Financial Memorandum - English Partnerships

2.1 EP is a national organisation, founded on the twin statutory bases of the URA and the CNT, as set out in the 1993 and 1981 Acts respectively.

2.2 This Financial Memorandum replaces the Financial Guidance issued in December 2001. It defines the framework of controls on financial, staffing and related matters for EP, or separately for the URA and CNT where appropriate.

2.3 The terms and conditions set out in the Financial Memorandum may be supplemented by other specific guidance or directions issued by the Deputy Prime Minister from time to time in respect of the exercise of any individual functions, powers and duties of EP.

2.4 The Financial Memorandum operates in addition to (but not in substitution for) statutory requirements or any specific directions or determinations or guidance made by the Office under statutory powers or such other terms as the Deputy Prime Minister may specify in relation to the payment of grant in aid or grant. In cases of conflict between statutory requirements and this Memorandum, statutory duties take precedence.

Government Accounting, including in particular the Accounting Officer Memorandum for NDPBs (reproduced in Chapter 8)
Executive NDPBs - Annual Reports and Accounts Guidance
Relevant Dear Accounting Officer, Dear Consolidation Officer and Dear Consolidation Manager letters
The Consolidation Officer Memorandum
Regularity and Propriety
Managing the Risk of Fraud
The Green Book (Appraisal and Evaluation in Central Government) and any supplementary guidance
Fees and Charges Guide
Departmental Banking: a manual for Government Departments.

2.6 Where there is disagreement between EP and ODPM over the interpretation of the Financial Memorandum, the Deputy Prime Minister’s decision is final.

2.7 The Financial Memorandum will normally be reviewed at least every five years or following a review of EP’s functions as provided for in Section 7 of the Management Statement. The Treasury will be consulted on any significant variations proposed.

3. Allocations, Budgeting and Funding

3.1 For the purpose of financial accounting, both the CNT and URA are classified as Non Departmental Public Bodies (NDPBs); this is particularly relevant in the context of Resource Accounting and Budgeting (RAB), which was fully introduced throughout the Public Expenditure System from 2001/02.

3.2 The ODPM’s expenditure is controlled by the Departmental Expenditure Limit (DEL). Within DEL there are separate controls over Consumption and Investment expenditure (within Resource DEL) and Capital expenditure (Capital DEL). Because of the separate statutory bases of the URA and CNT, EP must continue to budget, record and account separately for all transactions relating to the URA and CNT.

(a) whereas the acquisition and disposal of development land treated as stocks are scored against Resource Investment, the raising / release of provisions and stock write-downs are scored against Resource Consumption.

(b) the need to account for the acquisition of stocks at the time of disposal applies to costs incurred on or after the introduction of Stage 2 of Resource Accounting and Budgeting on 1 April 2003. This is to avoid double-counting, because the costs of acquisition and enhancement of such assets were scored as public expenditure in previous years.

(c) the acquisition and disposal of fixed and investment assets, both land and non-land, are scored against Capital.

(d) the treatment of receipts from the European Union is set out in paragraph 3.33 below.

3.5 ODPM will provide EP with separate expenditure limits for the CNT and URA under the various DEL limits before the beginning of the financial year.

3.6 EP must not exceed (or plan to exceed) its budget limits without the prior approval of the ODPM. ODPM is prepared to consider switches between the various limits at appropriate times of the year, subject to its own over-riding position.

3.7 EP must prepare a draft budget and submit it to ODPM, normally by the end of February each year. It should make clear the proposed separate expenditure for the URA and CNT, relating these to the respective DEL figures. The budget shall relate as fully as possible to the Corporate Plan for that year.

3.8 A final version of the budget (incorporating actual year-opening data) should be submitted to ODPM by the end of April each year. The Office reserves the right to change these dates if necessary.

3.9 Once EP’s annual budget has been approved by ODPM (and subject to any restrictions imposed by statute/the Deputy Prime Minister/this Financial Memorandum), EP shall have authority to incur expenditure approved in the budget without reference to ODPM, on the following conditions:

3.10 In accordance with a timetable determined separately by the ODPM, EP must provide ODPM with expenditure data (expressed in terms of DEL utilised and separately for URA and CNT) for the previous month, and forecast outturn data for the current month and each remaining month of the financial year. The data is to be provided on workbook spreadsheets in a format provided by the ODPM.

3.11 Without prior written ODPM approval, EP must not enter into any undertaking to incur any expenditure which falls outside its delegations or which would exceed the approved expenditure limits.

