KE012 Annual Audit and Inspection Letter Final
Description
audit 2003/2004 Annual Audit and Inspection Letter Kettering Borough Council INSIDE THIS LETTER PAGES 2 – 10 • Executive summary • Key messages • Council performance • Accounts and governance • Other work • Looking forwards • Closing remarks PAGES 11 – 14 Appendices • Appendix 1 - Audit and inspection reports issued • Appendix 2 - Scope of audit and inspection• Appendix 3 - Audit and inspection fees Reference: KE012 Annual Audit and Inspection Letter (Final) Date: December 2004 audit 2003/2004 ANNUAL AUDIT AND INSPECTION LETTER The accounts We have given your accounts an unqualified Executive summary audit opinion but issued a report to members of the council’s Monitoring and Audit Committee on The purpose of this letter 23 November 2004 in respect of a technical accountancy issue that in our view did not This is our audit and inspection ‘Annual Letter’ comply with proper accounting practices. for Members which incorporates the Annual Audit Letter for 2003/04, and is presented by Financial position the Council’s Relationship Manager and District Auditor. The letter summarises the conclusions The council’s revenue spending for 2003/04 was and significant issues arising from our recent in line with the budget and performance audit and inspections of the council. continues to be good in 2004/05. Revenue reserves are slightly below target as a result of We have issued ...
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Extrait
audit 2003 2004 Annual Audit and Inspection Letter Kettering Borough Council
I N S I D E T H I S L E T T E R
P A G E S 2 1 0 • Executive summary • Key messages • Council performance • Accounts and governance • Other work Looking forwards • • Closing remarks
P A G E S 1 1 1 4 Appendices • Appendix 1 - Audit and inspection reports issued • Appendix 2 - Scope of audit and inspection • Appendix 3 - Audit and inspection fees
Reference: KE012 Annual Audit and Inspection Letter (Final) Date: December 2004
audit 2003/2004
Executive summary The purpose of this letter This is our audit and inspection ‘Annual Letter’ for Members which incorporates the Annual Audit Letter for 2003/04, and is presented by the Council’s Relationship Manager and District Auditor. The letter summarises the conclusions and significant issues arising from our recent audit and inspections of the council. We have issued separate reports during the year. These reports are listed at Appendix 1 for information. Appendix 2 sets out the scope of audit and inspection. Appendix 3 provides information about the fees charged. Key messages Council performance The council was assessed as good and improving under the Comprehensive Performance Assessment (CPA) framework in January 2004. The council has identified its improvement priorities in the light of the CPA findings with a strong focus on improving services. Overall our work on assessing council performance has been limited this year in accordance with a rating of good. We have found that the council has made progress in developing its approach to electronic government and a review of four key partnerships found that they were clear about their aims and objectives and have effective frameworks and mechanisms in place for managing and monitoring the delivery of these aims. However we have not undertaken any formal review of the council’s overall progress since its CPA result was published. Formal assessment of progress in district councils assessed as good is currently planned to take place for the first time in the autumn of 2006.
