ANNUAL ACCOUNTS 08/09
MANAGEMENT COMMENTARY
Financial Statements
The financial statements cover the period from 1 April 2008 to 31 March 2009. They have been prepared in accordance with a Direction given by the Scottish Ministers in pursuance of the Public Finance and Accountability (Scotland) Act 2000, and in accordance with the Government Treasury Financial Reporting Manual (FReM). As Transport Scotland is an executive agency of the Scottish Government, the financial statements are consolidated within the Scottish Government Consolidated Resource Accounts.
Transport Scotland’s annual report and accounts is published on the Agency website at: www.transportscotland.gov.uk and the Scottish Government Consolidated Resource Accounts at: www.scotland.gov.uk
Significant accounting policies
Those areas of Transport Scotland’s financial statements where accounting judgements have significant impact are outlined below:
- Valuation of the Road Network
The road network is valued on the basis of current replacement cost, adjusted to reflect the current condition of the road component and the depreciation of structures and communications assets. To produce this valuation requires the use of assumptions, estimates and professional judgement. The model used to produce the valuation is known as the UK Asset Valuation System (UK-AVS), run by a firm of external consultants (EC Harris LLP) and uses a series of standard costs to value the asset and indices to uplift land and the cost of road construction on an annual basis. - Recognition and the valuation of provisions
Due to the long term nature of Transport Scotland’s road and rail improvement schemes certain assumptions and judgements are made relating to land acquisition and compensation claims and are based on a variety of data sources and experience. - Private Finance Initiatives (PFI) – the balance of
risk
Transport Scotland has two PFI agreements (M77 & M74/M6) for the provision of new roads infrastructure and the ongoing maintenance of this infrastructure. These contracts are for fixed terms, typically thirty years, and the balance of risks and rewards has been judged to lie with the PFI contractor. Correspondingly, these assets are only present on Transport Scotland’s balance sheet to the extent of the capital element included in the unitary charge payment.
Rail infrastructure in Scotland
The Railways Act 2005 transferred the responsibility for specifying and funding rail infrastructure in Scotland to the Scottish Ministers from 1 April 2006. This was accompanied by a budget transfer from the Department for Transport (DfT).
First ScotRail has been operating rail services under the Franchise Agreement since August 2004 and has been exceeding contract performance benchmarks. In April 2008, Scottish Ministers activated a provision under the terms of the original agreement to extend the First ScotRail Franchise by 3 years. In extending the contract to 2014, the Scottish Government is providing continuity for the ongoing delivery and improvement of rail services in Scotland.
In October 2008 the Office of the Rail Regulator (ORR) published it’s final determination for the control period 1 April 2009 to 31 March 2014. This sets out what Network Rail will need to deliver and the funding that it will receive for doing this.
Major rail projects, which are capital in nature, are funded by Transport Scotland but as the control of the economic benefits arising from the use of these assets does not ultimately lie with Transport Scotland, the rail capital assets in question sit on Network Rail’s balance sheet.
Funding
Resources to fund Transport Scotland’s day-to-day costs and capital investment programme are obtained through the Budget (Scotland) Act 2008 which authorised both the Scottish Government’s and Transport Scotland’s spending plans for the financial year 2008/09.
Private sector funding is also available under PFI and Public Private Partnership arrangements for major road and rail capital schemes. The choice between public and private funding is made on an assessment of value for money on a scheme-by-scheme basis.
Rail major projects may also be funded by borrowing through Network Rail. This is a recognised method for funding rail projects and it will play an increasing part in the rail programme for Transport Scotland as we enter into the new contractual period from 2009 to 2014.
Financial performance and use of resources
Transport Scotland was allocated resources by the Scottish Ministers for 2008/09 of £2,084m. Of this, £569m represents a notional charge for cost of capital for roads, with the remaining £1,515m representing the Agency’s operating budget. The final outturn for the year was within budget limits (1.4% variance).
Transport Scotland 2008/09 |
Actual £000 |
*Budget £000 |
Variance £000 |
|---|---|---|---|
Resource – Operating Costs |
869,660 |
876,854 |
7,194 |
Resource – Investment |
470,446 |
526,162 |
55,716 |
Capital |
153,696 |
112,100 |
(41,596) |
Sub-total |
1,493,802 |
1,515,116 |
21,314 |
Cost of Capital (notional) |
561,088 |
568,500 |
7,412 |
Total |
2,054,890 |
2,083,616 |
28,726 |
* Spring Budget Revision figures
Spending is categorised as either capital or resource with separate budgetary cover for each. Resource is further sub-divided into investment in infrastructure and resource for consumption (operating costs).
