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Contents Page Explanatory Foreword 3 Main Financial Statements Consolidated Revenue Account 17 Consolidated Balance Sheet 19 Statement of Total Movements in Reserves 20 Cashflow Statement 21 Notes to the Main Financial Statements 23 Additional Financial Statements 51 Group Accounts for Related Companies 55 Pension Fund Accounts 67 Statement of Accounting Policies and Valuation Certificate 79 Glossary of Financial Terms 91

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1 Introduction from the Responsible Finance Officer I am pleased to introduce the Council’s Statement of Accounts for 2004-2005. Cornwall County Council is a large and wide-ranging organisation committed to continuing improvement in performance and standard of services. This publication incorporates all the financial statements and disclosure notes required by statute. Explaining the Main Accounting Statements The accounts are split into five sections:

i) The Main Financial Statements. The main financial statements comprise the consolidated revenue account, the consolidated balance sheet, the statement of total movement in reserves and the cashflow statement. The consolidated revenue account shows how much the Authority has spent during the year on each of its services along with any corporate income or expenditure, which relates to the Authority as a whole. It also shows how much of this cost has been met by local taxpayers and how much has been funded by central government through the revenue support grant. Any surplus or deficit on this account is transferred to the Authority’s general fund reserve. The consolidated balance sheet shows a snap shot at the financial year end of all the Authority's assets and liabilities. Assets include both the value of our fixed assets such as buildings, land, equipment etc, and our current assets such as money owed to the Authority, stocks and investments. Liabilities mainly relate to money owed by the Authority. The balance of the assets and liabilities is represented on the balance sheet by the Authority’s reserves. The statement of total movement in reserves brings together all of the movements in the Authority’s reserves. The statement also splits the reserves between those which can be used to support future revenue expenditure and those which are of a capital nature. The cashflow statement shows the Authority’s cash transactions over the year, indicating the sources of cash income received and actual cash spent. The cash transactions are split between those which are of a revenue nature, those which are capital, and those which are in respect of the Authority’s borrowing.

ii) Notes to the Main Financial Statements. The second section covers the requirement under the Accounting Code Of Practice to produce certain additional financial information by way of disclosure notes. The aim of this additional information is to inform the reader of specific financial issues, which are not readily identifiable from the other financial statements.

iii) Additional Financial Statement.

Group Accounts for Related Companies.

The final sections cover the accounts of the following bodies:

iv) Extract from the Accounts of the Pension Fund, which show the operation of the Fund run by the Council for its own employees and for those of admitted authorities and other organisations.

v) Statement of Accounting Policies and Valuation Certificate.

Statement of Accounting Policies This section explains the accounting principles used to produce the figures in the accounts. These accounting principles are set nationally and ensure accounts from different organisations are consistent and comparable. Valuation certificate The Valuation Certificate relates to the value of certain fixed assets.

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3 The 2004-2005 Budget 2004-2005 Original Budget

The net budget agreed by the County Council on 27 February 2004 for the 2004-2005 financial year was £472.466m. As a result, the County Council’s element of the Council Tax increased by 7.19%. This was above the average increase of the shire counties, which was 6.5%. The shire counties are a group of counties which are, like Cornwall, essentially rural in nature. The County Council’s three year strategy allowed budget increases for Education and Social Services equivalent to the Government’s funding increases (which were all above the general inflation rate), the provision of 3.5% pay and 3.0% price increases for all other services plus provision for some ‘unavoidable’ increases in other services. Within the overall net budget, a sum of £1.0m was set aside as a contingency to fund emergency items. The budget has been monitored throughout the year with variances being reported to members. Portfolio holders and chief officers have managed their service budgets throughout the financial year through the use of reserves and a number of self-balancing adjustments between portfolios and the central contingency. The most significant variation at year end was within the Corporate Support Portfolio, where significant surpluses were generated through the Council’s Treasury Management operations. These surpluses led to a net underspend of £1.908m on the interest receipts and capital financing budgets combined, plus an additional £0.758m income relating to PFI reserves. This reflected exceptional performance in minimising borrowing costs and maximising investment returns when benchmarked against other public bodies. The Lifelong Learning Portfolio also underspent its budget, by £1.317m, reflecting savings across a number of the Education Budgets, including a relatively small underspend of £0.256m against Schools’ delegated budgets. The overspends on the Economy, Environment & Heritage and Social Care & Health portfolios reflected spending from the Objective 1 Reserve, significant costs incurred in relation to the Integrated Waste Management Project and significant pressures on the Social Services budget from unavoidable residential placements and pressure on the Domiciliary budget, respectively.

Comparison of 2004-2005 Net Revenue Expenditure with the Original Budget

Actual Expenditure

Original Budget

Variation Above/(Below) Original Budget

Portfolio Budget

£'000 £’000 £’000

Leader 5,629 5,814 (185)

Corporate Support

35,894 38,969 (3,075)

Lifelong Learning

240,484 241,801 (1,317)

Economy

4,800 4,189 611

Strategic Planning & Transport

32,930 32,765 165

Environment & Heritage

18,749 17,897 852

Public Protection

19,718 20,084 (366)

Social Care & Health

80,686 80,113 573

Children & Young People

32,932 32,716 216

Children’s Bill Transition Costs

182 250 (68)

Total including Budgeted Use of Reserves 472,004 474,598 (2,594)

Budgeted Use of Reserves

(2,132)

(2,132)

-

Total Net Revenue Expenditure 469,872 472,466 (2,594)

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4 Reserves and Balances The County Council’s general balances, currently £13.999m, are used to meet general rather than specific future expenditure requirements, although £4.441m of this is earmarked to individual Portfolios in the form of Budget Equalisation Reserves (BERs). The total of the County Fund balance increased by £1.211m – being a decrease in Portfolio BER’s of £0.061m and an increase in the General Reserve of £1.272m following the repayments of £1m loan by the Objective One Reserve and due to the ongoing review of the Council’s existing reserves by the Resource Management Policy Development and Scrutiny Committee – Single Issue Panel. In addition, there is a Capital Reserve balance of £12.542m used to fund capital spending, including commitments from current schemes. Reserves held by Portfolios for specific purposes, such as equipment replacement, amount to £47.977m and schools hold balances of £19.196m. The schools balances are controlled by school governors and are not available to the County Council for general use. These reserves are described in the notes to the Consolidated Balance Sheet. A PFI Reserve is reported separately in the Accounts. Grant is received from the Government for PFI schemes which in the early years of projects is more than the amount needed to pay the contractor. This situation is reversed in the latter years of projects. The policy of the Council is to place the early surpluses in a reserve to be invested until such time as the funds are needed. The PFI Grant Equalisation Reserve holds the surplus from the Fire Stations scheme and the two Schools’ schemes. Because of the prudent approach to PFI affordability this represents, and because of the large sums involved which are increasing at this stage of the schemes, the PFI Reserve is being controlled and reported separately. 5 Capital Capital Spending

There is a continuing need for the Council to invest in capital spending on schools, roads, and other service assets. Capital expenditure for 2004-2005 totalled £101.457m (2003-2004 £79.295m) as detailed below.

Examples of Major Capital Schemes in 2004-2005

£’000

Highways Structural Maintenance of Roads 11,094 Bridge Strengthening & Assessment 3,539 CTO – Vehicles & Plant 2,403 Local Area Based Initiatives 2,939 Education New Deal for Schools Devolved Capital 5,696 New Deal for School Condition Funding 4,032 Major secondary school schemes 1,665 Surestart Schemes 1,024 Individual School Schemes 2,050

Capital Receipts and Revenue Financing

The ability of the Council to make significant inroads into the backlog of priority capital schemes depends very much on the generation of additional funds and capital receipts from the sale of surplus assets. In 2004-2005 capital receipts totalling £2.388m were used to finance capital spending. In total, £26.107m was funded from within the revenue budget rather than from borrowing. A substantial part of this sum was supported by reserve contributions (£9.723m advanced from the Central Capital reserve) and the balance came from Portfolios’ own earmarked reserves and from external bodies such as the Lottery funds. Capital grants received by the County Council amounted to £22.372m, this total included amounts received from European Union funding sources. Borrowing

Total external borrowing in support of the capital programme in 2004-2005 amounted to £47.205m (2003-2004 £39.418m).

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6 Treasury Management Proactive treasury management continues to ensure that the Authority minimises its interest payable on external borrowings, and invests any temporary cash surpluses to generate investment income. The graph below illustrates how the Authority’s average borrowing rate has been steadily reduced over recent years.

4.00

4.50

5.00

5.50

6.00

6.50

7.00

7.50

1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

%

Over the last two years, the Treasury Manager has actively sought to utilize market aberrations to restructure the Council’s debt portfolio. Over the period, £144m has been successfully and cost effectively restructured, reducing the average cost of the portfolio by over 1.10%. The numbers of opportunities in this area are a function of market conditions and consequently it is extremely difficult to predict the rate at which future savings may be made. 7 Statement of Internal Control 1. Scope of Responsibility Cornwall County Council is responsible for ensuring that its business is conducted in accordance

with the law and proper standards, and that public money is safeguarded and properly accounted for, and used effectively. We also have a duty under the Local Government Act 1999 to make arrangements to secure continuous improvement in the way in which our functions are exercised, having regard to a combination of economy, efficiency and effectiveness.

In discharging this overall responsibility, we are also responsible for ensuring that there is a

sound system of internal control which facilitates the effective exercise of the County Council’s functions and which includes arrangements for the management of risk.

2. The Purpose of the System of Internal Control The system of internal control is designed to manage risk to a reasonable level rather than to

eliminate all risk of failure to achieve policies, aims and objectives; it can therefore only provide reasonable and not absolute assurance of effectiveness. The system of internal control is based on an ongoing process designed to identify and prioritise the risks to the achievement of the Council’s policies, aims and objectives, to evaluate the likelihood of those risks being realised and the impact should they be realised, and to manage them efficiently, effectively and economically.

The current system of internal control described in this statement has been further redeveloped

during the last 12 months and the enhancements were in place for the year ended 31 March 2005.

3. The Internal Control Environment

The Council’s internal control environment is a dynamic process, which is designed to:

o establish and monitor the achievement of the Council’s objectives o facilitate policy and decision-making o ensuring compliance with established policies, procedures, laws and regulations

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o ensure the economical, effective and efficient use of resources and secure continuous improvement in the way functions are exercised

o facilitate the financial management of the Council o facilitate the performance management of the authority and its reporting

The control environment has developed over many years, responding to changing needs as required. It follows therefore that it comprises a large number of different but related elements. Historically these had been managed in an individual way – the introduction of this statement last year led us to look at the operating of these elements in a more coherent manner. There are 3 key elements to the framework now in place:

• Departmental Controls – These comprise all the processes chief officers have in place within their departments and in particular include departmental approaches (based on the corporate strategy) to risk management. These also now include individual signed Statements of Assurance from each Chief Officer.

• The Independent View – of Internal and Computer Audits, External Audit and the various inspection regimes. All these agencies comment upon the operation of the Council. The Council is proactive in its dealings with all these agencies, and responsive to findings and rectifying any issues raised.

• Corporate Controls – These comprise a large number of policies, processes and strategies by which the Council exercises control over the operation of all activities within its remit. The most significant of these have been drawn together and reviewed, so we can ensure they are disseminated appropriately and monitored and reviewed regularly. These include the Council’s Constitution, its financial and service planning processes, performance management and codes of conduct for members and officers.

4. Review of Effectiveness

The Council now has a responsibility for conducting, at least annually, a review of the effectiveness of the system of internal control. The review is informed by the work of the internal auditors and the service managers within the Council who have responsibility for the development and maintenance of the internal control environment. It will also be informed by comments made by the external auditors and other review agencies and inspectorates. The Council has a comprehensive Service Planning process with a Performance Management Framework which regularly monitors achievement against priorities.

External Audit and Inspection

The Comprehensive Performance Assessment update in 2004 scored the Council four out of four for use of resources which demonstrates a commitment by the Council to manage its affairs wisely. The assessment covered:

• financial standing

• internal financial control

• standards of financial conduct and prevention of fraud

• financial statement

• legality of financial transactions

During 2004 we asked the Audit Commission to review over progress against the issues raised by the CPA in 2002. Their report has been used to re-target efforts and a Comprehensive Improvement Plan has now been implemented.

The Audit Commission’s Annual Audit and Inspection Letter for 2004 was very positive and did not identify any significant weaknesses in our internal control arrangements. The letter has been discussed with members and approved by the Audit Committee.

Internal and Computer Audit

The Council’s Internal Audit and Computer Audit Plans are risk based and are discussed with Chief Officers before approval by the Audit Committee annually. They provide the basis for the review of internal control within the Council. Achievement of the plan is monitored by the Audit Committee.

The Code of Practice (COP) requires internal and computer auditors to provide a written report to those charged with governance timed to support the statement on internal control (COP 9.1.6). Also under the COP (para 9.3) they are required to:

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• include an opinion on the overall adequacy and effectiveness of the Council’s control environment

• disclose any qualification to that opinion, together with the reasons for the qualification • present a summary of audit work undertaken to formulate that opinion, including reliance

placed upon work by other assurance bodies • draw attention to any issues they judge particularly relevant to the preparation of the

statement of internal control • compare the work actually undertaken with the work that was planned and summarise the

performance of the function against our performance measures and criteria • comment on compliance with the standards set out in the Code of Practice and communicate

the results of our quality assurance programme. In addition they are required to make provision to form an opinion where:

• key systems are being operated, or key systems provided, on behalf of other organisations • key systems are being operated, or key services provided, by other organisations on behalf of

the Council

Notwithstanding any review by our auditors, the prime responsibility for ensuring that adequate internal control exists over all systems rests with management.

Audit’s role is to periodically test the effectiveness of those management systems and controls. Their selection of audits is risk-based but also includes those areas they would be expected to cover by the Audit Commission (specifically the key financial systems). The scope of each audit is risk-based. They cannot give absolute assurance but, given the coverage of their work, both internal audit and computer audit are of the opinion that, generally:

• Cornwall County Council has an adequate and effective control environment

• agreed policies, regulations and Standing Orders are complied with.

This opinion includes the Council’s key financial systems and the auditors are of the opinion that the County Treasurer is fulfilling his legal responsibilities under S151 of the Local Government Act 1972 and the 1996 Finance Act. In the course of their work, both planned and unplanned audits, they have not found any areas of such significant fundamental weakness that would affect this opinion. Where areas of weakness have been identified, action has been proposed or agreed to address those weaknesses. Specific areas of concern where action is still needed have been outlined to the Chief Executive and the County Treasurer and have been incorporated into section 5 below.

5. Significant Internal Control Issues

We drew attention to six areas in last years’ statement where further improvement was needed. There were a mixture of short and longer term issues, some of which continue into this statement. In general we have made good progress in all the areas raised last year. Where they remain a control issue, the notes below reflect the action taken to date.

• Risk Management – we have made significant progress in this area. We have a corporate risk

register, and all departments now have their own risk registers. Actions to mitigate risks are being built into service and business plans. This will remain a significant control issue until we are happy it is fully embedded into our processes, which is planned to be completed during 2005/06.

• Performance Management – again we have made good progress, but this is a longer term issue

about changing people’s attitudes as well as processes. Further improvement is needed if we are to have appropriate assurance from our processes.

• Partnerships – this is an ever developing area, with continued pressure from government

towards partnership-based service delivery. Our progress to date has been recognised by the Audit Commission. Nevertheless we intend to supplement this area with a review of the arrangements in place for each of the most significant partnerships during the coming year.

• Malware (or unwanted software) – the computer auditors identified that our security

arrangements did not protect our systems and network against “malware”, “spyware” and other such unwanted software. This is now being widely recognised as a common threat to all such computer systems which current virus checking software did not provide protection

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against. This is now being rectified with the deployment of additional protective software over the next two months.

• Capacity – the Council’s capacity, particularly at the centre, to respond to government and

other initiatives, was highlighted in the CPA report in 2002. Since then we have taken a number of steps to improve our capability in this area. Longer term, we envisage resolving this issue through the implementation of the People Strategy. This contains a number if developments which will all help improve the Council’s capacity to respond to change, at both departmental and corporate levels.

• Children’s service – we are required to draw together all services for children into a single

service. This will combine activities from both the education and social services fields, and represents a significant change for the Council. We have a co-ordination team responsible for overseeing this development and have recently appointed a new ‘head of service’.

• Property Capital Programme – the Council have identified concerns over the way capital

schemes are controlled. In practice, all the costs relating to a scheme must be funded, and the source of that funding properly approved. Following a review, it became apparent that staff were using two sources of information to control the matching of approved funding to fund scheme cost. The two sources of information were not regularly compared, which led to confusion, increasing likelihood of incorrect management information being provided. The current arrangements have been reviewed and the agreed way forward rationalises the information holding to a single set of records, using temporary measures to rectify the immediate concerns over control. It is planned to have a new monitoring system for capital schemes in place by April 2006.

• Treasury Management – the Council has identified some concerns over the accounting support

to the Treasury Management function. The Council has external investments totalling almost £160m and borrowing of almost £292m. The Council is very active in exercising its Treasury Management function and there are a large number of transactions throughout the year. It is planned to have appropriate accountancy support in place, to provide regular reconciliations of the balances to the main accounting system and produce monthly reports for management over the next two months.

John Lobb Peter Stethridge Leader Chief Executive

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8 Statement of Responsibilities & Certification of the Statement of Accounts The following statement describes the respective responsibilities of the County Council and the County Treasurer for the accounts. The County Treasurer is responsible for:

• the preparation of the Council’s statement of accounts and the accounts of the Cornwall County Council Pension Fund so as 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 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 County Council is responsible for:

• securing appropriate arrangements for the proper administration of its financial affairs ensuring that the nominated officer, namely the County Treasurer, has responsibility for them;

• managing its affairs so as to ensure the economic, effective and efficient use of resources and the safeguarding of assets.

Certification by Treasurer I certify that, in my opinion, the Statement of Accounts presents fairly the financial position of Cornwall County Council at 31 March 2005, and its income and expenditure for the year then ended.

Frank Twyning MBA, FCCA, CPFA County Treasurer Date 14 June 2005 Certification by Chairman of Standards Committee I confirm that these accounts were approved by the Standards Committee as Agenda Item Number 7 dated 27 June 2005. Chairman of Standards Committee Date 27 June 2005 Further Information Further information about the accounts is available from the Treasurers’ Department, Cornwall County Council, New County Hall, Truro, TR1 3AY. Interested members of the public have a statutory right to inspect the accounts before the audit is completed. For the 2004-2005 accounts the inspection period was 4 July 2005 to 29 July 2005. These dates were advertised in the local press and on the Council’s website.

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9 Auditors’ Report to Cornwall County Council

I have audited the financial statements on pages 16 to 66 and 81 to 88 which have been prepared in accordance with the accounting policies applicable to local authorities as set out on pages 81 to 88 and the Pension Fund Accounts, on pages 69 to 78 which have been prepared in accordance with the accounting policies applicable to pension funds set out on page 71.

This report is made solely to Cornwall County Council in accordance with part II of the Audit Commission Act 1998 and for no other purpose, as set out in paragraph 54 of the Statement of Responsibilities of Auditors and of Audited Bodies, prepared by the Audit Commission.

Respective Responsibilities of County Treasurer and Auditor

As described on page 12 the County Treasurer is responsible for the preparation of the Statement of Accounts in accordance with the Statement of Recommended Practice on Local Authority Accounting in the United Kingdom 2004. My responsibilities, as independent auditor are established by statute, the Code of Audit Practice issued by the Audit Commission and my profession’s ethical guidance.

I report to you my opinion as to whether the financial Statement of Accounts present fairly: • the financial position of the Council and its income and expenditure for the year, • the financial transactions of its Pension Fund during the year and the amount and disposition of

the Fund’s assets and liabilities, other than liabilities to pay pensions and benefits after the end of the scheme year.

I review whether the Statement on Internal Control on page 8 reflects compliance with CIPFA’s guidance `The Statement on Internal Control in Local Government: Meeting the Requirements of the Accounts and Audit Regulations 2003’ published on 2 April 2004. I report if it does not comply with proper practices specified by CIPFA or if the Statement is misleading or inconsistent with other information I am aware of from our audit of the financial statements. I am not required to consider whether the Statement on Internal Control covers all risks and controls, or to form an opinion on the effectiveness of the Council’s corporate governance procedures or its risk and control procedures. My review was not performed for any purpose connected with any specific transaction and should not be relied upon for any such purpose.

I read the other information published with the Statement of Accounts and consider the implications for my report if I become aware of any apparent misstatements or material inconsistencies with the Statement of Accounts.

Basis of Opinion

I conducted my audit in accordance with the Audit Commission Act 1998 and the Code of Audit Practice issued by the Audit Commission, which requires compliance with relevant auditing standards issued by the Accounting Practices Board.

An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Council in the preparation of the financial statements, and of whether the accounting policies are appropriate to the council’s circumstances, consistently applied and adequately disclosed. I planned and performed our audit so as to obtain all the information and explanations which I considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Statement of Accounts is free from material misstatement, whether caused by fraud or other irregularity or error. In forming my opinion, I evaluated the overall adequacy of the presentation of the information in the financial statements.

Opinion on the Authority’s Accounts

In my opinion the Statement of Accounts present fairly the financial position of Cornwall County Council as at 31 March 2005 and its income and expenditure for the year then ended.

In my opinion the financial statements present fairly the financial transactions of Cornwall County Council Pension Fund during the year ended 31 March 2005, and the amount and disposition at that date of its assets and liabilities, other than liabilities to pay pensions and benefits after the end of the scheme year.

