sum. The contract transfers much of the operational risk to our private sector partner (Cheshire SPV Ltd.) supported by an agreed performance regime. The Commissioner retains the demand risk whereby the Commissioner will be required to make payments for the facilities irrespective of the number of staff working from the site. Assets The land and buildings at Headquarters, together with the associated equipment are included in property, plant and equipment shown on the Balance Sheet and Note 11. The costs, depreciation and valuations undertaken during 2013/14 are detailed below: Land Property Equipment Total Gross Book Value on 1 April ,150 27, ,553 Revaluations Gross Book Value on 31 March ,150 27, Depreciation on 1 April (643) (205) (848) Charge for the year - (671) (24) (695) Revaluation Depreciation on 31 March (671) (229) (900) Net Book Value on 1 April ,150 26, ,706 Net Book Value on 31 March ,150 26, ,153 Liabilities At the start of the PFI contract the former Authority s liability was equal to the cost of the assets now recognised on the Balance Sheet. This was initially reduced by the Commissioner making a prepayment of 6.49m and further reduced each year by the element of the unitary payment attributable to the capital expenditure. This is shown in the accounts under the Minimum Revenue Provision and for 2013/14 equated to 0.609m. The current liability at 31 March 2013 is 23.3m. PFI Liability 31 March March March 2012 Balance at 1 April 23,938 24,500 25,026 Movement in year (609) (562) (526) Balance at 31 March 23,329 23,938 24,500 Page 78

79 Payments due As stated above the Commissioner has an obligation to make the annual payments for this contract until it ends in Details of the profiling of these payments split into their constituent parts are shown below and are based on the contractual figures before market testing and indexation: Analysis of payments due within: Service Charges Finance Charges Reduction to Liability Total 1 year 1,866 2, ,017 2 to 5 years 7,469 9,363 3,229 20,061 6 to 10 years 9,340 9,936 5,798 25, to 15 years 9,334 7,080 8,612 25, to 20 years 8,557 9,322 5,031 22, to 25 years Total due 36,566 38,192 23,330 98, Impairment Losses An impairment review was undertaken by the Commissioner s Estates Department. The outcome of the review showed no impairments during 2013/ Capitalisation of Borrowing Costs In line with the accounting policies, borrowing costs can be capitalised. During 2013/14 no additional borrowing was undertaken and therefore, no costs incurred. 35. Employee Benefits Termination Benefits The Commissioner terminated the contracts of a number of employees in 2013/14 incurring liabilities of 0.8m ( 1.1m In 2012/13). 30 employees were made redundant, took voluntary severance or early retirement as part of the Commissioner's rationalisation of the service to maintain services and meet financial constraints. There are more redundancies expected to be made in 2014/15 as part of the continuing rationalisation of the service, but it is not possible to quantify numbers and costs at this time. Participation in Pensions Schemes As part of the terms and conditions of employment of his officers and staff, the Commissioner offers retirement benefits. Although these benefits will not actually be payable until employees retire, the Commissioner has a commitment to make the payments (for those benefits) and to disclose them at the time when employees earn their future entitlement. The Commissioner participates in two pension schemes: Page 79

80 The Police Pension Scheme for police officers is an unfunded, technically defined benefit scheme, meaning there are no investment assets built up to meet the pension liabilities and cash has to be generated to meet actual pension payments as they eventually fall due. Under the Police Pension Fund Regulations 2007, if the amounts receivable by the pensions fund for the year are less than amounts payable, the Commissioner must transfer annually an amount required to meet the deficit to the pension fund. Subject to parliamentary scrutiny and approval, up to 100% of this cost is met by central government pension top-up grant. If however the pension fund is in surplus for the year, this must be repaid to central government. Details of this scheme are shown in the Pension Account on page 21. The Local Government Pension Scheme (LGPS) for Police Staff is administered by Cheshire West and Chester Council. This is a funded defined benefit scheme, meaning that the scheme s liabilities are backed by investment assets. The Commissioner and its employees pay contributions into the fund, calculated at a level intended to balance the pension liabilities with investment assets. Transactions relating to retirement benefits The Commissioner recognises the cost of retirement benefits in the Net Cost of Services when they are earned by employees, rather than when the benefits are eventually paid as pensions. However the charge made against council tax is based on the cash payable in the year, so the real cost of retirement benefits is reversed out of the General Fund via the Movement in Reserves Statement. The transactions on the next few pages have been charged to the Comprehensive Income & Expenditure Statement and General Fund Balance via the Movement in Reserves Statement during the year. Page 80

81 Comprehensive Income & Expenditure Statement Cost of Services: Local Government Pension Scheme Police Pension Scheme (old) Police Pension Scheme (new) Police Injury Awards Scheme TOTAL 2013/ / / / / / / / / /13 Current Service Costs (8,261) (6,603) (34,050) (28,630) (5,630) (3,130) (1,030) (890) (48,971) (39,253) Past Service Costs (169) (123) (30) 0 (199) (123) Settlements & Curtailments Financing and Investment Income & Expenditure: Net Interest Expense (2,165) (1,432) (68,330) (66,210) (1,650) (1,050) (2,850) (2,780) (74,995) (71,472) Total Post Employment Benefit Charged to the Surplus or Deficit on the Provision of Services Other Post Employment Benefit Charged to the Comprehensive Income & Expenditure Statement Return on plan assets (not included in net interest expense) Actuarial Gains and Losses arising from changes in demographic assumptions Actuarial Gains and Losses arising from changes in financial assumptions Total Post Employment Benefit Charged to the Comprehensive Income & Expenditure Statement (10,595) (8,158) (102,380) (94,840) (7,280) (4,180) (3,910) (3,670) (124,165) (110,848) 1,281 11, ,281 11,229 3, ,670 33,800 1,100 (3,660) 2, ,878 30,950 18,072 (26,305) 48,680 (210,550) 3,350 (6,560) 1,580 (7,110) 71,682 (250,525) (6,540) (6,540) 155 Page 81

82 Movement in Reserves Statement Reversal of net charges made to the Surplus and Deficit for the Provision of Services for post employment benefits in accordance with the Code Actual expenditure met from council tax through the General Fund Employer s contributions payable to the scheme Retirement benefits payable to pensioners Local Government Pension Scheme Police Pension Scheme (old) Police Pension Scheme (new) Police Injury Awards Scheme TOTAL 2013/ / / / / / / / / /13 10,595 8, ,380 94,840 7,280 4,180 3,910 3, , ,848 5,301 5,913 15,163 15,812 2,612 2, ,076 24,303 3,877 3,414 46,310 42, , ,417 46,274 Pension Assets and Liabilities Recognised in the Balance Sheet Present value of defined benefit obligation Local Government Pension Scheme Police Pension Scheme (old) Police Pension Scheme (new) Police Injury Awards Scheme TOTAL 2013/ / / / / / / / / /13 (196,513) (195,798) (1,580,920) (1,590,990) (39,160) (34,780) (64,800) (66,350) (1,881,393) (1,887,918) Fair value of plan assets 160, , , ,202 Sub-total (35,619) (46,596) (1,580,920) (1,590,990) (39,160) (34,780) (64,800) (66,350) (1,720,499) (1,738,716) Other movements in the liability Net liability arising from defined benefit obligation (35,619) (46,596) (1,580,920) (1,590,990) (39,160) (34,780) (64,800) (66,350) (1,720,499) (1,738,716) Page 82

83 Reconciliation of the movements in the fair value of scheme (plan) assets Local Government Pension Scheme 2013/ /13 Opening fair value of scheme assets 149, ,995 Interest income 6,790 6,209 Re-measurement gain/(loss) The return on plan assets, excluding the amount included in the net interest expense 1,281 11,229 Other 0 0 The effect of changes in foreign exchange rates 0 0 Contributions from employer 5,301 5,913 Contributions from employees 2,197 2,270 Benefits paid (3,877) (3,414) Other 0 0 Closing fair value of scheme assets 160, ,202 Page 83

84 Reconciliation of present value of scheme liabilities Funded liabilities Local Government Pension Scheme Police Pension Scheme (old) Unfunded liabilities Police Pension Scheme (new) Police Injury Awards Scheme 2013/ / / / / / / / / /13 Opening balance at 1 April (195,798) (156,425) (1,590,990) (1,354,290) (34,780) (19,320) (66,350) (56,380) (1,887,918) (1,586,415) Current service cost (8,261) (6,603) (34,050) (28,540) (5,630) (3,130) (1,030) (890) (48,971) (39,163) Interest cost (8,955) (7,641) (68,330) (66,210) (1,650) (1,050) (2,850) (2,780) (81,785) (77,681) Contribution from scheme participants (2,197) (2,270) (8,210) (7,790) (1,550) (1,330) 0 0 (11,957) (11,390) Re-measurement gains/(losses) 0 Actuarial gains/losses arising from changes in demographic 3, ,670 33,800 1,100 (3,660) 2, ,878 30,950 assumptions Actuarial gains/losses arising from changes in financial 18,072 (26,305) 48,680 (210,550) 3,350 (6,560) 1,580 (7,110) 71,682 (250,525) assumptions Other (6,540) (6,540) 155 Past service costs (169) (123) (30) 0 (199) (123) Losses/(gains) on curtailment Liabilities assumed on entity combinations Benefits paid 3,877 3,414 46,310 42, , ,417 46,274 Liabilities extinguished on settlements Closing balance at 31 March (196,513) (195,798) (1,580,920) (1,590,990) (39,160) (34,780) (64,800) (66,350) (1,881,393) (1,887,918) TOTAL Page 84

85 Local Government Pensions Scheme assets comprised: Fair value of scheme assets a 2013/ /13 Cash and cash equivalents Equity instruments: by industry type Consumer 21,174 18,861 Manufacturing 7,350 7,648 Energy and utilities 4,408 3,364 Financial institutions 8,058 5,863 Health and care 1,960 1,960 Information technology 6,285 4,935 Other 4,970 4,948 Sub-total equity 54,205 47,579 Bonds: by sector Corporate 0 0 Government 0 0 Other 9,587 8,595 Sub-total bonds 9,587 8,595 Property: by type United Kingdom 10,152 8,694 Overseas Sub-total property 10,706 9,295 Private equity: All 8,748 9,459 Sub-total private equity 8,748 9,459 Other investment funds: Equities 26,340 31,566 Bonds 28,090 20,763 Hedge Funds 22,582 21,273 Sub-total other investment funds 77,012 73,603 Derivatives: All 0 0 Total Assets 160, ,202 Basis for Estimating Assets and Liabilities Liabilities have been assessed on an actuarial basis using the projected unit credit method, an estimate of the pensions that will be payable in future years dependent on assumptions about mortality rates, salary levels etc. Page 85

86 Statement of Accounts 2013/14 The Police Pension Scheme has been assessed by the Government Actuary s Department and the Cheshire Pension Fund liabilities has been assessed by Hymans Robertson and Co, an independent firm of actuaries, estimates for the Cheshire Pension Fund being based on the latest full valuation of the scheme as at 31 March The principal assumptions used in their calculations have been as follows: Mortality assumptions: Page 86 Local Government Pension Scheme 2013/14 % 2012/13 % Police Pension Schemes 2013/14 % 2012/13 % Longevity at 65 (police), 65 (LGPS) for current pensioners: Men Women Longevity at 65 (police), 65 (LGPS) for future pensioners: Men Women Other assumptions: Rate of Inflation RPI / CPI 3.6 / / / / 2.5 Rate of increase in salaries (0.1) (0.4) Rate of increase in pensions Percentage of employees opting to convert annual pension to retirement lump sum: Pre April 2008 Service Post April 2008 Service Rate for discounting scheme liabilities The estimation of the defined benefit obligations is sensitive to the actuarial assumptions set out in the table above. The sensitivity analyses below have been determined based on reasonably possible changes of the assumptions occurring at the end of the reporting period and assumes for each change that the assumption analysed changes while all the assumptions remain constant. The assumptions in longevity, for example, assume that life expectancy increases or decreases for men and women. In practice, this is unlikely to occur and changes in some assumptions may be interrelated. The estimations in the sensitivity analysis have followed the accounting policies for the scheme i.e. on an actuarial basis using the projected unit credit method. The methods and types of assumptions used in preparing the sensitivity analysis below did not change from those used in the previous period. The estimation of the defined benefit obligations is sensitive to the actuarial assumptions set out in the table above. The sensitivity analysis below shows the potential impact should the above assumptions change. Local Govt Pension Scheme Police Pension Scheme (old) Police Pension Scheme (new) % % % 0.5% decrease in Real Discount Rate 12 24, , ,800 1 year increase in life expectancy 3 5, , % increase in salary increase 5 9, , , % increase in pension increase 7 14, , ,500

87 Impact on the Commissioner s cashflow Statement of Accounts 2013/14 The objectives of the scheme are to keep employers contributions at as constant a rate as possible. The Local Government Pension Scheme run by Cheshire West and Chester Council has agreed a strategy with the scheme s actuary to achieve a funding level of 100% over the next few years. Funding levels are monitored on an annual basis. The next triennial valuation is due to be completed on 31 March The scheme will need to take account of the national changes to the scheme under the Public Pensions Services Act Under the Act, the Local Government Pension Scheme in England and Wales and the other main existing public service schemes may not provide benefits in relation to service after 31 March 2014 (or service after 31 March 2015 for other main existing public service pension schemes in England and Wales). The Act provides for scheme regulations to be made within a common framework, to establish new career average revalued earning schemes to pay pensions and other benefits to certain public servants. For 2013/14, the weighted average duration of the defined benefit obligation for scheme members is 22 years (Police Pension old); 39 years (Police Pension new) & 17 years (LGPS). Prior Year Adjustments The International Accounting Standards Board (IASB) has amended its standard IAS19 Employee Benefits effective from 1 January This effective date requires the 2012/13 comparative figures to be amended and the disclosures within this note restructured to meet the new standard s requirement. The key point to note is that these changes do not impact on the general fund or the revenue budget for police services. Summary of changes made to the 2012/13 comparative figures are shown below: Movement in Reserves Statement 2012/13 () Surplus or (deficit) on provision of services (accounting basis) Other Comprehensive Expenditure & Income Adjusts between accounting basis & funding basis under regulations Comprehensive Income & Expenditure Statement () Financing & Investment Income & Expenditure Actuarial (gains)/losses on pension assets/liabilities Cashflow Statement () Net (surplus) or deficit on the provision of services General Fund Unusable Reserves Original Re-stated Change Original Re-stated Change (71,107) (72,012) (905) (211,004) (210,097) ,041 73, (71,572) (72,477) (905) Original Re-stated Change 73,733 74, , ,191 (905) Original Re-stated Change (71,107) (72,012) (905) Pensions actuarial movement (69,900) (70,805) (905) Full details of the changes to the IAS19 Employee Benefits standard can be found at the following website: Page 87