Annual Audit and Inspection Letter Audi t 2003/2004
ANNUAL AUDIT AND INSPECTION LETTER
The accounts We have given your accounts an unqualified audit opinion but issued a report to members of the council’s Monitoring and Audit Committee on 23 November 2004 in respect of a technical accountancy issue that in our view did not comply with proper accounting practices. Financial position The council’s revenue spending for 2003/04 was in line with the budget and performance continues to be good in 2004/05. Revenue reserves are slightly below target as a result of the additional write-off of premiums that the council undertook at the conclusion of the audit. Income collection rates have continued to improve but council tax and NNDR remain below average. Other accounts and governance issues Good progress has been made to strengthen internal controls, particularly in respect of bank account and financial system reconciliations. Significant improvements in internal audit have enabled us to place greater reliance on its work in 2003/04. We have not identified any weaknesses in the council’s arrangements for preventing fraud or its framework for ensuring the legality of financial transactions. Council performance CPA and improvement In January 2004 the council was assessed as good and improving under the Comprehensive Performance Assessment (CPA) framework. The council has identified its improvement priorities and taken account of the CPA findings with a strong focus on improving services. Service improvement areas include: • improving recycling and waste minimisation; • crime and disorder; • benefits;
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• the quality of the local environment; sustainable development; • • promoting access to services; • neighbourhood engagement and participation; and • housing and housing repairs. In addition the council has a Next Steps improvement programme to continue to develop the corporate capacity of the council particularly in relation to people and finance, identifying new ways of working and using new technologies. We have not completed any assessment of the council’s progress since publication of its CPA. Formal assessment of progress in district councils assessed as good is planned to take place for the first time in the autumn of 2006. Other performance work Area profiles The council and its partners in the local strategic partnership (LSP) chose to participate in a project to test the feasibility of producing profiles of the quality of life and services in local areas. It is notable that Kettering was the only district council amongst the 18 councils that participated and is continuing to be used as a successful case study by the Audit Commission. It tested all ‘layers’ of the project with the exception of the citizen pathway approach. The council’s partners contributed actively throughout. As a result of the pilot activity we produced a report for the LSP summarising the lessons learnt from the project, notable performance across Kettering and also four quality of life themes that emerged for the partners to consider further. We also held a workshop for partners from the LSP to discuss the pilot and the findings. The council plans to participate in the next stage of the methodology which includes a theme of capturing the extent of the financial inputs to the local area from all sources and adoption of the ‘citizens pathway’ approach.
Annual Audit and Inspection Letter Audi t 2003/2004
ANNUAL AUDIT AND INSPECTION LETTER
Electronic government As part of our 2002/04 audit plan we agreed to undertake a follow-up of the council’s progress against the recommendations in our initial review in 2001/02. Our report was finalised in June 2004 and we concluded that overall progress has been positive. • There is a clear understanding of the need to work in partnership to share the risks and benefits of developing major projects. • Development and adoption of the Information Systems and ICT strategy provides a clear structured framework for moving towards the IEG target. • Substantial essential investment in development of the ICT infrastructure. • Progress towards the implementation of a customer contact centre. The council needs to continue to: • ensure that existing services are appropriately benchmarked to enable the benefits realised from electronic service delivery to be accurately evaluated; • explore flexible working practices to ensure the most effective use is made of all resources; and • complete the embedding of a corporate approach to risk management. Partnerships We carried out an audit of partnership working as part of our 2002/04 audit plan. This audit looked at performance management within partnerships and focused on learning lessons about what makes a partnership successful in delivering on its aims and objectives. We based our work on a sample of partnerships, reflecting the different types of partnership in which the council is engaged. Those chosen were: • Healthy Living Centre (now ‘Keep Kettering Healthy’); • Community Safety Partnership; • Abandoned Vehicles; and • Consortium Audit.