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9 Auditors’ Report to Cornwall County Council (continued)

Certificate

I certify that I have completed the audit of the accounts in accordance with the requirements of the Audit Commission Act 1998 and the Code of Audit Practice issued by the Audit Commission.

Alun Williams 19 September 2005 District Auditor Audit Commission 5-6 Blenheim Court Matford Business Park Lustleigh Close Exeter EX2 8PW

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MMaaiinn FFiinnaanncciiaall SSttaatteemmeennttss

Main Financial Statement

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Consolidated Revenue Account This statement sets out the net cost of the services for which the Authority is responsible, and also shows corporate income and expenditure relating to the Authority as a whole and appropriations to and from reserves. In addition, the statement identifies how the total net cost of the Authority has been financed by general Government grant and local tax payers. Prior year adjustments have been made to 2003-2004 comparative figures, for the effects of reclassifying a contribution to an Insurance Reserve as a contribution to an Insurance Provision. Please see Notes number 1 and 10 to the Accounts.

2004-2005

2003-2004 Amended

Net Expenditure

£’000

Service Expenditure Analysis (Note 4)

Gross Expenditure

£’000

Specific Grants £’000

Other Income £’000

Net Expenditure

£’000

NoteNo:

225,839 Education Services 364,983 (83,070) (16,074) 265,839 95,857 Social Services 186,798 (55,266) (18,920) 112,612 18,904 Fire Services 21,461 (2,535) (323) 18,603 38,085 Highways, Roads & Transport

Services 49,214 (2,782) (3,850) 42,582

1,433 Court Services 12,348 (10,843) (367) 1,138 34,033 Cultural, Environmental & Planning

Services 48,518 (6,077) (4,992) 37,449

13,110 Central Services 14,547 (2,672) (3,257) 8,618 3 457,261 Net Cost of Services 697,869 (163,245) (47,783) 486,841

Other Operating Expenditure

(4.311) Net (Surplus)/Deficit on Trading Services (3,557) 2 27,909 FRS17 Interest Cost (Pensions) 29,600

(19,579) FRS17 Expected Return on Assets (Pensions) (24,600) (16,673) Transfer from asset management revenue account (16,250) 6 (4,786) Interest and Investment Income (9,693) 5

439,821 Net Operating Expenditure 462,341 Appropriations Contributions to/(from) Capital Financing Account:- 8

16,094 - Financing of Capital Expenditure 26,107 (4,447) - Deferred Charges Funding (2,817)

(700) - De Minimus Capital Funding (399) 2,412 - Amortisation of Government Grant deferred 2,997

(12,975) - Minimum Revenue Provision Depreciation adjustment (13,300) 7 (1,984) - PFI Deferred Consideration Amortisation (2,209)

0 - Financing of Fixed Asset Impairment Write Offs (1,788)

(5,320) Contributions to/(from) FRS17 Pensions Reserve (1,011)

2,835 Contributions to/(from) repairs, capital, renewals and other earmarked reserves 2,240

435,736 Amounts to be met from Government Grants and Local Taxation 472,161 This was financed by:

(140,609) - Council Tax Income (153,707) (133,998) - Non-domestic rate income (132,534) (164,193) - Revenue Support Grant (187,387)

(438,800) Total Sources of Financing (473,628)

(3,064) (Surplus)/Deficit for Year (1,467)


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2003-2004

£’000 Treatment of (Surplus)/Deficit 2004-2005

£’000 i) Contributions to/(from) County Fund Balances:

832 - Contributions to/(from) General Reserve 1,272 1,569 - Contributions to/(from) Portfolios Budget Equalisation Reserves (61)

663 ii) Contributions to/(from) Schools Reserve 256 3,064 1,467

Changes in County Fund & School Balances County Fund – Usable Reserve Balances: (a) General Reserve

7,454 Balance as at 1 April 2004 8,286 832 Net Contribution (to)/from Revenue Account 1,272

8,286 Balance as at 31 March 2005 9,558 (b) Budget Equalisation Reserves

2,933 Balance as at 1 April 2004 4,502 1,569 Net Contribution(to)/from Revenue Account (61) 4,502 Balance as at 31 March 2005 4,441

12,788 Total County Fund Balances 13,999 Schools Reserves

18,277 Balance as at 1 April 2004 18,940 663 Net Contribution (to)/from Revenue Account 256

18,940 Balance as at 31 March 2005 19,196 (see additional disclosed notes to balance sheet)

31,728 Total 33,195


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Consolidated Balance Sheet The Consolidated Balance Sheet summarises the financial position of the whole Council. It shows the value of the Council’s assets and liabilities at the end of the financial year (31 March 2005). Prior year adjustments have been made to 2003-2004 comparative figures, for the effects of reclassifying a contribution to an Insurance Reserve as a contribution to an Insurance Provision and reclassifying Receipts in Advance as Capital Grant Unapplied. Please see Notes 1 and 10 to the Accounts.

2005 Amended

2004 Note

£’000 £’000 £’000 No: Net Fixed Assets 11 Intangible Fixed Assets - - Tangible Fixed Assets Operational Assets Other land and buildings 536,591 529,987 Vehicles, plant, furniture & equipment 18,209 16,940 Infrastructure 181,385 157,938 Community Assets 2,289 1,611 Non-operational assets Surplus Assets, held for disposal 6,671 4,192 Assets under construction 34,311 22,321 Total Net Fixed Assets 779,456 732,989 PFI Scheme Deferred Consideration 45,953 42,082 12 PFI Scheme Residual Values 8,984 5,394 13 Long Term Investments 93,791 12,984 15 Long Term Debtors 12,154 18,197 17 Total Long Term Assets 940,338 811,646 Current Assets Stocks and Work in Progress 2,263 2,421 16 Debtors and Payments in advance 41,909 30,461 17 Short Term Temporary Investments 65,479 117,150 15 Cash in hand and in transit 128 94 Total Current Assets 109,779 150,126 Current Liabilities Short Term Borrowing (18,818) (270) Creditors (57,146) (71,091) 18 Cash Overdrawn (18,145) (12,094) Total Current Liabilities (94,109) (83,455) 15,670 66,671 Total Assets less Current Liabilities 956,008 878,317 Long Term Borrowing (273,262) (230,568) 19 FRS17 Pensions Liability (269,600) (195,750) 37 Creditors due after one year (548) (123) 20 Provisions (6,290) (6,085) 21 (549,700) (432,526) Total Assets less Liabilities 406,308 445,791 Represented by: Government Grants Deferred Account 98,317 78,942 22 Capital Grant Unapplied 7,549 8,283 22 FRS17 Pensions Reserve (269,600) (195,750) 37 Fixed Asset Restatement Account 321,346 318,489 22 Capital Financing Account 150,871 140,288 22 Reserves - Other Specific 79,715 77,220 22 - Usable Capital Receipts 4,111 5,531 22 Revenue Balances County Fund – Usable Reserves 13,999 12,788 22 Total Equity 406,308 445,791


20

Statement of Total Movements in Reserves The statement of total movements in reserves brings together all the recognised gains and losses of the authority during the period and identifies those which have and have not been recognised in the Consolidated Revenue Account. The statement separates the movements between revenue and capital reserves. 2004-05 2003-04 Note Original Prior Year

Adjustment Amended

£’000 £’000 £’000 £’000 £’000 No: Surplus/(deficit) for the year 1,467 3,064 - 3,064 Add back movements on specific revenue reserve

2,240 3,835 (1,000) 2,835

Movement on FRS17 Pension Reserve

(1,011) (5,320) - (5,320)

Total increase/(decrease) in revenue resources

2,696 1,579 (1,000) 579 22

Increase/(decrease) in usable capital receipts

(1,420) (10) - (10)

Increase/(decrease) in unapplied capital grants and contributions

(734) 1,571 608 2,179

Total increase/(decrease) in realised capital resources (note i)

(2,154) 1,561 608 2,169 22

FRS17 Actuarial gains/(losses) (72,839) 31,773 - 31,773 Gains/(losses) on revaluation of fixed assets

3,279 3,156 - 3,156

Impairment losses on fixed assets due to general changes in prices

0 0 - 0

Total increase/(decrease) in unrealised value of fixed assets (note ii)

(69,560) 34,929 - 34,929 22

Value of assets sold, disposed of or decommissioned (note iii)

(422) (798) - (798) 22

Capital receipts set aside 2,388 1,669 - 1,669 Revenue resources set aside 8,195 (1,600) - (1,600) Movement on Grants in year 19,375 13,308 - 13,308 Total Increase/(decrease) in amounts set aside to finance capital investment (note iv)

29,958 13,377 - 13,377 22

Total recognised gains and losses

(39,482) 50,648 (392) 50,256


21

Cash Flow Statement 2005 2004 Note £’000 £’000 £’000 No: Revenue Activities Cash Outflows Cash Paid on behalf of employees 366,529 340,662 Other operating costs 392,083 320,434 758,612 661,096 Cash inflows Council Tax (153,707) (140,609) Non-Domestic Rates (132,534) (133,998) Revenue Support Grant (187,387) (164,193) Other Government Grants (163,245) (130,983) Cash Received from Goods or Services (142,339) (143,254) (779,212) (713,037) Revenue Activities net cash flow (20,600) (51,941) 26 Servicing of Finance Cash Outflows Interest paid 12,567 12,341 Cash Inflows Interest Received (13,186) (5,364) (619) 6,977 (21,219) (44,964) Capital Activities Cash Outflows Purchase of fixed assets 87,507 79,295 Other capital cash payments 0 0 87,507 79,925 Cash Inflows Sale of fixed assets (572) (1,659) Other capital cash income 0 (144) Capital grants received (27,593) (20,247) (28,165) (22,050) 59,342 57,245 Net Cash outflow before financing 38,123 12,281 Financing Cash Outflows Repayments of amounts borrowed 53,108 33,646 Short Term Investments (51,671) 6,300 Long Term Investments 80,807 9,880 Cash Inflows New Loans Raised (114,350) (58,600) (32,106) (8,774) Decrease in cash 6,017 3,507


22

23

NNootteess ttoo MMaaiinn FFiinnaanncciiaall

SSttaatteemmeennttss

Notes to Main Financial Statements

25

The following notes provide more detailed information in order to assist in the interpretation of the main Financial Accounts. Note 1 Prior Year Adjustments to Consolidated Revenue Account Prior year adjustments have been made to 2003-2004 comparative figures, for the effects of reclassifying a contribution to an Insurance Reserve as a contribution to an Insurance Provision. Note 2 Trading Services The Council’s main Trading Services are: • CORMAC – who provide construction and maintenance of the County’s highways and footpaths. • Planning, Transportation & Estates Consultancies – who provide design services and engineering

services for road schemes, bridges etc. • Workshops – who repair and maintain the Council’s vehicles and plant. • Commercial Services – who provide cleaning and grounds maintenance for schools and other parts of

the Council. • Central Transport Organisation – who provide fleet management of the Council’s vehicles and plant. • Education Business Units – providing specialist services (for example music lessons and outdoor

education) and advisory support to front line education services.

Other Trading Services include the following: • Notter Bridge Training Unit • Tremorvah Industries Trading Unit Trading Services Turnover

£’000

Expenditure

£’000

(Surplus)/deficit

2004-2005 £’000

(Surplus)/ deficit

2003-2004 £’000

CORMAC 42,479 42,088 (391) (777) Planning, Transport & Estates Consultancies 22,513 22,118 (395) (572) Workshops 2,997 2,970 (27) (52) Commercial Services 10,802 10,880 78 (82) Central Transport Organisation 9,627 6,755 (2,872) (2,664) Education Business Units 10,822 10,865 43 (54) Other Trading Services 3,990 3,997 7 (110) Total 103,230 99,673 (3,557) (4,311)

Note 3 Central Services An analysis of Central Services expenditure is shown in the table below. 2004-2005

£’000

Original 2003-2004

£’000

Contribution to Provision Adjustment

£’000

Amended 2003-2004

£’000

Corporate & Democratic Costs Democratic Representation 1,811 1,642 - 1,642 Corporate Management 2,348 2,283 - 2,283 Non Distributable Costs 910 5,255 - 5,255 Central Services to the Public 878 780 - 780 Other Income & Expenditure 2,671 2,150 1,000 3,150 8,618 12,110 1,000 13,110

Prior year adjustments have been made to 2003-2004 comparative figures, for the effects of reclassifying a £1.0m contribution to an Insurance Reserve as a £1.0m contribution to an Insurance Provision. From 1 April 2002 the past service element of employer’s pension costs has been increased significantly by the Pension Fund actuary from 0.8% to 2.1%.


26

Note 4 Service Expenditure Analysis The Accounting Code of Practice 2004 (Statement of Recommended Practice) requires the service expenditure analysis to comply with the requirements of the Best Value Accounting Code of Practice (BVACOP) 2004 issued by CIPFA.

Note 5 Interest on General Balance Surplus cash generated by the County Fund is placed temporarily on deposit or used to reduce the need for external borrowing and the resulting interest is credited to the County Fund. Note 6 Transactions on the Asset Management Revenue Account Service Revenue Accounts are charged with depreciation (representing the drop in value of an asset due to wear and tear and age), impairment (representing loss in the value of an asset) and a capital financing charge calculated by applying a notional interest rate to the amount at which the asset is included in the balance sheet (representing the cost of tying up financial resources in the asset). The purpose of the Asset Management Revenue Account is to ensure that these capital charges do not impact on the level of Council Tax and that the Authorities accounts are charged only with the actual capital financing costs. The amount is summarised below:

2004-2005 2003-2004

£’000 £’000 Income Capital Charges 51,510 48,079 Impairment Charges 1,788 0 Transfer from Government Grants Deferred Account

2,997 2,412

56,295 50,491 Expenditure Provision for depreciation 23,009 21,403 Impairment Write-off 1,788 0 External Interest Charges 15,248 12,415 40,045 33,818 Balance to Consolidated Revenue Account

16,250 16,673

Note 7 Minimum Revenue Provision

The Asset Management Revenue Account above attempts to minimise departures from generally accepted accounting practice for charging capital financing costs to the revenue account. However, under part IV of the Local Government and Housing Act 1989 there is a requirement to set aside a minimum revenue provision (MRP) from the Revenue Account for debt repayment. Therefore, in order to reflect the true cost of capital to government grants and local tax payers the following adjustments have been made. 2004-2005

£’000 2003-2004

£’000 Minimum Revenue Provision 9,709 8,428 Amount Charged as Depreciation

(23,009) (21,403)

Surplus depreciation credited to Consolidated Revenue Account Appropriation Account

(13,300) (12,975)

Note 8 Contributions to/ (from) Reserves A detailed analysis of appropriations to/(from) the Capital Financing Reserve and other Specific Reserves can be found in Note 22 to the Consolidated Balance Sheet.


27

Note 9 Social Services Pooled Budget Use of Health Flexibilities Act 2002-2003 and other arrangements under Section 31 Health Act 1999. Mental Health Pooled Fund – objective is to provide a fully integrated service to mental health clients.

Gross income of the joint working

arrangement

Gross expenditure of the joint working

arrangement

County Council Contribution

Identities of partner bodies: £’000 £’000 £’000 Cornwall County Council Cornwall Partnership Trust West Cornwall PCT Central Cornwall PCT North and East PCT

Total 38,062 37,808 5,843 Note 10 Prior Year Adjustments to the Consolidated Balance Sheet Prior year adjustments have been made to 2003-2004 comparative figures, for the effects of reclassifying a £1.0m contribution to an Insurance Reserve as a £1.0m contribution to an Insurance Provision and reclassifying £1.054m Receipts in Advance as Capital Grant Unapplied. Note 11 Net Fixed Assets

Other land and

buildings £’000

Vehicles, Plant &

Equipment £’000

Infra-Structure

£’000

Community Assets

£’000

Work in Progress

£’000

Surplus/ Investment Properties

£’000

Total

£’000

Gross Book Value as at 31 March 2004

557,964 36,515 182,295 1,611 22,321 4,425 805,131

Transfer to PFI Deferred

Consideration (7,697) 0 0 0 0 0 (7,697)

Restatements 2,783 688 0 150 (226) 894 4,289 Finance Lease restatement

to Long Term Borrowing 0 113 0 0 0 0 113

Impairment Charges (1,818) 0 0 0 0 (230) (2,048) Transfer to Deferred

Charges 0 0 0 0 (761) 0 (761)

Value as at 1 April 2004 551,232 37,316 182,295 1,761 21,334 5,089 799,027

Expenditure 22,793 5,450 28,722 528 16,353 0 73,846 Transfer 1,212 150 0 0 (3,376) 2,014 0

Disposals (86) (2,915) 0 0 0 0 (3,001) Gross book value as at

31 March 2005 575,151 40,001 211,017 2,289 34,311 7,103 869,872

Accumulated Depreciation

and Impairment as at 1 April 2004

(27,977) (19,575) (24,357) - - (233) (72,142)

Impairment Charges 261 0 0 0 0 0 261

Restatements 468 15 0 0 0 19 502 Transfer 98 0 0 0 0 (98) 0

Disposals 5 2,574 0 0 0 0 2,579 Transfer to PFI Deferred

Consideration 1,393 0 0 0 0 0 1,393

Depreciation for year (12,808) (4,806) (5,275) 0 0 (120) (23,009) Accumulated

Depreciation as at 31 March 2005

(38,560) (21,792) (29,632) 0 0 (432) (90,416)

Amended Net Book Value

as at 31 March 2004 529,987 16,940 157,938 1,611 22,321 4,192 732,989

Net Book Value as at 31

March 2005 536,591 18,209 181,385 2,289 34,311 6,671 779,456


28

Total Capital Control Expenditure and Financing was:

2004-2005 £’000

2003-2004 £’000

Expenditure Fixed Assets (as above) 73,846 69,244 Long Term Investments 13,800 0 Non Enhancements * 1,286 659 Deferred Charges 8,013 5,836 De Minimus** 775 700 Capital Grants 147 79 PFI Residual Values 3,590 2,777

101,457 79,295 Financing Borrowing 47,205 39,418 Direct Revenue Financing 26,107 16,094 Capital Receipts 2,388 1,669 Capital Grants 22,372 15,720 Deferred Charges Grants 5,957 3,100 Other (2,572) 3,294

101,457 79,295

*Non Enhancement relates to Capital Expenditure that does not increase the value of assets held as included in the balance sheet. Such expenditure on Other Land and Building is transferred to the Fixed Asset Restatement Account.

** De Minimus expenditure on Vehicles, Plant and Equipment is written off to revenue and funded by way of grant/contribution, or by transfer from the Capital Financing Account.

Note 12 PFI Schemes Deferred Consideration

£’000

Balance as at 1 April 2004 44,067

Additional PFI Schemes in 2004-2005 6,304 Amounts amortised to Revenue Account in 2004-2005 (2,209)

Balance as at 31 March 2005 48,162 Due Within One Year 2,209

Due After One Year 45,953

Under the requirement of ACOP, the value of assets transferred for nil consideration to the PFI Schemes contractor is transferred from Fixed Assets to Prepayments and amortised to the Revenue Account over the length of the contract. The amounts amortised are matched by a corresponding transfer from the Capital Financing Account.

The Council’s three signed PFI contracts are within their construction phases. The value of completed construction work undertaken by the end of the financial year 2004-2005 is accounted for in Note 13.

Note 13 PFI Schemes Residual Values

£’000

Balance as at 1 April 2004 5,394 Amounts transferred from Revenue Account in 2004-2005 3,590 Balance as at 31 March 2005 8,984

Under the requirements of ACOP, the agreed residual value of assets to be received from the PFI Schemes contractor at the end of the contract, must be built up over the life of the contract as a long term debtor prepayment.

The accumulated prepayment balance at the end of the contract should exactly match the estimated fair value of the residual. The prepayment balance will then be reduced to nil and transferred to the relevant fixed assets classification.


29

Note 14 Movement on Deferred Charges

£’000

Balance as at 1 April 2004 0 Expenditure in year 8,013 Deferred Charges on Work in Progress schemes completed in 2004-2005 761 Amounts written off to Consolidated Revenue Account* (8,774) Balance as at 31 March 2005 0 *Funded by: Grant 5,957 Transfer from Capital Financing Account 2,817

Note 15 Investments

The authority has the following investments:

31 March 2005

£’000 2004 £’000

Long Term: Eurobonds 20,545 0 Tamar Bridge/Torpoint Ferry Joint Committee Loan 12,603 0 Local Authority Bond 739 0 Investment in Associate Company 800 0 Medium Term Deposits 56,000 0 Government Securities 2 9,882 After Care Community Loan 9 9 Shareholdings: County Environmental Services Ltd. 3,093 3,093 Total Long Term 93,791 12,984 Short Term: Temporary Investments 65,479 117,150

Note 16 Stocks and Work In Progress As at 31 March, 2005, the Authority held stocks and work in progress to the value of £2.263m (£2.421m as at 31 March, 2004) after accounting for obsolete stock. The stocks and work in progress held are analysed by category as follows:

31 March 2005

£’000 2004 £’000

Salt Stocks 138 82 Materials* 942 1,236 Fuel 25 13 Printing, Stationery, etc 18 16 Plant and Equipment Spares 303 323 Work in Progress 283 254 Other 664 558 2,373 2,482 Less provision for obsolete stock (110) (61)

2,263 2,421

* The bulk of these materials are in respect of road works. Note 17 Analysis of Debtors The Authority’s Balance Sheet represents the financial position at the end of the financial year, there will be outstanding monies owed to the Authority at that date which are yet to be received as cash. The following analysis shows the amounts owed to the Authority which have not been received at 31 March 2005. The Authority makes provision for outstanding monies where there is doubt whether they will be recovered. This is known as a provision for bad debts. These amounts are then deducted from the total value of Debtors shown in the accounts.


