Statement of Accounts

2008-09

Contents Page

Explanatory Foreword 1

Statement of Responsibility 9

Independent Auditor’s Reports 10

Accounting Policies 15

The Core Financial Statements 23

Income and Expenditure Account 23

Statement of Movement on the General Fund Balance 24

Statement of Total Recognised Gains and Losses 26

Balance Sheet 27

Cash Flow Statement 29

Notes to The Core Financial Statements 30

The Annual Governance Statement (AGS) 75

Memorandum Accounts 92

Firefighters Pension Fund Statement 96

Northamptonshire Local Government Pension Scheme Accounts 99

Glossary 110

1

Explanatory Foreword

1. Format The accounts for 2008-09 are presented in the format recommended by the Chartered Institute of Public Finance and Accountancy (CIPFA). Under the CIPFA Best Value Accounting Code of Practice (BVACOP), local authorities have to draft their accounts in a standardised format to make sure that all authorities are consistent, and to make their accounts easier to compare. Our Core Financial Statements use this format and meet the conditions of the code. 2. The 2008-09 Accounts The Core Financial Statements are set out on pages 23-29. They include:

The Income and Expenditure Account and the Statement of Movement on the General Fund Balance, which detail the income and expenditure for all services we have provided or funded during 2008-09.

The Balance Sheet, which sets out our financial position as at 31 March 2009.

The Statement of Total Recognised Gains and Losses (STRGL), which details all the gains and losses for the Council in 2008-09, including movements on fixed assets and pensions.

The Cash Flow Statement, which details cash transactions during the year. Also set out on pages 92-109 are:

The Memorandum Accounts, which detail pooled budgets held with partners of the Council.

The Northamptonshire Local Government Pension Scheme accounts, which show income into the Fund in 2008-09 and the benefits paid.

The Northamptonshire Local Government Pension Fund Net Assets Statement, which sets out the Pension Fund’s financial position as at 31 March 2009.

Northamptonshire Fire & Rescue Service Pension Fund Statement and Net Assets Statement as at 31 March 2009.

The Core Financial Statements have been prepared on the basis of the Accounting Policies described on pages15-22. Additionally, the figures within The Core Financial Statements are explained in more detail in the notes on pages 30-74.

3. Council Outcomes and Priorities The Council agreed its Outcomes and Priorities for 2008 and beyond at its meeting in February 2008. The Council Plan 2008-12 set out our vision for the county “to make Northamptonshire an excellent place to live and work”. To bring this to life the Council have three specific outcomes that we want to help deliver for people:

To live in safer and stronger communities,

To experience a prosperous county that is clean and green, and

To be secure, healthy and independent. The 2008-09 Budget was set to deliver this vision and outcomes.

2

4. Revenue Budget and Outturn The net budget for 2008-09 was set in February 2008 at £379.8 million. This was an increase of £19.3 million (5.3%), on the 2007-08 budget of £360.5 million, and resulted in a council tax charge of £956.05 (an increase of 4.2%) for a Band D property. Total Council Tax income for 2008-09 was £220.8 million. The delivery of this budget served to:

Educate 106,000 children in 335 schools.

Provide 6,000 people with adult education each year.

Support the families of nearly 3,000 children in need.

Provide foster and residential care for almost 800 children.

Deliver services to over 1,300 people with learning difficulties.

Provide day care, residential care and home care to more than 6,000 people.

Maintain over 2,500 miles of roads.

Maintain 60,000 streetlights.

Deal with 332,000 tonnes of household waste of which 150,000 tonnes are recycled and composted.

Enable 3.2 million visits to 36 libraries.

Run 22 fire stations.

Manage 6 country parks which are visited 1.8 million times per year.

The Chief Finance Officer’s report (under Section 25 of the Local Government Act 2003) to Council in February 2008 stated that the scale and pace of change at Northamptonshire would be challenging. That has certainly been the case over the last twelve months. In addition to pressures on services from an increasing and aging population, the last year has seen the advent of the “Credit Crunch” and an economy which has dipped into recession. Some of the impacts from this are already being reflected in the situation in Northamptonshire and the ongoing situation will result in increased demand for local authority services, including community care and support for vulnerable families. The Authority has shown that its financial management processes are robust and contingency planning procedures are effective. When it became clear that some of the £29.2m budgeted savings and efficiencies would be unachievable, Directors were asked to activate contingency plans to achieve in-year savings, enabling the total delivery of £20.7m efficiencies and savings. However, this left a remaining £8.5m budgetary pressure. Throughout the year, officers have continued to closely manage budgets, reducing expenditure where possible to deliver a final under-spend of £0.7m.

3

The following graphs show where the money received comes from, what we spend the money on and the services we provide: Where the money received comes from

The money received to finance the Council’s spending comes from three main sources:

The Government (65%); covering specific government grants, general government grants and business rates.

The council tax payer (21%).

Fees and charges for services provided and the Council’s reserves (14%). What we spend the money on

The money we receive is spent on paying the staff who work for the Council, the cost of providing services offered by the Council and servicing the borrowing required to

4

finance the assets owned by the Council. These assets include school buildings and the transport infrastructure. The services we provide

The money we receive is used to provide services to the public of Northamptonshire. These services include supporting our vulnerable children, educating our children in schools, providing social care, maintaining the county’s transport network, protecting our citizens through the Fire & Rescue Service and providing library services.

The following table summarises the outturn variances by service:

Service Net Budget Actual

Under (-)/

Overspend Note

£000 £000 £000

Children & Young People's Service 132,862 137,805 4,943 (i)

Health & Adult Social Services 141,095 142,177 1,082 (ii)

Environment, Growth & Commissioning 76,450 77,637 1,187 (iii)

Customers & Community Services 39,516 38,646 (870) (iv)

Finance & Commercial Management 10,221 1,367 (8,854) (v)

Policy & Partnerships 6,338 7,752 1,414 (vi)

Strategy & Business Admin 1,631 1,760 129

Outturn reported to Cabinet 7 July 2009 408,113 407,144 (969)

Changes arrising from audit adjustments 0 255 255

Total 408,113 407,399 (714)

Notes:

(i) The variance on Children & Young People includes:

Service Wide Excellence for our Customers Changes (£2,028k) being the service’s unachievable share of corporate efficiency savings.

5

Fieldwork Social Services (£1,694k) due to increases in the number of families being supported.

Service Wide Efficiency Changes (£1,175k) as a result of the services’ restructure proposals being deferred to synchronise with the corporate leadership review process.

Integrated Support Service (-£868k).

Social Care and Secure Agency Placements (£822k) due to an 18% rise in the number of looked after children during the year.

(ii) The variance on Health & Adult Social Services includes:

Service Wide Excellence for our Customers Changes (£2,173k) being the service’s unachievable share of corporate efficiency savings.

Learning Disability Support at Home Individual Care Arrangements (£1,214k) as a result of increased demand and variations in service following client reviews/self selected support.

Older People & Physical Disability Younger Adult Support at Home Individual Care Arrangements (£801k) due to the personalisation agenda and the drive to enable more people to stay in their own homes.

Learning Disability Residential & Nursing Individual Care Arrangements (-£1,594k) following successful negations with Primary Care Trusts to meet a number of high cost placements.

(iii) The variance on Environment, Growth & Commissioning includes:

Education Transport (£2,377k) primarily as a result of an increase in special educational needs transport following a 25% increase in pupils requiring transport, although the extra demand for journeys has been minimised by improving planning routes resulting in an increase in expenditure of 13%. There have also been additional costs on mainstream education transport due to the opening of the Corby Academy.

Traffic Management (£1,752k) following income targets not being achieved due to the delay of government legislation being implemented and additional costs resulting from a review of parking arrangements.

Highways Maintenance (-£1,471k) due to the capitalisation of Transport and Highways works following a review of replacement, enhancement and construction works in accordance with legislative requirements.

Transport for Planning and Growth (-£1,128k) relating to the capitalisation of detailed design costs for major projects in line with legislative requirements and reimbursement of costs for section 38 work.

Domestic Waste (-£1,014k) due to consumers generating less waste and higher than anticipated income from waste.

(iv) The variance on Customer & Community Services includes:

Organisational Development & Human Resources (-£903k) following the delayed implementation of Pay & Benefits.

6

(v) The variance on Finance & Commercial Management includes:

Property (£5,396k) due to required statutory and contracted activity being in-adequately provided for in the Asset Management base budget. In addition historic costs held on the balance sheet relating to disposal of surplus properties have been reviewed and determined to be revenue in nature.

Treasury Management (-£12,613k) following a review of the Minimum Revenue Provision, additional interest received on cash balances and proactive debt management.

(vi) The variance on Policy & Partnerships is made up of:

Legal and Democratic Services (£1,312k) due to delays in implementing a revised charging model.

It should be noted that there is a difference between the actual revenue spending incurred by the Council of £407.4m and that reported in its Income and Expenditure Account of £446.1m. This is due to items of income and expenditure that are required to be credited or charged to the Income and Expenditure Account by law that are not included in the annual Budget set by the Council. A good example is the depreciation of fixed assets which to comply with the SORP (and UK Generally Accepted Accounting Practice) is charged to the Income and Expenditure account but cannot be charged to the General Fund i.e. to council taxpayers. A full explanation is provided in the Statement of Movement of General Fund Balances on pages 24-25.

5. Capital Spending In 2008-09 we made capital payments of £107.6m.

Of the total payments, £46.3m (43%) was financed from loans, £4.3m (4%) from capital receipts and £57.0m (53%) from grants. We take into account capital spending and income for work done by 31 March 2009, even though the money was not paid or received until after 31 March 2009. The capital programme continues to be an amalgam of specific named schemes, and blocks of themed expenditure (i.e. maintenance of non principal roads, minor works budgets) from which a large number of schemes are funded. All expenditure is focused on delivering the aims and priorities of the Council. Between 2003 & 2005 the Council entered into three Private Finance Initiatives (PFI) agreements, namely Wooldale Centre, Residential Homes and Northampton Town Learning Partnerships. For full details please refer to Note 13 on pages 36-38. In August 2008 the Council introduced significant enhancements to the governance arrangements for progressing capital schemes through their project lifecycle. These changes have resulted in a project management approach to delivering capital schemes and greater control over affordability.

7

6. Investments and Borrowing The level of investments held by the Council was £180m as at 31 March 2009. These investments are as a result of the Council’s reserves and working capital surpluses. During the last 12 months there has been significant focus on local authority investment practices particularly following the Icelandic banking crisis. The Council did not have any money invested in Icelandic banks. However, it has reviewed its investment practices to ensure the risks are managed in such a dynamic economic environment. This will continue to be reviewed and revised where appropriate in line with guidance and best practice. The level of borrowing undertaken by the Council is £468.2m as at 31 March 2009. Of this, £280.4m (60%) is borrowed from the Public Works Loan Board, the remainder is market borrowing. The borrowing is used to finance capital investment (e.g. schools, highways & transportation) for the Council. During the year the Council has proactively managed its borrowing portfolio to deliver interest savings and one off cash benefits which are being re-invested in front line services. Total interest and similar charges paid during the year amounted to £20.4m. 7. Pension Fund Local Authorities are required to comply with the disclosure requirements of FRS17 – Retirement Benefits. Under FRS17, the Council is required to reflect in the Core Financial Statements, the assets and liabilities of the Pension Fund attributable to the Council and the cost of pensions. These disclosures are reflected in the Income and Expenditure Account, the Balance Sheet and the Statement of Movement on the General Fund Balance. 8. Reserves There was a general reserve balance of £13.9m as at 31 March 2009. A full review of all reserves and provisions was carried out and reported to Cabinet on 7 July 2009. Reserves have decreased by a total of £2.6m in 2008-09.

March 2008 Movement March 2009

£000 £000 £000

Schools (47,215) 1,306 (45,909)

Insurance (5,164) (1,037) (6,201)

Other Earmarked (17,461) 3,102 (14,359)

County Fund (General) (13,207) (714) (13,921)

(83,047) 2,657 (80,390)

15

Accounting Policies

1. General Principles

The Statement of Accounts summarises the Council's financial transactions for the year ending 31 March 2009 and its financial position as at 31 March 2009.

The financial statements have been prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom - Statement of Recommended Practice 2008 (the SORP). The accounting convention adopted is historical cost, and where appropriate, revalued regularly to reflect market value.

Account is also taken of the Best Value Accounting Code of Practice (BVACOP) on the definition of total cost and the revised service expenditure analysis.

2. Income and Expenditure

The Revenue Accounts are maintained in accordance with FRS18 on an accruals basis. Expenditure is charged to the revenue accounts in the period in which goods and services are received and, similarly, income is credited in the period to which it relates, regardless of the timing of cash payments or receipts.

An exception to the above is pension strain costs arising from redundancy/early retirement. Pension strain is the estimated cost to the Pension Fund of paying out benefits earlier than anticipated. This is treated on a cash basis over the three year period subsequent to the year in which the redundancy/early retirement takes place.

Where there is a delay between the date goods are received and their consumption, they are carried as stocks on the Balance Sheet. Stocks are valued at the lower of cost or net realisable value. Some stocks are not recognised on the Balance Sheet, such as library books.

Interest payable on borrowings and receivable on investments is accounted for on the basis of the effective interest rate for the relevant financial instrument rather than the cash flows fixed or determined by the contract.

3. Provisions

Provisions are made to cover liabilities or losses where an event has taken place that gives the Council a likely or certain obligation to pay, but for which the timing is uncertain, such as court action.

Provisions are charged to the appropriate service revenue account in the year that the Council becomes aware of the obligation. When payments are eventually made, they are charged to the provision set up in the Balance Sheet. Estimated settlements are reviewed at the end of each financial year; if the provision changes, the amount is charged or credited to the appropriate service revenue account.

The Council has made a provision for the cost of settling claims for back pay arising from any discriminatory payments incurred before the Council implemented its equal pay strategy. However statutory arrangements allow settlements to be financed from the General Fund in the year that the payments actually take place, not when the provision is established. The provision to be settled in future years is deferred to a

16

reserve „Unequal Pay Back Pay Reserve‟. The Council does not accept liability for any potential claims.

4. Reserves

The Council sets aside specific amounts as reserves for future policy purposes or to protect against unexpected events. When expenditure to be financed from a reserve is incurred, it is charged to the appropriate service revenue account in that year, to be recorded against the Net Cost of Services in the Income and Expenditure Account.

County Council Reserves include:

Earmarked reserves, which are set aside for specific purposes.

General reserves, which are set aside for unexpected events and cash-flow management.

Revaluation Reserve, which records unrealised gains arising (since 1 April 2007) from holding fixed assets, and a

Capital Adjustment Account, which provides a balancing mechanism between the different rates at which assets are depreciated.

5. Government Grants and Contributions

Whether paid on account, by instalments or in arrears, government grants and third party contributions are recognised as income at the date that the Council satisfies the conditions of entitlement to the grant/contribution, there is reasonable assurance that the monies will be received and the expenditure for which the grant is given has been incurred.

Revenue grants are matched in service revenue accounts with the service expenditure to which they relate. Grants to cover general expenditure (e.g. Revenue Support Grant) are credited to the Income and Expenditure Account.

Capital grants used to purchase fixed assets with a finite useful life are credited to the Government Grant Deferred Account. The balance is then written down to revenue to offset depreciation charges made for the related assets in the relevant service revenue account, in line with the depreciation policy applied to them.

6. Pensions

Northamptonshire County Council participates in three different pension schemes that meet the needs of employees in particular services. All the schemes provide members with defined benefits related to pay and service. The schemes are as follows:

Teachers

This is an unfunded scheme, administered by Capita Teachers' Pensions on behalf of the Department for Children, Schools and Families (DCSF). It is classified as a „single-employer defined benefit scheme‟ in which the assets and liabilities are not identifiable at individual employer level on a consistent and reasonable basis, however, the individual employer has to pay for the unfunded discretionary benefits awarded. The pension cost shown in our accounts is:

The contribution rate set by the DCSF paid to a notional fund; plus

17

The cost of paying early retirement pensions (excluding ill health) after 1 September 1997.

Uniformed firefighters

Two pension schemes exist for uniformed firefighters. The 1992 scheme for whole-time uniformed staff who were eligible to join pre April 2006 and the 2006 scheme, for whole-time staff joining after 1 April 2006 and retained firefighters who were previously not eligible to join a firefighter pension scheme. The charge shown in the accounts represents the cost to the Council of employer contributions based on a nationally set percentage of pensionable pay.

Other Employees

Other employees are eligible to join the Local Government Pension Scheme which is accounted for as a defined benefits scheme. The liabilities attributable to the Council are included in the Balance Sheet on an actuarial basis using the projected unit method i.e. 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 earnings for current employees. In relation to retirement benefits, statutory provisions require the General Fund Balance to be charged with the amount payable by the Council to the Pension Fund. The Council also has restricted powers to make discretionary awards of retirement benefits in the event of early retirements on grounds of redundancy or efficiency. Any liabilities estimated to arise as a result of discretionary early retirement awards are accrued in the year the decision was made.

Under the 2008 SORP the Council has adopted the amendment to FRS17 Retirement Benefits. As a result, quoted securities held as assets in the scheme are now valued at bid price rather than mid market value. The effect of this change is disclosed further in the Notes to the Core Statements.

7. Value Added Tax (VAT)

Income and expenditure excludes any amounts related to VAT, as all VAT collected is payable to HM Revenue & Customs and all VAT paid is recoverable from them.

8. Overheads and Support Services

The costs of overheads and support services are charged to those that benefit from the supply or service in accordance with the costing principles of the CIPFA Best Value Accounting Code of Practice (BVACOP) 2008. The charges include:

The cost of administration buildings, based on the amount of floor area the services support staff use.

The costs of central support services (i.e. IT, Finance and HR), based on how long and how often each service department uses them.

Accounted for as separate headings in the Income and Expenditure Account, as part of Net Cost of Services are:

Corporate and Democratic Core - costs relating to the Council's status as a multi-functional, democratic organisation.

18

Non Distributed Costs - the cost of discretionary benefits awarded to employees retiring early.

9. Intangible Assets

The Council‟s Intangible Assets consist of purchased software licences which have a useful economic life of at least three years. All Intangible Assets are included at historic cost and written down on a straight line basis over their economic lives from the year following acquisition. The useful economic lives are reviewed at the end of each reporting period and revised if necessary.

10. Tangible Fixed Assets

Tangible Fixed Assets are assets that have physical substance. They are held as non-operational and operational assets, the latter for use in the provision of services or for administrative purposes on a continuing basis.

Recognition: Expenditure on the acquisition, creation or enhancement of fixed assets with a value over £10,000 is capitalised, provided it yields benefits to the Council and the services that it provides exceed one financial year. This applies to either single items over £10,000 or to groups of similar items whose value collectively exceeds £10,000. Expenditure that secures or is routine repairs and maintenance is charged to revenue as it is incurred.

Measurement: Assets are initially measured at cost, comprising all expenditure that is directly attributable to bringing the asset into working condition for its intended use. Assets are recorded in the Balance Sheet using the following measurement bases:

Land and buildings, vehicles, plant and equipment, furniture and equipment- lower of net current replacement cost or net realisable value in existing use.

Infrastructure assets (i.e. roads, roundabouts and bridges) - historical cost.

Community assets - depreciated historical cost.

Assets included in the Balance Sheet at current value are re-valued as a minimum every five years. Increases in valuations are credited to the Revaluation Reserve to recognise unrealised gains, decreases in valuations are initially debited in the Revaluation Reserve up to existing credits, and the remainder charged to the Income and Expenditure Account as Fixed Asset Impairments.

Disposals: when an asset is disposed of or decommissioned, the net gain or loss on the disposal is written off to the Income and Expenditure Account.

Expenditure & income relating to capital projects is accounted for on an accruals basis to fully accord with CIPFA/LASAAC‟s Statement of Recommended Practice.

Depreciation is provided for on all assets with a determinable finite life (except for land, investment properties and community assets), by allocating the value of the asset in the Balance Sheet over the periods expected to benefit from their use. We do not provide reductions in value for new assets in their first year or for assets being made or built until they are brought into use.

19

Depreciation is calculated on a straight line basis over the length of useful life:

Category Useful Life in Years

Buildings 40 to 60

Vehicles - Cars 5

- Vans and Lorries 7

- Buses 10

- Fire Appliances 13

IT Equipment 3

Infrastructure 40

11. Charges to Revenue for Fixed Assets

The Council‟s service revenue accounts, support services and trading accounts are charged with the following amounts to record the real cost of holding fixed assets during the year:

Depreciation attributable to the assets used by the relevant service

Impairment losses attributable to the clear consumption of economic benefits on tangible fixed assets used by the service and other losses where there are no accumulated gains in the Revaluation Reserve against which they can be written off

The Council is not required to raise council tax to cover depreciation or impairment losses. However, it is required to make an annual provision from revenue to contribute towards the reduction in its overall borrowing requirement (Minimum Revenue Provision – see Accounting Policy 18).

12. Revenue Expenditure Funded from Capital Under Statute (Formerly Deferred Charges)

This represents expenditure incurred during the year that may be capitalised under statutory provisions but does not result in the creation of fixed assets belonging to the Council. This amount is charged to the relevant service revenue account in the year. This may include expenditure on assets not belonging to the Council such as service user homes and foundation schools. Where the Council has determined to meet the cost of this expenditure from existing capital resources or borrowings, a transfer to the capital adjustment account is made to reverse out the amount charged so there is no impact on the level of council tax.

13. Leases

Operating lease rentals payable are charged to the relevant service revenue account on a straight-line basis over the term of the lease, generally meaning that rentals are charged when they become payable.

20

14. Financial Instruments

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. The term “financial instrument” covers both financial assets and financial liabilities.