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In broad terms, the four partnerships are clear about their aims and objectives and have effective frameworks and mechanisms in place for managing and monitoring the delivery of these aims. There are good links to the Council’s own business planning arrangements. Specific areas where these partnerships are strong include: • user-focus; • using performance information to drive improvement; and • being responsive and flexible. As with all partnerships, the council and partners need to continue to: • ensure that all partners are fully engaged and committed; • assess and manage the risks to delivery, particularly from resource pressures. The report has been discussed and agreed with officers and progress against the key recommendations will be followed up as part of next year’s audit. Best value performance plan audit Having been categorised as ‘good’ as part of the CPA process last year, the council took advantage of the freedom to incorporate its Best Value Performance Plan (BVPP) into its Corporate Improvement Plan. We have completed our audit of your plan and concluded that it complies with all legal requirements. Our formal opinion will be issued by 31 December 2004. Performance information The council’s arrangements for the collection and reporting of performance information remain strong and the data is underpinned by effective systems and good quality supporting records. We used a risk based assessment of the council’s performance indicators to focus our work in this area. Analytical review of all indicators and specific testing of the high and medium risk indicators resulted in us having no reservations to report for the second consecutive year, which is commendable. Annual Audit and Inspection Letter Audi t 2003/2004
ANNUAL AUDIT AND INSPECTION LETTER
Accounts and governance We have given your accounts an unqualified audit opinion but issued a report to members of the Council’s Monitoring and Audit Committee on 23 November 2004 in respect of a technical accountancy issue that in our view did not comply with proper accounting practices. Audit of 2003/04 accounts We gave an unqualified opinion on the council’s accounts on the 24 November 2004. Matters arising from the final accounts audit The published accounts are an essential means by which the council reports its stewardship of the public funds at its disposal and its financial performance in the use of those resources. In last year’s Annual Audit and Inspection Letter we emphasised nationally that timeliness in producing the accounts will become increasingly important over the next few years as the deadline for completion of the accounts is brought forward in line with the Government’s requirement. To help improve the efficiency and timeliness of the preparation and audit of the accounts we held a workshop for officers in March 2004. The workshop provided an opportunity for officers to discuss common issues arising from last year’s audits and changes in accounting and audit requirements. We also agreed formal joint working arrangements specifying working paper requirements, reporting arrangements and the timing of our work. The Council approved the draft statement of accounts in July 2004 which was a month ahead of the statutory requirements and two months ahead of the reporting in previous years.
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The Council’s Accountancy Section has recently been the subject of a detailed review with a new structure being introduced before the end of 2004/05. This structure aims to ensure that the Council builds upon the progress that it has made in meeting the earlier statutory requirements and is also aimed at improving processes and working papers where further improvements are required if the earlier statutory reporting dates are to continue to be achieved in future years. All issues arising from our audit have been discussed with officers and appropriate amendments were made to the statement of accounts during the course of the audit. We gave an unqualified opinion on 24 November 2004 and will summarise the matters arising from our work in a report to officers within the next few weeks. Report to those with responsibility for governance in the council We are required by professional standards to report to those charged with governance (in this case the Monitoring and Audit Committee) certain matters before we give an opinion on the financial statements. We reported that General Fund premiums amounting to £942,000 incurred as part of debt restructuring in 2002/03 were not written off to the consolidated revenue account when the council became debt free on 25 March 2004. In our opinion this does not comply with proper accounting practices as set out in the Code of Practice on Local Authority Accounting in the United Kingdom 2003. The Code only allows premiums associated with the repurchase of debt to remain on the balance sheet if the following conditions apply. The repurchase is coupled with a • restructuring or financing of borrowing. The overall economic effect is substantially • the same when viewed as a whole. • There is an identifiable period of replacement over which to write off or write back the premiums or discounts.
Annual Audit and Inspection Letter Audi t 2003/2004
ANNUAL AUDIT AND INSPECTION LETTER
When the council repaid all its outstanding debt in 2003/04 the above conditions were no longer satisfied and the outstanding premium should therefore have been written off in full. Officers do not agree with our interpretation of the Code of Practice but have agreed to write off £100,000 of the balance in 2003/04 with the remainder being written off over ten years. Whilst the remaining balance is not considered material, in our opinion the General Fund deficit for the year remains under-stated by £842,000 and the accumulated balance on the General Fund is over-stated by the same amount. Financial standing The council’s revenue spending for 2003/04 was largely in line with the budget and performance continues to be good in 2004/05. Revenue reserves are slightly below target as a result of the additional write-off of premiums that the council undertook at the conclusion of the audit. Income collection rates have continued to improve but remain below average. General fund spending and balances Before applying the adjustment in respect of premiums referred to above, net expenditure in 2003/04 was £9.619 m illion, which is generally in line with the original budget of £9.615 million. The council also used £0.13 million of earmarked reserves during the year. After applying the premium adjustment, the closing general fund reserve was £0. 931 million. This represents approximately 9.7 per cent of net revenue expenditure which is slightly lower than the guideline level referred to in the council’s medium term financial strategy of 10 per cent of net revenue expenditure (£0.962 m illion) or £1 million. However, if the council had fully written off the full outstanding amount of premiums, its General Fund Working balance would have reduced to just £83,000. Although the agreed change to the accounts avoided an audit qualification of the 2003/04 annual financial statements it has created an additional unexpected pressure on revenue budgets for which provision will need to be made over the next ten years.