30

31 March 2005

£’000

2004

£’000

Short Term: Amounts falling due in one year Government Departments 4,540 5,269 Sundry Debtors 30,317 19,535 Payments in advance* 8,090 6,615 42,947 31,419 Less Provision for bad debts (1,038) (958) 41,909 30,461 Long Term: Amounts falling due after one year

Car loans to employees 229 205 Other** 11,925 17,992 12,154 18,197

* Includes £2.209m relating to PFI Schemes Deferred Consideration (see note 12) ** This balance includes: • An amount of £1.545m (2002-03 £2.156m) that the Council has advanced to the Millennium Project.

This is being repaid in instalments commencing October 2001 • An amount of £0.283m (2002-03 £0.283m) relating to the Cornwall Enterprise Loan (£0.266m) and

Brussel’s Office Bond (£0.017m). • Amounts totalling £0.741m relating to Education Services (2003-04 £2.953m) • Amounts totalling £1.309m relating to Social Services (2003-04 £1.045m) • Amounts totalling £7.762m relating to premiums on debt rescheduling (2003-04 £11.555m)

Note 18 Analysis of Creditors The Authority’s Balance Sheet represents the financial position at the end of the financial year, there will be outstanding monies that the Authority owes at that date which have yet to be paid. For example for goods received at the end of March where invoices have not been paid. The following analysis shows the amounts owed by the Authority which have not been paid as at 31 March 2005. 31 March 2005

£’000

Original2004

£’000

Receipts in Advance

Adjustment £’000

Amended2004

£’000

Inland Revenue 9,599 9,165 - 9,165 Sundry Creditors 34,642 33,453 - 33,453 Receipts in Advance 12,895 11,374 (1,054) 10,320 57,136 53,992 (1,054) 52,938 Long Term Borrowing Repayable within one year (see note 19)

10 18,153 - 18,153

57,146 72,145 (1,054) 71,091

Prior year adjustments have been made to 2003-2004 comparative figures, for the effects of reclassifying £1.054m Receipts in Advance as Capital Grant Unapplied.


31

Note 19 Long term Borrowing The table below shows the Authority’s borrowing by lender, and by maturity. Total Outstanding as at 31 March

Range of Interest rates

payable %

2005 £’000

2004 £’000

Source of Loan External Borrowing Lawn Tennis Association 0 100 0 Other Local Authorities 4.00 - 4.13 0 7,350 Public Works Loan Board-Maturity 4.00 – 7.125 168,960 170,960 Public Works Loan Board-Instalment 3.00 – 4.25 12,612 10 Market Loans 3.30 – 4.25 91,600 70,401 Total Long Term Borrowing 273,272 248,721 An analysis of loans by maturity: External Borrowing * Maturing within one year 10 18,153 Maturing within 1-2 years 10 5,003 Maturing within 2-5 years 30 5 Maturing within 5-10 years 57 7,000 Maturing in more than 10 years 273,165 218,560 273,272 248,721 Payable within one year (see note 18) 10 18,153 Payable after one year 273,262 230,568 273,272 248,721

Note 20 Creditors Due After One Year 31 March 2005

£’000 2004 £’000

Sundry 548 123 548 123

Note 21 Provisions Provisions are required for any financial liabilities or losses which are likely or certain to be incurred but the amounts or the dates on which they will arise is uncertain. All provisions are charged to the appropriate service and can be used only for the purpose for which they were established, except where a review to determine the appropriateness of the level of the charge and the balance of the provision requires a change. Original

Balance as at 1 April,

2004 £’000

Insurance Reserve

Adjustment

£’000

Amended Balance as at 1 April,

2004 £’000

Additions

£’000

Deductions

£’000

Balance as at 31 March,

2005

£’000 Insurance Claims 3,990 1,000 4,990 437 (170) 5,257 FEFC Grant Clawback 341 0 341 0 0 341 Parts Initiative 10 0 10 0 0 10 Unused Leave 0 0 0 31 0 31 Contract Penalties 75 0 75 0 (12) 63 Future Liabilities 669 0 669 25 (106) 588 5,085 1,000 6,085 493 (288) 6,290

32

Prior year adjustments have been made to 2003-2004 comparative figures, for the effects of reclassifying a £1.0m contribution to an Insurance Reserve as a £1.0m contribution to an Insurance Provision. Insurance Claims

When an insurance claim is received the possible cost of the claim is estimated by the claims handler and a provision for that cost placed in the Insurance Fund. Insurance claims can take up to 10 years to finalise, during which time the potential cost to the Authority remains. When the claim is finalised the actual cost is met from the provision. Education FEFC Grant Clawback

The Adult Education Service receives FEFC funding (approximately £1.5m p.a.) for Vocational Adult Education schedule 2 courses. This funding is measured by a complex formula which determines a number of units by which authorities are funded. This provision is to allow for variations in funding in future years and for the increased participation in schedule 2 courses.

Future Liabilities

Consultancies:

The provision of £0.070m for potential losses due to disputed items in external contracts was fully utilised in 2004-2005.

Education:

The provision of £0.034m for variations in the Schools Meals Contract was fully utilised in 2004-2005. A provision of £0.025m for Student Awards agreed but not yet paid out was made in 2004-2005.

CORMAC:

This provision of £0.563m relates to the major works area of the Council’s Trading Organisation (CORMAC) such as surfacing/surface dressing, major road schemes, basic highway maintenance and the reinstatement of waste disposal sites. Contract Penalties

This provision of £0.063m relates to PFI contract penalty deductions for non-performance of certain tasks by the Council’s Commercial Services. Parts Initiative

Cornwall County Council workshops will have to pay a one off payment to Hendy Lennox Ltd, or bear any loss of the parts venture, which terminated on 31/03/03. A provision of £0.010m has therefore been made.

Unused Leave

This provision of £0.031m was made due to staff in Environment & Heritage working excess hours in 2004-2005, giving additional leave in 2005-2006 thus reducing income achievable. Note 22 Statement of Total Movements on Reserves 2004-2005 Usable Capital

Receipts

£’000

Unapplied Capital Grants and

Contributions £’000

Note i – Movements in realised capital resources Amounts received in year 968 21,638 * Amounts applied to finance new capital investment in year (2,388) (22,372) Total increase/(decrease) in realised capital resources during year

(1,420) (734)

Balance brought forward at beginning of year 5,531 7,229 Prior Year Adjustment 0 1,054 Balance carried forward at end of year 4,111 7,549

Prior year adjustments have been made to 2003-2004 comparative figures, for the effects of reclassifying £1.054m Receipts in Advance as Unapplied Capital Grants and Contributions.

* This applies mainly to standard fund capital grant.


33

2004-2005 2004-2005 Capital

Financing Account £’000

Government Grants

Deferred £’000

Totals

£’000 Note iv – Movements in amounts set aside to finance capital investment

Capital receipts set aside in year: - reserved receipts 0 0 0 - useable receipts applied 2,388 0 2,388 Total capital receipts set aside in year 2,388 0 2,388 PFI Deferred Consideration Amortised (2,209) 0 (2,209) Revenue resources set aside in year: - capital expenditure financed from revenue 23,704 0 23,704 - reconciling amount for provisions for loan repayment (13,300) 0 (13,300) Total revenue resources set aside in year 8,195 0 8,195 Grants applied to capital investment in year 0 22,372 22,372 Amounts credited to the Asset Management Revenue Account

0 (2,997) (2,997)

Total movement of grants in year 0 19,375 19,375 Total increase/(decrease) in amounts set aside to finance capital/investment

Total movement on Account in year 10,583 19,375 Balance brought forward at begininning of year 140,288 78,942 Balance carried forward at end of year 150,871 98,317

Revenue Reserves The Revenue Reserves can be used to meet capital or revenue expenditure. However, the sum of £79.715m under the heading of “specific reserves” has been earmarked for specific purposes. A more detailed analysis of these reserves is shown against note (d). For additional information, a detailed analysis of the transactions against the Fixed Asset Restatement Account, Capital Financing Account and Usable Capital Receipts Reserve appear below:

2004-2005 Fixed Asset

Restatement Account £’000

Note ii – Movements in unrealised value of fixed assets Gains/losses on revaluation of assets in year 3,279 Impairment losses due to general changes in prices in year 0 Total increase/(decrease) in unrealised capital resources in year 3,279

Note iii – Value of assets sold, disposed of or decommissioned

Amounts written off asset balances for disposals in year (422) Total movement on reserve in year 2,857 Balance brought forward at beginning of year 318,489 Balance carried forward at end of year 321,346


34

Note (a) Fixed Asset Restatement Account

Note (b) Capital Financing Account The Capital Financing Account contains the amounts of capital expenditure financed from revenue, capital receipts and capital grants, relating to non depreciable assets, e.g. land. It also contains appropriations from the revenue account for differences between the authority’s MRP and depreciation charges.

Note (c) Usable Capital Receipts Reserve Income from the sale of fixed assets for example land and buildings is credited to the Usable Receipts Reserve. These receipts can be used to pay for new capital expenditure. Any balance remains in this account.

Note (d) Specific Reserves Insurance Original Reserve Amended 2004-2005 2003-2004 Adjustment 2003-2004 £’000 £’000 £’000 £’000 Usable: Capital Reserve 12,542 16,788 - 16,788 Other Specific Reserves* 23,316 27,728 (1,000) 26,728

(excluding P.F.I.)

Non Usable: LMS School** 19,196 18,940 - 18,940 Sub-total 55,054 63,456 (1,000) 62,456 P.F.I. Reserve 24,661 14,764 - 14,764 Total 79,715 78,220 (1,000) 77,220

* These reserves are for specific purposes such as repairs and renewals, I.T. and computing renewals and upgrades, economic regeneration and corporate objectives (see Note (e)). ** This amount includes a sum £0.273m representing an amalgamation of overspend at 13 schools.

£’000 Balance as at 1 April 2004 318,489 Non Enhancement Capital Expenditure (1,512) Restatments & Revaluations 4,791 Disposal of Fixed Assets (422) Balance as at 31March 2005 321,346

£’000 Balance as at 1 April 2004 140,288 2004-2005 Capital Financing :

- Capital Receipts (Usable) 2,388 - Revenue Contributions 26,107 - Deferred Charge Financing (2,817) - De Minimus Financing (399) - PFI Deferred Consideration Amortisation (2,209)

Fixed Asset Impairment Write Off Financing (1,788) Amortisation of Government Grants deferred 2,997 2004-2005 Minimum Revenue Provision (MRP) (less depreciation provision) (13,300) Long Term Loan Write Off Financing (396) Balance as at 31 March 2005 150,871

£’000 Balance as at 1 April 2004 5,531 Capital receipts in year 968 Capital receipts applied to finance capital expenditure (2,388) Balance as at 31 March 2005 4,111


35

Prior Year Adjustment relates to the reclassification of the Insurance Premium Reserve balance of £1.0m as part of the Insurance Claims Provision balance. Note (e) Other Usable Specific Reserves 2004-2005 Original

2003-2004 Insurance Reserve

Adjustment

Amended 2003-2004

£’000 £’000 £’000 £’000 Waste Disposal 73 1,355 - 1,355 Renewals and Repairs 3,372 4,177 - 4,177 Computers and IT 1,928 3,076 - 3,076 Consultancy 194 250 - 250 Matched Funding 1,151 890 - 890 Objective One 1,571 3,422 - 3,422 Premises and Accommodation 229 260 - 260 Redundancy 1,100 1,012 - 1,012 Social Services: - Doubletrees 50 350 - 350 - Autism - 300 - 300 - Mental Health 175 378 - 378 Capital Related 493 426 - 426 Democratic Representation 499 416 - 416 Partnerships/Joint Arrangements 703 662 - 662 Schools: - Small Loans Scheme 282 224 - 224 - Nursery Schools 93 93 - 93 Adult FEFC 2,833 2,833 - 2,833 School and Post 16 Transport 448 347 - 347 Fire Service Pensions 820 588 - 588 Insurance Premium - 1,000 (1,000) - Interest Receipts Fluctuations 658 658 - 658 Pay & Grading 795 1,549 - 1,549 Local Committees 91 740 - 740 Fire Service Transitional Funding Loan 304 - - - Revenue Support Grant Repayment 1,161 - - - Customer Services Centre 380 - - - Special Education 250 - - - Children’s Service Transition 996 - - - Other Usable Specific Reserves 2,667 2,722 - 2,722 Sub-total 23,316 27,728 (1,000) 26,728 P.F.I: - Development 250 250 - 250 - Grant Income Equalisation 24,279 14,291 - 14,291 - Contract Equalisation 132 223 - 223 Total 47,977 42,492 (1,000) 41,492

Prior Year Adjustment relates to the reclassification of the Insurance Premium Reserve as an Insurance Provision.

Note (f) County Fund - Usable Reserves General

Reserve

£’000

Budget Equalisation

Reserves £’000

Total

£’000 Balance as at 1 April 2004 8,286 4,502 12,788 Transfers (to)/from Revenue Account 1,272 (61) 1,211 Balances as at 31 March 2005 9,558 4,441 13,999


36

Note 23 Best Value Performance Plan 2004-2005 What we spent in 2004-05 compared to the spending plans in the 2004-05 plan.

What we planned to spend in the year 2004-05

£m

What we spent in 2004-05

£m

(Under) or over spend

£m

Main explanations for difference

Corporate Support & Leader Members, Corporate items, youth offending team, estate management and corporate support costs

11.7 6.8 (4.9) Increase in capital financing / capital reserve reallocation (£2.0m)

FRS 17 pension adjustment (£4.2m) Deferred charges £2.1m Net surplus on Interest Receipts and Capital

Financing charges (£1.9m) Property maintenance underspend on NCH

concrete repairs will be spent in 2005-06 (£0.5m) Additional PFI income from profits on indexed

linked gilts related to the PFI reserve (£0.8m) Contribution to Capital Reserve not known when

we planned the 2004-05 spend £2.4m Lifelong Learning Council schools, special education needs, early years service, continuing education, libraries and arts and culture

278.7 278.4 (0.3) Reduced capital charges (£0.5m) Deferred charges £2.4m FRS17 and Past Service costs pensions

adjustments (£1.1m) Net underspend on non delegated budgets

(£1.0m) Underspend on Schools Delegated budgets

(£0.3m) Children’s Bill expenditure funded from the 2003-

04 non-earmarked underspends £0.2m Economy Economic development and tourism, county farms and agriculture

5.8 6.4 0.6 Reduced capital charges (£0.1m) Increase in use of Corporate Matching Funds for

Objective 1 projects £0.7m

Strategic Planning & Transport Planning policy and development control, highways maintenance, traffic management and road safety and support for public transport

45.6 49.9 4.3 Increased capital charges £0.7m FRS17 and Past Service costs pensions

adjustments (£0.7m) Deferred charges £4.1m Increased costs of road maintenance mainly due

to storm damage £0.3m Reduction in Capital Financing charges as lower

than budgeted for interest rates (£0.1m) Environment & Heritage Countryside and historic environment, levies and payments, waste disposal and civic amenity sites

18.1 19.0 0.9 Increased Waste Disposal costs mainly on the integrated waste management PFI scheme £0.8m

Historic Environment increased activity and additional funding received from the 2003-04 non-earmarked underspends £0.1m

Public Protection Fire brigade, emergency planning, magistrates courts trading standards, registration service, and coroners

23.6 21.6 (2.0) Increased capital charges £0.1m FRS17 and Past Service costs pensions

adjustments (£1.8m) Reduced activity levels have led to an underspend

on the fire brigade (£0.3m) 2003-04 non-earmarked underspends allocated to

Fire Brigade transferred to a reserve to repay transitional funding in 2006-07 (£0.1m)

Social Care and Health Social work and other social services for adults, continuing education and support services for awards

81.1 80.9 (0.2) Reduction in capital charges (£0.1m) FRS17 and past service costs pensions

adjustments (£0.6m) Deferred charges £0.2m Community care service overspend on Residential

and Nursing placements £0.5m Children & Young People Social work and other social services for children

33.5 33.7 0.2 Deferred charges £0.1m FRS17 and past service costs pensions

adjustments (£0.2m) Children and families net overspend on Out of

County placements £0.1m Additional children and families expenditure

funded from 2003-04 non-earmarked underspends £0.1m

Welfare service child and family repayment to agencies £0.1m

Net ‘Total’ Cost of Services 498.1 496.7 (1.4) Adjustment for capital charges, deferred charges, reserves & income

(25.6) (26.8) (1.2) Underspends in this column are shown in (brackets)

COUNTY COUNCIL BUDGET 472.5 469.9 (2.6)


37

Note 24 Trust Fund Accounts The County Council Acts as sole or custodian trustee for numerous funds. These funds do not represent assets of the County Council and are therefore not included in the Consolidated Balance Sheet. Income and Expenditure for the year ended 31 March

2005 2004 Fowey

School Fund

St. Blazey School Fund

Criminal Injuries

Compensation Board

Other Funds

Total Total

£'000 £'000 £'000 £'000 £'000 £'000 (Income) (24) 0 (25) (1) (50) (108) Expenditure 2 0 1 0 3 12 Total (22) 0 (24) (1) (47) (96)

Value of Funds Assets

as at 31 March 2005 £'000

Liabilities as at 31 March

2005 £'000

Net Asset as at 31 March 2005

£’000

Net Assets as at 31 March

2004 £'000

Significant School Fund 540 0 540 519 Criminal Injuries Compensation Board 227 0 227 203 Other Funds 55 0 55 53

Total 822 0 822 775

The Fowey School Fund came from the sale of the former County Schools at Fowey. It is to be used for the benefit of children in the age group 5-14 who receive their education in Fowey. Other funds relate to numerous prize funds, endowments, scholarships and bequests which have been provided from gifts and legacies. Note 25 Publicity Expenditure

The Authority is required by Section 5.1(1) of the Local Government Act 1986 to provide details of its spending on publicity. The Act does not provide a clear definition of publicity, the following analysis shows the element of expenditure which is judged by the Authority to be relevant.

2004-2005 2003-2004 £'000 £'000

Employees Press & Publicity

Officers 156 104

Advertising Recruitment 975 1,091 Promotional and

Other Advertising 962 1,136

Other Costs 50 0

2,143 2,331


38

Note 26 Cashflow Statement

(i) Reconciliation of revenue cash flow

2004-2005 2003-2004 £’000 £’000 £’000 Surplus for the year (1,467) (3,064) Deduct Interest Paid (15,248) (12,415) Contributions (to)/from provisions and reserves (2,445) (4,269) Deduct contributions to capital outlay (26,107) (16,094) Deduct depreciation (23,009) (21,403) Add minimum revenue provision adjustment 13,300 12,975 (53,509) (41,206) Increase/(decrease) in debtors 14,717 (2,110) Increase/(decrease) in long term debtors (6,043) 6,418 (Increase)/decrease in creditors 16,167 (17,184) Increase/(decrease) in stock and Work in Progress (158) 419 24,683 (12,457) Deduct: Interest received 9,693 4,786 Revenue Activities net contributions (20,600) (51,941)

(ii) Reconciliation of net cash flow to the movement in net debt

£’000 Decrease in cash in the period (6,017) Cash inflow from increase in debt financing (61,242) Cash outflow from decrease in liquid resources 29,136 (38,123) Movement in net debt in the period Net debt at 1 April 2004 (112,704) Net debt as at 31 March 2005 (150,827)

(iii) Analysis of net debt

Balance as at 1 April 2004 £’000

Cash Flow

£’000

Balance as at 31 March 2005 £’000

Cash in hand and in transit 94 34 128 Cash overdrawn (12,094) (6,051) (18,145) Debt due after one year (230,568) (42,694) (273,262) Debt due within one year (270) (18,548) (18,818) Short term investments 117,150 (51,671) 65,479 Long term investments 12,984 80,807 93,791 (112,704) (38,123) (150,827)

(iv) Other Government Grants and Contributions

2004- 2005 2003-2004 £'000 £'000 £'000 £'000

Education Services Standards Fund 32,381 21,742 Special Grant 8,228 7,170 Learning Skills Council 19,279 12,392 } Further Education Funding Council 5 5,840 } Private Finance Initiative Grant 13,915 6,738 Other 9,262 12,294

83,070 66,176


39

Note 26 Cash Flow Statement (continued)

(iv) Other Government Grants and Contributions (continued)

Social Services Supporting People 15,350 14,010 Preserved Rights 5,780 6,581 Access & System Capacity 5,090 1,884 Health Services delivered by County Council 13,934 8,346 Residential Allowances 5,572 2,552 Other 9,540 13,185 55,266 46,558 Fire Service 2,535 1,842

Highways, Roads & Transport Services 2,782 2,895

Court Services Magistrates Courts 10,843 7,954

Cultural, Environmental & Planning Services 6,077 3,409

Central Services 2,672 2,149

163,245 130,983

Note 27 Officer Emoluments Under the Accounts and Audit Regulations, the Authority is required to disclose the number of staff, including teachers, whose remuneration falls within the following ranges.

Remuneration includes all amounts paid to or receivable by an employee including sums due by way of expense allowances and the estimated monetary value of any other benefits received by an employee otherwise than in cash (for example through a leased car).

The increase in staff numbers shown in this table is mainly due to the annual pay awards moving staff into the static remuneration bands. The numbers shown in the table will continue to grow each year because the remuneration levels are statutory and not adjusted to take into account the effects of inflation. Variations are also due to employees starting or leaving employment within the financial year.

