National Loans Fund Account

Transcription

1 HC

2 Preseted to Parliamet pursuat to Sectio 21(1) of the Natioal Loas Act 1968 Ordered by the House of Commos to be prited o 21 July July 2015 HC

3 The Natioal Audit Office scrutiises public spedig for Parliamet ad is idepedet of govermet. The Comptroller ad Auditor Geeral (C&AG), Sir Amyas Morse KCB, is a Officer of the House of Commos ad leads the NAO, which employs some 810 people. The C&AG certifies the accouts of all govermet departmets ad may other public sector bodies. He has statutory authority to examie ad report to Parliamet o whether departmets ad the bodies they fud have used their resources efficietly, effectively, ad with ecoomy. Our studies evaluate the value for moey of public spedig, atioally ad locally. Our recommedatios ad reports o good practice help govermet improve public services, ad our work led to audited savigs of 1.15 billio i 2014 Crow copyright 2015 This publicatio is licesed uder the terms of the Ope Govermet Licece v3.0 except where otherwise stated. To view this licece, visit atioalarchives.gov.uk/doc/ope-govermet-licece/versio/3 or write to the Iformatio Policy Team, The Natioal Archives, Kew, Lodo TW9 4DU, or psi@atioalarchives.gsi.gov.uk. Where we have idetified ay third party copyright iformatio you will eed to obtai permissio from the copyright holders cocered. ISBN: Prited o paper cotaiig 75% recycled fibre cotet miimum Prited i the UK o behalf of the Cotroller of Her Majesty s Statioery Office

4 Cotets Page Strategic Report 2 Directors Report 6 Statemet of Accoutig Officer s resposibilities 7 Goverace Statemet 8 The Certificate ad Report of the Comptroller ad Auditor Geeral 12 Statemet of Comprehesive Net Expediture 14 Statemet of Fiacial Positio 15 Statemet of Cash Flows 16 Statemet of Chages i the Liability of the Cosolidated Fud to the Natioal Loas Fud 17 Notes to the Accout 18 1

5 Strategic Report Backgroud to the Natioal Loas Fud The Natioal Loas Fud (NLF) was established o 1 April 1968 by the Natioal Loas Act 1968 to accout for govermet borrowig ad ledig which were util the accouted for as part of the Cosolidated Fud (CF). The CF was first set up i 1787 as oe fud ito which shall flow every stream of public reveue ad from which shall come the supply for every service. The NLF was set up i order to separate govermet reveue ad expediture o the oe had ad govermet borrowig ad ledig o the other. The accouts for the CF ad NLF are ow published separately. Both the CF ad NLF are admiistered by the Treasury with the bak accouts maitaied at the Bak of Eglad. The CF ca therefore be regarded as cetral govermet s curret accout whereas the NLF ca be regarded as cetral govermet s mai borrowig ad ledig accout. Most of the NLF s borrowig eeds are ow met idirectly through borrowig o its behalf by the Debt Maagemet Office (DMO) ad Natioal Savigs ad Ivestmets (NS&I). The DMO was established as a executive agecy of the Treasury o 1 April Its remit is to carry out the Govermet s debt maagemet policy of miimisig fiacig costs over the log term, takig accout of risk, ad to miimise the cost of offsettig the Govermet s et cash flows over time, while operatig i a risk appetite approved by Miisters i both cases. Its operatios are maaged through the Debt Maagemet Accout (DMA) which is a bak accout at the Bak of Eglad liked closely with the NLF. As the Govermet s debt maager, the DMO has a key role i the issue of gilt-edged securities o behalf of the Treasury. Gilt-edged securities, or gilts, are UK Govermet sterlig-deomiated listed bods. There are two mai types: covetioal (i.e. fixed rate) gilts ad idex-liked gilts o which the retur is liked to movemets i the Retail Prices Idex. They are issued from the NLF ad sold ito the market by the DMO. I additio, the DMO issues Treasury Bills from the DMA ad udertakes other moey market operatios to meet the Govermet s daily cash requiremets. Further details o these operatios ca be foud i the Debt ad Reserves Maagemet Report published by the Treasury i March 2015 (ISBN ). The Exchage Equalisatio Accout (EEA) was established i 1932 to provide a fud that could be used whe ecessary to regulate the exchage value of sterlig. It holds the UK s reserves of gold, foreig currecy assets ad Iteratioal Moetary Fud (IMF) Special Drawig Rights. Combied with the UK s Reserve Trache Positio (RTP) with the IMF, these assets comprise the UK s official holdigs of iteratioal reserves. The RTP is a asset of the NLF. The Bak of Eglad acts as the Treasury s aget i the day-to-day maagemet of the EEA. Natioal Loas Fud Activities The NLF s mai role is to meet the fiace eeds of the CF to the extet that taxatio ad other receipts are isufficiet to meet the CF s outgoigs. To this ed the NLF udertakes borrowig ad uses the proceeds to meet ay deficits o the CF; coversely, ay et surpluses o the CF are passed to the NLF to reduce the latter s eed to borrow or to icrease the amout that it ca led. The NLF fiishes every day with a il balace o its bak accout because ay cash surpluses or deficits are offset by trasfers to or from the DMA. The NLF s borrowig operatios iclude the temporary borrowig of balaces i various govermet bak accouts that are surplus to immediate requiremets. Such borrowig miimises the amout that the NLF eeds to borrow from other sources. Where the moey borrowed i this way already couts as Exchequer moey, iterest is ot paid. For the rest of its borrowig however the NLF ormally has to pay iterest. If the NLF s iterest icome is less tha the iterest it pays o its borrowigs, which it geerally is, the shortfall is met by a trasfer from the CF. The NLF provides fiace for both the DMA ad EEA so surpluses ad deficits of the DMA ad EEA are icome ad expediture of the NLF ad their et assets are assets of the NLF. It also makes loas to various statutory public sector bodies ad provides the fiace eeded by the Public Works Loa Board (PWLB) for its loas to prescribed bodies, maily local authorities. The profits of the Issue Departmet of the Bak of Eglad are also paid to the NLF uder sectio 9(1) of the Natioal Loas Act The Issue Departmet is solely cocered with the issue of bakotes ad the assets backig them. NS&I s savigs products are liabilities of the NLF. 2