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Financial planning In February 2004 the council set its 2004/05 budget with a view to maintaining a general fund balance of at least £1 million or 10 per cent of net revenue budget (whichever is the higher). After taking account of new growth items, service efficiency savings, increases in income and a 5.2 per cent increase in governments grant, there remained a predicted budget gap of £0.3 million rising to £1.3 million by 2007/08. Members of the council were mindful of the need to consider the medium term financial projections when setting the Council Tax for 2004/05 and consequently approved an increase of 9 per cent together with a three year budget model. As at October 2004, the council’s Key Performance Information highlighted overall budget variations of £20,000 for 2004/05 against a net budget of £9.694 m illion. The estimated level of the revenue working balance at the end of 2004/05 is £1.17 m illion which is in excess of the guideline in the MTFS. The council is currently drafting its budgets for 2005/06. Initial indications from the council are that, based upon what the council can control internally, it is generally on target to meet its medium term financial projections. However, like all other councils it is heavily reliant upon external factors such as Government Grants and statutory fee levels (eg planning) that will have a major impact upon the revised financial forecasts for the authority. The council’s executive will consider draft budgets at its meeting in January 2005 prior to receiving comments on its proposals through a consultation period. The February meeting of the executive will then recommend a budget to full council for consideration at its meeting on 23 February where the budget and Council Tax will be approved. As a consequence of being debt free at 31 March 2004 the council became eligible for the transitional arrangements that the Government announced in relation to the national pooling of housing capital receipts. The council estimates that it should benefit in the region of £2.5 million in the three year period 2004/05 to 2006/07.
Annual Audit and Inspection Letter Audi t 2003/2004
ANNUAL AUDIT AND INSPECTION LETTER
Housing Revenue Account For 2003/04, expenditure in the HRA exceeded income by £0.192 million. This wa s less than the budgeted deficit for the year of £0.282 million and resulted in an end of year revenue balance on the HRA of £0.780 m illion. The council is currently undertaking a stock options appraisal of its housing stock, the conclusions of which will be reported to members in December 2004. This together with the level of the HRA revenue balance will need to be considered as part of the budget process for 2005/06 and beyond. Capital programme Expenditure on the council’s capital programme was £5.085 m illion for 2003/04 compared to the original estimate for the year of £5.979 million and compared to the latest approved forecast for the year as approved by council of £5.684 million. Spen d was therefore 89 per cent of the revised estimate/forecast for the year. This represented an improvement from the previous year where delivery of the programme was 79 per cent. A high level review of the capital programme has recently been undertaken by the council to consider issues of affordability, capacity and priorities. The review will help inform the next budget process including the issues of affordability and the impact that financing the capital programme has upon the Council Tax in accordance with the requirements of the prudential code of borrowing. Prudential code of borrowing The prudential code was implemented in April 2004 and aims to provide a framework for local government capital finance to ensure that: • capital expenditure plans are affordable; • all external borrowing and other long term loans are within prudent and sustainable levels; and • treasury management decisions are taken in accordance with professional good practice. The code is designed to improve transparency of decision making and to allocate responsibility and accountability.