88 36. Notes Relating to the Police Pension Fund Statement of Accounts 2013/ Basis of Fund The Police Pension Fund Regulations which came into force on 1 August 2007, with backdated effect from 1 April 2006, put on a statutory footing the requirement that police authorities: set up a pension fund; pay the employer contributions and officer contributions into the pension fund; make other specified payments into and from the pension fund; and transfer funds between the police fund and the pension fund as necessary to balance any audited deficit or surplus in the pension fund and for the Secretary of State to: adjust grant funding to police authorities upwards to match the amounts transferred by them out of their police fund to balance their pension fund; and require police authorities to pay to the Secretary of State an amount to match the sums transferred from the pension fund to the police fund to balance their pension fund account The financial arrangements introduced in 2007 apply to both the old and new police pension schemes i.e. the Police Pension Scheme 1987 (PPS 1987) and the New Police Pension Scheme 2006 (NPPS 2006) Accounting policies The Police Pension Fund s accounting policies are set out in the main Statement of Accounting Policies as set out in page 25. The Police Pension Fund account on page 21 summarises the transactions of the Fund. It does not take account of obligations to pay pensions and benefits which fall due after the end of the Scheme year. The actuarial position of the Scheme, which does take account of such obligations, is dealt with in Note 35 and the Police Pension Fund account should be read in conjunction with that note Status of the pension fund The regulations refer to the new account as a pension fund since its legal status is that of a fund for the purposes of Section 30 of the Local Government Finance Act. The pension fund accounts, which must be included in the Commissioner s statement of accounts as separate statements, comprise a fund account and net assets statement. The fund account must be ring-fenced to prevent unauthorised transfers taking place. It is through the fund account that each Commissioner discharges its responsibility for paying the pensions of retired officers and their survivors Administration of the Fund The fund is administered by the Commissioner within the management and operation requirements established under the Police Pension Fund Regulations 2007 (SI 2007 No 1932). The police pension scheme operates as an unfunded scheme, and that consequently the fund has no investment assets, benefits payable are funded by contributions from employers and employees, and any difference between benefits payable and contributions receivable is met by top-up grant from the Home Office. The Fund is balanced to nil each year by a transfer to or from the Police General Fund. Page 88

89 Statement of Accounts 2013/14 Employees and employer s contribution levels are based on percentages of pensionable pay set nationally by the Home Office and subject to triennial revaluation by the Government Actuary s Department Benefits payable to and from the Fund Under the financial arrangements the funds payable into and out of the Commissioner s pension fund account will be: Income Officer contributions, including those of officers seconded elsewhere. Employer contributions, including those for officers seconded elsewhere. Incoming transfers from other pension schemes. Inter-Commissioner adjustments for 1966 and 1974 reorganisations. Re-instatement of pensions mis-selling charges. Capital-equivalent charge payments for ill-health early retirements. Reimbursements of pension payments which could have been withheld under regulation K4 of the Police Pension Regulations 1987 and regulation 52 of the Police Pension Regulations Payments by an officer under regulation 84(3) of the Police Pension Regulations Other authorised income to be specified by the Commissioner in the accounts. Top-up from the police fund (operating account) to meet any deficit. Expenditure Pension payments to retired police officers and other beneficiaries. Inter-Commissioner adjustments for 1966 and 1974 reorganisations. Refund of pension contributions. Outgoing transfers to other pension schemes. Payments by the Commissioner to HMRC on behalf of an officer under regulation 84 or regulation 85 of the Police Pension Regulations Other authorised expenditure to be specified by the Commissioner in the accounts. Payments to the police fund (operating account) to clear a surplus at the end of the accounting year. Injury awards, including awards payable on death attributable to a qualifying injury, are not part of either Police Pension Scheme 1987 or New Police Pension Scheme 2006 and are payable irrespective of whether an officer is a member of the pension scheme. Tax rules from April 2006 prevent injury awards from being part of the regulations for either scheme. In order to comply with this requirement injury awards have, with effect from April 2006, been set out in the Police (Injury Benefit) Regulations 2006 which are entirely separate from the Police Pension Regulations 1987 and the Police Pension Regulations Injury awards are not pension scheme payments and therefore are not chargeable to the fund. Page 89

90 Statement of Accounts 2013/ Contingent Assets & Liabilities Assets The Commissioner is party to a group action against Her Majesty s Revenue and Custom (HMRC) in respect of a compound interest claim on catering Value Added Tax (VAT) going back into the 1990s. There are a range of potential calculations the court could apply and so the value cannot be assessed. In 2012/13 the Commissioner introduced a new IT System; due to delays in the implementation date, the Commissioner is now in negotiations with the supplier regarding costs incurred as a result of the delay. Liabilities During the initial building work on Tactical Training Centre, the main contractor went into administration. A new contractor was appointed and the building was subsequently completed and became operational in There are potential claims relating to the changes but the full impact cannot yet be assessed and no provision has been made in the accounts. The Home Office has instructed all forces to review their Injury Award cases; this is now subject to a legal challenge and therefore the Commissioner has placed the review on hold. Should the review take place, there will be costs involved in both the review and appeal process. Since the draft Statement of Accounts was produced, a review of rental income has highlighted a potential liability relating to the letting of surplus space on a radio mast. Legal advice is being sought on the situation which may lead to the refund of past income. Until the legal position is confirmed the potential liability and the timing is not clear. 38. Authorisation of Accounts Under the new Accounts and Audit (England) Regulations 2011 the pre-audited Statement of Accounts was signed by the Chief Finance Officer as the responsible financial officer of the Commissioner on 24 June 2014 and released for audit purposes. On the 26 September the audited accounts were signed and released for publication Page 90

91 POLICE & CRIME COMMISSIONER STATEMENT OF ACCOUNTS 2013/14

92 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 MOVEMENT IN RESERVES STATEMENT 2013/14 General Earmarked Capital Total Unusable Fund Reserves Receipts Usable Reserves Total Balance Reserve Reserves Reserves Balance at 1 April ,287 8,412 6,700 20,399 35,602 56,001 Surplus or (deficit) on provision of services (accounting basis) 9,349 9,349 9,349 Other Comprehensive Expenditure and Income 1,281 1,281 Total Comprehensive Expenditure and Income 9,349 9,349 1,281 10,630 Adjustments between accounting basis & funding basis under regulations see Note 7 2,339 (1,821) 877 1,395 (1,395) 0 Net Increase/(Decrease) before transfers to Earmarked Reserves 11,688 (1,821) ,744 (114) 10,630 Transfers to/(from) Earmarked Reserves (11,100) 11, Increase/(Decrease) in year 588 9, ,744 (114) 10,630 Balances at 31 March ,875 17,691 7,577 31,143 35,488 66,631 Details of the above reserves are in Notes 8 and 19. Page 92

93 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 MOVEMENT IN RESERVES STATEMENT 2012/13 General Earmarked Capital Total Unusable Fund Reserves Receipts Usable Reserves Total Balance Reserve Reserves Reserves Balance at 1 April ,176 10,403 4,355 19,934 39,094 59,028 Surplus or (deficit) on provision of services (accounting basis) (1,120) (1,120) (1,120) Other Comprehensive Expenditure and Income 0 (1,907) (1,907) Total Comprehensive Expenditure and Income (1,120) 0 0 (1,120) (1,907) (3,027) Adjustments between accounting basis & funding basis under regulations see Note 7 3,054 (3,814) 2,345 1,585 (1,585) 0 Net Increase/(Decrease) before transfers to Earmarked Reserves 1,934 (3,814) 2, (3,492) (3,027) Transfers to/(from) Earmarked Reserves (1,823) 1, Increase/(Decrease) in year 111 (1,991) 2, (3,492) (3,027) Balances at 31 March ,287 8,412 6,700 20,399 35,602 56,001 Details of the above reserves are in Notes 8 and 19 Page 93

94 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 COMPREHENSIVE INCOME & EXPENDITURE STATEMENT 2012/ /14 Notes Net Expenditure Income Net Police Services: (7,128) Local Policing 3,211 (8,640) (5,429) 130 Dealing with the Public 511 (775) (264) (3,299) Criminal Justice Arrangements 592 (4,171) (3,579) (3,459) Roads Policing 152 (3,306) (3,154) (3,288) Specialist Operations 383 (2,005) (1,622) (178) Intelligence 481 (1,248) (767) (267) Specialist Investigations 868 (2,245) (1,377) (48) Investigative Support 220 (432) (212) (2,901) National Policing 32 (2,200) (2,168) (20,438) 6,450 (25,022) (18,572) 1,066 Corporate and Democratic Core Non Distributed Cost Exceptional Items 0 (19,372) Cost of Services (17,505) 194,139 Other Operating Expenditure & Income 179, ,166 Financing & Investment Income & Expenditure 3,200 9 (176,813) Taxation & Non-Specific Grant Income (175,023) 9 1,120 Deficit / (Surplus) on Provision of Services (9,349) 1,906 Surplus/(Deficit) on revaluation of fixed assets (1,142) 0 Surplus/(Deficit) on revaluation of "available for sale" assets 0 0 Actuarial (gains)/losses on pension assets/ liabilities (139) 1,906 Other Comprehensive Income and Expenditure (1,281) 3,026 Total Comprehensive Income and Expenditure (10,630) Page 94

95 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 BALANCE SHEET AS AT 31 MARCH March March 2014 Notes 81,300 Property, Plant & Equipment 79, ,350 Intangible Assets 5,409 2,849 Long Term Debtors 2, ,499 Long Term Assets 87, Stock ,886 Short Term Debtors 19, ,981 Cash and Cash Equivalents 18, Assets (held for sale) ,580 Current Assets 38,217 (2,900) Short Term Borrowing (200) 11 (12,127) Short Term Creditors (15,224) 16 (17,141) Current Liabilities (15,424) (26,127) Long Term Creditors (25,436) (1,202) Provisions (936) 17 (17,078) Long Term Borrowing (16,876) 11 (645) Other Long Term Liabilities (654) (45,052) Long Term Liabilities (43,902) 56,001 Net Assets 66,630 Represented By: 20,399 Usable Reserves 31, ,602 Unusable Reserves 35, ,001 Total Reserves 66,630 The un-audited accounts were issued on 24 June 2014 with this audited version authorised for issue on 26 September Liz Lunn, BA CPFA Chief Finance Officer Date: 26 September 2014 Page 95

96 CASHFLOW STATEMENT (See Note 20) Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 31 March March 2014 Notes 1,120 Net (surplus) or deficit on the provision of services (9,349) Adjust net (surplus) or deficit on the provision of services for non-cash movement: (7,324) Depreciation (6,379) (142) Pensions - actuarial movement (213) 1,516 Movement in Creditors 4,939 2,984 Movement in Debtors (4,587) 37 Movement of Stock (20) (2,138) Other non-cash items Adjust for items included in the net (surplus) or deficit on the provision of services that are investing and financing activities 203 (3,744) Net cashflow from operating activities (14,539) 5,443 Investing Activities 1, ,017 Financing Activities 3, ,716 Net (increase) or decrease in cash and cash equivalents (9,481) (11,697) Cash and cash equivalents at the beginning of the reporting period (8,981) 14 (8,981) Cash and cash equivalents at the end of the reporting period (18,462) 14 2,716 Net (increase) or decrease in cash and cash equivalents (9,481) Note: cash and cash equivalents above include the bank overdraft shown on the Balance Sheet under Current Liabilities. Page 96

97 POLICE PENSION FUND Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 The Government introduced new arrangements for the funding of Police Officers Pensions with effect from 1 April Under these arrangements income and expenditure on Police Pensions is charged to a separate fund account. The overall net cost of the fund is met by specific grant from Government; see Note 32 for further details. 2012/13 FUND ACCOUNT Contributions Receivable from: 2013/14 (17,916) Employer at 24.2% of pensionable pay (17,148) (474) Early Retirements (627) (8,822) From current employees (9,388) (27,212) (27,163) (126) Transfers in from other police authorities (6) (295) Transfers in from other pension schemes (411) (27,633) (27,580) Benefits Payable: 35,500 Pensions 37,344 7,117 Commutations and lump sum retirement benefits 8,276 - Lump sum death benefits 73 Payments to and on account of leavers 270 Transfers out to other schemes Refunds of contributions 0 42,893 46,315 15,260 Net amount payable for the year 18,735 (15,260) Additional Contribution from the Commissioner (18,735) Nil Net balance on fund in year Nil NET ASSET STATEMENT - Unpaid Pensions Due - - Amount Owing to General Fund Note: the additional contribution from the Commissioner is reimbursed by specific grant from the Home Office. Page 97

98 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 NOTES TO THE ACCOUNTS 1. Accounting Policies and Principles 1.1 General Principles (IAS8) This Statement of Accounts summarises the Police and Crime Commissioner s (the Commissioner) transactions for the 2013/14 financial year and its position at 31 March The Commissioner is required to prepare an Annual Statement of Accounts by the Accounts and Audit (England) Regulations 2011 which require such accounts to be prepared in accordance with proper accounting practices. These practices comprise the Code of Practice of Local Authority Accounting in the United Kingdom 2013/14 and the Service Reporting Code of Practice 2013/14, supported by International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) Accounting Conventions These financial statements have been prepared under the historical cost convention, modified by the revaluation of certain categories of non-current assets and where material, financial instruments as determined by the relevant accounting standard. Activity is accounted for in the year that it takes place, not simply when cash payments are made or received. In particular: Revenue from sale of goods is recognised when the Commissioner transfers the significant risks and rewards of ownership to the purchaser and it is probable that economic benefits or service potential associated with the transaction will flow to the Commissioner. Revenue from the provision of services is recognised when the Commissioner can measure reliably the percentage of completion of the transaction and it is probable that economic benefits or service potential associated with the transaction will flow to the Commissioner. Supplies are recorded as expenditure when they are consumed. Where there is a gap between the date supplies are received and their consumption they are carried as stock on the Balance Sheet. Expenses in relation to services received (including services provided by employees) are recorded as expenditure when the services are received rather than when payments are made. Interest receivable on investments and payable on borrowings is accounted for respectively as income and expenditure on the basis of the effective interest rate for the relevant financial instrument rather than the cashflows fixed or determined by the contract. Where revenue and expenditure have been included in the Comprehensive Income & Expenditure Statement but cash has not been received or paid, a debtor or creditor for the relevant amount is recorded in the Balance Sheet. Where debts may not be settled, the balance of debtors is written down and a charge made to revenue for the income that might not be collected. Page 98