Financial liabilities are initially measured at fair value and carried at their amortised cost. Annual charges to the Income and Expenditure Account for interest payable are based on the carrying amount of the liability, multiplied by the effective rate of interest for the instrument. For most of the borrowings that the Council has, this means that the amount presented in the Balance Sheet is the outstanding principal repayable and interest charged to the Income and Expenditure Account is the amount payable for the year on the loan agreement.

Gains and losses on the repurchase or early settlement of borrowing are credited and debited to Net Operating Expenditure in the Income and Expenditure Account in the year of repurchase/settlement. However, where repurchase has taken place as part of a 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 Income and Expenditure Account is spread over the life of the loan by an adjustment to the effective interest rate.

Where premiums and discounts have been charged to the Income and Expenditure Account, regulations allow the impact on the General Fund Balance to be spread over future years. The reconciliation of amounts charged to the Income and Expenditure Account to the net charge required against the General Fund Balance is managed by a transfer to or from the Financial Instruments Adjustment Account in the Statement of Movement on the General Fund Balance.

The Council‟s financial assets are classified as loans and receivables or available-for-sale. Loans and receivables are assets that have fixed or determinable payments but are not quoted in an active market, and represent the majority of the Council‟s investments. These instruments are accounted for under amortised cost as described above. The Council also has a number of available-for-sale assets (£31.5m). These are assets that have a quoted market price and/or do not have fixed or determinable payments. They are carried on the balance sheet at fair value with realised gains/losses being posted to the I&E and unrealised gains/losses going to the available-for-sale reserve.

15. Stocks and Work in Progress

Stocks are included in the Balance Sheet at the lower of cost or net realisable value. Work in progress is recognised at cost and held in the Balance Sheet until the work has been completed.

16. Landfill Allowance Trading Scheme (LATS)

LATS became a statutory requirement on Waste Disposal authorities at the start of 2005-06. Authorities are granted annual allowances which can be traded until the end of 2009-10.

21

Allowances granted are recorded cumulatively in investments, waste disposal usage is cumulatively recorded in creditors and the surplus is held in earmarked reserves at the CIPFA / Department for Environment, Food and Rural Affairs (DEFRA) agreed rates.

17. Private Finance Initiative (PFI) & Public Private Partnerships (PPP)

PFI contracts are agreements to receive services, where the responsibility for making available the fixed assets needed to provide the services passes to the PFI contractor. Payments made by the Council under a contract are charged to revenue to reflect the value of services received in each financial year.

The Council has three PFI contracts in place; these are detailed in the notes to the accounts (Note 13).

Deferred Considerations

A deferred consideration for services receivable under the contract arises when assets are transferred to the control of the PFI contractor, usually at the start of the scheme. The difference between the value of the asset at the date of transfer, and any residual value that might accrue to the Council at the end of the contract, is treated as a contribution made to the contractor and is accounted for as a deferred consideration. The deferred consideration is written down (charged) to the respective revenue account over the life of the contract to show the full value of services received in each year. However, as the charge is a notional one, it is reversed out in the Statement of Movement on the General Fund Balance to remove any impact on Council Tax.

Dowry or bullet payments, made at the start of the contract and during the contract, which result in lower unitary payments over the life of the contract, are accounted for by setting up the contribution (dowry) as a deferred consideration for services receivable and writing the balance down to revenue over the life of the contract as services are received, to reflect their real cost.

Residual Interests

Where assets created or enhanced under the PFI scheme are to pass to the Council at the end of the scheme at a cost less than fair value (including nil residual interests), an amount equal to the difference between the fair value and the payment to be made at the end of the contract, is built up as a long term debtor over the contract life by reducing the amount of the unitary payment charged to revenue.

PFI credits

Government Grants received for PFI schemes, in excess of current levels of expenditure, are carried forward as an earmarked reserve to fund future contract expenditure and will be drawn down as required.

18. Minimum Revenue Provision (MRP)

The Council assess their Minimum Revenue Provision in accordance with the main recommendations contained within the Guidance issued by the Secretary of State under section 21(1A) of the Local Government Act 2003.

22

The major proportion of the MRP will relate to the historic debt liability up to 31 March 2007 that will continue to be charged at the rate of 4%, in accordance with option 1 of the Guidance. This „base‟ CFR position will be reduced by the MRP charged against it annually From 2007-08 onwards expenditure on completed assets only will be subject to MRP charges. This is under option 3 of the guidance and will be based on the estimated useful life of the assets created, using the equal annual instalment method. For example, capital expenditure on new buildings, or on the refurbishment or enhancement of a building, will be related to the estimated life of the building. Estimated life periods will be determined under delegated powers. To the extent that expenditures do not create an asset, and are of a type that are subject to estimated life periods that are referred to in the Guidance, these estimated life periods will generally be adopted by the Council. However, in the case of long term debtors arising from loans or other types of capital expenditure made by the Council which will be repaid under separate credit arrangements such as leasing and PFI, there will be no Minimum Revenue Provision made. The Council are satisfied that a prudent provision will be achieved after exclusion of capital expenditure. In view of the variety of different types of capital expenditure incurred by the Council, which is not in all cases capable of being related to an individual asset, asset lives will be assessed on a basis which most reasonably reflects the anticipated period of benefit that arises from the expenditure. Also, whatever type of expenditure is involved, it will be grouped together in a manner which reflects the nature of the main component of expenditure, and will only be divided up in cases where there are two or more major components with substantially different useful economic lives. The determination as to which schemes shall be deemed to be financed from available resources, and those which will remain as an outstanding debt liability to be financed by borrowing or other means will be assessed under delegated powers. The policy will be reviewed annually to ensure prudence is achieved from using the options available. The option to delay charges until the year after the asset comes into operation (the MRP holiday) will be used where applicable. Where it is considered prudent to do so, non-operational assets will be excluded from the MRP calculation. Any under or over provisions that are identified for previous years will be taken into consideration in the calculation of the current years provisions and adjusted accordingly.

23

The Core Financial Statements

Income and Expenditure Account

The Income and Expenditure Account summarises the resources that have been generated and consumed in providing services and managing the Council during the year. It includes all day to day expenses and related income, as well as transactions measuring the value of fixed assets actually consumed and the real projected value of retirement benefits earned by employees in the year.

Net

Expenditure

2007-08 Notes

Gross

Expenditure

2008-09

Gross Income

2008-09

Net

Expenditure

2008-09

£000 £000 £000 £000

1,183 Central Services to the Public 1,664 (1,073) 591

792 Court Services 980 (50) 930

39,646 Cultural, Environmental, Regulatory

and Planning Services

52,572 (13,322) 39,250

96,172 Children's and Education Services 698,683 (542,453) 156,230

22,304 Fire & Rescue Services 23,732 85 23,817

37,834 Highways and Transport Services 57,365 (17,177) 40,188

132,506 Adult Social Care 208,275 (55,808) 152,467

5,474 Corporate and Democratic Core 4,807 (171) 4,636

6,247 Non-distributable Costs 28,009 (9) 28,000

342,158 Net cost of services 1,076,087 (629,978) 446,109

Other operating income and

expenditure

22,742 Fixed Asset Impairment 1 0

(33) Gain on Disposal of Fixed Assets (1,421)

504 Flood defence and land drainage

charges

554

11,403 Pensions Interest costs and

expected returns on pension assets

3 20,936

18,826 Interest Payable & similar charges 20,406

(11,753) Interest and Investment Income (12,056)

383,847 Net operating expenditure 474,528

Sources of finance

(207,925) Council tax income (220,843)

(24,708) General government grants not

attributable to a specific service4 (46,365)

(109,549) Business rates income (126,174)

41,665 Net general fund deficit 81,146

24

Statement of Movement on the General Fund Balance (SMGFB)

The Income and Expenditure Account shows the Council‟s actual financial performance for the year, measured in terms of the resources generated and consumed over the year. However, the authority is required to raise Council Tax on a different accounting basis, the main differences being:

capital investment is accounted for as it is financed, rather than when the fixed assets are consumed, and

retirement benefits are charged as amounts become payable to Pension Funds and pensioners, rather than as future benefits are earned.

The General Fund Balance movement compares the Council‟s spending against the Council Tax that it has raised for the year, taking into account the use of reserves built up in the past and contributions to reserves earmarked for future expenditure. This reconciliation statement summarises the additional amounts to be charged / credited to the General Fund Balance during the year.

Net

Expenditure

2007-08

Net

Expenditure

2008-09

£000 £000

41,665 Deficit / (Surplus) for the year on the Income and

Expenditure Account

81,146

(40,295) Net additional amount required by statute and non-

statutory proper practices to be debited or credited to the

General Fund Balance for the year

(81,860)

1,370 (Increase) / Decrease in General Fund Balance for the

year

(714)

(14,577) General Fund Balance brought forward (13,207)

(13,207) General Fund Balance carried forward (13,921)

25

The net additional amount required by statute and non-statutory proper practices to be debited / (credited) to the general fund balance for the year is made up of the

following:

Net

Expenditure

2007-08 Notes

Net

Expenditure

2008-09

£000 £000

Amounts included in the Income and Expenditure

Account but required by statute to be excluded when

determining the Movement on the General Fund

Balance for the year:

(59,826) Depreciation and impairment of fixed assets 15, 16a (85,177)

15,655 Government grants deferred amortisation 22, 25 43,143

(7,622) Amounts treated as revenue expenditure in accordance

with the SORP but which are classified as capital

expenditure by statute (REFCUS)

(12,676)

33 Net gain or loss on sale of fixed assets 1,484

(3,695) Write down of deferred consideration of PFI expenditure 13 (5,147)

4,254 Differences between amounts debited/credited to the

Income and Expenditure Account and amounts

recognised relating to financial instruments

2,601

(15,300) Unequal Pay Back Pay 24 (18,600)

(43,908) Net charges made for retirement benefits in accordance

with FRS17

28d (56,958)

(110,409) (131,330)

Amounts not included in the Income and

Expenditure Account but required to be included by

statute when determining the Movement on the

General Fund balance for the year:

18,665 Minimum Revenue Provision for capital financing 26 11,368

1,373 Capital expenditure charged in-year to the General Fund

Balance

0

8,039 PFI capital expenditure financed from revenue 13a 8,669

32,113 Employer's contributions payable to the Pension Fund

and retirement benefits payable direct to pensioners

28d 32,804

60,190 52,841

Transfers to or from the General Fund Balance that

are required to be taken into account when

determining the Movement on the General Fund

Balance:12,560 Net transfer to schools reserves 29 (1,306)

(2,636) Net transfer to earmarked reserves 29 (2,065)

9,924 (3,371)

(40,295)

Net additional amount required to be credited to the

General Fund Balance for the year (81,860)

26

Statement of Total Recognised Gains and Losses This statement brings together all the Gains and Losses of the Council for the year and shows the aggregate increase in its net worth. In additions to surpluses generated on the Income and Expenditure Account, it includes gains and losses relating to revaluations of fixed assets and measurement of gains and losses on retirement benefits.

2007-08 Notes 2008-09

£000 £000

41,665 Deficit on the Income and Expenditure Account for the year 81,146

(37,111) Surplus arising on the revaluation of fixed assets 29a (19,076)

0

Surplus arising on revaluation of available-for-sale financial

assets (489)

74,045 Actuarial (gains)/losses on Pension Fund assets and

liabilities

28h (36,551)

(191) Other gains and losses required to be included in the

Statement of Total Recognised Gains and Losses

0

78,408 Total recognised (gains) / losses for the year 25,030

27

Balance Sheet The balance sheet provides an overall summary of the financial position and net worth of the Council as at 31 March 2009. 31 March 2008

£000 Notes £000 £000

Intangible Assets 15

0 Software Licenses 13,840

Tangible Fixed Assets 16

Operational assets

801,757 Land and Buildings 801,361

18,115 Vehicles, plant, furniture and equipment 17,124

268,225 Infrastructure assets 282,477

888 Community assets 898

Non-operational assets

117,193 Assets under construction 95,036

4,059 Investment properties 3,577

32,459 Surplus assets held for disposal 49,177

1,242,696 Total Assets 1,263,490

112,253 Deferred considerations 17 144,178

46,078 Long-term investments 10,690

20,860 Long-term debtors 18 29,249

1,421,887 Total Long-Term Assets 1,447,607

Current Assets

815 Stock and work in progress 19 545

56,174 Debtors and payments in advance 20 36,661

2,973 Landfill Allowance Trading Scheme (LATS) Investments 21 0

135,021 Short-term investments 169,312

1,758 Cash in hand 33 3,154

196,742 209,672

1,618,629 Total Assets 1,657,279

Current Liabilities

(30,182) Borrowing repayable on demand or within 12 months (153,348)

(150,062) Creditors & Receipts in Advance 22 (139,741)

(3,302) Bank overdraft 33 (14,072)

(183,546) (307,161)

1,435,083 Total Assets less Current Liabilities 1,350,118

Long Term Liabilities

(412,274) Long term borrowing (314,778)

(4,979) Provisions 23 (5,339)

(22,400) Unequal Pay Back Pay Provision 24 (59,500)

(240,998) Government grants and capital contributions deferred 25 (254,848)

(1,352) Deferred liabilities 0

(412,333) Liability related to defined benefit pension scheme 28h (399,936)

340,747 Total Assets less Liabilities 315,717

31 March 2009

28

Financed by:

25,535 Revaluation Reserve 29 42,858

641,827 Capital Adjustment Account 29 595,977

4,460 Financial Instruments Adjustment Account 29 7,060

0 Available for Sale Financial Instruments Reserve 29 489

3,911 Capital Receipts Reserve 29 7,279

(412,333) Pension Reserves 29 (399,936)

(5,700) Unequal Pay Back Pay Account 29 (18,400)

47,215 Schools Reserves 29 45,909

22,625 Earmarked Reserves 29 20,560

13,207 General County Fund 29 13,921

340,747 315,717

29

Cash Flow Statement This statement summarises the inflows and outflows arising from transactions with third parties for revenue and capital purposes. Cash is defined for the purpose of this statement as cash in hand, deposits payable on demand less overdrafts repayable on demand.

2007-08 Notes 2008-09

£000 £000 £000

(71,041) Net revenue activities cash inflow 31 (43,917)

Returns on investments and servicing of finance

Cash outflows

18,826 Interest paid 19,116

Cash inflows

(11,753) Interest received (12,039)

7,073 7,077

Capital activities

Cash outflows

119,080 Purchase of fixed assets 92,372

21,000 Purchase of long-term investments 0

22,320 Other capital cash payments 35,466

Cash inflows

(24,567) Sale of fixed assets (4,789)

(24,906) Capital grants received (50,724)

(39,663) Other capital cash receipts 0

73,264 72,325

9,296 Net cash (inflow)/outflow before financing 35,485

Management of liquid resources

59,062 Net (inflow)/outflow in short-term deposits 34 34,291

0 Net (inflow)/outflow in long-term deposits 34 (35,388)

59,062 (1,097)

Financing

Cash outflows

145,000 Repayments of amounts borrowed 574,561

Cash inflows

(217,000) New loans raised (599,575)

(72,000) 32 (25,014)

(3,642) Net (increase)/decrease in cash flow 33 9,374

30

Notes to the Core Financial Statements

1 Impairments In 2007-08 an amount of £23m of assets under construction (formerly called work in progress) was written off. There is no similar write of in 2008-09 in respect of asset impairments that could not be allocated to a specific asset. This year the Council has charged all impairments, totalling £60m, to the respective Service Account within Net Cost of Services. This includes a £14m write off of assets previously included in Assets Under Construction deemed to be revenue expenditure funded from capital under statute. 2 Debt restructuring The 2008 SORP requires that any gains or losses (discounts or premiums) from the early settlement of borrowing are charged to the Income and Expenditure Account (I&E), reversed through the Statement of Movement on the General Fund Balance (SMGFB) to the Statutory Financial Instrument Adjustment Account (SFIAA) and amortised to the I&E over the life of the loans.. In 2008-09 £3.472m of discounts were charged to I&E and reversed to the SFIAA. As a result of repayment and restructuring of £104m Public Works Loan Board (PWLB) Loans in January 2009, additional discounts of £0.347m have been taken to the I&E Account. 3 Pension Interest costs and expected returns on pension assets

2007-08 2008-09

£000 £000

(36,355) Expected Return on Assets in NCC Pension Fund (38,044)

39,638 Interest on Pensions Liability (NCC) 50,080

8,120 Interest on Pensions Liability (Fire Pensions) 8,900

11,403 20,936 Also see Note 27 Pension Costs.

4 General Government Grants

General Government Grants are non-ringfenced grants that are used to fund activities across the Council as set out in its annual budget. Area Based Grant was introduced in 2008-09. Details of specific grants are listed in Note 30.

2007-08 2008-09

£000 £000

(24,708) Revenue Support Grant (RSG) (17,564)

0 Area Based Grant (ABG) (28,280)

0 Other Grants (521)

(24,708) (46,365)

31

5 Dedicated Schools Grant (DSG)

The Council's expenditure on schools is funded by grant monies provided by the Department for Children, Schools and Families, the Dedicated Schools Grant (DSG). DSG is ring-fenced and can only be applied to meet expenditure properly included in the Schools Budget. The Schools Budget includes elements for a restricted range of services provided on an Authority-wide basis and for the Individual Schools Budget (ISB), which is divided into a budget share for each school. Over and under spends on the two elements are required to be accounted for separately.

Details of the deployment of DSG in 2008-09 are as follows:

Total

Central

Expenditure

Individual

Schools

Budget Total

2007-08 2008-09 2008-09 2008-09

£000 £000 £000 £000

358,441 Final DSG for 2008-09 70,681 302,349 373,030

40,956 Brought forward from 2007-08 4,918 44,253 49,171

0 C/F to 2009-10 agreed in advance 0 0 0

399,397 Agreed budgeted distribution in 2008-09 75,599 346,602 422,201

(59,509) Actual central expenditure (71,969) 0 (71,969)

(290,717) Actual ISB deployed to schools 0 (301,933) (301,933)

0 Local Authority Contribution for 2008-09 0 0 0

(350,226) Total Expenditure in the year (71,969) (301,933) (373,902)

49,171 Carry forward to 2009-10 3,630 44,669 48,299

32

6 Insurance Account The Council is insured against risks through a combination of self-insurance and insurance with other organisations. There is a total insurance fund of £11.56 million and annual policy excesses are as follows: Combined Liability (Public & Employers) £000

Individual excess (per claim) 10Annual aggregate (total excess for year across all claims) 4,500

Property

Individual excess educational properties 250Individual excess other properties 150Annual aggregate 850 The Council charges premiums, claims paid and management costs to the insurance account and then recharges these costs to services. The Council‟s insurance brokers estimate the value of any outstanding claims and adjust the Insurance Provision accordingly. Details of Spending and Income are as follows:

2007-08 2008-09

£000 £000

Spending

1,723 Premiums paid 2,124298 Management costs 310315 Claims paid 178

1,767 Claims outstanding 2,3194,103 4,931

Income

(113) Received from insurers (81)(5,232) Charges to services (5,360)(5,345) (5,441)

(1,242) Net Income (510)1,242 Amount transferred to/from Earmark Reserve account 0

0 Balance in General funds (510)

33

7a Services provided under the Local Authority Goods and Services Act 1970

Under this Act the Council provided a variety of goods and services to various public bodies, including local authorities, health bodies, charities and voluntary organisations. Charges for these services are set at a level to ensure the full recovery of cost. Income from these services amounted to £6,044k in 2008-09 (£7,450k in 2007-08). Income streams in excess of £500k are detailed below:

2008-09

£000s

Pen Green Research Centre - Training & Course Fees -799

Youth Opportunities - Provision of Services for Young People -528

Out of County SEN Provision - Special Schools Recoupment -554

Road Safety - Speed Workshops as an alternative to prosecution -746

Community Access & Language Service - Translation Services -543

Total of amounts less than £500k -2,874

-6,044 7b Section 137 Discretionary Expenditure Section 137 of the Local Government Act 1972, as amended, empowers local authorities to make contributions to certain charitable funds and not-for-profit bodies providing a public service in the United Kingdom. The Council's expenditure under this power was £2,635k in 2008-09 (£3,320k in 2007-08). It was mainly used to provide grants to the voluntary sector serving the local community. Amounts paid over £100k during the year are detailed below:

2008-09

£000

Advice,Information & Counselling 256

Age Concern 103

Black & Ethnic Minority Groups & Race Equality 170

Community Spaces & Services 102

Core/Support Organisations 350

Domestic Violence & Victim Support 144

Prevention fund for PCT mental health organisations 142

Transport for voluntary schemes 203

Youth Small Grants 154

Total of amounts less than £100k 1,011

2,635 8 Publicity expenses The table below shows our expenditure on publicity.

2007-08 2008-09

£000 £000

1,489 Job Adverts 1,246

1,076 Promotional Costs 1,065

2,565 2,311

34

9 Officers Remuneration The number of employees whose remuneration, taxable expenses and severance pay (if applicable), was £50,000 or more during the year is detailed below: .