6 As the vast majority of the assets of the NLF comprise the advaces to ad et assets of the DMA ad EEA ad advaces to the PWLB, the NLF is ot exposed to sigificat credit risk. Further detail o how credit risk is maaged is icluded i ote 16 to the accouts. By virtue of sectio 19(1) of the Natioal Loas Act 1968, the et liabilities of the NLF are a liability of the CF. Iteratioal Support The UK has cotiued to support the Iteratioal Moetary Fud (IMF) through the NLF i i lie with our commitmets as a IMF member. The UK has provided such support through its quota subscriptio ad other ledig to the Fud. The NLF s et exposure to the IMF of 2.9 billio at 31 March 2015 ( : 4.6 billio) is described i ote 9 ad comprises the reserve trache positio of 1.2 billio ( : 2.4 billio) ad loas of 1.7 billio ( : 2.2 billio). The IMF maitais precautioary balaces of retaied earigs to absorb ay losses it may icur. As at 31 March 2015, ay losses that may be icurred by the IMF o loas to its member coutries are ot expected to result i losses to the NLF. The UK s bilateral loa facility to Irelad has bee fuded by HM Treasury s Vote which is fuded through the ormal Supply procedures. Details ca be foud o the GOV.UK website 1. The UK has a cotiget liability i respect of Europea Uio (EU) mechaisms that provide fiacial assistace to EU Member States ad Third Coutries icludig loas from the Europea Fiacial Stabilisatio Mechaism, Europea Balace of Paymets Facility, Macro Fiacial Assistace ad the Europea Ivestmet Bak. The CF is resposible for this cotiget liability ad details ca be foud i the Cosolidated Fud Accout The NLF is ot party to either the bilateral loa to Irelad or the EU fiacial assistace arragemets. Asset Purchase Facility The Asset Purchase Facility 2 was set up i at the Bak of Eglad ad is authorised to purchase assets fiaced by the issuace of cetral bak reserves (a process kow as quatitative easig ). As at 31 March 2015, o a amortised cost basis, billio ( : billio) of gilts from the NLF were held by the Bak of Eglad for quatitative easig. Excess cash held i the facility, which arises largely from coupos o these gilts, is trasferred to the Exchequer via HM Treasury from where it is paid to the CF as Extra Receipts. More iformatio o the scheme ca be foud o the Bak of Eglad s website. Fudig for Ledig Scheme (FLS) The FLS 3 is desiged to icetivise baks ad buildig societies to boost their ledig to the UK real ecoomy. It was lauched i July 2012 ad subsequetly exteded, most recetly to allow participats to borrow from the FLS util Jauary The NLF issues Treasury Bills for sale to the DMA which makes them available to be borrowed by the Bak of Eglad. Baks ad buildig societies participatig i the FLS ca the borrow Treasury Bills from the Bak of Eglad i exchage for eligible collateral. As at 31 March 2015, o a amortised cost basis, 77.9 billio ( : 61.7 billio) of Treasury Bills issued to the DMA by the NLF for the FLS are outstadig. More iformatio ca be foud o the Bak of Eglad s website. Remibi bod I October 2014 the UK issued the world s first o-chiese sovereig bod deomiated i remibi (RMB) i the offshore remibi market totallig RMB 3 billio (circa 304 millio at the time of issuace) with the proceeds beig used to purchase RMB assets i the reserves. This is i recogitio of the icreasigly promiet role that the remibi is playig i the global ecoomy

7 Summary of Outtur for The total comprehesive et expediture of the NLF decreased by 34.2 billio from 57.3 billio i to 23.1 billio i primarily due to gais by the DMA ad EEA i place of the losses reported i ad lower gilt iterest expese. Total comprehesive et icome from the DMA was 20.5 billio ad is reported agaist Other icome i the Statemet of Comprehesive Net Expediture; this compares to et expediture of 5.1 billio i (reported agaist Other expediture). The 25.6 billio differece is primarily due to gais of 16.0 billio o the fair value of DMA gilt holdigs compared to a 9.6 billio loss i Total comprehesive et icome from the EEA was 0.5 billio (reported agaist Other icome) compared to et expediture of 3.8 billio i (reported agaist Other expediture ad was largely due to a reductio i the market price of gold durig ). Gilt iterest expese was lower by 3.4 billio i compared to due primarily to the impact of lower iflatio rates o the upliftig of the omial repayable for idex liked gilts. Excludig the profits ad total comprehesive et icome/expediture of other etities, the NLF s total comprehesive et expediture was 4.2 billio lower at 44.6 billio i compared to 48.8 billio i , primarily from lower iterest expese o idex-liked gilts: Note m m Total comprehesive et expediture 23,130 57,308 EEA total comprehesive et (expediture) / icome (3,845) DMA total comprehesive et (expediture) / icome 5 20,520 (5,070) Profits of the Bak of Eglad Issue Departmet ,621 48,822 Assets The NLF s total gross assets icreased by 36.5 billio from billio to billio. This was primarily due to icreases i advaces to the EEA ( 14.4 billio, primarily additioal fiacig for the official reserves) ad PWLB ( 0.7 billio) ad icreases of 20.5 billio i the et assets of the DMA ad 0.7 billio i cash from ivestmet products held by NS&I. Liabilities Total gross liabilities icreased by billio from 1,628.2 billio to 1,741.1 billio. This is largely a result of gilt-edged stock icreasig by 70.4 billio from 1,408.8 billio to 1,479.2 billio, NS&I liabilities by 18.2 billio from billio to billio (reflectig sigificat iflows from sales of 65+ Guarateed Growth Bods ad Premium Bods), Treasury Bill issuace for the Fudig for Ledig scheme icreasig by 16.2 billio from 61.7 billio to 77.9 billio, liabilities to other public bodies by 6.2 billio from 43.6 billio to 49.8 billio ad to the IMF by 1.2 billio from 7.6 billio to 8.8 billio. Public Sector Net Debt As a result of these chages, the et liabilities of the Fud icreased by 76.3 billio from 1,328.2 billio to 1,404.5 billio. This is matched by a correspodig claim o the CF. The NLF leds to ad borrows from other parts of the public sector. For example it makes advaces to the PWLB ad borrows directly from a rage of public sector bodies (as described i ote 12). I additio, some of the gilts it has issued are held i the public sector, icludig by the DMA which retais a portfolio of gilts for use as collateral for its moey market activities ad by the Bak of Eglad uder the Asset Purchase Facility. The DMA also has large advaces to ad from the NLF. Therefore, the NLF s et liabilities do ot equate to the Public Sector Net Debt ( PSND ), which is a calculatio of the et debt of the whole of the public sector after elimiatig itra-public sector balaces. Figures for PSND are published joitly by HM Treasury ad the Office for Natioal Statistics i the mothly Public Sector Fiaces Statistical Bulleti which ca be foud o the Office for Natioal Statistics ad GOV.UK websites. 4

