Quarter 4 Financial Monitoring Report for year ending 31st March 2023
Summary
Agency board report number: SEPA 25/23
A detailed paper was presented for consideration and scrutiny at the Audit and Risk Committee on 11th May 2023. The paper was recommended for submission to the Board for approval.
Actual results for the period of 1st April 2022 to 31st March 2023 shows that SEPA is forecasting a £1.9m underspend in net operating costs as 31st March 2023. This is slightly lower than the forecast range of between £2m and £2.5m reported to Scottish Government and the Board earlier in the year.
Final accounts work is ongoing, and these figures should be considered draft as they may be subject to change following final year-end adjustments and/or external audit adjustments.
It should also be noted that the balance sheet and depreciation figures will change when the annual accounts work in relation fixed assets and pension valuation adjustments is completed.
Capital expenditure is in line with the £4.5m budget allocation.
The year-end outturn has been prepared based on actuals from all areas as at 31st March however, this may be subject to change from ongoing year-end work.
All other risks are closed.
The Board is asked to:
- Approve this report which has been subject to scrutiny by the Audit & Risk Committee and brought forward with a recommendation for Board approval.
- Recognise the results reported are ‘draft’ for the year ended 31st March 2023 and may be subject to change as a result of final year-end adjustments and/or external audit adjustments. A final report will be presented as part of the final financial statements.
- Ian Bryce, Deputy Head of Finance
- Rosaleen Burke, Head of Finance
- Sponsor: Angela Milloy, Chief Officer, Finance
Income & Expenditure Account 2022-23
Table 1 –1st April 2022 to 31st March 2023 – Full Year Draft Outturn v Annual Budget
| Period Ended 31st March 2023 | Full Year Outturn (Provisional) | ||
|---|---|---|---|
| Description | Actual £'000 | Budget £'000 | Var. £'000 |
| Grant in Aid | 40,610 | 40,610 | 0 |
| Charging Schemes | 44,511 | 43,922 | 589 |
| Other Income | 5,274 | 5,357 | (83) |
| Total Income | 90,395 | 89,889 | 506 |
| Staff Costs | 62,786 | 64,958 | 2,172 |
| Other Staff Costs | 756 | 440 | (316) |
| Transport Costs | 1,048 | 1,071 | 23 |
| Supplies & Services | 14,653 | 14,678 | 25 |
| Property Costs | 3,990 | 3,447 | (543) |
| Depreciation / impairment | 5,295 | 5,295 | 0 |
| Total Operating Costs | 88,528 | 89,889 | 1,361 |
| Operating Surplus / (Deficit) | 1,867 | 0 | 1,867 |
Key: () adverse variance
Net results
It should be noted that the 2022-23 budget was set net of £2.6m savings by budget reductions in Staff Costs (£1.8m) and Supplies & Services (£0.8m). Based on returns from each area, Table 1 details a year end underspend of £1.9m.
Total income
Total income for the full year is £90.4m, which is £0.5m more than the full year budget. SEPA’s resource GiA is £40.6m (on budget), Charging Scheme income totals £44.5m (£0.6m above budget) and other income is £5.3m (0.1m under budget).
Chart 2 – Charging schemes – Outturn for year
Chart 2 shows Charging Scheme income by media. The full year income is £44.5m. This is £590k more than budget. Application income has increased by £160k and subsistence charges by £430k. The main increase in subsistence is within RSA of £489k and is due to a higher level of nuclear work undertaken in Q4.
Other income – highlights
Other Income was £5.3m, which is £83k lower than budget and is primarily due to:
- An under recovery in Scottish Landfill Tax of (£150k). This income is a recharge of staff and other expenditure; therefore, recovery is directly related to expenditure.
- An increase in bank interest received of 40k due to higher interest rates.
- An increase in Enforcement Undertaking of £21k.
- Balance various small movements.
Total expenditure
Full year operating costs are £88.5m, which is £1.4m less than budget. The table below shows actuals against budget for the year by expenditure type.
Table 2 – Expenditure by type - Period ended 31st March 2023
| Description | Outturn £'000 | Budget £'000 | Variance £'000 | Reason for variance |
|---|---|---|---|---|
| Staff Costs | 62,786 | 64,958 | 2,172 | Vacancy management controls |
| Other Staff Costs | 756 | 440 | (316) | Temporary Workers and Recruitment costs offset by Training Savings |
| Transport Costs | 1,048 | 1,071 | 23 | Various small savings across transpost costs |
| Supplies And Services | 14,653 | 14,678 | 25 | Bad Debts Provision offset by planned overspend against Project Partnerships & Corporate Provision |
| Property Costs | 3,990 | 3,447 | (543) | Additional lease costs relating to IFRS16, increased utility costs and additional property maintenance |
| Depreciation / impairments | 5,295 | 5,295 | 0 | Figures will be finalised following completion of year end fixed asset work |
| Total | 88,528 | 89,889 | 1,361 |
Staff costs and other staff costs
The forecast underspend in staff costs is £2.2m. CLT implemented tighter controls on recruitment this financial year to meet the budgeted vacancy savings target of £1.8m and fund a revised pay offer of circa 5% of £3.2m. These savings should be viewed together with other staff costs where the full year forecast estimates an overspend of (£316k) relating to temporary workers and recruitments.
