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isle of anglesey county council annual audit letter 2004-2005

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28 pages
2004/2005 Date: December 2005 Alan Morris and PricewaterhouseCoopers LLP Ref: 1201A2005Relationship Manager’s Annual Letter – Incorporating the Appointed Auditor’s Audit Letter Isle of Anglesey County Council Summary Report 5 Corporate management Corporate management needs to be strengthened to ensure that agreed corporate priorities are effectively implemented 5 Services Overall service performance remains adequate, but there is limited evidence of significant, continuous improvement 6 Performance management There has been progress in developing the corporate performance management framework but it needs to be more effectively implemented throughout the organisation 6 Financial management As reported in the Appointed Auditor’s SAS610 Report there are no significant weaknesses in financial systems which need to be brought to the attention of members 7 Financial health/financial standing The Authority’s total reserves have fallen by £1.2m during the year. Nevertheless General fund reserves still represent 3.7% of the Authority’s annual revenue expenditure 7 Financial statements The Authority’s arrangements for producing financial accounts are good and once again the accounts were prepared on time and to a high standard Detailed Report 8 Financial accounts 15Performance work 212004/2005 performance inspection work 26Audit and inspection fees Page 2 of 28 Isle of Anglesey County Council - Relationship Manager’s Annual Letter – ...
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2004/2005
Date: December 2005
Alan Morris and PricewaterhouseCoopers LLP
Ref: 1201A2005
Relationship Manager’s Annual Letter – Incorporating the Appointed Auditor’s Audit Letter
Isle of Anglesey County Council
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Summary Report Corporate management Corporate management needs to be strengthened to ensure that agreed corporate priorities are effectively implemented Services Overall service performance remains adequate, but there is limited evidence of significant, continuous improvement Performance management There has been progress in developing the corporate performance management framework but it needs to be more effectively implemented throughout the organisation Financial management As reported in the Appointed Auditor’s SAS610 Report there are no significant weaknesses in financial systems which need to be brought to the attention of members Financial health/financial standing The Authority’s total reserves have fallen by £1.2m during the year. Nevertheless General fund reserves still represent 3.7% of the Authority’s annual revenue expenditure Financial statements The Authority’s arrangements for producing financial accounts are good and once again the accounts were prepared on time and to a high standard Detailed Report Financial accounts Performance work 2004/2005 performance inspection work Audit and inspection fees
Isle of Anglesey County Council-Relationship Manager’s Annual Letter – Incorporating the Appointed Auditor’s Audit Letter
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Status of this report This report has been prepared for the internal use of the named body. Our reports are prepared:  In relation to audit, under the relevant enabling legislation and the responsibilities detailed in the Code of Audit and Inspection Practice, and in the context of the ‘Statement of Responsibilities’, issued by the Auditor General for Wales.  In relation to inspection, following inspection work carried out under the Local Government Act 1999, as amended by the Public Audit (Wales) Act 2004, and in accordance with guidance issued by the National Assembly for Wales. Reports are prepared by the staff of the Wales Audit Office and appointed auditors, and addressed to members or officers including those designated as accounting or accountable officers. They are prepared for the sole use of the named body, and no responsibility is taken by the Wales Audit Office or appointed auditors to any director/member or officer in their individual capacity, or to any third party.
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Summary Report
This Relationship Manager’s Annual Letter (RMAL) relates to work undertaken in 2004/2005, up to the point of the production of this letter, by the Appointed Auditor under the Code of Audit Practice and the Relationship Manager under the Audit Commission in Wales’ (ACiW), and subsequently the Auditor General for Wales’ (AGW’s) inspection powers. It is the AGW’s prescribed format for providing an annual summary to the audited and inspected body of audit and inspection work, progress against improvement plans and draws on published reports of other inspectorates. The RMAL will be presented to the Council jointly by Gareth Jones the Audit Director from the appointed auditor PricewaterhouseCoopers and the Relationship Manager Alan Morris. It includes key messages drawn from all of the work undertaken and reported in a way that is intended to provide a stand alone summary. These key messages reflect the Relationship Manager’s interpretation of information contained in the Annual Audit Letter provided by PricewaterhouseCoopers and they have been agreed with the appointed auditor The RMAL also includes more detailed information on the Financial Accounts and Performance Work that has been undertaken. That part of the document fulfils the reporting requirements set out in paragraph 64 and 67 of the Code of Audit and Inspection Practice for the purpose of preparing and issuing annual audit letters to communicate to the audited body and key external stakeholders, including members of the public, the key issues arising from the auditors’ work, which auditors consider should be brought to the attention of the audited body. 6That part of the document also fulfils the reporting requirements of paragraph 68 of the Code of Audit and Inspection Practice in respect of audited bodies where the AGW carries out inspection functions, whereby appointed auditors are required to provide information to the AGW on the key issues arising from their audit work to enable the AGW to prepare an annual audit and inspection letter. 7This RMAL includes on pages 8 to 20 the Audit Letter, as required by the Code of Audit and Inspection Practice paragraph 67, provided by PricewaterhouseCoopers. Key messages 8In the previous RMAL, we set out a summary of the Council’s improvement journey to date. During 2004/2005 the Council has made progress in some areas but there are a number of areas of concern that remain to be addressed.