2007-08 Pay Band

Staff in

Schools

Other

staff

2008-09

Total

303 £50,000 - £59,999 238 112 350

54 £60,000 - £69,999 53 26 79

28 £70,000 - £79,999 15 13 28

19 £80,000 - £89,999 13 6 19

7 £90,000 - £99,999 6 8 14

4 £100,000 - £109,999 3 3 6

2 £110,000 - £119,999 2 2 4

2 £120,000 - £129,999 - - -

2 £130,000 - £139,999 - 1 1

- £140,000 - £149,999 - - -

- £150,000 - £159,999 - 1 1

- £160,000 - £169,999 - - -

- £170,000 - £179,999 - - -

- £180,000 - £189,999 - 1 1

421 330 173 503

10 Councillors’ allowances The Council has 73 Councillors. During 2008-09 we paid Councillor‟s allowances of £1,158,500 which is a 5.5% increase on last year‟s allowances (£1,097,600 in 2007-08). Allowances include basic allowances, special responsibility, subsistence and mileage allowances. 11 Audit Fees

2007-08 2008-09

£000 £000

334 KPMG LLP - audit services carried out by the appointed auditor 344

15 KPMG LLP - certification of grant claims and returns 15

16 The Audit Commission - statutory inspections and initiatives 36

365 395

A charge of £71k was incurred in year over and above the agreed audit fee for completion of the 2007-08 audit. A charge of £22k was incurred in year for grant certification work relating to 2006-07 & 2007-08.

35

12 Pooled Budgets

During the year the Council contributed to four pooled budgets:

Drug and Alcohol Action Team (DAAT) – hosted by Northamptonshire County Council, this is a partnership of all public bodies across the county whose purpose is to deliver the National Drug Strategy locally.

Community Equipment Services within North Northamptonshire – hosted by Northamptonshire County Council, the equipment is allocated via an OT assessment to enable independent living.

Community Equipment Services within South Northamptonshire – hosted by Northamptonshire County Council, the equipment is allocated via an OT assessment to enable independent living.

Adult Mental Health Services – hosted by Northamptonshire Teaching PCT, is used to provide high quality services to promote mental health, prevent mental distress and illness and to provide timely and holistic treatment of mental illness within the County.

Copies of the unaudited memorandum trading accounts for each pooled budget are included on pages 92-95. These do not form part of the Council‟s Accounts, and are excluded from the Audit Opinion.

13 Private Finance Initiatives & Public Private Partnerships 13a Private Finance Initiatives (PFI) The Council has entered into the following Private Finance Initiatives (PFI):

The Wooldale Centre

Residential Care Homes

The Northampton Town Learning Partnership

The annual payments are subject to contract variations as defined by the contract agreement. Balances associated with all three PFIs have been included in the Council‟s Balance Sheet – see note 18. Wooldale Centre On 28 March 2003 the Council entered into a PFI agreement with Wooldale Partnerships Ltd to build and operate the “Wooldale Centre for Learning”, which comprises the Caroline Chisholm secondary and primary school, a public library, and various pre-school and community facilities at Wootton Fields, Northamptonshire. The contractor made the Wooldale Centre available from September 2004 and will operate it over the life of the agreement which ends on 31 August 2029.

Residential Care Homes In January 2003 the Council entered into a PFI agreement with Shaw Healthcare to build and operate 4 specialist care centres located in Rushden, Corby, Daventry & Northampton. The facilities were completed between June and December 2004 and will be operated until December 2029, 25 years from the last unit opening date. PFI credits to the value of £1.3m p.a. will be received over the 25 year period.

36

Northampton Town Learning Partnership On 31 December 2005 the Council entered into a PFI agreement with Northampton Schools Ltd Partnership (Babcock & Brown Ltd), for a period of 32 years and one day to build and refurbish 5 secondary schools and 36 primary schools in Northampton Town and to finance and operate them over the same period. The PFI completion date is 1 January 2038 The building sub contractor, Galiford Try, has completed the building works to construct 5 new secondary and 6 new primary schools, with the remaining schools having extensions and/or refurbishments. The facilities management services for the schools carried out by sub contractor Amey BPO Services Ltd also commenced on 31 December 2005.

PFI movements during the year are as follows:

2007-08 2008-09 2007-08 2008-09 2007-08 2008-09 2007-08 2008-09

£000 £000 £000 £000 £000 £000 £000 £000

Unitary Charge 3,178 3,351 6,826 7,092 17,101 22,693 27,105 33,136Notional Aquisition of

residual value (958) (1,341) 0 (246) (7,081) (7,082) (8,039) (8,669)Amortisation of PFI

deferred consideration 0 0 0 0 3,695 4,858 3,695 4,858

Total Charges 2,220 2,010 6,826 6,846 13,715 20,469 22,761 29,325

Government grant

(PFI credits) (2,223) (2,223) (1,330) (1,330) (8,056) (8,506) (11,609) (12,059)

Other External

contributions 0 0 0 0 0 (346) 0 (346)

Net Charge to Net Cost

of Services - I&E (3) (213) 5,496 5,516 5,659 11,617 11,152 16,920

Reversal of accounting

adjustments in SMGFB 958 1,341 0 246 3,386 2,224 4,344 3,811

Transfer to/(from)

Earmarked Reserves 88 (222) 0 0 3,911 3,999 (222)

Net Charge to the

General Fund 1,043 906 5,496 5,762 12,956 13,841 19,495 20,509

Centre Care Homes Partnership Total PFI

Northampton

Wooldale Residential Town Learning

37

13b Public Private Partnerships (PPP)

Shaw- Elderly Persons Homes (EPH)

The Shaw EPH scheme relates to a Public Private Partnership (PPP) with respect to

a block contract involving 2 new builds and the transfer of 8 elderly persons homes to

Shaw Healthcare with financial close reached in May and October 2006 respectively.

The scheme involved:

The refurbishment of two homes: Victoria Road in Rushden and Lancum

House in Wellingborough (sold to Shaw Healthcare in 2008-09);

The rebuild of two homes on existing sites: Ashfield House, Raunds and

Abbott House, Oundle (transferred to Shaw Healthcare for consideration of

£1 each);

New builds of two homes on land acquired by the developer: Oakley Vale,

Corby and Towells Land, Kettering;

Improvement works on one home, Beech Close, to extend its life by up to

eight years (leased to Shaw Healthcare over life of contract);

Sale of three homes to finance contributions to Shaw‟s development costs:

Thornton House, Maple House and Ferndale Lodge (sale yet to take place).

The Council has a 25 year contract with Shaw Healthcare under which the developer

provides a specified number of beds at each home at a specified price to the Council.

The assets will be owned by the developer at the end of the contract.

The Authority is contributing the following assets to the scheme as set out in the

project agreement:

Ashfield House, Raunds and Abbot House Oundle – transferred at financial close

(May 2006) at a consideration of £1 each, and capital contributions over the life of the

contract.

The capital contributions to date of £2,261k and asset contributions of £865k are

reflected in the block fees paid to the developer and the sum of £3,126k was

transferred to the balance sheet in 2007-08 to be charged to revenue over the life of

the contract.

38

PPP movements during the year are as follows:

2007-08 2008-09

£000 £000

Unitary Charge 7,158 7,900

Notional Aquisition of residual value 0 0

Amortisation of PFI deferred consideration 0 289

Total Charges 7,158 8,189

Government grant (PFI credits) 0 0

Other External contributions 0 0

Net Charge to Net Cost of Services - I&E 7,158 8,189

Reversal of accounting adjustments in SMGFB 0 (289)

Transfer to/(from) Earmarked Reserves 0 0

Net Charge to the General Fund 7,158 7,900

Shaw EPH

Block Contract

Anticipated future PFI & PPP payments as at 31 March 2009 are as follows:

PFI PFI PFI PPP

Northampton

Wooldale Residential Town Learning Shaw EPH Total

Centre Care Homes Partnership Block Contract PFI & PPP

£000 £000 £000 £000 £000

Apr 2009 - Mar 2010 3,395 7,376 26,569 8,850 46,190

Apr 2010 - Mar 2015 18,396 41,548 127,977 49,852 237,773

Apr 2015 - Mar 2020 19,575 50,550 135,169 60,652 265,946

Apr 2020 - Mar 2025 20,823 61,502 143,306 73,793 299,424

Apr 2025 - Mar 2030 19,475 66,072 152,512 89,780 327,839

Apr 2030 - Mar 2035 162,948 109,232 272,180

Apr 2035 - End Date 94,876 4,089 98,965

End Dates 31 Aug 2029 30 Sep 2029 01 Jan 2038 31 May 2036

Bullet Payment Commitments

Apr 2009 - Mar 2010 2,100 2,100

39

14 Operating leases and contract hire agreements Authority as Lessee The Council has operating leases for a variety of buildings, vehicles, office and other equipment. The amount paid under these arrangements in 2008-09 was £6.7 million. (Land & Buildings £4.7m, Vehicles, Plant & Equipment £2.0m) The Council is committed to making payments of £3.8 million under these leases in 2009-10 comprising the following elements:

Vehicles

Land & Plant

Buildings Equipment Total

£000 £000 £000

Leases expiring in 2009-10 261 146 407

Leases expiring between 2010-11 and 2013-2014 673 1,884 2,558

Leases expiring after 2013-2014 710 99 809

1,644 2,129 3,774

Authority as Lessor Total amounts receivable in respect of leases granted by the authority in 2008-09 was £1.7 million. The income the Council is expecting in 2009-10 for these leases is £0.7 million, categorised as follows:

Land &

Buildings

£000

Leases expiring in 2009-10 (287)

Leases expiring between 2010-11 and 2013-2014 (67)

Leases expiring after 2013-2014 (321)

(675) The Council has granted a number of leases in respect of investment properties. These are included in Fixed Assets as follows:

£000

Total gross value of assets held for use in operating leases 4,130

Accumulated depreciation at 31 March 2009 (553)

Depreciation charge in year (512)

40

15 Intangible Assets Expenditure in respect of Intangible Assets are included in the balance sheet at historic cost. Software licences held include a licence for E-Business Suite plus additional modules for 6,000 employees which cost £418k and is held in perpetuity. The cost is to be written off over ten years. Expenditure of £6,797k relates to the intellectual property rights accumulating from the "Excellence for our Customers" project. This project is a fundamental part of the transformation of the Council and is critical to securing the full operational benefits of the software licences and ICT platforms which will form part of the Council's new shared services function with Cambridgeshire County Council and Slough Borough Council. A review of the expenditure has determined that while necessary to secure full operational functionality, not all the expenditure incurred has enhanced the market value of the asset and consequently the asset has been impaired. The balance of the asset value at £1,515k is to be written off over ten years. Enterprise Resource Planning software (ERP) £7,433k and Customer Service Centre software £4,100k will be used in the application of the new shared services as well as being used by the Authority. The expenditure will be written off over 3 financial years. It is the policy not to amortise or depreciate in the year of acquisition or the year in which the asset becomes operational therefore amortisation will begin in 2009/10.

Licences

Purchased Trademarks

Software and Artistic

Licences Originals Total

£000 £000 £000

Original Cost at 1 April 2008 - - -

Amortisation at 1 April 2008 - - -

Balance at 1 April 2008 - - -

Transfer from Asset under Construction 12,325 4,066 16,391

Additions in 2008/09 - 2,731 2,731

Total Gross Value at 31 March 2009 12,325 6,797 19,122

Impairment in 2008/09 - (5,282) (5,282)

Amortised to revenue in 2008-09 - - -

Balance at 31 March 2009 12,325 1,515 13,840

41

16 Tangible Fixed Assets 16a Movement on Assets Vehicles, Plant Total

Land and Furniture Infrastructure Community Operational

Operational Assets Buildings Equipment Assets Assets Assets

£000 £000 £000 £000 £000

Cost or Valuation At 1 April 2008 864,447 38,802 331,428 889 1,235,566

Additions 21,186 2,218 3,428 26,832

Aquisitions via Land Swap 1,806 1,806

Disposals (1,066) (1,066)

Reclassifications (11,516) 1,719 19,115 13 9,331

Revaluations 11,901 11,901

At 31 March 2009 886,758 42,739 353,971 902 1,284,370

Depreciation and Impairment

At 1 April 2008 (62,690) (20,687) (63,203) (1) (146,581)

Charges for 2008-09 (29,204) (4,928) (8,286) (3) (42,421)

Disposals 111 111

Reclassifications 2,672 (5) 2,667

Revaluations 3,714 3,714

At 31 March 2009 (85,397) (25,615) (71,494) (4) (182,510)

Balance Sheet at 31 March 2009 801,361 17,124 282,477 898 1,101,860

Balance Sheet at 1 April 2008 801,757 18,115 268,225 888 1,088,985

Nature of asset holding

Owned 801,361 17,124 282,477 898 1,101,860

Finance Lease

PFI

Balance at 31 March 2009 801,361 17,124 282,477 898 1,101,860

Surplus Total Non

Investment Assets Held Assets Under Operational

Non - Operational Assets Property For Disposal Construction Assets

£000 £000 £000 £000

Cost or Valuation At 1 April 2008 4,100 33,399 117,193 154,692

Additions 2,601 63,184 65,785

Disposals (8,198) (8,198)

Reclassifications 44,758 (54,112) (9,354)

Transfers to Intangible Assets (16,392) (16,392)

Other Reclasifications (386) (814) (1,200)

Revaluations 30 3,431 3,461

At 31 March 2009 4,130 75,605 109,059 188,794

Depreciation and Impairment

At 1 April 2008 (41) (940) (981)

Charges for 2008-09 (512) (22,918) (14,023) (37,453)

Disposals 74 74

Reclassifications (2,644) (2,644)

Revaluations 0

At 31 March 2009 (553) (26,428) (14,023) (41,004)

Balance Sheet at 31 March 2009 3,577 49,177 95,036 147,790

Balance Sheet at 1 April 2008 4,059 32,459 117,193 153,711

Nature of asset holding

Owned 3,577 49,177 95,036 147,790

Finance Lease

PFI

Balance at 31 March 2009 3,577 49,177 95,036 147,790

Total Tangible Fixed Assets at 31 March 2009 1,249,650

Total Tangible Fixed Assets at 1 April 2008 1,242,696

42

The assets of the council are shown at a valuation which is in line with CIPFA‟s SORP. All valuations have been carried out in accordance with guidance issued by the Royal Institute of Chartered Surveyors (RICS) by our independent external valuers, Lambert Smith Hampton. During the year we swopped St Mary‟s Middle School, Northampton for St. Gregory‟s Catholic Primary School, Northampton. Both assets were valued at £1.806m, consequently there was no exchange of monies. The school acquired, St Gregory‟s Catholic Primary School, is shown under Land and Buildings Additions – Land Swop. The school transferred to Northampton Roman Catholic Diocese, St Mary‟s Middle School, is included with disposals. 16b Financing of Fixed Assets and Revenue Expenditure Financed from Capital Under Statute

2007-08 2008-09

£000 £000

408,364 Opening Capital Financing Requirement 465,395

Capital Investment

133,357 Operational Assets & Non Operational Assets 95,347

10,746 Revenue Expenditure Funded From Capital Under Statute 18,121

18,926 PFI Bullet Payments 35,466

Sources of Finance

(11,459) Capital Receipts (4,322)

(75,874) Government Grants and Other Contributions (57,005)

(18,665)

Sums set aside from revenue (includes direct revenue

financing ,MRP,and any voluntary set aside) (11,368)

465,395 Closing Capital Financing Requirement 541,634

Explanation of Movements in Year

22,716

Increase in underlying need for borrowing (supported by

government financial assistance) 33,197

34,315

Increase in underlying need to borrowing (unsupported by

government financial assistance) 43,042

57,031 Increase /Decrease in Capital Financing Requirement 76,239 16c Commitments under capital contracts The Council allocates and controls its available resources for capital expenditure via a rolling 4 year capital programme. Total value of capital expenditure programmes to be completed in 2009/10 and later is £355.1m. Three schemes entered into during 2008/09 and earlier, where significant payments remain to be made, are identified below along with it‟s purpose, approximate value and the period over which the investment will take place.

43

Project/Scheme

Name Main Contractor Purpose

Approximate

value £000

Period of

investment

Kingswood School Interserve Project

Services Ltd

New School 23,000 Finish 2010-11

Maplefields/Orchard

School

Contract yet to be

awarded

New School 15,400 Finish 2010-11

A509 Isham Bypass Contract yet to be

awarded

Bypass 28,000 Finish 2010-11

16d Fixed Asset Valuation

The following statement shows the progress of the Council‟s rolling programme for the revaluation of fixed assets. The valuations were carried out by strategic property partners Lambert Smith Hampton who are regulated by the Royal Institute of Chartered Surveyors (RICS). The basis for valuation is set out in the statement of accounting policies. The current five year rolling programme of valuations is due to be completed by March 2010. Although there was a degree of slippage during the past two years there is a programme in place to ensure that all assets are valued within the current five year cycle. In accordance with CIPFA recommendations, properties are valued using the relevant cost bases with the exception of some assets with a carrying value of £14.8m which were transferred from operational assets to non operational assets and are still valued at depreciated replacement cost (DRC). These assets will be included in the revaluation programme for 2009/10.

Valued at

Historical Pre

Cost 2004-05 2004-05 2005-06 2006-07 2007-08 2008-09 Total

£000 £000 £000 £000 £000 £000 £000 £000

Operational Assets

Land & Buildings 0 177,389 329,916 11,959 92,292 49,058 140,747 801,361

PVEQ 17,124 0 0 0 0 0 0 17,124

Infrastructure 282,477 0 0 0 0 0 0 282,477

Community 898 0 0 0 0 0 0 898

300,499 177,389 329,916 11,959 92,292 49,058 140,747 1,101,860

Non Operational Assets

Assets Under

Construction 95,036 0 0 0 0 0 0 95,036

Investment

Properties 0 0 0 1,852 0 0 1,725 3,577Surplus Assets

held for Disposal 0 8,407 21,310 4,343 3,278 0 11,839 49,177

95,036 8,407 21,310 6,195 3,278 0 13,564 147,790

Total 395,535 185,796 351,226 18,154 95,570 49,058 154,311 1,249,650

Valued at Current Value

Since the year end valuation the Council is not aware of any material change in value and therefore the valuations have not been updated.

44

16e Details of assets owned by the Authority

March 2009

Operational Assets Number

Schools 351

Children's Homes 33

Elderly Persons Homes 51

Day Centres 63

Libraries 36

Recycling Centres 14

Fire Stations 22

County Offices 34

Infrastructure Assets

County Roads 4,000 km

Community Assets

Country Parks 6

Historic Documents 2

16f Assets recognised under PFI contracts There are no PFI assets on the Asset Register. To date, assets with a net book value of £83.5m have been transferred off the Asset Register to the PFI provider and included within deferred consideration on the balance sheet. 16g Impairment review In view of the current economic climate and the impact on property prices, the Council commissioned its professional valuers to carry out a desktop valuation on a sample of assets. Total assets with a gross value of £46m were included in the sample, the desktop market value was estimated at £40.5m, a reduction of 11.8%. The category of assets most at risk of being affected by price changes are the non-operational assets, particularly the Surplus Assets held for Disposal. The net book value at the year end in this category was £49m, a number of these properties were revalued during the year and impaired by £22.1m. If the reduction in prices identified by the desk top review were to be applied to the Surplus Assets held for Disposal, the estimated impact would be £4.7m. 17 Deferred consideration On 31 December 2005 the Council entered into a PFI agreement with Northampton Schools Ltd Partnership (Babcock & Brown Ltd), for a period of 32 years and one day to build and refurbish 5 secondary schools and 36 primary schools in Northampton. This resulted in the deemed disposal of assets to the PFI project for nil consideration. During the year a further deferred consideration of £29.6m was introduced into the Northampton Town Learning Partnership, in accordance with the terms of the PFI agreement.

45

In May 2006, the Council entered into a Public Private Partnership (PPP) with Shaw Healthcare to manage 8 residential homes. This resulted in the deemed disposal of 2 properties worth £865k to the PPP project for a nil consideration and a capital contribution of £2.26m. A deferred consideration is recognised in respect of the assets contributed to the PFI/PPP contract. This is charged to revenue over the life of the PFI/PPP contract.

2007-08 2008-09 2007-08 2008-09 2007-08 2008-09

£000 £000 £000 £000 £000 £000

Balance at 1 April 97,023 109,127 0 3,126 97,023 112,253

New deferred considerations 15,800 37,072 3,126 0 18,926 37,072

Amortisation to revenue account (3,696) (4,858) 0 (289) (3,696) (5,147)

Balance at 31 March 109,127 141,341 3,126 2,837 112,253 144,178

Partnership EPH Contract Total PFI/PPP

Northampton

Town Learning Shaw

18 Long Term Debtors

March 2008 March 2009

£000 £000

18,808 Residual interest in PFI assets 27,477

2,052 Other long-term debtors 1,772

20,860 29,249

Residual Interest in PFI Assets The balance sheet reflects a residual interest in the transfer of PFI assets back to the Council at the end of the PFI contract. As the transfer will be at NIL consideration, the acquisition of the asset is deemed to take place over the life of the PFI and an asset is built up over the life of the PFI contract. The amounts on the balance sheet represent the accumulated value of the Wooldale Centre, the Northampton Town Learning Partnership and Residential Care Homes.

