KBC01 Annual Audit Letter 01-02
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audit 2001/2002 Annual Audit Letter Kettering Borough Council INSIDE THIS LETTER PAGE 2 • The purpose of this Letter • Audit objectives PAGES 3 - 4 • Key messages PAGES 4 - 5 • Comprehensive Performance Assessment PAGES 6 - 14 • Accounts • Financial aspects of corporate governance • Performance management PAGES 14 - 15 • Next year • Closing remarks • Reports issued during the audit PAGES 16 - 17 Appendix 1 • Auditor s Statutory Report on the Best Value Performance Plan KBC01 Annual Audit Letter 01-02 - Final Reference: Date: 23 December 2002 JG/JH Kettering Borough Councilaudit 2001/2002 Accounts The purpose of this Letter • Opinion This Annual Audit Letter summarises for Members the more important matters arising from our Financial aspects of corporate audit for 2001/2002 and comments on other current issues. We have produced separate governance reports during the year on completion of specific • Legality of financial transactions aspects of our work which have been discussed in • Financial standing detail with officers. The reports are listed at the end of this Letter for Members information. • Systems of internal financial control The Audit Commission has circulated to all • Standards of financial conduct, and the audited bodies a statement which summarises prevention and detection of fraud and the key responsibilities of auditors. Our audit has corruption been conducted in accordance with the ...
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| Publié par | Enne |
| Nombre de lectures | 15 |
| Langue | English |
Extrait
audit 2001/2002 Annual Audit Letter Kettering Borough Council
I N S I D E T H I S L E T T E R
P A G E 2 The purpose of this Letter Audit objectives
P A G E S 3 - 4 Key messages
P A G E S 4 - 5 Comprehensive Performance Assessment
P A G E S 6 - 1 4 Accounts Financial aspects of corporate governance Performance management
P A G E S 1 4 - 1 5 Next year Closing remarks Reports issued during the audit
P A G E S 1 6 - 1 7
Appendix 1 Auditors Statutory Report on the Best Value Performance Plan
Reference: KBC01 Annual Audit Letter 01-02 - Final Date: 23 December 2002 JG/JH
audit 2001/2002 The purpose of this Letter This Annual Audit Letter summarises for Members the more important matters arising from our audit for 2001/2002 and comments on other current issues. We have produced separate reports during the year on completion of specific aspects of our work which have been discussed in detail with officers. The reports are listed at the end of this Letter for Members information. The Audit Commission has circulated to all audited bodies a statement which summarises the key responsibilities of auditors. Our audit has been conducted in accordance with the principles set out in that statement. What we say about the results of our audit should be viewed in the context of that more formal background. Audit objectives Audit work is based on the significant financial and operational risks that the Council faces and is structured around three main elements. EXHIBIT 1 The three main elements of audit objectives
Annual Audit Letter - Audit 2001/2002
Kettering Borough Council
Accounts Opinion Financial aspects of corporate governance Legality of financial transactions Financial standing Systems of internal financial control Standards of financial conduct, and the prevention and detection of fraud and corruption Performance management Use of resources Best Value Performance Plan Performance information Our audit has addressed the requirements of the Code of Audit Practice and we have worked with the Council to maximise the benefits of the integrated audit approach. We have reviewed your arrangements for dealing with risks and we have undertaken more detailed work in selected areas of higher audit risk. We also liaise with Best Value and other Inspectors to ensure a co-ordinated approach across our respective roles and responsibilities.
Kettering Borough Council (Final) - Page 2
audit 2001/2002 K E Y M E S S A G E S The Council has made significant strides forward since embarking on its improvement programme in 2000. The findings from our audit, as summarised in this Letter, reflect these improvements, although you have recognised those areas in which you need to improve further and are embarking on a second phase of the improvement programme. Financial standing While the Council continues to face a difficult financial position and it is only the recent more favourable financial settlement which has eliminated the projected budget shortfall of approximately £0.3m for 2003/2004, overall financial management remains sound. The Councils budget setting and budgetary control procedures are good and appropriate steps have been taken to establish a sustainable base budget and medium term financial strategy. The level of historical arrears remains a high priority for improvement. However, appropriate action is being taken and recent statistics show a significant reduction in arrears. Members need to ensure that this remains a high priority area for improvement and should continue to monitor progress on a regular basis. Internal Financial Controls Internal Audit did not meet all of the CIPFA professional standards during 2001/2002 and we were therefore unable to place reliance on their work. However, action was taken to ensure that all core financial systems were reviewed during the year and the new consortium arrangement should result in significant improvements next year. We will review the operation of the consortium as part of next years audit. We made recommendations for improvements in your arrangements for risk management and bank reconciliations, and you have taken appropriate action.