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Summary Report
Corporate management 9Corporate management needs to be strengthened to ensure that agreed corporate priorities are effectively implemented. 10In last year’s RMAL we stated that the Council needed to strengthen its corporate systems and working arrangements if it was to achieve the continuous improvement in performance expected under the Wales Programme for Improvement (WPI). Whilst it has made progress in putting some key elements in place, the implementation, integration and ownership of corporate frameworks and systems remains an issue. 11The Council did not effectively implement its corporate improvement programme for 2004/2005. The main reasons for this were the absence of strong leadership and prioritisation in taking forward an over-ambitious programme and the lack of an effective performance management framework for holding individuals accountable for delivery. 12There has been some progress in delivering some elements of the programme, but this has to be set against a number of missed targets. The overall position therefore is one of the Council making significantly less progress than it envisaged when it drew up the improvement programme. 13The Council needs to determine what corporate improvements will have the most impact on service delivery, agree a challenging but achievable programme and timetable for implementation and ensure that portfolio holders and individual members of CMT are held accountable for adhering to those timetables. This must be done in the context of clear overall priorities that are agreed and owned by the political and managerial leadership of the Council. 14Adverse publicity relating to the behaviour of elected members continues to be a distraction for both members and officers. If the external image of the Council is to be improved, members and officers must demonstrate that they can work together to focus their efforts on delivering high quality, efficient services to the people of Anglesey.
Services 15Overall service performance remains adequate, but there is limited evidence of significant, continuous improvement. 16Service performance in 2004/2005 was largely static based on statutory performance indicators (PIs) with 33% improving, 28% declining and the rest remaining static. The percentage of PIs showing a decline in performance has doubled from 14% in 2003/2004. When compared against other local authorities in Wales, 48 of the Council’s PIs slipped down the rankings between 2003/2004 and 2004/2005 whilst only 18 PIs had risen. During 2006 the Wales Audit Office plans to undertake an inspection to assess the extent to which the Council is delivering continuous service improvement and better outcomes for the public.
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Summary Report
17There is evidence of good performance in some services, including educational attainment and aspects of social care. However, the joint risk assessment (JRA) and audit and inspection work also point to a number of areas of concern, including Human Resources, ICT, Leisure, Private Sector Housing and Access to Education. 18Audit and inspection work has also highlighted weaknesses in arrangements for monitoring the implementation of recommendations and action plans. In the past we have reported this as a problem in relation to recommendations of a corporate nature. This year’s follow-up work suggests that arrangements to ensure the implementation of service improvements also need to be strengthened as there is little evidence that reviews are leading to significant change or improvement.
Performance management 19There has been progress in developing the corporate performance management framework but it needs to be more effectively implemented throughout the organisation. 20The Council has made significant progress in relation to performance management and has either put in place key elements or is in the process of doing so. The links between the different elements of the performance management framework have been strengthened and a Performance Management Panel has been set up and is now monitoring performance on a regular basis. 21There is, however, a need to do more to ensure that the corporate framework is effectively implemented throughout the organisation. This is illustrated by the weaknesses in performance management identified in a number of audit and inspection reports. 22The Council needs to improve the role of services in performance management and to ensure there is consistency in the way in which performance is monitored. To achieve this, it must develop an understanding of the performance management framework amongst members and staff. It also needs develop a more integrated approach to corporate, service and financial planning and improve links with other plans and processes including the JRA.
Financial management 23As reported in the Appointed Auditor’s SAS 610 Report there are no significant weaknesses in financial systems which need to be brought to the attention of members. 24However, Capital slippage has increased in 2005/2006 and the Authority needs to continue its close monitoring of the capital programme to ensure that works funded by time limited capital grants are completed on schedule. 25at the year-end and the AuthorityIt is also noted that three schools were in deficit needs to ensure that robust recovery plans are in place to recover these deficits.
