Accounts for the year ended 31 March 2001

FOREWORD

Background Information

The House of Lords Refreshment Department operates under a policy agreed between the House of Lords and HM Treasury in 1981. In accordance with this policy, the costs of permanent staff, including salaries and superannuation benefits, where these do not arise solely from private function trading and retailing, are borne on the House of Lords Administration Vote (Class XVIII, Vote 2). The costs of certain services, including accommodation, heavy equipment and utilities are borne on the House of Lords Works Services Vote (Class XVIII, Vote 3). Furthermore, the Department is required to trade on the basis of 50 per cent gross profit on turnover. After payment of overheads and costs attributable to private functions, the Department surrenders its net profits to the Exchequer (House of Lords Administration Vote).

On 23 May 1990, the Leader of the House stated that sales of tobacco, confectionery and goods to be consumed or used outside the Department, together with the cost of services at functions, would be excluded from the turnover figure against which gross profit is measured for the purpose of this target. Such sales would continue to count towards the gross profit shown in the Accounts and would be included in the calculation of net operating surplus to be surrendered to the Exchequer.

Further performance targets for trading in individual outlets of the Department have been agreed, and are reviewed annually, by the Refreshment Sub-Committee of the Offices Committee.

Following agreement with the Treasury, the Offices Committee approved the introduction, with effect from financial year 1993-94, of a staff bonus scheme in the Refreshment Department. The scheme was financed from any profit made by the Department in excess of the Treasury target, that is in excess of 50 per cent gross profit on turnover calculated as above. An amount of up to 40 per cent of the excess profit was available for distribution as a bonus to staff, subject to that outlet in which they are principally employed meeting its performance target. The remaining excess profit was surrendered to the House of Lords Administration Vote, together with the net profit arising from meeting the Treasury target. The staff bonus scheme was conditional on the money provided in the Estimate each year for return to the Consolidated Fund being no less than that provided in the previous year's Estimate. By agreement with the Trade union, the percentage available for distribution was decreased to 10 per cent of surplus profit in 1999-2000 and the scheme was discontinued in 2000-2001.

The Refreshment Department provides a wide range of catering facilities to Members and House of Lords staff. Members may sponsor private functions and this type of service accounted for 46 per cent of sales in 2000-2001.

Trading operations are in£uenced by the irregular hours of House sittings and the long periods of Parliamentary Recess.

The Refreshment Department's policy with regard to trade creditors is to settle all debts within 30 days following receipt of goods and services. Potential suppliers are made aware of this policy before the establishment of any trading relationship. Performance against the Treasury target of paying creditors within 30 days was fully measured during 2000-2001 financial year. For the financial year, an average of 74 per cent of suppliers were paid within 30 days. However, following the implementation of new accounting software, which led to an increase in the frequency of pay-runs each month, the percentage at year end had risen to 99 per cent.

Results and Appropriations

The Accounts re£ect a 0.64 per cent increase in sales and a 0.06 per cent increase in gross profit, compared with 1999-2000. Gross profit on sales, calculated according to the formula on the preceding page, was 65 per cent (65 per cent in 1999-2000).

Net operating surplus for the year is surrendered to the House of Lords Administration Vote. The net operating surplus for 2000-01 is arrived at after a transfer of £17,359 from the Capital Reserve (Note 6). On this basis, ordinary activities in 2000-2001 have generated a surplus of £632,899 (22.4 per cent of sales). The surplus from the 1999-2000 financial year was £695,050 (25 per cent of sales).

The net operating surplus has accrued as a consequence of the Refreshment Department's trading activities only. It does not take account of those costs which are borne on the House of Lords Administration Vote or the House of Lords Works Services Vote, and which are common to all offices of the House of Lords.

Colwyn	J MDavies
Chairman,	Clerk of the Parliaments
Refreshment Sub-Committee
18 July 2001

1. Since 1869-70, when a separate Estimate for the ``House of Lords Offices'' was first presented, the House of Lords Offices Committee has accounted for the House of Lords Votes. Responsibility for the preparation of the Annual Accounts is vested with the Clerk of the Parliaments, who is appointed by Her Majesty by Letters Patent and is ex-officio Accounting Officer of the House of Lords.

2. The House of Lords Refreshment Department was incorporated, with the approval of the Offices Committee and of HM Treasury, into the Parliament Office on 1 April 1980. Under these changes, the Clerk of the Parliaments became the employer of the Refreshment Department Staff and Accounting Officer for the Trading Account. The accounts are prepared in a form determined by the Offices Committee with the approval of HMTreasury, on an accruals basis, and must give a true and fair view of the Refreshment Department Trading Account's affairs at the year end and of its income and expenditure and cash £ows for the financial year.

