Auditor General for Wales report published 10 July 2000: Welsh Development Agency

The Auditor General for Wales

Publications

Welsh Development Agency: 1999-2000 Account

Report by the Auditor General for Wales

Presented to the National Assembly on 10 July 2000

Introduction

In my report to Parliament (HC 758 of 1999-2000) on the 1998-99 accounts of the Welsh Development Agency (the Agency), I set out the basis on which the Agency acquired the property, rights and liabilities of the former Development Board for Rural Wales and Land Authority for Wales on 1 October 1998. On that date, the Agency also acquired a company limited by guarantee - Welsh Food Promotions Limited. On 1 April 1999, the activities of this company and its subsidiaries became an integral part of the Agency’s own operations.
During the 1999-2000 financial year, the Agency acquired assets, rights and obligations from Cardiff Bay Development Corporation (the Corporation), which was wound up on 1 July 2000 by Assembly Order.
In this report, and without qualifying my audit opinion, I set out the sequence of events and the accounting implications for the Agency of the absorption of Welsh Food Promotions Limited and the wind-up of the Cardiff Bay Development Corporation. As a separate exercise from my examination of the Agency’s accounts, I intend to examine the management of the dissolution of the Corporation by the National Assembly for Wales (the Assembly) and the transfer of its property, rights and obligations, with a view to reporting as appropriate to the Assembly in due course.

Welsh Food Promotions Ltd

In my report on the Agency’s 1998-99 Accounts, I stated that the Agency, on acquiring Welsh Food Promotions Limited on 1 October 1998, had undertaken to make the company an integral part of its business development function. This action was completed on 1 April 1999, when the company’s assets, liabilities and reserves were transferred to the Agency.
The 1998-99 audited accounts of the company, which reported net assets at 31 March 1999 of some £272,000, received an unqualified opinion from that company’s appointed external auditor. The assets were transferred to the Agency at their reported net book value on 1 April 1999 and the Agency made good progress during the 1999/2000 financial year in settling the company’s outstanding debtors and creditors. The 1999/2000 accounts, which also received an unqualified opinion, reported nil income and expenditure for the year and a nil balance sheet at 31 March 2000. The Agency and the directors of the company and its subsidiaries (Taste of Wales Limited and Taste of Wales (Retail) Limited) intend to wind-up and remove all three companies from the Register in the near future.
The key criteria governing the transfer of the company’s balances into the ledgers of the Agency were the completeness, accuracy and valuation of the accounting records and other data. The National Audit Office Wales reviewed the process of the information transfer during their work on the 1999-2000 accounts of the Agency. That work also included a review of the consistency of accounting policies between the Agency and the company. From this review, no significant differences were found that impacted on the 1999-2000 accounts of the Agency. Accordingly, I am satisfied with the transfer of information into the ledgers of the Agency and with the accounting treatment of the transferred balances in the Agency’s accounts for 1999-2000.

Wind-up of the Cardiff Bay Development Corporation

In accordance with Statutory Instrument 2000/1023-W59, made by the National Assembly for Wales pursuant to the Local Government, Planning and Land Act 1980 (as amended), the Cardiff Bay Development Corporation was dissolved on 1 July 2000. Statutory Instrument 2000/997 (W.54) (the section 165A Order), made by the National Assembly for Wales pursuant to the 1980 Act, transferred to the Assembly any rights and liabilities arising under Agreements which were vested in the Corporation on 31 March 2000. These Agreements, which were made under the provision of section 165 of the 1980 Act between the Corporation and each of the successor bodies, transferred specific functions, assets and liabilities to each successor body (the Agency, Cardiff City Council, the Vale of Glamorgan County Council and the Countryside Council for Wales). Statutory Instrument 2000/996 (W.53) (the section 165B Order) made by the Assembly transferred to the successor bodies rights and liabilities relating to the transfers under these section 165 Agreements.
As part of these arrangements, the section 165B Order also transferred to the Agency all property rights and liabilities for the Bute Avenue project, and for the Corporation’s residual assets and liabilities on 31 March 2000, with the exception of those which were retained by the Corporation for the purposes of preparing its final Accounts and Reports and winding up its affairs before dissolution on 1 July 2000. Prior to the Corporation’s dissolution, all remaining residual assets and liabilities were transferred to the Agency under the section 165B Order.