Note 28 Income & Expenditure Under The Local Authority (Goods & Services) Act 1970

The Authority is required to provide details of work carried out by Service Departments for other Public Bodies. The purpose of this disclosure is to show the extent to which the Authority is engaged in trading activities which would not otherwise be part of its function as a Local Authority. All Local Authorities are allowed to supply goods and services to a number of prescribed Public Bodies by the 1970 Act. The income and expenditure in respect of these activities is included in the Authority’s Consolidated Revenue Account. Details are shown below.

2004-2005 2003-2004

Remuneration: No. of staff No. of staff

£50,001 - £60,000 59 39

£60,001 - £70,000 28 21

£70,001 - £80,000 13 7

£80,001 - £90,000 3 2

£90,001 - £100,000 1 3

£100,001 - £110,000 2 1

£110,001 - £120,000 1 0

107 73


40

2004-2005 2003-2004

£'000 £'000

Other Public Bodies:

Income 26,150 26,063

Expenditure 24,718 24,718

Net Surplus 1,432 1,345 Note 29 Agency Service Under a number of statutory powers the Authority completes certain works on behalf of other bodies. All expenditure is fully reimbursed by the entities concerned. Social Services The County Council administers money on behalf of the Primary Care Trusts under S28 and other agreements.

2004-2005 2003-2004

£'000 £'000

Income 11,650 10,206

Expenditure 11,650 10,206

Net Surplus 0 0

Note 30 Members Allowances The total amount of Members Allowances paid during the year is shown in the table below.

2004-2005 2003-2004

£'000 £'000

Amounts paid during year:

Basic Allowance 779 737

Special Allowances 119 114

898 851 Note 31 Significant Commitments Under Capital Contracts as at 31 March, 2005

£’000 Expenditure Approved and Contracted 43,266 Expenditure Approved but not yet Contracted 55,653

As At 31 March, 2004

£’000 Expenditure Approved and Contracted 34,025 Expenditure Approved but not yet Contracted 64,459

Note 32 Pensions Costs

The Accounting Code of Practice requires the costs of providing pensions to be charged to the accounts in accordance with the statutory requirements covering the respective funds to which the employees belong. The disclosures required cover the nature of the scheme, the pensions costs charged, details of any discretionary payments, the pensions costs that would have been charged to the accounts on a FRS17 basis, details of the latest actuarial valuation and capital costs of any discretionary increases in pension payments.

Pensions are provided for all full-time County Council employees under the requirements of statutory regulations. In certain circumstances these regulations extend to cover part-time employees. The principal schemes in operation are:


41

Teachers

This is a defined benefit scheme administered by the Department for Education and Skills (DfES). Although the scheme is unfunded, the Department has established a notional fund as the basis of calculating the employer contribution. The Council contributed at a rate of 13.5% in 2004-2005 totalling £16.8m (£16.1m in 2003-2004) and is also responsible for any pension costs relating to added years and associated inflation increases, totalling £1.478m in 2004-2005 (£1.424m in 2003-2004). Additionally, the Council is responsible for paying for a percentage of the statutory benefits previously funded by the DfES in cases of early retirement, which amounted to £0.954m in 2004-2005 (£0.793m in 2003-2004).

Uniformed Fire-fighters

The Pension Scheme for fire-fighters is unfunded. As such, the net cost of pensions is charged to the Fire Service’s Revenue Account, after allowing for contributions made by employees for the year. In 2004-2005, the net cost of pensions amounted to £2.192m, representing 35.57% (37.58% in 2003-04) of pensionable pay. Other Employees

In 2004-2005 the Council paid an employer’s contribution of £19.7m into the Pension Fund representing 16.1% of pensionable pay. The contribution rate is determined by the Fund’s Actuary based on the triennial valuations (the last review being at 31 March 2001 with an effective date of 1 April 2002). The contribution rate of 16.1% includes a valuation increase of 0.8% (far above the 15.3% certified by the actuary) in preparation for further increases at the next valuation in 2007. Under Pension Fund Regulations, contributions are set to meet 100% of the overall liabilities of the Fund (UK GAAP). At 31 March 2001 there was an overall shortfall of £13.1m which means that the Fund has assets equivalent to 96.2% of its liabilities. To make up the deficit requires an additional employer’s contribution of 1.6% of pensionable pay. To meet the cost to the Fund of any early retirements before the next actuarial valuation, the Council is contributing an additional 1% of pension pay. For 2004-05 this amounted to £1.13m. The results of the 2004 valuation show that the overall shortfall in the fund of £87.9m relates to the County Council. The actuary has assumed that this deficit will be recovered over a 20 year period resulting in an overall contribution rate of 18.4% from 1 April 2005 increasing to 20.0% by 1 April 2007. The Council is also responsible for all pension payments relating to added years together with the related increases. In 2004-2005 these amounted to £1.394m (2003-2004 £1.145m), representing 1.23% (2003-2004 1.01%) of pensionable pay. The capital cost of any discretionary increases in pensions payments (added years, Statutory Benefits and graduates, including those made to teachers) agreed by the authority is £61.3m (£21.9m for Local Government Pension Scheme and £39.4m for teachers). The split for 2003-04 is not available but was £49.1m in total. Further information can be found in the Council’s Pension Fund Annual Report, which is available upon request from the County Treasurer’s Department, County Hall, Truro, TR1 3AY. Note 33 Major Fixed Assets

The Authority is required to disclose details of the major fixed assets which support its functions. The following table shows the number of each type of asset, as at 31 March, 2005

Land (Approx) Land in Council Ownership:- 4,598 ha Farms 1,636 ha All other purposes 395 ha Jointly held with other authorities

Property (Number) Education: Schools - Nursery 2 - Primary (excluding VA and VC Schools) 197 - VC Schools 8 - VA Playing Fields etc 37 - Secondary 31 - Special 4 Horticultural Education Establishments 2 Youth Centres and Related Establishments 11 Outdoor Education Centres and Stores 5 Adult Education Centres 9

Fire Stations 31

Highway Depots 29


42

Refuse sites (including closed but not being monitored) 15 Civic Amenity Sites 6 Waste Transfer Stations 2 Libraries 29 Museums and Galleries 2 Magistrates Courts 6 Offices/Administrative Buildings 74 Aerodromes/Airports 1 Country Parks 3 Camel Trail/Picnic Areas 2 Stores/Workshops (not highways depots) 6 Park and Ride Car Parks 2 Non-Operational, Surplus Properties 12 Non-Operational, let or Investment Properties 14 Non-Operational, or indirect service properties - held for service 34

Social Services: Hostels and Other Homes 5 Family and Day Care Centres 23 Respite Care Facilities 5 Training Centres 10 Gypsy Sites 3

Infrastructure Highway Authority Roads 7,243 Km

Vehicles, Plant and Equipment

Fire Brigade: Operational Vehicles 89 Cars and Vans 110

Central Transport Organisation: Equipment hired to other departments

- Lease and provided cars (owned by CCC) 335 - Vehicles and Plant 1,721

Note 34 Leases The Authority is required to disclose the amounts of any finance and operating lease rentals paid to lessors in the year, and an estimate of the undischarged obligations at year end.

Rentals paid in 2004-05

£’000

* Outstanding Obligations 31 March,

2005 £’000

Rentals paid in 2003-04

£’000

Finance Leases 123 352 54 Operating Leases 921 6,718 730

* Outstanding

Obligations 31 March, 2005

Due within 1 Year

£’000

Due within 2 to 5 Years £’000

Due after 5 Years

£’000 Finance Leases 130 222 0 Operating Leases 1,110 2,536 3,072

Rentals

Receivable in 2004-2005

Rentals Receivable in 2003-2004

£'000 £'000

Finance Leases 0 0

Operating Leases 779 743

779 743

Finance Leases – Gross Book Value and Accumulated Depreciation. 31 March 2005 31 March 2004 Gross Book

Value £’000

Accumul- ated

Depreciation £’000

Gross Book Value £’000

Accumul- ated

Depreciation £’000

Land and Buildings 0 0 0 0 Vehicles, Plant and Equipment 454 101 0 0 454 101 0 0


43

Note 35 Long Term Contracts Private Finance Initiative (PFI) Schemes Developed to complement the disclosures about leases, a note is required about the contracts under which the authority has committed revenue resources for future financial years. The Council in 2001-02 entered into the following PFI contracts for the supply of services accommodation. Payments under the contract and receipt of special grant support from the Government commenced in 2002-03.

Scheme Period 2004-05 Cash Value

(£m)

Year Of Operation

2003-04 Cash Value

(£m)

Year Of Operation

Cornwall Grouped Schools 1

25 Years 209.967 4 209.967 3

Cornwall Fire Station

27 Years 47.021 4 47.021 3

Cornwall Grouped Schools 2

28 Years 228.888 1 n/a n/a

Note 36 Private Finance Initiative (PFI) Schemes The Council entered into contracts for two PFI Schemes at the end of March 2001. The first payments under these contracts became due on August 2001. An Education Scheme covers the unification of four split site secondary schools onto single sites, refurbishment and backlog maintenance to the schools and their associated primary school clusters including the replacement of two schools with new buildings, the combination of two primary schools in one new building and the substantial redevelopment of another school to combine infant and junior age ranges in an extended building. It also covers facilities management services and lifecycle maintenance for a period of twenty five years. The other scheme, the Fire Service Scheme, covers the facilities management and repair and maintenance of the Council’s 31 Fire Stations for a period of twenty seven years. It includes the construction of ten new fire stations and the substantial refurbishment of two others, the back log repairs for the whole estate, and some related support officer functions. Schools’ PFI 2 The County Council entered into a second schools’ PFI contract to relocate one secondary school and one primary school in new buildings, and to refurbish and extend sixteen further primary schools in the Truro and Penryn areas. The contract was commercially closed on 31st March 2004 and limited services started on that date. The effective date for the transfer of responsibility for the properties was 7 June 2004. The Executive Committee agreed on 24 January 2001 to ring-fence any surplus PFI Schemes income in Specific Reserves due to timing differences between matching income and expenditure. Note 37 FRS17 Pension Scheme Assets and Liabilities In accordance with the requirements of Financial Reporting Standard No 17 – Retirement Benefits (FRS17) the Council has to disclose its share of assets and liabilities related to Pension Schemes for its employees. As explained in a Note to the Consolidated Revenue Account, the Cornwall County Council Pension Scheme is governed by regulations made under the Superannuation Act 1972. This scheme is administered by the County Treasurer on behalf of the County Council, the six district Councils in the County and various other organisations which have been admitted to the schemes. In addition the Authority has made arrangements for the payment of added years to certain retired employees outside the provisions of the scheme. The Fire fighters Pension Scheme is an unfunded scheme. There is no fund and pension payments are made as they fall due. The Cornwall County Council pension scheme was last formally valued for actuarial purposes as at 31 March 2001, (an interim valuation was carried out in September 2003). As at 31 March 2005, the Authority had the following net pensions liability which has been included in the balance sheet under the disclosure requirements of the FRS.


44

The net pensions liability of £269.6m (2003-04 £195.750m) should be considered alongside the Council’s overall level of County Fund reserve £13.999m (2003-04 £12.788m) and total assets less liabilities of £406.308m as at 31 March 2005 (£445.791m 31 March 2004) Liabilities have been assessed on an actuarial basis using the projected unit method which assesses the future liabilities of the fund discounted on their present value. Both the Fire fighters and the County Council Fund liabilities have been valued by Hymans Robertson and Company, an independent firm of actuaries. Discretionary payment liabilities have been calculated by the Council’s Pension Fund Section. Assets in the County Council Pension Fund are valued at a fair value, principally market value for investments, and consists of the following categories, by proportion:

The movement in the net pensions deficit for the year can be analysed as follows:

Cornwall County Council

£’000

Fire Fighters

£’000

Total

£’000 Net deficit at beginning of year (135,100) (60,650) (195,750) Movement in year: Current Service cost (18,600) (2,500) (21,100) Contributions 19,700 2,600 22,300 Unfunded benefits contributions 3,600 0 3,600 Past service costs (200) 0 (200) Impact of settlements and curtailments (300) 0 (300) Transfers in from other authorities 0 (311) (311) Finance income - expected return on Pension Fund assets 24,600 0 24,600 - interest on pension liabilities (26,300) (3,300) (29,600) (132,600) (64,161) (196,761) Actuarial gain/(loss) (see below) (51,500) (21,339) (72,839)

The Authorities Assets and liabilities Are: 2005 £’000

2004 £’000

Estimated Liabilities in Firefighters Pension Arrangements 85,500 60,650 Estimated Liabilities in County Council Fund 517,100 426,700 Estimated Unfunded Liabilities 61,300 49,100 Total Liabilities 663,900 536,450 Share of Assets in County Council Fund 394,300 340,700 Net Pensions Deficit 269,600 195,750

31 March

2005 %

2004 %

Equity Investments 72.8 74.0 Bonds 14.5 13.0 Other Assets: Property 9.7 9.5 Cash 3.0 3.5 Total 100.0 100.0

Actuarial assumptions Cornwall County Council

%

Fire Fighters Pension

Arrangements %

2005

2004 2005 2004

Rate of Inflation 2.9 2.9 2.9 2.9 Rate of increase in salaries 4.9 4.9 4.9 4.4 Rate of increase in pensions 2.9 2.9 2.9 2.9 Rate for discounting scheme liabilities 5.4 6.5 5.4 6.5


45

Net pension deficit at end of year (184,100) (85,500) (269,600) The actuarial gain/(loss) can be further analysed as follows:

Differences between the expected and actual return on pension fund assets

16,500 0 16,500

Value of Assets 394,300 0 394,300 Percentage of Scheme Assets 4.2% 0 Differences between actuarial assumptions about liabilities and actual experience

22,900 (4,800) 18,100

Total present value of Liabilities (578,400) (85,500) (663,900) Percentage of the present value of liabilities 4.0% (5.6%) Actuarial Gains/(Losses) recognised in STMR (51,500) (21,339) (72,839) Note 38 Consortium for Purchasing and Distribution (CPD)

The County Council became a member of the CPD in 1973 with nine other member authorities. The CPD was run by Wiltshire County Council until October 1995 when the business was transferred, under a management buy out, to Hammond Bridge Limited. Cornwall County Council’s share of the initial working capital of the CPD amounted to £55,217 which was met from revenue. However, at the date of transfer to the new company this initial sum had increased in value to £312,650 which is being repaid, together with interest, in 14 equal instalments from 31 March 1999 to 30 September 2005.

Note 39 Foundation Schools

The School Standards and Framework Act 1998 changed the status of Grant maintained schools to Foundation Schools maintained by the Local Education Authority. The change for funding purposes took effect from 1 April 1999. This change has resulted in the inclusion of opening and closing balances for current assets and liabilities controlled by Foundation Schools in the consolidated balance sheet. Fixed assets and long term liabilities remain vested in the Governing Bodies of individual Foundation Schools and therefore values and amounts have not been consolidated in this balance sheet.

Note 40 Analysis of Net Assets

The Accounting Code of Practice requires disclosure of the Authority’s overall net asset position with regards to the General Fund, Joint Committees and other trading undertakings.

31 March 2005 31 March 2004

Net Fixed Assets £'000

Net Fixed Assets £'000

Cornwall County Council 404,732 444,104

Trading Services:

CORMAC 1,275 1,175

Mechanical Engineering Workshops 88 89

Catering, Cleaning and Grounds 213 423

Total as per Consolidated Balance Sheet 406,308 445,791

Note 41 Audit Commission Fees

Fees payable to the Audit Commission with regard to:

31March 2005 £’000

31 March 2004 £’000

External audit services carried out by the appointed auditor under the Audit Commission’s Code of Audit Practice in accordance with Section 5 of the Audit Commission Act 1998

161 171

Statutory inspection under Section 10 of the Local Government Act 1999

8 8

Certification of grant claims and returns by the appointed auditor under Section 28 of the Audit Commission Act 1998

40 18

Any other services provided by the appointed auditor not disclosed above

0 9

Total 209 206


46

Note 42 Contingent Liabilities/ Post Balance Sheet Events

Contingent Liabilities If a Local Authority has acquired or discontinued any operations with material effect then a note is required explaining that has taken place. Where operations are disclosed, the note should detail any outstanding liabilities that still remain for these services. i) The County Council’s Liability in Respect of Waste Disposal Sites For closed sites, which are the County Council’s direct responsibility, the valuer has estimated the restoration costs over a 20 year period to £1.9m. The Planning and Transport Portfolio’s revenue budget includes £0.322m p.a. for maintaining and restoring closed sites. With respect to operational sites which were transferred to County Environmental Services Ltd, (CES), the Company makes provision in its accounts for both restoration and aftercare costs, as required by Financial Reporting Standard (FRS) 12. In addition to these liabilities the County Council has given CES a limited and reducing indemnity against environmental impairment arising from the sites transferred on vesting. No assessment can be made of any possible liability because (based on the advice of KPMG) these are contingent liabilities and should not be brought into account. ii) Associate Company – Cornwall Paper Company In March 2004, the County Council resolved to acquire a share holding in Cornwall Paper Company (CPC). On 2nd July 2004 it entered into a Sale & Purchase Agreement. The Company was valued at £2,000,000 under this agreement and the Council immediately acquired a 40% shareholding in CPC for a consideration of £800,000. Under the terms of the agreement the Council, or it’s approved agent (i.e. the successful Integrated Waste Management PFI contractor, if appointed), must acquire the remaining 60% of the shares, for a consideration of £1,200,000 on or before 31 March 2006. iii) Integrated Waste Management (IWM) and County Environmental Services (CES) Currently, the Council discharges its responsibility for waste disposal through a contract with County Environmental Services Limited (CES). CES is a company limited by shares wholly owned by the County Council. It operates on an “arms length” basis. The existing contract was awarded in 1992 and runs to 2013. CES also operate the current Civic Amenity Sites Contract which is due to expire in August 2005. The Council is proposing to let a major contract for IWM procured with the assistance of Private Finance Initiative (PFI) support from the Government. It is now expected that the IWM contract will commence in September 2006. The letting of the IWM will require the termination of the existing waste disposal contract with CES. In recognition of the impact the termination of the existing waste disposal contract will have on CES’s ability to trade and meet its long term liabilities the County Council agreed on 26 October 2004 to provide CES with a working capital facility of £1,000,000 and to underwrite its liabilities. The detailed terms of the underwrite are still to be finalised with the CES Board. CES liabilities relate particularly to its pension fund, the providers of lease finance to it, and to provide for reinstatement and aftercare of the landfill sites it uses. On the basis that the underwrite will be in place the external auditors for CES will certify the company’s accounts for the year ending 31 August 2004 on a going concern basis. The County Council will assess any potential call on the indemnity as part of the financial assessment of the value for money case for the IWM contract. Post Balance Sheet Event iv) Magistrates Courts Her Majesty’s Courts Service (“HMCS”) came into existence on 1 April 2005 under the Courts Act 2003 to replace both the Court Service and the 42 Magistrates’ Courts Committees in England and Wales. The Justices of the Peace Act 1997 (“JPA1997”), which previously governed the operation of the magistrates’ courts was repealed on 31 March 2005, and the Devon & Cornwall Magistrates’ Courts Committee (the “MCC”) was abolished on that date.


47

A Property Transfer Scheme made under the Courts Act 2003 transferred the MCC’s property, rights and liabilities to the new body. The Scheme also provided for properties owned by Cornwall County Council that subsisted for the purposes of, or in connection with, or were otherwise attributable to the magistrates’ courts to be transferred for nil consideration to the Lord Chancellor on 1 April 2005. There was no transfer of capital debt associated with these properties and no alteration in existing arrangements relating to funding from central government for such capital debt. Following the repeal of the JPA1997, a local authority is no longer obliged to provide services to the magistrates’ courts but may, where appropriate, provide services on mutually agreed terms. To facilitate the operation of the new organisation, Cornwall County Council has agreed to provide certain services, including payroll and limited accountancy services, on normal commercial terms for a limited period during 2005-06. Note 43 Related Party Transactions 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, provides the majority of its funding in the form of grants and prescribes the terms of many of the transactions that the Council has with other parties. Details of transactions with government departments are set out in a note to the Cash Flow Statement. Members of the Council have direct control over the Council’s financial and operating policies. If a Member declares an interest in a transaction which involves the Council, these transactions are recorded in the Register of Members’ Interests, open to public inspection at County Hall, Truro.

Officers - under the requirements of the Local Government Act 2000, the Council has developed a Code of Conduct for officers and established a Register of Officers interests from April 2002. Non-Section 31 Pooled Budgets: Camborne Pool Redruth Urban Regeneration Company (CPR URC)


arrangement


arrangement


Identities of partner bodies: £’000 £’000 £’000 Camborne Pool Redruth Urban Regeneration Company (CPR URC) Cornwall County Council English Partnerships Kerrier District Council Princes Foundation South West Regional Development Agency

Total (2,000) 2,000 125

Cornwall and Isles of Scilly Drug and Alcohol Action Team


arrangement


arrangement


Identities of partner bodies: £’000 £’000 £’000 Cornwall County Council Central Cornwall Primary Care Trust North and East Primary Care Trust Devon and Cornwall Constabulary Cornwall Community Safety Partnership Carrick District Council Penwith District Council Cornwall Partnership Trust Isles of Scilly Authority Devon and Cornwall Probation Service

Total (5,400) 5,400 7


48

Supporting People Gross income of

the joint working arrangement


arrangement


Identities of partner bodies: £’000 £’000 £’000 Caradon District Council Carrick District Council Central Cornwall Primary Care Trust Central Cornwall Primary Care Trust Cornwall Primary Care Trust Devon and Cornwall Probation Service Kerrier District Council North Cornwall District Council Penwith District Council Restormel Borough Council West Cornwall Primary Care Trust

Total (14,700) 14,700 - Other public bodies and Assisted Organisations – the Council is involved in partnerships and other forms of joint working arrangements with several organisations. The major involvements are as follows: South West Initiative for Training


arrangement


arrangement


Identities of partner bodies: £’000 £’000 £’000 Plymouth University College of St Mark and St John Plymouth LEA Devon LEA Torbay LEA South Somerset LEA Dorset LEA

Total (1,321) 310 - Youth Offending Team Gross income of



arrangement


Identities of partner bodies: £’000 £’000 £’000 Devon & Cornwall Police Devon & Cornwall Probation Cornwall & I.O.S. Health Authority Devon & Cornwall Magistrates

Total (1,446) 1,370 625 Knowledge Spa Gross income of



arrangement


Identities of partner bodies: £’000 £’000 £’000 Government Office South West NHS SWRDA Charities.