99 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 All sums due to the Commissioner are recorded at the time they become payable and any outstanding items at the end of the year are shown on the Balance Sheet as debtors. The only significant change to this relates to Government Grants where estimates are made at the end of year for any further amounts due to the Commissioner and then recorded as debtors. Creditors are accrued for on an actual basis where invoices have been received, on a purchase order basis where goods have been received but not invoiced or on an estimated basis where neither the invoice or purchase order is available (e.g., utility charges). In addition, this Statement of Accounts assumes the Commissioner will continue in operational existence for the foreseeable future under the Going Concern concept as a statutory Corporation Sole. 1.2 Cash and Cash Equivalents Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24 hours. Cash equivalents are highly liquid investments that mature in no more than three months or less from the date of acquisition and that are readily convertible to known amounts of cash with insignificant risk of change in value. In both the Balance Sheet and Cashflow Statement, cash and cash equivalents are shown net of bank overdrafts that are repayable on demand and form an integral part of the Commissioner s cash management. 1.3 Exceptional Items When items of income and expenditure are material and exceptional, their nature and amount is disclosed separately, either on the face of the Comprehensive Income and Expenditure Statement or in the Notes to the Accounts, depending on how significant the items are to the understanding of the Commissioner s financial performance. 1.4 Prior Period Adjustments, Changes in Accounting Policies and Estimates and Errors Prior period adjustments may arise as a result of a change in accounting policies or to correct a material error. Changes in accounting estimates are accounted for prospectively, i.e. in the current and future years affected by the change and do not give rise to a prior period adjustment. Changes in accounting policies are only made when required by proper accounting practices or the change provides more reliable or relevant information about the effect of transactions, other events and conditions on the Commissioner s financial position or financial performance. Where a change is made, it is applied retrospectively (unless otherwise stated) by adjusting opening balances and comparative amounts for the prior period as if the new policy has always been applied. Material errors discovered in prior period figures are corrected retrospectively by amending opening balances and comparative amounts for the prior period. Page 99

100 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Items are material if they could, individually or collectively, influence the decisions or assessments of users made on the basis of the financial statements. Materiality depends on the nature and/or size of the omission or misstatement judged in the surrounding circumstances. 1.5 Charges to Revenue for Non-Current Assets Services, support services and trading accounts are debited with the following amounts to record the cost of holding non-current assets during the year: Depreciation attributable to the assets used by the relevant service Revaluation and impairment losses on assets used by the service where there are no accumulated gains in the Revaluation Reserve against which the losses can be written off Amortisation of intangible assets attributable to the service The Commissioner is not required to raise council tax (via his precept) to fund depreciation, revaluation and impairment losses or amortisation. However he is required to make an annual contribution from revenue towards the reduction in its overall borrowing requirement in accordance with the Local Authorities (Capital Finance & Accounting) (England) Regulations 2003, as amended, known as the Minimum Revenue Provision. Depreciation, revaluation and impairment losses and amortisation are therefore replaced by the Minimum Revenue Provision contribution in the General Fund Balance by way of an adjusting transaction with the Capital Adjustment Account in the Movement in Reserves Statement for the difference between the two. 1.6 Employee Benefits Benefits payable during employment Under IAS19 short term employee benefits are those to be settled within 12 months of the year end. They include such benefits as salaries and wages, paid annual leave, paid sick leave, bonuses and non-monetary benefits (for example cars) for current employees and are recognised as an expense for the service in the year in which employees render service to the Commissioner. An accrual is made for the cost of holiday entitlements, flexi leave and time off in lieu earned by employees but not taken before the year end, which employees can carry forward into the next financial year. The accrual is made at the salary rates applicable at year end. The accrual is charged to the Surplus or Deficit on the Provision of Services but then reversed out through the Movement in Reserves Statement so that such benefits are charged to revenue in the financial year in which the benefit occurs. Termination benefits Termination benefits are amounts payable as a result of a decision by the Commissioner to terminate employment before the normal retirement date or an employee s decision to accept voluntary redundancy. These are charged on an accruals basis to the Comprehensive Income and Expenditure Statement when the Commissioner is demonstrably committed to the termination of the employment or making an offer to encourage voluntary redundancy. Page 100

101 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Where termination benefits involve the enhancement of pensions, statutory provisions require the General Fund Balance to be charged with the amount payable by the Commissioner to the pension fund or pensioner in the year, not the amount calculated according to the relevant accounting standards. In the Movement in Reserves Statement appropriations are required to and from the Pensions Reserve to remove the notional debits and credits for pension enhancement termination benefits and replace them with the debits for the cash paid to the pension fund and pensioners and any such amounts payable but unpaid at the year end. Post-employment benefits The Commissioner s employees may be members of one of two separate pension schemes: Police Staff - the Local Government Pension Scheme administered by Cheshire West and Chester Council; or Police Officers - the Police Pension Scheme for Police Officers; the Police Pension Scheme is an unfunded scheme (Police Pension Fund Regulations 2007 (SI2007/1932)), meaning there are no investment assets built up to meet the pensions liabilities and cash has to be generated to meet actual pensions payments as they eventually fall due. The costs of the scheme are supported by an employer s contribution based on the costs of serving officers and central government grant. Both schemes provide defined benefits to members (retirement lump sums and pensions) earned as employees of the Commissioner. The impact of these two pension schemes is identified separately in the Comprehensive Income and Expenditure Statement and Balance Sheet and in the Notes to the Accounts. The Local Government Pension Scheme The Local Government Pension Scheme is accounted for as a defined benefits scheme with the liabilities attributable to the Commissioner included in the Balance Sheet on an actuarial basis using the projected unit method. This is an assessment of the future payments that will be made in relation to retirement benefits earned to date by employees, based on assumptions about mortality rates, employee turnover rates etc. and projections of projected earnings for current employees. Liabilities are discounted to their value at current prices in line with the actuaries agreed discount rate as stated in the relevant Note to the Accounts. The assets attributable to the Commissioner are also included in the Balance Sheet at fair value: - Quoted securities current bid price - Unquoted securities professional valuation - Utilised securities current bid price - Property market value The change in the net pensions liability is analysed as follows: Current service cost the increase in liabilities as a result of years of service earned this year. This is charged to the Comprehensive Income and Expenditure Statement and is apportioned across service headings according to numbers of employees. Page 101

102 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Past service cost the increase in liabilities as a result of a scheme amendment or curtailment whose effect relates to years of eservice earned in earlier years and charged to the Comprehensive Income and Expenditure Statement as part of the Non-Distributed Costs. Net Interest on the net defined benefit liability (asset), i.e. the net interest expense for the Commissioner the change during the period in the net defined benefit liability (asset) that arises from the passage of time charged to the Financing and Investment Income and Expenditure line of the Comprehensive Income and Expenditure Statement. This is calculated by applying the discount rate used to measure the defined benefit obligation at the beginning of the period to the net defined benefit liability (asset) at the beginning of the period taking into account any changes in the net defined benefit liability (asset) during the period as a result of contribution and benefit payments. The re-measurements comprise of: Page 102 º The return on plan assets excluding amounts included in net interest on the net defined benefit liability (asset) charged to the Pensions Reserve as Other Comprehensive Income and Expenditure. º Actuarial gains and losses changes in the net pensions liability that arise because events have not coincided with assumptions made at the last actuarial valuation or because the actuaries have updated their assumptions charged to the Pensions Reserve as Other Comprehensive Income and Expenditure. Contributions paid the pension funds cash paid as employer s contributions to the pension fund in settlement of liabilities, not accounted for as an expense. In relation to retirement benefits, statutory provisions require the General Fund Balance to be charged with the amount payable by the Commissioner to the pension fund or directly to pensioner in the year, not the amount calculated according to the relevant accounting standards. In the Movement in Reserves Statement, this means that there are appropriations to and from the IAS19 Pension Reserve to remove the notional debits and credits for the retirement benefits and replace them with debits for the cash paid to the pension fund and pensioners and any such amounts payable but unpaid at the year end. The negative balance that arises on the IAS19 Pension Reserve thereby measure the beneficial impact to the General Fund of being required to account for the retirement benefits on the basis of cashflows rather than as benefits are earned by employees. Discretionary benefits Local Government Pension Scheme The Commissioner also has restricted powers to make discretionary awards of retirement benefits in the event of early retirements. Any liabilities estimated to arise as a result of such an award are accrued in the year in which the decision was taken and accounted for using the same policies as applied to the Local Government Pension Scheme. Injury awards The Police Pension Scheme Injury awards under The Police (Injury Benefits) Regulations 2006 are not part of the Police Pensions Scheme and are funded direct from the Comprehensive Income and Expenditure Statement. However, liabilities in respect of injury awards are disclosed in the Statement of Accounts as part of the Commissioner s overall liability and are measured on an actuarial basis, using the projected unit method.

103 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/ Events after the Balance Sheet Date (IAS10) Events after the Balance Sheet date are those events both favourable and unfavourable that occur between the end of the reporting period and the date when the Statement of Accounts is authorised for issue. Two types of events can be identified: Those that provide evidence of conditions that existed at the end of the reporting period the Statement of Accounts is adjusted to reflect such events Those that are indicative of conditions that arose after the reporting period the Statement of Accounts is not adjusted to reflect such events but, where a category of events would have a material effect, disclosure is made in the Notes of the nature of the events and their estimated financial effect. Events taking place after the date of authorisation of issue are not reflected in the Statement of Accounts. 1.8 Financial Instruments (IAS32/39 & IFRS7) Financial liabilities Financial liabilities are recognised on the Balance Sheet when the Commissioner becomes a party to the contractual provisions of a financial instrument and are initially measured at fair value and are carried at their amortised cost. Annual charges to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement for interest payable are based on the carrying amount of the liability, multiplied by the effective rate of interest for the instrument. The effective interest rate is the rate that exactly discounts estimated future cash payments over the life of the instrument to the amount at which it was originally recognised. For most of the borrowings that the Commissioner has, this means that the amount presented in the Balance Sheet is the outstanding principal repayable (plus accrued interest); and interest charged to the Comprehensive Income and Expenditure Statement in the amount payable for the year according to the loan agreement. Gain and losses on the repurchase or early settlement of borrowing are credited and debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement in the year of repurchase or settlement. However, where repurchase has taken place as part of restructuring of the loan portfolio that involves the modification or exchange of existing instruments, the premium or discount is respectively deducted from or added to the amortised cost of the new or modified loan and the write down to the Comprehensive Income and Expenditure Statement is spread over the life of the loan by adjustment to the effective interest rate. Where premiums and discounts have been charged to the Comprehensive Income and Expenditure Statement, regulations allow the impact on the General Fund Balance to be spread over future years. The Commissioner has a policy of charging the full effect of premiums and discounts to the Comprehensive Income and Expenditure Statement in the year in which they are incurred. Page 103

104 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Financial Assets Financial assets are classified into two types: Loans and receivables assets that have fixed or determinable payments but are not quoted in an active market Available for sale assets assets that have a quoted market price and/or do not have fixed or determinable payments Loans and receivables are recognised on the Balance Sheet when the Commissioner becomes a party to the contractual provisions of a financial instrument and are initially measured at fair value. They are subsequently measured at their amortised cost. Annual credits to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement for interest receivable are based on the carrying amount of the asset multiplied by the effective rate of interest for the instrument. For most of the loans the Commissioner has made this means that the amount presented in the Balance Sheet is the outstanding principal receivable plus accrued interest, and the interest credited to the Comprehensive Income and Expenditure Statement is the amount receivable for the year in the loan agreement. Where assets are identified as impaired because of a likelihood arising from a past event that payments due under the contract will not be made, the asset is written down and a charge made in the Comprehensive Income and Expenditure Statement. The impairment loss is measured as the difference between the carrying amount and the present value of the revised future cashflows discounted at the asset s original effective interest rate. Any gains and losses that arise on the de-recognition of an asset are credited or debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement. Available for sale assets are recognised on the Balance Sheet when the Commissioner becomes a party to a contractual provision of a financial instrument and is initially measured and carried at fair value. When the asset has fixed or determinable payments, annual credits to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement for interest receivable are based on amortised cost of the asset multiplied by the effective rate of interest for the instrument. Where there are no fixed or determinable payments, income (e.g. dividends) is credited to the Comprehensive Income and Expenditure Statement when it becomes receivable by the Commissioner. Assets are maintained in the Balance Sheet at fair value. Values are based on the following principles: Instruments with quoted market prices the market price Other instruments with fixed and determinable payments discounted cash flow analysis Equity shares with no quoted market prices independent appraisal of company valuations Page 104

105 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Changes in fair value are balanced by an entry in the Available for sale Reserve and the gain/loss is recognised in the Surplus or Deficit on Revaluation of Available for sale Financial Assets. The exception is where impairment losses have been incurred and are debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement, along with any net gain or loss for the asset accumulated in the Available for sale Reserve. Where assets are identified as impaired because of a likelihood arising from a past event, that payments due under the contract will not be made (fixed or determinable payments) or fair value falls below cost, the asset is written down and a charge made to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement. If the asset has fixed or determinable payments, the impairment loss is measured as the difference between the carrying amount and the present value of the revised future cashflows discounted at the asset s original effective interest rate. Otherwise the impairment loss is measured as any shortfall of fair value against the acquisition cost of the instrument (net of any principal repayment and amortisation). Any gain and losses that arise on the de-recognition of the asset are credited or debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement along with any accumulated gains or losses previously recognised in the Available for sale Reserve. Where fair value cannot be measured reliably, the instrument is carried at cost less any impairment losses. 1.9 Government Grants and Contributions (IAS20) Whether paid on account, by instalments or in arrears, government grants and third party contributions and donations are recognised as due to the Commissioner when there is reasonable assurances that: The Commissioner will comply with the conditions attached to the payments, and The grants or contributions will be received. Amounts recognised as due to the Commissioner are not credited to the Comprehensive Income and Expenditure Statement until conditions attached to the grant or contribution, have been satisfied. Conditions are stipulations that specify that the future economic benefits or service potential embodied in the asset in the form of the grant or contribution are required to be consumed by the recipient as specified or future economic benefits or service potential must be returned to the transferor. Monies advanced as grants and contributions for which conditions have not been satisfied are carried in the Balance Sheet as creditors. When conditions are satisfied, the grant or contribution is credited to the appropriate service line or Taxation and Non-specific Grant Income (for non-ring-fenced grants and all capital grants) in the Comprehensive Income and Expenditure Statement. Where capital grants are credited to the Comprehensive Income and Expenditure Statement they are reversed out of the General Fund Balance in the Movement in Reserves Statement. Page 105