Transport Scotland has a significant infrastructure investment programme which allocates funding to our major rail and major road projects as well as ongoing maintenance costs in the existing road and rail infrastructure.
Actual expenditure in 2008/09, excluding cost of capital, is analysed below by operational area within Transport Scotland.
Almost all of Transport Scotland’s budget is spent, either directly or indirectly, with private sector companies. Less than 1% of the budget is utilised on the ongoing Agency running costs (contained within administration operating costs).
The total asset value of Transport Scotland is £15 billion, almost all of which relates to the trunk road network asset.
Future Spending Plans
The Scottish Budget Spending Review 2007 (SR07) has set annual spending plans from 2008/09 to 2010/11. The plans are intended to give more focus on long-term outcomes for Scotland and are reviewed annually to cope with changing conditions over the 3 year period. The current annual spending plans for the remaining 2 years of SR07 are:
|
2009/10* |
2010/11** |
|---|---|---|
Resource – Operating Costs |
863.5 |
839.3 |
Resource – Investment |
594.1 |
595.8 |
Capital |
176.0 |
212.7 |
Total |
1,633.6 |
1,647.8 |
Cost of Capital (notional) |
595.5 |
649.1 |
Total |
2,229.1 |
2,296.9 |
* Source: Budget (Scotland) Bill
2009/10
** Source: Scottish Budget Spending Review 2007
International Financial Reporting Standards (IFRS) implementation
In 2008/09 Transport Scotland, in line with the Scottish Government, implemented three standards relating to Financial Instruments. These are Financial Reporting Standards 25, 26 and 29 as modified by the FReM. From April 2009 the Agency will move to full IFRS adoption and will be re-budgeting on this basis. The main areas affected by IFRS adoption will be roads capital schemes, roads maintenance expenditure and PFI schemes.
Relationship with suppliers
Transport Scotland is committed to prompt payment of bills for goods and services received, and aims to settle all undisputed invoices within contract terms. From April to October 2008 an average of 98% of invoices were being paid within 30 days of receipt. From October 2008, in line with a UK wide initiative, the Scottish Government set a 10 day payment policy and between October and March 2009 Transport Scotland settled an average of 64% of invoices within this timescale. In March, 97% of all invoices were settled within the 10 day period.
Concessionary Travel Scheme
The statutory budget limit for the Older & Disabled Persons Concessionary Travel Scheme was set at £180m for the financial year 2008/09 and actual costs have been below this threshold, meaning that no adjustments of payments to bus operators has been necessary.
Board Members’ Interests
Board members’ interests are recorded in a "Register of Interests" maintained on the Scottish Government electronic HR system. A copy of this Register is available on request.
The 2008/09 assurance letters on internal control, which all directors in post as at 31 March 2009 completed, confirmed that no conflict of interest arose in the exercise of their duties.
The Director of Finance and Corporate Services, due to his former role as Finance Director of the UK Bus Division within First Group plc, had both shares and share options in First Group plc. This had previously been declared both in the Register of Interests and in the Annual Accounts, and additional control practices had been implemented in respect of contract negotiations. Since his departure (resigned 28 November 2008) no other Board Director has potentially conflicting interests.
The Statement of Internal Control revisits this subject following the publication of a Parliamentary Audit Committee Report (11 June 2009) on the First ScotRail Passenger Franchise Extension.
Appointed Auditors
The accounts for 2008/09 are audited by auditors appointed by the Auditor General for Scotland. Audit Scotland carried out this audit and the notional fee for this service was £193k, which related solely to the provision of the statutory audit service.
Freedom of Information
The Freedom of Information (Scotland) Act 2002 aims to make information held by public authorities more accessible. The Agency acts in the spirit of openness, to provide information (unless exempt) within 20 working days, to provide advice and assistance to the applicants, and to proactively publish information under its Publication Scheme.
Significant events since the end of the financial year
To date there have been no significant events since the end of the financial year.
David Middleton
Chief Executive
1 December 2009