Total (14,000) 14,000 250


49

Pension Fund – during the financial year, the pension fund had an average balance of £4.753m of surplus cash deposited within the Council. The Council paid the fund a total for interest of £0.221m (£0.299m in 2003-2004) on these deposits. The Council charged the fund £0.516m in 2004-2005 (£0.477m for 2003-2004) for expenses incurred in administering the fund.

Assisted Organisations.- there are two disclosures: The County Treasurer sits on the Board of Finance Cornwall which received a grant of £20,000 from Cornwall County Council in 2004-05; The Director of Social Services sits on the Board of the Bishops Forum which received a grant of £72,000 from Cornwall County Council in 2004-05; Companies and joint ventures – the Council has substantial interests in companies and relevant transactions are disclosed in the relevant disclosure note on Group Accounts.

During the year, none of the Members of the Council nor any of the Chief Officers, nor any persons related to them, have had any material transactions with the Authority.


50

51

AAddddiittiioonnaall FFiinnaanncciiaall

SSttaatteemmeennttss

Additional Financial Statements

52


53

Group Financial Statements A major change to the 2004 SORP is modified Group Accounting requirements. These require the County Council to consider all their interests (including those in other local authorities and similar bodies), and to prepare a full set of group financial statements where they have material interests in subsidiaries, associates or joint ventures. The group financial statements will be comprised of a revenue account, balance sheet, statement of realised gains and losses, cashflow statement, and relevant notes to accounts. Any exceptions to the County Council’s accounting policies disclosed elsewhere will also be included. The Group Accounts have been prepared according to the 2004 SORP’s modified Group Accounts requirements. For 2004-05, the SORP does not require comparative figures to be disclosed in the group financial statements. The County Council’s interests have been determined as follows: County Environmental Services Ltd – Subsidiary Cornwall Enterprise Company (includes Rural Economic Partnership Ltd.) – Subsidiary Kehelland Horticultural Centre Ltd. – Subsidiary Cornwall Paper Company – Associate Subsidiaries have been consolidated on a line by line basis in accordance with FRS 2. The equity method has been used when consolidating associates in accordance with FRS 9. The County Council accounts have been prepared under FRS17 Accounting for Pension Costs. The accounts of CES Ltd, CEC Ltd and REP Ltd have disclosed FRS17 balances and transactions where relevant.

County Environmental Services Ltd This Authority owns 100% of the issued share capital of County Environmental Services Limited (CES Ltd), a company set up in 1991 as an arms-length company of the County Council, whose principal activity is the provision of waste disposal facilities by the operation and management of landfill sites. The company has various subsidiary undertakings providing transport and waste disposal/consultancy services and has participating interests in training and insurance services. The accounting year end of CES Ltd is 31 August. For the purpose of consolidation, the statutory group accounts prepared as at 31 August 2004, have been amended to reflect transactions for the period 1 September 2004 to 31 March 2005. These modified group accounts as at 31 March 2005 have been used to prepare the County Council’s group financial statements. County Environmental Services Limited (CES Ltd) was incorporated on 12 June 1991 as an arms-length company of the County Council with an authorised share capital of 100 £1 shares. Two shares were initially issued, one to the County Council and the other to an employee as a nominee shareholder for the Authority. The principal activity of the company is the provision of waste disposal facilities by the operation and management of landfill sites. Modified Group accounts of the company for the year ended 31 March 2005 show profits of £600,000 and net assets of £6,300,000. The County Council holds 3,093,248 ordinary shares in CES Ltd being 100% of the issued Share Capital (see notes to the balance sheet). As at 31 March 2005, the net indebtedness of the County Council to CES Ltd, was £1,371,000. The accounts of the company can be obtained from the company’s registered office at United Downs, St Day, Redruth, Cornwall, TR16 5HU. Cornwall Enterprise Company

Cornwall Enterprise Company (CEC) was incorporated on 17 November 1998 and commenced trading on 1 April 1999 and is limited by guarantee whose sole guarantor is Cornwall County Council. On incorporation the company became a wholly owned subsidiary of Cornwall County Council. The company is a local authority company controlled by Cornwall County Council.

The principal activity of the company is the undertaking of activities which are focused on achieving prosperity for Cornwall. These activities cover the promotion of the County for visitors and investors, the management of programmes of public sector funds, the development of new projects and advice and information to project promoters, a variety of services to businesses and organisations.

On 1 April 1999, CEC acquired 100% of the ordinary share capital of Rural Economic Partnership Ltd (REP), a company incorporated in England. The Company’s principal activity has been to deliver West Cornwall LEADER Project on behalf of partners in the area. The delivery of this Project is now complete


54

except for the conclusion of financial monitoring and audit. On conclusion of the audit the company is to become an investment property company operating the assets provided by the Project.

The Statutory Accounts of CEC and REP have not yet been completed and modified management accounts for the year ended 31 March 2005 have been used to prepare the County Council’s group financial statements. The accounts of Cornwall Enterprise Company for the year ended 31 March 2005 show losses of £164,295. The accounts of the Rural Economic Partnership Ltd for the year ended 31 March 2005 showed a profit of £15,415. As at 31 March 2005 the net indebtedness of Cornwall County Council to CEC and REP was £334,000. The accounts of the company can be obtained from the registered office at Pydar House, Pydar Street, Truro, Cornwall, TR1 1EA. Kehelland Horticultural Centre Ltd Kehelland Horticultural Centre Ltd is a charitable company limited by guarantee, incorporated on 13 April 1983 and registered as a charity on 20 January 1984. The company was incorporated with the object of affording relief of persons who are physically or mentally handicapped, and provides training and sheltered employment in all country pursuits. Management Accounts for the year ended 31 March 2005 have been used for inclusion in the County Council’s Group Accounts. The registered office and operation address of the company is Kehelland Horticultural Centre, Kehelland, Camborne, Cornwall, TR14 ODD. Cornwall Paper Company Ltd In March 2004, the County Council resolved to acquire a share holding in Cornwall Paper Company Ltd (CPC). On 2 July 2004 the County Council entered into a Sale and Purchase Agreement. The company was valued at £2,000,000 using accounts for the year ended 31 March 2004 and other valuation bases. Under this agreement, the County Council immediately acquired a 40% shareholding in CPC for a consideration of £800,000. Under the terms of the agreement the County Council, or it’s approved agent (i.e. the successful Integrated Waste Management PFI contractor, if appointed), must acquire the remaining 60% of the shares, for a consideration of £1,200,000 on or before 31 March 2006. The principal activities of the company are waste paper recycling and retailing of paper and packaging products.


55

Group Consolidated Revenue Account

2004-2005

Service Expenditure Analysis

Gross Expenditure

£’000

Specific Grants £’000


Net Expenditure

£’000

NoteNo:

Education Services 348,355 (83,070) (16,074) 249,211 Social Services 186,506 (55,266) (19,015) 112,225 1 Fire Services 21,173 (2,535) (323) 18,315 Highways, Roads & Transport Services

40,478 (2,782) (3,850) 33,846

Court Services 12,257 (10,843) (367) 1,047 Cultural, Environmental & Planning Services

64,330 (6,077) (22,157) 36,096 2

Central Services 13,161 (2,672) (3,257) 7,232 3 Government Grants Amortised (2,997) 0 0 (2,997) Profit on Disposal of Assets (150) 0 0 (150) Net Cost of Services 683,113 (163,245) (65,043) 454,825 Other Operating Expenditure Net (Surplus)/Deficit on Trading Services (3,930) FRS17 Interest Cost (Pensions) 30,051 4 FRS17 Expected Return on Assets (Pensions) (25,017) 5 Share of loss in Joint Venture 13 6 Minority Interest (7) 10 (Gains)/Losses on Early Settlement of Borrowing Corporation Tax 361 7 External Interest Charges 15,248 Interest and Investment Income (9,733) 8 Net Operating Expenditure 461,811 Appropriations Contributions to/(from) Capital Financing Account 8,591 Contributions to/(from) FRS17 Pensions Reserve (1,163) 9 Contributions to/(from) repairs, capital, renewals and other earmarked reserves 2,240 Transfer to Unapplied Capital Receipts 572 Transfer from Fixed Asset Restatement Account (422) Amounts to be met from Government Grants and Local Taxation 471,629 This was financed by: - Council Tax Income (153,707) - Non-domestic rate income (132,534) - Revenue Support Grant (187,387) Total Sources of Financing (473,628) (Surplus)/Deficit for Year (1,999) 11


56

Group Consolidated Balance Sheet

2005 Note £’000 £’000 No: Net Fixed Assets Intangible Fixed Assets 0 Tangible Fixed Assets Operational Assets Other land and buildings 549,904 Vehicles, plant, furniture & equipment 20,080 Infrastructure 181,385 Community Assets 2,289 Non-operational assets Surplus Assets, held for disposal 6,671 Assets under construction 34,311 Total Net Fixed Assets 794,640 12 PFI Scheme Deferred Consideration 45,953 PFI Scheme Residual Values 8,984 Investment in Associate 800 Long Term Investments 90,034 13 Long Term Debtors 11,960 Total Long Term Assets 952,371 Current Assets Stocks and Work in Progress 2,354 14 Debtors and Payments in advance 45,825 15 Short Term Temporary Investments 65,479 Cash in hand and in transit 128 Total Current Assets 113,786 Current Liabilities Short Term Borrowing (18,818) Creditors (62,459) 16 Cash Overdrawn (16,142) 17 Total Current Liabilities (97,419) 16,367 Total Assets less Current Liabilities 968,738 Long Term Borrowing (273,262) FRS17 Pensions Liability (272,058) 18 Creditors due after one year (1,359) Provisions (13,502) 19 (560,181) Total Assets less Liabilities 408,557 Represented by: Government Grants Deferred Account 98,317 Capital Grant Unapplied 7,549 FRS17 Pensions Reserve (272,058) 18 Fixed Asset Restatement Account 321,346 Capital Financing Account 150,871 Reserves - Other Specific 79,715 - Usable Capital Receipts 4,111 Revenue Balances County Fund – Usable Reserves 14,080 20 Profit & Loss Accounts 4,601 20 Minority Interests 25 21 Total Equity 408,557


57

Group Statement of Total Movements in Reserves The statement of total movements in reserves brings together all the recognised gains and losses of the authority during the period and identifies those which have and have not been recognised in the Consolidated Revenue Account. The statement separates the movements between revenue and capital reserves. 2004-05 £’000 £’000 Surplus/(deficit) for the year 1,999 Add back movements on specific revenue reserve

2,240

Movement on Minority Interest (7) Movement on FRS17 Pension Reserve

(1,163)

Total increase/(decrease) in revenue resources

3,069

Increase/(decrease) in usable capital receipts

(1,420)

Increase/(decrease) in unapplied capital grants and contributions

(734)

Total increase/(decrease) in realised capital resources (note i)

(2,154)

FRS17 Actuarial gains/(losses) (72,988) Gains/(losses) on revaluation of fixed assets

3,279

Impairment losses on fixed assets due to general changes in prices

0

Total increase/(decrease) in unrealised value of fixed assets (note ii)

(69,709)

Value of assets sold, disposed of or decommissioned (note iii)

(422)

Capital receipts set aside 2,388 Revenue resources set aside 8,195 Movement on Grants in year 19,375 Total Increase/(decrease) in amounts set aside to finance capital investment (note iv)

29,958

Total recognised gains and losses

(39,258)


58

Group Cash Flow Statement 2005 Note £’000 £’000 No: Revenue Activities Cash Outflows 778,051 Cash inflows Council Tax (153,707) Non-Domestic Rates (132,534) Revenue Support Grant (187,387) Other Government Grants (163,245) Cash Received from Goods or Services (160,614) (797,487) Revenue Activities net cash flow (19,436) 22 Servicing of Finance Cash Outflows Interest paid 12,567 Cash Inflows Interest Received (13,226) (659) (20,095) Capital Activities Cash Outflows Purchase of fixed assets 91,873 Other capital cash payments 0 91,873 Cash Inflows Sale of fixed assets (572) Other capital cash income 0 Capital grants received (27,595) (28,167) 63,706 Net Cash outflow before financing 43,611 22 Financing Cash Outflows Repayments of amounts borrowed 53,108 Short Term Investments (51,671) Long Term Investments 80,836 Cash Inflows New Loans Raised (114,350) (32,077) Decrease in cash 11,534 22


59

Notes to Group Financial Statements The following notes provide more detailed information in order to assist in the interpretation of the main Financial Accounts. Note 1 Social Services Net Expenditure and Other Income Net

Expenditure£’000


Cornwall County Council 112,225 (18,920) Kehelland Horticulture Centre Ltd 0 (95) Total 112,225 (19,015)

Note 2 Cultural, Environmental & Planning Services Net Expenditure and Other Income Net

Expenditure£’000


Cornwall County Council* 36,801 (4,992) Rural Economic Partnership Ltd (13) (381) Cornwall Enterprise Company 278 (8,401) County Environmental Services Group (970) (8,383) Total 36,096 (22,157)

* Net expenditure includes £(0.081)m share of the operating results of Associate, deemed immaterial to be disclosed separately on the Group Consolidated Revenue Account. Note 3 Central Services Net Expenditure and Other Income Net

Expenditure£’000


Cornwall County Council 7,187 (3,257) Cornwall Enterprise Company 45 0 Total 7,232 (3,257)

Note 4 FRS17 Interest Cost (Pensions)

£’000 Cornwall County Council 29,600 County Environmental Services Group 156 Cornwall Enterprise Company 295 Total 30,051

Note 5 FRS17 Expected Return on Assets (Pensions)

£’000 Cornwall County Council (24,600) County Environmental Services Group (138) Cornwall Enterprise Company (279) Total (25,017)

Note 6 Share of Loss in Joint Venture This amount of £0.013m relates to County Environmental Services Group.


60

Note 7 Corporation Tax

£’000 County Environmental Services Group 364 Cornwall Enterprise Company (3) Total 361

Note 8 Interest and Investment Income

£’000 Cornwall County Council (9,693) Rural Economic Partnership Ltd (2) Cornwall Enterprise Company (38) Total (9,733)

Note 9 Contributions from FRS17 Pensions Reserve

£’000 Cornwall County Council (1,011) County Environmental Services Group (18) Cornwall Enterprise Company (134) Total (1,163)

Note 10 Minority Interest This amount of £0.007m relates to County Environmental Services Group. Note 11 (Surplus)/deficit for Year

£’000 Cornwall County Council (3,581) County Environmental Services Group (600) Rural Economic Partnership Ltd (15) Kehelland Horticulture Centre Ltd 0 Cornwall Enterprise Company 164 Total (4,032)

Note 12 Total Net Fixed Assets

£’000 Cornwall County Council 779,456 County Environmental Services Group 14,150 Rural Economic Partnership Ltd 707 Kehelland Horticulture Centre Ltd 4 Cornwall Enterprise Company 323 Total 794,640


61

Other land and

buildings £’000

Vehicles, Plant &

Equipment £’000

Infra-Structure

£’000

Community Assets

£’000

Work in Progress

£’000

Surplus/ Investment Properties

£’000

Total

£’000

Gross Book Value as at

31 March 2004

581,743 40,827 182,295 1,611 22,321 4,425 833,222

Transfer to PFI Deferred Consideration

(7,697) 0 0 0 0 0 (7,697)

Restatements 2,783 688 0 150 (226) 894 4,289

Finance Lease restatement to Long Term Borrowing

0 113 0 0 0 0 113

Impairment Charges (1,818) 0 0 0 0 (230) (2,048)

Transfer to Deferred Charges

0 0 0 0 (761) 0 (761)

Value as at 1 April 2004 575,011 41,628 182,295 1,761 21,334 5,089 827,118

Expenditure 28,059 6,295 28,722 528 16,353 0 79,957

Transfer 1,212 150 0 0 (3,376) 2,014 0

Disposals (1,786) (3,194) 0 0 0 0 (4,980)

Gross book value as at 31 March 2005

602,496 44,879 211,017 2,289 34,311 7,103 902,095

Accumulated Depreciation and Impairment as at

1 April 2004

(40,041) (22,242) (24,357) 0 0 (233) (86,873)

Impairment Charges 261 0 0 0 0 0 261

Restatements 468 15 0 0 0 19 502

Transfer 98 0 0 0 0 (98) 0

Disposals 5 2,806 0 0 0 0 2,811

Transfer to PFI Deferred Consideration

1,393 0 0 0 0 0 1,393

Depreciation for year (14,776) (5,378) (5,275) 0 0 (120) (25,549)

Accumulated Depreciation as at 31

March 2005

(52,592) (24,799) (29,632) 0 0 (432) (107,455)

Amended Net Book Value as at 31 March 2004

541,702 18,585 157,938 1,611 22,321 4,192 746,349

Net Book Value as at 31 March 2005

549,904 20,080 181,385 2,289 34,311 6,671 794,640

Note 13 Long Term Investments

£’000 Cornwall County Council 89,979 County Environmental Services Group 55 Total 90,034


62

Note 14 Stocks

£’000 Kehelland Horticulture Centre Ltd 68 County Environmental Services Group 23 Cornwall County Council 2,263 Total 2,354

Analysis of Stocks: 31

March 2005 £’000

Salt Stocks 138 Materials 1,033 Fuel 25 Printing, Stationary, etc 18 Plant and equipment Spares 303 Work in Progress 283 Other 664 2,464 Less provision for obsolete stock (110)

2,354

Note 15 Debtors and Payments in Advance

£’000 Kehelland Horticulture Centre Ltd 6 County Environmental Services Group 1,512 Cornwall Enterprise Company 2,341 Rural Economic Partnership Ltd 114 Cornwall County Council 41,852 Total 45,825

Analysis of Debtors: 31

March 2005 £’000

Short Term: Amounts falling due in one year Government Departments 4,540 Sundry Debtors 33,896 Payments in advance 8,427 46,863 Less Provision for bad debts (1,038) 45,825

Note 16 Creditors

£’000 Kehelland Horticulture Centre Ltd 33 County Environmental Services Group 3,606 Cornwall Enterprise Company 3,599 Rural Economic Partnership Ltd 38 Cornwall County Council 55,183 Total 62,459


63

Note 16 Creditors - continued Analysis of Creditors 31

March 2005 £’000

Inland Revenue 9,820 Sundry Creditors 38,178 Receipts in Advance 14,451 62,449 Long Term Borrowing Repayable within one year

10

62,459

Note 17 Cash Overdrawn

£’000 Kehelland Horticulture Centre Ltd 4 County Environmental Services Group 894 Cornwall Enterprise Company 971 Rural Economic Partnership Ltd 134 Cornwall County Council (18,145) Total (16,142)

Note 18 FRS17 Pensions Liability

£’000 County Environmental Services Group (878) Cornwall Enterprise Company (1,580) Cornwall County Council (269,600) Total (272,058)

Assets in the County Council Pension Fund are valued at a fair value, principally market value for investments, and consists of the following categories, by proportion:


%

CES Group

%

CEC

% Equity Investments 72.8 70.6 72.8 Bonds 14.5 27.0 14.5 Other Assets: Property 9.7 0.0 9.7 Cash 3.0 2.4 3.0 Total 100.0 100.0 100.0


64

The movement in the net pensions deficit for the year can be analysed as follows:

Cornwall

County Council £’000

CES Group

£’000

CEC

£’000

Total

£’000 Net deficit at beginning of year (195,750) (758) (1,399) (197,907) Movement in year: Current Service cost (21,100) (95) (329) (21,524) Contributions 22,300 110 256 22,666 Unfunded benefits contributions 3,600 (15) 0 3,585 Past service costs (200) 0 (7) (207) Impact of settlements and curtailments (300) 0 (38) (338) Transfers in from other authorities (311) 0 0 (311) Finance income - expected return on Pension Fund assets

24,600 138 279 25,017

- interest on pension liabilities (29,600) (156) (295) (30,051) (132,600) (776) (1,533) (134,909) Actuarial gain/(loss) (see below) (72,839) (102) (47) (72,988) Net pension deficit at end of year (269,600) (878) (1,580) (272,058) The actuarial gain/(loss) can be further analysed as follows:

Differences between the expected and actual return on pension fund assets

16,500 (35) 187 16,652

Value of Assets 394,600 2,263 4,551 401,414 Percentage of Scheme Assets 4.2% (1.5)% 4.1% Differences between actuarial assumptions about liabilities and actual experience

18,100 (7) (115) (17,978)

Total present value of Liabilities (663,900) (3,141) (6,131) (673,172) Actuarial Gains/(Losses) recognised in STMR

(72,839) (102) (47) (72,988)

Note 19 Provisions includes

£’000 County Environmental Services Group* (7,212) Cornwall County Council (6,290) Total (13,502)

* Relates to after site care for waste disposal sites.