106 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Where the grant has not been used to finance capital expenditure it is posted to the Capital Grants Unapplied Reserve. Where it has been used to finance capital expenditure it is posted to the Capital Adjustment Account. Amounts in the Capital Grants Unapplied Reserve are transferred to the Capital Adjustment Account once they have been used to finance capital expenditure Heritage Assets A tangible heritage asset is a tangible asset with historical, artistic, scientific, technological, geophysical or environmental qualities that is held and maintained principally for its contribution to knowledge and culture. An intangible heritage asset is an intangible asset with cultural, environmental or historical significance. Examples of intangible heritage assets include recordings of significant historical events. Such assets identified are to be carried separately on the balance sheet at valuation. The Commissioner sets a de-minimis value for such assets at 0.5m Intangible Assets (IAS38) Expenditure on non-monetary assets that do not have physical substance but are controlled by the Commissioner as a result of past events (e.g. software licences) is capitalised when it is expected that future economic benefits or service potential will flow from the intangible asset to the Commissioner. Internally generated assets are capitalised where it is demonstrable that the project is technically feasible and is intended to be completed (with adequate resources being available) and the Commissioner will be able to generate future economic benefits or deliver service potential by being able to sell or use the asset. Expenditure is capitalised where it can be measured reliably as attributable to the asset and is restricted to that incurred during the development phase. Research expenditure cannot be capitalised. Expenditure on the development of websites is not capitalised if the website is solely or primarily intended to promote or advertise the Commissioner s services. Intangible assets are measured initially at cost. Amounts are only re-valued where the fair value of the assets held can be determined by reference to an active market. In practice no intangible asset held by the Commissioner meets this criterion and they are therefore carried at amortised cost. The depreciable amount of an intangible asset is amortised over its useful life to the relevant service lines in the Comprehensive Income and Expenditure Statement. An asset is tested for impairment whenever there is an indication that the asset might be impaired any losses recognised are posted to the relevant service in the Comprehensive Income and Expenditure Statement. Any gain or loss arising on the disposal or abandonment of an intangible asset is posted to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement. Where expenditure on intangible assets qualifies as capital expenditure for statutory purposes, amortisation, impairment losses and disposal gains and losses are not permitted to impact on the General Fund Balance. The gains and losses are therefore reversed out of the General Fund Balance in the Movement in Reserves Statement and transferred to the Capital Adjustment Account or for any sale proceeds over 10,000, the Capital Receipts Reserve. Page 106

107 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/ Stock (IAS2) Stock is valued at the lower of cost or current replacement cost where it is held for distribution at no charge. The stock reflected in the Balance Sheet relates predominantly to uniforms and equipment which is distributed to officers as appropriate Jointly Controlled Operations (IAS31) Jointly controlled operations are activities undertaken by the Commissioner or Chief Constable in conjunction with other organisations that involve the use of assets and resources of those organisations rather than the establishment of a separate entity. The Commissioner or Chief Constable recognises on their respective Balance Sheets the assets the operation controls and the liabilities it incurs and debits and credits the Comprehensive Income and Expenditure Statement with the expenditure incurred and the share of income earned Leases (IAS17) Leases are classified as finance leases where the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the property, plant or equipment from the lessor to the lessee. All other leases are classified as operating leases. Where a lease covers both land and buildings, the land and building elements are considered separately for classification. Arrangements that do not have legal status of a lease but convey a right to use an asset in return for payment are accounted for under this policy where fulfilment of the arrangement is dependent on the use of specific assets. Finance Leases (taken out by the Commissioner) Property, plant and equipment held under finance leases are recognised on the Balance Sheet at the commencement of the lease at its fair value measured at the lease s inception or the present value of the minimum lease payments if this is lower. The asset recognised is matched by a liability for the obligation to pay the lessor. Initial direct costs of the Commissioner are added to the carrying amount of the asset. Premiums paid on entry into a lease are applied to writing down the lease liability. Contingent rents are charged as expenses in the periods in which they are incurred. Lease payments are apportioned between: A charge for the acquisition of the interest in the property, plant or equipment applied to write down the lease liability, and A finance charge (debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement). Property, plant and equipment recognised under finance leases is accounted for using the policies applied generally to such assets, subject to depreciation being charged over the lease term if this is shorter than the asset s estimated useful life (where the ownership of the asset does not transfer to the Commissioner at the end of the lease period). Page 107

108 Operating Leases Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Rentals paid under operating leases are charged to the Comprehensive Income and Expenditure Statement as an expense of the services benefiting from use of the lease property, plant and equipment. Charges are made on a straight line basis over the life of the lease, even if this does not match the pattern of payments (for example if there is a rent free period at the start or end of the lease) Overhead and support services The costs of overheads and support services are charged to the service expenditure headings as defined in CIPFA Service Reporting Code of Practice (SeRCOP). The total absorption costing principle is used the full cost of overheads and support services are shared between users in proportion to the benefits received, with the exception of: Corporate and Democratic Core costs relating to the Commissioner s status as a democratic organisation Non Distributed Costs the cost of discretionary benefits awarded to employees retiring early and impairment losses chargeable on Assets Held for Sale These two categories are defined in SeRCOP and accounted for as separate headings in the Comprehensive Income and Expenditure Statement as part of the Net Expenditure on Services Property, Plant and Equipment Assets that have physical substance and are held for use in the production or supply of goods or services, for rental to others, or for administration purposes and that are expected to be used during more than one financial year are classified as property, plant and equipment in line with International Accounting Standard (IAS) 16 and International Public Sector Accounting Standard (IPSAS) 17. Recognition of the asset Expenditure on the acquisition, creation or enhancement of property, plant and equipment is capitalised on an accruals basis, provided that it is probable that the future economic benefits or service potential associated with the asset will flow to the Commissioner and the cost of the asset can be measured reliably. Expenditure that maintains but does not add to the asset s potential to deliver economic benefits or service potential (i.e. repairs and maintenance) is charged as an expense when it is incurred. The Commissioner s policy is also to capitalise only those assets which have a material value where the cost is 10,000 or more (de-minimis level). Measurement of the asset Assets are initially measured at cost, comprising: the purchase price; any costs directly attributable to bringing the asset to the location and condition for it to be capable of operating in the manner intended by the Commissioner, including any directly attributable salary costs of the Commissioner s employees; and Page 108

109 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 the initial estimate of the costs of dismantling and removing the items and restoring the site on which it is located. The Commissioner does not capitalise borrowing costs incurred whilst assets are under construction. The cost of assets acquired other than by purchase is deemed to be its fair value, unless the acquisition does not have commercial substance (i.e. it will not lead to a variation in the cashflows of the Commissioner). In the latter case where an asset is acquired via an exchange, the cost of the acquisition is the carrying amount of the asset given up by the Commissioner. Donated assets are measured initially at fair value. The difference between fair value and any consideration paid is credited to the Taxation and Non-specific Grant Income line in the Comprehensive Income and Expenditure Statement unless the donation has been made conditionally. In such cases until the conditions are satisfied the gain is held in the Donated Assets Account. Where gains are credited to the Comprehensive Income and Expenditure Statement they are reversed out of the General Fund Balance to the Capital Adjustment Account in the Movement in Reserves Statement. Assets are carried in the Balance Sheet using the following measurement bases: Assets under construction actual expenditure incurred (historical cost) until operational and then at fair value All other assets fair value, determined as the amount that would be paid for the asset in its existing use Where market based evidence of fair value is not available because of the specialist nature of an asset, Depreciated Replacement Cost (DRC) will be used as a proxy for fair value. For non property assets which have short useful lives, low value or both, depreciated historical cost will be used as a proxy for fair value. Assets included in the Balance Sheet at fair value are re-valued sufficiently regularly to ensure that their carrying amount is not materially different from their fair value at year end, but at a minimum of every five years. Increases in valuations are matched by credits to the Revaluation Reserve to recognise unrealised gains. Exceptionally gains might be credited to the Surplus or Deficit on the Provision of Services where they arise from the reversal of a loss previously charged to a service. Where decreases in value are identified, they are accounted for as follows: where there is a balance of revaluation gains for the asset in the Revaluation Reserve, the carrying amount of the asset is written down against that balance up to the amount of the accumulated gains. where there is no balance in the Revaluation Reserve or an insufficient balance, the carrying amount of the asset is written down against the relevant service lines in the Comprehensive Income and Expenditure Statement. Page 109

110 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 The Revaluation Reserve contains revaluation gains recognised since 1 April 2007 only, the date of its formal implementation. Gains arising before that date have been consolidated into the Capital Adjustment Account. Componentisation The Commissioner identifies any properties where it is considered that componentisation is appropriate and provides separate valuation of such components. Componentisation will only be applied routinely to new buildings or refurbishments completed after 1 April 2010 onwards and will not apply to historical assets that have not been refurbished. Specifically, componentisation is considered for: all properties over 1m those which have been the subject of significant refurbishment or improvement during the year those properties which are expected to be the subject of significant refurbishment or improvement during the next two years In this context significant expenditure is defined as greater than 25% of the total cost of the asset; and greater than 100,000. Impairment Assets are assessed at each year end as to whether there is any indication that an asset may be impaired. Where indications exist and any possible differences are estimated to be material, the recoverable amount of the asset is estimated and, where this is less than the carrying amount of the asset, an impairment loss is recognised for the shortfall. Where impairment losses are identified, they are accounted for as follows: where there is a balance of revaluation gains for the asset in the Revaluation Reserve, the carrying amount of the asset is written down against that balance up to the amount of the accumulated gains. where there is no balance in the Revaluation Reserve or an insufficient balance, the carrying amount of the asset is written down against the relevant service lines in the Comprehensive Income and Expenditure Statement. Where an impairment loss is reversed subsequently, the reversal is credited to the relevant service lines in the Comprehensive Income and Expenditure Statement up to the amount of the original loss and adjusted for depreciation that would have been charged if the loss has not been recognised. Depreciation Depreciation is provided for on all property, plant and equipment assets by the systematic allocation of their depreciable amounts over their useful lives. An exception is made for assets without a determinable finite useful life (i.e. freehold land) and assets that are not yet available for operational use (i.e. assets under construction). Page 110

111 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Depreciation is calculated on the following bases: Land no depreciation applied Property (not land) straight-line allocation over the life of the property as estimated by the valuer Plant and Equipment straight-line allocation over the life of the asset as advised by a suitably qualified officer Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item will be depreciated separately. Where there is more than one significant part of the same asset which has the same useful life and depreciation method, such parts may be grouped in determining the depreciation charge. Revaluation gains are also depreciated with an amount equal to the difference between current value depreciation charged on assets and the depreciation that would have been chargeable based on the their historical cost being transferred each year from the Revaluation Reserve to the Capital Adjustment Account. Disposals and non-current Assets held for Sale When it becomes probable that an asset will be sold it is reclassified as an Asset held for Sale. The asset is re-valued immediately before reclassification and then carried at the lower of this amount and fair value less costs to sell. Where there is a subsequent decrease to fair value less costs to sell, the loss is posted to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement. Gains in fair value are recognised only up to the amount of any previous losses recognised in the Surplus or Deficit on Provision of Services. Depreciation is not charged on Assets held for Sale. If assets no longer meet the criteria to be classified as Assets held for Sale, they are reclassified back to non-current assets and valued at the lower of their carrying amount before they were classified as held for sale; adjusted for depreciation, amortisation or revaluations that would have been recognised had they not been classified as held for sale and their recoverable amount at the date of the decision not to sell. Assets that are to be abandoned or scrapped are not reclassified as Assets held for Sale. When as asset is disposed of or decommissioned the carrying amount of the asset in the Balance Sheet (whether property, plant and equipment or assets held for sale) is written off to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement as part of the gain or loss on disposal. Receipts from disposals (if any) are credited to the same line in the Comprehensive Income and Expenditure Statement also as part of the gain or loss on disposal (i.e. netted off against the carrying value of the asset at the time of disposal). Any revaluation gains accumulated for the disposed asset in the Revaluation Reserve are transferred to the Capital Adjustment Account. Amounts received for a disposal in excess of 10,000 are categorised as capital receipts and are required to be credited to the Capital Receipts Reserve. These can then only be used to fund new capital expenditure or set aside to reduce the Commissioner s underlying need to borrow. Receipts are appropriated to the Reserve from the General Fund Balance via the Movement in Reserves Statement. Page 111

112 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 The written off value of disposals is not a charge against the council tax as the cost of noncurrent assets is fully provided for under separate arrangement for capital financing. Amounts are appropriated to the Capital Adjustment Account from the General Fund Balance in the Movement in Reserves Statement Private Finance Initiative (PFI) PFI and similar contracts are agreements to receive services where the responsibility for making available the property, plant and equipment needed to provide the services passes to the PFI contractor. As the Commissioner is deemed to control the services that are provided under its PFI scheme and as ownership of the property, plant and equipment will pass to the Commissioner at the end of the contract, the Commissioner carries the assets used under the contract on its Balance Sheet as part of property, plant and equipment. The original recognition of these assets at fair value (based on the cost to purchase) was balanced by the recognition of a liability for the amounts due to the scheme operator to pay for the capital investment. Non current assets recognised on the Balance Sheet are re-valued and depreciated in the same way as property, plant and equipment owned by the Commissioner. The amounts payable to the PFI operator each year are analysed as follows: fair value of the services received during the year charged to the Comprehensive Income and Expenditure Statement finance cost an interest charge on the outstanding Balance Sheet liability charged to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement contingent rent increases in the amount to be paid for the property arising during the contract and charged to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement payment towards liability applied to write down the Balance Sheet liability towards the PFI operator (the profile of write downs is calculated using the same principles as for a finance lease) lifecycle replacement costs a proportion of the amounts payable is posted to the Balance Sheet as a prepayment and then recognised as additions to property, plant and equipment when the relevant works are eventually carried out Provisions, Contingent Assets and Liabilities (IAS37) Provisions Provisions are made when an event has taken place that gives the Commissioner a legal or constructive obligation that probably requires settlement of that obligation and a reasonable estimate of the amount can be made. For example, the Commissioner may be involved in a court case that could eventually result in the making of a settlement or the payment of compensation. Page 112