8 Forward Look The Debt Maagemet Remit for was published by the Treasury with the Budget i March 2015 ad subsequetly revised, most recetly i the Summer Budget O the basis of a Cetral Govermet Net Cash Requiremet forecast for of 71.6 billio (excludig NRAM plc, Bradford ad Bigley ad Network Rail), the revised et fiacig requiremet to be met by the DMO is billio (followig upward adjustmets icludig 70.2 billio for gilt redemptios ad dowward adjustmets icludig 10.0 billio for the et cotributio from Natioal Savigs ad Ivestmets). The DMO will meet this requiremet by gross gilt sales of billio (gilts issued by the NLF) ad a decrease i the DMA s Treasury Bill stock of 3.5 billio. More iformatio ca be foud i Aex A of the Summer Budget The 2010 IMF Quota ad Goverace reforms were ot implemeted i the reportig period. Oce these reforms are ratified by 85 percet of the collective votig share of the IMF, a umber of chages to the UK s fiacial relatioship with the IMF will occur i lie with limits already approved by Parliamet: the UK s quota subscriptio will icrease; the New Arragemets to Borrow (NAB) will be reduced; ad the UK s agreed 2012 bilateral loa will be activated. This is described further i ote 9. Nick Macpherso 13 July 2015 Accoutig Officer HM Treasury 4 5

9 Directors Report The Natioal Loas Fud (NLF) does ot have ay employees ad, therefore, there is othig to report for pesio liabilities ad staff sickess absece. Fiacial istrumet risk Fiacial risks related to the NLF are cosidered i ote 16 to the accouts. Persoal data related icidets The NLF does ot hold ay protected persoal data. Disclosure to auditors The Accout is prepared uder sectio 21(1) of the Natioal Loas Act The Act requires the Treasury to prepare a accout for the NLF for each fiacial year i such form ad cotaiig such iformatio as the Treasury cosiders appropriate. The NLF Accout is audited by the Comptroller ad Auditor Geeral uder the requiremets of the Natioal Loas Act The Natioal Audit Office (NAO) bears the cost of all exteral audit work performed o the NLF. Durig the fiacial year, o o-audit work was udertake by the NAO i relatio to the NLF. As the Accoutig Officer, I have take all the steps that I ought to have take to make myself aware of ay relevat audit iformatio ad to establish that the NLF s auditors are aware of that iformatio. So far as I am aware, there is o relevat audit iformatio of which the NLF s auditors are uaware. Nick Macpherso 13 July 2015 Accoutig Officer HM Treasury 6

10 Statemet of Accoutig Officer s resposibilities Uder sectio 21(1) of the Natioal Loas Act 1968 HM Treasury is required to prepare a accout relatig to the Natioal Loas Fud for each fiacial year i the form ad o the basis cosidered appropriate by the Treasury. The Accout is prepared o a accruals basis ad must give a true ad fair view of the state of affairs of the Fud ad of its Comprehesive Net Expediture ad cash flows for the fiacial year. I preparig the Accout the Accoutig Officer is required to: observe the relevat accoutig ad disclosure requiremets of the Govermet Fiacial Reportig Maual i so far as they are relevat to the Accout ad apply suitable accoutig policies o a cosistet basis; make judgemets ad estimates o a reasoable basis; ad prepare the accouts o a goig cocer basis. The Treasury has appoited its Permaet Secretary, Nick Macpherso, as Accoutig Officer for the Fud. The resposibilities of a Accoutig Officer, icludig resposibility for the propriety ad regularity of the public fiaces for which the Accoutig Officer is aswerable ad for keepig proper records, are set out i Maagig Public Moey published by the Treasury. 7

11 Goverace Statemet Goverace Framework The Natioal Loas Fud is maaged withi the Treasury s overall risk ad goverace framework as set out i the Treasury s Aual Report ad Accouts The Chacellor of the Exchequer, as Miister i charge of the Treasury, is resposible ad aswerable to Parliamet o all the policies, decisios ad actios of the Treasury, ad ultimately of the Natioal Loas Fud. As Accoutig Officer for the Natioal Loas Fud, I am persoally resposible ad accoutable to Parliamet for the orgaisatio ad quality of maagemet of the Natioal Loas Fud, icludig its use of public moey ad the stewardship of its assets, i lie with those resposibilities assiged to me i Maagig Public Moey. Audit Committee The Treasury Group Audit Committee supports me i my role as Pricipal Accoutig Officer, ad the Treasury s Additioal Accoutig Officers i their resposibilities for maagig risk, iteral cotrol ad goverace related to the Treasury Group s Aual Report ad Accouts, the Cetral Fuds (Cosolidated Fud, Natioal Loas Fud, Cotigecies Fud ad Exchage Equalisatio Accout) ad the Whole of Govermet Accouts. I appoit members of the Committee for periods up to three years, extedable by oe additioal three-year period. The Chair of the Committee (Richard Meddigs) reports directly to me ad is also a No-Executive Member of the Treasury Board. The membership of the Audit Committee at the close of was: Richard Meddigs (from 1 September 2014) No-Executive Director, Legal & Geeral plc (December 2014 to curret); Mai Board Director ( ) ad Group Fiace Director ( ) Stadard Chartered PLC; No-Executive Director of 3i Group plc ( ); Fiacial Reportig Review Pael i FRC ad Board member of Iteratioal Chambers of Commerce UK (2007 to curret); Mike Ashley No-Executive Director, ad Audit Committee Chairma, Barclays Plc.; Board membership (ad Chair of Audit ad Risk Committee) of the Charity Commissio; ad Chair of the Govermet Iteral Audit Agecy (GIAA) Board. Previously Head of Quality ad Risk Maagemet ad Board Member, KPMG Europe LLP; Mary Hardy Audit Committee Member, Istitute of Chartered Accoutats i Eglad ad Wales; No Executive Member, Defece Audit Committee; No-Executive Member of the Board of the Royal Navy, ad Chair of its Audit Committee; ad Abhai Rajguru No-Executive Director, Leeds Buildig Society; Chairma, Alexader Rosse; Maagig Parter, Pravara Capital LLP; No-Executive Director, Tollers LLP; Goveror, Northampto College. The Audit Committee has a robust Coflicts of Iterest Policy, which requires members to excuse themselves from discussios where potetial coflicts may occur. Members are required to iform me about ay potetial coflicts ad highlight these at the start of each meetig as appropriate. I additio to the idepedet members, the appropriate Accoutig Officers, HM Treasury s Group Director of Fiace ad the Treasury Accoutat also atted Committee meetigs. Members have the opportuity for a precommittee discussio with the Natioal Audit Office, Group Head of Iteral Audit for HM Treasury ad Head of Exchequer Fuds Iteral Audit. The Audit Committee met five times durig , takig the opportuity for pre-committee discussios with the Natioal Audit Office o each occasio. The Chair of the Committee chaged durig the reportig period. Richard Meddigs took over as Chair from Michael O Higgis before his departure at the ed of his 2d term i September Apologies were received from: Mary Hardy for the May 2014 meetig ad Mike Ashley for March