%

CES Group

%

CEC

% Actuarial assumptions Rate of Inflation 2.9 3.0 2.9 Rate of increase in salaries 4.9 4.0 4.9 Rate of increase in pensions 2.9 3.0 2.9 Rate for discounting scheme liabilities

6.5 5.6 5.4


65

Note 20 Revenue Balances

£’000 Kehelland Horticulture Centre Ltd 49 County Environmental Services Group 4,069 Cornwall Enterprise Company 436 Rural Economic Partnership Ltd 47 Cornwall County Council 16,113 Total 20,714

Note 21 Minority Interest This amount of £0.025m relates to County Environmental Services Group. Note 22 Cashflow Statement

(i) Reconciliation of revenue cash flow

2004-2005 £’000 £’000 Surplus for the year (1,999) Add Minority Interest 7 Deduct Interest Paid (15,248) Contributions (to)/from provisions and reserves (1,002) Deduct contributions to capital outlay (26,107) Deduct depreciation (25,549) Add minimum revenue provision adjustment 13,300 (54,599) Increase/(decrease) in debtors 13,675 Increase/(decrease) in long term debtors (6,166) (Increase)/decrease in creditors 20,075 Increase/(decrease) in stock and Work in Progress (155) 27,429 Deduct: Interest received 9,733 Revenue Activities net contributions (19,436)

(ii) Reconciliation of net cash flow to the movement in net debt

£’000 Decrease in cash in the period (11,534) Cash inflow from increase in debt financing

(61,242)

Cash outflow from decrease in liquid resources

29,165

(43,611) Movement in net debt in the period Net debt at 1 April 2004 (108,170) Net debt as at 31 March 2005 (151,781)

(iii) Analysis of net debt Balance as at 1 April

2004 £’000

Cash Flow

£’000

Balance as at 31

March 2005 £’000

Cash in hand and in transit 94 34 128 Cash overdrawn (4,574) (11,568) (16,142) Debt due after one year (230,568) (42,694) (273,262) Debt due within one year (270) (18,548) (18,818) Short term investments 117,150 (51,671) 65,479 Long term investments 9,998 80,836 90,834 (108,170) (43,611) (151,781)


66

67

PPeennssiioonn FFuunndd AAccccoouunntt

69

Fund Account 2005 2004 £’000 £’000 £’000 £’000 Contributions and Benefits Contributions Receivable From employers 33,607 28,848 From employees 11,464 10,448 Receipts on Account of Joiners Transfers in 7,129 6,528 Total Contributions 52,200 45,824 Less: Benefits Payable Pensions 25,065 23,758 Lump Sums 3,584 3,453 Death Benefits 528 267 Augmentation 9 9 Payments to and on Account of Leavers Refunds on Contributions 188 178 Transfers out 5,792 3,233 Administration and Other Expenses 374 358 Total Payments and Deductions 35,540 31,256 Net Gains from Dealing with Members 16,660 14,568 Returns on Investments Investment Income 19,600 14,293 Change in Market Value of Investments 54,860 110,160 Less: Investment Management Expenses (2,946) (2,077) Net Returns on Investment 71,514 122,376 Net Increase/(Decrease) in the Fund During the Year 88,174 136,944 Opening Net Assets of the Scheme 617,256 480,312 Closing Net Assets of the Scheme at 31 March 705,430 617,256

70

Net Assets Statement 2005 2004 £’000 £’000 £’000 £’000 Investment Assets Fixed Interest Securities UK Public Sector 36,165 15,128 Overseas Government Bonds 5,209 20,005 Corporate Bonds 20,455 24,215 Index Linked Securities UK Public Sector 35,377 23,714 Overseas Government Bonds 3,192 126 Corporate Bonds 284 62 Equities UK Equities 282,788 263,447 Overseas Equities 224,955 193,014 Unit Trusts Property Unit Trusts 70,324 60,606 Total Investment Assets 678,749 600,317 Current Assets Cash 18,027 12,576 Cash Vehicles 3,000 14 Investment income receivable 4,447 3,084 Contributions receivable 1,442 1,415 Income tax receivable 581 280 27,497 17,369 Less: Current Liabilities Investment expenses payable 779 377 Income tax payable 37 35 Refund due (overpayment of contributions) - 18 816 430 Current Assets less Current Liabilities 26,681 16,939 Net Assets as at 31 March 705,430 617,256 *2005 2004 Turnover £m £m Cost of purchases during year 582 280 Net proceeds of sales 600 251 1,182 531 Total number of transactions 3,428 3,650 *Figures for 2005 also include data relating to changes of fund managers

71

Notes to the Accounts: Note 1 Specific Items The accounts for the year ended 31 March 2005 use the valuations for the Fund’s assets based on the figures provided by the Council’s custodian, The Northern Trust Company. Under standard accounting practices, equity dividends due to the fund, as at 31 March 2005, have been accrued in these accounts. This accrual amounts to £4.447m compared with £3.084m as at 31 March 2004.

The Pension Fund now includes, as admitted bodies, several limited companies. In the event that any of

these companies cease to trade and staff are made redundant, there is a potentially unfunded liability to pay immediate benefits to all redundant staff aged 50 and above. In certain cases, guarantees have been obtained from other organisations that they would accept responsibility for any such liability.

The tax debtor for amounts receivable as at the end of March 2005 stood at £0.581m, of which £0.457m was in respect of monies due on property unit trusts. Note 2 Accounting Policies The accounts have been prepared to meet the requirements of the Local Government Pension Scheme Regulations 1997, (as amended), and the Local Government Pension Scheme (Management and Investment of Funds) Regulations 1998 (as amended). They are also required to meet the requirements of the Statement of Recommended Practice Number 1 (SORP 1) of the Accounting Standards Board of professional accounting bodies of the United Kingdom. The accounts have also been prepared in accordance with the Code of Practice on Local Authority Accounting, (2004 SORP). Contributions, investment income and expenses (where material) such as management expenses and benefits are on an accruals basis, where these amounts have been determined on the closure of accounts. These accruals do not include the Fund’s liabilities to pay pensions and other benefits, in the future, to all the present contributors to the Fund. These liabilities are taken account of in the periodic actuarial valuations of the Fund and are reflected in the levels of employers’ contributions determined at these valuations. Transfer Values to/from other funds are included in the accounts on the basis of the actual amounts received and paid in the year. Market valuations of listed securities are based on mid-market values as at the last day of trading, if this is not the Balance Sheet date. Investments shown in the Statement of Net Assets are shown at market values. Prices in foreign currencies are converted at the closing rates of exchange, as at the Balance Sheet date. Under the Pension Fund Regulations, employers’ contribution rates are set to enable the Fund to meet eventually 100% of its overall liabilities to pay benefits for both local authorities and other bodies. (See Note 10). The amount of cash stated in the Net Assets Statement as at 31 March includes all monies held externally by fund managers on behalf of the County Council and reflects all commitments in respect of transactions realised and unrealised as at that date. Note 3 Analysis of Managed Fund Type Investments For the purpose of these accounts, Managed Fund holdings are those pooled products issued by an investment house in order to gain an exposure to a particular investment area, such as overseas fixed interest or to a geographical area such as Pacific Basin or Far East emerging markets. They usually take the form of an investment or unit trust and could have a restricted membership for the purpose of tax exemption.

72

The market values of managed funds (unitised and other) held at 31 March were: 2005

£’000 2004 £’000

Managed Funds Fixed interest securities - - Index linked securities - - UK equities 16,090 143,083 Overseas equities 23,120 31,756 Property unit trusts 70,324 60,606 Cash funds - 14 109,534 235,459

Note 4 Additional Voluntary Contributions (AVC) Contributions made to the three Council AVC providers have shown a decline in the past three years. In 2003 and 2004 contributions for AVC’s were £1.01m and £0.257m respectively. The outturn figures for 2005 are not yet available but contributions to date indicate that they remain low. Note 5 Analysis of Listed and Unlisted Holdings The listed and unlisted holdings as at 31 March were: Investment Assets Unlisted

£’000 Listed £’000

2005 £’000

Unlisted £’000

Listed £’000

2004 £’000

Fixed Interest Securities UK Public sector - 36,165 36,165 - 15,128 15,128 Overseas Government bonds - 5,209 5,209 - 20,005 20,005 Corporate bonds - 20,455 20,455 - 24,215 24,215 - 61,829 61,829 - 59,348 59,348 Index Linked Securities UK Public sector - 35,377 35,377 - 23,714 23,714 Overseas Government bonds - 3,192 3,192 - 126 126 Corporate bonds - 284 284 - 62 62 - 38,853 38,853 - 23,902 23,902 Equities UK equities 16,090 266,698 282,788 143,083 120,364 263,447 Overseas equities 23,120 201,835 224,955 31,756 161,258 193,014 39,210 468,533 507,743 174,839 281,622 456,461 Unit Trusts Property unit trusts - 70,324 70,324 - 60,606 60,606 Other investments Cash Funds - 3,000 3,000 - 14 14 Total Investment Assets 39,210 642,539 681,749 174,839 425,492 600,331

Many of the unitised management funds set out in note 3 will be included in the “unlisted” category as they are restricted for tax exemption purposes. Those assets in the “listed” category are included in the appropriate stock exchange listings.

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Note 6 Analysis of Total Contributions and Benefits The total contributions receivable and benefits payable during the year ending 31 March were: CCC Scheduled

Bodies Admitted

Bodies

2005

2004 £’000 £’000 £’000 £’000 £’000 Contributions Receivable From Employers 19,967 10,064 3,576 33,607 28,848 From Employees 6,705 3,467 1,292 11,464 10,448

Transfers In 4,105 2,232 792 7,129 6,528 Total Income 30,777 15,763 5,660 52,200 45,824 Benefits Payable Pensions 13,238 9,950 1,877 25,065 23,758 Lump sums 2,048 1,118 418 3,584 3,453 Death Benefits 229 252 47 528 267 Augmentation 9 - - 9 9 Payments on Account of Leavers Refunds of contributions 118 52 18 188 178 Transfers out 4,351 887 554 5,792 3,233 Total Expenditure 19,993 12,259 2,914 35,166 30,898 The Fund’s Operations and Membership Note 7 Overview and Regulation Changes The Cornwall County Council Pension Scheme is governed by regulations made under the Superannuation Act 1972. The Local Government Pension Scheme Regulations 1997 came into force on 1 April 1998. The Scheme is administered by the County Treasurer on behalf of the County Council, the six District Councils in the County and various other organisations which have been admitted to the scheme (a full list of admitted bodies can be found in the Pension Fund Annual Report and Accounts). Police, Fire and Teaching Staff are not covered by the Fund. They have their own arrangements. Following a period of consultation on 30 December 2004 the Office of the Deputy Prime Minister (ODPM) issued regulations which would have reduced the overall cost of the LGPS to employers in the long term. The regulations came into force on 1 April 2005. The principal changes were:

• Increasing the earliest age that pension benefits could be paid for early retirement on the grounds of redundancy or efficiency from 50 to 55;

• Removing the rule of “85” whereby unreduced benefit could be paid to individuals whose age plus service total 85 years;

• Transitional protection would be provided to those individuals who attain the age of 60 by April 2003.

On 1 April 2005 the ODPM announced that it intended to revoke the above regulations following strong protests from the trade unions. Revised regulations are expected shortly. In finalising the 2004 valuation the Actuary made no allowance for the potential savings resulting from the abolition of the Rule of 85. This was on the basis that the 2004 valuation did not allow for potential further improvement in life expectancy. The Actuary assumed that the potential saving would be used for a more prudent allowance for longevity in the 2007 valuation. The actuaries to local government pension funds are currently considering whether they need to make any adjustment to the 2004 valuation reports in the light of the ODPM decision to revoke the 1 April 2005 Regulations.

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Note 8 Contributors and Pensioners All employees (except teachers and fire fighters who have their own schemes) are entitled to join the scheme. Individuals have the right to seek alternative pension arrangements, either through the State Second Pension Scheme (S2P) or by taking out their own personal pension.

Note 9 How the Scheme Works

Local Government Pension Schemes are required to be funded, and the Pension Fund is required to be sufficient to meet the estimated future pension entitlements of the current and past employees. It is actuarially revalued every three years to establish the contributions to be made by the employing authorities to achieve this objective.

Transfers into or out of the Fund are sums received from, or paid to, other pension schemes. These relate to new and former members’ periods of pensionable employment, where transferable. After meeting pension payments and other benefits the balance of the Pension Fund is invested in a range of investments. These are governed under the Local Government Pension Scheme Regulations 1997 (as amended) and subsequently amended by the Local Government Pension Scheme (Management and Investment of Funds) Regulations 1998 as amended (latest amendment issued November 2003). During the last five years, the number of contributors and pensioners has increased as follows: Note 10 Actuarial Report 2001 Valuation The actuarial valuation of the Pension Fund relevant to the 2004-05 account was carried out by the Pension Fund’s Actuaries, Hymans Robertson and Company, as at 31 March 2001 using the Projected Unit method. The Actuaries’ estimate of the value of the Fund’s investments, cash and other assets, at this date, was £585.821m. Taking this valuation, the overall funding level was estimated to be 95%.

Since the 2001 valuation date, there has been a material decline in world stock markets which will have had a negative impact on the financial position of the Fund. Equity markets were at their lowest in March 2003 and have since made a partial recovery. As a result of this fall, an interim valuation was carried out by the Fund’s actuary, during September 2003, to ascertain the Fund’s ability to meet its liabilities as at 30 September 2003. This found that the Fund is 81% funded. To address this fall in funding level, increases in the employers’ contribution rates were expected to follow on from the 2004 valuation. Therefore, in anticipation, the County Council has voluntarily increased it’s contribution rate in 2003-04 and 2004-05 above those set by the advice in the 2001 valuation. In 2002-03 the rate was 15.1% of pay. In 2003-04 this increased to 16.1% and in 2004-05 to 17.6% (The minimum rate set by the actuaries for the latter two years was 15.3%). Different rates applied for other bodies, to reflect the different structure of their workforce and different early retirement experiences – the highest being 18.6% and the lowest 13.3%. Further details will be available in the Fund’s Annual Report and Accounts, due to be published in November 2005. Since the 2001 revaluation there has been a number of amending Regulations issued, although there were no significant changes affecting the benefits paid from the Fund. The market related method employed in the 2001 revaluation used average values and average yields over the twelve months prior to the valuation date. Such a method, the actuary believes, will build an element of stability for the future without the volatility associated with short-term market movements.

2001 2002 2003 2004 2005 Contributors

County Council 8,215 9,158 9,771 10,360 10,504 District Councils 2,261 2,348 2,405 2,528 2,539 Other Bodies 1,906 1,868 1,972 2,085 2,090

Total Number of Contributors 12,382 13,374 14,148 14,973 15,133 Pensioners

Receiving Benefits 6,033 6,269 6,519 6,689 6,915 Deferred Benefits 3,206 3,681 4,250 5,010 6,144

Total Number of Pensioners 9,239 9,950 10,769 11,699 13,059

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The key longer-term, financial assumptions used are:-

Financial Assumptions ( Longer Term )

March 2001 (Update not available)

% p.a.

Real (adjusted for price inflation)

% p.a.

Investment return Equities 6.75 3.95 Bonds 5.75 2.95 75% Equities/25% Bonds 6.50 3.70 Pay Increases 4.80 2.00 Price Inflation/Pension Increases 2.80 -

2004 Valuation The latest valuation of the Pension Fund was carried out as at 31 March 2004 with new employer contribution rates coming into effect on 1 April 2005. The County Council as Administering Authority has prepared a Funding Strategy Statement that sets out how the Fund will meet employers’ pension liability over the long term, whilst maintaining as stable employers’ contribution rates as possible. This was approved by the County Council in January 2005. The 2004 Valuation used the same projected unit method as employed in the 2001 valuation. The key financial assumptions are set out below:

March 2004 Unsmoothed

% p.a.

Nominal

% p.a. Real

Minimum Risk rate of return 4.7% 1.8% Anticipated extra long-term return from: Equities 1.75% Corporate Bonds 0.40% Overall anticipated long term return from: Equities 6.50% 3.6% Bonds (50% gilt, 50% corporates)

4.90% 2.0%

Discount Rate 6.1% 3.2% Pay Increases 4.9% 2.0% Price Inflation/Pension Increases 2.9% -

The 2004 Valuation has taken actual investment returns and asset values as at 31 March 2004 rather than smoothing the results over a 12 month period. Overall the financial assumptions are at the same strength as the 2001 Valuation. A comparison of the results of the 2001 and 2004 Valuations is shown below:

Valuation Results

31 March 2004 £m

31 March 2001 £m

Total liabilities 795 650 Market value of Assets 617 (actual) 615 (smoothed) Deficit 178 35 Funding level 78% 95% Employers’ contribution rate Future Service Rate 14.0% 13.1% Past Service Adjustment 6.0% 2.1% Total Common Contribution Rate 20.0% 15.2% Deficit Recovery Period 20 years 15 years

Copies of the Funding Strategy Statement and the Actuarial Valuation Report can be obtained from the Pensions Investments Section of the County Treasurer’s Department of Cornwall County Council, County Hall, Truro, TR1 3AY.

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Note 11 Investment Report The Investment Advisory Panel was replaced, in June 2003, by a Pensions Committee which has a wider remit to include pension matters. The membership now includes representatives of the major employers in the scheme, and a Trade Unions’ representative also attends the Committee meetings as an observer. The Pensions Committee has approved a scheme of delegation to the County Treasurer. Whereas the Pensions Committee approves all policies, the County Treasurer is empowered to invest monies of the Pension Fund. The Pensions Committee receives professional advice from two external advisors. A Statement of Investment Principles, setting out how the Fund’s investments are managed, is available from the Pension Fund Investments Section of the County Treasurer’s Department of Cornwall County Council, County Hall, Truro, Cornwall, TR1 3AY. Note 12 Post Balance Sheet Events The cash balance held at 31 March 2005 amounted to £18.0m, of which £10.0m was held internally. The internal balance was held in temporary loans pending investment in private equity holdings and rebalancing, programmed for early in the next financial year. Note 13 Market Value The net asset position representing the market value of the Fund’s investments, cash and other assets, as at 31 March 2005, was £705.4m, compared with a value of £617.3m as at 31 March 2004. A breakdown of these investments is shown in the Net Assets Statement. Note 14 Overall Income Yield During 2004-05, the gross income to the Fund generated by the Fund’s investments amounted to £19.6m and represented a return of 3.0% on the mean market value for the year of the investments. The figure for 2003-04 was 2.6%. At 31 March 2005, the fund managers’ portfolios were valued as follows:

On 10 November 2004 the Pensions Committee appointed two specialist, private equity managers – Standard Life and Wilshire. At 31 March 2005 no monies had yet been drawn down. Note 15 Performance The County Council subscribes to a portfolio performance analysis service provided by CAPS, a consortium of actuaries. The CAPS annual report examines the performance of some 3,700 portfolios, with a total market value of several hundred billion pounds. The Fund employs a fixed benchmark enabling comparisons to be made directly with the underlying financial markets, both in respect of asset class and geographical distribution. The benchmark, as set out below, comprises weightings for each of the asset classes as specified by region. Previously, comparison was made to a ‘peer group’ i.e. other local authority pension funds. During the year ended 31 March 2005 the total return for the combined Fund was 12.1% (provisional figure), compared to the benchmark return of 12.5%. The returns for the individual fund managers, in the same period, were as follows:

£’000 % of Total

Fund Manager Alliance Bernstein 64,971 9.3 Capital International 202,054 28.9 Deutsche Property Asset Management 71,798 10.2 GMO UK 64,834 9.3 Hermes Focus Asset Management 11,315 1.6 Insight Investment Management 104,270 14.9 Newton Investment Management 170,191 24.3 Internally Controlled Investments 10,343 1.5 Total Investments (inc. cash) 699,776 100.0

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Returns 2004-05

Portfolio Return

%

Benchmark Return

%

*Alliance Bernstein 2.6 3.0 (return for quarter to 31/03/2005) Capital International 7.0 11.3 Deutsche Property Asset Management 19.0 18.4 *GMO UK 3.1 3.0 (return for quarter to 31/03/2005) Insight Investment Management 5.7 5.7 Newton Investment Management 16.0 12.6 Total Fund (inc. Property) 12.1 12.5

*appointed November 2004 Note 16 Taxation The Fund is exempt from UK income tax on interest and from capital gains tax on the proceeds of the sale of investments. The Fund is also exempt from Australian and United States’ withholding tax on dividends from investments and recovers withholding tax deducted in some European countries. The Chancellor of the Exchequer, in his July 1997 budget, removed the ability of pension funds, and others who enjoyed tax exempt status, to recover UK Tax on UK Equity dividends. Note 17 Administration Expenses For the years ended 31 March, the analysis of administration expenditure was as follows:

Administration Expenses

2005 £’000

2004 £’000

Investments 2,946 2,077 Pensions 374 358 3,320 2,435

During the year, following a major strategic review, there was a significant change to the management structure of the Fund. The UK indexed fund manager was replaced by two active UK equity fund managers and, in addition, two private equity managers were appointed. These changes, which took place in November 2004 and February 2005, account in part for the increase in fees. The other factor was the increase in market value of the fund resulting in a higher base for these charges. Note 18 Related Party Transactions Cornwall County Council is the administering authority for the purpose of the Fund, under the Local Government Pension Scheme Regulations 1997 (as amended). Included in Administration expenses and Investment Management expenses are charges amounting to £515,800, incurred for the internal costs of providing these services during the year to 31 March 2005. Note 19 Investment Income Investment Income for the years ended 31 March was received from the following sectors:

2005

£’000 2004 £’000

Fixed interest securities 3,097 2,862 Index linked securities 454 721 UK equities 6,324 3,921 Overseas equities 3,878 3,046 Property unit trusts 4,286 2,998 Temporary loans and other 1,561 745 19,600 14,293

Note 20 Valuation of Investments Note 2 explains the accounting policies for the basis of valuation.