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The council addressed the requirements of the code as part of the 2004/05 budget setting process, including the setting of appropriate borrowing limits and prudential indicators. However, the applicability of the prudential regime has been limited because the council became debt free prior to the end of March 2004. Officers also completed a self assessment checklist which was provided and reviewed as part of our audit to assess the council’s level of compliance with the code. This showed a good level of overall compliance with further work required to embed the regime into the capital planning process, so that issues of affordability, capacity and priorities are fully considered. These issues are currently being considered by officers as part of a high level review of the capital programme and the budget process. Income collection and arrears The council’s collection rate for Council Tax and NNDR has continued the improvement trend identified in the last Audit Letter. Compared to the previous year, both Council Tax and NNDR collection have improved by 1 per cent each to 97.2 per cent and 97.7 per cent respectively (Exhibit 1). The collection rates, however, remain below the district average. EXHIBIT 1 Proportion of debt collected Council tax % NNDR % 2003 2004 2003 2004 Kettering 96.2 97.2 96.7 97.7 District Ave. 97.6 97.8 98.5 98.6 Lower 97.0 97.2 97.8 98.0 quartile Source: ODPM Statistics. Continued progress has been made in the area of housing rent arrears, the overall level continued its downward trend during 2003/04 reducing by a further 11 per cent to £0.638 million. This re presents approximately 7.3 per cent of gross rental income. Latest figures show a further decrease to £0.307 million at November 2004.
Annual Audit and Inspection Letter Audi t 2003/2004
ANNUAL AUDIT AND INSPECTION LETTER
Reducing debt and improving collection rates remains one of the council’s corporate priorities and monitoring reports are regularly presented to members. Pensions fund deficit Kettering’s assessed share of the pension fund deficit was valued as £13.352 m illion at 31 March 2004. A full actuarial valuation of the pension fund is currently being undertaken. The preliminary results are in line with officers expectations and will be considered as part of the 2005/06 budget process. Systems of internal financial control Good progress has been made to strengthen existing arrangements, particularly in respect of bank account and financial system reconciliations. Significant improvements have enabled us to place greater reliance on the work of internal audit this year. Overall arrangements The council was required to include a statement on its systems of internal control in its 2003/04 statement of accounts. The statement sets out the framework within which internal controls are managed and reviewed and the main components of the system. It also includes an action plan for dealing with the following issues. • Improvement in general controls and reconciliations. • Development and roll-out of risk management. • Review and strengthening the constitution and procedure rules. • Improved financial control and budget management. • More formalised review and monitoring arrangements for internal audit. • Monitoring identification and provision of staff training needs. As external auditors we are required to identify any inconsistencies between the disclosures in the statement and information of which we are aware arising from our audit work.
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During the year we conducted an overall review of the financial aspects of the council’s corporate governance arrangements. We produced a report of our findings which was issued to officers in August and concluded that significant improvements had been achieved, particularly in respect of bank account and financial system reconciliations. We did not identify any inconsistencies with the council’s internal controls statement. Internal Audit In previous years we reported concerns about the quality and coverage of internal audit work. Based on examination of a sample of audit files our assessment this year is that significant improvements have been achieved and internal audit now provides an effective service overall. We will carry out a more detailed review of internal audit next year. Standards of financial conduct and the prevention and detection of fraud and corruption We have not identified any significant weaknesses in your arrangements to prevent and detect fraud and corruption. Overall arrangements We updated our annual assessment of the council’s overall arrangements to maintain standards of conduct and prevent and detect fraud and corruption. We did not identify any significant weaknesses in your arrangements. National fraud initiative The Council took part in the Audit Commission’s national fraud initiative (NFI) 2002/03. The NFI, which is undertaken every two years, brings together data from local authorities, NHS bodies, government departments and other agencies, to detect a wide range of frauds against the public sector. Total national savings from the 2002/03 exercise exceeded £83 million.
