Annual Report & Accounts 1998 - 1999

Notes to the Accounts

1. Accounting policies

(a) The financial statements have been prepared in accordance with the Resource Accounting Manual issued by HM Treasury.

(b) Accounting convention
The accounts are prepared under the historical cost convention modified to include the revaluation of fixed assets to their value to the business by reference to current costs.

(c) Income recognition

(i) Income from licenses issued under the Wireless Telegraphy Act 1949 and 1998 is recognised on the issue of a new licence, or on the renewal date.
(ii) Income from government departments is recognised on invoice date, provided that this is not earlier than the date from which the licence is provided.
(iii) Type approval testing and type approval certification fees are recognised on completion of the work.

(d) Fixed assets and depreciation

(i) The threshold above which items are recorded as fixed assets is reviewed each year for all categories of asset.
(ii) The cost of time spent in constructing assets (including computer systems) is capitalised only where a clearly defined asset is created which will generate quantifiable income or cost savings over its anticipated useful life.
(iii) Depreciation is provided on a straight line method to write off the cost or valuation less any residual value of each asset evenly over its anticipated useful life as follows:

All assets, except for assets under construction, computer software and buildings, are revalued monthly by reference to a series of indices published by the Central Statistical Office. Assets under construction and computer software are recorded at cost.

A sample of all assets is regularly checked and the book value of each asset is compared with an estimate of its current replacement cost. Where the difference is significant, the asset valuation is adjusted to reflect the estimate of its current replacement cost. The change in valuation is transferred to the revaluation reserve, as is the related backlog depreciation.

(e) Research and development
Research and development expenditure is written off as incurred.

(f) Consumable stores
The Agency has no significant stocks. Expenditure on consumable items such as fuel oil, stationery and small items held as spares or for repairs is written off as incurred.

(g) VAT
Most of the Agency's supplies are outside the scope of VAT. Input tax is not normally recoverable on inputs relating to such supplies. However, under Treasury directions, certain contracted-out services are eligible for recovery of VAT and the Agency recovers this quarterly in arrears. The remaining irrecoverable VAT is charged to the income and expenditure account in the year in which it is incurred, except that which is capitalised as part of asset values.

(h) Cash
The Agency does not operate a bank account. Receipts are credited to the Agency's Vote account and remitted to the DTI's account at the Bank of England. Payments are made from the same account. The excess cash receipts for the year are surrendered to the DTI and debited directly to the Agency's general fund in accordance with Treasury guidance.

(i) Early Retirement Scheme
The DTI operates an Early Retirement Scheme which gives retirement benefits to certain qualifying employees, including those at its On-Vote Agencies. These benefits conform to the rules of The Principal Civil Service Pension Scheme. Since the DTI accepts full liability for the costs of these benefits until the normal retirement age of the employees retired under the Early Retirement Scheme, the Agency does not provide in its accounts for the cost of future pension payments under the scheme.

During the year the Agency initiated its own Early Retirement Scheme. This has the same terms as the DTI Scheme, except that the Agency bears all the additional costs of early retirement, which are not met by The Principal Civil Service Pension Scheme. Provision has been made for these additional costs. See note 4.

(j) Notional charges
In accordance with Treasury guidance, notional items are charged to the income and expenditure account as follows:

(i) A capital charge. See note 6.

(ii) A notional audit fee.

(k) Insurance
The Agency does not generally purchase commercial insurance. Instead, it self-insures from its own resources for minor uninsured losses, but looks to the DTI as its insurer for major uninsured losses. Where the DTI meets material uninsured revenue losses on the Agency's behalf, the losses are accounted for as exceptional costs and the recoveries from the DTI as income in the Agency's accounts. Capital funding from the DTI for uninsured losses is accounted for initially as deferred income and is then credited to income over the lives of the related assets so as to match the depreciation charges on those assets each year.

In accordance with Treasury guidance, the Agency no longer charges a notional cost for insurance in the income and expenditure account.

(l) Operating leases
Rentals due under operating leases are charged over the lease term on a straight line basis or on the basis of actual rentals payable where this fairly reflects usage.

(m) Investment
The agency holds an investment in a joint venture company. The accounts are not consolidated as the company is outside the departmental boundary, as defined in the Resource Accounting Manual. See note 9.

2. Operating income

For the purposes of company law and accounting standards, the Agency has only one class of business and all income arises in the United Kingdom. The following information is given to satisfy the additional disclosure requirements of the HM Treasury Fees and Charges Guide

Other activities consists of income from investigation of domestic interference complaints and type approval work.

3. Performance against key financial target

The Agency's key financial target is to deliver an agreed net cash surplus to the Department. The target for the year was £2.2m. This was exceeded by £9.7m as a result of the additional income received from spectrum pricing.

4. Staff costs

The average monthly number of employees during the year was:

Management Board

The remuneration (excluding pension fund contributions) of the Management Board (excluding the Chief Executive) fell within the following ranges:

Other higher paid employees
The banding of other higher paid staff with salaries greater than £40,000 was:

The Chief Executive receives a basic annual bonus on the same terms as all staff, based on the Agency's performance against key performance targets. In addition, he receives a Chief Executive's bonus, which is based on assessed performance in the previous financial year. The amount of this bonus is recommended by the Steering Board and approved by the DTI.

Pensions
The employees of the Agency are civil servants to whom the conditions of the Superannuation Acts 1965 and 1972 and subsequent amendments apply. For the year ended 31 March 1999, contributions were paid to the Paymaster General at rates of 12.0 to 18.5% (according to range) of wages and salaries as determined by the Government Actuary and advised by the Treasury.

