Annual Audit Letter PTE ACttee version
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Annual Audit Letter PTE ACttee version

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Annual Audit Letter South Yorkshire Passenger Transport Executive Audit 2008/09 November 2009 Contents Key messages 3 Financial statements and annual governance statement 5 Value for money conclusion 7 Closing remarks 10 Appendix 1 – Action Plan 11 Status of our reports The Statement of Responsibilities of Auditors and Audited Bodies issued by the Audit Commission explains the respective responsibilities of auditors and of the audited body. Reports prepared by appointed auditors are addressed to non-executive directors/ members or officers. They are prepared for the sole use of the audited body. Auditors accept no responsibility to: • any director/member or officer in their individual capacity; or • any third party. Key messages This report summarises the findings from our 2008/09 audit. It includes messages arising from the audit of your financial statements and the results of the work I have undertaken to assess your arrangements to secure value for money in your use of resources. Audit opinion 1 An unqualified audit opinion was issued on 29 September 2009 ahead of the national deadline. The accounts presented for audit were complete but one material change was made during the course of the audit. We also agreed with you a number of enhancements to the presentation of the figures and some adjustments arising from information received after the accounts were originally prepared. Value for money conclusion 2 An ...

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Annual Audit
Letter
South Yorkshire Passenger Transport Executive
Audit 2008/09
November 2009
Status of our reports
The Statement of Responsibilities of Auditors and Audited Bodies issued by the Audit
Commission explains the respective responsibilities of auditors and of the audited body.
Reports prepared by appointed auditors are addressed to non-executive directors/
members or officers. They are prepared for the sole use of the audited body. Auditors
accept no responsibility to:
any director/member or officer in their individual capacity; or
any third party.
Contents
Key messages
3
Financial statements and annual governance statement
5
Value for money conclusion
7
Closing remarks
10
Appendix 1 – Action Plan
11
Key messages
This report summarises the findings from our 2008/09 audit. It includes messages
arising from the audit of your financial statements and the results of the work I have
undertaken to assess your arrangements to secure value for money in your use of
resources.
Audit opinion
1
An unqualified audit opinion was issued on 29 September 2009 ahead of the national
deadline. The accounts presented for audit were complete but one material change
was made during the course of the audit. We also agreed with you a number of
enhancements to the presentation of the figures and some adjustments arising from
information received after the accounts were originally prepared.
Value for money conclusion
2
An unqualified value for money conclusion was issued reflecting that the Executive had
adequate arrangements in place to secure economy, efficiency and effectiveness in its
use of resources.
Audit fees
3
A summary of the audit fees required to deliver the audit programme is reported below.
Actual
£
Planned
£
Financial statements and annual governance
statement
64,425
64,425
Value for money
26,100
26,100
Total audit fees
90,525
90,525
4
We were able to absorb the additional time spent on technical advice in relation to the
adjustments to the accounts by cutting back on the scope of our recruitment and
retention review.
Independence
5
I can confirm that the audit has been carried out in accordance with the Audit
Commission’s policies on integrity, objectivity and independence.
Other assessments - comprehensive area assessment
6
We have assessed how well local public services are working together to improve
quality of life for people across South Yorkshire, both now and in the future. The
comprehensive area assessment, or CAA, is a new way of assessing local public
services in England. It examines how well councils are working together with other
public bodies, such as yourselves, to meet the needs of the people they serve. It is a
joint assessment made by a group of six independent regulators.
7
Assessments will be made publicly available every year and will provide an annual
snapshot of the quality of life in South Yorkshire. The first results will appear on a new
“oneplace” website
I
which will be launched on Wednesday 9 December 2009.
8
Members may also wish to be aware that the Annual Audit Letter for the South
Yorkshire Integrated Transport Authority (SYITA) is available on the Audit
Commission's website.
Recommendations
9
Recommendations are made in the reports that we agree with officers, and these
reports are taken to the Audit Committee. Consequently we have only made one
recommendation in this Annual Audit Letter. This recommendation is in respect of the
consolidated financial position of the Executive in the light of the cumulative deficit.
Recommendation
The Executive should continue to work with SYITA to ensure that the Transport
Act 1983 responsibility of clearing the deficit within the agreed timescales is met.
I
www.audit-commission.gov.uk/localgov/audit/CAA/pages/oneplace.aspx
Financial statements and annual
governance statement
South Yorkshire Passenger Transport Executive’s (the Executive's) financial
statements and annual governance statement are an important means by which you
account for the stewardship of public funds.
Accounting practice and financial reporting
10
Your accounting arrangements are sound and your financial reporting is of a good
standard. You have agree to the following two actions to strengthen procedures
further:
to request that the Actuary revisits his estimate of the proportion of retiring
members opting to commute service when he prepares the 2009/10 pension
liability calculation; and
to consult with your valuers when there are indications of impairment.