3.12 Any interest earned on cash balances arising from grant-in-aid or other Exchequer funds shall be treated as a receipt from an Exchequer source. This may lead to a commensurate reduction of grant-in-aid or be required to be surrendered to the Consolidated Fund.

3.13 EP’s gross administration expenditure (which includes staff and premises costs) will be agreed by ODPM as part of the annual budget approval process. The expenditure is scored against Resource Consumption DEL and ODPM will monitor such costs throughout the year, along with other expenditure.

3.14 In the event that net expenditure by either the URA or CNT in any year (calculated in accordance with RAB budgeting principles) falls short of the agreed DEL limits, EP may be eligible for additional resources the following year through EYF arrangements. The normal presumption is that EP will be entitled to 80% of any DEL under-utilisation that represents slippage (as opposed, for example, to the abandonment of a project or programme). This arrangement is, however, subject to the overriding needs of the ODPM. In considering approaches from EP, ODPM will take into account the reasons why there was an underspend the previous year and also whether EP has sought EYF in preceding years. If EYF is granted, ODPM will consider requests from EP for an increase in the level of grant in aid that may become necessary as a result.

3.15 If the amount of any income (which is treated as negative DEL) realised or expected to be realised in-year is less than estimated, EP must, unless otherwise agreed with the ODPM, ensure a corresponding reduction in its gross expenditure so that the authorised net provision is not exceeded. Where this might cause EP budgetary difficulties, EP and ODPM will work together to attempt to resolve them.

3.16 Since 1 April 2003, the discount rate for all transactions has been 3.5%. This applies across English Partnerships and includes all project appraisals.

3.17 In the case of the disposal of community-related assets, it is the minimum rate when considering potential dowries, whether to local authorities in single party negotiations or in competitive situations. This arrangement is subject to review from time to time in the light of experience and of changes in interest rates. [See also paragraph 4.12 below.]

3.18 The cost of capital charge is calculated by applying a specific percentage to the average net assets of the URA and CNT separately. From 1 April 2003 this percentage has been 3.5%, but it is subject to change from time to time. Cost of capital scores against the Resource Consumption DEL.

3.19 Grant in aid may be payable by ODPM to the URA to meet costs appropriate to its statutory purposes. This will be voted by Parliament annually through the Estimate process. No grant in aid is paid to the CNT.

3.20 The level of grant in aid will normally be assessed by deducting the amount of non-cash income and expenditure (eg provisions) from the total DEL expenditure limits and by taking into account the amount of cash required in relation to changes in balance sheet assets and liabilities.

3.21 EP must have regard to the guidance in DAO(GEN)14/01 and to the general principle enshrined in chapter 9 of Government Accounting that it should seek grant in aid according to need.

3.22 EP’s estimate of its cash requirement will inform the Department’s estimate of its own overall cash requirement. Where necessary, the Department will seek a Supplementary Estimate. The figures provided for the Main and any Supplementary Estimates provide the ceiling on the amount of cash that EP can claim in year. Neither the Department nor EP can exceed the cash provision set out in the Estimates.

3.23 Grant in aid will normally be paid in monthly instalments, on the basis of a written application showing evidence of need. All applications must be signed by the Chief Executive or by the Director of Finance or by a person notified in advance to ODPM as having delegated authority to sign applications.

3.24 Claims must be submitted in accordance with an agreed format. All claims must certify that the conditions applying to the use of grant in aid have been observed to date and that further grant in aid is now required for purposes appropriate to the URA’s functions.

3.25 The basic information required is the amount of cash EP requires each month throughout the financial year. The following data will normally also be required:-

3.26 This information is to allow ODPM to determine whether requests for grant in aid are reasonable and ensure that money is not paid in advance of need. Any grant in aid not paid over to EP by the end of each financial year will lapse.

3.27 EP’s forecasts of its future grant in aid requirements should be as accurate as possible and EP may be set targets for the accuracy of its forecasts.

3.28 Any payments which EP intends to make to ODPM should be notified at least 7 working days in advance. This enables the ODPM to take such amounts into account when considering its overall daily cash position.

3.29 EP should keep cash balances to the minimum necessary to meet its immediate requirements. Any cash above this figure should be placed on deposit taking account of the need to safeguard funds and manage risk. No investments in traded financial instruments are permitted without the prior written approval of the Department.

3.30 In accordance with the terms of DAO (GEN) 14/01, there are no additional rules concerning the carry forward of grant in aid from one financial year into the next.

3.31 In the event that the URA carries cash balances over the year end, the Department will take this into account when considering the total amount of grant in aid to be paid the following year. The Department may reduce the proposed amount of cash grant in aid or, alternatively, may require the URA to surrender any surplus cash immediately.

