«(Paper 1) Present: Tom Wallace (Chair) Kathryn Cole Heather Dunk Waiyin Hatton Willie Mackie In attendance: Michael Breen Jackie Galbraith Alistair ...»
Minute of the Finance Committee Meeting
held in Ayr Campus
on Thursday 13 March 2014 at 5.30 pm
Present: Tom Wallace (Chair)
In attendance: Michael Breen
Brendan Ferguson (Minutes)
1 Welcome and Introductions
The Chair welcomed everyone to the meeting.
Apologies were received from Marie Macklin.
3 Declarations of Interest There were no declarations of interest.
4 Minute of the meeting held on 11 February 2013 (Paper 1) The minutes were approved as an accurate record.
Proposed: Willie Mackie Seconded: Heather Dunk 5 Matters Arising It was noted that actions associated with point 9 (page 4) and point 12 (pages 5 and 6) were completed and the actions were closed.
The Chair requested an update to bullet points two and three as contained on page 3 of the agenda in relation to the Ayrshire College Foundation.
M Breen replied that reports would be received by the College from the Foundation. The format and frequency would require to be discussed and Approved at Finance Committee Meeting – 12.06.14 agreed, for example the receipt of regular progress reports on the business of the Foundation including awards made and activities undertaken. These will form a part of the regular interaction between the two organisations.
In addition, the Foundation is subject to a number of external reporting requirements and returns including an annual return to OSCR. In relation to bullet point three, M Breen emphasised that, while the College and the Foundation will be aligned based on their objectives, they are separate independent organisations with their own governance arrangements. M Breen also explained that any support/ services provided by the College must be clearly set out in a service level agreement which maintains this separation.
6 2013-14 Management Accounts as at January 2014 (Paper 2) M Breen introduced the above Paper, taking members through the executive summary and the underlying figures contained within the appendices. It was explained that as a result of the unique and unusual nature of this amended financial year for Ayrshire College, the accounts at January 2014 project a favourable variance of £1.011 million. A number of favourable variances were shown in the accounts, resulting in the net improvement of the reported position against budget. M Breen noted that the favourable variance in SFC grants received of £218k is due mainly to additional College Transformation Grants received which are matched by corresponding expenditure.
The favourable variances also include £460k as a saving against budget on core staff costs and commercial salary recharges, and £255k against the budgeted depreciation charge. In addition the provision for £450k recorded in November 2013 in respect of a projected student support funds overspend has been reversed as a result of updated projections on student funding and the receipt of in-year additional funding of circa £1.2 million.
A Gordon explained that adjustments have been made to the budgeted results to take account of the rolling forecasts for the remaining two months of 2013These adjustments reflect further favourable variances of £100k on salary costs and an estimated further £25k on trading income. The forecasts will be updated each month.
A Gordon explained against this is a net unfavourable variance of £429k of prepaid expenditure relating to the Kilwinning PFI which is being proposed as a write off at 31 March 2014. This item reflects one of the balances inherited from the former James Watt College who were writing off, over a period of 25 years, £850k of prepaid PFI expenditure dating back to 1999-2000. A Gordon explained the background to this position and the discussions to date with KPMG, the College’s external auditors.
A final adjustment reflects £336k of voluntary severance costs greater than that budgeted for February and March 2014. This adjustment is matched by an equivalent amount of College Transformation Funding (CTF) bringing the total projected severance costs for the year to £1.713 million. The additional costs Approved at Finance Committee Meeting – 12.06.14 relate to the numbers of employees leaving the college between February and July 2014. An appropriate accrual based on reporting requirements will be made at 31 March 2014. The trading position, contained within the appendices of the accounts, also showed income and expenditure in relation to the new campus development in Kilmarnock.
A Gordon explained that the balances and cash transferred from West College Scotland for the Kilwinning Campus had also now been included within these accounts.
A Gordon further noted that the projection to 31 March 2014 will also inform the final transfer (donation) to the Ayrshire College Foundation, and this must take place before 31 March 2014.
A Gordon concluded by saying that the College balance sheet remains strong with £13.3 million of cash balances available at 31 January 2014. It was noted that approximately £2.1 million of this related to capital funds and SFC/SAAS funds held in advance.
The Risks and Opportunities analysis was also noted and the Chair signalled that he would wish to return to this during later discussions.
The Committee discussed the Management Accounts contained in Paper 2 at length. A number of questions were asked and satisfactorily answered.
W Mackie began the discussion by saying that while a break even budget had been approved for 2013-14, this positive position was welcome. Further discussions were held on the context of the 8 months reporting period.
T Wallace added that he was pleased to note the level of analysis underlying the accounts and presented to the Committee for consideration. T Wallace sought clarification on the Kilwinning PFI write off and whether there was any advantage in leaving this balance in the accounts. M Breen replied that there was no advantage in maintaining it and the external auditors would in all probability query it during their audit. While maintaining the 25 year write off treatment was not improper, Ayrshire College would prudently wish to write the balance off in the period to March 2014.
T Wallace returned to the Risks and Opportunities Analysis and stated that in his view the analysis does not quite capture all of the risks. While risks are stated, the results for the College should they come to fruition are not included in the analysis. A few sentences capturing the essence of the risks, as described during discussions, would assist the Committee in its future considerations. M Breen agreed and stated that this would be included in the Risks and Opportunities analysis in the new financial year. M Breen requested some assistance from T Wallace on this aspect and this was agreed.