Early retirement
In 1998/99, 7 staff (1997/98: 5 staff) retired early from the Agency. The estimated cost of future payments for employees retiring early during the year in terms of the Agency's Early Retirement Scheme have been provided in the income and expenditure account. See note 16.

The cost for the year of early retirement benefits paid in respect of Agency staff retiring early in all years up to and including 1998/99 amounted to £138,776 (1997/98: £328,465). Since the DTI accepts full liability for these costs, they have not been charged to the Agency's income and expenditure account. See note 1(i). At 31 March 1999, the estimated cost of future pension payments under the DTI scheme for Agency staff who had retired early amounted to £533,571 (31 March 1998: £863,862).

Steering Board
The Agency Steering Board comprises seven members, four of whom are civil servants (details are given in the Foreword to the Accounts). The Chief Executive is one of these members and his remuneration is borne by the Agency and disclosed above. The costs of the other civil servant members are borne by the DTI. These members do not receive any remuneration for Board duties in addition to their normal salaries. The external members of the Steering Board are remunerated directly by the DTI and their total remuneration for the year was £16,095 (1998: £9,269).

5. Other operating charges

6. Capital charge

A capital charge is made calculated on the Treasury formula (currently based on a rate of 6% p.a. of capital employed).

See note 1 (j) (i).

7. Exceptional item

Other income
The capital element of disaster recovery funding from the DTI was initially treated as deferred income. It has been credited to income over the lives of the assets funded. See notes 1(k) and 17.

8. Tangible assets

Civil Estate property, which is occupied by the Agency has been included in the balance sheet and its value credited to the General fund. See note 12.

Freehold land and buildings were valued at 1 January 1996 on the basis of existing use value, in accordance with the Statement of Asset Valuation Practice and the Royal Institution of Chartered Surveyors Guidance Notes, by Messrs England & Company, Chartered Surveyors.

Included in Property is a long lease the net book value of which is £174,000.

The Agency transferred most of its information system assets to RSI under the terms of the joint venture agreement. See note 9. The proceeds of this disposal are being credited as a discount on the services received over a three year period from the date of transfer.

Where the difference between the deficit on revaluation and the related backlog depreciation represents a diminution of value, such difference £184,000 (1998 £323,000) has been charged to the income and expenditure account. See note 5.

9. Investments

The Agency entered into a joint venture agreement with CMG UK Ltd on 8 June 1998. The agreement has an initial term of seven years, with the objectives of supplying IT services to the Agency, and developing an international spectrum management consultancy, through a joint venture company. Radio Spectrum International Consulting Ltd [RSI] was incorporated with an issued share capital of 1000 ordinary shares of £1 each, of which 30% was issued to the Agency, who appointed two directors, and 70% to CMG, who appointed four directors.

RSI produced accounts for the seven months ended 31 December 1998. These showed net assets of £63,000 and a retained profit for the period of £62,000. The directors did not recommend the payment of a dividend.

10. Debtors

Other debtors include £2,211,000 (1998: £3,985,000) for uninsured losses due from DTI. See note 18.

11. Creditors

Accruals include £190,000 (1998: £5,000) for costs in connection with the relocation of the Agency's headquarters (see note 16); and £2,793,000 (1998: £3,495,000) for costs in connection with disaster recovery. See note 18.

12. General fund

13. Revaluation reserve

The surplus on revaluation represents the increase in the gross current replacement cost of fixed assets, and £6,000 (1998 £875,000) arising from a reassessment of disaster recovery provisions.

The transfer to General fund includes £881,000 arising from a further reassessment of disaster recovery provisions.

14. Commitments under operating Leases

15. Capital commitments

16. Provisions for liabilities and charges

Relocation
The costs provided in 1994/95 have been carried forward to the extent needed to cover those that remain to be incurred following the Agency's return to London Docklands. See note 11.

Disaster recovery
The Agency has made full provision for all disaster recovery costs, whether recoverable or not. See note 18.

17. Deferred income

18. Disaster recovery

The Agency's headquarters operations were disrupted by the Docklands bombing in February 1996. All costs arising from the need to move the Agency's headquarters to temporary premises and then back to its refurbished Docklands offices (return planned for first half of 1999) have been treated as uninsured losses.

The total estimated cost of disaster recovery can be analysed as follows:

£2,211,000 (1998: £3,985,000) of the DTI funding still due at the year end has been accrued within debtors. See note 1(k) for the Agency's accounting policy on insurance and notes 5, 7, 10, 11, 12, 16 and 17 for the impact on these accounts.

19. Related party transactions

The Radiocommunications Agency is an executive agency of the Department of Trade and Industry. The Department is regarded as a related party. The Agency had various material transactions with the Department during the year. In addition the Agency had various material transactions with other Government Departments, namely The Ministry of Defence, PPARC, The Home Office and The Foreign & Commonwealth Office. See note 2.

The results of the Agency's transactions, with RSI, during the year, were as follows:

Accounts Direction given by the Treasury in accordance with section 5(1) of the Exchequer and Audit Departments Act 1921:

1. When preparing its accounts for the financial year ended 31 March 1999 and subsequent financial years, the Radiocommunications Agency shall comply with the accounting principles and disclosure requirements of the edition of the Resource Accounting Manual which is in force for the financial year for which the accounts are prepared.

2. In addition to the requirements of the Manual, the Foreword to the accounts shall disclose a brief history of the Agency and its statutory background.

3. This Direction replaces the Direction dated 21 July 1993.

Jamie Mortimer
Treasury Officer of Accounts
29 June 1999

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