Adjustments to the financial statements
11
Your accounts were prepared to a good standard, with the only material adjustments
being in respect of the deferred charge balance carried on your balance sheet.
12
A deferred charge balance of some £45m was raised in 2000/01 to reflect losses
relating to the construction of Supertram, and since then you have been charging
£1.8m a year to revenue to write off this balance over a period of 25 years. The
balance remaining to be written-off was £30.3m as at 31 March 2009.
13
The Executive is required to prepare its accounts such that they are no less
informative than if the disclosure requirements of the Companies Act 1985 were, so far
as appropriate, applicable to passenger transport executives (PTEs). There is no
provision in the Companies Act to create deferred charges as their origin is in local
authority accounting and, in addition, from 2008/09 local authorities are no longer able
to carry such balances in their balance sheets. Consequently following discussion with
ourselves, and the receipt of technical advice, you have written off the balance of
£30.3m to reserves by way of a prior period adjustment.
14
This write-off does not have any impact on the PTE's financial position, as you are still
budgeting to raise revenue of £1.8m each year to reduce the deficit to zero over the
next 15 years in accordance with your previous plans. This treatment in effect mirrors
the treatment in the local authority sector, since local authorities are able to reverse
write-offs of deferred charges so that the cost does not fall on the Council Tax payer.
15
Your revenue expenditure was also increased by £1m subsequent to the preparation
of the draft accounts following a decision by HSBC to invoke a contractual obligation.
16
The net effect on the year's results as a consequence of amendments to the accounts
was for your in-year surplus:
to increase by £1.8m due to the annual funding of the deferred charge write-off
being reflected via the generation of in-year surpluses; and
to decrease by £1.0m as a consequence of the HSBC contractual obligation.
17
Meanwhile your I&E deficit carried forward as at 31 March 2009 increased by £30.3m
reflecting the write off to reserves.
18
There were also a number of minor adjustments to the Statement of Accounts to
correct minor misstatements and to include missing financial information. These
adjustments were agreed with the Chief Financial and Systems Officer (CFSO).
Internal control
19
My review of your Annual Governance Statement confirmed, subject to minor
amendment of the narrative disclosures, that it had been prepared in accordance with
requirements and that the disclosures made were consistent with my knowledge of
your arrangements.
20
I also did not identify any weaknesses in the design or operation of internal controls
that might result in a material error in your financial statements.
International Financial Reporting Standards (IFRS)
21
IFRS become applicable to the Executive from 2010/11. I anticipate that their
introduction will lead to significant changes to your accounts and am pleased to report
that you are actively considering the adjustments that will be required. There is also
some speculation that PTEs will become subject to the local authority accounting rules,
and, if so, this change will necessitate substantial amendments to the presentation of
your accounts.
22
We will further assess your readiness for the introduction of IFRS and monitor
progress as part of this year’s audit.
National Fraud Initiative (NFI)
23
The National Fraud Initiative is a data matching exercise that compares sets of data
within and across public bodies to identify inconsistencies or other circumstances that
might indicate fraud or error. It also helps auditors to assess the arrangements that
audited bodies have put in place to deal with fraud.
24
There is one issue that we are following up and this relates to a significant number of
concessionary fare passes that have not been cancelled following the death of card
holders. Your Internal Auditors have agreed to carry out a risk assessment to
determine what audit work is required to address this issue.
Value for money conclusion
I assessed whether the Executive has put in place adequate arrangements for
securing economy, efficiency and effectiveness in its use of resources. This is
known as the value for money (VFM) conclusion.
VFM conclusion
25
Your arrangements to secure economy, efficiency and effectiveness in your use of
resources were assessed against criteria specified by the Audit Commission. The
criteria used to make my local VFM assessment were revised with effect from 2008/09.
The new methodology is based on the key lines of enquiry (KLOE) that are being
applied in other parts of the public sector. For 2008/09 my judgement was based on
criteria in the following three areas:
managing finances - focusing on planning, understanding costs and reporting;
governing the business - focusing on risk management and internal control; and
managing resources - focusing on asset management.
26
Findings from my assessment are summarised in Table 1. I confirmed that the required
standard had been met for each area reviewed.
Table 1
Summary results of KLOE assessment
KLOE area
Audit finding
Managing finances
Financial planning and
financial health
Financial planning was found to be in accordance with the
resources available and service objectives have been set. A
deficit recovery strategy is in place.
Whilst losses were made following Icelandic investments we
are satisfied that the original investments were made in
accordance with a sound policy following the receipt of
professional advice.