3.32 The Department will notify EP of the arrangements and timetable for the Main and Supplementary Estimates as soon as possible after they are established. EP must provide such information as the Department may require for the Estimates.

3.33 When European receipts are remitted to EP by the relevant Government Office, they have already been accounted for in accordance with Treasury requirements. Consequently, EP can treat them in the same way as receipts from the sale of assets (ie they count as negative DEL). Since they represent a contribution towards a specific item of expenditure, they will count as negative Capital or Resource DEL, depending on how the underlying expenditure is scored.

3.34 Receipts from the sale of goods and services (including certain licences where there is a significant degree of service to the individual applicant), rent of land, and dividends are classified as negative public expenditure in national accounts and therefore normally provide additional expenditure power in DEL.

3.35 On the other hand most fines and taxes (including levies and some licences) are not negative public expenditure and do not provide additional expenditure power in DEL. ODPM will determine whether or not receipts from these sources should be surrendered.

3.36 If there is any doubt about the correct classification of a receipt, EP must consult ODPM, who will consult the Treasury as necessary.

3.37 Any cash which is received by EP from past Derelict Land Grant projects must be returned to ODPM. Details of the amounts already remitted during the year and the amounts estimated to be returned during the remainder of the year must appear on the monthly grant-in-aid claim forms.

3.38 EP’s Accounting Officer is responsible for ensuring that the organisation’s banking arrangements safeguard public funds and that they are carried out efficiently, economically and effectively in accordance with the requirements of Government Accounting and the Treasury guidance document Departmental Banking: a Manual for Government Departments.

3.40 Although their statutes permit it, it is not expected that either the URA or CNT will borrow money. Any proposal to take out a loan, or to enter into a financial lease or other arrangement that is akin to borrowing, requires the specific prior approval of both the ODPM and the Treasury, whose guarantee may also be required. Any borrowing that is approved will count against the DEL limits.

3.41 The existing CNT bank overdraft facility may, however, remain, subject to the Treasury agreeing to renew its guarantee. EP must apply to the Department each year before the expiry of the previous guarantee if it wishes this facility to be renewed.

3.42 EP must obtain ODPM’s written consent (which with the agreement of the Treasury may be granted in a general form), to lend money, charge any asset as security, give any guarantee or indemnities or letter of comfort, or incur any other contingent liability (as defined in Government Accounting), whether or not in a legally binding form.

3.43 Prior Departmental approval must be secured for all property and finance leases. EP must have Capital DEL provision for finance leases and other transactions which are, in substance, borrowing.

3.44 Before entering into any lease (including an operating lease), EP must be able to demonstrate that the lease offers better value for money than purchase.

3.45 EP is free to retain any gifts, bequests or similar donations made to it. These will be treated as receipts and must be accounted for appropriately. EP must keep a record of all gifts, bequests and donations received, and of their estimated value and whether they are disposed of or retained. It should also consider if there are any associated costs in doing so or any conflicts of interests arising.

3.46 Donated assets do not attract a cost of capital charge, and a release from the donated assets reserve should offset depreciation in the operating cost statement. Any gift or bequest of a significant monetary value must be reflected appropriately in the annual accounts.

3.47 Fees and charges made for any facilities or services provided by EP shall be determined in accordance with Treasury’s Fees and Charges Guide, the Freedom of Information Act, when brought into effect, Selling into Wider Markets: A Policy Note for Public Bodies, and Charges for Information: When and How.”

3.48 In accordance with the wider markets policy, EP should seek to maximise receipts from non-Exchequer sources, provided that this is consistent with both its main functions and its corporate plan.

3.49 In the event of either the URA or CNT receiving cash payments from local authorities, whether by way of commutation of loans or in accordance with expenditure sharing agreements, the authority concerned may be eligible for a Supplementary Credit Approval from ODPM. EP must notify ODPM immediately it becomes aware of such a situation or when asked to do so.

3.50 No grant or grant in aid may be paid into any reserve held by EP. Funds in any reserve may be a factor for consideration when grant in aid is determined.

4. Project expenditure

4.1 EP must agree all new initiatives and programmes with ODPM. These should normally be included initially in the corporate plan. Material changes to previously agreed initiatives and programmes should also be agreed with ODPM. EP must be satisfied in all instances that its proposals are consistent with EU law and regulations. Where appropriate, the necessary approval should be sought from the European Commission via ODPM.