12 Over the course of the year, as well as scrutiisig the Treasury s fiacial maagemet ad balace sheet risks, the Audit Committee cosidered a wide rage of issues relatig to the departmet s framework of goverace, risk maagemet ad cotrol, icludig: Iteral Audit plaig; Iteral Audit outcomes; aalytical models; corporate memory; arm s legth bodies; the move to a ew IT cotract; the delivery of the Whole of Govermet Accouts; additioal work udertake by Iteral Audit o Purchase to Pay, Data Miig ad Correspodece. Outside of the plaed committee meetigs idividual members have shared their commercial ad professioal expertise with key officials across the Treasury. The exteral auditor is the Comptroller ad Auditor Geeral ad the Natioal Audit Office (NAO) atted all Audit Committee meetigs o his behalf. The Audit Committee receives all NAO reports ad a summary of Exchequer Fuds Iteral Audit reports relatig to the Natioal Loas Fud plus uderlyig reports o iteral audits where issues are idetified leadig to Red or Amber/Red assessmets (o such report i ad oe such report i ). Exchequer Fuds Iteral Audit (EFIA) Iteral Audit for the Natioal Loas Fud is provided by EFIA which reports directly to both me ad the Audit Committee o audit reportig matters. For the Natioal Loas Fud, a aual risk-based iteral audit programme is agreed with the Treasury Accoutat i advace of the Audit Committee s approval. The work programme always icludes a review of the receipts ad paymets process, due to the very high value of paymets made by the Fud. The Audit Committee reviews the work programme ad is kept iformed of progress ad amedmets. Maagemet of the Natioal Loas Fud The Natioal Loas Fud is maaged by the Treasury Accoutat ad her maagers withi the Exchequer Fuds ad Accouts (EFA) Team of HM Treasury. The EFA team reports ay matters cocerig the Natioal Loas Fud directly to me. Reportig to the Treasury s Boards The Ecoomic, Fiscal ad Operatioal Risk Groups, each chaired by a member of the Executive Maagemet Board, give evidece to the Treasury Board ad its Sub-committee. EFA s risks are regularly reported to the Operatioal Risk Group. The Chair of the Audit Committee is ivited to report cocers or issues to the Treasury Board (Sub-committee), ad is a No-Executive member of the Treasury Board. Risk maagemet EFA is maaged withi the Treasury s risk maagemet framework as set out i the Treasury s Aual Report ad Accouts. The Treasury Accoutat has overall resposibility o a day-to-day basis for risk maagemet of those Fuds maaged by EFA, ad for esurig that my fiacial, regularity ad propriety resposibilities as Accoutig Officer of the Natioal Loas Fud are discharged appropriately. She is supported by members of EFA maagemet who are resposible for esurig that the tasks i their areas are compliat with operatioal policies ad procedures, ad legislatio. EFA maagemet provide me with a quarterly update report o chages to the cotrol eviromet ad chages i risk exposure. 9