113 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Provisions are charged to the Comprehensive Income and Expenditure Statement in the year in which the Commissioner becomes aware of the obligation, based on the best estimate of the likely settlement taking into account relevant risks and uncertainties. When payments are eventually made they are charged to that provision in the Balance Sheet. Estimated settlements are reviewed at the end of each financial year and where it becomes more likely than not that a settlement is no longer required (or a lower settlement than anticipated is made), the provision is adjusted and credited back to the Comprehensive Income and Expenditure Statement. Where some or all of the payment required to settle an obligation is expected to be met by another party (e.g. from an insurance claim) it is only recognised as income in the Comprehensive Income and Expenditure Statement when it is virtually certain that reimbursement will be received. Contingent Assets A contingent asset arises where an event has taken place that gives the Commissioner a possible asset whose existence will only be confirmed by the occurrence or otherwise of uncertain future events not wholly within the control of the Commissioner. Contingent assets are not recognised in the Balance Sheet but are disclosed in a Note to the Accounts where it is probable that there will be an inflow of economic benefits or service potential. Contingent Liability A contingent liability arises where an event has taken place that gives the Commissioner a possible obligation whose existence will only be confirmed by the occurrence or otherwise of uncertain future events not wholly within the control of the Commissioner. Contingent liabilities also arise in circumstances where a provision would otherwise be made but either it is not probable that an outflow of resources will be required or the amount of the obligation cannot be measured reliably. Contingent liabilities are not recognised in the Balance Sheet but are disclosed in a Note to the Accounts Reserves The Commissioner sets aside amounts as reserves for specific policy purposes through appropriations in the Movement of Reserves Statement. Expenditure funded by such reserves is charged directly to the Comprehensive Income and Expenditure Statement with the transfer from the reserve shown separately and accounted for in the Movement of Reserves Statement. Certain reserves are held to manage the accounting processes of assets and retirement benefits and do not represent usable resources for the Commissioner these reserves are explained in the relevant policies Value Added Tax (VAT) VAT payable is included as an expense only to the extent that it is not recoverable from Her Majesty s Revenue and Customs. VAT receivable is excluded from income. Page 113

114 1.21 Stage 1 Transition Accounting Policies and Principles Police & Crime Commissioner for Cheshire Statement of Accounts 2013/ Introduction The Police Reform and Social Responsibility Act 2011 replaced police authorities with elected Commissioners and together with the role of Chief Constable, became corporations sole (separate legal entities). The transition to this new model is phased into two stages firstly the transfer of all resources, assets and liabilities of the former police authority to the Commissioner upon election (Stage 1) and then the consenting of resources, assets and liabilities to the Chief Constable from 1 April 2014 (Stage 2) Basis of transition Stage 1 transition impacts on the 2012/13 and 2013/14 Statement of Accounts (these accounts). The accounting for Stage 1 is in line with the CIPFA Code of Practice for Local Authority Accounting 2013/14 (the Code) and Local Authority Accounting Panel (LAAP) Bulletins. The statutory transfer of all resources, assets and liabilities from the former police authority to the Commissioner took place on the 21 November Accounting policies and principles (Stage 1) The Commissioner and Chief Constable have agreed the standard accounting policies and principles as set out above. For this Stage 1 transition period, there are a number of specific supporting policies and principles which are required and these are detailed below. These take precedent over the above policies should there be a conflict. Reserves All reserves transferred to and remain the property of the Commissioner at Stage 1. These include revenue and capital usable reserves and some unusable reserves which reflect the adjustments between accounting basis and funding basis under regulations, for example the revaluation reserve on property. Surplus/Deficit for year Any surplus or deficit shown in the Chief Constable s Comprehensive Income and Expenditure Statement will be either transferred to (in the case of a surplus) or reimbursed from (in the case of a deficit) the Commissioner s accounts. The exception being items permitted for reversal under the adjustments between accounting and funding basis under regulations. Use of Assets All assets (land, buildings, equipment etc.) transferred from the former police authority to the Commissioner under statute and remain in his possession. Therefore the costs of ownership for these assets such as depreciation are charged to the Commissioner s Statement of Accounts. However it is necessary to reflect the fact that the Chief Constable has had use of the majority of these assets during 2013/14. As such the Commissioner will charge the Chief Constable for the fair use of these assets which will be reflected in his Comprehensive Income & Expenditure Statement. Fair use is calculated on full recovery of the costs to the Commissioner for each asset used by the Constabulary. Page 114

115 Contingent Assets & Liabilities Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 As the Commissioner holds all usable reserves and is the responsible body for assets and liabilities, any contingent assets or liabilities will be recorded within his accounts. 2. Accounting Standards issued, not yet adopted During 2013/14 a number of accounting standards were amended: º IFRS13 Fair Value Measurement (May 2011) º IAS27 Separate Financial Statements (as amended in 2011) º IFRS10 Consolidated Financial Statements º IAS28 Investments in Associates and Joint Ventures (as amended in 2011) º IFRS11 Joint Arrangements º IAS32 Financial Instruments: Presentation º IFRS12 Disclosure of Interest in Other Entities º Annual Improvements to IFRSs Cycle The above changes have no impact on these accounts but will be reviewed during 2014/15 and any amendments required will be clearly shown in the 2014/15 Statement of Accounts. 3. Critical Judgements in applying Accounting Policies In applying the accounting policies set out in Note 1 the Commissioner has had to make certain judgements about complex transactions or those involving uncertainty about future events. The critical judgements made in the Statement of Accounts are: There is a high degree of uncertainty about future levels of Central Government funding. However, the Commissioner has determined that this uncertainty is not yet sufficient to provide an indication that the assets of the Commissioner might be impaired as a result of a need to close facilities and/or reduce levels of service provision. The Private Finance Initiative (PFI) accounting models used to calculate future liabilities for interest and capital repayments are based on the current Retail Price Index (RPI) and Utilities Price Index (UPI) as listed by the Office of National Statistics. These are reviewed annually with any change affecting the current and future years charges. With the creation of the two corporations sole (the Commissioner and the Chief Constable) and the requirement for each to produce their individual statements of account, judgements have been made as to which statement of account income; expenditure; assets and liabilities have been allocated. This has been based on the substance of the transaction and not just the legal form. The key judgements are: o All income and grants are recognised in the Commissioner s Statement of Account o All day to day expenditure outside of those properly charged to the Office of the Police & Crime Commissioner are recognised in the Chief Constable s Statement of Accounts o All assets are held by the Commissioner who consents to their usage by the Constabulary in pursuance of their policing service for which a fair use charge is applied to the Chief Constable, received by the Commissioner o All liabilities are held by the Commissioner with the exception of the Accumulated Absences and Pension Liability applicable to the Constabulary for which the Chief Constable holds unusable reserves o All other reserves are held by the Commissioner Page 115

116 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 4. Assumptions made about the future & other major sources of estimation uncertainty The Statement of Accounts contains estimated figures that are based on assumptions made by the Commissioner about the future or that are otherwise uncertain. Estimates are made taking into account historical experience, current trends and other relevant factors. However, because balances cannot be determined with certainty, actual results could be materially different from the assumptions and estimates. The items in the Commissioner s Balance Sheet at 31 March 2014, for which there is a significant risk of material adjustment in the forthcoming financial year, are as follows: Item Uncertainties Effect if actual results differ from assumptions Property, Plant and Equipment Provisions Pensions Liability Assets are depreciated over useful lives and are dependent on assumptions about the level of repairs & maintenance that will be incurred. The current economic climate makes it uncertain that the Commissioner will be able to sustain current spending on repairs & maintenance, bringing into doubt the useful lives assigned to assets. Provisions are based on best estimates and professional judgements. The Commissioner has made provision of 0.9m for the settlement of civil and motor claims. Estimation of net liability to pay pensions depends on a number of complex judgements relating to the discount rate used, the rate at which salaries are projected to increase, changes in retirement ages, mortality rates and expected returns on pension fund assets (where applicable). If the useful life of assets is reduced, depreciation increases and the carrying amount of the assets falls. It is estimated that the annual depreciation charge would increase by 1.88m for every year that useful lives have to be reduced. An increase over the forthcoming year of 10% in either the total number of claims or the estimated average settlement would each have the effect of adding 0.09m to the provision needed. The effects on the net pension liability of changes in individual assumptions can be measured. For instance a 0.5% increase in the discount rate assumption would result in a decrease in the pension liability of 24.3m for the Local Government Pension Scheme. The Government s Actuary Department is engaged to provide the Commissioner with expert advice about the assumptions to be applied for Police Pensions and Cheshire West & Chester Council provide information on the Local Government Pension Scheme. However, the assumptions interact in complex ways. Where assumptions do change these are reported as actuarial gains and losses within the Other Income and Expenditure line in the Comprehensive Income & Expenditure Statement. These changes only impact on the Pension Reserve and Liability and have no impact on general reserve. Page 116

117 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Item Uncertainties Effect if actual results differ from assumptions Arrears At 31 March 2014 the Commissioner had a balance of sundry debtors for 1.2m. A review of significant balances suggested that an impairment of doubtful debts over six months old was appropriate. If collection rates were to deteriorate, further impairment would be required. An average monthly debt is 1.7m. This list does not include assets and liabilities that are carried at fair value based on a recently observed market price. 5. Material Items of Income and Expense There are no material items of income and expense for 2013/ Post Balance Sheet events At the Joint Management Board on 4 June 2014, the Commissioner approved as part of the 2013/14 outturn to transfer 8m to earmarked reserves to fund agreed budget carry forwards and to support the Medium Term Financial Strategy. This has been reflected in this Statement of Accounts and Note 8. Additionally, HMRC accepted a claim for repayment of Value Added Tax which has now been recognised as a debtor rather than a contingent asset. 7. Adjustments between Accounting Basis and Funding Basis under Regulations This note details the adjustments that are made to the total comprehensive income and expenditure recognised by the Commissioner in the year in accordance with proper accounting practice to the resources that are specified by statutory provisions as being available to the Commissioner to meet future capital and revenue expenditure. The following sets out a description of the reserves that the adjustments are made against: General Fund The General Fund is the statutory fund into which all the receipts of the Commissioner are required to be paid and out of which all liabilities of the Commissioner are to be met, except to the extent that statutory rules provide otherwise. These rules can also specify the financial year in which liabilities and payments should impact on the General Fund balance, which is not necessarily in accordance with proper accounting practice. The General Fund balance therefore summarises the resources that the Commissioner is statutorily empowered to spend on police services or on capital investment. Capital Receipts Reserve The Capital Receipts Reserve holds the proceeds from the disposal of land or other assets which are restricted by statute from being used other than to fund new capital expenditure or to be set aside to finance historical capital expenditure. The balance on the reserve shows the resources that have yet to be applied for these purposes at year end. Unapplied Capital Grants Reserve The Unapplied Capital Grants Reserve hold the grant and contributions received towards capital projects for which the Commissioner has met the conditions that would otherwise require repayment of the money but which has yet to be applied to meet expenditure. The balance is restricted by grant terms as to the capital expenditure against which it can be applied and/or the financial year in which this can take place. Page 117

118 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 General Earmarked Capital Total Unusable 2013/14 Fund Reserves Receipts Usable Reserves Total Balance Reserve Reserves Reserves Reversal of items debited or credited to the CI&E Statement Other Comprehensive Expenditure and Income: Pensions: Actuarial Gains and Losses (139) (139) Revaluation of Property Plant & Equipment (1,142) (1,142) (1,281) (1,281) Adjustments between accounting basis & funding basis under regulations: Pensions Current Service Costs (net) (25) (25) 25 0 Past Service Costs (169) (169) Pensions Net Interest (19) (19) 19 0 Depreciation Property (2,340) (2,340) 2,340 0 Equipment (1,757) (1,757) 1,757 0 Vehicles (731) (731) Amortisation Intangible Assets (1,550) (1,550) 1,550 0 (Gain)/Loss on Sale of Assets 124 (975) (851) Capital Grants/Contributions General Capital Grant 1,495 (1,495) 0 0 Specific Capital Grants/Contribution 126 (126) 0 0 Insertion of items not debited or credited to the CI&E Statement Adjustments between accounting basis & funding basis under regulations: Capital Financing Statutory Provision for repayment of debt 1,892 1,892 (1,892) 0 Capital Grant Applied 1,620 1,620 (1,620) 0 Capital Receipts applied (98) 0 Earmarked Reserves applied 1,822 1,822 (1,822) 0 Other Adjustments Collection Fund Adjustment Account (615) 0 (2,339) 1,821 (877) (1,395) 1,395 0 Page 118

119 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 General Earmarked Capital Total Unusable 2012/13 Fund Reserves Receipts Usable Reserves Total Balance Reserve Reserves Reserves Reversal of items debited or credited to the CI&E Statement Other Comprehensive Expenditure and Income: Revaluation of Property Plant & Equipment 1,907 1, ,907 1,907 Adjustments between accounting basis & funding basis under regulations: Pensions Current Service Costs (142) (142) Depreciation Property (2,449) (2,449) 2,449 0 Equipment (2,486) (2,486) 2,486 0 Vehicles (1,057) (1,057) 1,057 0 Amortisation Intangible Assets (1,331) (1,331) 1,331 0 (Gain)/Loss on Sale of Assets (1,516) (2,345) (3,861) 3,861 0 Capital Grants/Contributions General Capital Grant 1,729 (1,729) 0 (0) 0 Specific Capital Grants/Contribution 0 (0) 0 Insertion of items not debited or credited to the CI&E Statement Adjustments between accounting basis & funding basis under regulations: Capital Financing Statutory Provision for repayment of debt 1,863 1,863 (1,863) 0 Capital Grant Applied 1,671 1,671 (1,671) 0 Revenue Contribution to Capital 2,230 (2,230) 0 (0) 0 Capital Receipts applied 0 (0) 0 Earmarked Reserves applied 6,101 6,101 (6,101) 0 Other Adjustments Collection Fund Adjustment Account (106) 0 (3,053) 3,813 (2,345) (1,585) 1,585 0 Page 119

