Statement of Accounts for the year ended
31 March 2011
DRAFT (As at 13 September 2011)
North London Waste Authority
Page
Statement of responsibilities for the Statement of Accounts1
Independent auditor's report on the accounts to North London Waste Authority2
Explanatory foreword by the Financial Adviser5
Annual Governance Statement 8
Statement of Accounting Policies11
Movement in Reserves Statement14
Comprehensive Income and Expenditure Statement16
Balance Sheet17
Cash Flow Statement18
Notes to the Accounts19
Introduction to the Group Accounts31
Group Movement in Reserve Statement 32
Group Comprehensive Income and Expenditure Statement34
Group Balance Sheet36
Group Cash Flow Statement37
Notes to the Group Accounts38
North London Waste Authority
STATEMENT OF RESPONSIBILITIES FOR THE STATEMENT OF ACCOUNTS
The AUTHORITY’S responsibilities
The Authority 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 as the Chief Finance Officer. For the North London Waste Authority that officer is the Financial Adviser.
- Manage its affairs to secure economic, efficient and effective use of resources and safeguard its assets.
- Approve the Statement of Accounts.
The FINANCIAL ADVISER’s Responsibilities
The Financial Adviser is responsible for the preparation of the Authority’s Statement of Accounts in accordance with proper practices as set out in the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom (the Code of Practice). In preparing this Statement of Accounts, the Financial Adviser has:
- selected suitable accounting policies and then applied them consistently;
- made judgements and estimates that were reasonable and prudent;
- prepared the financial statements on the going concern basis unless it is inappropriate to presume that the Authority will continue in business; and
- complied with the Code of Practice.
The Financial Adviser has also:
- kept proper accounting records which were up to date; and
- taken reasonable steps for the prevention and detection of fraud and other irregularities.
Certification by the financial adviser
The accounts which follow have been prepared in accordance with the requirements of Regulation 8 of the Accounts and Audit Regulations 2011 issued under the Audit Commission Act 1998 and, except where specifically stated, in accordance with all recognised statutory requirements and codes of practice applicable to local authorities.
I certify that the statement of accounts gives a true and fair view of the financial position of the Authority and of the Group as at 31 March 2011 and the income and expenditure of the Authority and of the Group for the year then ended.
Mike O’Donnell, CPFA
Financial Adviser30June 2011
CHAIR’S APPROVAL OF STATEMENT OF ACCOUNTS
This Statement of Accounts was presented to the North London Waste Authority at its meeting on 22 September 2011, and was approved by resolution of the Authority.
Councillor Clyde Loakes
Chair of the North London Waste Authority22 September 2011
Independent auditor’s report to the Members of North London Waste Authority
Opinion on the Authority and Group accounting statements
I have audited the Authority and Group accounting statements of North London Waste Authority for the year ended 31 March 2011 under the Audit Commission Act 1998. The Authority and Group accounting statements comprise the Authority and Group Movement in Reserves Statement, the Authority and Group Comprehensive Income and Expenditure Statement, the Authority and Group Balance Sheet, the Authority and Group Cash Flow Statement and the related notes. These accounting statements have been prepared under the accounting policies set out in the Statement of Accounting Policies.
This report is made solely to the members of North London Waste Authority 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 2010.
Respective responsibilities of the Financial Adviser and auditor
As explained more fully in the Statement of the Financial Adviser’s Responsibilities, the Financial Adviser is responsible for the preparation of the Authority and Group’s Statement of Accounts in accordance with proper practices as set out in the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom. My responsibility is to audit the accounting statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require me 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 accounting statements sufficient to give reasonable assurance that the accounting 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 Authority and Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Authority and Group; and the overall presentation of the accounting statements. I read all the information in the explanatory foreword to identify material inconsistencies with the audited accounting statements. If I become aware of any apparent material misstatements or inconsistencies I consider the implications for my report.
Opinion on accounting statements
In my opinion the accounting statements:
- give a true and fair view of the state of North London Waste Authority’s affairs as at 31 March 2011 and of its income and expenditure for the year then ended;
- give a true and fair view of the state of the Group’s affairs as at 31 March 2011 and of its income and expenditure 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.
Independent auditor’s report to the Members of North London Waste Authority
Opinion on other matters
In my opinion, the information given in the explanatory foreword for the financial year for which the accounting statements are prepared is consistent with the accounting statements.
Matters on which I report by exception
I have nothing to report in respect of the governance statement on which I report to you if, in my opinion the governance statement does not reflect compliance with ‘Delivering Good Governance in Local Government: a Framework’ published by CIPFA/SOLACE in June 2007.