Mar 08 Mar 09 Mar 08 Mar 09 Mar 08 Mar 09 Mar 08 Mar 09

£000 £000 £000 £000 £000 £000 £000 £000

Balance at 1 April 1,916 2,875 8,852 15,933 0 0 10,768 18,808

Notional acquisition 2008-09 959 1,342 7,081 7,081 0 246 8,040 8,669

Balance at 31 March 2,875 4,217 15,933 23,014 0 246 18,808 27,477

Total PFICentre Partnership Care Homes

Northampton

Wooldale Town Learning Residential

46

19 Stock and work in progress

March 2008 March 2009£000 £000

346 Fire Brigade Stocks 214

60 Library Publications 58

197 Nordis Raw Materials & WIP 109

70 Country Park Shops 59

137 Archaeology WIP 101

5 Various Food Stocks 4

815 545

20 Debtors and payments in advance

March 2008 March 2009

£000 £000

11,275 Government grants and refunds 6,165

5,636 Payments in advance 5,037

44,197 Other short-term debtors 29,849

61,108 Gross Value 41,051

(4,934) Bad Debt Provision (4,390)

56,174 Net Carrying Value 36,661

21 Landfill Allowance Trading Scheme (LATS) Investments The Council has received landfill allowances for the year of 167,936 tonnes. The estimated landfill usage is 134,199 tonnes, the Council did not buy or sell any allowances in the year or during the reconciliation period. DEFRA advised that the average weighted value for 2008-09 is ten pence. However, the Council has impaired the balance of units remaining to its net realisable value of £nil. Amounts included in the 2008-09 statement of accounts are:

2007-08 2008-09 2008-09 2008-09

Net Gross Gross Net

Expenditure Income Expenditure Expenditure

£000 Income and expenditure Account £000 £000 £000

567 Cultural ,Environmental and Planning 2,973 (2,406) 567

LATS Trading Account

0 LATS Grant Income 0

(1,203) Profit/Loss on sale of LATS 0

1,770 LATS Impairment 567

567 Net transfer to reserves 567

Upon

March 2008 Balance sheet Recognition March 2009

£000 £000 £000

Current Assets:

2,973 Landfill Usage Allowance for year 0 0

Current Liabilities

0 Deferred income for year 0 0

(2,406) Liability to DEFRA for land usage 0 0

47

22 Creditors and receipts in advance

March 2008 March 2009

£000 £000

(6,960) Inland Revenue (7,391)

(52,944) Receipts in advance (39,527)

(23,698) Unapplied Capital Grants Receipts in Advance (31,505)

(66,460) Other Creditors (61,318)

(150,062) (139,741)

Unapplied Capital Grants Receipts in Advance March 2009

£000

Balance Brought Forward (23,698)

Grants Received (64,812)

Grants Applied to Government Grants Deferred 42,082

Amortised to Revenue - REFCUS Expenditure 14,923

(31,505) 23 Provisions

Change

March 2008 in provision March 2009

£000 £000 £000

Insurance (4,316) (531) (4,847)

Other (663) 171 (492)

(4,979) (360) (5,339) The Insurance Provision is held to fund the payment of known estimated future insurance liability (public liability, employers liability and property) i.e. estimates against current open insurance claims. Once a claim has been made it can take three years for it to go through the court process. In addition to this if the claim is of a medical nature it can take many years to settle depending on the injury/illness concerned. The balance held in the provision is based on estimates of liability of known claims provided by the Fund‟s appointed professional advisors (Marsh Ltd) and property specialists. This therefore represents the liability that NCC will be required to pay impacting in future years.

48

24 Unequal Pay Back Pay The Pay and Benefits provision has been created to fund any potential costs for when the council implements its new Pay and Benefits package after agreement with Trade Unions, which is currently pending. In 2008/9, based on the best estimate of the liability, the Council has increased this provision by £37.1m to £59.5m. This provision is for both schools and the Council and includes all elements of funding that may be required; such as potential protection, pay arrears and equal pay liabilities, where any may exist. The Council does not accept liability for any potential equal pay claims. To comply with the SORP, the increase in the provision has been reflected in the relevant service heading within the overall Net Cost of Services in the Income and Expenditure account.

The Council has secured capitalisation directives from central government for pre 2007 provisions, which allows the Council to borrow money to meet some of the potential costs. In 2008/09, the Council capitalised £5.9m bringing the total value of capitalisation to £15.5m.

For schools based staff, the Schools Forum has agreed that part of the schools based element of equal pay claims will be funded from the accumulated surplus on the Dedicated Schools Grant.

In accordance with statute, the Council does not have to finance back pay claims until any actual payments are made. Consequently, these sums are adjusted out of the Income and Expenditure Account through the Statement of Movements in the General Fund Balance.

The provision made is in accordance with proper accounting practice and doesn‟t reflect the extent of the Council‟s liability, as it is unable at this stage to measure the degree of likelihood of any potential liability with any sufficient reliability. Impact on Reserves

2007-08 2008-09 2008-09 2008-09 2008-09

£000 £000 £000 £000 £000

Total

Capital

Adjustment

Account

Unequal

Pay Back

Pay

Reserve

General

and

Schools

Funds Total

0 Brought Forward at 1 April 9,600 5,700 7,100 22,400

22400 Charged to Net Cost of Services 0 0 37,100 37,100

0 Reversed though the SMGFB 5,900 12,700 (18,600) 0

22400 Carried Forward at 31 March 15,500 18,400 25,600 59,500

Amount included in provisions on the balance sheet at 31 March

2007-08 2008-09

£000 £000

0 Brought Forward 1 April 2008 (22,400)

(22,400) Increase in Provision (37,100)

(22,400) Carried Forward 31 March 2009 (59,500)

49

25 Government grants and capital contributions deferred This account represents grants and contributions received to finance (wholly or partly) the acquisition of fixed assets. Amounts are then credited to the relevant service on the revenue accounts over the useful life of the asset. If the grant is in respect of a non-depreciable asset, the whole sum of the grant is released to revenue accounts in the year received and then reversed to the Capital Adjustment Account through the Statement of Movement on the General Fund Balance. Any grants received in advance of incurring expenditure are transferred to an unapplied grant account within creditors (see Note 22).

2007-08 2008-09

£000 £000

(181,379) Balance brought forward (240,998)

(75,274) Grants applied to capital investment in the year excluding

any REFCUS expenditure

(42,082)

15,655 Amounts amortised to the revenue accounts in the year -

excluding grants relating to REFCUS expenditure

28,232

0 Additional amortisation in respect of assets no longer on

asset register

0

(240,998) Balance carried foward (254,848)

26 Minimum Revenue Provision (MRP) In line with the MRP policy adopted by the Council, the 2008-09 Statutory General Fund MRP provision of £11.4m on the residual Capital Financing Requirement (CFR) as at 31March 2008 has been reduced by the amount of assets under construction and then applied the asset life methodology. The 2008-09 charge under the new MRP policy of £11,368k is £7,248k less than the charge of £18,616k calculated under the previous methodology (4% of the CFR as at 1 April 2008 of £465.4m) and this has had a direct impact on the outturn for the year. This is in line with the Local Authorities (Capital Finance and Accounting) (England) (Amendment) Regulations 2008 (SI2008/414) and DCLG guidance Option 3. MRP has been assessed from 1 April 2007 in line with guidance. 27 Pension Costs Teachers In 2008-09 we paid £28.4m to the Teachers Pensions Agency for teachers‟ pension costs. This represents 14.1% of teachers‟ pensionable pay. We are also responsible for any pension payments relating to added years we have awarded, together with related increases. In 2008-09, there were none. The Scheme is a defined benefit scheme. Although the scheme is unfunded, Teacher‟s Pensions use a notional fund as the basis for calculating the employers‟ contribution rate paid by local education authorities. However, it is not possible for the authority to identify a share of the underlying liabilities in the scheme attributable to its own employees. For the purpose of this Statement of Accounts, it is therefore accounted for on the same basis as a defined contribution scheme.

50

Uniformed firefighters In 2008-09 the service cost paid into the Pension Fund for uniformed firefighters was £1.9m. This represents 21.3% of pensionable pay in respect of employees in the 1992 scheme and 14.2% of pensionable pay in respect of employees in the 2006 scheme. The firefighter pension regulations exempt certain charges relating to ill health and injury awards from the Firefighters Pension Fund Account. In 2008-09 these costs totalled £388,778. Of this, £105,265 was funded from the provision held to provide for future liabilities as a result of firefighters retiring. Please refer to page 96 for details of the Firefighters Pension Fund Account. Other employees In 2008-09 the service cost paid into the Pension Fund for council staff was £29.0m. This represents 19.2% of pensionable pay of employees in the Local Government Pension Scheme. We are also responsible for any pension payments relating to added years we have awarded together with the related increases. In 2008-09 these were £1.3m (0.9% of pensionable pay). Capital cost of discretionary increases in pensions payments The capital cost of discretionary increases in pension‟s payments that we agreed in 2008-09 was £0.1m. The capital cost of discretionary increases in pensions payments that we agreed before 2008-09 was £24.0m. The Fund‟s actuary bases our contribution rate on actuarial valuations every three years. (The review relating to contributions in 2008-09 took place on 31 March 2007, the results of which were applied to pension‟s contributions from 1 April for the financial year 2008-09 and will be applied to 2009-10 and 2010-11) Under pension scheme regulations these contribution rates should cover all the fund‟s liabilities. There are more details on pension assets and liabilities in Note 28 below. Further information can be found in the County Council‟s Pension Fund‟s Annual Report, see page 99 for contact details. 28 Retirement benefits – FRS17 Disclosures for Defined Benefit Schemes: 28a Participation in pension schemes The Local Government Pension Scheme and Firefighters pension Scheme are defined benefit schemes. As part of the terms and conditions of employment of its officers and other employees, the authority offers retirement benefits. Although these benefits will not actually be payable until employees retire, the authority has a commitment to make the payments that need to be disclosed at the time that employees earn their future entitlement. The authority participates in two pension schemes that are subject to the requirements of FRS17:

51

The Local Government Pension Scheme for civilian employees, administered by Northamptonshire County Council – this is a funded scheme, meaning that the authority and employees pay contributions into a fund, calculated at a level intended to balance the pension liabilities with investment assets.

The Firefighters Pension Scheme for firefighters – this is an unfunded scheme, meaning that there are no investment assets built up to meet actual pensions payments as they eventually fall due. Two pension schemes operate within the fund, the 1992 scheme and the 2006 scheme.

Changes in the 2008 SORP Under the 2008 SORP amendment to FRS17 retirement benefits, the quoted securities held as assets in the defined benefit scheme are now valued at bid price rather than mid-market value. The effect of this change is that the net value of the scheme assets and liabilities at 31 March 2008 has been restated from £412.3m to £414.7m, resulting in an increase of the pension deficit of £2.4m. Prior year accounts have not been restated, the adjustments have been included in the current year. Note 28h includes the restated amounts. 28b Reconciliation of defined benefit obligation

2007-08 2008-09 2007-08 2008-09 2007-08 2008-09

£000 £000 £000 £000 £000 £000

Opening Defined Benefit Obligation 731,048 812,601 150,130 128,980 881,178 941,581

Current Service Cost 23,489 29,047 5,100 4,230 28,589 33,277

Interest Cost 39,638 50,080 8,120 8,900 47,758 58,980

Contribution by Scheme Participants 8,621 9,715 0 0 8,621 9,715

Actuarial Gains and Losses 31,212 (176,748) (27,080) (17,080) 4,132 (193,828)

Benefits Paid (30,883) (22,148) (4,670) (4,570) (35,553) (26,718)

Past Service Costs 5,851 24 (2,620) 0 3,231 24

Curtailments 3,625 2,691 0 0 3,625 2,691

Settlements 0 (1,152) 0 0 0 (1,152)

Closing Defined Benefit Obligation 812,601 704,110 128,980 120,460 941,581 824,570

Local Government

Pension Scheme

Firefighters

Pension Scheme

Total

52

28c Reconciliation of fair value of the scheme assets

2007-08 2008-09 2007-08 2008-09 2007-08 2008-09

£000 £000 £000 £000 £000 £000

Opening Fair Value of Employer

Assets: 557,625 529,248 0 0 557,625 529,248

Expected Rate of Return on Scheme

Assets 36,355 38,044 0 0 36,355 38,044

Actuarial Gains and Losses (69,913) (157,277) 0 0 (69,913) (157,277)

Assets Distributed on Settlements 0 (1,182) 0 0 0 (1,182)

Employer contributions 27,443 28,234 0 0 27,443 28,234

Contributions by scheme participants 8,621 9,715 0 0 8,621 9,715

Benefits Paid (30,883) (22,148) 0 0 (30,883) (22,148)

Closing Fair Value of Employer Assets

529,248 424,634 0 0 529,248 424,634

Local Government Firefighters

Pension Scheme Pension Scheme

Total

53

28d Income and Expenditure Account & Statement of Movement on the General Fund Balance The following transactions have been made in the Income and Expenditure Account and Statement of Movement on the General Fund Balance during the year:

2007-08 2008-09 2007-08 2008-09 2007-08 2008-09

£000 £000 £000 £000 £000 £000

Income and Expenditure Account

Net Cost of Services

Current Service Cost 23,489 29,047 5,100 4,230 28,589 33,277

Past Service Cost 5,851 24 (2,620) 0 3,231 24

Removal of provision for Injury awards

0 0 (2,940) 0 (2,940) 0

Net Operating Expenditure

Interest Costs 3,625 2,721 8,120 8,900 11,745 11,621

Expected return on scheme assets 3,283 12,036 0 0 3,283 12,036

Net Charge to the Income and

Expenditure Account 36,248 43,828 7,660 13,130 43,908 56,958

Statement of Movement on the

General Fund Balance

Reversal of net charges made for

retirement benefits in accordance with

FRS17 (8,805) (15,594) (3,230) (8,560) (12,035) (24,154)

Employers' contribution payable to

scheme (LGPS)/Retirement Benefits

payable to pensioners (FPS) 27,443 28,234 4,430 4,570 31,873 32,804

Local Government Firefighters

Pension Scheme Pension Scheme

Total

In addition to the recognised gains and losses included in the Income and Expenditure Account, actuarial gains and losses of £36,551k were included in the Statement of Total Recognised Gains and Losses.

54

28e The major categories of plan assets as a percentage of total plan assets The Firefighters Pension Scheme has no assets to cover its liabilities. The fund balances to nil each year through the receipt or refund of a top up grant from the Central Government Sponsoring body. The Local Government Pension Scheme‟s assets consist of the following categories, by proportion of the total assets held:

2007-08 2008-09 2007-08 2008-09

% % % %

Equity Investments 74 70 N/A N/A

Bonds 17 19 N/A N/A

Property 7 7 N/A N/A

Cash 1 4 N/A N/A

Local Government Firefighters

Pension Scheme Pension Scheme

28f Expected return on assets The expected return on assets is based on the long-term future expected investment return for each asset class as at the beginning of the period (i.e.1 April 2008). Long Term expected rate of return on assets in the scheme:

2007-08 2008-09 2007-08 2008-09

% % % %

Equity Investments 7.5 7.0 N/A N/A

Bonds 5.3 5.4 N/A N/A

Property 6.5 4.9 N/A N/A

Cash 5.3 4.0 N/A N/A

Local Government Firefighters

Pension Scheme Pension Scheme

Liabilities have been assessed on an actuarial basis using the projected unit method, an estimate of the pensions that will be payable in future years dependent on assumptions about mortality rates, salary levels, etc. The Firefighters Pension Scheme and the Local Government Pension Fund liabilities have been assessed by the Government Actuary‟s Department (GAD) and Hymen Robertson LLP respectively. The financial assumptions used for the Local Government Pension Fund were those from the beginning of the year (i.e.1 April 2008) and have not been changed during the year.

55

28g The main assumptions used in their calculations have been:

March March March March

2008 2009 2008 2009

% % % %

Rate of inflation 3.6 3.1 3.7 3.0

Rate of increase in salaries 5.1 4.6 5.2 4.5

Rate of increase in pensions 3.6 6.9 3.7 3.0

Rate for discounting scheme liabilities 6.1 6.4 6.9 6.9

Take-up of option to convert annual 50.0 50.0 N/A N/A

pension into retirement grant

Local Government Firefighters

Pension Scheme Pension Scheme

Mortality Assumptions For the County Council Pension Fund life expectancy is based on the PFA92 and PMA92 year of birth tables with medium cohort improvements, for non pensioners and pensioners. For the Firefighters Pension Fund life expectancy is based on PA00-06 U = 2009 (X+1) for current pensioners and PA00-06 C=2049 for future pensioners. The PA00-06 table is the published PA00 table with future improvements broadly in line with the 2006 based UK principal population projections thereafter.

2007-08 2008-09 2007-08 2008-09

Years Years Years Years

Longevity at 65 for current pensioners

Men 21.1 21.1 23.1 23.1

Women 24.0 24.0 24.7 24.7

Longevity at 65 for future pensioners

Men 22.2 22.2 25.8 25.8

Women 25.0 25.0 27.4 27.4

Local Government Firefighters

Pension Scheme Pension Scheme

56

28h Scheme History

2004-05 2005-06 2006-07 2007-08 2007-08 2008-09

£000 £000 £000 £000 £000 £000

Present Value of Liabilities: As Restated

Local Government Pension Scheme (606,202) (715,260) (731,048) (812,601) (812,601) (704,110)

Firefighters Pension Scheme N/A N/A (150,610) (128,980) * (129,210) (120,460)

(606,202) (715,260) (881,658) (941,581) (941,811) (824,570)

Fair Value of Assets:

Local Government Pension Scheme 407,253 522,403 557,625 529,248 ** 527,061 424,634

Firefighters Pension Scheme 0 0 0 0 0 0

407,253 522,403 557,625 529,248 527,061 424,634

Surplus/(deficit) in the scheme:

Local Government Pension Scheme (198,949) (192,857) (173,423) (283,353) (285,540) (279,476)

Firefighters Pension Scheme N/A N/A (150,130) (128,980) (129,210) (120,460)

(198,949) (192,857) (323,553) (412,333) *** (414,750) (399,936)

* Restated from £128,980 to £129,210

** Restated from £529,248 to £527,061

*** Restated from £412,333 to £414,750

Figures for 2004-05 and 2005-06 for the fire-fighters scheme are not available. History experience of gains and losses

2004-05 2005-06 2006-07 2007-08 2008-09

£000 £000 £000 £000 £000

Asset Gain (Loss) 21,246 72,542 (6,371) (69,913) (157,277)

Present Value of Assets 407,253 522,403 557,625 527,061 424,634

Asset Gain (Loss) % 5.22% 13.89% -1.14% -13.27% -37.04%

Gains & Losses on Liabilities:

Liability Gain (Loss) 15,754 (14,972) 0 3,499 (4,951)

Present Value of Liabilities (606,202) (715,260) (731,048) (812,601) (704,110)

Liability Gain (Loss) % 2.60% -2.09% 0.00% 0.43% -0.70%

Actuarial Gains/(Losses):

Local Government Pension Scheme (65,585) 620 30,794 (101,125) 19,471

Firefighters Pension Scheme 0 0 0 27,080 17,080

(65,585) 620 30,794 (74,045) 36,551

Differences between expected and

actual return on assets:

28i Projected pension expense for the year to 31 March 2010 Analysis of the projected amount to be charged to operating profit for the year to 31 March 2010: Year Ended: March 2010 % of pay

£'000

Projected Current Service Cost 18,593 12.6%

Interest on Obligation 48,750 33.1%

Expected Return on Plan Assets (27,637) 18.8%

Past Service Cost - -

Losses/(Gains) on Curtailments and Settlements - -

Total 39,706 27.0% The estimated employer's contributions for the year to 31 March 2010 is £27.5million

57

29 Movements on Financial Reserves in the Year The Council keeps a number of reserves in the Balance Sheet. Some are required to be held for statutory reasons, some are needed to comply with proper accounting practice, and others have been set up voluntarily to earmark resources for future spending plans.

Balance Net Balance

April Movement March

2008 in Year 2009 Further Detail

Reserve £000 £000 £000 Purpose of Reserve of Movements

Revaluation Reserve 25,535 17,323 42,858 Store of gains on the See (a) below

revaluation of fixed assets

not yet realised through

sales

Capital Adjustment 641,827 (45,850) 595,977 Store of capital resources See (b) below

Account set aside to meet past

expenditure

Financial Instruments 4,460 2,600 7,060 Balancing account to See note 40

Adjustment Account allow for differences in

statutory requirements

and proper accounting

practices for borrowings

and investments

Available for Sale 0 489 489 Store of gains See note 40

Financial Instruments on revaluation of

Reserve investments not yet

realised through

sales

Capital Receipts 3,911 3,368 7,279 Capital Receipts not yet See (c) below

Reserve applied to capital schemes

Pensions Reserves (412,333) 12,397 (399,936) Balancing account to See note 28

allow inclusion of

Pensions Liability in the

Balance Sheet

Unequal Pay Back (5,700) (12,700) (18,400) Back pay deferred pending See (d) below

Pay Account actual payment of claims

Schools Reserves 47,215 (1,306) 45,909 Unused schools balances, See (e) below

plus balance on Dedicated

Schools Grant

Earmarked Reserves 22,625 (2,065) 20,560 Includes the Insurance See (f) below

and PFI Reserves

General County Fund 13,207 714 13,921 Resources available to See Statement of

meet future running costs Movement on the

for council services General Fund Balance

Total 340,747 (25,030) 315,717

58

The movements in the year are explained below: (a) Revaluation Reserve

2007-08 2008-09

£000 £000

37,111 Revaluation gains 19,076

(11,368) Transfers to Capital Adjustment Account of (1,265)

accumulated gains upon disposal

(208) Historic cost depreciation adjustment (488)

25,535 17,323 (b) Capital Adjustment Account

2007-08 2008-09

£000 £000

15,655 Government grants deferred amortisation 43,143

18,665 Minimum revenue provision 11,368

1,373 Capital expenditure charged in year to the general

fund

0

(15,339) Book value of assets on disposal (6,205)

11,459 Capital receipts posted out of the Capital Receipts

Reserve

4,322

8,039 PFI capital expenditure charged in year to the

general fund

8,669

(3,695) Write down of deferred consideration (5,147)

11,368 Transfers from Revaluation Reserve of 1,265

accumulated gains upon disposal

208 Historic cost depreciation adjustment 488

(37,107) Impairments (59,115)

(22,719) Depreciation (26,062)

(7,622) Revenue expenditure funded from capital

expenditure under statute

(12,676)

(9,600) Capitalisation of Single Status costs under

statutory direction

(5,900)

43 Other 0

(29,272) (45,850) (c) Capital Receipts Reserve

The balance left in the reserve has been earmarked as a contribution to future capital elements of the PFI unitary charge. Previously all capital receipts were used in year to fund capital expenditure.