Understanding costs
and achieving
efficiencies
You strengthened your integrated business planning in
2008/09, and for 2009/10 you are developing processes further
to closely align costs to strategic goals and priorities.
Financial reporting
Financial reporting is timely, reliable and meets the needs of
internal and external users.
KLOE area
Audit finding
Governing the business
Risk management and
internal control
We concluded that you have good systems to manage risks,
and that a sound system of internal control is maintained.
Managing resources
Asset management
Your asset management arrangements are good.
Economic downturn and the pressure on the public sector
27
The economic downturn and banking crisis is having a very significant impact on public
finances and the bodies that manage them. The impact on treasury management
strategies has been immediate, and, to date, this is the main area that has impacted
on the Executive with losses of £932,000 being recorded against your investments of
£6 million.
28
Despite these losses we are satisfied that you acted in accordance with sound
investment policies and followed professional advice when making these investments.
You have also adopted a more cautious treasury management policy to reflect the
uncertainties in the global banking industry. For example, from 2 March 2009 you
tightened controls on overnight investments.
29
The economic downturn is likely to lead to wider and more fundamental impacts on the
ability of public sector bodies to fund service delivery and capital programmes,
including pressures on income streams, and we are satisfied that the Executive is alert
to the risks and is prepared to change policy priorities where necessary.
Recovery strategy
30
I have previously reported on the strategy for recovering your accumulated revenue
reserve deficit to meet your responsibility under the Transport Act 1983 of balancing
income and expenditure as far as practicable.
31
I am satisfied that you and the ITA have reviewed your strategy and remain on course
to eliminate what was the only component of the above deficit, namely the “capital
financing revenue deficit” of £33.9 million by the agreed timescale of 2012/13.
32
It should be noted, as reported earlier in this Letter, that your overall revenue reserve
deficit has worsened significantly in 2008/09 due to the £30.3 million deferred charges
write off. However this write-off will not necessitate an increase in the levy from the
four South Yorkshire Metropolitan Authorities, as you already have an arrangement in
place with the ITA to raise revenue of £1.8 million each year to eliminate the deferred
charges deficit over the next 15 years, and this process will continue under the revised
accounting arrangements.
33
You have a large revenue deficit, and consequently your recovery strategy needs to be
reviewed each year, so I make the following recommendation.
Recommendation
R1
The Executive should continue to work with SYITA to ensure that the Transport
Act 1983 responsibility of clearing the deficit within the agreed timescales is met.
Performance reviews
34
This year we carried out a review of recruitment and retention. The main conclusions
arising from this work are as follows:
good progress has been made to address the difficulties experienced in recruiting
staff to key areas of the Executive's business. In particular, action has been taken
to address staff shortages in the areas of Information Technology and Transport
Planning;
staff retention is not a problem and turnover levels are low;
staff satisfaction levels have risen in recent years and are now relatively high;
the impact of organisational changes in relation to the Local Transport Plan is
being considered; and
equality and diversity indicators are being developed.
35
We have recommended that you establish a clear plan to deal with the staffing issues
arising from the acquisition of new responsibilities under the Local Transport Plan.
36
In relation to equality and diversity you achieved only 50 per cent of your equality
targets for 2008/09. Although you have achieved Level 4 of the Equality Standard and
have exceeded your target for the proportion of black and ethnic minority employees in
your workforce, further action is required to meet existing targets. Particular attention is
required to redress the balance of ethnic and gender mix at senior levels of the
organisation. We have recommended that you identify the actions required to meet
your targets.
37
We will monitor the implementation of these actions in due course.
Conclusion
38
As a result of my VFM conclusion audit work I issued an unqualified opinion stating
that the Executive had adequate arrangements to secure economy, efficiency and
effectiveness in its use of resources.
Closing remarks
39
I have discussed and agreed this letter with the Chief Financial and Systems Officer. I
will present the letter at the Audit Committee on 2 December to enable a final version
of the letter to be received by the Executive.
40
Outputs from our audit are listed in the following table.
Table 2
Audit outputs
Report
Date issued
Audit plan
April 2008
Opinion on the financial statements
September 2009
Value for money conclusion
September 2009
Annual governance report
September 2009
Review of recruitment and retention
September 2009
Annual audit letter
November 2009
41
The Executive has taken a positive and constructive approach to our audit. I wish to
thank your officers and members for their continuing support and co-operation during
the audit.
David Phillips
Appointed Auditor
November 2009
Appendix 1 – Action Plan
Recommendation
Priority
1 = Low
2 = Med
3 = High
Responsibility Agreed
Comments
Date
R1
The Executive should continue
to work with SYITA to ensure that the
Transport Act 1983 responsibility of
clearing the deficit within the agreed
timescales is met.
3
Executive
Board
yes
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