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Summary Report
Financial health/financial standing 26The Authority’s total reserves have fallen by £1.2m during the year. Nevertheless General fund reserves still represent 3.7% of the Authority’s annual revenue expenditure. 27As reported in the 2004 Audit Letter the Authority continues to face financial pressure in respect of meeting the pension fund deficit and financing the improvements to the Housing Stock which will be needed to achieve the Welsh Housing Quality Standard. It should be noted that these issues are common to many Welsh authorities. Financial statements 28The Authority’s arrangements for producing financial accounts are good and once again the accounts were prepared on time and to a high standard. 29The Appointed Auditor intends to issue an unqualified opinion on the accounts, however as in previous years a certificate cannot be issued on the accounts due to two unresolved issues which are being considered by the Wales Audit Office. These issues date back to the time when the ACiW were the Authority’s appointed auditors. 30The timetable for the closure of the 2005/2006 accounts is more challenging than in previous years with the accounts needing to be approved by 31 July 2006. We will continue to work closely with the Finance team to help to facilitate the achievement of this deadline.
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Section 1
Detailed Report
31This section of the RMAL constitutes the Annual Audit Letter of the appointed Auditor PricewaterhouseCoopers LLP and has been prepared in accordance with guidance issued by the AGW. Financial accounts 32The following table provides a summary of the key issues from the financial audit work which has been undertaken during 2004/2005.  
 
Exhibit 1: Ke issues from financial accounts work Key area Key issues for the Authority to consider to improve performance Accounts It is important that the Authority continues its detailed planning for production completion of its financial statements by 31 July in 2005/2006, whilst maintaining the effectiveness of both financial monitoring and accounts preparation processes. Retirement The Authority needs to consider the impact on its budgets of returning benefits the deficit on its pension fund to balance in the long-term. Financial Capital slippage has increased in 2005/2006 and the Authority needs standing to continue its close monitoring of the capital programme to ensure that works funded by time limited capital grants are completed on schedule.
33The purpose of our accounts work was to perform an audit of the final accounts of the Authority, in accordance with approved auditing standards. 34The draft 2004/2005 accounts were approved by Council on 29 September 2005, in advance of the statutory deadline of 30 September 2005. 35We have completed our work on the financial statements for 2004/2005 and the majority of the adjustments identified as a result of our audit were incorporated in the 2004/2005 financial statements. Three classification misstatements were reported in our Statement of Auditing Standards (SAS) 610 Report considered by the Audit Committee on 24 November 2005. The Committee agreed that the accounts would not be adjusted for these re-classifications. 36Our SAS 610 Report also summarised for members the outcome of our accounts audit, and this showed that we had no significant matters to bring to their attention. 37We are pleased to note that for our third year as appointed auditors we received accounts on a timely basis. The audit of the accounts generally ran according to plan and we would like to express our appreciation for the co-operation we received from officers.
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 Detailed Report  38The Accounts and Audit Regulations (Wales) which came into effect from 1 April 2005 made no change to the reporting deadlines for 2004/2005. However, the reporting deadlines will be brought forward for 2005/2006 under these new regulations such that the Authority will be required to prepare and approve its accounts by 31 July 2006 (30 June for 2006/2007). 39Early closure is a risk for all authorities in Wales. It is important that the Authority continues its detailed planning for early closure in 2005/2006 whilst maintaining the effectiveness of both financial monitoring and accounts preparation processes. Accounting issues Retirement benefits 40We reported within our Audit Letter 2004 that 2003/2004 was the first year of full implementation of Financial Reporting Standard (FRS) 17, ‘retirement benefits’. FRS 17 is concerned with the recognition of the real underlying financial position of an authority with regard to its participation in defined benefit pension schemes. In previous years, only disclosure of the Authority’s overall share of any pension fund surplus/deficit was required by the CIPFA Code of Practice on Local Authority Accounting. 41The effect of implementation of FRS 17 in 2003/2004 was to establish a pension fund liability within the balance sheet of the Authority valued at £32.5m as at 31 March 2004. The relative size of the liability is dependant on many factors including the assumptions made by the Scheme’s actuaries and rates of interest that are appropriate to apply in making these assumptions. It should be noted that due to changes in underlying assumptions, the estimated pension fund liability has risen to £56m as at 31 March 2005. 42Whilst this liability calculated under FRS 17 is significant, the key issue for the Authority is the impact on the employers’ pension contributions of returning the fund from this deficit position to balance in the long-term. The latest full actuarial will lead to an increase in employers’ contributions. This will clearly have implications for the Authority’s budgets for future years.