3. In preparing these accounts, the Clerk of the Parliaments as the Accounting Officer is required to:

(a) observe relevant accounting and disclosure requirements, and apply suitable accounting policies on a consistent basis;


(b) make judgements and estimates on a reasonable basis;


(c) state whether the applicable accounting standards have been followed, and disclose and explain any material departures in the financial statements;


(d) prepare the financial statements on the going concern basis, unless it is inappropriate to presume that operations will continue.

4. The Clerk of the Parliaments as employer and as Accounting Officer has overall responsibility for the whole House of Lords administration, including permanent staff of the Refreshment Department whose costs are borne on the Peers' Expenses, Administration etc. Vote. It is also the duty of the Clerk of the Parliaments to manage the Refreshment Department Trading Account in such a way that gross profit targets agreed with HM Treasury are met. The relevant responsibilities of the Clerk, including the responsibility for the propriety and regularity of public finances, for the keeping of proper records and the preparation of the Accounts were approved by the Finance and Staff Sub-Committee of the House of Lords Offices Committee on 7 July 1992. The delegated responsibilities in respect of the Trading Account are set out in a statement from the Clerk of the Parliaments to the Principal Finance Officer and the House of Lords Accountant dated 15 December 1992. The Accountant has a member of staff permanently resident in the Refreshment Department to maintain and prepare records of account.

5. In discharging his obligation to provide refreshment services to the House, the Clerk of the Parliaments has delegated day-to-day management to the Superintendent operating within a policy framework set by the Refreshment Sub-Committee of the House of Lords Offices Committee which represents the interests of Peers as consumers and advises on pricing policy and other matters. The Chairman of the Refreshment Sub-Committee, together with the Clerk of the Parliaments, signs the Refreshment Department's annual Trading Account.

This statement is given in respect of the House of Lords Refreshment Department's Trading Account. As Accounting Officer for this Account, I acknowledge my responsibility for ensuring that an effective system of internal financial control is maintained and operated in connection with the resources concerned.

The system of internal financial control can provide only reasonable and not absolute assurance that assets are safeguarded, transactions authorised and properly recorded and that material errors or irregularities are either prevented or would be detected within a timely period.

The system of internal financial control is based on a framework of regular management information, financial instructions of the Finance and Staff Sub- Committee, segregation of duties, and a system of delegation and accountability. In particular, it includes:

• an annual budget for the surrender of profits to the House of Lords Peers' Expenses, Administration, etc. Vote;

• a comprehensive system of performance targets for the Department and its various outlets agreed by the Refreshment Sub-Committee of the House of Lords' Offices Committee, and a gross profit target as set by the Treasury;

• the preparation of monthly financial reports which indicate actual performance against the targets and actual income and expenditure for each area of the Department's operations.

The control processes in place as described above are considered appropriate for the trading activities accounted for in the Refreshment Department account.

The House of Lords has an Internal Auditor who operates to standards defined in the Government Internal Audit Manual. The Internal Auditor submits regular reports containing his independent opinion on the adequacy and effectiveness of the internal controls examined, together with recommendations for improvement. Refreshment Department operations, like those of all other offices of the House, are considered fully during the formulation of audit plans, and were the subject of a major review, the results of which were reported during 2000-01.

My review of the effectiveness of the system of internal financial control in the Refreshment Department is informed by the work over time of the Internal Auditor; by the work of the Superintendent of the Refreshment Department, his staff and the Refreshment Department Accountant, who together have responsibility for the development and maintenance of the financial control framework; by the scrutiny exercised by the Refreshment Sub-Committee; and by comments made by the external auditors in their management letter and other reports. It is to be noted that the Refreshment Department Accountant is, in management terms, independent of the Superintendent. Where weaknesses have been found, they have been addressed to my satisfaction.

As Accounting Officer, I am aware of the recommendations of the Turnbull Committee and am taking reasonable steps to comply with the requirement for a system of internal control. This system will be based on an ongoing process designed to identify the principal risks to the achievement of aims and objectives, to evaluate the nature and extent of those risks and to manage them efficiently, effectively and economically. It is my intention to develop the proposed system during the year ending 31 March 2002, to hold consultations and a workshop for heads of offices, including the Refreshment Department Superintendent, and to identify principal risks and develop an appropriate control strategy. It is expected that risk management will have been incorporated fully into the planning and decision-making processes of the Refreshment Department by 31 March 2003.

J. M. Davies
Clerk of the Parliaments

18 July 2001

Income and Expenditure Account
for the year ended 31 March 2001

All amounts relate to continuing activities.

There are no other recognised gains and losses for the year other that those shown in the Income and Expenditure Account.

The Notes on pages 82 to 87 form part of these Accounts.