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Note 21 Statement of Investment Principles The Pension Fund Annual Report and Accounts contains details of the Statement of Investment Principles adopted by the Fund. Note 22 Annual Report The Pension Fund Annual Report and Accounts provides more detailed information on the scheme and copies may be obtained from: Pension Fund Investment Section, County Treasurer’s Department, Cornwall County Council, County Hall, Truro, Cornwall, TR1 3AY.

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SSttaatteemmeenntt ooff AAccccoouunnttiinngg PPoolliicciieess && VVaalluuaattiioonn CCeerrttiiffiiccaattee

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The accounts have been prepared in accordance with the Code of Practice on Local Authority Accounting, in the United Kingdom: A Statement of Recommended Practice (the 2004 SORP) issued by the Chartered Institute of Public Finance and Accountancy. The accounts comply with the Statements of Standard Accounting Practice (SSAPs) and Financial Reporting Standards (FRS’s) appropriate to local authorities also taking into account the guidance note issued by the Accounting Standards Board. The accounting convention adopted is historical cost modified by revaluation of land and buildings. The authority also complies with the Best Value Accounting Code of Practice (BVACOP). This code is also an approved SORP and establishes proper practice with regard to consistent financial reporting below the Statement of accounts level. The concepts and polices which have a material impact on the accounts are as follows:- A. Accounting Concepts i) Qualitative Characteristics of Financial Information There are four Accounting concepts against which authorities should judge the appropriate of accounting policies for their particular circumstances. These are as follows:- Relevance The aim of the financial statements is to show information about the Council’s performance and position that is useful for assessing how the authority has looked after public money and for making economic decisions. Reliability The Council’s aim is to provide reliable financial information. Financial information is reliable only if: a) it can be depended upon to represent faithfully what it either purports to represent or could

reasonably be expected to represent, and therefore reflects the substance of the transactions and other events that have taken place;

b) it is neutral and free from bias; c) it is free from material error; d) it is complete and no significant transactions have been left out; e) under conditions of uncertainty, it has been prudently prepared (i.e. a degree of caution has been

applied in exercising judgement and making the necessary estimates). Subject to legislative requirements, the accounting statements have been prepared to reflect the reality or substance of the transactions and activities underlying them, rather than only their formal legal character. In determining the substance of a transaction, it is necessary to identify all of the transaction’s aspects and implications. A group or series of transactions that achieved or is designed to achieve an overall economic effect has been viewed as a whole.

Often there is uncertainty either about the existence of assets, liabilities, income and expenditure, or about the amount at which they are to be measured. Such uncertainty is a normal part of the accounting process. Prudence requires that accounting policies take account of such uncertainty in recognising and measuring those assets, liabilities, income and expenditure. Sound stewardship of public funds calls for a prudent approach to financial management. However in financial reporting the aim should be to properly represent the economic effects on the Council of transactions and events. In financial reporting prudence is to be used in conditions of uncertainty to inform the selection and application of accounting policies and estimation techniques and the use of professional judgement. It is not appropriate to use prudence in financial reporting as a reason to, for example, create hidden reserves or excessive provisions, deliberately understate assets or income, or deliberately overstate liabilities or expenditure, because this would mean that the financial statements are not neutral and therefore not reliable.

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Comparability

The information contained in financial statements is more useful if it can be compared with similar information about the Council for previous years, and with similar information about other Councils. Comparability depends upon consistency and adequate disclosure. In considering the accounting policies to be adopted and their disclosure, the Council have paid due regard to the importance of consistency and comparability. Application of the terms of the Code of Practice, and of the Code of Practice for Best Value Accounting where relevant, should ensure adequate disclosure and consistency, and thus comparability. Understandabilty

The accounting principles on which the Code of Practice is based include accounting concepts, treatments and terminology which require reasonable knowledge of accounting and local government, and reasonable diligence in reading the financial statements if they are to be properly understood. However, all reasonable efforts have been taken in the preparation of the financial statements to ensure they are as easy to understand as possible. ii) Materiality Materiality is the final test of whether information should be included in a particular set of financial statements.

An item of information is material to the financial statements if its misstatement or omission might reasonably be expected to influence assessments of the Council’s stewardship, economic decisions, or comparisons with other Councils, based upon its financial statements. If there are two or more similar items the materiality of the items in aggregate, as well as of items individually needs to be considered. Whether an item is material will depend on the size and nature of the item in question. The principal factors, to be taken into consideration include:

a) the item’s size, judged in the context of both the financial statements as a whole and of such other

information available as would affect consideration of the financial statements (for example consideration of how the item affects the evaluation of trends);

b) the item’s nature, in relation to:

i) the transactions or other events giving rise to it;

ii) the legality, sensitivity, normality and potential consequences of the event or transaction;

iii) the identity of the parties involved;

iv) the particular headings or disclosures affected. Strict compliance with the Code, both as to disclosure and accounting principles is not necessary where the amounts involved are not material to the fair presentation of the financial position and transactions of the Council and to the understanding of the Statement of Accounts by a reader. iii) Pervasive Accounting Concepts Three further concepts – accruals, going concern, and the primacy of legislative requirements – play a pervasive role in the financial statements, and hence in the selection and application of accounting policies and estimation techniques and the exercise of professional judgement. Accruals The financial statements, other than cash flow information, have been prepared on an accruals basis as required by ACOP. The accruals basis of accounting requires the non-cash effects of transactions to be reflected in the financial statements for the accounting period in which those effects are experienced and not in the period in which cash is received or paid. The following areas of income and expenditure are required to be accounted for under ACOP using the accruals and matching concept:

a) Customer and Client receipts b) Employee related costs c) Interest payable and income d) Cost of supplies and services e) Capital income and expenditure

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Going Concern The Council’s Statement of Accounts have been prepared on a going concern basis, that is the accounts should be prepared on the assumption that the authority will continue in operational existence for the foreseeable future. This means in particular that the income and expenditure accounts and balance sheet assume no intention to curtail significantly the scale of operation. Primacy of Legislative Requirements Local authorities derive their powers from statute and their financial and accounting framework is closely controlled by primary and secondary legislation. To the extent that treatments are prescribed by the accounting law the accounting concepts outlined above may not apply in all cases. It is a fundamental principle of local authority accounting that, where specific legislative requirements and accounting principles conflict, legislative requirements shall apply. B. Accounting Policies In simple terms, accounting policies determine which facts about a business are to be presented in financial statements, and how those facts are to be presented and what estimation techniques are used to establish what those facts are. The accounting policies are reviewed regularly to ensure that they remain the most appropriate for the authority’s circumstances. 1. Fixed Assets Capitalisation All expenditure on the purchase, creation or enhancement of fixed assets has been capitalised on an accruals basis. This includes any assets acquired under finance leases which have been capitalised and included in the balance sheet on the basis of the outstanding obligation to make future rental payments. Valuation Fixed Assets are valued on the basis recommended by the CIPFA and in accordance with the Statements of Asset Valuation Principles and Guidance Notes issued by the Royal Institution of Chartered Surveyors (RICS). Fixed Assets have been classified into groupings required by the Local Authority Accounting SORP 2004 and are included in the balance sheet, net of depreciation where applicable on the following basis:

a) land and operational properties – open market value for their existing use; b) specialised operational assets where there is no established market have been valued on a

depreciated replacement cost basis. For waste disposal sites for which there is an established market have been included at historical cost;

c) infrastructure and community assets are included at historical cost. Operational assets have been included in the balance sheet at the lower of net current replacement cost or net realisable value in existing use. Non-operational assets have been included in the balance sheet at the lower of net current replacement cost or net realisable value. Infrastructure assets and community assets have been included in the balance sheet at historical cost, net of depreciation, where appropriate.

• The current asset values in the accounts are based upon a certificate issued by the Council’s Chief Valuation Officer as at 1 April 2004. Additions since that date are included in the accounts at their cost of acquisition.

2. Deferred Charges Deferred charges represent expenditure which may be properly capitalised but which does not represent tangible fixed assets. The County Council operates a policy of charging 100% of such expenditure to service revenue accounts, along with any matching funds i.e. grants or contributions. If no matching funding is available, any outstanding deferred charge expenditure will be from the Capital Financing Account.

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3. De Minimus Capital Expenditure This is the expenditure on individual items which may be properly capitalised as part of the Council’s Capital Programme but falls below the £10,000 de minimus level set by the Council for Capital Accounting. Items above this level are added to the Council’s Balance Sheet. Those items below the de minimus level are charged to service revenue accounts in place of capital charges. These charges will be reflected in the net cost of services, along with any matching funding i.e grants or contributions. If no matching funding is available, any outstanding de minimus capital expenditure will be met from the Capital Financing Account. 4. Financial Reporting Standard 15 ‘Tangible Fixed Assets’ FRS15 sets out the principles of accounting for tangible fixed assets, with the exception of investment properties, which are dealt with in SSAP 19 ‘Investment Properties’ which it will supersede in due course. The FRS acknowledges that in a limited number of cases, depreciation charges will not be made on the grounds that they are immaterial. Where this is the case, or where depreciation is calculated on a basis that assumes that the useful economic life of an asset is longer than fifty years, annual impairment reviews are performed, to ensure that the value of the asset is not overstated.

The Council’s policy is to depreciate all building assets where required and to complete annual impairment reviews. 5. Depreciation

Assets, other than land, are being depreciated as required by FRS 15 over their useful economic lives, except where the Council is making regular repairs and maintenance to extend the asset’s life in its existing use so that any depreciation would not be material. The majority of the Council’s buildings have been depreciated over a 35 year life. Where depreciation is provided for, assets are being depreciated using the straight line method over the following periods:

6. Basis of Charges for Capital The capital charges made to service revenue accounts, central support services and Trading Services equate to the sum of depreciation, plus a notional interest charge. The interest charge is based on the net amount at which the fixed asset was included in the balance sheet at 31 March 2005. The notional rates of interest used are 4.8% for infrastructure assets, community assets and 3.5% for those assets included in the balance sheet at current value.

7. Capital Receipts

Capital receipts from the sale of assets are used to finance new capital expenditure. 8. Debtors and Creditors

The accounts have been prepared on an accruals basis which means that sums due to or from the Council are included whether or not the cash has actually been received or paid in the year. There are general exceptions as follows:-

a) electricity and similar quarterly payments are charged at the date of meter reading rather than apportioned between years and

b) items of less than £1,000 are not normally included. 9. Stocks and Works in Progress Stocks and works in progress are normally valued at cost price (first in – first out), except in the case of Highways where they are valued at average price. Stocks in the Highways and Fire Brigade workshops are valued on a “last in first out” basis, which is a departure from SSAP9. A provision for obsolete stocks is included in the accounts.

Buildings (where appropriate) 0-100 years Waste Disposal Sites Over lives of individual sites depending on usage Infrastructure 40 years Motor Vehicles and Plant 3-25 years

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10. Basis of Valuation of Investment Investments in related companies are shown in the accounts at cost price. Any profit or loss on realisation is only taken into account at the time of realisation. 11. Investments in Related Companies Investments are shown in the accounts at cost price. Any profit or loss on realisation is provided for and only in related companies taken into account at the time of realisation. 12. Support Services and Overheads Total Cost Principles The Best Value Accounting Code of Practice (BVACOP) requires the accounts to follow the principle of total absorption costing. This means that the outturns for services should reflect all of the direct, indirect and overhead costs that have been incurred in providing the service. The significant exception to this, are costs that relate to the elected and multi-purpose nature of authorities. These costs of the Corporate and Democratic Core (CDC) and Non Distribution Costs (NDC) are disclosed separately. BVACOP 2003 altered the definition of total cost with the full adoption of FRS17 and remodelled Unapportionable Central Overheads as Non Distributed Costs (NDC) (to include past service costs). 13. Provisions and Reserves Provisions Provisions are required for any liabilities of uncertain timing or amount that have been incurred. The Council provides for any liabilities or losses which are likely to be incurred, or will be incurred, but where the amounts or the dates on which they will arise is uncertain. Provisions are maintained for bad debts, insurance claims and future commitments as required by Financial Reporting Standard (FRS) 12. The Group Accounts Balance Sheet include a significant provision for waste disposal site aftercare costs and restoration care costs. Reserves Amounts set aside for purposes falling outside the definition of provisions should be considered as reserves. The Council’s reserves are generally established from underspendings or amounts set aside for specific future expenditure. Reserves are maintained for the replacement or acquisition of capital items, repairs and renewals and other earmarked items. The Revenue Account Balance (County Fund Balance) of £13.999m represents an accumulation over successive years of surpluses of revenue income over revenue expenditure. Of this sum, £4.441m has been earmarked to support future spending needs with the remaining balance of £9.558m acting as a general reserve and a working balance. In addition, accumulated underspendings on schools’ delegated budgets (£19.196m) are, by law, earmarked to individual schools. 14. Trust Funds In accordance with recommended Accounting Standards, the Trust Funds administered by the County Council are shown separately. 15. Accounting for Value Added Tax (VAT) VAT is separately accounted for in accordance with SSAP5 and is not included as expenditure of the County Council, except where it is not recoverable.

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16. Accountable Bodies

Any income/expenditure relating to Accountable Bodies is treated as per the requirements of Local Authority Accounting Panel Bulletin (LAAP) 50. The Council is currently reviewing the area of Accountable Bodies. 17. Private Finance Initiative (PFI) Schemes

Where the Council has entered into PFI contracts the accounting treatment will accord with proper practice as determined by the Accounting Standards Board. This means the correct application of FRS 5 as regards substance over form in determining the accounting treatment of assets involved with the transaction. The Council follows the guidance issued by the Treasury in their PFI Technical Note Number 1 (revised) as far as it relates to local authorities. The accounts have also been prepared in accordance with advice received from specialised consultants as regards the guidance in relation to each PFI contract.

18. Grants

Government grants are accounted for on an accruals basis and income has been credited, in the case of revenue grants, to the appropriate revenue account or, in the case of capital grants, to a Government Grants Deferred Account. Amounts are released from the Government Grants Deferred Account to off set any provision for depreciation charges to the revenue account in respect of assets to which the grants relate. 19. Redemption of Debt External borrowings are generally repaid at maturity. In accordance with the Local Government and Housing Act 1989, a minimum revenue provision, calculated at 4% of the Capital Financing Requirement as calculated at 31 March 2004, is set aside annually in order to repay these borrowings. When writing off debt, restructuring premium costs the Council takes a prudent view with the costs being written off over the shortest period, this could be over the life of the old replaced debt or the new borrowings. This differs from recommended practice (ACOP) which states the write off should be over the life of the new replacement borrowings. 20. Leases Under the requirements of the Prudential Code, a finance lease is treated as external borrowing. The Council’s policy is to minimise the use of finance leases and to use operating leases where appropriate. Rental payments under finance leases are apportioned between the finance charge and the reduction of the outstanding obligation, with the finance charge being allocated and charged to the revenue over the term of the lease. Rental payments under operating leases are charged to revenue on a straight line basis over the term of the lease. The Council has a policy of disclosing information on those leases which have annual lease payments of £1,000 per annum or above. 21. Pensions The County Council has three types of pension schemes for its employees. Each provides members with defined benefits related to their pay and service. The schemes are:

Teachers: This is an unfunded scheme administered by the Department for Education and Skills. The pension cost charged to the accounts is the contribution rate set by the Government Actuary on the basis of a notional fund.

Uniformed Firefighters: This scheme is unfunded and the charge to the accounts each year represents the net cost of pensions and other benefits paid in the year, after allowing for contributions made by employees for that year.

Other Employees: Other employees, subject to certain qualifying criteria, are eligible to join the Local Government Pension Scheme. The pension contributions that are charged to the Council’s accounts in respect of these employees are paid into the pension fund and costs are met from the fund. Further costs arise in respect of an element of pensions paid to certain retired employees on an unfunded basis. (See also notes to the Consolidated Revenue Account.)

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22. Euro No direct costs have been incurred during 2004-2005 on the proposed introduction of the Euro. The possibility of joining the single European currency continues to inform investment and borrowing policies. 23. Trading Services Disclosure Requirements Trading operations that fall within the definition and above the agreed level of materiality are required to disclose the nature, turnover and surplus for their service area in the Best Value Performance Plan and as a disclosure note in the Statement of Accounts. Definition The BVACOP widens the definition of the areas of service that we should disclose as trading activities. The 2004 BVACOP (see Section 2 Annex D for detail) highlights six instances of trading:

• Trading services or undertakings with the public or with third parties. • External trading organisations which have won contracts from other public bodies, for example

under Local Authority (Goods and Services) Act 1970. • Continuing Compulsory Competitive Tendering arrangements. Contracts for work previously won

by Direct Service Organisations, that are still carried out within the original contract specifications and period.

• Work carried out by internal trading organisations arising from Voluntary Competitive Tendering

exercises. • Support Services provided in a free internal market, i.e. to schools or to other budget holders

who have been given freedom to buy externally if they wish. • Support Services provided in a limited internal market, i.e. where budget holders are free to

decide the quantity and type of the work to be done on the basis of the prices quoted to them, but not to buy externally.

Materiality: Separate disclosure requirements for trading operations are subject to a reasonable level of materiality to be decided by authorities. In agreement with Audit Commission, materiality of a £5 million turnover has been set for individual disclosure of accounts, with the addition of Highways Workshops due to their previous Direct Service Organisation status. Service areas that operate in a trading environment but below the £5 million threshold will be added together and reported as a single figure in the consolidation of the accounts. These areas will not be required for the Best Value Performance Plan. 24. Insurance Policies The County Council contracts for insurance provision were re-let from 1 June 2003 with it’s existing insurer, Zurich Municipal.

The arrangements for the 2004-2005 financial year were as follows:

Liability and motor (fleet) insurance’s The Council insures itself for the first £120,000 of each and every claim. With claims in excess of this is insured with Zurich Municipal. A provision to cover this risk is held by the County Treasurer.

Council Properties These are insured with Zurich Municipal for perils, such as storm and flood. These have excess amounts of £1,000,000.

Education Properties (Fire) The Council insures itself for the first £1,000,000 of each and every fire claim. A provision to cover this risk is administered by the County Treasurer. Claims in excess of £1,000,000 are insured with Zurich Municipal.

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25. Contingent Assets Any contingent assets are excluded from accruals in the accounts and disclosed by way of a note to the accounts. 26. Contingent Liabilities Any contingent liabilities are excluded from accruals in the accounts and disclosed by way of a note to the accounts. 27. Foreign Currency Translation Income and expenditure arising from a transaction in a foreign currency are translated into £ sterling at the exchange rate in operation on the day the transaction occurred. At the Balance Sheet date, any monetary assets and liabilities denominated in a foreign currency have been translated into £ sterling by using the closing rate or where appropriate the rate of exchange fixed under the terms of the relevant transaction. 28. Financial Reporting Standard 17 (Accounting for pension costs) The Council’s policy is to comply with the FRS 17 requirements by including in the Council’s Statement of Accounts, actuarial valuation data for the purposes of FRS 17, as supplied by the Council’s Actuaries. Current service costs are prorated over employee’s pension contributions held in each ledger.

Accounting entries for FRS 17 adhere to the guidelines set out in the Local Authority Accounting Panel Bulletin (LAAP 56). For 2004-2005, the Discount Rate for Defined Pension Scheme Liabilities has been changed from a rate determined each year by the Government Actuaries Department (3.5% for 2003-2004) to the ‘current rate of return on a high quality corporate bond of equivalent currency and term to the scheme liabilities’, which is often referred to as the ‘AA Corporate Bond Rate’. This is a change of measuring technique and not a change in accounting policy. 29. Group Accounts The Group Accounts have been prepared using the modified group accounts requirements of the 2004 SORP. Subsidiaries have been consolidated on a line by line basis in accordance with FRS 2. The equity method has been used when consolidating associates in accordance with FRS 9. The accounting year end of CES Ltd is 31 August. For the purpose of consolidation, the statutory group accounts prepared as at 31 August 2004, have been amended to reflect transactions for the period 1 September 2004 to 31 March 2005. These modified group accounts as at 31 March 2005 have been used to prepare the County Council’s group financial statements. 30. Partnerships and Other Joint Working Arrangements The Council’s policy is to disclose separately those partnerships/joint working arrangements if they have a turnover of £1,000,000 or more.