2007-08 2008-09

£000 £000

15,370 Capital receipts received 7,690

(11,459) Amounts transferred to Capital Adjustment

Account to finance capital expenditure

(4,322)

3,911 3,368

(d) Unequal Pay Back Pay Account

2007-08 2008-09

£000 £000

(5,700) Deferred from General Funds (12,700)

(5,700) (12,700)

59

(e) Schools Reserves Amounts held in reserves and balances held by schools under delegated schemes are committed to be spent on the education service.

Opening

Balance

Transfers to

Reserve

Transfers from

Reserve

Closing

BalanceApril 2008 March 2009

£000 £000 £000 £000

Dedicated schools grant 4,919 -1,289 0 3,630

Unused schools balances 44,253 44,669 (44,253) 44,669

Asset purchase loans (1,957) 888 (1,321) (2,390)

Schools Reserves 47,215 44,268 (45,574) 45,909

(f) Earmarked Reserves

Opening

Balance

Transfers to

Reserve

Transfers from

Reserve

Closing

BalanceApril 2008 March 2009

£000 £000 £000 £000

Insurance reserve 5,164 1,037 0 6,201

PFI reserves 10,243 3,523 (7,200) 6,566

Capital reserve 3,532 2,000 (1,407) 4,125

Landfill Allowance Trading Scheme reserve 567 0 (567) 0

Service Carry Forwards 520 1,593 (524) 1,589

Firefighters Ill-Health Pension reserve 824 0 (705) 119

Pen Green Research Centre reserve 796 0 (72) 724

Other earmarked reserves 979 542 (285) 1,236

Earmarked Reserves 22,625 8,695 (10,760) 20,560

30 Analysis of government grants (cash basis)

2007-08 2008-09

£000 £000

5,830 Access & Systems Capacity 0

358,441 Dedicated Schools (DSG) 373,030

1,573 Drug/Alcohol Misuse 1,297

34,284 Learning and Skills Council 35,863

5,024 LAA 50

1,303 Parent Support Advisors 442

7,398 Performance Reward 0

12,058 PFI Credits 12,058

16,556 School Standards 20,875

2,651 Section 256 2,691

52,372 Standards Fund 34,302

1,409 Supported Employment 1,286

14,702 Supporting People 14,257

10,587 Sure Start Early Years Childcare 10,656

1,051 Training Support Programme 591

967 Youth Justice Board 1,193

15,408 Other 9,558

541,614 518,149

60

31 Reconciliation between the net deficit on the Income and Expenditure Account and the net cash flow from revenue activities

March 2008

March 2009

£000

£000

41,665

Net general fund deficit for the year 81,146

Non-cash transactions

(44,171)

Depreciation & Impairments (85,156)

(7,622)

REFCUS (Formally Deferred charges) 0

0

Government Grant Deferred Amortisation 28,232

33

Gain on sale of fixed assets 1,421

(3,695)

PFI deferred consideration 3,522

(11,795)

FRS17 retirement benefits (24,154)

(22,400)

Change in unequal pay back pay provision (37,100)

(92)

Change in provisions (360)

0

Change in deferred Liabilities 1,352

(89,742)

(112,243)

Movement in working capital

(177)

Decrease in stock and work in progress (270)

(4,385)

Decrease in investments (2,973)

(2,092)

Decrease in debtors and payments in advance (15,740)

(9,428)

Decrease/(Increase) in creditors and receipts in advance 13,968

191

Decrease in bad debt provision 544

(15,891)

(4,471)

Items disclosed elsewhere in the cash flow

(18,826)

Interest payable (20,406)

11,753

Interest receivable 12,057

(7,073)

(8,349)

(71,041)

Net cash flow from revenue activities (43,917)

32 Reconciliation of cash flows from financing to related balances

Opening Repayments New Closing

Balances of Amounts Loans Non Cash Balances

April 2008 Borrowed Raised Movements March 2009

£000 £000 £000 £000 £000

Short & Long Term Loans (442,456) 574,561 (599,575) (670) (468,140)

(442,456) 574,561 (599,575) (670) (468,140)

61

33 Movement in our cash balances

Cash Cash Decrease /

Balances Balances (Increase)

March 2008 March 2009 in Cash

£000 £000 £000

Cash in hand 1,758 3,154 (1,396)

Bank Overdraft (3,302) (14,072) 10,770

(1,544) (10,918) 9,374

34 Explaining our liquid resources

Liquid resources include all short-term investments but exclude cash. Investments that are due to reach maturity in less than 365 days are classed as short term.

Reconciliation of cash flows from management of liquid resources to related balances:

Opening Closing

Balances Cash Non Cash Balances

April 2008 Movements Movements March 2009

£000 £000 £000 £000

Short Term Deposits 135,021 34,291 0 169,312

Long Term Deposits 46,078 (35,388) 0 10,690

181,099 (1,097) 0 180,002

35 Trust funds We are the sole trustee for several legacies left for the benefit of education and the community in the County. We manage £20,124 of trust funds and other third-party funds. These amounts are not included in the Income & Expenditure account or Balance Sheet. 36 Contingent Liabilities & Assets a. Employment Tribunal Claims The Council has 14 employment tribunal cases

outstanding, but is unable at this stage to measure the degree of likelihood of any liabilities or the amounts of any potential obligations with sufficient reliability. Hence no amounts have been recognised within the accounts. Based on historic experience and the number of cases the estimated liability could be up to £185,000.

b Review of Major Contracts In March 2009 the Cabinet agreed to terminate the contract with Carillion who provide facilities management services. As a result of the termination the Council is going to have an obligation to pay compensation, which will be determined after the contract is terminated on 30th September 2009. It is anticipated a report will be taken to Cabinet in December 2009 explaining the outcome of the termination of the contract and level of compensation. Any compensation due will be charged during 2009-10, either using the actual amount or an estimate if negotiations are continuing. The estimated financial impact is uncertain and as a guide could be in the region of £300,000.

62

In addition the Council was issued with proceedings for a claim on a contract for

works on a Council property. The claim is due to be heard by the high court during the 2009-10 financial year. The Council is vigorously contesting this case. The possible financial impact, if any, is uncertain but as a guide could be up to £500,000.

c Land Contamination The Council has an indemnity dating back to 1993 to pay

for contamination of land next to a former landfill site in the County. The landfill site has contaminated neighbouring land but no formal negotiations have taken place to resolve the issue. The are numerous possible solutions, and until formal negotiations have taken place, it is not possible to estimate a financial value. Following discussions with its insurers, the Council is unlikely to be able to pursue an insurance claim for these costs and is therefore treating this issue as a contingent liability.

d VAT Claim The Council submitted a claim for over paid VAT dating back to the

early 1970‟s based on the outcome of well known VAT litigation “the Fleming case” which meant that certain items previously deemed to be Standard rated were considered to be Zero rated . Due to the age of these purchases the Council has submitted an estimated value of approximately £800,000 of potential VAT refundable and cannot determine with certainty the amount that HMRC is likely to refund based on the estimates submitted, hence to be prudent, this has been treated as a contingent asset and no credits have been recognised in the accounts.

37 Transactions with related parties The Council is required to disclose material transactions with related parties – bodies or individuals that have the potential to control or influence the Council or to be controlled or influenced by the Council. Disclosure of these transactions allows readers to assess the extent to which the Council might have been constrained in its ability to operate independently or might have secured the ability to limit another party‟s ability to bargain freely with the Council. Central government has effective control over the general operations of the Council – it is responsible for providing the statutory framework within which the Council operates and provides the majority of its funding in the form of grants. Details of specific government grants can be found in Note 30. Councillors Members of the Council have direct control over the Council‟s financial and operating policies. During 2008-09 the Council bought goods and services and gave grants to the value of £30,600 to two organisations or companies in which two Councillors had an interest. The Council entered into contracts in line with standard procedures and made grants with proper consideration of declarations of interest. Officers During 2008-09 the Council bought goods and services and gave grants to the value of £557,581 to six organisations or companies in which five officers had an interest. The Council entered into contracts in line with standard procedures and made grants with proper consideration of declarations of interest.

63

During 2008-09 the Council received £3,355 of income from two organisations in which two officers had an interest. Northamptonshire Connexions Partnership Ltd Connexions-Northamptonshire is an organisation that offers advice on education, careers, housing, money, health and relationships to 13-19 year olds in the County. From 1 April 2008 funding from the Department for Children, Schools and Families was incorporated into the Area Based Grant and distributed to Connexions-Northamptonshire via NCC. During 2008-09 the Council paid grants to Connexions-Northamptonshire totalling £5,592,341. During 2008-09 the Council received £22,181 from Connexions-Northamptonshire for services provided. Northamptonshire Enterprise Ltd

NEL was created in 2006 by the merger of the Council‟s economic development service with Northamptonshire Enterprise (the sub-regional arm of East Midlands Development Agency), Invest Northamptonshire, Explore Northamptonshire and Northamptonshire Observatory. Since then the Council has had a service level agreement in place with NEL for the management and delivery of the Council‟s economic development functions.

The Council paid fees totalling £653,000 directly to NEL for the management and delivery of the Council‟s economic development functions. A further £837,605 was paid to NEL as grants, the delivery of which is managed by NEL.

NEA Properties Ltd NEA Properties Ltd is a company set up many years ago by NCC to stimulate and promote the creation and growth of business enterprise in Northamptonshire, so as to increase employment opportunities in the County. During 2008-09 the Council received grants of £60,000 from NEA Properties Ltd to fund various projects. Other NCC projects were also funded to the value of £105,000 by NEA Properties Ltd via Northamptonshire Enterprise Ltd who administered the projects on behalf of NCC. The Lakes (Waterside) Management Company Ltd The company was set up many years ago to manage the lakes in the vicinity of John Dryden House and the neighbouring properties. The Council contributes £10,000 per annum to the running of the company. Northamptonshire Local Government Pension Scheme During 2008-09 the Council made payments totalling £29m to the Pension Fund. The Pension Fund paid us £1.5m for administration charges, including staff salaries. Debtors and Creditors Balances There were no balances due to or from related parties at 31 March 2009.

64

38 Related Parties with Significant Influence or Dominant Control The council has an interest in two companies limited by Guarantee through board membership and significant influence. However, the maximum amount of liability borne by the Council in the event of insolvency is limited to £1 as both companies are limited by guarantee. The Council also has an interest in The Lakes (Waterside) Management Company Ltd through a 33.1% share holding and one director on the board of seven directors. The Council has considered that group accounts will not be required as the net worth and exposure to risk is immaterial. Users of the Council accounts will be able to see the complete activities of the Council and its exposure to risk without producing group accounts. The following information is extracted from the most recent unaudited Company Accounts. Copies of the Accounts are available from Companies House, Cardiff, CF14 3UZ once filed.

Business Entity

Connexions

Northamptonshire

NEA

Properties

Lakes

Management

Held % Significant Influence

Significant

Influence 33%

Entity year end March 2009 March 2009 Dec 2007

£000 £000 £000

Profit before tax (13) (81) 0

Profit after tax (21) (81) 0

Total Assets 3,854 420 12

Total Liabilities (3,726) (43) (11)

Net Assets 128 377 1

Dividend received by Council n/a n/a n/a

Amounts due to/(from) Council n/a n/a n/a

65

39 Trading Accounts The council has three long established trading units where the service manager is required to operate in a commercial environment and balance their budget by generating income from other parts of the authority or other organisations. The net deficit of £260k (2007-08 £153k) has been included in the net cost of services in the Income and Expenditure Account. Archaeology - Undertakes various contracts throughout the country, with a view to making a surplus. It achieves this on a cash basis, without internal recharges of support services at the year end. Nordis - NCC supported sign making business that sells to external companies. The employees are in the main disabled and it is considered a worthwhile venture that is supported under the powers of Well Being as part of the budget. Knuston Hall – a residential adult education college and conference venue.

2007-08 2008-09

£000 £000

Archaeology

(2,145) Turnover (1,862)

2,039 Expenditure 1,775

(106) Surplus (87)

Nordis

(828) Turnover (872)

1,121 Expenditure 1,252

293 Deficit 380

Knuston Hall

(676) Turnover (687)

642 Expenditure 654

(34) Surplus (33)

153 Net deficit on trading operations 260

66

40 Financial Instruments Accounting Policy With effect from 1 April 2007, local authorities have had to adopt a major change of accounting policy in order to comply with the requirements of the Code of Practice on Local Authority Accounting in the United Kingdom – the Statement of Recommended Practice (SORP) issued by the Chartered Institute of Public Finance and Accountancy / LASAAC Joint Committee. This has been based on major changes in international accounting standards which have resulted in this country in the introduction of new U.K. accounting standards for financial instruments - FRS25, 26 and 29. This caused major changes in 2007/08 in the accounting treatment of financial instruments, soft loans and guarantees, which have been designed to present a higher quality of information on financial instruments, in line with the private sector. In addition, in order to help identify, quantify and inform on the exposure to and management of risk, new “fair value” disclosure requirements were also introduced. The need for this has arisen in recent years through the high profile failure of a number of financial institutions e.g. Barings, Enron, and World Com. For 2008/09 there have been some further, but more minor, modifications to accounting policy and these disclosure notes. (a)Amortised Cost

This change in accounting standards has meant that most financial instruments (whether borrowing or investment) have to be valued on an amortised costs basis using the effective interest rate (EIR) method.

(b)Fair Value

In these disclosure notes, financial instruments are also required to be shown at fair value. Fair value is defined as the amount for which an asset could be exchanged or a liability settled, assuming that the transaction was negotiated between parties knowledgeable about the market in which they are dealing and willing to buy/sell at an appropriate price, with no other motive in their negotiations other than to secure a fair price.

(c)Compliance

This authority has complied with the following: -

1. It has adopted the CIPFA„s Treasury Management in the Public Services: Code of Practice.

2. Set treasury management indicators to control key financial instrument risks in accordance with CIPFA‟s Prudential Code.

67

40a Types of Financial Instruments Accounting regulations require the “financial instruments” (investment, lending and borrowing of the Council) shown on the balance sheet to be further analysed into various defined categories. The investments, lending & borrowing disclosed in the balance sheet are made up of the following categories of “financial instruments”. Table 1 – Financial Instrument Balances

31 March

2008

31 March

2009

31 March

2008

31 March

2009

31 March

2008

31 March

2009

£000 £000 £000 £000 £000 £000

Borrowings

Financial liabilities at

amortised cost 412,274 314,778 101,268 222,622 513,542 537,400

Total borrowings 412,274 314,778 101,268 222,622 513,542 537,400

Investments

Loans and receivables 66,938 39,939 126,845 170,855 193,783 210,794

Available-for-sale

financial assets 0 0 0 31,460 0 31,460

Total investments 66,938 39,939 126,845 202,315 193,783 242,254

Long-Term Current Total

Notes. 1. LOBOs of £90m have been included in long term borrowing but have a call date in the next 12 months. The above long term figures are based on paragraph B9 of SORP 2008 Guidance Notes which states that in undertaking EIR calculations the maturity period for a LOBO should usually be taken as being the contractual period to maturity unless there is a specific identifiable reason to determine otherwise. In 2007/08 fund manager investments were classified as fair value through profit and loss. This meant all unrealised gains/losses for interest were take to the I&E. In 2008/09 and using LAAP bulletin 81 and amendments to SORP 2008 guidance notes, fund manager investments are now to be classified as available-for-sale and all unrealised gains/losses are held on the balance sheet in the available-for-sale reserve.

68

40b Gains and Losses on Financial Instruments The gains and losses recognised in the Income and Expenditure Account (I&E) in relation to financial instruments are made up as follows: Table 2 – Financial Instruments Gains/Losses

Financial

Liabilities Total

Carrying

value

Liabilities

measured at

amortised

cost

Loans and

receivables

Available for

Sale Assets 2008-09

£000 £000 £000 £000

Interest expense (20,406) 0 0 (20,406)

Losses on derecognition 0 0 (12) (12)Interest payable and similar

charges (20,406) 0 (12) (20,418)

Interest income 0 12,056 1,682 13,738

Gains on derecognition 0 0 77 77

Interest and investment income 0 12,056 1,759 13,815

Net gain/(loss) for the year (20,406) 12,056 1,747 (6,603)

Amounts recognised in the I&E to

write off premiums and discounts in

2008/09 3,124 0 0 3,124

Net gain/(loss) for the year (17,282) 12,056 1,747 (3,479)

Financial Assets

69

40c Fair Value of Assets and Liabilities Carried at Amortised Cost The fair value of each class of financial assets and liabilities which are carried in the balance sheet at amortised cost is disclosed below. Methods and Assumptions in valuation technique The fair value of an instrument is determined by calculating the Net Present Value of future cash flows, which provides an estimate of the value of payments in the future in today's terms. The discount rate used in the NPV calculation is the rate applicable in the market on the date of valuation for an instrument with the same structure, terms and remaining duration. For debt, this will be the new borrowing rate since premature repayment rates include a margin which represents the lender's profit as a result of rescheduling the loan; this is not included in the fair value calculation since any motivation other than securing a fair price should be ignored. The rates quoted in this valuation were obtained by our treasury management consultants from the market on 31st March, using bid prices where applicable. The calculations are made with the following assumptions:

For PWLB debt, the discount rate used is the rate for new borrowing as per rate sheet number 072/09.

For other market debt and investments the discount rate used is the rates available for an instrument with the same terms from a comparable lender.

We have used interpolation techniques between available rates where the exact maturity period was not available.

No early repayment or impairment is recognised.

We have calculated fair values for all instruments in the portfolio, but only disclose those which are materially different from the carrying value.

The fair value of trade and other receivables is taken to be the invoiced or billed amount.

The fair values are calculated as follows: Table 3 – Fair Value of Liabilities Carried at Amortised Cost

Carrying

amount Fair value

Carrying

amount due

within 12

months

Long term

borrowing

Total

Carrying

amount Fair value

£000 £000 £000 £000 £000 £000

PWLB - maturity 301,124 301,961 110,323 173,321 283,644 288,975

PWLB - EIP 5 5 3 3 3

LOBOs 141,327 149,771 141,454 141,454 146,962

Short term borrowing 0 0 43,025 0 43,025 43,025

Financial liabilities 442,456 451,737 153,348 314,778 468,126 478,965

31 March 200931 March 2008 31 March 2009

Fair value is more than the carrying amount because the Council‟s portfolio of loans includes a number of fixed rate loans where the interest rate payable is lower than the rates available for similar loans at the Balance Sheet date. The commitment to

70

pay interest below current market rates reduces the amount that the Council would have to pay if the lender requested or agreed to early repayment of the loans. Table 4 – Fair Value of Assets Carried at Amortised Cost

Carrying

amount Fair value

Carrying

amount Fair value

£000 £000 £000 £000

Cash total 9,460 9,460 22 22

Total deposits with banks

and building societies 102,000 103,724 144,965 147,456

Callable deposits 26,000 27,498 3,555 3,555

Snowballs 8,000 8,228 0 0

Other 29,350 29,313 0 0

Financial assets 174,810 178,223 148,542 151,033

31 March 200931 March 2008

The fair value is higher than the carrying amount because the Councils portfolio of investments includes a number of fixed rate investments where the interest rate is receivable is lower than the rates available for similar loans at the Balance Sheet date. In 2007/08 fund manager investments were classified as fair value through profit and loss. This meant all unrealised gains/losses for interest were taken to the I&E. In 2008/09 and using LAAP bulletin 81 and amendments to SORP 2008 guidance notes, fund manager investments are now to be classified as available-for-sale and all unrealised gains/losses are held on the balance sheet in the available-for-sale reserve. Therefore, external fund managers investments are shown with Other at 31st March 2008 but have been excluded as at 31st March 2009. The carrying value of externally managed investments was £31.045m. 40d Nature and Extent of Risks Arising From Financial Instruments The Council‟s management of treasury risks actively works to minimise the Council‟s exposure to the effects of the unpredictability of financial markets and to protect the financial resources available to fund services. Risk management is carried out by a central treasury team under policies approved by the Council in the annual treasury management strategy report. The Council has fully adopted and implemented the CIPFA Code of Practice on Treasury Management. In particular, it has set up twelve treasury management practices covering all areas of treasury management. These specify in detail the policies of the council, the procedures on how these policies are to be put into effect and who is responsible for all aspects of treasury management. These policies cover such areas as credit risk, liquidity risk and market risk. The treasury management team have also fully implemented the national investment guidance (English authorities) of the ODPM issued on 12 March 2004. 1. Credit Risk Credit risk is the possibility that other parties may not pay amounts due to the Council. This risk arises from the short-term lending of surplus funds to banks, building societies and other local authorities as well as credit exposures to the Council‟s customers. It is the policy of the Council to place deposits only with a limited number of high quality banks and building societies whose credit rating is independently assessed as sufficiently secure by the Council‟s treasury advisers and to restrict lending to a

71

prudent maximum amount for each institution. The Council also has a policy of limiting deposits with institutions to a maximum of £20m and a limit on the maximum size of one transaction in placing a deposit of £20m. The following analysis summarises the Council‟s potential maximum exposure to credit risk, based on past experience and current market conditions. No credit limits were exceeded during the financial year and the Council expects full repayment on the due date of deposits placed with its counterparties. Table 5 – Credit Risk (A)

Amounts at

31 March 2009

Historical

experience of

default

Historical

experience

adjusted for

market

conditions as at

31 March 2009

Estimated

maximum

exposure to

default and

uncollectability

Estimated

maximum

exposure at

31 March 2009

£000 % % £000 £000

A B C (A x C)

Deposits with banks

and other financial

institutions excl.