120 8. Transfers to / from Earmarked & General Reserves Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 The Commissioner holds a number of reserves that are classified as usable (can be used to fund the Commissioner s future activities). This note sets out the amounts set aside from the general fund in earmarked reserves to provide financing for future expenditure plans and the amounts posted back from earmarked reserves to meet General Fund expenditure 2013/14. General Fund (Usable) The General Fund is available to support general revenue expenditure. 2013/ / /12 Balance at 1 April (5,287) (5,176) (7,838) Transfers to General Fund (588) (111) (7,553) Transfers from General Fund ,215 Balance at 31 March (5,875) (5,287) (5,176) Revenue Reserve for Capital Expenditure (Earmarked) This is used to finance capital expenditure in future years. The Commissioner s budget includes a revenue contribution to this reserve each year to support capital expenditure without further borrowing. For 2013/14 this amounted to 1m. 2013/ / /12 Balance at 1 April (696) (3,331) (263) Transfers to Earmarked Reserve (2,205) (2,468) (4,642) Transfers from Earmarked Reserve 2,796 5,103 1,574 Balance at 31 March (105) (696) (3,331) Medium Term Financial Strategy Reserve (Earmarked) This reserve was created to support the Medium Term Financial Strategy in recognition of the challenging financial scenario. This will be used to support transition projects and changes required to meet the savings required over the next four years. 2013/ / /12 Balance at 1 April (2,367) - - Transfers to Earmarked Reserve (6,859) (2,367) - Transfers from Earmarked Reserve Balance at 31 March (9,205) (2,367) - Carry Forward Reserve (Earmarked) At the Management Board meeting on 4 June 2014 a number of carry forward budgets were approved for spend in 2014/ / / /12 Balance at 1 April Transfers to Earmarked Reserve (1,166) - - Balance at 31 March (1,166) - - Page 120

121 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Underwater Search Unit Reserve (Earmarked) The Commissioner acts as the lead body for the regional underwater search unit. The reserve holds resources that the unit can use to support its operations. 2013/ / /12 Balance at 1 April (565) (256) (339) Transfers to Earmarked Reserve (131) (309) (143) Transfers from Earmarked Reserve Balance at 31 March (649) (565) (256) Local Resilience Forum Reserve (Earmarked) This represents the contributions from the collaboration of agencies representing the Local Resilience Forum. The reserve is held on behalf of the forum. 2013/ / /12 Balance at 1 April Transfers to Earmarked Reserve (80) - - Balance at 31 March (80) - - Capital Systems Reserve (Earmarked) This holds resources set aside for the creation of the Multi-force Shared Service and the implementation of an enterprise resource planning system (Oracle). This reserve was utilised in 2013/14. This reserve was fully utilised in 2013/14 and closed. 2013/ / /12 Balance at 1 April (83) (724) (3,723) Transfers from Earmarked Reserve ,999 Balance at 31 March - (83) (724) IT Reimbursement Reserve (Earmarked) This represents resources that can be used for the replacement of computer equipment. 2013/ / /12 Balance at 1 April (22) (208) (172) Transfers to Earmarked Reserve (208) (171) (180) Transfers from Earmarked Reserve Balance at 31 March (88) (22) (208) Localisation of Council Tax Reserve (Earmarked) This reserve is to cover the potential impact of changes to council tax benefit payments. 2013/ / /12 Balance at 1 April Transfers to Earmarked Reserve (1, Balance at 31 March (1,109) - - Page 121

122 Page 122 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Redundancy Reserve (Earmarked) This reserve is to fund the cost of redundancies resulting from the savings required. 2013/ / /12 Balance at 1 April (2,811) (3,109) (5,000) Transfers to Earmarked Reserve - (901) - Transfers from Earmarked Reserve 546 1,199 1,891 Balance at 31 March (2,265) (2,811) (3,109) One-Off Revenue Costs (Earmarked) This reserve was created to fund specific one-off revenue costs. The remaining balance has been used to fund the current actuarial valuation pension costs. 2013/ / /12 Balance at 1 April (1,834) (2,544) - Transfers to Earmarked Reserve - - (2,544) Transfers from Earmarked Reserve 1, Balance at 31 March - (1,834) (2,544) Actuarial Valuation Deficit Reserve (Earmarked) This reserve is to fund the actuarial valuation pension deficit costs over the next three years. 2013/ / /12 Balance at 1 April Transfers to Earmarked Reserve (2,965) - - Transfers from Earmarked Reserve Balance at 31 March (2,965) - - Unapplied Capital Grants Reserve (Earmarked) This is specific capital grants received but not yet applied to finance capital expenditure. 2013/ / /12 Balance at 1 April (36) (231) (637) Transfers to Earmarked Reserve (2,736) (1,666) (1,491) Transfers from Earmarked Reserve 2,741 1,861 1,897 Balance at 31 March (31) (36) (231) Capital Receipts Reserve (Usable) This contains the proceeds of asset sales and can be used to finance new investment. 2013/ / /12 Balance at 1 April (6,700) (4,355) (2,372) Transfers to Earmarked Reserve (1,192) (2,345) (2,160) Transfers from Earmarked Reserve Balance at 31 March (7,577) (6,700) (4,355)

123 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Multi Force Shared Service Development Fund Reserve (Earmarked) Under the initial agreement a development fund would be created as and when the Multi Force Shared Service expanded. This will be used to develop the services offered. 2013/ / /12 Balance at 1 April Transfers to Earmarked Reserve (30) - - Balance at 31 March (30) Notes to the Comprehensive Income and Expenditure Statement Within the Comprehensive Income and Expenditure Statement there are three summary lines which are explained in more detail within the next three tables. Other Operating Expenditure 2013/ /13 (Profit)/Loss on Sale of Fixed Assets (125) 1,516 Balance of provision returned to revenue account (43) - Home Office Top Up Grant - Pensions (18,734) (15,261) Police & Crime Commissioner contribution to Pension Account 18,734 15,261 Income from the fair value for use of assets (6,379) (7,324) Funding to the Chief Constable for Cheshire Constabulary 186, ,947 Total 179, ,139 Financing and Investment Income and Expenditure 2013/ /13 Interest and Investment Income (105) (221) Interest Payable and Similar Charges 3,286 3,387 Pensions Net Interest 19 - Total 3,200 3,166 Taxation and Non Specific Grant Income 2013/ /13 Police Grant (68,420) (64,291) DCLG Funding (50,407) (51,588) Precept on Council Tax Collection Funds (52,037) (56,663) Movement on Collection Fund Debtors/Creditors (49) (14) PFI Grant Interest Element (2,489) (2,527) Capital Grants (1,621) (1,667) Capital Contributions - (63) Total (175,023) (176,813) Page 123

124 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/ Property, Plant & Equipment The following table shows the movement of assets classified as property, plant & equipment. 2013/14 Property Vehicles Equipment WIP Total Cost or Valuation At 1 April ,712 11,374 23, ,993 Additions 179 1,389 1,380-2,948 Revaluations (1,229) (1,229) Disposals (585) (760) (5) - (1,350) Reclassifications (219) (143) At 31 March ,858 12,079 25, ,219 Depreciation At 1 April 2013 (2,421) (8,942) (19,330) - (30,693) Prior Year Adjustments Charge in year (2,352) (731) (1,757) - (4,840) Disposals Revaluations 2, ,368 Reclassifications 0 (36) 0 - (36) At 31 March 2014 (2,397) (9,062) (21,082) - (32,541) Net Book Value at 1 April ,291 2,432 4, ,300 Net Book Value at 31 March ,461 3,017 4, , /13 Property Vehicles Equipment WIP Total Cost or Valuation At 1 April ,162 15,987 21,989 2, ,949 Additions 280 1,220 1,903-3,403 Revaluations (4,259) (4,259) Disposals (100) (5,833) - - (5,933) Reclassifications (371) - 15 (2,811) (3,167) At 31 March ,712 11,374 23, ,993 Depreciation At 1 April 2012 (2,392) (9,956) (16,844) - (29,192) Charge in year (2,410) (1,058) (2,486) - (5,954) Disposals - 2, ,072 Revaluations 2, ,366 Reclassifications At 31 March 2013 (2,421) (8,942) (19,330) - (30,693) Net Book Value at 1 April ,770 6,031 5,145 2,811 92,757 Net Book Value at 31 March ,291 2,432 4, ,300 In this financial year, the region has incurred 3.689m of capital expenditure on the purchase and refurbishment of a building to accommodate the Regional Crime Unit, the Regional Intelligence Unit and the Regional Asset Recovery Team. The cost of this asset has been fully funded by a 3.689m capital grant received from the Home Office. Page 124

125 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 The premises have been purchased in the name of and are owned by the PCC for Merseyside and the full cost of this asset ( 3.689m) is reported as an asset under construction at the balance sheet date. The building became operational in May If the regional arrangements are ever terminated the Home Office has the option of recovering the 3.689m grant received to fund the building. If this option was not exercised, the sale proceeds would be divided between the participating Forces (Cheshire, Greater Manchester, Merseyside, Lancashire, Cumbria and North Wales). Cheshire Constabulary s share of this collaboration is 10.63%. Depreciation In line with IAS16, depreciation is defined as the systematic allocation of the depreciable amount of an asset over its useful life. Land and buildings are separable assets and are accounted for separately, even when they are acquired together. Land has an unlimited useful life and therefore is not depreciated. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. As stated in the accounting policies on page 111, depreciation is charged as follows: Land no depreciation applied Property (not land) straight-line allocation over 30 to 50 years Plant and Equipment straight-line allocation over 3 to 20 years Significant commitments under capital contracts At 31 March 2014, there are no significant commitments under capital contracts. Similar commitments at 31 March 2013 were 0.770m. Revaluation Property (land and buildings) are revalued in detail every five years in accordance with the relevant standards and guidance issued by the Royal Institute of Chartered Surveyors. The last full valuation was carried out in 2010/11 with the next valuation due 2015/16. As part of the general review of property assets a desktop exercise was under taken by Graham J Cooke BSc (Hons) FRICS of Matthew & Goodman, Property Advisors, Manchester dated 31 March This showed there was a material change to the value of these assets since the valuation review last year resulting in a gain ( 1.142m) and this has been charged to the Comprehensive Income and Expenditure Statement. The value of assets has been amended on the balance sheet and the change reflected in the revaluation reserve. The desktop exercise predominately uses the depreciated replacement cost methodology which is a method of valuation that provides the current cost of replacing an asset with its modern equivalent asset less deductions for all physical deterioration and all relevant forms of obsolescence and optimisation, e.g. its wear and tear from usage. Page 125

126 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/ Financial Instruments (including Borrowing) The definition of a financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability, or equity instrument of another entity. The term financial instrument covers both financial assets and liabilities. These range from straight forward debtors and creditors to more complex investments and borrowings. The following categories of financial instruments are carried in the Balance Sheet, current is deemed to be under one year and long-term over one year. Page 126 Long-term 31 March March March 2014 Current 31 March 2013 Investments Short-term Investments Total Investments Debtors Loans and receivables 2,651 2,849 19,047 15,886 Total Debtors 2,651 2,849 19,047 15,886 Borrowings Financial Liabilities 16,876 17, ,900 Total included in borrowings 16,878 17, ,900 Other Long-term Liabilities PFI & Finance Leases 23,939 24, Total other long term liabilities 23,939 24, Creditors Financial Liabilities ,224 12,127 Total Creditors ,224 12,127 Fair Values of Assets and Liabilities Financial liabilities, financial assets represented by loans and receivables and long-term debtors and creditors are carried in the Balance Sheet at amortised cost. Their fair value can be assessed by calculating the present value of the cash flows that will take place over their remaining life as follows: Financial liabilities relate to the outstanding borrowing with the fair value being calculated by Capita Asset Services (the Commissioner s advisors). Capita use the Net Present Value (NPV) approach, which provides an estimate of the value of future payments in today s terms. The discount rate used in the NPV calculation is be equal to the current rate in relation to the same instrument from a comparable lender. This will be the rate applicable in the market on the date of valuation, for an instrument with the same duration i.e. equal to the outstanding period from valuation date to maturity. The structure and terms of the comparable instrument should be the same, although for complex structures it is sometimes difficult to obtain the rate for an instrument with identical features in an active market. In such cases, the prevailing rate of a similar instrument with a published market rate is used as the discount factor. The rates quoted in this valuation were obtained by Capita from the market on 30 March 2014, using bid prices where applicable.

127 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Assumptions: It is noted that the following assumptions do not have a material effect on the fair value of the instrument: Interest is calculated using the most common market convention Interest is not paid/received on the start date of an instrument, but is paid/received on the maturity date No adjustment made where a relevant date occurs on a non working day 31 March March 2013 Fair Carrying Value Amount Carrying Amount Fair Value Financial Liabilities 17,078 18,680 19,978 23,139 Long-term Creditors 25,437 25,437 25,824 25,824 42,515 44,117 45,802 48,963 Loans and Receivables 5,141 5,141 6,268 6,268 Long-term Debtors 2,652 2,652 2,849 2,849 7,793 7,793 9,117 9,117 The differences between carrying and fair value amounts are not material. No gains or losses have been recognised in the year. Short-term debtors and creditors are carried at cost as this is a fair approximation of their value. The Commissioner s activities in relation to financial instruments expose it to a variety of financial risks: Credit Risk the possibility that other parties might fail to pay amounts due to the Commissioner. Liquidity Risk the possibility that the Commissioner might not have funds available to meet its commitments and payments. Market Risk the possibility that financial loss might arise for the Commissioner as a result of changes in measures such as interest rates, foreign exchange rates or stock market movements. The overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the resources available to fund police services. Risk management is carried out under policies approved by the Commissioner in the annual Treasury Management Strategy which was approved on 29/01/2014 and is published each year ( Board-Meetings/2014/Agenda/ Agenda.pdf). The Strategy provides written principles for overall risk management as well as written policies covering specific areas such as interest rate risk, credit risk and the investment of surplus cash. Page 127

128 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Credit Risk Credit risk relates to deposits with banks and financial institutions as well as the Commissioner s debtors. This risk is minimised by treasury management that meets best practices, guidance and regulations. For example, with investments there are restrictions in both amounts and counterparties using recognised credit ratings. The credit criteria as set out in the 2013/14 Treasury Management Strategy in respect of financial assets held by the Commissioner are detailed below: Financial Asset Category Minimum Criteria Maximum Investment Deposits with major UK and non UK Banks and Building Societies Deposits with Money Market Funds Deposits with Other Local Authorities Deposits with Debt Management Agency Deposit Facility Long Term: A- Short Term: F1 Support: 1 Long Term: A- Short Term: F1 Support: 1 Not credit rated but are legally required to set a balanced budget. Not credit rated but deposits have the best possible credit through the HM Government guarantee. 10m per institution or group. 10m per fund. 10m per Local Authority. 10m total. In respect of debtors, action is taken when payments become overdue and may lead to legal action to recover the debt. The Commissioner provides for bad debts each year based on agreed debt management policy (non-statutory debt only). The amount provided for in 2013/14 was 45,100 ( 86,000 in 2012/13). Invoiced Debt held by the Commissioner at the end of the financial year, analysed by age is as follows: 31 March March 2013 Current (0-30 days) 50 1,468 1 Month Months ,711 Overpayments (0) (0) Total 1,154 3,360 Liquidity Risk Liquidity risk is that the Commissioner will be unable to meet his commitments and payments and this is mitigated in several ways. Firstly, by producing cashflow projections which allow for cash management including the repayment profile of borrowing, also by securing access to overdraft facilities and by utilising short-term borrowing through money markets if necessary. Page 128