4.2 Payments by EP of grants or loans must be made properly in accordance with any guidelines for such payments given by ODPM. EP must ensure that proper procedures are in place to ensure that grants can only be given after a satisfactory financial appraisal of the organisation to demonstrate continuing financial viability. All grants must be subject to conditions to ensure that grant money is used only for the purposes intended, including, where appropriate, a requirement for a statement of the use of grant money and a report on this statement by independent auditors.

4.3 EP should make it a condition of any grants it makes to third parties that a proper proportion of the value of the assets so created or acquired should be repaid if the assets cease to be used by the recipient of the grant for the purposes intended or the assets are disposed of by the third party.

4.4 EP shall make available to ODPM such information about any projects or expenditure as the Department requires.

4.5 Subject to the provisions of the Acts, any consents, guidance or directions issued by the Secretary of State pursuant to these Acts, and any relevant external considerations (such as state aid issues), EP may fund or support projects through:

4.6 Any expenditure (or risk of expenditure) which cannot properly be treated as part of a project should be considered as Resource Consumption expenditure.

4.7 Each project must be individually appraised, controlled and monitored in accordance with guidance issued from time to time. The appraisal should normally:

As far as possible, expenditure and disposal proposals by either URA or CNT should be appraised in a consistent manner (subject to the statutory differences between the two bodies.) The discount rate to be used for all appraisal purposes is 3.5%.

4.8 Guarantees, indemnities or other forms of contingent liability entered into by EP count as project expenditure and relate to the total size of the liability over its lifetime, irrespective of the size of the project of which it is part. All such liabilities must be consistent with EP’s statutory powers and are subject to the requirements of Government Accounting. ODPM may also set limits for the total value of outstanding guarantees, indemnities and liabilities either in total or by category.

NB All specific financial limits relating to project expenditure in this section refer to the total gross undiscounted cost of a project, including where appropriate the cost of land acquisition. The limits do not relate to resources utilised or DEL limits.

4.9 EP may commit expenditure up to a maximum of £10m for any individual project which is to be funded in accordance with its twin statutory powers.

4.11 Both the limits and the terms apply equally to both the URA and the CNT. Projects must not be artificially divided in order to avoid these limits.

4.12 All the limits are subject to review from time to time. Pending further discussions and agreement between EP, ODPM and the Treasury, no delegated limits for endowments currently exist.

4.13 EP must seek the prior approval of the ODPM in the following circumstances:

In considering approaches under this paragraph, ODPM will bear in mind Ministerial objectives and EP’s remit.

4.14 EP must discuss with ODPM at an early stage any novel, contentious or repercussive proposals likely to arise on a particular piece of business. EP must obtain the approval of the Department before making:

4.15 Treasury approval may also be required in these cases, irrespective of the financial amounts involved.

4.16 Where a vendor demands that EP, whether or not in competition with other bidders, submits an expression of interest, the appropriate approvals (whether within its own delegation or specifically from ODPM) must be in place first.

4.17 EP must exercise care when considering the acquisition of a portfolio of sites to ensure that there is a close fit overall between the portfolio and policy objectives, or that the inclusion of certain individual properties is of such importance to policy objectives that it warrants purchase of the portfolio. In the latter case, it will be expected that every attempt has been made to purchase these properties on an individual basis before bidding for the portfolio as a whole.

4.18 Where a single contract will encompass the entire purchase, the delegation limit above applies to the value of that contract. Where more than one site is being acquired from the same vendor at the same time, even if separate contracts will be used, the normal assumption is that the entire portfolio is a single transaction and must be treated as such. This assumption may, however, be affected by other factors, such as the relative location of the sites and the degree to which the inclusion of any are essential to ensure the successful completion of the subsequent development.

4.19 Prior ODPM consent is required in all instances where EP proposes to incur expenditure of whatever type which involves the acquisition of a greenfield site on its own account, or the provision of financial assistance to other parties to acquire or develop a greenfield site.

4.20 This does not apply to the expenditure necessary to dispose of a greenfield site owned by either the URA or CNT, or the disposal of such sites to another party. All normal planning considerations will of course continue to apply. Where there is any doubt, ODPM would be happy to have informal discussions first.

4.21 ODPM reserves the right to “call in” at any time for examination papers relating to any EP project or other expenditure or commitment.

4.22 EP must obtain ODPM’s prior approval to form, or acquire interests in, bodies corporate and joint ventures, irrespective of the amount of money involved. In considering such approaches, ODPM will take into account the Office’s wider strategic aims, objective and current Public Service Agreements.

4.23 If agreement is given, EP must ensure that the financial arrangements and conditions applying to payments between the bodies is appropriately documented.