Transfer of Accounting Data from the Corporation to the Agency

An important component of the transfer operation was the compilation and transfer of data on those assets and liabilities that were transferred to the Agency on 31 March and 30 June 2000. This work was undertaken jointly by staff of the Corporation and the Agency, and involved verifying the completeness, accuracy, valuation and ownership of the property, rights and obligations transferred and the successful migration of the associated accounting data into the records and accounting ledgers of the Agency.
Since the date of transfer, the Agency has sought actively to manage the property portfolio it inherited from the Corporation. A key component of this management process is the Agency’s intention to achieve a commercially sound divestment of the portfolio at the earliest opportunity, with the exception of the Bute Avenue Project referred to later in this report. The Agency has also introduced procedures to manage the other assets and liabilities transferred.
The National Audit Office Wales has reviewed the transfer to the Agency of the Corporation’s development assets and liabilities on 31 March 2000. On the basis of their work, I am satisfied with the completeness, accuracy and valuation of the data migrated into the ledgers of the Agency and with the accounting treatment of those assets and liabilities in the Agency’s accounts for 1999-2000. The National Audit Office Wales has also reviewed the residual assets and liabilities of the Corporation, all of which transferred to the Agency on 30 June 2000. I will examine the Agency’s management of these transferred assets and liabilities as part of my audit of the 2000-2001 accounts.

Accounting policies and treatment

Both the 1999-2000 accounts and the closing accounts of the Corporation for the three months to 30 June 2000 received an unqualified audit opinion from the Corporation’s appointed external auditors.
The National Audit Office Wales has confirmed that the accounting policies of the Agency and the Corporation were consistent in respect of those assets and liabilities transferred. However, the Agency commissioned an independent external valuation of the development assets that it inherited, which in accordance with Accounting Standards resulted in a net upward ‘fair value’ adjustment of some £493,000 on the transfer date. On the basis of the valuation report and the work of the National Audit Office Wales, I am satisfied that the adjustment is appropriate to the Agency’s 1999-2000 accounts. No other fair value adjustments were made by the Agency to the values of the other assets and liabilities transferred from the Corporation.
The Bute Avenue project
The Bute Avenue project aims to link the centre of Cardiff to the waterfront developments within Cardiff Bay, by constructing a dual carriageway boulevard between Bute Square and the Oval Basin. Office and residential accommodation is being constructed along the boulevard. A further phase of the project provides for the possible removal of the rail embankment alongside Bute Avenue and its replacement with an alternative transit system. Alternatively, further traffic improvement measures will be required. In July 1999, the then First Secretary approved phase one of this £120 million project under the Government’s Private Finance Initiative.
Responsibility for the Bute Avenue project was transferred from the Corporation to the Agency under Article 3 of the Section 165B Order. This project involves the provision of new and altered highways and the provision of commercial and residential development pursuant to, or arising under, an agreement dated 8 July 1999 between the Corporation and CityLink Limited (the primary contractor).
The transfer of this project to the Agency included all land and certain commercial properties associated with the proposed Bute Avenue highway. These properties had been valued and transferred at a nil valuation by the Corporation. The Agency’s professional valuers confirmed the appropriateness of the nil open market valuation for these assets, and so no fair value adjustment was required upon their transfer to the Agency. Under the project agreement the Agency is contractually committed to pay £5.1 million annually to the primary contractor. These payments are index-linked and dependent upon the contractual performance of CityLink Limited, and payable once the works on the highway are completed for a period of twenty-five years from the due completion date quoted in the contract. This obligation is disclosed in note 31 to the Agency’s accounts. Over the period of the agreement, it is expected that the land and various properties which are not part of the road will transfer to CityLink Limited as part of the agreement and be developed by them. At the end of this period, ownership of the road and the obligation to maintain the highway transfers from CityLink Limited to Cardiff City Council.

Overall Audit Conclusion

The National Audit Office Wales has reviewed the accounting treatment and valuation of all the properties, rights and obligations transferred from Welsh Food Promotions Limited and the Cardiff Bay Development Corporation to the Agency, and considered the adequacy of the accounting policies adopted by the Agency. I am satisfied that the treatment applied, including the fair value adjustment made in respect of the transferred development assets, was appropriate. Accordingly, my opinion on the Agency’s accounts for 1999-2000 is unqualified.

John Bourn
Auditor General for Wales
National Assembly for Wales
Cardiff Bay
CARDIFF
CF99 1NA
7 July 2000