13 Risk maagemet is key to all processes withi EFA, icludig busiess cotiuity resiliece plaig for those public fuds for which EFA is resposible. Busiess cotiuity resiliece is regularly tested locally ad with busiess parters, ad lessos leared feed ito improved busiess cotiuity processes. The risk maagemet strategy icludes periodic horizo scaig to idetify ay chages i risk exposure, to evaluate the chage ad to idetify appropriate mitigatig actios. Sigificat risk issues are recorded i a risk register ad are assessed by likelihood ad impact. A risk ower, who is resposible for maagig the risk, is assiged to each risk. The risk register is reviewed quarterly by EFA maagemet, ad is circulated to me alogside the quarterly risks ad cotrols report. EFA maagemet esures that staff members workig o the Natioal Loas Fud are traied ad equipped to maage risk i a way appropriate to their authority ad duties. Traiig o risk awareess ad maagemet is provided as required, either by maagemet or by attedig appropriate courses. Traiig is also provided to staff to build the team s capability ad to icrease its resiliece. EFA team members are ecouraged to obtai professioal qualificatios i areas that are relevat to their roles. The system of iteral cotrol As Accoutig Officer, I am resposible for maitaiig a soud system of iteral cotrol that supports the achievemet of the Fud s policies, aims ad objectives, whilst safeguardig the public fuds ad assets, for which I am persoally resposible, i accordace with the resposibilities assiged to me i Maagig Public Moey. The system of iteral cotrol is desiged to maage risk to a acceptable level, balacig the impact of potetial risks with the resources required to maage them, rather tha elimiate all risk. It ca therefore oly provide reasoable ad ot absolute assurace of effectiveess. The system of iteral cotrol is based o a ogoig process desiged to idetify ad prioritise the risks to the achievemet of the Natioal Loas Fud s policies, aims, ad objectives; to evaluate the likelihood of those risks beig realised ad the impact should they be realised; ad to maage them efficietly, effectively ad ecoomically. The system of iteral cotrol has bee i place throughout the year eded 31 March 2015 ad up to the date of approval of the fiacial statemets, ad accords with Treasury guidace. There were o sigificat chages to the cotrol eviromet durig the year. Risk profile The Natioal Loas Fud is maaged geerally withi the framework of the Treasury s system of iteral cotrol. This framework icludes resourcig the admiistratio of the Natioal Loas Fud, security ad the maagemet of risks across the Treasury s busiess. The key risks i maagig the Natioal Loas Fud ad their associated cotrols are: Irregularity of trasactios, icludig fraudulet or erroeous paymets: Clear separatio of duties is eforced by appropriate user permissios withi the accoutig system ad paymet approval paels. Up to date policy ad procedures mauals icludig job istructios are readily accessible to all operatioal staff. Paymet istructios are computer-geerated ad are derived from uderlyig trasactio records. This miimises the risk of keyig errors. Separately, the Comptroller ad Auditor Geeral, through the Natioal Audit Office Exchequer Sectio approves Natioal Loas Fud paymets i advace ad recociles Fud trasactios o a daily basis. There is also a clear ad comprehesive audit trail i the IT system, to which the Natioal Audit Office Exchequer Sectio has real-time access. Icorrect accoutig: Applicatio cotrols exist withi the IT system used to maage fiacial trasactios ad accout for receipts ad paymets o the Fud. Iterest ad amortisatio are geerated automatically by the accoutig system at moth ed usig pre-defied rules. New geeral ledger accouts are authorised by the Deputy Treasury Accoutat before beig set up. Gilts issuaces are reported to seior maagemet ad key operatioal staff. EFA recociles the divided claims received from the gilts registrar with its ow records prior to each iterest paymet. The Debt Maagemet Office recociles pricipal amouts twice a year. Mothly maagemet accouts for the Fud are also produced ad reviewed by the Treasury Accoutat or her deputy, ad are provided to me. The accoutig for ay uusual trasactios is suitably cosidered. 10

14 Failure of IT systems: The Nippo Telegraph ad Telephoe Corporatio (NTT) data cetre offers high levels of resiliece with the data cetre platform availability set to 99.9% ad the etwork coectivity availability set to 99.99%. NTT has dual cetres which provides a high level of resiliece. As part of disaster recovery measures, there is a Active/Active cofiguratio across the two data cetres, which esures a superior level of availability across both sites with ear istat failover. EFA also has its ow cotigecy plas i place. Failure to provide a effective service i adverse circumstaces, icludig disaster situatios: To esure operatioal resiliece i key areas i the evet of a threat to busiess cotiuity, staff withi EFA are traied to provide cover for times whe other staff members are abset. Measures are i place to facilitate the Natioal Audit Office Exchequer Sectio s ormal paymets approval process i the evet of disruptio to eable the essetial paymets busiess to cotiue. The risks that impact upo EFA s key stakeholders are maaged by their ivolvemet i busiess cotiuity plaig ad testig. Busiess cotiuity arragemets are regularly reviewed ad tested withi the framework of the Treasury s corporate Busiess Cotiuity Pla facilities. Failure of pricipal couterparties to provide agreed services: Well-developed Service Level Agreemets (SLAs) for the provisio of services from all pricipal couterparties are i place. They cover details of the moitorig ad cotrol arragemets that both parties are expected to observe. Bi-aual meetigs are held with maagers at the Bak of Eglad where service levels are discussed. A mothly report of ay failure to meet the service requiremets is also set to the Bak of Eglad by EFA. A mothly meetig is held with Govermet Bakig Service maagemet where service levels are discussed. Iformatio risk: Data ad iformatio risk are maaged i accordace with the Treasury s policies, which ivolve a rage of cotrols to prevet uauthorised disclosures. These iclude ecryptio ad physical ad IT security. HM Treasury adheres to Cabiet Office guidelies available at publicatios/security-policy-framework. Further guidace o iformatio security ad assurace is available to all Treasury staff o the itraet. EFA s ow Data Hadlig Policy idetifies risks specific to EFA. This policy is reviewed as required. Fiacial risk: Adverse results of the Debt Maagemet Accout ad the Exchage Equalisatio Accout will affect the NLF s results; therefore all fiacial risks iheret i these accouts are also iheret i the NLF. Resposibility for risk maagemet ad the system of iteral cotrol is clearly delegated to the Accoutig Officers of those accouts, which have their ow cotrol frameworks i place. Review of effectiveess I lie with HM Govermet guidace, set out withi the Corporate Goverace Code of Good Practice for cetral govermet departmets, I have reviewed the effectiveess of the system of iteral cotrol. My review is iformed by the work of EFIA who provided positive assurace as to the maagemet ad cotrol of the Natioal Loas Fud i , ad the executive maagers withi EFA who have resposibility for the developmet ad maiteace of the iteral cotrol framework, as well as commets made by exteral auditors i their maagemet letter ad other reports. I have bee supported by the Treasury Group Audit Committee, ad risk owers i addressig weakesses ad esurig cotiuous improvemet of the system is i place. Iformatio about the effectiveess of the Treasury s overall system of goverace icludig board effectiveess, attedace, compliace with the Corporate Goverace Code ad quality of maagemet iformatio reviewed, is reported i the Treasury s Aual Report ad Accouts. The Audit Committee cosidered the accouts i draft ad provided me with its views before I formally siged the accouts. No sigificat iteral cotrol issues, icludig data related icidets, have bee idetified i , ad o sigificat ew risks have bee idetified i the year. No miisterial directios have bee give i I my opiio, the system of iteral cotrol was effective throughout the fiacial year ad remais so o the date I sig this statemet. Nick Macpherso 13 July 2015 Accoutig Officer HM Treasury 11