Annual Audit Letter - Audit 2001/2002
Kettering Borough Council
Legality The Councils overall arrangements for ensuring the legality of transactions are generally sound but could be strengthened further by adopting a formal risk management approach to dealing with new legislation. There are a number of outstanding objections to the Councils accounts. We issued a Public Interest Report under section 8 of the Audit Commission Act 1998 in respect of an objection related to the Councils management of planning gain agreements. The Council has responded positively to the recommendations in the report and has recently amended its planning policy guidance. Standards of conduct and the prevention of fraud and corruption The Councils overall arrangements are sound and were strengthened during the year as a result of the adoption of a formal anti-fraud policy and staff training. Democratic renewal The Council has made good progress in implementing this fundamental change. One of the key challenges is embedding the cultural change and engaging all Members in the new decision making processes. In common with many other councils, there is a need to further develop the overview and scrutiny role. These issues have already been recognised by the Council and a number of initiatives have been introduced to assist the learning and development process. Further training and guidance may be required after the new arrangements have had more time to settle in. E-government The Councils Implementing Electronic Government (IEG) Statement is an ambitious blueprint for moving towards its goal of customer focussed, joined up services. This will require significant organisational and cultural change and we identified good practice in the way that you are managing this change.
Kettering Borough Council (Final) - Page 3
audit 2001/2002 Best Value You continue to make good progress on the implementation of Best Value and have established a sound performance management framework. Best Value is increasingly seen as part of the normal management arrangements of the Council. Overall performance has improved in 2001/2002 and your arrangements for the collection and publication of performance information are sound. The Council has recognised the need to treat Housing Benefits as a high priority for improvement and Members need to continue to monitor performance carefully to ensure that the improvement plan, which has been commended by DWP, continues to be delivered. Our compliance review concluded that your BVPP complies in all significant respects with statutory requirements, and we have issued an unqualified opinion.
Annual Audit Letter - Audit 2001/2002
Kettering Borough Council
Comprehensive Performance Assessment All single tier authorities and county councils will receive an overall CPA assessment in December 2002. The CPA methodology has now been adapted by the Audit Commission for District Councils. It brings together information from inspections, Performance Indicators (PIs) and a scored auditor judgement to evaluate the quality of core service provision in meeting housing needs, the provision of clean, green and safe public spaces and other local services including leisure and benefits administration. In addition a separate corporate assessment will be made of the Councils proven corporate capacity to improve. The assessment will draw evidence from two thematic inspections -balancing housing markets and public spaces -which will also provide service performance information. The CPA will also involve the Council producing, with the assistance of peer review, a robust self-assessment. The evidence from all these sources will be drawn together to form an overall assessment score. All district councils will receive a CPA assessment over the next two years. Provisionally, Northamptonshire district councils are included in the first tranche of reviews and are due to receive their CPA in May/June 2003. There are a number of key features which characterise an excellent performing council. In relation to the auditor assessment these include.
Kettering Borough Council (Final) - Page 4
audit 2001/2002 EXHIBIT 2 AUDITOR ASSESSMENT Key features of an excellent council Auditor Key Features Assessment Financial Robust budget preparation building Standing in all known contingencies; regular corporate reporting and monitoring. Meets financial targets and maintains adequate reserves. Adopts robust medium-term financial strategy with realistic three-year horizon. Internal Strong monitoring of internal Financial financial control, robust internal Control audit function, fully-developed risk assessment systems. Standards of Ethical Framework in place and Financial Governance Arrangements based Conduct on CIPFA/Solace framework. Systems to prevent and detect fraud/corruption. Financial Accounts prepared and approved by Statements 31 July; few errors in the accounts and full compliance with professional standards. Good supporting records. Legality of Clear statutory roles and Financial responsibilities; good consideration Transactions of legality of key transactions and proactive response to new legislation. In relation to the corporate assessment the key features of an excellent performing Council are shown in Exhibit 3. The CPA will examine each of these areas in detail through the thematic inspections.