4.24 Any subsidiary company or joint venture controlled or owned by EP shall be consolidated with it in accordance with UK GAAP for public expenditure accounts purposes [subject to any particular treatment required by UK GAAP]. Where the judgement over the level of control is a close one, ODPM will consult the Treasury (who may need to consult with the Office of National Statistics over national accounts treatment). Unless specifically agreed with ODPM and the Treasury, such subsidiary companies or joint ventures shall be subject to the controls and requirements set out in the Management Statement and Financial Memorandum, and to the further provisions set out in supporting documentation.

4.25 Wherever possible, EP should look for opportunities to enter into Public Private Partnerships (PPP) to secure its objectives where this would be more affordable and offer better value for money than conventional procurement. The PPP label covers Private Finance Initiatives (PFIs) in which the public sector contracts services on a long-term basis with the private sector; the introduction of private sector ownership into state-owned businesses; and the selling of Government services into wider markets.

4.26 It must involve ODPM as soon projects are identified, particularly where there is possibility of a long term revenue commitment.

4.27 There are also potentially complex accounting rules to be considered. If a project is held to be ‘off balance sheet’, it is treated as the purchase of services. Any associated capital expenditure is treated as investment by the private sector and not recorded. But the rules are different if the project is considered to be ‘on balance sheet’.

4.28 Any partnership controlled by EP shall be treated as part of EP, in accordance with UK GAAP and consolidated with it [subject to any particular treatment required by UK GAAP]. Where the judgement over the level of control is a close one the Department will consult the Treasury (who may need to consult with the Office of National Statistics over national accounts treatment).

4.29 Unless otherwise agreed with ODPM, EP must not enter into any unconventional financing arrangement.

5. Miscellaneous financial issues

5.1 EP is responsible for the effective use and management of all its assets, including property. It is also responsible for ensuring that adequate arrangements are in place to maintain accurate and up-to-date records and to ensure that the properties are maintained (as a minimum to comply with Health and Safety legislation and recommendations) and are used and managed cost-effectively. Records should include a market valuation (as defined by the Royal Institution of Chartered Surveyors) of property held by EP. This should be updated at not less than five year intervals in accordance with external audit requirements.

5.2 When considering accommodation requirements for its own needs, EP should liaise closely with the Office of Government Commerce (OGC) and should inform OGC of any material changes in its accommodation requirements.

5.3 EP should ensure that that the risks it faces are dealt with in an appropriate manner, in accordance with the relevant aspects of best practice in corporate governance. It should also develop and maintain a risk management strategy. Guidance is contained in Government Accounting and the Treasury publication Management of Risk: A Strategic Overview.

5.4 It must take all reasonable steps to appraise the financial standing of any firm or other body with which it intends to enter into a contract or to give a grant.

5.5 The presumption in Government Accounting is that NDPBs should not use commercial insurance. In deciding whether to insure, the underlying criterion should be cost effectiveness, subject to the provisos set out in paragraph 30.4.2. In all other circumstances, EP must obtain the Department's prior approval, other than in the case of third party insurance required by the Road Traffic Acts and any other insurance which is a statutory obligation or which is permitted in Government Accounting.

5.6 EP must adopt and implement policies and practices to safeguard itself against fraud and theft, in line with Treasury's guide Managing the Risk of Fraud.

5.8 Proposals for making gifts or other special payments (including write-offs outside the limits below) must have prior ODPM approval. Gifts by management to staff are subject to the requirements of DAO(GEN) 13/01 and the associated Cabinet Office guidance on non-pay rewards. The Chief Executive as Accounting Officer has authority to write off losses and make special payments to the value shown below providing all reasonable attempts at recovery have proved unsuccessful. For cases which fall outside these conditions, ODPM authority is required before any action is taken.

5.10 The Chief Executive may formally delegate authority to write off losses and make special payments, within specific limits, to officers at appropriate levels. These delegations should be kept under review.

5.11 EP must maintain a record of all losses written off and special payments made detailing the circumstances of the event and stating the action taken to prevent a recurrence; a record of gifts made should also be maintained. These records shall be available to ODPM for inspection on request and a copy formally provided annually no later than the end of May each year (November and May in the case of any losses under the former Derelict Land Grant and City Grant programmes.)

5.12 EP shall notify ODPM of all recommendations made to it by the Parliamentary Commissioner for Administration or the Health Service Commissioner.

5.13 EP’s procurement policies must reflect guidance from the Office of Government Commerce including Procurement Policy Guidelines. It must also ensure that it complies with any relevant EU or other international procurement rules. The Department will provide advice on the application of such rules, as necessary.

