1. Background information
a. The Crown Estate Act 1961 was enacted by Parliament in pursuance of the recommendations of the Report of the Committee on Crown Lands which visualised the role of The Crown Estate Commissioners as analogous to that of trustees of a trust fund. The Act charged the Commissioners with the management of The Crown Estate.
b. The Crown Estate may be traced back to the reign of King Edward the Confessor and, until the accession of King George III, the Sovereign received its rents, profits and expenses. However since 1760, the annual surplus, after deducting management costs, has been surrendered by the Sovereign to Parliament to help meet the costs of civil government. In return, the Sovereign receives the civil list and the Government meets other official expenditure incurred in support of the Sovereign.
c. The duties of the Commissioners are to maintain The Crown Estate as an estate in land (with such cash or investments as may be required for the discharge of their functions) and to maintain and enhance its value and the return obtained from it, but with due regard to the requirements of good management. By the Civil List Act 1952 the net income from The Crown Estate, after defraying costs of collection and management, is required to be paid into the Exchequer and made part of the Consolidated Fund (general government revenues).
d. The Commissioners have authority to do on behalf of the Crown in relation to The Crown Estate all such acts as belong to the Crown’s right of ownership, subject only to the detailed restrictions set out in the Act. The Commissioners must comply with such directions, as to the discharge of their functions under the Act, as may be given to them by the Chancellor of the Exchequer and the Secretary of State for Scotland. The Commissioners submit annually to the Treasury a forecast of their activities in a corporate plan covering the following and two ensuing years.
e. The Crown Estate is not the property of the Government, nor is it the Sovereign’s private estate. It is part of the hereditary possessions of the Sovereign in right of the Crown.
f. The Crown Estate Commissioners are a statutory corporation; they are not a company for the purposes of the Companies Act.
g. The Crown Estate may not be held other than in land, gilts or cash. Investment in equities or outside the United Kingdom is not permitted.
h. The Crown Estate has no general powers to borrow, either for capital purposes or for working balances, and there is thus no external indebtedness in the balance sheet.
i. Under The Crown Estate Act 1961 (First Schedule, para. 5) monies are provided by Parliament (Resource Finance) towards the cost of the Commissioners’ salaries and the expense of their office.
2. Crown Estate Commissioners
The composition of the Board of Commissioners during 2005/06 was:
- Ian Grant, CBE, FRAgS, Chairman of the Board
- Roger Bright, MA, Chief Executive and Accounting Officer; Deputy Chairman of the Board
- Sir Donald Curry, KB, CBE, FRAgS
- Hugh Duberly, CBE
- Jenefer Greenwood, BSc, FRICS
- Martin Moore, MRICS
- Dinah Nichols, CB
- Ronald Spinney, CBE, FRICS
3. Statement of The Crown Estate Commissioners’ and Accounting Officer’s responsibilities
The Commissioners are responsible for ensuring that The Crown Estate has in place a system of controls, financial and otherwise, and under section 2(5) of The Crown Estate Act 1961 are required to prepare a statement of accounts in the form and on the basis determined by the Treasury. The accounts are prepared on an accruals basis and must give a true and fair view of The Crown Estate’s surplus, state of affairs at the year end and of its income and expenditure and cash flows for the financial year.
In preparing the accounts the Commissioners are required to:
i) observe the accounts direction issued by the Treasury, including the relevant accounting and disclosure requirements, and apply suitable accounting policies on a consistent basis;
ii) make judgements and estimates on a reasonable basis;
iii) state whether applicable accounting standards have been followed, and disclose and explain any material departures in the financial statements; and
iv) prepare the financial statements on the going concern basis.
The Treasury has appointed the Second Commissioner as the Accounting Officer for The Crown Estate. His responsibilities as Accounting Officer, including his responsibility for the propriety and regularity of the public finances and for the keeping of proper records, are set out in the Non-Departmental Public Bodies’ Accounting Officers’ Memorandum issued by the Treasury and published in Government Accounting.
