SHEFFIELD CITY COUNCIL

Transcription

1 SHEFFIELD CITY COUNCIL 10 REPORT TO AUDIT COMMITTEE DATE 11 January 2012 REPORT OF Director of Finance ITEM SUBJECT Debtors Position in 2010/11 and Bad Debt Provision SUMMARY The report presents the Audit Committee with the additional information requested on the bad debt provision and the amount of outstanding debtors. RECOMMENDATIONS The Audit Committee is recommended to note the contents of this report. FINANCIAL IMPLICATIONS No PARAGRAPHS CLEARED BY BACKGROUND PAPERS CONTACT POINT FOR ACCESS TEL NO. AREA(S) AFFECTED CATEGORY OF REPORT Open

2 Statutory and Council Policy Checklist Financial implications Cleared by: A Rainford Legal implications Cleared by: Equality of Opportunity implications Cleared by: Tackling Health Inequalities implications Human rights implications : Environmental and Sustainability implications Economic impact Community safety implications Human resources implications Property implications Area(s) affected Corporate Relevant Scrutiny Board if decision called in Is the item a matter which is reserved for approval by the City Council? Press release

3 Debtors position in 2010/11 and level of Bad Debt Provision Introduction 1. At the Audit Committee meeting on 28 September 2011, Members asked for further information relating to the bad debt provision shown in the 2010/11 Statement of Accounts. At the meeting on 9 November 2011 Members requested additional information relating to the amount of outstanding debtors. Debtors position 2. The debtor amounts shown in the City Council accounts represents money owed to the Council from organisations or individuals. The figures reported will include a number of different components which are shown in the following table: 2008/ / / Central Government Bodies 22,513 24,767 24,181 Other Local Authorities 10,378 8,964 9,128 NHS Bodies 807 2,319 2,420 Public Corporations and Trading Funds Other: Council Tax 21,535 22,085 24,809 Court Costs Rent 8,624 8,303 7,687 Other 116,464 98, , , , ,979 Provision for Bad Debt - 38,304-37,415-41,460 Net 180, , ,727 Bad Debt Provision as a % of Debtors 21% 21% 21% 3. Central Government Bodies include amounts owing from HM Revenues and Customs in respect of the March VAT claim. This was 14.7m at March 2011, 12.8m at March 2010 and 10.9m at March The remainder of the amount due from Government bodies relates to the balance of Grants yet to be received from central government departments. The individual grant balances making up the total outstanding vary each year. The total amount of revenue grant income the Council received in 2010/11 was 568m, so the outstanding balance represents 4.3% of this income stream. 4. The amount owed from other local authorities includes the amounts that we have invoiced the other three South Yorkshire local authorities for their share of losses incurred through South Yorkshire Trading Page 1 of 8

4 Standards. This balance of 7.932m is included in each of the balances for the three years in the table above. 5. The Council tax debtor is partially covered by the 18.4m included in the bad debt provision for Council tax. This means that the net balance outstanding for Council Tax debtors is 6.4m at 31 March Total Council tax income for 2010/11 was m, but some of the balance outstanding dates back a number of years, for example 4.9m relates back to 2008/09. The Council does collect 99% of Council Tax eventually. 6. Rent is the amount owed to the Council from housing tenants and is partially covered by the 6.5m included in the bad debt provision for rent arrears. This means that the net balance outstanding for housing rent debtors is 1.2m. The total income for housing rents was 120m for 2010/11, so the outstanding balance represents 1% of the total housing rent income. Other Debtors 7. Other debtors, as they are referred to in the Statement of Accounts, continue to represent the majority of the debt owed to the Council. In itself other debt is a very broad term taking account of prepayments made by the Council, external debtors and benefit debtors. 2008/ / / Capital debtors 33,039 16,812 27,170 Benefit debtors 4,774 5,403 6,240 Major Sporting Facilities 14,872 15,404 15,807 Sundry Debtors 22,152 25,525 24,750 European grants 5, ,445 Other misc debtors 36,464 34,552 33, ,464 98, , The Capital debtors represent income due on capital projects, including capital grants. The total amount received in capital grants for 2010/11 was 152.4m. 9. The benefit debtors are outstanding invoices raised to individuals and landlords through the benefit system for recovery of overpaid rent rebates and rent allowances. The total amount of housing benefit payments for 2010/11 was 82.4m. 10. The major sporting facilities debtors is amounts owed to the Council by Sheffield International Venues (SIV) and is principally due to a timing Page 2 of 8

