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INDEPENDENT AUDIT COMMITTEE – 1SEPTEMBER 2017

PRIOR YEAR MOVEMENT IN RESERVES

REPORT BY NEAL BUTTERWORTH, ALLIANCE HEAD OF FINANCE

PURPOSE OF THE REPORT

To inform the members of the Independent Audit Committee of the movement in the level of reserves held by Dorset Police and Devon & Cornwall Police over the last five years.

1INTRODUCTION

1.1All Police Forces hold specific reserves and general balances to provide financing for known and unknown liabilities. Dorset Police and Devon & Cornwall Police hold earmarked reserves for specific future costs and liabilities and each holds an amount of general balances to mitigate the risk of unknown or unexpected financial liabilities.

1.2The level of reserves and balances held by each Force will differ based on the strategic financing decisions taken by each organisation. For example, decisions to finance capital spending in advance through the use of reserves, or to borrow to finance spending over the life of the asset. Dorset Police and Devon & Cornwall Police have had different strategic financing positions over the years and this is to some degree reflected in the level of reserves held.

1.3This paper sets out the level of reserves and balances for each Force over each of the last five years.

2LEVEL OF RESERVES

2.1Dorset Police and Devon & Cornwall Police hold earmarked reserves and balances for a variety of different purposes, in four main categories:

Earmarked Revenue Reserves. These are specific reserves that have been created to fund known or expected future costs and liabilities, using funds set aside from the annual revenue budget. This can include funds set aside for financing future capital projects or for anticipated costs associated with known events such as costs of change. It is expected that funds held for these purposes will be fully utilised.

General Fund Balance. Also referred to as ‘general balances’, these are funds set aside to mitigate general, unknown risks of liabilities that may face the Force in the future, such as costs of significant major operations or other unexpected and unavoidable significant costs.

Earmarked Capital Reserves. These specific reserves are residual capital funding that has been made available from sources that can only be used for capital purposes. This primarily relates to unspent capital grant and unspent capital receipts. Neither can be used for revenue purposes.

Unusable Reserves. Each Force makes notional adjustments to its annual accounts to reflect liabilities for which a cash provision is not made. The most significant such adjustment relates to the unfunded deficit on pension schemes, in particular police pensions. These adjustments are entirely notional, but do ensure that such liabilities are covered in the accounts.

2.2The level of reserves and balances held by each Force at the closing of each of the last five years is shown below and the usable reserves are shown in more detail at Appendices A - B:

Devon & Cornwall / Earmarked Revenue Reserves £000's / General
Fund Balance £000's / Earmarked Capital Reserves £000's / Total Usable Reserves £000's / Unusable Reserves £000's
Balance as at 31/03/13 / 43,807 / 6,198 / 6,902 / 56,907 / (2,094,948)
Balance as at 31/03/14 / 55,176 / 6,198 / 4,755 / 66,129 / (2,352,680)
Balance as at 31/03/15 / 59,092 / 6,198 / 4,776 / 70,066 / (2,814,905)
Balance as at 31/03/16 / 57,523 / 6,198 / 4,725 / 68,446 / (2,673,676)
Balance as at 31/03/17 / 46,925 / 11,892 / 6,116 / 64,933 / (3,459,849)
NB: % of 2017/18 budget / 16% / 4% / 2% / 23%
Dorset / Earmarked Revenue Reserves £000's / General
Fund
Balance £000's / Earmarked Capital Reserves £000's / Total Usable Reserves £000's / Unusable Reserves £000's
Balance as at 31/03/13 / 5,142 / 4,630 / 567 / 10,339 / (933,130)
Balance as at 31/03/14 / 7,978 / 4,507 / 2,243 / 14,728 / (980,959)
Balance as at 31/03/15 / 8,634 / 3,844 / 4,806 / 17,284 / (1,233,397)
Balance as at 31/03/16 / 5,691 / 7,313 / 3,877 / 16,881 / (1,147,622)
Balance as at 31/03/17 / 5,691 / 7,416 / 3,877 / 16,984 / (1,511,372)
NB: % of 2017/18 budget / 5% / 6% / 3% / 14%

2.3Rationale for the key earmarked revenue reserves for both Forces are set out below:

Capital Financing Reserve

To fund identified future capital investment

Major Operations Reserve

To meet costs of major policing operations

Workforce Modernisation / Change Reserves

To meet one off costs of workforce modernisation including one off impact of job evaluation.

Police Officer Ill Health Reserve

To meet the variable one off cost of police officer ill health retirement

Budget Management Fund

To hold year end under-spends for carry-forward to the following year.

Programme & Projects Reserve

To fund investment in the Force Programme including major ICT developments.

Estates Development Reserve

To fund revenue cost of rationalising and developing the estate including planning applications, consultancy costs and project management.

Revenue Smoothing Fund

To smooth the impact of ongoing funding reductions as a result of the national reduction in public service spending.

Strategic Alliance Reserve

To fund one off costs associated with the introduction of the Alliance

3CONCLUSION

3.1Both Forces have different levels of reserves which reflect different strategic financing decisions over the years.

3.2The majority of reserves currently held are earmarked for specific purposes, most significantly major capital schemes and costs associated with change programmes and will be used to finance these over the medium term.

3.3The level of general balances held by each Force are 4% for Devon & Cornwall and 6% for Dorset as a percentage of their annual budget.

3.4Each Force has significant, notional, unusable reserves which represent considerable notional liabilities rather than assets.

4RISKS/RESOURCE REQUIREMENTS

Financial/Resource/Value for Money Implications

4.1The appropriate use of reserves is vital to the medium and long term financial planning of a police force. They will cover known and unknown liabilities and allow funding to be spread over more than one year.

Legal Implications

4.2None.

Implications for Policing Outcomes

4.3The appropriate use of reserves ensures that major expenditure has a minimal impact on day to day revenue resourcing.

Equality

4.4None.

5RECOMMENDATION

5.1It is recommended that this report be noted.

NEAL BUTTERWORTH

ALLIANCE HEAD OF FINANCE

Members’ Enquiries to: Mr Neal Butterworth, Alliance Head of Finance (01305) 222356

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APPENDIX A

SCHEDULE OF MOVEMENTS IN DEVON AND CORNWALL POLICE USABLE RESERVES

31/03/13 – 31/03/17


APPENDIX B

SCHEDULE OF MOVEMENTS IN DORSET POLICE USABLE RESERVES

31/03/13 – 31/03/17

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