4. Statement on internal control
The purpose of the system of internal control
The system of internal control is based on an on-going process designed to identify and prioritise the risks which threaten the achievement of The Crown Estate’s policies, aims and objectives, as set out in The Crown Estate Act 1961; to evaluate the likelihood of those risks being realised and their impact should they be realised; and to manage them efficiently, effectively and economically.
It is designed to manage risk down to an acceptable level rather than to eliminate all risk of failure and can therefore only provide reasonable and not absolute assurance of effectiveness. The system of internal control has been in place in The Crown Estate for the year ended 31 March 2006 and up to the date of approval of the annual report and financial statements, and accords with Treasury guidance.
Capacity to handle risk
The Main Board, Audit Committee, Chief Executive and Management Board provide leadership in risk management within The Crown Estate. The Management Board reviews risk as part of the on-going business planning and control cycle and its members are ‘risk owners’ for strategic risks, as well as for the risks that relate to those functions, projects and change programmes that they directly manage.
During 2005/06, a number of developments have been made to The Crown Estate’s internal control environment:
- Further embedding of the risk framework throughout the organisation.
- Project risk management has been fully incorporated into The Crown Estate risk framework with the Project Monitoring Committee now reviewing all major projects within the Crown Estate project portfolio from a risk perspective.
- Introduction of a Cross Department Review Committee that reviews risks and opportunities.
- During 2005/06 formal risk management awareness sessions took place for the benefit of all staff at The Crown Estate.
The Crown Estate’s risk management policy and guidelines are held within its intranet, which is accessible to all staff. The risk management procedures include appropriate metrics designed to provide both support to staff in the tasks in which they are involved and consistency of results across all departments. The Crown Estate’s Risk Manager, the Director of Finance and Information Systems, is responsible for the implementation, co-ordination and monitoring of the risk management process across The Crown Estate and administers the strategic risk register.
The risk and control framework
The Crown Estate’s risk framework, policy and processes are consistent with the best practices as defined in the Office of Government Commerce’s Management of Risk (M_o_R): Guidance for Practitioners and with the contents of Government Accounting Chapter 21. The framework adopts the strategic programmes, projects and operational model contained within this guidance and aligns the guidance with The Crown Estate’s corporate planning cycle that is well developed and embedded.
Strategic risks and their assessment are the responsibility of the Management Board. Programme and project risks are assessed in a hierarchy with the Project Monitoring Committee reviewing major projects and their risks within the overall portfolio every quarter and individual project managers managing all project risks on an operational basis. This tiered structure supports The Crown Estate in identifying and managing trends across the projects and also to provide further assurance that risks are being managed in a pragmatic and efficient manner. Risks are discussed, at a minimum, on a quarterly basis at departmental team meetings or similar forums. The risk manager and the central risk function assist in the facilitation of this process with the support of external consultants.
Strategic “red” risks are reviewed by the Management Board on a quarterly basis, by exception. The Cross Cutting Committee review all amber risks to identify interrelated and aggregated risks. Furthermore this body has appropriate delegated authority to manage these amber risks to allow the Management Board to fully focus on The Crown Estate’s key risks. The Risk Manager reviews departmental risks to identify links between departments and projects where the impact of one or more risks could affect others. Serious departmental risks are escalated as and when necessary firstly to the Cross Cutting Committee and if necessary to the Management Board, for consideration for inclusion onto the strategic risk register.
Risk registers are held centrally in the intranet for all departments and their projects. Risk reporting, based around internal control statements (ICSs), is now an embedded and standard management process that provides additional assurance that risks are being actively managed across the whole of the organisation.
Risk appetites and tolerances are assessed and delegated by Crown Estate management, reflecting experience and past history of effective risk management. Impact metrics and regular monitoring and review ensure that delegated approval limits are consistently applied throughout the business.
Review of effectiveness
The Audit Committee is responsible for reviewing the effectiveness of the system of internal control. It is informed by the work of the internal auditors, the executive managers (who have responsibility for the development and maintenance of the internal control framework) external consultants and NAO, by way of comments contained in their management letter.
