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 ...

Informations

• Publié par: Chaet
• Nombre de lectures: 37
• Langue: English

Extrait

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

-

Annual

update