Conclusion on Authority’s arrangements for securing economy, efficiency and effectiveness in the use of resources
Authority’s responsibilities
The Authority 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.
Auditor’s responsibilities
I am required under Section 5 of the Audit Commission Act 1998 to satisfy myself that the Authority 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 me to report to you my conclusion relating to proper arrangements, having regard to relevant criteria specified by the Audit Commission.
I report if significant matters have come to my attention which prevent me from concluding that the Authority has put in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources. I am not required to consider, nor have I considered, whether all aspects of the Authority’s arrangements for securing economy, efficiency and effectiveness in its use of resources are operating effectively.
Basis of conclusion
I have undertaken my audit in accordance with the Code of Audit Practice, having regard to the criteria for other local government bodies published by the Audit Commission in October 2010.
I planned my work in accordance with the Code of Audit Practice. Based on my risk assessment, I undertook such work as I considered necessary to form a view on whether, in all significant respects, the Authority had put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources.
Independent auditor’s report to the Members of North London Waste Authority (continued)
Conclusion
On the basis of my work, having regard to the guidance on the specified criteria published by the Audit commission in October 2010, I am satisfied that, in all significant respects, North London Waste Authority put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ending 31 March 2011.
Certificate
I certify that I have completed the audit of the Authority and Group accounts of North London Waste Authority in accordance with the requirements of the Audit Commission Act 1998 and the Code of Audit Practice issued by the Audit Commission.
Philip Johnstone
District Auditor
Audit Commission
1st Floor, MillbankTower
London
SW1P 4HQ
September 2011
EXPLANATORY FOREWORD BY THE FINANCIAL ADVISER
Introduction
The purpose of this foreword is to provide an easily understandable guide to the most significant matters reported in the Authority’s accounts which have been prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom 2010/11 (The Code)and the Guidance Notes for Practitioners (both published by the Chartered Institute of Public Finance and Accountancy). The Code requires local government financial statements to be presented in a format that meets International Financial Reporting Standards (IFRS). The Code requires that four key statements are provided; they comprise:
Movement in Reserves Statement:This shows the movement in the year on the different reserves held by the authority, analysed into ‘usable reserves’ (i.e. those that can be applied to fund expenditure) and other reserves. The Surplus or (Deficit) on the Provision of Services line shows the true economic cost of providing the Authority’s services, more details of which are shown in the Comprehensive Income and Expenditure Statement.
Comprehensive Income and Expenditure Statement:This summarises the Authority’s income and expenditure for the year, the amount of funding from levies on constituent boroughs and the extent to which revenue balances have been increased or decreased.
Balance Sheet: This shows the value at the balance sheet date of the assets and liabilities recognised by the Authority. The net assets of the authority (assets less liabilities) are matched by the reserves held by the authority. Reserves are reported in two categories. The first category of reserves are usable reserves, i.e. those reserves that the authority may use to provide services, subject to the need to maintain a prudent level of reserves and any statutory limitations on their use (for example 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 authority 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 timing differences shown in the Movement in Reserves Statement line ‘Adjustments between accounting basis and funding basis under regulations’.
Cash Flow Statement: This summarises the changes in cash and cash equivalents of the Authority during the reporting period. The statement shows how the authority generates and uses cash and cash equivalents by classifying cash flows as operating, investing and financing activities. The amount of net cash flows arising from operating activities is a key indicator of the extent to which the operations of the authority are funded by the levy on the NLWA constituent boroughs, charges for non-household waste and other miscellaneous income receipts. Investing activities represent the extent to which cash outflows have been made for resources which are intended to contribute to the authority’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 authority.
GROUP ACCOUNTS
The summarised group accounts show in aggregate the income and expenditure and assets, liabilities and reserves of the group comprising the Authority and the Authority’s interest in LondonWaste Ltd.