Icelandic banks 180,002 - - - -

Total 180,002 - - - -

No credit limits were exceeded during the reporting period and the Council does not expect any losses from non-performance by any of its counterparties in relation to deposits.

Table 6 – Credit Risk (B) Maturity analysis of sums exposed to credit risk

Investments

31 March 2009

£000

Less than three months 85,781

Three to six months 32,299

Six months to one year 49,585

More than one year 12,337

Total 180,002

72

2. Liquidity Risk The Council has access to a facility to borrow from the Public Works Loans Board. As a result there is no significant risk that the Council will be unable to raise finance to meets its commitments under financial instruments. The Council has safeguards in place to ensure that a significant proportion of its borrowing does not mature for repayment at any one time in the future to reduce the financial impact of re-borrowing at a time of unfavourable interest rates. The Council‟s policy is to ensure that not more than 70% of loans are due to mature within any financial year. The maturity structure of financial liabilities is as follows: Table 7 – Liquidity Risk

Loans outstanding 31 March 2008 31 March 2009

£000 £000

Public Works Loans Board 301,129 283,647

Market debt / LOBOs 141,327 141,454

Temporary borrowing 0 43,025

Total 442,456 468,126

Less than 1 year 30,182 153,773

Between 1 and 2 years 40,001 45,845

Between 2 and 5 years 20,002 5,099

Between 5 and 10 years 0 0

More than 10 years 352,271 263,409

Total 442,456 468,126 In the more than 10 years category there are £90m of LOBOs which have a call date in the next 12 months.

73

3. Market Risk Interest rate risk The Council is exposed to interest rate risk in two different ways; the first being the uncertainty of interest paid/received on variable rate instruments, and the second being the affect of fluctuations in interest rates on the fair value of an instrument. The current interest rate risk for the authority is summarised below:

Decreases in interest rates will affect interest earned on variable rate investments, potentially reducing income credited to the Income and Expenditure Account.

Increases in interest rates will affect interest paid on variable rate borrowings, potentially increasing interest expense charged to the Income and Expenditure Account.

The fair value of fixed rate financial assets will fall if interest rates rise. This will not impact on the Balance Sheet for the majority of assets held at amortised cost, but will impact on the disclosure note for fair value. It would have a negative effect on the Balance Sheet for those assets held at fair value in the Balance Sheet, which would also be reflected in the STRGL.

The fair value of fixed rate financial liabilities will rise if interest rates fall. This will not impact on the Balance Sheet for the majority of liabilities held at amortised cost, but will impact on the disclosure note for fair value.

The Council has a number of strategies for managing interest rate risk. During periods of falling interest rates, and where economic circumstances make it favourable, fixed rate loans will be repaid early to limit exposure to losses. The risk of loss is ameliorated by the fact that a proportion of government grant payable on financing costs will normally move with prevailing interest rates or the authority‟s cost of borrowing and provides compensation for a proportion of any higher costs. The treasury management team has an active strategy for assessing interest rate exposure that feeds into the setting of the annual budget and which is used to update the budget quarterly during the year. This allows any adverse changes to be accommodated. The analysis will also advise whether new borrowing taken out is fixed or variable. According to this assessment strategy, at 31 March 2009, if interest rates had been 1% higher with all other variables held constant, the financial effect would be:

£000

Increase in interest payable on variable rate borrowings 950

Increase in interest receivable on variable rate investments 243

Impact on Income and Expenditure Account 1,193

Decrease in fair value of 'available for sale' investment assets 0

Impact on STRGL 0

Decrease in fair value of fixed rate borrowing liabilities (no impact on I&E

account or STRGL) (45,212)

Decrease in fair value of fixed rate investment assets (no impact on I&E

account or STRGL) (526) The impact of a 1% fall in interest rates would be as above but with the movements being reversed.

74

4. Price risk £0.4m of investments are classified as “available-for-sale”, meaning that all movements in price will impact on the gain and losses recognised in the STRGL. This is a prescribed presentational requirement that has no impact on the taxpayer. 5. Foreign Exchange Risk The Council has no financial assets or liabilities denominated in foreign currencies and thus has no exposure to loss arising from movements in exchange rates. Note 41 Charitable Donations The Council does not have any material charitable donations in the year. Note 42 Events after the Balance Sheet date Authorisation of Accounts for Issue The Statement of Accounts was approved in it‟s Pre Audit Format by the Council‟s Audit committee on 30 June 2009 and signed by John Raisin, Chief Finance Officer (Section 151 Officer). In line with statutory requirements the accounts and supporting documentation were made available for a period of 20 working days commencing 6 July 2009. Events after balance sheet date have been considered up to authorised for Issue date. Firefighters Pension Fund It has come to our attention that the statutory override provided by Regulation 30 of the Local Authorities (Capital Finance and Accounting) (England) Regulations 2003 (SI 2003/3146) may not apply to the new police and fire pension schemes introduced in 2006. If so, there is no statutory backing for authorities to remove the charges from the General Fund. The council await further guidance on this issue and has not processed any adjustment in respect of this . The potential financial impact on the council general funds is £590k.

75

The Annual Governance Statement Scope of Responsibility Northamptonshire County Council (the „Council‟) is responsible for ensuring that its business is conducted in accordance with the law and proper standards. It is responsible for ensuring that public money is safeguarded and properly accounted for, and used economically, efficiently and effectively. The Council also has a duty under the Local Government Act 1999 to make arrangements to secure continuous improvement in the way in which its functions are exercised, having regard to a combination of economy, efficiency and effectiveness. In discharging this overall responsibility, Northamptonshire County Council is responsible for putting in place proper arrangements for the governance of its affairs, facilitating the effective exercise of its functions, which includes arrangements for the management of risk. The Council has approved and adopted a code of corporate governance, which is consistent with the principles of the CIPFA / SOLACE Framework Delivering Good Governance in Local Government. This code is subject to regular review, a copy of the Code of Corporate Governance is available on our website at www.northamptonshire.gov.uk or can be obtained from Steve Tinkler, Head of Internal Audit and Risk Management on 01604 237055. This statement explains how the Council has complied with the code and also meets the requirements of regulation 4 (2) of the Accounts and Audit Regulations 2003 as amended by the Accounts and Audit [Amendment] [England] Regulations 2006 in relation to the publication of a statement on internal control. This statement will further explain the progress that the Council has made towards the achievement of the improvement actions outlined in the 2007/08 Annual Governance Statement. The Purpose of the Governance Framework The governance framework comprises the systems and processes, culture and values, by which the authority is directed and controlled and its activities through which it accounts to, engages with and leads the community. It enables the authority to monitor the achievement of its strategic objectives and to consider whether those objectives have led to the delivery of appropriate, cost effective services. The system of internal control is a significant part of that framework and is designed to manage risk to a reasonable level. It cannot eliminate all risk of failure to achieve policies, aims and objectives and can therefore only provide reasonable assurance of effectiveness. The system of internal control is based on an on-going process designed to:

a) Identify and prioritise the risks to the achievement of the Council‟s policies, aims and objectives;

b) Evaluate the likelihood of those risks being realised;

c) Evaluate the impact should they be realised; and

d) Manage them efficiently, effectively and economically.

76

The governance framework has been in place at Northamptonshire County Council for the year ended 31st March 2009 and up to the date of approval of the annual report and statement of accounts. The Governance Framework The key elements of the systems and processes that comprise the Council‟s governance arrangements are described below: Creating and Implementing a Vision Good governance means focusing on the purpose of the Council, on outcomes for the community while creating and implementing a vision for the local area. The following describes how the Council achieves this:

The Sustainable Communities Strategy for Northamptonshire (NSCS) has been agreed by all our key partners. It is the key strategic document representing our collective vision until 2031. The NSCS sets out how, public, private and voluntary organisations plan to work together to deliver benefit from the proposed growth of the County.

The Northamptonshire Local Area Agreement (LAA2) is the key delivery plan for NSCS containing key targets and measures which will form the main focus for working with other public authorities and the voluntary and private sectors over the next three years. NSCS and LAA2 form the basis of a Northamptonshire „business plan‟, the formal strategy and delivery agreement between central government and Northamptonshire‟s public sector, business sector and third sector partners that governs investment in, and delivery of, a significant part of the overall public service effort in Northamptonshire.

The Council has defined four corporate outcomes that will help to focus our work to deliver for local people, these being:

To live in safer, freer and stronger communities;

To experience a cleaner, greener and more prosperous county;

To achieve a more secure, healthy and independent future for our children, young people and adults; and

To develop a smaller, more enabling council focused on our customers.

The Council‟s vision and corporate outcomes form part of the Council Plan. The Council Plan is a rolling four year plan which is reviewed and updated annually. The Plan is considered by Cabinet and formally approved by full Council.

The Council‟s performance management framework includes the Council Plan, a Corporate Jigsaw outlining the eight major projects and key enablers, Directorate Services Plans, Divisional Service Plans and Statements of Required Practice, which govern management practice in the Council. A corporate Performance Board, chaired by the Chief Executive has been established to ensure the effectiveness of those aspects of the Council‟s Code of Corporate Governance outside of finance and staff / councillor conduct.

Performance plans identify specific service improvements and achievements against previous year‟s targets. Within divisions, individual appraisals ensure personal performance targets support the delivery of operational and corporate objectives.

77

On a quarterly basis overall performance is reported to the Performance Board, Corporate Management Team, Scrutiny and then the Cabinet and the full details are in the public domain and published on the County Council‟s website.

Communication of the Council‟s vision has been achieved through proactive coverage in the media and reactive media responses which have linked why a particular project is taking place to the Council‟s outcomes. Furthermore, the Council held its Celebrating Success market place event in March 2009 for all staff to reinforce the „vision‟ and encourage employees to act as one council. The market place included:

A jigsaw game involving vision, corporate outcomes, major projects, service plans and your role;

Directorate stands, highlighting how each is working towards the vision; and

The four corporate outcome hot spots – areas showcasing work that has been undertaken towards achieving each corporate outcome.

Roles and Responsibilities of Members and Officers Good governance means elected members and officers working together to achieve a common purpose with clearly defined functions and roles. The following describes how the Council achieves this:

The Council is composed of 73 members elected every four years. All members meet together as the Council. The Council operates a Cabinet and Leader model of decision-making, supported by open and accountable working relationships between members and officers. This model was updated during the year to an elected leader for four years model, which comes into effect in April 2009.

The Council has an agreed Constitution which sets out how it operates, how decisions are made and the procedures which are to be followed to ensure that these are efficient, transparent and accountable to local people. This includes the defined responsibility for functions including the scheme of delegation, rules of procedure including financial regulations and contract procedure rules and Member and Officer Codes of Conduct.

The full Council appoints a Leader of the Council, for the four year term who then appoints a Cabinet as the Council‟s Executive. Overview and Scrutiny committees hold the Cabinet to account.

The Council has an established Corporate Management Team (CMT), whose membership includes the Chief Executive, Assistant Chief Executives and Corporate Directors.

The Council has in place policies and procedures to ensure that, as far as possible, its elected members and officers understand their respective responsibilities. New members and employees receive induction and continued training on key policies and procedures as these are developed within the Council.

All Directors and Heads of Service have responsibility for maintaining a sound system of internal controls and management processes within their area of responsibility. Each has provided appropriate assurance that processes are in place to ensure that policies, procedures, laws and regulations are complied with.

78

Standards of Conduct and Behaviour Good governance means promoting appropriate values for the Council and demonstrating the values of good governance by upholding high standards of conduct and behaviour. The following describes how the Council achieves this:

A Standards Committee is in place to review any complaints regarding members and promote high standards of conduct and observance of the Members‟ Code of Conduct.

The Council has a local Code of Corporate Governance which is maintained by Legal Services. This code demonstrates a commitment to the principles of good governance and the importance of operating in an open and accountable manner while demonstrating high standards of conduct.

Members are required to declare any interests at the start of every meeting, which are then recorded in a public register. Officers are also required to declare any conflicts of interest, updating this as appropriate and gifts or hospitality, all are required to be declared on a register.

The Council has in place an Anti Fraud and Corruption Policy and Whistleblowing policy in place.

The Council‟s Code of Conduct for Officers has been in existence since 1995. It covers generic expectations about employees‟ behaviour, particularly in a local government setting. As the expectations about behaviour are generic, it is not a document that has required frequent updating. However, any change would be consulted on at a corporate level with the recognised Trade Unions.

The Employee Code of Conduct sets out managers‟ responsibilities to bring the Code to the attention of their staff (through induction, training and instruction), and their responsibility to take appropriate action if an employee fails to follow the Code. The Code is also supplemented by clear guidance contained within the HR Handbook which is available on the Council‟s intranet.

The Head of Legal and Democratic Services (NB post title changed to the Head of Corporate Governance in early 2009) being the Solicitor to the Council is the Monitoring Officer. This role has responsibility for maintaining the Constitution and supports the Standards Committee. During 2008/09 due to a current vacancy, the Head of Corporate Governance post is being covered by an interim Head of Legal Service. The Assistant Chief Executive Policy and Partnerships is currently fulfilling the role of Monitoring Officer.

The Council‟s financial management is conducted in accordance with the Budget Framework, Financial Regulations, and Contract Procedure Rules. These rules set out the framework within which the Council conducts its financial affairs and ensures proper financial arrangements are in place.

Full Council approves the balanced budget before the start of each financial year. This includes the Medium Term Financial Plan. During the year, financial management information is reported to the CMT, Directorate Management Teams, Cabinet and Scrutiny.

The Head of Finance (HoF) is designated as the Chief Financial Officer in accordance with Section 151 of the Local Government Act 1972 and other relevant legislation. The Head of Finance reports to the Assistant Chief Executive Finance and Commercial Management. The HoF is responsible for the

79

preparation and publication of the Council‟s Statement of Accounts and ensures that they conform to all statutory and professional requirements, codes of practice and deadlines.

The HoF as the Section 151 Officer is also responsible for ensuring that there is an adequate and effective system of internal audit of the Council‟s accounting records and of its systems of internal control.

Decision Making, Scrutiny and Risk Management Good governance means taking informed and transparent decisions that are effectively scrutinised and managing risk. The following describes how the Council achieves this:

The Leader and Cabinet are responsible both individually and collectively for all executive decisions. Operational matters requiring a decision are delegated to council officers as outlined in Part Three of the Constitution – Responsibility of Functions.

Forthcoming key decisions by the Cabinet are published in the Cabinet‟s Forward Plan in so far as they can be anticipated. The Forward Plan is reviewed at each Cabinet Meeting.

Overview and Scrutiny Committees have the power to review and / or scrutinise decisions made or actions taken in connection with the discharge of any of the Council‟s functions.

The Council maintains an Internal Audit and Risk Management division that operates in accordance with the Code of Practice for Internal Audit in Local Government in the United Kingdom. The Head of Internal Audit and Risk Management reports directly to the Assistant Chief Executive Finance and Commercial Management and has direct access to the Chief Executive, CMT, members and the independent Chair of the Audit Committee.

The independent Chair of the Audit Committee was formally re-appointed during 2008/09 and as a Chartered Accountant has vast experience in finance / financial scrutiny. The Chair also attends as an observer and on occasions as an active participant at meetings of the Council, Cabinet and Overview and Scrutiny.

The Internal Audit Division plans and prioritises its work using a risk based auditing approach and seeks to programme in work based on risk, strength of control and materiality. Internal Audit makes recommendations for improving the internal control environment and part of their work includes monitoring agreed action plans. The remit of internal audit also includes ensuring compliance with established policies and procedures, particularly financial and contract procedures. Reports including an assessment of the adequacy of control and action plans to address weaknesses are submitted to Assistant Chief Executives and Corporate Directors, School Heads, Chairs of Governors, the Audit Committee and the Chief Executive.

The Council has in place a risk management process underpinned by an approved Risk Management Protocol and the new Risk Management Statement of Required Practice. The Council maintains both Strategic and Operational Risk Registers which are subject to regular formal review as outlined within the Risk Management SORP. Significant corporate risks faced by the Council are presented to the Performance Board as part of the quarterly performance Board report, for onward reporting to Cabinet. This document is then published as a public document.

80

Developing Capacity and Capability of Members and Officers Good governance means developing the capacity and capability of Members and Officers to be effective. The following describes how the Council achieves this:

A Council Development Steering Group (CDSG) has been established with both member and officer representation to give consideration to the content of the training programme for members. The purpose of this is to ensure that members are kept fully up-to-date with both matters of local concern to Northamptonshire County Council, and national changes and demands and to ensure that they are equipped with the necessary skills to carry out their role.

The CDSG is also committed to working towards obtaining the East Midlands Regional Development Charter. An assessment is being completed currently to identify the actions required to achieve the Charter Standards which will be delivered over the next three years. As part of the budget, financial resources have been set aside to support the achievement of the Standard.

During 2008/09 the Council has continued with the effective leadership review by extending this to include tier 3 and 4 managers and leaders and matching these to the Council‟s defined behaviours and competencies.

A formal, revised performance appraisal and development programme has been implemented within the organisation through which the development needs of staff are identified and met as appropriate. There are induction programmes for new councillors and staff.

Engaging with Local People and Stakeholders Good governance means engaging with local people and other stakeholders to ensure robust public accountability. The following describes how the Council achieves this:

The Council continuously consults and engages local people and communities in a wide range of ways on a wide range of important issues. Steps have been taken in recent years to make it easier for the public, councillors, staff and partners to find out at any one time what the Council has been, is and plans to consult on, and how it is possible to get involved in consultations of interest.

During the past year a number of developments have taken place to improve the way that the Council consults and engages with local people. These have included:

A number of tools have been developed to help the Council involve local people in decisions that affect them more effectively.

Projects have been undertaken specifically to improve the way the Council engages with certain key groups in the local population.

The Council has been fully involved in initiatives to improve partnership working on consulting and engaging the people of Northamptonshire, including a project to develop a Northamptonshire Partnership consultation and engagement strategy.

The Council has developed an outline partnership protocol which is designed to incorporate effective governance arrangements in respect of partnerships. This protocol is to be subject to further development.

81

All service plans are required to declare what consultation, communication and marketing activity is to be done by those services in order that it can be better planned, costed and corporately co-ordinated as a major campaign if appropriate.

An update on consultation feedback, planned and completed actions in response to consultation are reported as part of the quarterly report to the Performance Board, CMT and Heads of Service.

A Consultation Register which is a database of the Council‟s current, past and future consultations continues to be maintained. Relevant officers have undertaken training in how to use the register, and all services have been instructed to update their entries in the databases regularly to ensure that the public are accessing the most up to date and complete record of information on our consultations.

A „consultation alert‟ facility has been added to allow local people and community groups to sign up to be automatically notified by email when a new consultation is added to the register.

The Council‟s website also includes links to other local and national consultations so that local people can access as many details of consultations affecting the local area as possible from one place.

Review of Effectiveness The Council has responsibility for conducting, at least annually, a review of the effectiveness of its governance framework, including the system of internal control. This review is informed by, the work of the executive managers within the Authority who have responsibility for the development and maintenance of the governance environment, the Head of Internal Audit‟s annual report and comments by the external auditors and other review agencies and inspectorates. 2008/09 has seen significant actions taken to create strong foundations to improve the overall performance of the Council. These specifically include the finalisation of the Effective Leadership initiative for tiers 1 and 2, resulting in a new Corporate Management Team and Heads of Service and supporting structures, revised performance management arrangements and new strategies and processes. The specific activities performed are as outlined below: 1. Planning

There is a clear vision of the outcomes which the Council wants to achieve for local people as a local authority and through the wider Northamptonshire partnership. These are set out in the Sustainable Communities strategy for Northamptonshire, the Council Plan, and the LAA and through the Council plan and Directorate service plans. For the Council, 2008/09 can also be characterised as the council taking a „one‟ organisation approach with an all inclusive approach to financial planning. This has taken the form of developing a Medium Term Financial Planning, Revenue Budgeting and Capital approval process which has full involvement of the Cabinet, Finance, Performance and Directorates. This has greatly enhanced the Council‟s ability to ensure its financial plans support the delivery of the key priorities and strategy obligations and develop the direction of travel over the next four years; ensuring realistic ambitions are matched with capacity.

82

Furthermore, the Council introduced the Star Chamber process in July 2008. This process ensured that the appropriate portfolio holder, Director, Heads of Service were subject to member and officer challenge (by the Leader, Chief Executive, Cabinet Finance Member and the Assistant Chief Executive Finance and Commercial Management) to ensure that resources align with priorities, that efficiency savings are achievable and risks to delivery are effectively managed. 2. Performance Management

The Performance Management approach ensures that performance within the Council is formally monitored through the quarterly Corporate Performance report which is considered by the Cabinet, Corporate Management Team and the Performance Board. The report contains clear targets which are aligned to our corporate outcomes and partnership priorities and is cascaded into service and team plans and supporting scorecards. The report also tracks progress against our budget, major projects, key enablers, risks, complaints, staffing matters and Health and Safety reports. The Performance Management – Statement of Required Practice was issued and cascaded across the authority in September 2008. The SORP outlines the Council‟s performance management framework and the practice required to make it work. This SORP also works in tandem with the Corporate, Service and Financial Planning SORP and focuses on the delivery element of the annual planning cycle, in support of the Council‟s key objectives and priorities. The introduction of the Performance Board and the issue of the SORP has significantly strengthened the performance culture within the Council and held officers to account. 3. Use of Resources

In April 2009, the Comprehensive Performance Assessment (CPA) was replaced by the Comprehensive Area Assessment (CAA). The main changes brought by the CAA are that this is a continual process which will assess whether partnerships are achieving aims for their area. CAA will specifically focus on joint working between councils and their partners in delivering the areas priorities. These are:

Those agreed in the local area agreement (LAA) and sustainable community strategies; and

How the quality of people‟s lives is improved.