5 issue with the complicated leasing arrangements and bond issues that finance the major sporting facilities. 11. Sundry debtors are the outstanding invoices that have been raised to individuals and organisations for goods or services received from the Council. This is partially offset by the 16.5m included in the bad debt provision for Sundry Debtors, so the net balance outstanding at 31 March 2011 was 8.2m. The debtors figure needs to be seen in the context of total Council income from sales and fees and charges of about 90m p.a. 12. European Grants are grant payments due to the Council from the EU and its agencies that were yet to be received. 13. The other miscellaneous debtors balance captures a number of accounting entries which, whilst shown as debtors on the balance sheet, so not necessarily represent money owed to the Council; for example the figure includes prepayments, technical accounting adjustments and Goodwill. Debt Management 14. The Council is proactive in recovering outstanding debts that it is owed. The Council will only write off debts when it is clear that the money cannot be recovered, which is one reason for the relatively high bad debt provision. In some cases the Council has to act sensitively when recovering debt especially for example when dealing with vulnerable people. Sometimes there are social considerations on the Councils options for recovering debt. 15. Overall the bad debt provision has remained at 23% of the total debtors outstanding over the past three years. So although the level of outstanding debt has increased at the end of March 2011 the percentage that may not be recovered has remained stable. 16. The Councils continues to develop and improve its debt management and revenue collection processes: It has established a central debt recovery team who are responsible for managing and collecting the Council s sundry debts. The Council has also amended its policy for providing for doubtful debts on sundry debts from 90 days to 60 days from April This is intended to ensure that these debts are paid on time and to maximise the Council s income. Page 3 of 8

6 Up front payments for goods or services are encouraged where possible. Alternative payment options offered, such as payment by direct debit. Bad Debt Provision 17. The bad debt provision represents amounts included in the debtors figure that may not be recovered. 18. The basis for the bad debt provision is as follows: Sundry debtors for the 3 years included in this report, most sundry debtors outstanding for over 90 days are provided in full. Any exemptions from this rule have to be approved by the Director of Finance. Council Tax and Rent Arrears this is calculated using different percentages, based on historical collection rates, and the length of time the debt has been outstanding. Meaning that older debt is provided in full, with a partial provision for newer debt. For example, rent arrears over 52 weeks are provided at 95%. 19. The table below shows the breakdown of the bad debt provision figure shown in the 2010/11 Statement of Accounts. 2008/ / / Provision for doubtful debts: Sundry Debtors -14,530-12,945-16,529 Council Tax -16,125-17,396-18,439 Insurance Rent Arrears -7,650-7,067-6,484 Sub Total -38,304-37,415-41, The bad debt provision has increased by 4million from the 2009/10 provision. However, this needs to be compared against the level of debtors to understand the reason for the increase. As shown in the table at paragraph 2 the bad debt provision has remained at 21% of the amount of debtors across the 3 years. Debtors - How does Sheffield compare to others? 21. In terms of assessing the position of Sheffield with other local authorities, comparable organisations can include the Core Cities Group (Liverpool, Manchester, Leeds, Birmingham, Newcastle, Nottingham and Bristol), other metropolitan councils. It can compare on a local basis, against Metropolitan districts and/or against other English core-cities. Page 4 of 8