5.14 Procurement of works, equipment, goods and services must be based on value for money, ie quality (in terms of fitness for purpose) and delivery against price. Where appropriate, a full option appraisal shall be carried out before procurement decisions are taken.

5.15 Periodically and wherever practicable, EP’s procurement practices should be benchmarked against best practice elsewhere and contracted out where this would achieve better value for money.

5.16 EP should take all reasonable steps to appraise the financial standing of any firm or body with which it intends to enter into a contract.

5.17 Wherever practicable EP should expose activities undertaken by its own employees to outside competition and arrange for them to be contracted out, where this would provide improved value for money.

5.18 Contracts must be placed on a competitive basis and tenders accepted from suppliers who provide the best value for money overall. All contracts should therefore normally be let by means of full competitive tender.

5.19 It is recognised, however, that this may not always be appropriate for smaller contracts:

5.20 Single tenders should be avoided wherever possible. However, contracts up to £25,000 may be let by single tender where there is no reasonable alternative (for example, for certain specialist or fixed price services) or in cases of extreme urgency (for example, to remove a risk to public safety). Any proposals for single tender for contracts above £25,000 require prior ODPM approval.

5.21 The Chief Executive may formally delegate authority to let contracts, within specific limits, to officers at appropriate levels. These delegations should be kept under review.

5.24 EP shall collect receipts and pay all matured and properly authorised invoices in accordance with the terms of contracts or within 30 days, as provided for in Annex 16.2 of Government Accounting. It must comply with the British Standard for Achieving Good Payment Performance in Commercial Transactions (BS 7890), and with the Late Payment of Commercial Debts (Interest) Act 1998, as amended. The 1998 Act allows creditors to claim statutory interest and compensation on late payment of commercial debts.

5.25 EP must keep the overall level of its fixed and investment assets under regular review, with a view to disposing of any that are surplus to its requirements. It should, therefore, maintain an accurate and up-to-date register of such assets. The register should be made available for inspection by ODPM on request.

5.26 ODPM does not expect EP normally to increase the level of its fixed and investment assets. Disposal of fixed and investment assets must be undertaken in accordance with the requirements of chapter 24 of Government Accounting.

5.27 Development assets include land acquired and owned by either the URA or CNT for purposes such as regeneration and development. For Resource Accounting purposes, these are treated as stocks. EP must not acquire such assets for its activities at more than the market value of these assets, defined as the amount the asset would fetch on the open market if sold in its existing conditions for a permitted development, excluding any hope value created by the existence of EP. The valuation must be subject to the same external franking requirements as disposal of land of the same value.

5.28 EP shall provide information relating to the acquisition of development assets in a form and in a timescale to be agreed with the ODPM. The disposal of development assets is subject to the delegation limits set out in paragraph 4.13 above.

5.29 Where EP has helped finance expenditure on assets by means of a grant to another party, it must make appropriate arrangements to ensure that:

5.30 There may be occasions when it is appropriate for EP to seek ODPM agreement to the waiving or deferral of clawback to which it is entitled. Each approach will be considered on a case-by-case basis, and Treasury consent obtained where necessary. If the receipt foregone were to be re-cycled to help achieve overall Government objectives or outputs, similar to those supported by the previous grant, we would be prepared to consider approval.

6. Staffing matters

6.1 In accordance with the requirements of the 1981 and 1993 Acts, Board members (including a Chairman and Deputy Chairman) are appointed by the Deputy Prime Minister as First Secretary of State, who also determines the period of the appointments, the remuneration and other terms and conditions.

6.2 Board members are normally appointed to both the URA and CNT. EP is responsible for the payment of the remuneration, pensions and expenses of board members of the URA. Members who are appointed to the CNT only may be paid directly by ODPM in accordance with the 1981 Act.

6.3 Board members’ travel expenses shall be tied to the rates allowed to EP’s senior staff. Reasonable actual costs shall be reimbursed.

6.4 Although the Chief Executive is appointed by the EP Board, prior ODPM approval is required before any appointment is made. This is a requirement of Schedule 17 to the 1993 Act. The shortlist of candidates must be cleared with the Department before they are invited for interview, so as to ensure that the eventual appointee would be acceptable as Accounting Officer. In practice, ODPM expects EP to liaise with it closely at every stage of the process.

6.5 The terms and conditions of the appointment, including remuneration, also require ODPM approval. The annual pay award is determined by ODPM and approved by the Treasury. Currently, this is based on recommendations by the Senior Salaries Review Body.

6.6 The board should set the Chief Executive personal annual performance targets. These should be clearly defined, challenging and realistic, covering the corporate plan and strategy objectives. A separate objective, covering personal responsibility as Accounting Officer, should also be included. (ODPM is happy to give separate advice on a suitable form of words if need be.)

