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Financial Review 2005-6
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The Executive Board presents its report and financial statements for the year ended 31 March 2006.
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Results for the year
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ELCAP made an overall deficit of £205,285 (2005 - £165,181 surplus) in the year before transfers from reserves. The deficit on operating activities, relating to the delivery of supported living and respite services, was £150,563 and the deficit on restricted funds, relating to property, was £120,054. A surplus on designated funds was £65,332 and represents interest income generated on reserves.
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The deficit on operating activities was due to a 7.5% cut in Supporting People funding in East Lothian. Reserves from the Change Fund have been used to fund the deficit.
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In the course of 2005-6, changes have been made to try to mitigate the impact of this funding cut. New work has been won in Edinburgh, Midlothian and East Lothian. The management structure has been reviewed and reduced through making three posts redundant, and not replacing posts. These changes have boosted income and reduced costs but their full impact will only be seen in 2006-7. It is hoped to breakeven in 2006-7 provided that there are no further funding cuts imposed.
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The deficit on the restricted funds for property was due to a combination of factors. Rental income was not sufficient but has been increased for 2006-7 and the cost of maintaining properties to a suitable standard was higher than anticipated. A new housing management contract has been set up, as of July 2006, and only a small deficit is expected in the coming year. The Property Management fund is sufficient to fund these deficits. The Board is reviewing its role as a property owner and landlord.
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Risk & internal control
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The Executive Board has conducted its own review of the major risks to which the charity is exposed and systems have been established to mitigate these risks. The Board has a strategic plan to develop services and funding sources to reduce external risk. Internal risks are minimised by the implementation of policies and procedures. These procedures are periodically reviewed to ensure that they still meet the needs of the charity. The Board is supported in this by the work of the Audit Committee and by the externally appointed 'Internal Audit' function.
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Reserves
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As a registered limited company and a registered charity, ELCAP is required to hold adequate funds to cover future expenditure requirements. The need for reserves was highlighted in December 2003 when the company had to use the full amount of its reserves to fund payroll as funding had not been provided by the Local Authority. If these reserves had not been available to fall back onto then the financial viability of the organisation would have been threatened. Of the fund balances at 31 March 2006, only the Operating fund of £81,134 is available for ongoing operational activities.
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Designated funds are funds which the Board has put aside for a specific purpose. The largest fund, the Property Equity fund, represents the funds tied up in the properties owned by the company to provide housing for service users. ELCAP must be confident that it can continue to run services even through an unforeseen interruption to funding income, or meet the costs of an unpredictable crisis. The Contingency Fund exists for this purpose, and ideally should run at a level equivalent to three months operating costs. It presently stands at just under two thirds of that level. The Board's policy is to build towards that target by transferring 1% of operating income each year, but this will not be achieved unless income exceeds operating costs. The Change Fund is available to fund the development of person centred services.
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The Property Management fund is a restricted fund as it represents external income, which may only be expended for specific purposes. The Property Management reserve represents income from housing benefit and tenants used to fund major works of refurbishment, maintenance and other related property management costs for the ELCAP owned properties.
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Investment policy
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The Trustees have operated a policy of keeping available funds in interest bearing deposit accounts or in low risk investments. The Trustees have tried to balance the need for immediate funds and the need to maximise interest payments.
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Some funds have been invested in Corporate Bonds which are low risk but provide capital growth as well as interest payments. The Board of Trustees have set a limit of 25% of funds being invested in Corporate bonds and monitor their performance regularly.
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Relationships with other bodies
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The company has service contracts with East Lothian Council and Midlothian Council for the provision of Housing Support services, Care at Home services to adults and children and respite services to adults, and with Edinburgh City Council for care at Home services to adults and children. To strengthen the Housing Support service, ELCAP contracted with Ark Housing Association for the provision of housing management services (with effect from 1 July 2004). This contract expires on 30 June 2006 and will be replaced by a similar contract with Melville Housing Association. During the period under report ELCAP was represented on the Board of Community Care Providers Scotland, The Same as You Implementation Group and East Lothian Community Care Forum.
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ELCAP is also a member of the ALTRUM group. This is a 'federation fostering creative organisations that are committed to diverse communities and citizenship for all.'
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Use of Volunteers
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We are grateful to our small number of volunteers who assist our service users in various different ways and also contribute to the smooth running of the office.
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Pension funds
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Additional disclosure on pensions has been included in the accounts as required by FRS17. ELCAP's share of the liabilities of the Lothian Pension Fund is a deficit of £710,000 (2005 - £547,000). This deficit will be recovered through increased contributions over the remaining service lives of the employees in this pension fund and it has no immediate impact on the financial position of ELCAP at this date.
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Independent auditors
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A resolution to re-appoint Scott-Moncrieff will be proposed at the Annual General Meeting in accordance with Section 385 of the Companies Act 1985.
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Approved by the Board and signed on its behalf:
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LINDA HEADLAND
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Director
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