7 22. Using the latest available results from 2009/10 and comparing against the 2010/11 figure for Sheffield, the current net debt owed to SCC per head of population is 249; an increase of 16 over the two years and above the comparator classes: 1 This debt includes the total net debt position (including the provision for bad debt) of m for 2010/11 and m for 2009/10, as shown in the table in paragraph However, if the balances for South Yorkshire Trading Standards of 7.932m and the Major Sporting Facilities of 15.8m are excluded from Sheffield s balance then Sheffield is below the average for the Core Cities and comparable to the Metropolitan districts. Nationwide Comparison per Head Net Debtors Core Cities Metropolitan Districts Unitary Authorities Non-Met Areas Sheffield 31 Mar 2010 Sheffield 31 Mar 2011 Sheffield exc SYTSU & MSF 31 Authority 24. Traditionally, the core-cities offer the most comparable group for financial analysis. Analysis against available 2010/11 2 figures shows that Sheffield is slightly above the core city average for net debt per head of population, however, the Councils results were lower than those for Birmingham, Manchester and Newcastle Councils. 25. Again, if the balances for South Yorkshire Trading Standards and Major Sporting Facilities are excluded from Sheffield s balances, then Sheffield moves below the average for the core cities. 1 CIPFA Local Authority Assets Statistics Local Authority Statement of Accounts for 2010/11 Page 5 of 8

8 Core Cities Comparison per Head Net Debtors Average Net Debtors 50 - Birmingham Bristol Leeds Liverpool Manchester Newcastle Nottingham Sheffield Sheffield exc SYTSU & MSF Authority 26. Analysis against the same core cities authorities but this time using the net revenue budget for each of these authorities, shows that Sheffield is still slightly above the average but still below Birmingham, Manchester and Newcastle, but the position improves if the balances for South Yorkshire Trading Standards and Major Sporting Facilities are excluded. Core Cities Comparison per Head Net Debtors Average Net Debtors 50 - Birmingham Bristol Leeds Liverpool Manchester Newcastle Nottingham Sheffield Sheffield exc SYTSU & MSF Authority 27. Analysis against other South Yorkshire Authorities using 2010/11 figures shows that last year Sheffield was above the South Yorkshire average for net debt per head of population. However, included within SCC debtors is the balance owed by the other South Yorkshire Authorities for Trading Standards, as at the 31 March 2011 this was 7.932m. If this was excluded from debtors the current net debt owed to SCC per head of population would fall to 235, which is more in line with the results for the other South Yorkshire Authorities. Page 6 of 8

9 South Yorkshire Comparison per Head Net Debtors Average Net Debtors 50 - Barnsley Doncaster Rotherham Sheffield Sheffield exc SYTSU & MSF Authority 28. Whilst high level analysis and comparison is a useful tool, it should bear in mind that different authorities will have different economic, societal and historical reasons for the debt that is due to them for example, in Sheffield s case South Yorkshire Trading Standards and the Major Sporting Facilities Debt; numbers alone will not always make this obvious. In addition, some local authorities bad debt provision will be different to that of Sheffield and some authorities may write off debt at any earlier stage. The Risk of the Debt Owed to the Council 29. The majority of the Council s debt is fairly risk free, and it can expect to receive payment. Debts owed by government, the EU and other public bodies are all extremely safe. 30. However, debts owed to the Council by the general public and businesses are often more risky, particularly where the Council has little leverage and would be viewed as just another creditor to stand in line should that person or business be declared insolvent. Accordingly, housing tenants and benefits debtors are considered safer than businesses and certain high risk group individuals. 31. The following image shows a reasonable interpretation of the relative risk of the Council s debt. Page 7 of 8

10 Government Departments European bodies Other Public Bodies Housing Tenants Benefits Debtors Prepayments Risky Trading Standards debtors Elements of Sundry Debtors In 2010/11 we took a provision of 16.5m against our sundry debtors 32. The anticipated income for the Council for 2011/12 was 1,480million, as detailed above the amount of debtors outstanding at March 2011 was million, which is 12% of the total anticipated income. 33. Last year the Council anticipated that it would receive most of its money from government, with the remainder from Council Tax and fees and charges. Tellingly, this weighting does not reflect the debtor balances. The following graph shows the percentage split of debtors compared to the percentage split of anticipated income: Other 13% 68% Housing Tenants Local Taxpayers 4% 8% 14% 13% Debtors % Income % Government 14% 65% 0% 20% 40% 60% 80% Recommendations 34. The Audit Committee are asked to note the content of this report. Page 8 of 8