T Wallace questioned the large favourable depreciation variance. M Breen explained that this partly resulted from the different practices for calculating depreciation operated by the legacy colleges, but also the 2013-14 estimated charge appears to have been over budgeted. He added that the Finance Team Approved at Finance Committee Meeting – 12.06.14 were currently working through a number of supporting papers/ systems received from the former Ayr College. The depreciation charge would also be considered in relation to the requirement to adopt Merger Accounting under the relevant Financial Reporting Standard (FRS6). M Breen explained that a report on merger accounting is being presented to the Audit Committee at their March 2014 meeting. Discussions then centred on manual systems and processes with M Breen explaining that asset management required to be revisited by Ayrshire College to ensure a consistent approach. T Wallace recommended that asset management be made a priority for internal audit review in the light of these discussions and particularly as the full explanation for the extent of the variance was not yet known.
The Committee next considered Paper 3 appendix 3.2 which set out the projected Final Income & Expenditure Position for 2013-14. M Breen explained again that this is not a normal year and will be materially influenced by a number of distinct factors the first of which was the estimated impairment of £9.425 million associated with the move of the Kilmarnock Campus from the Holehouse Road site to the new campus in 2016. M Breen explained it was both the External Auditor’s and College’s view that it was appropriate that the write off of this figure be reflected in the Accounts for 2013-14 given that financial close will be achieved within the period of these accounts i.e. either pre 31 March 2014 or as a post balance sheet event. M Breen explained the second figure related to the projected £7.320 million which it is being proposed will be donated by the College to the Ayrshire College Foundation prior to 31 March 2014. This estimate includes £1.32 million of unspent Capital Funds which the SFC will permit, in this year only, to be donated to the Foundation.
The final amount to be donated will not be finalised until later this month to allow for the most accurate position to be presented to the Board of Management for approval at its meeting on 27 March 2014. In overall terms the appendix noted a projected deficit in income and expenditure of £11.5 million for 2013-14, but will still disclose College reserves of £4.67 million.
T Wallace queried the position of the College’s working capital when entering the new financial year under ONS. M Breen replied that in order to answer that accurately a full monthly analysis of the 2013-14 budget was needed. M Breen explained that SFC had not specified a working capital level for Colleges post 1 April 2014 but had provided some guidance around factors to be considered.
M Breen indicated that 30 days working capital (circa £3.2 million) is currently the working assumption (minimum of £2.5million). This approach aligns with a number of factors e.g. SFC grant will continue to be paid on a monthly basis although cash commitments will require to be funded throughout the month with M Breen further explaining that although the College wished to maximise the donation to the Foundation, it was vitally important to ensure a level of working capital is maintained post 31 March 2014 to continue to operate efficiently and effectively.
After some further discussion it was agreed that T Wallace meet with M Breen and A Gordon prior to the Board of Management meeting to discuss the working capital requirements post 31 March 2014 and resulting donation amount to the Ayrshire College Foundation.
Approved at Finance Committee Meeting – 12.06.14 In discussing the projected Income and Expenditure Accounts for 2013-14, the Committee were clear about the reasons behind the disclosures required, however, it was felt that the reporting of this position must be handled sensitively to ensure that no misunderstanding of the recorded accounts occurred within the public perception.
The Committee agreed that the Management Accounts to 31 January 2014 be approved.
Action: M Breen to update Audit Committee on the discussions about Asset Management and their view of making this a priority for internal audit review in the new cycle.
Action: M Breen to meet with T Wallace to further develop the risks and opportunity section.
Action: M Breen to ensure that the reporting of the projected deficit in the Income & Expenditure Accounts is drafted in a manner which seeks to avoid possible misunderstanding within public perception of the accounts.
Action: M Breen to meet with T Wallace prior to the Board of Management meeting to discuss both working capital requirements post 31 March 2014 and the resultant donation to the Foundation which will be proposed to the Board of Management on 27 March 2014.
7 Capital Expenditure as at January 2014 (Paper 3) The Committee noted that papers 3 and appendix 1 represented capital expenditure to 31 January 2014 and takes account of expenditure to that date and the balance of funding available. The tabled paper, appendices 3.1 and 3.2, represented projections to 31 March 2014.
To avoid confusion, the matters contained in appendix 3.2 were dealt with under the previous agenda item and include the estimated £1.32 million in unspent capital funds which the SFC have confirmed in a circular should be transferred to the Foundation on this single occasion pre 31 March 2014. M Breen explained that any update to this figure would be presented to the Board of Management on 27 March 2014 as part of the discussion regarding the amount of the donation to the Ayrshire College Foundation.
The Finance Committee noted the Capital Expenditure Position at January 2014 and approved the proposal to transfer any unspent SFC capital grant pre 31 March 2014 to the Ayrshire College Foundation in line with SFC ONS Circular Number 12.
M Breen reported that, as the Committee were aware, SFC had provided a capital grant of £5.12 million to take account of costs outwith the NPD scope and budget made available by the Scottish Government for the New Campus Project. All the NPD costs are coded to specific cost centres and, at 31 January 2014, a cumulative total of £1,021,147 of expenditure had been incurred as outlined in Paper 4. The College is now working with SFC to adjust the profile of the remaining £4.1 million of spend to better reflect the remaining project stages post Financial Close. The Committee was reminded that all expenditure proposals against the non NPD costs are agreed by the New Campus Project Board.
The Finance Committee noted the Non NPD costs position as at 31 January 2014.
9 College Transformation Fund at 31 January 2014 (Paper 5) A Gordon reported that, as contained in paper 5, Ayrshire College was awarded £5,370,690 to support the merger process of the three legacy colleges. These funds have been spent as outlined in the paper leaving funding unspent at 31 January of £2,607,492. A Gordon noted that a further £1,458,537 had been committed which resulted in £10,224 of non-VS funding and £1,138,731 of VS funding still being available.