Balance Sheet
as at 31 March 2001

Colwyn	J MDavies
Chairman,	Clerk of the Parliaments
Refreshment Sub-Committee
18 July 2001

The Notes on pages 82 to 87 form part of these Accounts.

Cash£ow Statement
for the year ended 31 March 2001

The Notes to the Cash£ow Statement appear on page 81.

Notes to the Cash£ow Statement
for the year ended 31 March 2001

Notes to the Accounts for the year ended 31 March 2001

1 ACCOUNTING POLICIES

Basis of Preparation

The House of Lords Refreshment Department operates under a policy agreed between the House of Lords and HM Treasury in 1981. In accordance with this policy, the cost of permanent staff, including salaries and superannuation benefits, where these do not arise solely from private function trading and retailing, are borne on the House of Lords Administration Vote (Class XVIII, Vote 2). The cost of certain services, including accommodation, heavy equipment and utilities are borne on the House of Lords Works Services Vote (Class XVIII, Vote 3).

Accounting Convention

The accounts are prepared under the historical cost convention. Without limiting the information given, the accounts meet the accounting and disclosure requirements of the Companies Act and accounting standards issued or adopted by the Accounting Standards Board so far as those requirements are appropriate.

Stocks

Stocks are stated at the lower of cost and net realisable value.

A proportion of stock will not be sold within one year due to the length of the ageing process for certain wines currently held on reserve. In accordance with industry practice, these wines are classified as a current asset.

Tangible Fixed Assets and Depreciation

The Refreshment Department maintains a capital reserve representing the net book value of silver and light equipment. Both categories are depreciated on a straight line basis. Rates are as follows:

A full year's depreciation is charged in the first year in which the asset is used. No depreciation is charged in the year of disposal. Depreciation rates have been selected in order to allocate the cost of these assets as fairly as possible to the periods expected to benefit from their use.

Light and Heavy Equipment

Light and heavy equipment are distinguished by reference to unit costs. This distinction determines the source of finance and the accounting treatment. Acquisitions of light equipment with a unit cost of up to £1,000 are fully charged to the accounts as an expense in the year of purchase. Light equipment with a unit cost of between £1,000 to £5,000 is funded through the Trading account, capitalised and depreciated over its expected useful economic life. Heavy equipment has a unit cost exceeding £5,000. These items are funded through the House of Lords Works Services Vote and are not treated as fixed assets by the Refreshment Department.

Income Recognition

Turnover represents the amount of goods sold and services provided stated net of Value Added Tax and trade discounts. Non-discretionary service charges for private functions are treated as other operating income.

2 TURNOVER AND COST OF SALES AND GROSS PROFIT

Cost of Sales represents the cost of goods sold and services provided (net of Value Added Tax). It excludes wages and salaries which are borne on the House of Lords Administration Vote, and function and retailing staff costs, casual labour costs which are disclosed under other operating costs and charges relating to the provision of credit card payment facilities (note 3).

3 OTHER OPERATING COSTS

In accordance with arrangements agreed between the House of Lords and the Treasury, certain costs, though relevant to the provision of a catering service, are not included in the Trading Account.

(i) Salaries, wages and social security costs of permanent and casual staff of the Refreshment Department, except those relating to private function and retailing staff, are borne on the House of Lords Administration Vote (Class XVIII, Vote 2). Other minor expenditure items are also charged to the House of Lords Administration Vote.

(ii) In common with other departments of the House, the Refreshment Department receives certain services, including accommodation, gas, electricity, water and telecommunications, the costs of which are borne on the House of Lords Works Service Vote (Class XVIII, Vote 3). The costs for individual departments are not recorded centrally and cannot be accurately determined except at disproportionate cost.

4 OTHER OPERATING INCOME

Other operating income comprises the following:

(i)	A non-discretionary service charge is levied on all private function accounts. The amounts collected are distributed to Refreshment Department staff four times annually.
(ii)	The Department allows its facilities to be used for the sale of House of Lords Christmas Cards. Revenue from these items is not included in the turnover of the Refreshment Department. However, a small contribution on these sales is earned in order to offset related administration costs and selling expenses.
(iii)	In October 1995, the Refreshment Department entered into a joint operation with the House of Commons Refreshment Department. This involves the selling of souvenirs and other merchandise from a kiosk in Westminster Hall. The House of Lords Refreshment Department receives 40% of the profit from this operation.

5 MOVEMENTS IN CAPITAL RESERVE

6 STAFF BONUS SCHEME

Following negotiations with the Treasury, the Refreshment Department started a staff bonus scheme on 1 April 1993. At its inception, the scheme provided for the distribution of up to 40 per cent of the amount by which the Treasury target for the Department's trading activities was exceeded. By agreement with the Trade Union, this scheme was discontinued in 2000-01.