6.7 If targets need subsequently to be revised because of a significant change in circumstances, the revisions should be formalised at the time and not retrospectively.

6.8 The Chief Executive is also eligible for performance related pay of up to 15% of salary in the form of a performance award. This must be paid as a one-off taxable lump sum and not consolidated into salary. The Chairman and Board have delegated authority to operate an appropriate scheme within the overall system approved by ODPM and the Treasury. No changes to these arrangements shall be made without the prior ODPM agreement.

6.9 Since, for performance review purposes, EP’s year begins in July:

(a) on or before 1 July, the Chairman should send a copy of the Chief Executive’s targets for the forthcoming period to ODPM for their comment.

(b) as soon as possible after 1 July, the Chairman should inform ODPM whether the Board is minded to make an award for the immediate past period and, if so, the proposed amount. This must be based on a detailed review of the Chief Executive’s performance against these objectives.

6.10 In view of ODPM’s particular interest in the Accounting Officer objective, it will advise the Chairman if it has any views or comments in this regard when acknowledging the PRP award proposal.

6.11 EP should establish and operate a unified set of terms and conditions for all staff, whether on permanent or temporary contract. These should cover both pay and non-pay matters, including the provision of cars.

6.12 The terms are to be approved by ODPM, with the consent of the Treasury and should take account of information provided in this Financial Memorandum and any separate Management Guidance.

6.13 Current terms and conditions for EP staff should be set out in its Employee Handbook. A copy of the Handbook and subsequent amendments should be provided to ODPM.

6.14 EP shall operate an open and fair annual appraisal system for its staff and a performance-related pay scheme, which shall form part of the general pay structure that is approved by ODPM, with the consent of the Treasury.

6.15 Before any annual pay settlement can be agreed with its staff, EP must submit what information ODPM may require in order to comply with the Government’s policy on public sector pay. This will normally be in the form of a pay remit, the format of which will be advised each year by ODPM. Remits will normally need to be cleared by both ODPM and the Treasury.

6.16 When recruiting, EP shall select staff on merit on the basis of fair and open competition, save where an appointment is justified for exceptional reasons relating to the needs of EP and the proven ability of the person proposed for appointment. EP is free to determine whether staff (other than the Chief Executive or Senior Staff) should be employed on fixed-term or open-ended contracts.

6.17 Prior ODPM approval is required for the creation of any new senior staff posts where the median of the basic salary range exceeds £60,000 per annum. This will also cover the question of whether the contracts should be fixed term or open-ended. The threshold figure may be subject to review from time to time.

6.18 EP must shall comply with the EU directive on contract workers [“Fixed Term Employees Regulations (Prevention of Less Favourable Treatment”)].

6.19 Wherever appropriate, EP must take account of the Transfer of Undertaking (Protection of Employment) Regulations 1981 TUPE (SI 1981. No 1794) as amended or the provisions in the Act providing protection equivalent to TUPE, or the Cabinet Office's Statement of Practice – Staff Transfers in the Public Sector issued in January 2000, where these are relevant.

6.20 EP shall operate severance arrangements that are subject to ODPM approval. Guidance on compensation can be found in Compensation for Premature Termination of Appointment of staff in Non-Departmental Public Bodies, and DAO(GEN) 04/02 dated 8 February 2002.

6.21 EP shall ensure that it has proper mechanisms for monitoring and controlling manpower resources. EP shall periodically review the outputs of these mechanisms, and allow access to ODPM for the purpose of carrying out audits.

6.22 From time to time, ODPM may request specific information from EP on staffing and personnel matters, including for the purposes of reporting on the performance and policies of the wider ODPM "family" or in order to fulfil Accounting Officer responsibilities. EP shall submit such information as ODPM may require.

6.23 EP must ensure that there are clear legal and administrative arrangements covering the provision of its pension schemes in respect of benefits and contributions, the administration of the schemes and the management of the funds. EP must report to ODPM on the organisation of its pension schemes and the management of the funds as soon as possible after the end of each financial year, or as agreed with ODPM.

6.24 EP staff shall normally be eligible for a pension provided by the English Partnerships Pension Scheme, or to retain their existing arrangements in, for example, the Local Government Pension Scheme (LGPS).

6.25 Staff may opt out of the EP occupational pension scheme. However, the employer's contribution to any personal pension arrangement, including a stakeholder pension, shall normally be limited to the national insurance rebate level.