Review of the year and current developments
The Authority agreed its 2010/11 budget at a level that needed to be sufficiently robust to meet the costs of its day-to-day statutory waste obligations but also sufficient to fund the costs of the procurement process and the acquisition of sites for the development of its future waste treatment facilities. Changing circumstances during the course of the year including the settlement of some long outstanding claims and reductions in the Authority’s contractual liabilities have had a beneficial impact on the Authority’s finances. Most notably, in the closing months of the year the Authority has been able to finalise claims in respect of the additional cost of operating the Hornsey Street Waste Transfer Station covering a period of six years and this has enabled excess budget provisions made in previous years to be written back to revenue in 2010/11. As a result of this settlement there should be an ongoing benefit in 2011/12 and future years. Additionally, the success by LondonWaste Ltd in obtaining a one year significant improvement in electricity prices has reduced the Authority’s contractual liability under the non-Fossil Fuel Obligation price review clause and has also improved the Authority’s year-end balances. The latter is a one-off benefit which should continue for a least the first six months of 2011/12. Allowing also for further reductions in the waste stream, reductions in support service costs, lower capital financing costs – due partly to slippage in the acquisition programme but also the use of internal funds, all have contributed to the improvement in the Authority’s financial health.
At the time of the 2011/12 budget and levy meeting in February I was able to advise the Authority that it should have revenue balances of at least £9.514m available at year-end to assist with the funding of the Authority’s 2011/12 budget. In the final outturn, and for the reasons previously stated, actual balances are £15.362m, i.e. an improvement of £5.848m. Subject to the 2011/12 budget remaining sufficiently robust to fund its in-year activities the additional balances should provide the Authority with some flexibility when considering its funding options for the 2012/13 budget.
As indicated above, the amount of residual waste entering the residual waste stream in 2010/11 has reduced by a further 15,058 tonnes (2.19%) compared with 2009/10 tonnage levels, i.e. a reduction from 681,159 tonnes to 666,101 tonnes. The rate of reduction in the residual waste stream appears to be slowing (compared with a reduction of 3.92% in 2009/10). This was particularly noticeable in the closing months of the year when there was a higher than expected amount of residual waste delivered to the Authority. Although the 2011/12 budget allows for a possible increase in residual tonnages recent developments will need to be closely monitored. Recyclable wastes sent to the Authority for treatment in 2010/11 although lower than originally forecast by the boroughs were nevertheless slightly higher than the tonnages treated in 2009/10, i.e. boroughs sent 59,437 tonnes of separated compostable waste to the Authority for treatment in 2010/11 (55,463 tonnes in 2009/10) and 46,244 tonnes of dry-recyclable waste (46,204 tonnes in 2009/10). In my foreword last year I indicated that in view of the new contract terms that the Authority had secured in respect of the treatment of the dry-recyclable waste that it had also introduced a Commingled Income Payment Scheme (CIPS) for those boroughs sending their recyclable wastes to the Authority for treatment. As the level of payments (and therefore the cost of scheme) is set having regard to the income that the Authority receives from the sale of recyclates there is no net cost to the Authority but beneficial to those boroughs in receipt of the CIPS payments. In view of the high sale value recyclates the Authority expects to pay a total of £1.540m to participating boroughs in 2010/11.
Landfill tax continues to rise in line with the Government’s stated intention to raise the standard rate of tax (£48 in 2010/11) by £8 per tonne until a figure of £80is reached in 2014/15. This is a major driver for diverting waste from landfill and reinforces the need for the Authority to secure new and additional waste treatment facilities for when its current waste contract ends in December 2014.
In my foreword last year I was able to report that the Authority had been successful in securing £258.4m of Government PFI funding to support the next generation of waste treatment facilities. Sadly, as a consequence of the October 2010 Comprehensive Spending Review the Government announced that this funding (along with the funding for six other PFI waste projects) would be removed. In the subsequent six months the Authority has carefully examined the options for taking the project forward and in April 2011 decided to continue with the procurement. The OJEU notice for the waste services and fuel use contracts were published at the end of April 2010 and in the light of a strong field of bidders for both contracts, and the decision to proceed with the procurement, the Authority has short-listed three bidders for each contract to take forward to the next stage of the procurement. The Authority is currently scheduled to reach financial close in March 2013. In parallel with this process a key area of work over the coming months will be the finalisation of an Inter Authority Agreement between the constituent boroughs and the Authority. This will provide the framework for managing future waste services contracts and an agreed basis for charging for services rather than through a levy which is currently apportioned in accordance with statute.
2010/11 outturn
The 2010/11 net revenue budget for the year was originally agreed at £65.626m to be financed by a levy of £43.512m, charges to boroughs for non-household waste of £12.388m and the use of estimated revenue balances of £9.726m. The budget was subsequently revised to £57.276m, a reduction of £8.350m. Allowing for higher than expected revenue balances of £3.627m brought forward from 2009/10 and a reduction in forecast income from non-household waste charges of £2.463m the Authority was forecast to have revenue balances of £9.514m at 31 March 2011. The accounts show an actual general fund balance of £15.362m.