129 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 As such there is no significant risk that the Commissioner will be unable to raise finance to meet its commitments under financial instruments. Instead, the risk is that the Commissioner will be bound to replenish a significant proportion of its borrowings at a time of unfavourable interest rates. The Commissioner sets a limit on the proportion of its fixed rate borrowing during specified periods as set out in the Commissioner s Treasury Management Strategy prudential indicators. The following table shows the long-term borrowing outstanding at 31 March March March 2013 Analysis of loans by type Public Works Loans Board 10,878 11,078 Money Market 6,000 6,000 Total Outstanding 16,878 17,078 Analysis of loans by maturity Between 1 and 2 years Between 2 and 5 years Between 5 and 10 years 1,004 1,004 More than 10 years 15,774 15,774 Total Outstanding 16,878 17,078 Market Risk Interest Rates The Commissioner is exposed to risk in terms of movement in interest rates on its borrowings and investments. Movements in interest rates have a complex impact on the Commissioner. For instance, a rise in interest rates would have the following effects: Borrowing at variable rates the interest charged to the Comprehensive Income and Expenditure Statement will rise Borrowing at fixed rates the fair value of the borrowings will fall Investments at variable rates the income credited to the Comprehensive Income and Expenditure Statement will rise Investments at fixed rates the fair value of the investments will fall Borrowings are not carried at fair value so nominal gains and losses on fixed rate borrowings would not impact the Comprehensive Income and Expenditure Statement. However, changes in interest rates on variable borrowings and investments will have a direct impact on the Comprehensive Income and Expenditure Statement and affect the General Fund balance. The Commissioner takes into account interest rates as part of its investment strategy but recognises the need for security above return. Given the overall impact of the banking crisis of 2008, security has become an increasing area of risk and investments are only made with organisations that have the highest credit rating and security. To ensure the maximum security, the current strategy favours short-term or instant access deposits. Interest rates on borrowing remained unchanged during 2013/14. Page 129

130 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Premiums and Discounts on Early Repayment of Debt The Commissioner did not make any early repayment of debt in 2013/14. Foreign Exchange Rates / Stock Markets The Commissioner has no material exposure to foreign exchange rates or stock market movements (price risk). 12. Stock The value of stocks held at 31 March 2014 is as follows: 31 March March March 2012 Distribution and Logistics Uniforms Other Items Total Analysis of Debtors (including Prepayments etc) Analysis of debtors and prepayments are shown below. 31 March March March 2012 Central Government Bodies 10,215 5,934 4,616 Other Local Authorities 7,945 5,188 5,156 NHS Bodies Public Corporations & Trading Boards Other entities and individuals 931 4,785 3,489 LESS: Provision for Bad Debts (45) (86) (26) Total 19,047 15,886 13, Cash and Cash Equivalents The balance of Cash and Cash Equivalents is made up of the following elements: 31 March March March 2012 Cash held Bank Current Accounts (740) (1,199) (4,340) Short-term deposits 19,158 10,136 15,993 Total 18,462 8,981 11,697 Page 130

131 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 In addition to the above, the Commissioner held 736k of funds ( 709k 2012/13) as follows: Police Property Act At the 31 March 2014, the Commissioner held 163k under the Police Property Act The Act applies to property that is in the possession of police where the owner of the property cannot be identified and where no order of a competent court has been made. The proceeds, after defraying the costs of handling the property, are available for distribution each year to local charities as directed by the Chief Constable. Proceeds of Crime Act At the 31 March 2014, the Commissioner held 573k under the Proceeds of Crime Act This is money seized in connection with possible criminal activity and held pending a decision, by the courts, on the lawful owner, or distribution if no legal owner is identified. These funds are not under the ownership of the Constabulary who acts as steward on behalf of various parties, and as such, does not form part of the Commissioner s accounts. 15. Assets Held for Sale The Commissioner s Estates Strategy is to review all property held and when advantageous to do so place surplus property for sale. The following table shows the property for sale at the Balance Sheet dates. When classified as for sale the asset is no longer subject to depreciation. 31 March March March 2012 Balance at the start of year ,494 Assets newly classified as held for sale Property, Plant & Equipment Other Assets Revaluations gains / (losses) Impairment losses (4) Assets sold (200) (0) (2,304) Balance at the end of year Analysis of Creditors Analysis of short-term creditors is shown below. 31 March March March 2012 Central Government Bodies (3,346) (4,237) (4,000) Other Local Authorities (3,108) (1,273) (2,810) NHS Bodies - (20) (4) Public Corporations & Trading Boards Other entities and individuals (8,770) (6,597) (6,834) Total (15,224) (12,127) (13,648) Page 131

132 17. Provisions Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 The Commissioner has an insurance provision to meet the cost of known quantifiable liabilities arising from claims in respect of fire and consequential loss, public and employer liability and vehicle losses not covered by external insurance. When claims are settled the cost is met from the provision. Details of the provision are shown below. Insurance Provision 2013/ / /12 Balance at 1 April 1, Use of provision in the year (333) (493) (152) Charge to/(from) CI&E Statement Balance at 31 March 936 1, Due to the nature of the claims covered by the above provision, a clear projection of when the actual payments will be made is not available. However, based on past experience it is estimated that the current provision will be spent 0.1m within next financial year, 0.3m within 1-5 years and the remainder between 5 and 10 years. During 2011/12 a provision was created in respect of unresolved national negotiations regarding the implementation of a 250 per person one-off payment for staff earning less than 21,000 per annum. The reserve was cleared in 2013/14. Pay Provision 2013/ / /12 Balance at 1 April Use of provision in the year (43) Charge to/(from) CI&E Statement Balance at 31 March Usable Reserves Movement in the Commissioner s Usable Reserves are detailed in the Movement in Reserves Statement and Note Unusable Reserves The Commissioner also holds unusable reserves (technical accounting adjustment accounts reflecting the difference between the outcome of applying proper accounting practices and the statutory requirements for funding expenditure within the public sector). This note shows the movements in year. Revaluation Reserve (Unusable) The Revaluation Reserve contains the gains arising from increases in the value of Property, Plant and Equipment. The balance is reduced when assets with accumulated gains are: revalued downwards or impaired and the gains are lost; used in the provision of services and the gains are consumed through depreciation; or disposed of and the gains realised Page 132

133 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 The Reserve contains only revaluation gains accumulated since 1 April 2007, the date that the Reserve was created. Accumulated gains arising before that date are consolidated in the balance on the Capital Adjustment Account. 2013/ / /12 Balance at 1 April (8,454) (8,914) (10,250) Movement in year (2,375) 460 1,336 Balance at 31 March (10,829) (8,454) (8,914) Capital Adjustment Account (Unusable) The Capital Adjustment Account absorbs the timing differences arising from the different arrangements for accounting for the consumption of non-current assets and for financing the acquisition, construction or enhancement of those assets under statutory provisions. The Account is debited with the cost of acquisition, construction or enhancement and depreciation, impairment losses and amortisations are charged to the Comprehensive Income & Expenditure Statement (with reconciling postings from the Revaluation Reserve to convert fair value into historical cost). The Account is credited with the amounts set aside to finance the cost of acquisition, construction or enhancement. The Account also contains revaluation gains accumulated on Property, Plant & Equipment before 1 April 2007, and the date that the Revaluation Reserve was created to hold such gains. Note 27 provides details of the source of all the transactions posted to the Account apart from those involving the Revaluation Reserve. In recognition of the assignment of all assets excluding land and buildings to the Chief Constable s balance sheet, an equal amount from the capital adjustment account needs to be transferred to reflect their funding. This is shown separately in the table below. 2013/ / /12 Balance at 1 April (27,314) (30,310) (28,102) Depreciation & Amortisation 6,379 7,324 6,903 Revaluation losses and write down 1,374 1,446 1,065 Impact of disposals/sale of assets 749 3,861 1,426 Capital Financing see Note 27 (3,580) (7,772) (7,004) Minimum Revenue Provision/Debt Repayment (1,892) (1,863) (4,598) Balance at 31 March (24,284) (27,314) (30,310) IAS19 Pension Reserve (Unusable) The Pension Reserve absorbs the timing differences arising from the different arrangements for accounting for post-employment benefits and for funding those benefits in accordance with statutory provisions. Post-employment benefits are accounted for in the Comprehensive Income & Expenditure Statement as the benefits earned by employees accruing years of service, updating the liabilities recognised to reflect inflation, changing assumptions and investment returns on any resources set aside to meet the costs. Statutory arrangements however require benefits earned to be financed as the Commissioner makes employer s contributions to pension funds or eventually pays any pensions for which he is directly responsible. The debt balance on the Pension Reserve Page 133

134 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 therefore shows a substantial shortfall in the benefits earned by past and current employees and the resources set aside to meet them. The statutory arrangements will ensure that funding will have been set aside by the time the benefits come to be paid. The assignment of this reserve is also split for 2013/14 between the Commissioner and Chief Constable based on the number of police staff employed. All police officer pension reserve is assigned to the Chief Constable. 2013/ /13 Balance at 1 April Movement in year Balance at 31 March Collection Fund Adjustment Account (Unusable) The Collection Fund Adjustment Account is the difference between the precept income included in the accounts and the amount required by statute to be credited to the General Fund. The balance relates to the net creditor/debtor from billing authorities when accounting for collection fund balances on an accruals basis at the year end. 2013/ / /12 Balance at 1 April (218) (112) (19) Movement in year (615) (106) (93) Balance at 31 March (833) (218) (112) 20. Notes to the Cashflow Statement The cashflows include the following items: Other Operating Expenditure 2013/ /13 Interest received (105) (221) Interest paid 3,286 3,387 Total 3,181 3,166 Investing Activities 2013/ /13 Purchase of Property, Plant & Equipment & Intangible Assets 2,072 7,772 Proceeds from sale of assets (728) (2,329) Total 1,344 5,443 Financing Activities 2013/ /13 Cash receipts of short and long-term borrowing - - Cash payments for the reduction of outstanding liabilities relating to finance leases and on-balance sheet PFI contracts Repayment of short and long-term borrowing 2, Total 3,714 1,017 Page 134

135 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/ Amounts Reported for Decision-Making Purposes The analysis of income and expenditure shown in the Comprehensive Income & Expenditure Statement is that specified by the CIPFA Service Reporting Code of Practice. However, decisions about resource allocation are taken on the basis of budget reports analysed across various departments and Areas. These reports are prepared on a different basis from the accounting policies used in these financial statements. In particular: no charges are made for capital expenditure (whereas depreciation, revaluation & impairment losses in excess of the balance on the Revaluation Reserve & amortisations are charged to services in the Comprehensive Income & Expenditure Statement) the cost of retirement benefits is based on cashflows (payment of employer s contributions) rather than current service cost of benefits accrued in the year expenditure on some support services is budgeted for centrally and not charged directly to services The following table shows the details reported to the Commissioner and Chief Constable on 4 June 2014 reconciled to the Comprehensive Income & Expenditure Statement. Page 135

136 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Outturn Report 2013/14 reconciled to the Comprehensive Income and Expenditure Statement Service Analysis Police Officer Pay and Allowances Force Operations Directorate Collaborations Area Command Units Centrally Delivered Services Business Services Office of the Police & Crime Commissioner Commissioning Corporate Costs Total Fees, Charges & Other Service Income 0 (4,715) 0 (522) (187) (955) (5) 0 (105) (6,489) Government Grants (207) (5,126) 0 (1,689) (69) (4,082) 0 (1,424) (6,289) (18,886) Total Income (207) (9,841) 0 (2,211) (256) (5,037) (5) (1,424) (6,394) (25,375) Employee Expenses 95,747 20, ,246 3,558 12, , ,061 Other Operating Expenses 0 7,905 3,959 2,184 1,172 18, ,292 2,943 38,202 Total Operating Expenses 95,747 28,373 3,959 16,430 4,730 31, ,292 5, ,263 Cost of Services 95,540 18,532 3,959 14,219 4,474 26, (132) (900) 162,888 Reconciliation to Net Cost of Services in Comprehensive Income and Expenditure Statement Cost of Services in Service Analysis 162,888 Add: Services not included in the main analysis 0 Add: Amounts not reported to management (90,804) Less: Amounts reported to management and not included in Comprehensive Income & Expenditure Statement 2,845 (93,649) Deficit / (Surplus) on Provision of Services as shown in the Comprehensive Income and Expenditure Statement 70,081 Corporate Costs include debt management costs and interest on balances. The above adjustments are detailed on the following page. Page 136

137 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Reconciliation to Subjective Analysis 2013/14 Reconciliation to Outturn Report Service Analysis Services not Included Amounts not Reported Not included in CI&E Total Fees, Charges & Other Service Income (6,489) 0 (497) 0 (6,986) Income from Council Tax 0 0 (52,085) 0 (52,085) Government Grants (18,886) 0 (120,498) 0 (139,384) Total Income (25,375) 0 (173,080) 0 (198,455) Employee Expenses 150,061 0 (2,965) 0 147,096 Movement in Accumulated Absences 0 0 (1,441) 0 (1,441) IAS19 Actuarial Pension Entries , ,084 Other Operating Expenses 36,327 0 (656) ,310 Depreciation and Amortisation 0 0 6, ,379 Minimum Revenue Provision & Capital Contributions ,642 (2,642) Gains and Losses on Disposal of Assets 0 0 (125) 0 (125) Transfers to/from Reserves Support Service Recharges 1, ,875 Total Operating Expenses 188, ,276 2, ,536 Deficit / (Surplus) on Provision of Services 162,888 0 (90,804) 2,845 70,081 Page 137