7 SURRENDER OF OUTSTANDING SURPLUS TO THE HOUSE OF LORDS ADMINISTRATION VOTE (CLASS XVIII, VOTE 2)

8 TANGIBLE FIXED ASSETS

Note a: Accurate cost information is not available for some silverware purchased prior to 31 March 1993. Where this applies, assets have been capitalised at independent valuation as at that date. All assets purchased since 1 April 1993, including all items of light equipment, have been capitalised at cost.

9 STOCKS

10 DEBTORS

11 CREDITORS

12 PENSION COMMITMENTS

Of the pension costs in note 3, £217 relates to the liability remaining from pension arrangements in existence prior to 1980. Since then, all permanent staff participate in the House of Lords Staff Pension Scheme. The remaining £30,131 relates to pension contributions in respect of salaries and wages which are borne on the Refreshment Department Trading Account. The Refreshment Department assumed responsibility for the funding of these contributions from 1 April 1996, but otherwise has no liability for the funding of the House of Lords Staff Pension Scheme.

In determining the extent of contributions payable from the Refreshment Department trading account, rates of between 12 per cent and 13.5 per cent, as determined by the Government Actuary, were applied to basic salaries.

13 RELATED PARTY TRANSACTIONS

The House of Lords is regarded as a related party. During the year, the Refreshment Department has undertaken various material transactions with the House of Lords as disclosed in the accounts and notes. In addition, the House of Lords provides personnel and payroll services for those staff borne on the Trading Account.

Except as noted below, none of the members of the House of Lords Offices Committee, the Finance and Staff and Refreshment Sub-Committees, or key management staff nor any other related party has undertaken any material transactions with the Department during the year other than transactions occurring in the normal course of the Refreshment Department's activities and on normal business terms.

The Superintendent is deemed to be a related party of the Refreshment Department through the exercise of key managerial control. In common with all other Refreshment Department staff, the Superintendent is a beneficiary under the schemes for staff bonus and service charge distribution. The aggregate benefit under these schemes is £9,547 for 2000-01 (£7,924 in 1999-2000).

THE CERTIFICATE OF THE COMPTROLLER AND AUDITOR GENERAL TO THE HOUSE OF LORDS OFFICES COMMITTEE

I have audited the financial statements on pages 78 to 87 which have been prepared under the historical cost convention and the policies set out on page 82.

Respective responsibilities of the House of Lords Offices Committee, The Accounting Officer and the Auditor

As described on page 75, the House of Lords Offices Committee and the Accounting Officer are responsible for the preparation of the financial statements. The House of Lords Offices Committee and the Accounting Officer are also responsible for the preparation of the Foreword. The Accounting Officer is responsible for the preparation of the other contents of the Annual Report. My responsibilities, as an independent auditor, are guided by the Auditing Practices Board and the auditing profession's ethical guidance.

I report my opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the determinations of the House of Lords Offices Committee. I also report if, in my opinion, the Foreword is not consistent with the financial statements, if the Refreshment Department have not kept proper records, or if I have not received all the information and explanations I require for my audit.

I read the other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. I consider the implications for my certificate if I become aware of any apparent misstatements or material inconsistencies with the financial statements.

I review whether the statement on pages 76 and 77 re£ects the Refreshment Department's compliance with the Treasury's guidance ``Corporate governance: statement on the system of internal financial control''. I report if it does not meet the requirements specified in that guidance, or if the statement is misleading or inconsistent with other information I am aware of from my audit of the financial statements.

Basis of Audit Opinion

I conducted my audit in accordance with United Kingdom Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures included in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Accounting Officer in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the Refreshment Department Trading Account, consistently applied and adequately disclosed.

As explained in Note 1 to the Account (page 82), and in accordance with arrangements agreed with the Treasury, not all costs related to the provision of refreshments in the House of Lords are borne on the Refreshment Department Trading Account. Other costs are funded by the House of Lords Votes and accounted for in the relevant Appropriation Accounts, and the main ones are referred to in Note 3b of the accounts.

I planned and performed my audit so as to obtain all the information and explanations which I considered necessary in order to provide me with sufficient evidence to give reasonable assurance that the financial statements, constituted in accordance with the arrangements agreed with the Treasury, are free from material misstatement, whether caused by error, or by fraud or other irregularity. In forming my opinion I also evaluated the overall adequacy of the presentation of information in the financial statements.

Opinion

In my opinion the financial statements give a true and fair view of the state of affairs of the House of Lords Refreshment Department Trading Account at 31 March 2001 and of the surplus, total recognised gains and losses and cash £ows for the year then ended and have been properly prepared in accordance with the determinations of the House of Lords Offices Committee.

J. D. Thorpe	National Audit Office
Director of Audit for the Comptroller	157-197 Buckingham Palace Road
and Auditor General	Victoria
	London SW1W 9SP

18 July 2001