Annual Audit and Inspection Letter Audi t 2003/2004
ANNUAL AUDIT AND INSPECTION LETTER
The Commission are repeating the exercise this year and will again collect payroll, pensions, housing benefits, student loan and housing rents data from Authorities. Alongside the core exercise a number of pilot initiatives are being undertaken at selected sites. These are focused on risk areas that were highlighted by Authorities and include payments made to privately run care homes, abuse of blue badge parking permits, serial insurance claimants and duplicate payments to suppliers. These pilot areas, if they prove effective, will be incorporated into future NFI exercises. Legality of transactions We have not identified any significant weaknesses in the council’s framework for ensuring the legality of its significant financial transactions. Overall arrangements We reviewed the council’s overall arrangements for ensuring the legality of transactions with a financial consequence during our interim work. We found no issues to report on this topic. Objections There remains one outstanding objection, which is being considered by a previous District Auditor, relating to the cattle market redevelopment. The objection affects financial years 1998/99 and 1999/2000. The District Auditor has issued his preliminary findings and is currently considering further representations. We will keep officers informed of the progress with this objection. Other work Grant claims Over recent years the number of claims requiring audit certification has grown nationally and audit fees have risen in line with this growth.
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In accordance with Strategic Regulation, the Audit Commission has adopted a more risk-based approach to the certification of grant claims. With effect from 2003/04 the smaller claims have not been subject to audit or have received a lighter touch. The approach to larger claims has been determined by risk and the adequacy of the Council’s control environment. Our work on your 2003/04 grant claims is ongoing and we expect to meet the deadlines imposed by government departments. A report summarising the matters arising from our audit work together with a protocol for managing and quality assuring 2004/05 grant claims will be issued in January 2005. Looking forwards Future audit and inspection work We have an agreed plan for 2004/05 and we have reported in this letter those aspects that have already been completed. The remaining elements of that plan, including our audit of the 2004/05 accounts, will be reported in next year’s Annual Letter. We will seek to ensure, wherever possible, that our work relates to the improvement priorities of the council when planning our programme of work for 2005/06. We will seek to reconsider, with you, your improvement priorities in the light of the CPA assessment and your own analysis, and develop an agreed programme by 31 March 2005. Revision to the Code of Audit Practice The Audit Commission has consulted on a revised Code of Audit Practice for application to the audit of the 2005/06 accounts. The new Code, which will be laid before Parliament in January 2005, is designed to secure: • a more streamlined audit, which is proportionate to risk and targeted on areas where auditors have most to contribute to improvement;
Annual Audit and Inspection Letter Audi t 2003/2004
ANNUAL AUDIT AND INSPECTION LETTER
• a stronger emphasis on value for money, focussing on corporate performance and financial management arrangements (rather than individual services and functions); and • better and clearer reporting of the results of audits. Further details will be provided in the Audit and Inspection Plan 2005/06. Closing remarks This letter has been discussed and agreed with the Chief Executive and other senior officers. A copy of the letter will be presented to the Monitoring and Audit Committee on 25 January 2005. The council has taken a positive and constructive approach to our audit and inspection. I would like to take this opportunity to express my appreciation for the council’s assistance and co-operation. Availability of this letter This letter will be published on the Audit Commission’s website at www.audit-commission.gov.uk , and also on the council’s website.
Ian Sadd District Auditor
Mary Perry Relationship Manager December 2004
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Status of our reports to the council Our annual audit and inspection letter is prepared in the context of the Statement of Responsibilities of Auditors and Audited Bodies issued by the Audit Commission. Annual audit and inspection letters are prepared by relationship managers and appointed auditors and addressed to members and officers. They are prepared for the sole use of the audited and inspected body, and no responsibility is taken by the Audit Commission or its appointed auditors to any member or officer in their individual capacity, or to any third party.
Annual Audit and Inspection Letter Audi t 2003/2004
ANNUAL AUDIT AND INSPECTION LETTER
Kettering Borough Council Page 10
audit 2003/2004
Audit and inspection reports issued
Report title Review of partnerships Audit and inspection plan Final account joint working arrangements Internal audit joint working arrangements Grant claims joint working arrangements Implementing electronic government Interim audit report (draft) Annual Audit and Inspection Letter Best Value Performance Plan statutory report
Annual Audit and Inspection Letter Audi t 2003/2004
Date issued April 2004 May 2004 June 2004 June 2004 July 2004 July 2004 August 2004 December 2004 December 2004
APPENDICES
A P P E N D I X 1
Kettering Borough Council Page 11
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