15 The Certificate ad Report of the Comptroller ad Auditor Geeral to the Houses of Parliamet I certify that I have audited the fiacial statemets of the Natioal Loas Fud for the year eded 31 March 2015 uder the Natioal Loas Act The fiacial statemets comprise: the Statemets of Comprehesive Net Expediture, Fiacial Positio, Cash Flows, Chages i the Liability of the Cosolidated Fud to the Natioal Loas Fud; ad the related otes. These fiacial statemets have bee prepared uder the accoutig policies set out withi them. Respective resposibilities of the Treasury, Accoutig Officer ad Auditor As explaied more fully i the Statemet of Accoutig Officer s resposibilities, the Treasury ad the Accoutig Officer are resposible for the preparatio of the fiacial statemets ad for beig satisfied that they give a true ad fair view. My resposibility is to audit, certify ad report o the fiacial statemets i accordace with the Natioal Loas Act I coducted my audit i accordace with Iteratioal Stadards o Auditig (UK ad Irelad). Those stadards require me ad my staff to comply with the Auditig Practices Board s Ethical Stadards for Auditors. Scope of the audit of the fiacial statemets A audit ivolves obtaiig evidece about the amouts ad disclosures i the fiacial statemets sufficiet to give reasoable assurace that the fiacial statemets are free from material misstatemet, whether caused by fraud or error. This icludes a assessmet of: whether the accoutig policies are appropriate to the Natioal Loas Fud s circumstaces ad have bee cosistetly applied ad adequately disclosed; the reasoableess of sigificat accoutig estimates made by HM Treasury; ad the overall presetatio of the fiacial statemets. I additio I read all the fiacial ad o-fiacial iformatio i the Strategic Report, the Directors Report ad the Goverace Statemet, to idetify material icosistecies with the audited fiacial statemets ad to idetify ay iformatio that is apparetly materially icorrect based o, or materially icosistet with, the kowledge acquired by me i the course of performig the audit. If I become aware of ay apparet material misstatemets or icosistecies I cosider the implicatios for my certificate. I am required to obtai evidece sufficiet to give reasoable assurace that the expediture ad icome recorded i the fiacial statemets have bee applied to the purposes iteded by Parliamet ad the fiacial trasactios recorded i the fiacial statemets coform to the authorities which gover them. Opiio o regularity I my opiio, i all material respects the expediture ad icome recorded i the fiacial statemets have bee applied to the purposes iteded by Parliamet ad the fiacial trasactios recorded i the fiacial statemets coform to the authorities which gover them. Opiio o fiacial statemets I my opiio: the fiacial statemets give a true ad fair view of the state of the Natioal Loas Fud s affairs as at 31 March 2015 ad of the total comprehesive et expediture for the year the eded; ad the fiacial statemets have bee properly prepared i accordace with the Natioal Loas Act 1968 ad i the form prescribed by HM Treasury. 12

16 Opiio o other matters I my opiio the iformatio give i the Strategic Report ad the Directors Report for the fiacial year for which the fiacial statemets are prepared is cosistet with the fiacial statemets. Matters o which I report by exceptio I have othig to report i respect of the followig matters which I report to you if, i my opiio: adequate accoutig records have ot bee kept or returs adequate for my audit have ot bee received from braches ot visited by my staff; or the fiacial statemets are ot i agreemet with the accoutig records ad returs; or I have ot received all of the iformatio ad explaatios I require for my audit; or the Goverace Statemet does ot reflect compliace with HM Treasury s guidace. Report I have o observatios to make o these fiacial statemets. Sir Amyas C E Morse Natioal Audit Office Comptroller ad Auditor Geeral Buckigham Palace Road Victoria 14 July 2015 Lodo SW1W 9SP 13

17 Statemet of Comprehesive Net Expediture for the year eded 31 March Note m m Fiace costs of borrowig 2 48,372 51,941 Icome from ledig operatios 3 (3,687) (3,784) Losses/(gais) o foreig exchage trasactios Other expediture ,254 Other icome 5 (21,575) (435) Total comprehesive et expediture 23,130 57,308 The otes o pages 18 to 36 form part of this accout. 14

18 Statemet of Fiacial Positio as at 31 March 2015 Assets Note At 31 March At 31 March m m Advaces 6 232, ,820 Loas 7 2,652 2,542 Other assets 8 89,203 67,412 IMF Quota Subscriptio & Ledig 9 11,775 12,186 Total assets 336, ,960 Liabilities Gilt-edged stock 10 1,479,177 1,408,776 Natioal Savigs ad Ivestmets products , ,663 Liabilities to the IMF 9 8,839 7,554 Other debt: FLS Treasury Bills 12 77,885 61,707 Other 12 51,269 44,496 Total liabilities 1,741,059 1,628,196 Net liabilities 1,404,530 1,328,236 Liability of the Cosolidated Fud to the Natioal Loas Fud 1,404,530 1,328,236 The otes o pages 18 to 36 form part of this accout. Nick Macpherso 13 July 2015 Accoutig Officer HM Treasury 15

19 Statemet of Cash Flows for the year eded 31 March 2015 Cash flows from operatig activities m m Iterest received 3,763 3,993 Other receipts Iterest paid (46,750) (45,768) Other flows 423 (145) Trasfer from the Cosolidated Fud for the cost of debt servicig 42,068 41,773 Net cash flow from operatig activities Cash flows from ivestig activities Net (icrease) i advace to the Debt Maagemet Accout (40,000) Net decrease /(icrease) i advace to the Public Works Loa Board (735) 268 Net decrease i loas Net (icrease) i advace to the Exchage Equalisatio Accout (14,420) (6,700) Net cash outflow from ivestig activities (14,808) (46,019) Cash flows from fiacig activities Net issuace of govermet stock 69,810 88,549 Net issuace of Treasury Bills (Fudig for Ledig) 16,119 26,390 Net receipt of cash from Natioal Savigs 16,527 2,119 Net icrease /(decrease) i other sterlig borrowig 6,451 (1,996) Net trasfers of IMF o-iterest bearig securities Foreig currecy borrowig 304 Net trasfers to the Cosolidated Fud (95,232) (69,983) Net cash iflow from fiacig activities 14,808 46,019 Net chage i cash ad cash equivalets Cash ad cash equivalets at begiig ad ed of year The otes o pages 18 to 36 form part of this accout. 16