CAA will consist of two assessments; area assessments and organisational assessment. The Organisational assessment will focus on the individual public bodies within an area, to make sure they are accountable for quality and impact. It will specifically involve two assessments, including:

Managing performance; and

Use of resources, consisting of three themes; managing finances, governing the business and managing resources.

The Council has recently submitted the CAA Use of Resources self assessment for consideration. The CAA submission has been produced via a cross-council working party chaired by the Assistant Chief Executive Finance and Commercial Management. This led to a detailed evidence and outcome based story board being produced, the contents of which were subject to rigorous challenge by CMT. Initial feedback received is very encouraging in terms of the direction of travel for the

83

organisation and also in terms of the improvements made in our governance arrangements. 4. The Cabinet

The Cabinet is responsible for key decisions. The Cabinet makes decisions that are in line with the Council‟s overall policies and budget. If it wishes to make a decision that is outside the budget or Policy Framework, this must be referred to the Council as a whole. The Cabinet receives regular monitoring reports on key aspects of control including performance and risk management. 5. Overview and Scrutiny Committees

The Council has appointed the Overview and Scrutiny Committees (Scrutiny Committees) to discharge the functions conferred by section 21 of the Local Government Act 2000. Scrutiny Committees oversee and scrutinise the decisions made by the Cabinet and Cabinet member. 6. The Standards Committee

The Standards Committee promotes and maintains high standards of conduct by monitoring the operation of the Members Code of Conduct. During 2008/09 a total of four complaints were made regarding Councillors of this Council. Of these, one complaint was rejected, one referred to the Standards Board for England which determined that no further action was required. The remaining two have been investigated by the Monitoring Officer, in accordance with the Standards Board for England Code of Conduct. Of these, one determined a breach of the Council‟s Code of Conduct and the other is to be reported to the Standards Committee in September 2009. 7. The Audit Committee

The Council has an Audit Committee that provides independent, effective assurance about the adequacy of the Council‟s governance environment. All major parties are represented on the Audit Committee and it has an independent Chair who is a Chartered Accountant. The Audit Committee met regularly during 2008/09, considering reports from the Head of Internal Audit and Risk Management, The Head of Finance in his capacity as S151 Officer and the External Auditor. The Audit Committee‟s terms of reference were reviewed during 2008/09 to ensure that it is undertaking the core functions of an audit committee as identified in CIPFA‟s Audit Committees – Practical Guide for Local Authorities. This review was completed by the Independent Chair, Assistant Chief Executive Finance and Commercial Management and the Head of Internal Audit and Risk Management. It was considered that the terms of reference are based on best practice standards issued by the CIPFA.

84

8. Statutory Officers

The statutory functions undertaken by the Head of Paid Service, Monitoring Officer, S151 Officer, Corporate Director of Children and Young People‟s Services and Corporate Director of Health and Adult Social Services were effectively fulfilled during 2008/09 and up to the date of this report. All statutory roles have been reviewed as part of the effective leadership review. 9. Management

Assistant Chief Executives and Corporate Directors have provided assurance through the Directors Assurance Certificates that:

They fully understand their roles and responsibilities;

They are aware of the principal statutory obligations and key priorities of the Council which impact on their services;

They have made an assessment of the significant risks to the successful discharge of the Council‟s key priorities;

They acknowledge the need to develop, maintain and operate effective control systems to manage risks;

Heads of Service have provided their assurance on the key elements of risk and control; and

They have confirmed that all significant internal control matters reported by Internal Audit have been appropriately addressed.

From the responses received from Directors, the areas of exceptions to the above statements are as follows:

A Section 5 Monitoring Officer‟s report was presented to Council in April 2009, regarding the letting of a major council contract, specifically relating to the potential „ultra vires‟ nature of this contract. Although this contract was let in 2006/07 the potential issues were identified and reported during 2008/09;

The work of Internal Audit on the defined key financial systems has resulted in a number of moderate and limited assurance ratings being provided;

Investigations had been completed into the conduct of both the Head of Legal and Democratic Services and the Deputy Head of Legal and Democratic Services during the year. The findings of the investigation into the Deputy Head of Legal and Democratic Services have been forwarded on to the Police.

Major reviews into the operation of Integrated Transport Management Unit, the Safety Camera Partnership and NORDIS have been initiated and the recommendations following these reviews will be implemented as appropriate, during 2009/10.

10. Internal Audit

The Council takes assurance about the effectiveness of the governance environment from the work of Internal Audit, which provides independent and objective assurance across the whole range of the Council‟s activities. It is the duty of the Head of

85

Internal Audit to give an opinion, at least annually, on the adequacy and effectiveness of internal control within the Council. This opinion has been used to inform the Annual Governance Statement. The Head of Internal Audit and Risk Management has provided an annual report to the Audit Committee, which is further circulated to members of the Corporate Management Team. This report outlines the key findings of the audit work during the year including areas of significant weakness in the internal control environment. An assurance scoring mechanism is used to reflect the effectiveness of the Council‟s internal control environment. The table below details all levels of assurance available.

Assurance Level Assurance Criteria

Full There is a sound system of control designed to address the relevant risks with controls being consistently applied.

Substantial There is a sound system of control, designed to address the relevant risks, but there is evidence of non-compliance with some of the controls.

Moderate Whilst there is basically a sound system of control, designed to address the relevant risks, there are weaknesses in the system, that leaves some risks not addressed and there is evidence of non-compliance with some controls.

Limited The system of control is weak and there is evidence of non compliance with the controls that do exist which may result in the relevant risks not being managed.

None There is no system of internal control. Risks are not being managed.

It is the opinion of the Head of Internal Audit and Risk Management, taking account all available evidence, the adequacy and effectiveness of the Council‟s overall internal control environment during the financial year 2008/09 is between moderate and substantial. During the year, out of the 68 audit reviews performed, there were 18 reports where an assurance rating of moderate and below has been given. Of these, limited assurance around the control environment for one managed audit was given. More specifically, this related to the managed audit performed on the new purchase to pay process (formally the accounts payable managed audit). All managed audits where an assurance level of moderate and limited assurance are to be subject to a detailed follow up review during the first quarter of the 2009/10 financial year, the results of this review are to be reported to CMT. 11. Review of Internal Audit

A review of the effectiveness of the system of internal audit is undertaken annually by the Head of Internal Audit and Risk Management. The findings of the self assessment for 2008/09 were reported to the Council‟s Audit Committee in February 2009. The review assesses the level of compliance with the Code of Practice for Internal Audit in Local Government in the UK and did not find any areas of significant weakness. 12. External Audit

KPMG LLP are currently the Council‟s appointed external auditors. As well as an examination of the Council‟s financial statements, the work of the Council‟s external auditors includes an assessment of the Council‟s Use of Resources.

86

13. Risk Management

The Council managed its risks during 2008/09 in accordance with the approved Risk management protocol and the recently issued Risk Management – Statement of Required Practice (SORP). The Corporate Management Team and Directorate Management Teams formally considered risk on a quarterly basis as part of the Corporate Performance Report that then goes to Cabinet and Scrutiny. Quarterly risk reports were submitted to the Audit Committee which included the Corporate Risk Register. The Audit Committee has also continued with the review of directorate risk registers. A review of the risk management approach was completed via an externally facilitated workshop with the Corporate Leadership Team in January 2009. The output of this workshop has informed the Risk Management SORP and seen the movement to a 4*4 risk scoring matrix from the previous 3*3 matrix. The indicative Internal Audit Plan for 2009/10 presented to the Audit Committee in February 2009 is based upon the key risks faced by the Council as identified in the Corporate and Directorate risk registers, such that Internal Audit will provide assurance on the effectiveness of the internal control framework during 2009/10. Significant Governance Issues Based on the Council‟s established risk management approach, the following issues have been assessed as being significant for the purpose of the 2008/09 Annual Governance Statement. We will over the coming year take appropriate steps to address the following matters and further enhance our governance arrangements. We are satisfied that these steps will address the need for improvements that were identified in our review of effectiveness and will monitor their implementation and operation as part of our next annual review.

Identified

From

Issue

Description

Responsible

Officer

Monitoring Officer‟s Report

Poor Governance resulting in an „ultra vires‟ contract.

The Monitoring Officer‟s report to Council dated 21st April 2009 into the letting of the Property and Facilities Management contract in 2007 identified significant failings with regard to the decision making process and compliance with the Council‟s Constitution. A recommendation contained within the report included the commissioning of a review of the Council‟s entire Governance arrangements including the corporate governance culture and practice within the Council. This review is to be completed and reported to the November 2009 meeting of the Council. The proposed review will be an all encompassing examination of the Council‟s Governance arrangements which includes reviewing and updating standing orders, financial procedure rules and scheme of delegation. A project team has been established. The Senior Responsible Officer is the ACE Policy and Partnerships with the Head of Internal Audit and Risk Management project managing the delivery of the review. Richard Clayton QC (Leading Council) will provide independent oversight.

Assistant Chief Executive Policy and Partnerships (Monitoring Officer)

Monitoring Poor In addition to the above, a further Head of Internal

87

Officer‟s Report

Governance / Decision Making

recommendation was to set up an investigation to be led by the Head of Internal Audit into the decision making process referred to in the report, reporting to the Head of Paid Service (Chief Executive). This investigation will again be reported to the November 2009 meeting of the Council.

Audit and Risk Management.

Internal Audit of Key Financial Systems

Poor Internal Control Environment

For the key financial managed internal audits delivered during 2008/09, of which there were 14, only 3 have received an Assurance opinion of substantial. The remaining have received an opinion of moderate with one limited assurance. The poor assurance opinions were due to weakness in the control environment identified during the audit of the key financial systems. Action plans for each audit designed to improve the control weaknesses were agreed with a timetable for action established. In view of this it has been agreed that a detailed follow up review of the recommendations made to improve the control environment will be completed by the end of June 2009.

Head of Finance / Head of Internal Audit and Risk Management.

Directors Assurance Statement

Business Processes

The Director‟s assurance statement provided by the Corporate Director for Environment, Growth and Commissioning outlined that a number of operational reviews have been initiated but not yet reported. These reviews relate to the Integrated Transport Management Unit, the Safety Camera and NORDIS. Once formally reported expected in the first quarter of 2009/10 the recommendations of these reviews will be implemented where appropriate during 2009/10.

Corporate Director for Environment, Growth and Commissioning.

Allegations of Fraud

Internal Audit has a role to investigate allegations of fraud and mis-appropriation. In terms of cost to the Council, no significant breaches were identified during 2008/09. However, irrespective of value, the Council treats all fraud seriously and as a matter of policy, Internal Audit refers such issues to the police for consideration and every effort is made to recover misappropriated funds. During 2008/09 two such instances have been reported. Directors and Heads of Service are required to maintain vigilance and ensure that an appropriate control environment exists within their areas.

Senior Management / Head of Internal Audit and Risk Management.

88

PROGRESS AGAINST ACTIONS IDENTIFIED IN THE 2007/08 STATEMENT Northamptonshire County Council (the „Council‟) stated that it was committed to undertake 10 actions to improve its governance during the course of the 2008/09 financial year. The specific actions stated and the progress made by the Council against these actions is as identified within the table below.

Annual Governance

Statement Action

Management of

the Action

Current Status

1. The Council‟s medium term plan will be updated during 2008/09 to ensure it fully integrates with the Northamptonshire Communities Strategy and that it is achievable within the resources available to the Council.

Corporate Risk A2

Action Ongoing: The MTFP process has been developed during 2008/09. Improvements include:

Medium Term Financial Plan Policy Group. This group was created to implement CMT decisions in relation to MTFP and ensure Directorate involvement at the planning stage.

Star Chambers. This group is comprised of the Chief Executive, Cabinet Members, Finance and Policy, Strategy and Performance representatives. Directors deliver presentations to the panel on the revenue and capital position going forward. The objectives are:

o To generate choice and prioritisation o To introduce challenge o To focus on affordability o To focus on outcomes for each service o To show the direction of travel for services

over the next three years o To balance ambition with capacity o To formulate a balanced MTFP for

consultation

2. The Council‟s revenue and capital budget setting processes will be enhanced such that the resource implications of the Council‟s plans are accurately identified.

Corporate Risks A3 (a) & (b)

Action Completed: The budget setting process has been enhanced through the introduction of the MTFP Policy Group and Star Chambers (See above) The Capital Asset Investment Group has been created to improve management and governance arrangements for progressing schemes through the Medium Term Capital Programme. This includes the creation of:

A new Gateway Process which is used to evaluate schemes through their project lifecycle.

A new Prioritisation Model which provides an objective assessment of all schemes, based on set criteria to allocate the Council‟s finite capital resources accordingly.

3. The Council‟s revised performance management approach will be finalised and fully embedded into the

Corp Risk A2 Action Completed: The Performance Management SORP was introduced in August 2008 and a new Corporate Performance Board has operated throughout 2008/09. Directorate service plans have been

89

culture of the Council produced for 2009/10 in accordance with a new corporate template supported by a scorecard identifying key performance measures.

4. The Council will review its VFM Strategy; seek to gain a better understanding of service costs and performance and target improvement action on areas of low VFM.

Corp Risk D1, Action 2

Action Completed: The Council has reviewed and refreshed its VFM Strategy. This was approved by CMT on 6th April 2009. To enable the Council to better understand its costs and performance it has:

Developed cost/performance matrices. This provides services with an indication of areas of low VFM

Provided cost per head analysis for all county councils, for services to use in the MTFP and Star Chamber processes. Health & Adult Social Services calculated the unit cost of in-house provision to understand the cost base to support the business change under the individual budgets agenda. This was also compared with the current fee charges and a review has been submitted to cabinet.

Used data from CIPFA benchmarking clubs to judge performance and transaction costs against other club members

Held two learning lunches on VFM open to all members and officers of the Council. These were very well attended and received. It is planned to hold further sessions in 2009/10

Used Zero Based Budgeting in developing 2009/10 budgets for some services – Property Services, Transport and Customer and Cultural Services

Developed quarterly reports on corporate performance including finance which are presented to the Performance Board, CMT, Scrutiny and Cabinet. This enables our performance to be considered in the broader context.

Examples of new practice include:

New capital governance and management arrangements have delivered significant improvements in the Council‟s management of its Capital Programme along with better efficiencies.

The Council has made use of collaborative and consortium procurement contracts such as the LASER (Kent CC) that is anticipated to reduce our energy costs by 5% and ensure better energy management.

5. Corporate standards for contract management will be introduced and training provided to staff managing key contracts.

Corp Risk B5 Action Ongoing: A Procurement and Contract Management project was launched in November 2008 which is a joint review between Corporate Procurement and Internal Audit. This project had a number of key

90

objectives including to capture details of all contracts via a central register and to review contract management practice across the Council. The project is due to be completed by September 2009 when the central register will have been established and the contract management training programme that is being developed with Learning and Development (L & D) will be complete and ready to commence. In addition to the above, early lessons from the project relating to contract management practices have been built into the Procurement SORP that is currently going through formal approval. The Procurement SORP will be launched over the summer with briefings being targeted at the circa 150 contract managers currently identified. The section in the SORP relating to contract management will be expanded upon and used in the training being developed.

6. The Council will develop and implement a combined public engagement and external communication strategy.

Corp Risk A9, action 2

Action Ongoing: The action point has not yet been fully finalised. The action point was revised during 2008 which will see an externally facing Public Participation strategy being produced, led by the Head of Business Intelligence and a Corporate Communications Strategy being produced by the Head of Communications and Marketing.

7. The new Scrutiny approach will be embedded during 2008/09 with a review of its effectiveness to be undertaken prior to the elections in 2009.

In place from May 08/09

Action Completed: Full Council on 27 March 2008 agreed to establish the Overview & Scrutiny Committee structure proposed by the Cross Party Review. It also agreed other constitutional changes relating to the appointment of cross party scrutiny committee chairs, the operation of the call-in process, and the engagement of Cabinet Members and directors in the scrutiny process. All of these changes came into effect in May 2008 and have operated throughout 2008/09.

8. The Council‟s Performance Appraisal and Development Programme will be applied consistently across all Council Staff.

IA Report on PADP

Action Completed A revised PADP process was launched in the latter part of 2008/09 with robust targets established for the application of the process across all levels of the Authority. Completion of PADP‟s is closely monitored by HR & OD and CMT.

9. A strategy for Councillor Development will be developed and the use of competencies, appraisals and personal development plans for

Corp Risk A11, controls 1 and 4

Action Completed This action point has been cleared following the creation of the Council Development Steering Group which is working to obtain the East Midlands Regional Development Charter.

92

Memorandum Accounts

Drug and Alcohol Action Team (DAAT) – hosted by Northamptonshire County Council

93

Community Equipment Services within North Northamptonshire – hosted by Northamptonshire County Council

94

Community Equipment Services within South Northamptonshire – hosted by Northamptonshire County Council

95

Adult Mental Health Services – hosted by Northamptonshire Teaching PCT

96

Northamptonshire Fire & Rescue Service

Firefighters Pension Fund Statement for year ending 31 March 2009

March 2008

£ Note £ £

Contibutions receivable:-

From Employer

1,904,193 Normal 7 1,901,337

0 Early Retirements 0

(440,137) Ill Health 8 0

991,388 From Members 9 1,023,165 2,924,502

Transfers in:-

(235,527) Individual transfers in from other schemes 10 0 0

Benefits payable:-

(3,258,311) Pensions including ill health (3,491,180)

(1,186,620) Commutations and lump sum retirement benefits (1,187,924) (4,679,104)

Payments to and on account of leavers:-

0 Individual transfers out to other schemes 0

(2,225,014) (1,754,602)

1,562,852 Top-up grant received 11 1,198,742

(662,162) Top-up grant receivable from Central Government (555,860)

Deficit for year before top-up grant receivable from

Central Government

March 2009

97

March 2008 March 2009

£ Note £

Net current assets and liabilities:-

0 Contributions due from employer 0

0 Amounts due from members 0

662,162 11 555,860

0 Unpaid pension benefits (379,512)

0 Amount payable to Central Government 0

0 (349,362)

662,162 Net increase (Decrease) in the Fund (173,014)

(489,148) Net assets of the Fund at the start of the Year 173,014

173,014 Net assets of the Fund at the end of the year 0

Pension top-up grant receivable from Central

Government

Other current assets and liabilities (other than to

pay pensions and other benefits in the future)

Notes to the Firefighters Pension Fund Statement 1 This statement has been prepared in accordance with the Code of Practice on Local Authority Accounting in Great Britain. 2 Two pension schemes operate within the fund, the 1992 scheme and the 2006 scheme. 3 The fund is administered and managed according to the statutory requirements set out in the 1992 and 2006 scheme legislation. 4 The Firefighters Pension Schemes are unfunded and as such have no investment assets. They are funded through employee and employer contributions and Government grant. 5 All firefighter pension related benefits are charged to the Firefighters Pension Fund Account with the exception of costs relating to non member retirement on ill health grounds and all costs relating to injury pensions, which are charged to the Fire Service Operating Account (revenue). The exceptions are shown in note 27 of the notes to the NCC Revenue Account. “Pension Costs”. 6 The Fund Account captures income and liabilities relevant to the period shown and therefore does not take account of liabilities to pay pensions and other benefits after the period end. 7 Normal employer contributions are made as follows: 1992 scheme 21.3% of pensionable pay. 2006 scheme 11.0% of pensionable pay

98

8 For any retirement on ill health grounds the Fire Service is required to make a payment to the Pension Fund from its revenue account. This is payable over 3 years. There were no retirements on ill health grounds in 2008-09 therefore no charge applies. 9 Members contributions are made as follows: 1992 scheme 11.0% of pensionable pay. 2006 scheme 8.5% of pensionable pay. 10 Clarification of the guidance relating to the new funding arrangements for firefighter pensions (which commenced on 1 April 2006) has indicated that transfer values between Fire and Rescue Authorities relating to the period before 1 April 2006 should be accounted for in the Fire Service Operating Account regardless of when the account is settled. Transfer values totalling £235,527 received in 2006/07 were coded to the Pension Fund Account. Following this clarification an adjustment was made in the 2007/08 Pension Fund Account to transfer this amount to the Fire Service Operating Account. 11 The surplus/deficit on this account is refunded to or received from the Government Sponsoring Body (Central Government). We received top up grant of £1,198,742 in 2008-09 and the above statement demonstrates that we are due a further £555,860. 12 New factors for calculating the lump sums payable to firefighters were introduced in May 2008. These changes were backdated to 1 October 2007. Payments were made in respect of seven retirements after the effective date. It is now expected that the changes will be backdated further to 22 August 2006. Provision has been made in the 2008/09 for the additional £290,963 that will be due in respect of these backdated commutation adjustments. 13 From 2008/09 these accounts have been prepared on an accruals basis. They have previously been prepared on a receipts and payments basis.