As the Scottish Government funding could not be rolled forward into a new financial year, SEPA implemented an interim pay award in March 2023 without UNISON agreement. Negotiations with UNISON are ongoing in respect of the final pay award for 2022/23.
The FRS 102 requirement for annual leave/flexi adjustments has been calculated based on flexi time balances returned for the financial year to 31st March 2023. The resultant reduction to the flexi time and annual leave balance was £624k and is included in the £2.2m underspend noted above. This reduction is in line with expected balances following the reintroduction of standard leave policies.
Depreciation and Impairments - Our final budget allocation letter shows our non-cash budget for deprecation and impairment costs at £7m. SEPA have informed SG throughout the year that this was incorrect and that should be reduced to £5.2m to reflect the estimated position in relation to the implementation of IFRS16. It seems unlikely that the budget will now be amended and consequently we will report a significant non-use of budget in this area at year end. It should be noted that this is a ring fenced budget, and the budget could not have ‘spent.’ The actual figure will only be known on completion of the year end revaluation and impairment of fixed assets. The SG have been asked to note this in the final budget allocation letter.
Capital
SEPA’s Grant in Aid capital budget provided by SG for the year is £4.5m. The outturn is expected to be an overspend of £19k. The main capital projects this year have been the continuation of the IS Infrastructure Development, Gauging Stations, continuation of the Pluvial contracts and various equipment replacement and upgrades. The overspend will be funded from revenue underspend.
Table 3 – Capital expenditure
| Capital Provisional Outturn as at 31st March 2023 | Budget £'000 |
|---|---|
| Capital GiA | 4,535 |
| Capital Area | Outturn £'000 | Main areas of spend |
|---|---|---|
| Circular Economy | 209 | Electronic Waste Tracking |
| Chemistry | 491 | Landfill Tax & Air Quality Equipment |
| Ecology | 73 | Kelpie Engine & Various Equipment |
| Environmental Quality | 94 | Bathing Water Signage |
| Facilities | 192 | Battery UPS System & Aberdeen Lab |
| Hydrology | 1,852 | Gauging Stations & Pluvial work |
| Information Systems | 1,643 | Infrastructure, Security Switches & Laptops |
| Capital Totals 22/23 | 4,554 | |
| (Over) / Underspend | (19) |
Civil penalties
SEPA acts as an agent for the Scottish Government in the issuing and collection of civil penalties, we do not receive any additional grant for undertaking this work. Civil penalties are issued when operators have not complied with their legal requirement. In 2022-23 SEPA issued £4.3m in civil penalties of which £3.1m have been paid and the funds transferred to SG. The total outstanding balance in civil penalties is £11.7m, this relates to one operator who is in administration.
Balance Sheet
The balance sheet figures will change upon completion of annual accounts work in relation to fixed assets and pension valuation adjustments.
Table 4 - Draft balance sheet
| Period Ended 31st March 2022/3 | Actual Year End 31st Mar 22 | Actual 31st March 2023 |
|---|---|---|
| Description | Balance £'000 | Balance £'000 |
| Non current assets | ||
| Capitalised Assets | 41,511 | 36,211 |
| Assets under construction | 1,304 | 5,852 |
| Right of Use Assets | 10,462 | |
| Total non current assets | 42,815 | 52,525 |
| Current Assets | ||
| Debtors & Prepayments | 7,068 | 3,714 |
| Cash at Bank & In Hand | 2,146 | 835 |
| Total current assets | 9,214 | 4,549 |
| Creditors & Accruals | (8,988) | (8,667) |
| Deferred Income | (489) | (903) |
| Net current liabilities | (9,477) | (9,570) |
| Total assets less current liabilities | 42,552 | 47,504 |
| Lease Liabilities | (9,065) | |
| Provision for Liabilities & Charges | (2,148) | (2,148) |
| Decommissioning Provision | (3,286) | (3,286) |
| FRS 17 Pension Provision | (120,967) | (120,967) |
| Total assets less liabilities | (83,849) | (87,962) |
| Financed By: Tax payers Equity Reserves | ||
| Income & Expenditure Account | 0 | 7,822 |
| Accumulated Income & Expenditure Account B/F | (104,473) | (116,408) |
| Revaluation account | 20,624 | 20,624 |
| Total Capital Employed | (83,849) | (87,962) |
Recommendation
The Board is asked to:
- Approve this report which has been subject to scrutiny by the Audit & Risk Committee and brought forward with a recommendation for Board approval.
- Recognise the results reported are ‘draft’ for the year ended 31st March 2023 and may be subject to change as a result of final year-end adjustments and/or external audit adjustments. A final report will be presented as part of the final financial statements.