20 Statemet of Chages i the Liability of the Cosolidated Fud to the Natioal Loas Fud for the year eded 31 March m m Liability of the Cosolidated Fud to the Natioal Loas Fud at 1 April 1,328,236 1,242,718 Net cash paid to the Cosolidated Fud 95,232 69,983 Paymet from the Cosolidated Fud for the cost of debt servicig durig the year (42,068) (41,773) Total comprehesive et expediture 23,130 57,308 Liability of the Cosolidated Fud to the Natioal Loas Fud at 31 March 1,404,530 1,328,236 The otes o pages 18 to 36 form part of this accout. 17

21 Notes to the Accout 1 Accoutig Policies i Accoutig covetio The Natioal Loas Fud (NLF) was established o 1 April 1968 by the Natioal Loas Act 1968 to accout for govermet borrowig ad ledig which were util the accouted for as part of the Cosolidated Fud (CF). The Natioal Loas Fud Accout has bee prepared uder the historical cost covetio ad i accordace with Iteratioal Fiacial Reportig Stadards (IFRSs) as adapted or iterpreted for the public sector cotext i so far as they are relevat to trasactios ad balaces withi the NLF. ii Applicable accoutig stadards ad iterpretatios issued but ot yet adopted IFRS 9 Fiacial Istrumets, was issued i July 2014 ad is set to replace IAS 39 Fiacial Istrumets: Recogitio ad Measuremet. It sets out a sigle IFRS framework for all fiacial istrumets required or permitted by IFRS. This stadard has ot yet bee edorsed by the Europea Uio ad has ot bee applied i these accouts. IFRS 9 is effective for aual periods begiig o or after 1 Jauary It is expected that the applicatio of IFRS 9 should have o sigificat impact upo the fiacial statemets of the NLF. iii Basis of presetatio The Natioal Loas Fud Accout is stated i millios of pouds sterlig ( m). This Accout presets the results ad trasactios of the NLF. The Statemet of Fiacial Positio is preseted by order of icreasig liquidity. The NLF is the govermet s mai borrowig ad ledig accout. By the ature of govermet fiacig, it is expected that the NLF will show a et liability. By virtue of sectio 19(1) of the Natioal Loas Act 1968, the et liabilities of the NLF are a liability of the CF. The servicig of these liabilities is maily met by tax reveue receipts. For this reaso, the Accoutig Officer cotiues to adopt the goig cocer basis i preparig the Accout. iv Recogitio of fiace icome ad costs Premium Bod prizes are recogised i the period to which they relate. Other iterest icome ad costs of fiacig are determied usig the effective iterest rate method. The effective iterest rate method is a method of calculatig the amortised cost of a fiacial asset or fiacial liability ad of allocatig the iterest icome or iterest expese over the expected life of the asset or liability. The effective iterest rate is the rate that exactly discouts estimated future cash flows to the istrumet s iitial carryig amout. The calculatio takes ito accout premiums or discouts o acquisitio or issue of fiacial assets ad liabilities ad all the cotractual terms of the fiacial istrumet. The majority of the NLF s fiacial assets ad liabilities have a fixed retur. For those products that have a variable retur, the curret rate applicable to that product is used i the calculatio of the fiace icome or cost. Gilts with the same maturity ad coupo rate are sometimes issued i separate traches. Because of market coditios each trache may be issued with a differet premium or discout ad therefore a differet effective iterest rate. However, oce issued, gilts with the same maturity ad coupo rate are idistiguishable from each other ad so are accouted for as oe issue usig a weighted average effective iterest rate. v Recogitio of fiace icome Special Drawig Rights (SDR) The IMF remuerates the UK i SDRs o its Reserve Trache Positio (RTP) for balaces i excess of SDR 700 millio ad o its bilateral loas. Uder sectio 3(2) of the Exchage Equalisatio Act 1979 ay SDRs received by the Govermet must be treated as assets of the EEA, therefore all SDR icome is accouted for i that Accout ad ot the NLF. 18

22 vi Fiacial assets ad liabilities The assets ad liabilities of the NLF are all accouted for as fiacial assets ad liabilities except for those arisig from the et assets of the EEA ad the DMA which are accouted for as explaied i accoutig policy ix. The NLF s fiacial assets are all desigated as loas ad receivables. I accordace with IAS 39, fiacial assets ad liabilities are iitially recogised at fair value. They are subsequetly measured at amortised cost usig the effective iterest rate method. If gilts are issued by a sydicatio process, the sydicatio fees are bore by the NLF ad are etted off from gross issuace proceeds as part of the calculatio of amortised cost. Other directly related issue costs for assets ad liabilities are egligible ad are writte off as icurred. The distictio betwee loas ad advaces derives from the legislatio that govers the operatio of the NLF. O loas iterest must be charged at a rate that at least covers the cost that the Fud would have to bear if it were to borrow the same sum for the period of the loa, plus the Treasury s ow admiistratio costs. There is o such requiremet for advaces, although iterest is charged at Bak Rate o advaces to the DMA. No iterest is charged o advaces to the EEA. The NLF does ot charge iterest o its advaces to PWLB but iterest o loas by the PWLB to local authorities fiaced by NLF advaces is paid to the NLF uder sectio 3(3) of the Natioal Loas Act The fair values of the fiacial assets ad liabilities are disclosed i ote 14. They are calculated by referece to market prices where istrumets are traded o a active quoted market or, where this is ot the case, as the et preset value of future cash flows. Impairmet of fiacial assets Exchequer Fuds ad Accouts (EFA) assesses at the ed of each reportig period whether there is ay objective evidece that a fiacial asset measured at amortised cost is impaired. A asset is impaired if there is objective evidece of impairmet as a result of oe or more evets that occurred after the recogitio of the asset (a loss evet ) ad that loss evet (or evets) has a impact o the estimated future cash flows of the fiacial asset that ca be reliably estimated. Objective evidece used i assessig whether a fiacial asset is impaired icludes fiacial difficulties experieced by the borrower ad breach of loa coditios such as a default or deliquecy i iterest or pricipal paymets. No impairmet losses have bee recogised durig the year. vii Foreig currecies The fiacial statemets of the NLF are preseted i sterlig which is the Fud s fuctioal currecy, beig the currecy of the primary ecoomic eviromet i which it operates. Trasactios deomiated i foreig currecies are recorded at the rate of exchage applicable to the trasactio. Moetary assets ad liabilities deomiated i foreig currecies at the ed of the reportig period are reported at the rates of exchage prevailig at that date. Liabilities to the IMF are deomiated i sterlig but are subject to a revaluatio adjustmet reflectig movemet i the SDR to sterlig exchage rate. viii Admiistratio expediture These fiacial statemets reflect activity through, ad the fiacial positio of, the NLF. The costs of gilts registratio, listig fees ad foreig currecy debt issuace are met by the NLF. Admiistratio costs such as departmetal staff costs ad bak charges are bore by the appropriate body ad accouted for through their respective accouts. ix Exchage Equalisatio Accout ad Debt Maagemet Accout Uder sectio 11 of Schedule 5A to the Natioal Loas Act 1968, ay excess of the assets of the DMA over its liabilities shall be a liability of the DMA to the NLF. Over time, the NLF has advaced sterlig to the EEA i order to fiace the UK s reserves of gold, foreig currecy assets ad IMF Special Drawig Rights. As a result, havig bee derived from iitial NLF fiacig, the EEA s et assets are ultimately due to the NLF. Aual fiacial statemets are prepared for both the DMA ad the EEA. The et assets of the DMA ad EEA are reported i Other Assets (ote 8) ad the total comprehesive et expediture or icome recogised i the Statemet of Comprehesive Net Expediture as Other Expediture or Other Icome (ote 5). These NLF assets ad icome are the result of activity i the EEA ad DMA durig the year ad the various accoutig policies applied by them to that activity. 19