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Asset Valuation of Freehold Properties The freehold and leasehold properties which comprise that part of the Authority's property portfolio as listed have been valued as at 1st April 2004 by an Internal Valuer, Robert John Perry, Chief Valuer, Property Group, Planning, Transportation and Estates Department, on the under-mentioned bases. In line with the agreed 5-year rolling programme I have carried out a valuation of the agreed freehold and leasehold land and property held by the County Council above the de minimis level of £10,000. My valuation, which has been completed in accordance with the Appraisal and Valuation Standards 5th Edition (UKPS 1.12 as amended) published by the Royal Institution of Chartered Surveyors and the guidance issued by the Chartered Institute of Public Finance and Accountancy, is subject to the conditions, restrictions and assumptions set out in this Certificate. Properties regarded by the Authority as operational have been valued on the basis of Existing Use Value or, where this could not be assessed because there is no market for the subject asset, the Depreciated Replacement Cost (DRC), subject to the prospect and viability of the occupation and use. The DRC value indicated is the net cost of replacement after allowances for physical and functional obsolescence, and may not equate to the realisable open market value of the property. Properties regarded by the Authority as non-operational have been valued on the basis of Open Market Value. The valuations set out below have been carried out with a Valuation Date of 1st April 2004 in accordance with the 5-year rolling programme agreed with the Capital Accountant. Identified capital expenditure since the date of valuation has been added to the individual assets. As part of the rolling programme of revaluation, the following County Council Assets have been revalued with a revaluation date of 1st April 2004:

- Properties under PFI 2 arrangements - Registration Service - Museums and Galleries - Countryside & Planning Services - Economic Development premises - Sea Fisheries - Education Admin Offices - Transportation and Highways Services

The purpose of the valuation is to include the value of the assets in the County Council’s accounts. The valuation figures incorporated in the accounts are the aggregate of separate valuations of parts of the portfolio, not a valuation or apportioned valuation of the portfolio valued as a whole. Based on the conditions, restrictions and assumptions set out in the Certificate, I am of the opinion that the aggregate value of all the freehold land and buildings, as set out below (per notes to the accounts) held by Cornwall County Council, above the de minimis level, as at 1st April 2004, is fairly represented in the sum of £579,087,000 (five hundred and seventy nine million, and eighty seven thousand pounds). 2004-2005

£’000

(Other) Land and Buildings 551,232

Community Assets 1,432

Surplus/Investment Property and W.I.P. 26,423

579,087

It should be noted that waste disposal sites, including closed sites, may have significant, continuing liabilities arising from monitoring and treating leachate. These liabilities have not been subtracted from the value above. R J Perry MA MRICS Chief Valuer Planning, Transportation and Estates Cornwall County Council 17 June 2005

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Conditions and Assumptions Impairment of Fixed Assets Under the requirements of FRS 15 I have carried out an Impairment Review of Fixed Assets during the financial year 2004-2005. The revised depreciation policy and building lives is in line with recommended Best Practice advocated by the Association of Chief Estates Surveyors. Impairment charges have been disclosed in accordance with ACOP requirements and no further changes to asset values are required for any impairment of land and building assets. Furniture and Equipment The value of moveable furniture and equipment has not been included in this valuation. Plant and Machinery Fixed plant and machinery is included in the valuation of the buildings, except in the case of specialised fixed equipment located in the Highways maintenance workshops. Statutory Liabilities No allowance has been made for rights, obligations or liabilities arising from the Defective Premises Act 1972, or any effect of the Environmental Protection Act 1990. State of Repair No structural surveys or investigations into the services in any buildings have been carried out for this valuation but it is assumed that the premises are in a reasonable state of repair, except as allowed for specifically. Realisation of Value No allowance has been made for any costs of disposal of the assets nor has any allowance been made for any possible liability to VAT or Capital Gains Tax on any such disposal. Publication Neither the whole nor any part of this Valuation Certificate nor any reference thereto may be included in any published document, circular or statement nor published in any way whatsoever without the Chief Valuer’s written approval to the form and content in which it may appear. Limit of Responsibility This Valuation Certificate is provided for the stated purpose and for the sole use of the County Council. Date of Certificate This Certificate is dated 17 June 2005.

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Accounting Policies Those principles, bases, conventions, rules and practice applied by Cornwall County Council that specify how the effects of transactions and other events are to be reflected in its financial statements through:

(i) recognising

(ii) selecting measurements bases for, and

(iii) presenting

assets, liabilities, gains, losses and changes to reserves. Accounting policies do not include estimation techniques. Accounting policies define the process whereby transactions and other events are reflected in financial statements. For example, an accounting policy for a particular type of expenditure may specify whether an asset or a loss is to be recognised; the basis on which it is to be measured; and where in the revenue account or balance sheet it is to be presented.

Accruals The concept that income and expenditure are recognised as they are earned or incurred, not as money is received or paid. Actuarial Gains and Losses For a defined benefit pension scheme, the changes in actuarial deficits or surpluses that arise because:

(a) events have not coincided with the actuarial assumptions made for the last valuation

(experience gains and losses), or (b) the actuarial assumptions have changed.

Asset Management Revenue Account (AMRA) This account records: the capital charges that have been made to the service revenue accounts, comprising of depreciation and notional interest charges for the use of assets, the depreciation charge for the year, external interest charges and the amount of capital grants that have been amortised in line with depreciation. The resulting surplus/deficit is credited/debited below the net cost of services line in the Consolidated Revenue Account to zero the effect of the capital charge. In other words, the net impact upon the taxpayer is nil. Balances (Revenue Account) The accumulated surplus of income over expenditure. Balances can be used to reduce future Council Tax precepts. Budget Equalisation Reserve (BER) Amounts set aside to meet future commitments and unforeseen or exceptional demands. Capital Charge A charge to service revenue accounts to reflect the cost of fixed assets used in the provision of services. Capital Expenditure Expenditure on the acquisition of a fixed asset or expenditure which adds to and not merely maintains the value of an existing fixed asset.

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Capital Financing Account In respect of capital transactions (expenditure and disposals) this account shows the statutory element of the capital receipts set aside, the amount of capital receipts that have been used to finance capital expenditure and the amount of revenue monies used to finance capital expenditure. It also records the amount of money, as adjusted for depreciation, required to repay debt (the minimum revenue provision – see separate note below) and the amount of Government Grants amortised. This account is purely a mechanism for recording capital accounting transactions and is therefore not available to support spending. Capital Programme The Authority’s plan of capital projects and spending over future years. Included in this category are the purchase of land and buildings, the erection of new buildings and works, design fees and the acquisition of vehicles and major items of equipment. Capital Receipts Income from the sale of land and buildings which can only be used to finance other capital expenditure or repay outstanding debt on assets financed from loan. Capital Reserves An internal fund set up to finance capital expenditure as an alternative to external borrowing. Income to the reserve is derived from annual contributions by service committees or notional instalments of principal and interests. Cash Flow Statement Summarises the inflows and outflows of cash arising from transactions with third parties for capital and revenue purposes. Class of Tangible Fixed Assets The classes of tangible fixed assets required to be included in the accounting statements are: Operational assets

• Other land and buildings

• Vehicles, plant, furniture and equipment

• Infrastructure assets

• Community assets Non-operational assets

• Investment properties • Assets under construction

• Surplus assets, held for disposal

Further analysis of any of these items should be given if it is necessary to ensure fair presentation. Community Assets Assets that the local authority intends to hold in perpetuity, that have no determinable and useful life, and that may have restrictions on their disposal. Examples of community assets are parks and historic buildings.

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Consistency The concept that the accounting treatment of like items within an accounting period and from one period to the next one is the same. Consolidated Balance Sheet The accounting statement which sets out the Council’s total net assets and how they were financed. Consolidated Revenue Account This account sets out the Council’s income and expenditure for the year. It brings together all the services and functions performed by the County Council in one statement. Contingent Liability A contingent liability is either:

(a) a possible obligation arising from past events whose existence will be confirmed only by the occurrence of one or more uncertain future events not wholly within the authority’s control, or

(b) a present obligation arising from past events where it is not probable that a transfer of

economic benefits will be required or the amount of the obligation cannot be measured with sufficient reliability.

Corporate and Democratic Core The corporate and democratic core comprises all activities which local authorities engage in specifically because they are elected, multi-purpose authorities. The cost of these activities are thus over and above those which would be incurred by a series of independent, single purpose, nominated bodies managing the same services. There is therefore no logical basis for apportioning these costs to services. Current Service Cost (Pensions) The increase in the present value of a defined benefit scheme’s liabilities expected to arise from employee service in the current period. Curtailment For a defined benefit scheme, an event that reduces the expected years of future service of present employees or reduces for a number of employees the accrual of defined benefits for some or all their future services. Curtailments include:

(a) termination of employee’s services earlier than expected, for example as a result of closing a factory or discounting a segment of a business, and

(b) termination of, or amendment to terms of, a defined benefit scheme so that some or all future

service by current employees will no longer qualify for benefits or will qualify only for reduced benefits.

Deferred Charges Expenditure which may properly be deferred but which does not result in, or remain matched with, tangible assets. Examples of deferred charges are expenditure on items such as improvement grants and other expenses of private acts. Defined Benefit Scheme A pension or other retirement benefit scheme other than a defined contribution scheme. Usually, the scheme rules define the benefits independently of the contribution payable, and the benefits are not directly related to the investment of the scheme. The scheme may be funded or unfunded (including notionally funded).

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Defined Contribution Scheme A pension or other retirement benefit scheme into which an employer pays regular contributions fixed as an amount or as a percentage of pay and will have no legal or constructive obligation to pay further contributions if the scheme does not have sufficient assets to pay all employees benefits relating to employees service in the current and prior periods. Depreciation The measure of the wearing out, consumption, or other reduction in the useful economic life of a fixed asset, whether arising from use, effluxion of time or obsolescence through technological or other changes. De Minimus Expenditure This is the term given to expenditure incurred by local authorities that does not fall within the Code of Practice’s definition of fixed assets but is classified as expenditure for capital purposes with respect to capital controls i.e. part of an authority’s approved capital programme expenditure. A de minimus of £10,000 has been set for capital accounting purposes. This will result in expenditure on items under £10,000, that are included in the approved capital control programme, being classified as revenue and charged to service revenue accounts. Direct Revenue Financing The amount of capital expenditure financed directly from revenue. Direct Service Organisation The term Direct Service Organisation (DSO) is used to cover both District Labour Organisations (DLOs) established under the Local Government, Planning and Land Act 1980 and DSOs established under the Local Government Act 1988. Discretionary Benefits Retirement benefits which the employer has no legal, contractual or constructive obligation to award and are awarded under the authority’s discretionary powers, such as The Local Government (Discretionary Payment) Regulations 1996, the Local Government (Discretionary Payments and Injury Benefits) (Scotland) Regulations 1998, or The Local Government (Discretionary Payments) Regulations (Northern Ireland) 2001. Estimation Techniques The methods adopted by an entity to arrive at estimated monetary amounts, corresponding to the measurement bases selected, for assets, liabilities, gains, loses and changes to reserves. Estimation techniques implement the measurement aspects of accounting policies. An accounting policy will specify the basis on which an item is to be measured; where there is uncertainty over the monetary amount corresponding to that basis, the amount will be arrived at by using an estimation technique. Estimation techniques include, for example:

(a) methods of depreciation, such as straight-line and reducing balance, applied in the context of a particular measurement basis, used to estimate the proportion of the economic benefits of a tangible fixed asset consumed in a period

(b) different methods used to estimate the proportion of debts that will not be recovered,

particularly where such methods consider a population as a whole rather than individual balances.

Euro The Economic Monetary Union (EMU) has introduced a single European Currency. This is known as the Euro.

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Exceptional Items Material items which derive from events or transactions that fall within the ordinary activities of the authority and which need to be disclosed separately, by virtue of their size or incidence, to give fair presentation of the accounts. Expected Rate of Return on Pensions Assets For a funded defined benefit scheme, the average rate of return, including both income and changes in fair value but net of scheme expenses, expected over the remaining life of the related obligation on the actual assets held by the scheme. Extraordinary Items Material items possessing a high degree of abnormality, which derive from events or transactions that fall outside the ordinary activities of the authority and which are not expected to recur. They do not include exceptional items nor do they include prior period items merely because they relate to a prior period. Finance Lease A finance lease is one that transfers substantially all of the risks and rewards of ownership of a fixed asset to lessee. It should be presumed that such a transfer of risks and rewards occurs if at the inception of a lease the present value of the minimum lease payments including any initial payment, amounts to substantially all (normally 90 per cent or more) of the fair value of the leased asset. The present value should be calculated by using the interest rate implicit in the lease. However, where the present value of the minimum lease payments does not amount to 90 per cent or more of the fair value of the leased asset, it should not be automatically assumed that the lease is not a finance lease. FRS 5 requires that the substance of the transaction be reflected and therefore the lease may still need to be classified as a finance lease. Notwithstanding the fact that the lease meets the definition above, the presumption that an asset should be classified as a finance lease may in exceptional circumstances be rebutted if it can be clearly demonstrated that the lease in question does not transfer substantially all the risks and rewards of ownership (other than legal title) to the lessee. Fixed Asset Restatement Account The Fixed Asset Restatement Account records the deficits or surpluses arising on the revaluation of assets, and is written down by the net book value of assets as they are disposed of. This account is purely a mechanism for recording capital accounting transactions and is therefore not available to support spending. Fixed Assets Tangible assets that yield benefits to the local authority and the services it provides for the period of more than one year. Going Concern

The concept that the authority will remain in operational existence for the foreseeable future and, in particular, that the revenue accounts and balance sheet assume no intention to curtail significantly the scale of operations. Government Grants Assistance by Government and inter-government agencies and similar bodies, whether local, national or international, in the form of cash or transfers of assets to an authority in return for past or future compliance with certain conditions relating to the activities of the authority. Government Grants Deferred Account This count shows the government grants and contributions which have been received by the Council and the extent to which they have been applied to the revenue account. An allocation is made to the Asset Management Revenue Account (AMRA) over the life of the assets being financed in the same way that depreciation is applied to the life of an asset.

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Impairment A material change (normally reduction) during an accounting period, in the value of a fixed asset, below its carrying amount on the balance sheet, that is not reflected in a general fall in prices. An example of impairment would be evidence of obsolescence, physical damage to the fixed asset or a deterioration in the quality of the service provided by the asset. Infrastructure Assets Fixed assets that are inalienable, expenditure on which is recoverable only by the continued use of the asset created. Examples of infrastructure assets are highways and footpaths. Investments A long-term investment is an investment that is intended to be held for use on a continuing basis in the activities of the authority. Investments should be so classified only where an intention to hold the investment for the long term can clearly be demonstrated or where there are restrictions as to the investor’s ability to dispose of the investment. Investments which do not meet the above criteria should be classed as current assets. Investment Properties Interest in land and/or buildings: (a) in respect of which construction work and development have been completed; and (b) which is held for its investment potential, any rental income being negotiated at arm’s length. Minimum Revenue Provision (MRP) Represents the statutory minimum amount that must be charged to a revenue account in each financial year to repay external borrowings. Net Book Value The amount at which fixed assets are included in the balance sheet, i.e. their historical cost or current value less the cumulative amounts provided for depreciation. Net Current Replacement Cost The cost of replacing or recreating the particular asset in its existing condition and in its existing use, i.e. the cost of its replacement or of the nearest equivalent asset, adjusted to reflect the current condition of the existing asset. Net Realisable Value The open market value of the asset in its existing use (or open market value in the case of non-operational assets) less the expenses to be incurred in realising the asset. Non-Operational Assets Fixed assets held by a local authority but not directly occupied, used or consumed in the delivery of services. Examples of non-operational assets are investment properties and assets that are surplus to requirements, pending sale or redevelopment. Operating Lease A lease other than a finance lease. Operational Assets Fixed assets held, occupied, used or consumed by the local authority in the direct delivery of those services for which it as either a statutory or discretionary responsibility.

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Past Service Cost For a defined benefit scheme, the increase in the present value of the scheme liabilities related to employee services in prior periods arising in the current period as a result of the introduction of, or improvements to, retirement benefits. Post Balance Sheet Events Those events, both favourable and unfavourable, which occur between the balance sheet date and the date on which the Statement of Accounts is signed by the Responsible Financial Officer. Precept The County Council obtained its Council Tax income by precepting on the District Collection Funds run by the Council in its area. The National Rivers Authority levies (for land drainage purposes) on the County Council to meet its requirements. Prior Year Adjustments Those material adjustments applicable to prior years arising from changes in accounting policies or from the correction of fundamental errors. A fundamental error is one that is of such significance as to destroy the validity of the financial statements. They do not include normal recurring corrections or adjustments of accounting estimates made in prior years. Private Finance Initiative A long-term contractual public/private partnership under which the private sector takes on the risks associated with the delivery of public services in exchange for payments tied to agreed standards of performance. Projected Unit Method An accrued benefit valuation method in which the scheme liabilities make allowances for projected earnings. An accrued benefit valuation method is a valuation method in which the scheme liabilities at the valuation date relate to:

(a) the benefits for pensioners and deferred pensioners (i.e. individuals who ceased to be active members but are entitled to benefits payable at a later date) and their dependents, allowing where appropriate for future increase, and

(b) the accrued benefited for members in service on the valuation date.

The accrued benefits are the benefits for services up to a given point in time, whether vested rights or not. Guidelines on the projected unit method is given in the Guidance Note GN26 issued by the Faculty and Institute of Actuaries. Provision for Credit Liabilities (PCL) Following the implementation of the Prudential Framework, the concept of PCL is no longer of relevance. The 2004 SORP has deleted any disclosure requirements. Provisions Provisions are set up from annual revenue contributions to meet any liabilities or losses which are likely to be incurred, or will be incurred, but the amount or the dates on which they will arise is uncertain. Provisions are maintained for bad debts, insurance claims and future DLO losses. Prudence The concept that revenue is not anticipated but is recognised only when realised in the form either of cash or of other assets, the ultimate cash realisation of which can be assessed with reasonable certainty.

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Prudential Code for Capital

2004-2005 is the first year of the Prudential Code for Capital Finance in Local Authorities. The Prudential Code is a code of practice that has been written by CIPFA (the Chartered Institute of Public Finance and Accountancy). It sets out the accounting standards in relation to capital investment for councils. The Local Government Act 2003 is the statute that makes compliance with the code mandatory. The bill received Royal ascent on 18 September 2003. The Audit Commission will ensure that local authorities comply with the code. The new system means that local authorities are free to invest in capital projects as long as the spending plans are affordable, prudent and sustainable in the long term. Local Authorities can set their own borrowing levels based on their capital need and their ability to pay for the borrowing. The levels will be set using the indicators and factors set out in the code. Government support for its capital investment priorities, such as schools and roads, will continue. The Council receives a grant towards the costs of borrowing for these schemes through the Capital Financing Formula Spending Share (Revenue Grant System). This is known as “Supported Capital Expenditure” and replaces the previous system of credit approvals. Some government priorities will also continue to be funded by capital grants. Related Parties Two or more parties are related parties when at any time during the financial period:

(i) one party has direct or indirect control of the other party, or

(ii) the parties are subject to common control form the same source, or

(iii) one party has influence over the financial and operational policies of the other party to an extent that the other party might be inhibited from pursuing at all times its own separate interests, or

(iv) the parties, in entering a transaction, are subject to influence from the same source to such as extent that one of the parties to the transaction has subordinated its own separate interests.

Examples of related parties of an authority include:

(i) central government

(ii) local authorities and other bodies precepting or levying demands on the Council Tax

(iii) its subsidiary and associated companies

(iv) its joint ventures and joint venture partners

(v) its members

(vi) its chief officers, and

(vii) its pension fund Examples of related parties of a pension fund include its:

(i) administering authority and its related parties

(ii) scheduled bodies and their related parties, and

(iii) trustees and advisers.

These lists are not intended to be comprehensive.

For individuals identified as related parties, the following are also presumed to be related parties:

(i) members of the close family, or the same household, and

(ii) partnerships, companies, trusts or other entitles in which the individual, or a member of their close family or the same household, has a controlling interest.

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Reserves Reserves are established by the County Council by transfers from the County Fund, in order to meet future commitments such as capital charges and unforeseen or exceptional expenditure demands. Residual Value The net realisable value of an asset at the end of its useful life. Residual values are based on price prevailing at the acquisition (or revaluation) of the asset and do not take account of expected future price changes. Retirement Benefits All forms of consideration given by an employer in exchange for services rendered by employees that are payable after the completion of employment. Retirement benefits do not include termination benefits payable as a result of either (i) an employer’s decision to terminate an employee’s employment before the normal retirement date or (ii) an employee’s decision to accept voluntary redundancy in exchange for those benefits, because these are not given in exchange for services rendered by employees. Revenue Account An account that records an authority’s day to day expenditure and income on such items as salaries and wages, running costs of services and the financing of capital expenditure. Revenue Support Grant The main Government general grant which is not specific to any service. It is distributed according to a formula which takes account of the Government’s assessment of spending needs (Formula Spending Share). Scheme Liabilities The liabilities of a defined benefit scheme for outgoings due after the valuation date. Scheme liabilities measured using the projected unit method reflect the benefits that the employer is committed to provide for service up to the valuation date. Settlement An irrevocable action that relieves the employer (or the defined benefit scheme) of the primary responsibility for the pension obligation and eliminates significant risks relating to the obligation and the assets used to effect the settlement. Settlements include:

(a) a lump-sum cash payment to scheme members in exchange for their rights to receive specified pension benefits

(b) the purchase of an irrevocable annuity contract sufficient to cover vested benefits, and (c) the transfer of scheme assets and liabilities relating to a group of employees leaving the

scheme. Specific Grants Central Government grants towards specific services, usually calculated on a fixed percentage basis for particular services. Stocks Comprise the following categories: (a) goods or other assets purchased for resale; (b) consumable stores; (c) raw materials and components purchased for incorporation into products for sale; (d) products and services in intermediate stages of completion; (e) long term contract balances; and (f) finished goods

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Supported Capital Expenditure Approvals (SCE’s) Authorisations to use credit to finance capital expenditure. They are required as cover for both external borrowing and credit arrangements, which include leasing and deferred purchase agreements. Tangible Fixed assets Tangible assets that yield benefits to the local authority and the services it provide for a period of more than one year. Total Cost The total cost of a service or activity includes all costs which relate to the provision of the service (directly or brought in) or to the undertaking of the activity. Gross total cost includes employee costs, expenditure relating to premises and transport, supplies and services, third party payments, transfer payments, support services and capital charges. This includes an appropriate share of all support services and overheads, which need to be apportioned. Useful Life The period over which the local authority will derive benefits from the use of a fixed asset.

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