A force to reckon with

15 Feb 12
The creation of police commissioners raises some awkward accounting issues, not least because there are now going to be two separate police bodies
By Alison Scott | 1 February 2012

The creation of police commissioners raises some awkward accounting issues, not least because there are now going to be two separate police bodies
By the time you read this, the mayor of London will have become the first police and crime commissioner, heralding the biggest shake-up in police structures since the establishment of police authorities almost two decades ago. The change has not been easy and the fact that it has happened in such a short timescale is nothing short of miraculous.

CIPFA, the Association of Chief Police Officers, the Police Treasurers Society, force finance directors and the Audit Commission have been working hard with officials from the Home Office to ensure the financial frameworks are in place to allow the change.

The decision to set up two separate organisations – one under the chief constable, the other under the police and crime commissioner – was a controversial one, creating several complications. There will be two chief finance officers and two sets of accounts, including group accounts. This has obviously required significant debate and effort to achieve a workable Financial Management Code. The separation of the two organisations makes sense only when you consider the longer-term intention for police and crime commissioners to have a wider role.

The overall frameworks have already been put in place for the Metropolitan Police, which is changing to the new structures some ten months before the rest of England and Wales. For the first time, a major transfer of functions within local government will take place not at the beginning of a financial year but midway through it. This has significant implications for the accounting treatment of the transfer, and the financial transition group has been getting to grips with the principles of merger accounting.

The first area that had to be clarified is whether the bodies are included in the scope of International Financial Reporting Standard 3: Business Combinations. The interpretation of this standard in the Code of Practice on Local Authority Accounting in the United Kingdom is that the structures are  ‘businesses under common control’ and are therefore excluded from IFRS 3. Instead, they will be accounted for using the principles that apply to group reorganisations, also taking account of the fact that the reorganisation is taking place halfway through the financial year. The accounting treatment will mean:

> assets and liabilities will normally be transferred at their carrying amount on the transfer date;

> the reorganisation will be achieved in the accounts by adjusting the opening balance sheet for the current year;

> transfers won’t be reflected in the Comprehensive Income and Expenditure Statement, but will be disclosed in the Movement in Reserves Statement;

> the notes to the accounts will separately identify transfers of assets and liabilities (and any consequential changes to reserves).

The Financial Reporting Manual  is more specific on merger accounting rules for transfers in-year. CIPFA will also be producing a Local Authority Accounting Panel Bulletin for police authorities which will be heavily influenced by the work being done in the Met for the 2011/12 accounts. We will be working directly with the Met and their auditors to this end.

The Financial Management Code sets out how the two organisations and the CFOs will manage the financial relationship on a day-to-day basis to ensure effective financial management.

CIPFA is revising its draft Statement on the role of the chief financial officer in police for consultation based on the new structures and roles. Its aim will be to provide more detailed advice on how the two roles should operate and where the boundaries of accountability lie. It is vital that there is no room for ambiguity that could lead to breakdowns in financial management or failures in carrying out the Section 151 role effectively.

Finally, CIPFA’s Police Panel is also working on the much-needed detail while the Pensions Panel is considering the implications for pensions.

Alison Scott is assistant director for local government at CIPFA
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