138 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Outturn Report 2012/13 reconciled to the Comprehensive Income and Expenditure Statement Service Analysis Police Officer Pay & Allowances Neighbourhood Policing Specialist Policing Force Operations Collaborations Central Services Business Services Multi Force Shared Service Office of the Police & Crime Commissioner Corporate Costs Total Fees, Charges & Other Service Income 0 (705) (4,381) (3,602) (78) (1,470) (28) (1) (215) (10,480) Government Grants 0 (6,630) (5,888) (56) 0 (4,018) 0 (82) (27) (16,701) Total Income 0 (7,335) (10,269) (3,658) (78) (5,488) (28) (83) (242) (27,181) Employee Expenses 98,863 15,985 21,807 2,184 1,928 14, ,458 Other Operating Expenses 0 2,132 8,506 3,366 1,052 21, ,647 41,630 Total Operating Expenses 98,863 18,117 30,313 5,550 2,980 35, ,024 3, ,088 Cost of Services 98,863 10,782 20,044 1,892 2,902 30, , ,907 Reconciliation to Net Cost of Services in Comprehensive Income and Expenditure Statement Cost of Services in Service Analysis 169,907 Add: Services not included in the main analysis 0 Add: Amounts not reported to management (94,426) Less: Amounts reported to management and not included in Comprehensive Income & Expenditure Statement 3,469 (97,895) Deficit / (Surplus) on Provision of Services as shown in the Comprehensive Income and Expenditure Statement 72,012 The above adjustments are detailed on the following page. Page 138

139 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Reconciliation to Subjective Analysis 2012/13 Reconciliation to Outturn Report Service Analysis Services not Included Amounts not Reported Not included in CI&E Total Fees, Charges & Other Service Income (10,480) 0 (341) 0 (10,821) Income from Council Tax 0 0 (56,783) 0 (56,783) Government Grants (16,701) 0 (117,610) 0 (134,311) Total Income (27,181) 0 (174,734) 0 (201,915) Employee Expenses 155, ,794 Movement in Accumulated Absences IAS19 Actuarial Pension Entries , ,805 Other Operating Expenses 41, ,453 Depreciation and Amortisation 0 0 7, ,324 Minimum Revenue Provision & Capital Contributions ,890 (3,890) Gains and Losses on Disposal of Assets 0 0 1, ,516 Transfers to/from Reserves (624) 624 Transfers to/from Provisions Total Operating Expenses 197, ,308 3, ,927 Deficit / (Surplus) on Provision of Services 169,907 0 (94,426) 3,469 72,012 1 Amended for the change to the IAS19 Employee Benefit Standard, see Note 35 (Group Accounts) Page 139

140 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/ Members Allowances & Expenses The Police Authority was abolished on 21 November For 2013/14 the amounts shown below relate to the Audit Committee Members only. Actual 2013/14 Actual 2012/13 Basic Allowances 3 45 Special Responsibility Allowances 0 70 Expenses 1 10 Total Officer Remuneration The Commissioner is required to detail the remuneration received by senior officers of the Constabulary and Commissioner which are shown in the following tables. The regulations require detailed disclosure for officers who comprise the Strategic Management Team of the Constabulary whose total remuneration excluding the employer s pension contribution exceeds 50,000. The following definitions apply: Salary including fees and allowances: the amount received under a contract of employment, including any allowances such as housing allowance before the deduction of employees pension contributions, but excluding payments such as bonuses and benefits in kind. The figures shown separately in the Pensions Contributions column refer to the employer s pension contributions. Bonuses: payments made under Police Reform Pay and Conditions Agreement 2002 & 2004 and payments for exceptional work. Benefits in kind: the estimated value of benefits received other than in cash, for example, use of a fleet vehicle. The number of employees whose remuneration, excluding employer's pension contribution exceeding 50,000 or more in bands of 5,000 (including those shown on the next table Senior Officers and Relevant Police Officers emoluments) is set out below: Remuneration Band 2013/14 95,000-99,999 1 employee 75,000-79,999 1 employee Senior Officers and Relevant Police Officers emoluments exceeding 50,000 to 150, /14 Salary Inc Fees & Allowances Benefits in Kind Total Remuneration excl. Pension Contributions 2013/14 Pension Contributions Total Remuneration incl. Pension contributions 2013/14 Post title Police & Crime Commissioner 75, ,176 11,175 86,351 Chief Executive 1 96,212 2,759 98,971 14, ,307 Chief Finance Officer 2 39, ,783 2,947 45, Chief Executive salary SM9 91,032, currently on pay protection; The CFO is part-time. Page 140

141 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/ External Audit Fees In 2013/14 Grant Thornton LLP, the external auditors received the following fees. Fees payable to the Audit Commission/Grant Thornton with regard to external audit services carried out by the appointed Auditor 2013/ Grant Income The Commissioner credited the following grants, contributions and donations to the Comprehensive Income and Expenditure Statement in 2013/14. Credited to Taxation & Non-Specific Grant Income 2013/ /13 Police Grant (Home Office) 68,420 64,291 DCLG Funding 50,407 51,588 PFI Grant Interest Element 2,489 2,527 Capital Grants General Capital Grant (Home Office) 1,495 1,667 Total 122, ,073 Credited to Other Operating Expenditure Police Pension Grant (Home Office) 16,441 14,604 Total 16,441 14,604 The Commissioner has received a number of grants, contributions and donations that have yet to be recognised as income as they have conditions attached to them that will require the monies or property to be returned to the giver. The balances at the year-end are as follows: Grants Received in Advance (Revenue Grants) 2013/ /13 ANPR Phase 1&2 (185) (223) Early Adopters - (38) Total (185) (261) 26. Related Parties The Commissioner is required to disclose material transactions with related parties (i.e. bodies or individuals that have the potential to control or influence the Commissioner or be controlled or influenced by the Commissioner). Disclosure of these transactions allows readers to assess the extent to which the Commissioner might have been constrained in his ability to operate independently or might have secured the ability to limit another party s ability to bargain freely with the Commissioner. Page 141

142 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Central Government Central Government has effective control over the general operations of the Commissioner it is responsible for providing the statutory framework within which the Commissioner operates, provides the majority of the Commissioner s funding in the form of grants and prescribes the terms of many of the transactions that the Commissioner has with other parties (e.g. council tax bills). Grants received from Government departments are set out in Note 25. The Police Reform & Social Responsibility Act 2011 The above Act created two new corporations sole, the Police & Crime Commissioner for Cheshire and the Chief Constable for Cheshire. Each organisation is required to produce a Statement of Accounts which are subject to external audit under the Audit Commission Act The Chief Constable for Cheshire is a wholly owned subsidiary of the Commissioner for Cheshire. Office of the Police & Crime Commissioner Since November 2012 the Office of the Police and Crime Commissioner has maintained a Register of Interests for the Commissioner and Deputy Commissioner and members of the Audit Committee. It has also maintained a Register of Business Interests covering the staff employed therein. Officers and Staff The Constabulary maintains a Register of the Business Interests of Officers and Staff. These registers of business interests were compared to a full supplier listing for 2013/14 and in the Chief Finance Officer s opinion there are no material transactions recorded between the Office of the Police & Crime Commissioner or the Constabulary and any related parties. Other Public Bodies (subject to common control by Central Government) Since the creation of the Multi-Force Shared Service on 1 April 2012, there have been significant transactions with Northamptonshire Police as the partner force. The governance arrangements assure transparency over these transactions and are recorded in the Comprehensive Income & Expenditure Statement or as assets and contributions in the Balance Sheet. Material transactions with other public bodies such as the Borough Councils and the Cheshire Pension Fund have been disclosed within the Comprehensive Income and Expenditure Account and the Cashflow Statement. There are no other related party transactions to report. 27. Capital Expenditure & Financing The total amount of capital expenditure incurred in the year is shown in the table below including the value of assets acquired under finance leases and PFI contracts, together with the resources that have been used to finance it. Where capital expenditure is to be financed in future years by charges to revenue as assets are used, the expenditure results in an increase in the capital financing requirement (CFR), a measure of the capital expenditure incurred historically that has yet to be financed. The Capital Financing Requirement is analysed in the second part of this note. Page 142

143 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/ / /13 Opening capital financing requirement 52,227 54,084 Capital Expenditure in year: Property Plant (e.g. vehicles) 1,415 1,220 Equipment 1,354 1,903 Intangibles 609 4,336 Capital Financing: 3,540 7,772 Capital Grants 1,620 1,671 Borrowing - - Capital Receipts 98 - Contribution from reserves 1,639 3,680 Revenue and Other contributions 183 2,421 Revenue Provision for Repayment of Debt 1,892 1,857 Early Repayment of Debt - - 5,432 9,629 Closing capital financing requirement 50,335 52,227 Explanation of movement in year Decrease in underlying need to borrow (supported by Government direct funding) Decrease in underlying need to borrow (not supported by Government direct funding) 2013/ /13 (203) (392) (1,689) (1,465) Decrease in Capital Financing Requirement (1,892) (1,857) 28. Leases: Finance and Operating Finance Leases The Commissioner accounts for two finance leases, the Private Finance Initiative (PFI) scheme at Headquarters and Charles Stewart House an operational building located in Warrington. The lease for Charles Stewart House expires in 2021/22. Details of the PFI Scheme are shown in Note 29. Charles Stewart House is accounted for as part of the Commissioner s property, plant and equipment and is contractually subject to a full revaluation on a five year cycle. The last revaluation was in December 2011 with the next due in December The rentals payable in 2013/14 were 356,619 (2012/13 355,608). The fair value at 31 March 2014 is 0.8m (2012/13 1.1m). Page 143

144 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Outstanding obligations to make payments under these finance leases at 31 March 2014 accounted for as part of long term liabilities are as follows: Property Not later than one year 203 Later than one year, not later than five years 813 Later than five years 406 Total 1,422 IAS 17 requires the minimum lease payments to be reported. The following table shows the minimum lease payments relating to Charles Stewart House and PFI. 2013/ /13 Not later than one year 3,490 3,490 Later than one year, not later than five years 13,950 13,950 Later than five years 46,594 50,084 Total 64,034 67,524 Operating Leases The Commissioner rents properties and equipment, mostly on short term leases, which are accounted for as operating leases. The rentals payable in 2013/14 and 2012/13 were 156,802 and 189,219 respectively. The Commissioner was committed at 31 March 2014 to making payments of 109,293 under operating leases as follows: Property Equipment Total Not later than one year 13, ,000 Later than one year, not later than five years 78, ,538 Later than five years 6,589 10,166 16,755 Total 98,127 10, , Private Finance Initiative In 2002 the former Authority entered into a long term contractual agreement under a Private Finance Initiative (PFI) for its headquarters facilities. Under the agreement the contractor is responsible for providing the buildings and facilities at Headquarters in Winsford for a period of 30 years. The annual unitary charge is 5.2m and is subject to annual increases using indexation data agreed within the contract. The services provided under the contract are subject to periodic market testing. The contract provides the Commissioner with fully serviced headquarters accommodation throughout the contract period. These services include building & grounds maintenance, security, receptions, cleaning and catering. At the end of the 30 year contract the Commissioner has the right to purchase the Headquarters for a nominal sum. Page 144

145 Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 The contract transfers much of the operational risk to our private sector partner (Cheshire SPV Ltd.) supported by an agreed performance regime. The Commissioner retains the demand risk whereby the Commissioner will be required to make payments for the facilities irrespective of the number of staff working from the site. Assets The land and buildings at Headquarters, together with the associated equipment are included in property, plant and equipment shown on the Balance Sheet and Note 10. The costs, depreciation and valuations undertaken during 2013/14 are detailed below: Land Property Equipment Total Gross Book Value on 1 April ,150 27, ,553 Revaluations Gross Book Value on 31 March ,150 27, Depreciation on 1 April (643) (205) (847) Charge for the year - (671) (24) (695) Revaluation Depreciation on 31 March (671) (229) (900) Net Book Value on 1 April ,150 26, ,706 Net Book Value on 31 March ,150 26, ,153 Liabilities At the start of the PFI contract the former Authority s liability was equal to the cost of the assets now recognised on the Balance Sheet. This was initially reduced by the Commissioner making a prepayment of 6.49m and further reduced each year by the element of the unitary payment attributable to the capital expenditure. This is shown in the accounts under the Minimum Revenue Provision and for 2013/14 equated to 0.609m. The current liability at 31 March 2013 is 23.3m. PFI Liability 31 March March March 2012 Balance at 1 April 23,938 24,500 25,026 Movement in year (609) (562) (526) Balance at 31 March 23,329 23,938 24,500 Payments due As stated above the Commissioner has an obligation to make the annual payments for this contract until it ends in Details of the profiling of these payments split into their constituent parts are shown below and are based on the contractual figures before market testing and indexation: Page 145

146 Analysis of payments due within: Service Charges Finance Charges Police & Crime Commissioner for Cheshire Statement of Accounts 2013/14 Reduction to Liability Total 1 year 1,866 2, ,017 2 to 5 years 7,469 9,363 3,229 20,061 6 to 10 years 9,340 9,936 5,798 25, to 15 years 9,334 7,080 8,612 25, to 20 years 8,557 9,322 5,031 22, to 25 years Total due 36,566 38,191 23,329 98, Impairment Losses An impairment review was undertaken by the Commissioner s Estates Department. The outcome of the review showed no impairments during 2013/ Capitalisation of Borrowing Costs In line with the accounting policies, borrowing costs can be capitalised. During 2013/14 no additional borrowing was undertaken and therefore, no costs incurred. 32. Employee Benefits Termination Benefits The Commissioner terminated the contracts of a number of employees in 2013/14 incurring liabilities of 0.8m ( 1.1m In 2012/13). 30 employees were made redundant, took voluntary severance or early retirement as part of the Commissioner's rationalisation of the service to maintain services and meet financial constraints. There are more redundancies expected to be made in 2014/15 as part of the continuing rationalisation of the service, but it is not possible to quantify numbers and costs at this time. Participation in Pensions Schemes As part of the terms and conditions of employment of his officers and staff, the Commissioner offers retirement benefits. Although these benefits will not actually be payable until employees retire, the Commissioner has a commitment to make the payments (for those benefits) and to disclose them at the time when employees earn their future entitlement. Full details of these pensions can be found in the 2013/14 Group Accounts. The Commissioner participates in two pension schemes: The Police Pension Scheme for police officers is an unfunded, technically defined benefit scheme, meaning there are no investment assets built up to meet the pension liabilities and cash has to be generated to meet actual pension payments as they eventually fall due. Under the Police Pension Fund Regulations 2007, if the amounts receivable by the pensions fund for the year are less than amounts payable, the Commissioner must transfer annually an amount required to meet the deficit to the pension fund. Subject to parliamentary scrutiny and approval, up to 100% of this cost is met by central government pension top-up grant. If however the pension fund is in surplus for the year, this must be repaid to central government. Details of this scheme are shown in the Pension Account on page 97. Page 146