Group accounts 43The Authority will have a significant new responsibility in 2005/2006 to publish group accounts, consolidating the financial transactions and balances of other entities in which it has a substantial interest. These accounts will also need to contain comparative information on a group basis in respect of 2004/2005. The Authority has been more proactive in respect of the development of group accounts than many others, and is therefore in a good position to fully implement the new group accounting requirements.
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 Detailed Report
Financial standing 44In this section we comment upon the Authority’s general financial standing taking into account both its performance during the last year and its ability to meet known financial obligations.
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2004/2005 financial performance The performance for the year shown in the final audited accounts is a surplus of £0.4m (£0.425m in respect of schools balances and a deficit transferred to the general balances of £0.051m), after a net transfer from earmarked reserves of £1.5m. The Authority established a net budget of £93.8m for 2004/2005 which represented an increase of £2.4m (2.6%) over 2003/2004. Major contributing factors to the budget increase included pay and non-pay inflation of £2.5m; additional cleansing £0.3m; growth in the education budget of £0.2m and £0.2m of growth in housing and social services. It should also be noted, that the budget figure is stated after taking account of savings identified via the budget review of £0.6m. The draft outturn position for the year ended 31 March 2005 as reported to the Executive in July 2005 was a net contribution to general balances of £0.014m. The main variances from budget were:  an overspend on out of county social services of £0.444m (the 2005/2006 budget has been increased as a result);  an underspend on economic development of £0.361m; and  the effect of unexpected severe weather in October on the Council’s roads, for which the Council was successful in securing ‘Bellwin’ grant from the National Assembly for Wales, leaving a net £0.289m to be funded from its own resources.
Capital In February 2004 the Executive proposed a three year capital plan covering 2004/2005, 2005/2006 and 2006/2007. The budget for 2004/2005 was for a £23.2m decrease of £1.2m compared with 2003/2004. Included in the 2004/2005 capital budget were the following major schemes:  upgrade to facilities at Campws Mona £0.6m;  further upgrades to the A5025 £0.5m; and  additional funding for the Holyhead Transport and Regeneration scheme of £0.2m. Slippage on the 2004/2005 capital budget was £9.6m being an increase of £3.2m from 2003/2004. The Executive has been receiving quarterly progress reports to help monitor the progress with the capital programme. These reports focus on risks of cost over-run and slippage of current schemes, and take account of any implications for funding and the capital plan as a whole.
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 Detailed Report  We emphasise that the need to reduce capital slippage should remain a priority for the Authority. The profile of capital expenditure should therefore continue to be closely monitored in 2005/2006.
Housing Revenue Account (HRA) financial performance in 2004/2005 The HRA generated a surplus of £0.2m during the year. The HRA reserve increased from £0.6m in 2003/2004 to £0.8m in 2004/2005. The Welsh Assembly Government has given local authorities a deadline of 2012 to bring council stock up to a new quality standard. The Authority was required to produce a housing stock business plan by April 2003. This deadline was not met however and the Authority’s business plan was sent to the Welsh Assembly Government in early 2004 and subsequently a revised business plan has been presented to them for comment. The latest estimate of the cost of meeting the quality standard over 10 years is estimated at between £100m and £200m. The Authority has been monitoring progress with stock transfers in other parts of Wales whilst it considers it options to be able to achieve the standard.
Balances and reserves The level of balances and reserves at 31 March 2005 amounted to £17.3m. The level of balances and reserves over the past three years are as shown in the following table:
Exhibit 2: Balances and reserves  31 March 2003 31 March 2004 31 March £000 £000 2005 £000 General balances 3,645 3,551 3,500 HRA 1,282 616 816 Other earmarked reserves 9,213 12,243 10,507 LMS balances (delegated to 2,168 2,018 2,443 schools) Total 16,308 18,428 17,266
The overall level of balances and reserves decreased in 2004/2005. General fund reserves now represent 3.7% of the Authority’s net operating expenditure, a decrease of 1.3% since last year. The Authority compares reasonably with other authorities in Wales in respect of the total of its earmarked reserves and general reserves as a percentage of net operating expenditure as shown in Exhibit 3.
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