6.26 Any proposal by EP to change its existing pension arrangements requires ODPM approval.

6.27 EP should have regard to the Guide to Green Transport Plans issued by the former Department of the Environment, Transport and the Regions (DETR) in August 1997, which advises on how to reduce the impact on the environment of travel to work and transport activity during work. EP should establish its own green transport plan.

7. Accounts and Audit

7.1 EP must publish its accounts and a report of its activities annually. Separate accounts must be produced for the URA and CNT. These should be reproduced in the Annual Report.

7.2 The accounting requirements for EP are set out in the Accounts Directions issued to URA and CNT by the ODPM. EP must retain accounting documents in line with the requirements of Government Accounting.

7.3 EP must adhere to the timetable agreed with ODPM each year for the preparation and publication of the accounts. This timetable is intended to allow EP’s annual report and accounts to be laid before Parliament before the Summer recess.

7.4 EP shall submit a copy of its accounts to ODPM before they are signed and before the auditors sign their report on the accounts. This is to give ODPM the opportunity to comment on the text and presentation in the accounts. The Accounts should normally be signed by the Chairman (on behalf of the Board) and by the Accounting Officer.

7.5 No information from the accounts must be made public before they have been laid before Parliament.

7.6 The main arrangements for internal and external audit are set out in the Management Statement. The following paragraphs cover additional aspects.

7.7 The external auditors are asked to provide ODPM with a final Management Letter and Regulatory, Compliance and Special Reports in respect of each set of accounts they have audited. It is important that these are submitted to ODPM in accordance with the timetable set each year by ODPM. This will help ensure that the National Audit Office can be provided with the assurances they require before completing work on ODPM’s own accounts.

7.8 The Management Letter should contain responses to all the comments made by the external auditors, showing any changes that EP intends to make and a timetable for their implementation.

7.9 Final invoices for external audit require the approval of both EP and ODPM before payment can be authorised. All invoices for external audit will be addressed to, and shall be paid by, the URA and CNT respectively.

7.10 EP should be aware that any receipts from and payments to European Union bodies are subject to audit by the European Union (EU). Where EP receives funding from the EU, it may be subject to an audit by the European Court of Auditors. It may also be subject to audit by other auditors acting under the terms governing the provision of the financial assistance or the protocol arrangements agreed between Government departments and the EU.

Resource consumption	Resource consumption (formerly AME)
Staff Costs (A15)	Depreciation (B90)
Payments for goods and services (B35)	Cost of Capital Charge (B99)
Subsidies to the Private Sector (C10)	Take up and revaluation of provisions relating to bad debts on loans (L30). Release of such provisions (L31)
Current grants to Private Sector (D10)	Take up and revaluation of provisions relating to pay and services (L10). Release of such provisions (L11)
Current grants to Local Authorities (M15)	Take up and revaluation of provisions relating to pensions (L15). Release of such provisions (L16)
Income from sales of services (B35)	Take up and revaluation of provisions relating to grants (L20). Release of such provisions (L21)
Income from levies, fines and licences which do not provide a significant service element (B45)	Impairments (B95)
Current grant received from OGDs (B35)	Stock write offs/write downs (F20)
	Interest payable to or receivable from the private sector) (S10) [e.g. from bank deposits]
	Bad debts in connection with pay, procurement, capital (B85).
	Bad debts in connection with loans, grants and transfers (B86).

Resource investment	Resource investment
Capital grants to private sector [companies] (G10)	Profit/Loss on sale of other tangible assets (X16)
Capital grants to Private Sector [persons and non profit making bodies] (G20)	Acquisition of land as stocks (Purchases) (F25) – Accounted for at time of sale
Profit/Loss Sale of Land (X06)	Sales of land held as stock (Sales) (F25)
Profit/Loss on sale of buildings (X11)	Other payments within Central Government (Z10) [e.g. Coalfields programme payments to & receipts from RDAs]

Capital Del	Capital Del
Acquisition of Land (E05))	Net Book Value, Sale of other tangible assets (E16)
Net Book Value, Sale of Land (E06)	Capital grants to Local Authorities (N10)
Acquisition of Buildings (E10)	Change in Net Lending to the private sector - Companies (H10)
Net Book Value, Sale of Buildings (E11)	Change in net lending to the private sector – persons and not for profit bodies (H20)
Acquisition of other tangible assets (E15)

Non-budget items - Outside Del
Corporation Tax payments (S40)	Grant in Aid
Some payments to the Treasury Consolidated Fund (various)

Part B: Financial Memorandum

1. Definitions

2. Introduction

3. Allocations, Budgeting and Funding

4. Project expenditure

5. Miscellaneous financial issues

6. Staffing matters

7. Accounts and Audit