Financial Review

Overview

The Agency's third year of operation has proved again to be a financially challenging year. The remit of the Agency continues to grow, exerting significant pressure on the available financial resources, whilst the Agency progressively develops an internal organisation that can fulfil the remit. The Agency is continuing to expand, and merged with the National Radiological Protection Board (NRPB) on 1 April 2005. In accordance with financial reporting standards, the financial information for 2005/06 has been presented, and that for the prior periods restated, as if the NRPB had been part of the Agency throughout the current and prior accounting periods. Following the Department of Health's "Arms Length Bodies" review in 2004, the Secretary of State announced that the Agency should, by absorption, merge with the National Institute for Biological Standards and Control (NIBSC), subject to consultation and legislation. The merger with NIBSC is expected to be completed by April 2008 and we are already working in close partnership.

 

Result for the year

Despite suffering a number of cost pressures which arose from factors outside the control of the Agency, we completed the year ended 31 March 2006 with a small surplus before exceptional items. The most significant ongoing cost pressures relate to our staff costs. We have suffered an unfunded increase of about £2 million to meet the extra costs of implementing the consultants' contract and an additional £2 million for the estimated unfunded costs of implementing Agenda for Change from 1 October 2004. The exceptional item of £3.3 million has occurred as a result of a revised actuarial valuation of our pension schemes. This was required in order to increase the early retirement provision we inherited from our predecessor organisations.

We managed to absorb all of the ongoing cost pressures and part of the early retirement provision increase, ending the year with a deficit of £2.5 million compared to a restated deficit of £893,000 in 2004/05. This is added to the cumulative Income and Expenditure Account restated deficit brought forward on 1 April 2005 of £7.8 million to give a cumulative Income and Expenditure Account deficit carried forward of £10.3 million, of which £7.0 million was inherited from our predecessor organisations.

 

Government grant in aid

During the year the Agency received government grant in aid of £134 million revenue and £9m capital, compared to £129 million revenue and £14m capital in 2004/05. The derivation of the total grant in aid and income received and its reconciliation to the amount accounted for in the income and expenditure account of £147 million are included in the notes to the financial statements.

 

Operating income

The Agency's total operating income from non grant in aid sources has increased by 4 per cent from £84.5 million in 2004/05 to £87.5 million this year. This represents 37per cent of the Agency's total income and provides a substantial contribution to our overheads and to the levels of staff available for core public health purposes. The total income of £234.6 million may be illustrated as follows:

 

 

Expenditure

Total expenditure for the year has increased from £220.6 million in 2004/05 to £237.1 million this year. This represents a 6 per cent increase after allowing for the £3.3 million pension provision adjustment exceptional item. The increase mostly reflects the increased activity levels and the cost pressures mitigated by our continuing savings programme. The analysis of the total expenditure of £237.1 million incurred during the year may be illustrated as follows:

 

 

Fixed Assets

The Agency incurred capital expenditure of £15.6 million (2005: £8.2 million), mostly to upgrade its laboratory facilities, accommodation and infrastructure. All capital expenditure is funded by Government grant in aid from the Department of Health.

 

Investments

To build on and develop the intellectual assets of the organisation in partnership with industry, the Agency formed its first spinout company, Syntaxin Limited, with substantial investment from third party investors. The Agency has a minority shareholding, classed as an investment, and will work with the company to convert leading research into products that will deliver direct health benefits to the public.

 

Infrastructure

At the time of establishing the Health Protection Agency, it was well known that the Agency's corporate support services required substantial work to ensure that they would provide the appropriate level of support to enable the front-line divisions to achieve their aims and to create the systems, processes and infrastructure appropriate to meeting the needs of a modern and effective Agency. It was always recognised that work to harmonise both procedural and physical systems across the corporate service areas would be necessary and this was exacerbated by the chronic lack of investment in some parts of the Agency's inherited infrastructure. This modernisation programme and harmonisation has focused on the following areas:

 

• The implementation of a harmonised finance and resource management system managed by a single finance department

• The upgrading and stabilisation of our IT infrastructure

• The requirement to address the most urgent and critical accommodation issues in our local and regional services

• The building of an appropriately robust web presence

• The requirement to fund any redundancies arising from the creation of the Agency

• The harmonisation of HR policies, procedures and the terms and conditions of employment.

• During 2005/06 work to progress this modernisation and harmonisation programme has continued.

 

Financial Position

The Agency has no powers to borrow, invest surplus funds or purchase foreign currency with grant in aid from the Government. Financial assets and liabilities are generated by day-to day operational activities and are not held to change the risks facing the Agency in undertaking its activities. The Agency has no borrowings and relies primarily on funding from the Department of Health for its own cash requirements.

 

Accounting policies

The accounts are prepared under United Kingdom generally accepted accounting principles, using appropriate accounting policies consistent with those used in the 2004/05 accounts. Further details of the accounting policies are set out in the notes to the financial statements. The accounting policies of the merged National Radiological Protection Board have been aligned with the Agency and the merger adjustments are set out in the notes to the financial statements

 

Going concern

The Agency has considered the results for the year, the amounts owed by the Agency, its financial position at the end of the year, the continuing support of the government and the Health Protection Agency Act 2004. Taking all of these factors into consideration, the Agency believes that it is appropriate for the accounts to be prepared on a going concern basis.

 

Post balance sheet event

The early retirement provision of £7.2 million with the NHS Pensions Agency has been paid off during May 2006.

 

Statement of payment practices

It is the Health Protection Agency's policy to pay suppliers in accordance with the Better Payments Practice Code. For the year ended 31 March 2006, 89 per cent (2005: 74 per cent) of invoices, which amounted to 87 per cent (2005: 62 per cent) of the total value of payments, were paid within 30 days of the invoice being registered. Measures to continue the improvement of the Agency's payment performance are in place and will be facilitated by the ongoing implementation of the new Agency-wide financial system.

 

Audit

The Agency's auditor is the Comptroller and Auditor General. Details of the audit fee for the year are disclosed in the notes to the financial statements.

Other than the statutory audit of the financial statements, the Comptroller and Auditor General has not provided any other services to the Health Protection Agency during the year ended 31 March 2006.

During the audit of these financial statements my staff and I have co-operated fully with the Comptroller and Auditor General. I have taken all feasible steps to ensure that I am fully aware of all information pertinent to the audit and to ensure that this information is notified and made available to our auditors. Consequently, as far as I am aware, there is no relevant audit information which has not been made available to our auditors.

 

 

 

Professor Pat Troop

(Chief Executive)

30 June 2006