23 x Critical accoutig judgemets ad key sources of estimatio ucertaity The NLF s accoutig policy for impairmet losses arisig o fiacial assets is described i vi above. No impairmet losses have bee recogised i the year. There are o other areas of the fiacial statemets which are reliat o maagemet s judgemet i the process of applyig the Fud s accoutig policies. Fair values are icluded for disclosure purposes oly. Their calculatio is described i ote 14. As metioed i accoutig policy iv, the majority of the NLF s fiacial assets have a fixed retur. For those products that have a variable retur, the curret rate applicable to that product is used i the calculatio of the fiace icome or cost. Note 16 applies various assumptios to demostrate the sesitivity of NLF s assets ad liabilities to chages i iterest rates, iflatio ad foreig currecy exchage rates. 2 Fiace costs of borrowig m m Gilt-edged stock 46,177 49,573 Natioal Savigs ad Ivestmets products 1,647 1,995 Treasury Bills (Fudig for Ledig) Other fiace costs Total fiace costs of borrowig 48,372 51,941 3 Icome from ledig operatios Iterest o loas advaced by the Natioal Loas Fud to: m m Public corporatios Cetral govermet bodies Iterest o loas by the Public Works Loa Board fiaced by Natioal Loas Fud advaces 2,866 2,913 Iterest o fudig advaced to the Debt Maagemet Accout Total icome from ledig operatios 3,687 3,784 4 Gais ad losses o foreig exchage trasactios Note m m Loss o foreig currecy borrowig 22 (Gai)/loss o Reserve Trache Positio at the IMF 9 (4) 184 (Gai)/loss o ledig to the IMF 9 (10) 148 Net loss/(gai) o foreig currecy trasactios

24 5 Other icome ad expediture Other expediture m m EEA total comprehesive et expediture 1 3,845 DMA total comprehesive et expediture 5,070 Expediture i respect of depreciatio of Issue Departmet Assets Miscellaeous expediture 5 57 Total: Other expediture 12 9,254 Other icome EEA total comprehesive et icome 1 (549) DMA total comprehesive et icome (20,520) Profits of the Bak of Eglad Issue Departmet 2 (422) (429) Icome i respect of appreciatio of Issue Departmet Assets 2 (81) Miscellaeous receipts (3) (6) Total: Other icome (21,575) (435) Net total (21,563) 8,819 1 Of the 549 millio et icome received by the EEA, 2 millio ( : 4 millio) relates to iterest icome from the IMF Reserve Trache Positio ad bilateral loas to the IMF i lie with accoutig policy v. 2 Uder sectio 9 of the Natioal Loas Act 1968, the profits of the Issue Departmet are paid ito the NLF. I additio, the Bak of Eglad Issue Departmet is required by the Currecy ad Bak Notes Act 1928 to hold ivestmets equal to the value of bak otes i issue. These ivestmets are revalued to market value quarterly. If the market value is less tha the value of otes i issue, legislatio requires the NLF to pay a amout equal to the deficiecy to the Issue Departmet to fiace the purchase of additioal ivestmets. Coversely, if the market value of the assets exceeds the value of otes i issue, the Issue Departmet sells ivestmets to the value of the surplus ad pays the proceeds to the NLF. 21

25 6 Advaces Public Works Loa Board Debt Maagemet Accout Exchage Equalisatio Accout Total m m m m Pricipal outstadig at 1 April 63,284 63, ,000 88,000 25,885 19, , ,737 Advaces 2,587 1,624 55,000 80,000 18,220 9,250 75,807 90,874 Advaces repaid (1,852) (1,892) (55,000) (40,000) (3,800) (2,550) (60,652) (44,442) Pricipal outstadig at 31 March 64,019 63, , ,000 40,305 25, , ,169 Accrued iterest Total advaces outstadig 64,537 63, , ,063 40,305 25, , ,820 7 Loas ad commitmets to led Loas Public Corporatios Cetral Govermet Total Public Corporatios Cetral Govermet Total m m m m m m Pricipal outstadig at 1 April 710 1,809 2,519 1,230 1,743 2,973 Loas advaced Loas repaid (136) (135) (271) (631) (130) (761) Pricipal outstadig at 31 March 696 1,933 2, ,809 2,519 Accrued iterest Total loas outstadig 706 1,946 2, ,822 2,542 Commitmets to led At 31 March 2015 At 31 March 2014 Public Corporatios Cetral Govermet Total Public Corporatios Cetral Govermet Total m m m m m m Udraw commitmets to led Commitmets to led are agreemets to led to a customer i the future subject to certai coditios. Such commitmets are made either for a fixed period or have o specific maturity but are cacellable by the leder. Durig the year a commitmet of 15 millio expired. The NLF does ot have ay loas or commitmets to led to fiacial istitutios classified as Public Fiacial Corporatios followig the bakig crisis. I additio to the above, the NLF has loas ad a loa commitmet to the IMF which is explaied i ote 9. 22