During 2005/06 two audits were conducted on the risk management process by The Crown Estate’s Internal Audit Department and by external risk advisers. The findings of these audits were consistent with one another and they were reported together to the Audit Committee in November 2005.
The Audit Committee have reviewed the effectiveness of the system of internal control. A plan to ensure continuous improvement of the system is in place. This plan covers the coming financial year and will conclude with a further healthcheck prior to the issue of the next statement of Internal Control.
Internal control problems
For the financial year 2005/06, the Internal Audit Assurance report shows that there are some internal control weaknesses in the financial systems and processes but there is evidence that these are being addressed and the system is improving.
5. Auditors
The financial statements of The Crown Estate are audited by the Comptroller and Auditor General in accordance with section 2(6) of The Crown Estate Act 1961. See the audit certificate. No fees have been incurred in respect of non-audit services. The audit fee for work performed in the year of account was £90,000.
6. Statement on disclosure of relevant audit information to the entity’s auditors
So far as the Accounting Officer, is aware there is no relevant audit information of which the entity’s auditor is unaware; and the Accounting Officer has taken all the steps that he ought to have taken to make himself aware of any relevant audit information and to establish that the entity’s auditors are aware of that information.
7. Results and appropriations for the year
The results are set out in the revenue account. The surplus for the year amounted to £190.8 million (£184.8 million at 31 March 2005), and the contribution to the Consolidated Fund was £188.0 million (£185.7 million at 31 March 2005). The retained revenue reserve at 31 March 2006 was £7.5 million (£4.6 million at 31 March 2005).
8. Valuation of land and buildings
The valuation of The Crown Estate land and buildings as at 31 March 2006 was £5,685 million. This represents an increase of £873 million on the 2005 valuation.
9. Fixed assets
During the year to 31 March 2006, The Crown Estate expenditure on other fixed assets was £3.0 million (£2.1 million during the year to 31 March 2005), as shown in note 15 to the accounts.
10. Charitable donations
The Crown Estate provided donations to a range of bodies, including charities, totalling £7,467 in 2005/06 (£25,405 in 2004/05), as permitted by The Crown Estate Act 1961, section 4(2).
11. Supplier payment performance
The Crown Estate’s payment policy is to pay all suppliers within 30 days of receipt of a correctly documented invoice, or on completion of service where a fee is recoverable from a third party, or according to contract where a shorter payment period is agreed. During the year The Crown Estate paid 74% of invoices from suppliers within this period. This percentage includes invoices under dispute and amounts recoverable from third parties. On average, invoices from suppliers are paid within 30 days of receipt. The Crown Estate observes the principles of the “Better Payment Practice Code”.
12. Corporate responsibility
The Crown Estate reports annually on its corporate responsibility (CR) activities in relation to business, environmental, employer and social responsibilities. The organisation’s commitment to enhancing the unique assets of The Crown Estate through its core values of commercialism, integrity and stewardship are reflected in the specific objectives which are set each year, and the report sets out progress and achievements in relation to these objectives and performance targets.
13. Equal opportunity
The Crown Estate is an equal opportunity employer and is committed to ensuring that no employee, or applicant, is treated less favourably on the grounds of race, religion, ethnic origin, disability, gender or sexual orientation.
14. Employee involvement
The Crown Estate is accredited as an “Investor in People” and has established employee forums to ensure the engagement of its employees and the opportunity to discuss issues affecting the business and people’s employment and working environment. A corporate forum has been established chaired by the Chief Executive with separate forums for London, Windsor and Scotland. The forums are formally constituted and comprise trade union representation, elected staff representatives and others.
Other means of communication with employees have also been maintained through an office magazine, team briefings, a constantly updated intranet and organisational briefings by the Chief Executive. In addition employees receive information on the corporate plan and other management information. They also receive copies of the annual report and financial statements.
Roger Bright
Second Commissioner and Accounting Officer
14 June 2006