99

Northamptonshire Local Government Pension Scheme Accounts Introduction These accounts report on the financial transactions of the Fund from 1 April 2008 to 31 March 2009, and the position of its assets at the end of that period. The accounts aim to give the general reader a summary of these activities. If you have a specialist interest in this area, you will find more information about these accounts in the Northamptonshire County Council Pension Scheme Annual Report. The report is available from: Paul Tysoe, Group Accountant - Pensions PO Box 136, County Hall Northampton NN1 1AT Phone: 01604 236481 E-mail: phtysoe@northamptonshire.gov.uk Alternatively go to:- http://www.northamptonshire.gov.uk/pensions The Pension Fund financial statements provide information about the financial position, performance and financial adaptability of the Fund. They are intended to show the results of the stewardship and management, that is the accountability of management for the resources entrusted to it, and of the disposition of its assets at the period end. The only items that are required to be excluded by regulations are liabilities to pay pensions and other benefits in the future, which are reported upon in the actuary‟s statement. These accounts have been prepared with the Code of Practice for Local Authority Accounting in Great Britain and with the guidelines set out in the Statement of Recommended Practice “Financial Reports of Pension Schemes” (SORP) (Revised November 2002); except for additional voluntary contributions discussed in Note 17 on page 109. It should be noted that the Northamptonshire Local Government Pension Scheme covers eligible employees in the County Council, the Police Authority, District and Borough Councils and a number of other bodies. Hence, the „other employees‟ pension figures shown in the County Council‟s accounts form only one element of those figures shown in the Pension Fund accounts. The Fund Account disclosed the magnitude and character of financial transactions and changes in the value of the Fund during the period. These transactions are identified as being other Contributions and Benefits or Returns on Investments (including investment income and profit and losses investment). The net Fund increase or decrease is reconciled to the net assets of the scheme. The Net Asset Statement shown on page 102 discloses the size and distribution of the net assets of the Fund at the end of the financial year. The notes to the Accounts on page 103 provide further explanation and breakdown of the figures included in the Fund Account and the Net Asset Statement. There are more details in the Statement of Accounting policies (pages 15 to 22) and Note 28 within the Notes to the Core Financial Statements (page 50).

100

Investments are shown in the Statement of Net Assets at Market Values. The investments were managed by ten fund managers. At 31 March 2009 the fund manager structure was: Holding UK Equity Managers 34.5%

UBS

Martin Currie

Majedie Overseas Equities 34.5%

Alliance Bernstein

Newton Fixed Interest 18%

Aberdeen

UBS Property 8%

REEF

CBRE

UBS Hedge Funds 5%

Fauchier

Partners The fund manager structure reflects a diversified portfolio of managers and asset classes as recommended by best practice.

101

Fund Account

2007-08 2008-09 2008-09 2008-09

£000 Note £000 £000 £000

Contributions 3

57,573 Employers‟ contributions 60,169

16,227 Employees‟ contributions 18,825

488 360

580 Employers' augmentation 519

Transfers in

8,591 10,483

83,459 90,356

Benefits payable 5

(665) Death benefits (1,933)

(13,036) Lump sums (13,110)

(40,133) Pensions (43,441)

Payments to and for leavers

(16) Return of contributions (1)

(7,244) Individual transfers out 6 (2,723)

(1,717) Administration expenses 7 (1,823)

(62,811) (63,031)

20,648 Net additions from dealing with Members 27,325

Returns on investments

23,885 Net profit on sales (86,282)

(115,854) Net decrease in unrealised profit 8 (170,260)

(91,969) Change in market value of investments (256,542)

Investment Income

31,083 Income from investments 9 37,247

225 Stock Lending 10 342

5 Commission Recapture 11 8

80 Venture Capital 12 73

(503) Investment Expenses (923)

(3,229) Investment managers‟ fees 7 (3,237)

27,661 33,510

(64,308) Net returns on investments (223,032)

(43,660) (195,707)

1,107,857

Net assets of the Fund at the start of

the year 1,064,197

1,064,197

Net assets of the Fund at the end of

the year 868,490

Employees‟ additional voluntary

contributions 4

Individual transfers in

Net (decrease)/ increase in the Fund

103

NOTES TO THE ACCOUNTS The Chief Finance Officer (Section 151 Officer) is responsible for:

The preparation of the accounts for Northamptonshire Pension Fund to present fairly the financial position at the accounting date and its income and expenditure for the year.

Making reasonable and prudent judgements and estimates.

Complying in all material aspects with the Code of Practice on Local Authority Accounting in Great Britain Pension Fund and applying accounting policies consistently.

Keeping proper, up to date, accounting records.

Taking reasonable steps for the prevention and detection of fraud and other irregularities.

The administration of pension benefits. 1. Accounting Policies

The accounts have been prepared in conjunction with all relevant sections of the Pensions SORP.

(a) Contributions and benefits are included in the accounts on an accruals

basis. (b) Transfer values have been recorded on the basis of amounts receivable or

payable as at 31 March. (c) Interest and dividends are included in the accounts on an accruals basis. (d) In accordance with a change in accounting policy for 2008-09, investments

including listed securities, property and unit trusts are included in the accounts at market value (Bid price). Investments for 2007-08 are stated at market value (Mid price) and have not been restated as the effect (a reduction in the value of investments by 0.1%); is deemed to be immaterial. These prices are determined by the custodian using several sources including Exshare, Telekurs, Reuters, FT Interactive Data and Bloomberg. The Fund relies on the custodian‟s valuations.

(e) Unquoted securities are valued having due regard to the latest dealings, professional valuation, asset values and other appropriate financial information.

(f) Fixed interest securities are stated at their clean prices. Accrued income is accounted for within investment income.

(g) Pooled Investment Vehicles are stated at bid price for funds with bid/offer spreads, or single price where there are no bid/offer spreads.

(h) Additional Voluntary Contributions (AVC) investment valuations are provided by the AVC providers Prudential Assurance and Standard Life.

(i) Taxation The fund pays VAT collected on income in excess of VAT payable on expenditure to HM Customs and Excise. The accounts are shown exclusive of VAT. The fund is exempt from tax on capital gains and from income tax on interest receipts. The fund is liable to tax at a rate of 20% on small pensions that have been compounded into a lump sum. The fund is exempt from US withholding tax.

The Fund receives interest on its overseas bond gross, but a variety of arrangements apply for the taxation of dividends on overseas equities in the various markets. Where relief is available, it may be either in full at sources, or partial relief by claim.

104

In some markets (Finland, Japan, Canada, Italy, Norway and Sweden) tax is deducted at the treaty rate so that no further adjustment is required, and there are also markets (Malaysia and Singapore) where no double taxation agreements exist and the full amount is payable.

j) Investment Management Expenses The investment managers are paid quarterly fees in arrears based on the market value of the investments managed at the end of each quarter. Performance fees are payable to Majedie Asset Management, Fauchier and Partners based upon the performance of their mandate.

k) Gains and Losses Gains and losses are reflected on an average calculation basis. l) Administrative Expenses There is a dedicated Pensions Admin team, whose costs are recharged to

the Fund. m) Foreign Currency Translation Investments held in foreign currency are translated into sterling at the

exchange rate as at the date of valuation. n) The Statement of Investment Principles is available on the

Northamptonshire County Council‟s website. http://www.northamptonshire.gov.uk/pensions

2. Long Term Liabilities The accounts do not take account of the liabilities to pay future benefits. They

should therefore be read in conjunction with the Report of the Actuary which takes such liabilities into account.

3. Contributions

All accruals for contributions owed by employers have subsequently been received. The following tables show the breakdown of contributions and benefit payments by Administering Authority, Admitted Bodies and Scheduled bodies.

Analysis of Contributions

Employers

contributions Employees

contributions

Employees additional

contributions Total

£'000 £'000 £'000 £'000

NCC 25,946 8,013 149 34,108

Admitted Bodies 2,863 1,245 14 4,122

Scheduled Bodies 31,360 9,567 197 41,124

Total 60,169 18,825 360 79,354

Analysis of Benefits Death Grants Lump Sums Pensions Total

£'000 £'000 £'000 £'000

NCC 1,029 7,351 20,347 28,727

Admitted Bodies 232 908 1,615 2,755

Scheduled Bodies 672 4,851 21,479 27,002

Total 1,933 13,110 43,441 58,484

105

4. Employees’ additional contributions Employees‟ additional contributions were higher than usual for 2007/08 due to strike contributions being received from an employer. Strike contributions are optional to employees to cover what is effectively a break in service. Additional contributions will decrease in future years as this provision is no longer available under the 2008 regulations, and employees currently contributing, retire.

5. Benefits payable

Death benefits increased for 2008-09 due to an increase in „Death in Service‟ payments from two times to three times pensionable pay. Death benefits also increased for deceased pensioners from five years to ten years.

6. Contingent Liability

New transfer factors supporting the new scheme effective from April 2008 were delayed resulting in the majority of transfers being stockpiled for most of 2008. Whilst some tables were provided, the process of identifying actual transfer amounts based on the new tables will take some time to accurately calculate the liability. Whilst we are not able to estimate the impact of this, the effect will be to increase the cost to the Scheme.

7. Administration Expenses and Investment Managers’ Fees 2007-08 2008-09 £000 £000 Administration expenses: Pensions administration 1,390 1,547 Actuarial services and investments 215 144 Other Costs 112 132 1,717 1,823 Investment managers’ fees: 3,229 3,237 Total 4,946 5,060

Pensions administration costs in 2008-09 mainly reflect a 30% increase in the Pension Administration team establishment, as well as additional costs relating to the review and reissue of all documentation following the implementation of the New Look Scheme effective April 2008.

Other costs were higher than usual for 2007/08 due to the seeking of legal advice on Fund Manager Appointments which occurred during 2007/08. Other costs have now returned to more normal levels.

Fund Manager Fees Not Shown in the Accounts Fund managers that work through pooled arrangements take their fees at source from the pooled fund and therefore the fees don‟t go through the Fund‟s accounts. The nominal value of fees are: £000 RREEF UK Core Property Fund 122 RREEF UK Ventures Property Fund No. 2 Exempt Unit Trust 10 132

106

8. Decrease in value of unrealised profits

Market value of investments £000 £000 at 31.3.09 854,094 Investments at cost at 31.3.09 1,006,965

Unrealised loss (152,871) Market value of investments at 31.3.08 1,056,081 Investments at cost at 31.3.08 1,038,692

Unrealised profit 17,389 Decrease in value of unrealised loss (170,260) The decrease in value of unrealised loss of £170,260 represents the change in the unrealised profit between the opening and closing position of the market value of investments and the cost of these investments. Unrealised loss reflects assets held by the Fund, however profits are only realised when actually sold. This reflects the investment performance of the Fund in the 2008-09 financial year.

9. Analysis of investment Income Investment Income for the years ended 31st March was received from the

following sectors.

2007-08 2008-09

Interest and Dividend

Interest and

Dividend

£000 £000

2,339 Interest from fixed-interest securities 2,583

19,865 Dividend from equities 24,519

824 Income from Index-linked securities 642

Income from Pooled Investment Vehicles

2,243 Unit Trust Fixed Interest 2,397

3,948 Property Unit Trusts 3,120

6,191 5,517

1,864 Interest from Cash deposits 3,986

31,083 37,247

10. Stock Lending

Income of £342,399 was earned from stock lending activities, undertaken on behalf of the Fund by Northern Trust, the Fund‟s global custodian. This income is the premium paid by third parties who borrow stock held by this Fund. Collateral stock is held to safeguard the Fund‟s assets. Lending is limited to 35% of the stock held by the Fund, although actual activity in 2008/09 averaged 13%. As at 31 March 2009 the value of stock loaned to third parties was £61.35m against collateral held of £66.43m, more information on this is shown below.

107

Analysis by Asset Class of securities on loan: March March 2008 2009 £000 £000 Investments at market value 11,834 Fixed-interest securities 12,009 40,031 Equities 49,341 51,865 Total Securities on loan 61,350

Analysis of Collateral: March March 2008 2009 £000 £000 Investments at market value 2,295 Certificates of Deposit 0 13,698 Delivery-By-Value Gilts 4,919 18,144 Equities 17,324 21,465 Government Fixed 43,071 636 Letters of Credit 0 463 UK Gilt 1,114 56,701 Total value of Collateral 66,428 11. Commission Recapture Income of £8,086 was earned from Commission recapture activities, undertaken

on behalf of the Fund by Lynch Jones and Ryan, specifically appointed by the Fund to undertake this role. This relates to “recapturing” commission regarding research and development costs paid to third party brokers, whose sole role is to buy and sell stock on behalf of the Fund manager.

12. Venture Capital Income

The income of £73,211 reflects the fourth tranche of income from the East Midlands Regional Capital Fund No1 LP. The Fund holds two Venture Capital investments both with Catapult Venture Managers, being: £ East Midlands Regional Venture Capital Fund No1LP. 1,288,000 Catapult Growth Fund LP 480,239 Total 1,768,239 These funds are small private equity commitments with a total potential drawdown of £4m. Feedback from Catapult Venture Managers indicates an Internal Rate of Return (IRR) of 10%.

108

13. Investment transactions during the year The market values of investments referred to in this report are provided by our global custodian, Northern Trust.

Market Value March 2008

Purchase Sales Change in

Market Value

Market Value March 2009

£000 £000 £000 £000 £000

Fixed Interest Securities Public Sector 66,647 61,324 (78,575) (174) 49,222

Other 21,985 46,281 (46,495) (3,371) 18,400

88,632 107,605 (125,070) (3,545) 67,622

Index linked securities UK 26,296 43,996 (50,451) (3,105) 16,736

Overseas 4,401 0 (3,877) (524) 0

30,697 43,996 (54,328) (3,629) 16,736

Equities Other Listed Fund 661,546 524,325 (552,098) (80,395) 553,378

Other Unlisted Fund 1,233 535 0 0 1,768

662,779 524,860 (552,098) (80,395) 555,146

Pooled Investment Vehicles Fixed Interest Funds 97,704 58,199 (48,188) (17,602) 90,113

Equity Funds 44,003 44,659 (31,565) (32,725) 24,372

Property Funds 70,583 7,763 (4,676) (25,183) 48,487

Hedge Fund 58,053 127 0 (7,181) 50,999

270,343 110,748 (84,429) (82,691) 213,971

Derivatives Futures-Exchange Traded (52) 126 (188) 114 0

Options-Exchange Traded 0 0 (24) 24 0

(52) 126 (212) 138 0

Cash Deposits Money Market Funds 3,682 493 (3,418) (138) 619

3,682 493 (3,418) (138) 619

Total 1,056,081 787,828¹ (819,555)¹ (170,260)² 854,094

¹ Included within the purchases and sales figures are transaction costs of £3.5m. ² The difference between Mid price valuations of investments for 2007-08 and Bid price valuations of investments for 2008-09 is included in „Change in Market Value‟.

109

14. Cash The cash balance forms part of the bank balances of Northamptonshire County

Council, attributable to the Pension Fund, but does not represent a separate balance in the name of the Fund.

The value of cash held at 31 March 2009 (£10.4m) has increased over 2007-08

(£5.7m), the increased balance represents surplus contributions received over benefits paid, due to be distributed to Fund Managers for investment.

15. Debtors and Creditors

The 2008-09 debtors balance reflects accrued contributions and transfers in as at 31 March 2009. The 2008-09 creditors balance reflects accrued transfers out and investment manager fees as at 31 March 2009.

16. Employer-related investments and related party transactions

There are no employer-related investments. Northamptonshire County Council [NCC] is responsible for managing the pension fund‟s finances, and therefore is a related party. NCC made payments of £29.0m to and received income of £1.5m from the pension fund in the 2008-09 financial year. Payments relate to employer contributions into the fund in respect of the NCC and receipts relate to administration costs incurred by the NCC on behalf of the Pension Fund. On 31 March 2009 NCC held cash on behalf of the Pension Fund of £10.4m (see Note 11 to the accounts), which had not been distributed to fund managers. In 2008-09 the NCC paid net interest of £347,140 to the Pension Fund, whilst in 2007-08 the NCC paid net interest of £519,490 to the Pension Fund on balances held. The decrease in interest was due to a fall in interest rates from 5-6% to 2-3%.

17. AVC Investments

Additional Voluntary Investments are assets invested separately from the main fund in the form of individual building society accounts and insurance policies, securing additional benefits on a money purchase basis for those members electing to pay additional voluntary contributions. Members participating in this arrangement each receive an annual statement, confirming the amounts held to their account and the movements in the year.

The movement during the year March 2008 to March 2009 reflects Investment

performance, withdrawals and additional contributions.

The aggregate amounts of AVCs are as follows:

Value March 2008

Purchases Sales Change

in Market Value

Value March 2009

Prudential Assurance

1,981

336

(318) (10)

1,989

Standard Life * 502

75

(10)

(90)

477

Total

2,483

411

(328)

(100)

2,466

The standard life valuation is as at the 5 February 2009.

110

Glossary

Accrual An accrual is a sum included in our accounts to cover income or spending which belongs to the period covered by our accounts, but which was unpaid at the accounting date. Accrued liabilities This is a sum entered in our accounts for a liability relating to and charged for in the current accounting period but unpaid at the accounting date. Actuarial valuation An actuary undertakes valuations by checking what a pension scheme‟s assets are worth compared to its liabilities. The actuary then works out how much needs to be paid into the scheme by the employer and the members to make sure that there will be enough money to pay the pensions when they are due. Actuary An actuary is an expert on pension scheme assets and liabilities. Agency services These are services we provide for other organisations, or services other organisations provide for us.

Amortisation Spreading the value of an asset or liability over its useful life.

Area Based Grant A non-ringfenced general grant with full local control over how the money is spent.

Available-for-sale Financial Instruments Reserve This reserve holds gains on revaluation of investments not yet realised through sales. Balance sheet A balance sheet is a summary of an organisation‟s financial position. It lists the values, in the books of account on a particular date, of all the organisation‟s assets and liabilities. Callable Deposit A deposit placed in the money market which is available at call, i.e. with little advance notice. Capital adjustment account This account accumulates the write-down of the historical cost of fixed assets as they are consumed by depreciation and impairment, or written off on disposal. It also accumulates the resources that have been set aside to finance capital expenditure. Capital receipts These are the proceeds from selling fixed assets such as land or vehicles. Capital receipts unapplied These are proceeds from selling fixed assets which we can use for capital spending or to repay loans, but which we cannot use for revenue (day-to-day) spending. Carry forward Amounts that are to be carried forward into the new financial year. Corporate and Democratic Core The costs associated with the Corporate management and democratic processes of the Council. Cost recovery basis If we charge other organisations on this basis for services we have provided, we only charge them what the service has cost us. We do not put anything extra on to give us a profit. Creditor This is someone we owe money to.

111

Current assets These are short-term assets, which constantly change in value such as stocks, debtors and bank balances. Current liabilities These are short-term liabilities which are due to be paid in less than one year such as bank overdrafts, PAYE and money owed to suppliers. Debtor This is someone who owes us money. Delegated (budgets) Budgets for which schools have complete autonomy in spending decisions. Depreciation Spreading the cost of wear and tear of an asset over its useful life. Devolved (budgets) Budgets transferred to schools that have total responsibility for their spending within defined limits / scope / range. Earmarked reserve An earmarked reserve is money set aside for a specific purpose. Equities Equities are ordinary shares in companies. Financial Instruments Financial instruments are contracts which give rise to a financial asset of one entity and a financial liability or equity instrument of another Financial Instruments Adjustment Account This account acts as a balancing mechanism for differences in statutory requirements and proper accounting practices for borrowings and investments. Finance lease When we lease goods using a finance lease we have most of the rights of ownership and take any profits and suffer any losses of ownership. Fixed asset A fixed asset is an asset which is intended to be in use for several years such as a building or a vehicle. General reserves These are amounts set aside for use in future years, not earmarked for any specific purpose. GMPs Guaranteed Minimum Pensions. Impairment A reduction in the value of an asset from its previous value in the accounts. Infrastructure The infrastructure is made up of fixed assets such as roads and bridges. LASAAC Local Authority Scotland Accounts Advisory Committee. LOBO Lender Option Borrower Option (Loans at market rates). Minimum Revenue Provision This is the amount we have to set aside out of our revenue to repay loans. Net book value The value of an asset after depreciation.

112

Net operating expenditure The net costs of services less net surplus on statutory direct-service organisations (organisations that have to follow special rules to provide our services), interest and investment income and transfers to and from the asset management revenue account. Non-operational assets These are assets we hold but do not use to provide services. Examples are investments, and assets which are not yet in use. Non-distributable costs Costs that cannot be specifically applied to a service or services and so are held centrally. Notional fund This is where amounts that are transferred into a fund are done so for illustration only and do not actually involve incurring expenditure. Operating lease When we lease goods using this type of lease, ownership of the goods remains with the lessor (the company leasing the goods to us) and the lessor takes the profits and suffers the risks of ownership. Operational asset These are assets we use to run our services such as buildings and vehicles. Payment in advance A charge taken into account when preparing the financial statements, which are for benefits to be received in a period after the accounting date. Precept This is an amount we receive from district and borough councils in Northamptonshire (for Council Tax collected on our behalf) so that we can cover our expenses less our income. We also pay precepts to authorities such as the Environment Agency. Private Finance Initiative A means of securing new assets and associated services, such as a new school or care home, from the private sector. Provision Money set aside in a set of accounts for liabilities, which are known to exist, but which cannot be measured accurately at the date of the accounts. Public Works Loan Board A government body set up specifically to lend money to local authorities. Related party/parties This is a person or an organisation which has influence over another person or organisation. Reserves These are amounts set aside in one year‟s accounts, which can be spent in later years. Some types of reserve can only be spent if certain conditions are met. Residual Pension Liabilities The outstanding cost of pension liabilities for employees that have left the Council. Revaluation Reserve This reserve records the accumulated gains on the fixed assets held by the authority arising from increases in value. Revenue Ongoing spending or income relating to the day to day activities of the organisation. Self-insurance We set aside money each year to provide a fund to pay for loss and damage.

113

Service revenue account These are the services‟ individual revenue accounts. Snowball A deposit placed in the money market which is available at call, i.e. with little advance notice. SORP Statement of Recommended Practice. Straight line basis The reduction in the value of assets by an equal amount each year applied over the assumed life of the asset. Stock This is a term used for goods bought but which have not yet been used. Surplus The remainder after taking away all expenses from income. Transfer value When a pension scheme member moves their pension to another scheme, the transfer value is the amount of money transferred to the new scheme. Unitising Applying to the individual units (relating to members of the pension fund). Unrealised profit This is the anticipated profit that would be generated from selling the asset.