Annual Audit Letter - Audit 2001/2002
Kettering Borough Council
EXHIBIT 3 CORPORATE ASSESSMENT Key features of an excellent council Corporate Key Features Assessment Ambition Strong vision and corporate objectives based on robust consultation. Clear about priorities and areas which are not priorities - and ownership of these by partners, Members and staff. Focus The Council stays focused on the things which matter. Prioritisation Clear about priorities and good balance between national and local priorities. Established track-record of shifting funds to priorities. Capacity Good understanding of skills and capacity needed to deliver change. Performance Clear linkages between corporate Management and service targets. Stretching targets and robust corporate systems to monitor performance and take corrective action to strengthen poor services. Achievement Good track-record of achievement in line with priorities; continuous service improvement and recognition of improvements by the public. Investment Strong building blocks for the future. Learning Learns from both failure and success and overcomes barriers to change. Self-aware and open to external challenge. Future Plans Robust plans to take forward Councils improvement agenda, addressing known priorities and weaknesses. The Council embarked on a major change and improvement programme in 2000 and is about to proceed to phase 2. This should stand the Council in good stead as extensive changes have already been made to strengthen your overall management arrangements. It is important that officers and Members take the opportunity of the CPA process to help continue the momentum of the Councils own change agenda and drive through the planned further improvements. Kettering Borough Council (Final) - Page 5
audit 2001/2002 Accounts We gave an unqualified opinion on your 2001/2002 statement of accounts on 28 November 2002. Our audit of your annual statement of accounts is complete and we issued an unqualified opinion on 28 November 2002. The Audit cannot be formally closed until objections in relation to previous years have been settled. We have also received notice of a possible objection in relation to your 2001/2002 accounts. We have reported all significant matters arising from our work to officers. The only issue that we would wish to draw to Members attention is that the asset values stated in the accounts may not in all cases reflect current values due to material rises in property values in the area and the failure to carry out asset re-valuations in accordance with the Councils 5 year programme. However, there is no impact on cash as this only affects the book values in the statement of accounts and we understand that the Council is planning to carry out a revaluation of all its assets in 2003/2004. Financial aspects of corporate governance Legality of financial transactions Financial standing Systems of internal financial control Standards of financial conduct, and the prevention and detection of fraud and corruption Legality of financial transactions The Council has adequate arrangements for ensuring the legality of transactions with financial consequences. Overall arrangements We reviewed the Councils overall arrangements and reported our findings to officers. We did not identify any significant weaknesses but recommended the establishment of more formal arrangements for responding to new legislation. Annual Audit Letter - Audit 2001/2002
Kettering Borough Council
Human Rights Act This year we reviewed management arrangements in respect of the Human Rights Act. The review included an awareness survey of Members to assess levels of knowledge and understanding about the Act. We concluded that the Council has not yet developed a formal corporate approach to ensure it complies with the Acts requirements. Our survey indicated that Members are not yet confident about their knowledge of the Act or their ability to recognise potential Human Rights issues. We made the following recommendations to strengthen existing arrangements: adopt a corporate risk based approach in responding to the Act and other areas of new legislation in future develop a training programme to improve the level of understanding and knowledge of officers and Members about the Act. Objections There are three objections relating to our responsibilities under the Audit Commission Act 1998. Bakehouse Lane the objection affects financial years 1998/1999 and 1999/2000 and relates to planning gain agreements. The objection was decided in April 2002 and resulted in the issue of a Report in the Public Interest. The recommendations in the report were considered and accepted by the Council in October 2002. Broadway the objection affects financial years 1998/1999 and 1999/2000 and relates to planning issues and the payment of a grant by the Council. A bundle of material documents has been prepared and arrangements are being made to hear oral submissions by the objector. Following this stage there may be further enquiries before the objection is decided.
Kettering Borough Council (Final) - Page 6
audit 2001/2002 Cattlemarket the objection affects financial years 1998/1999 and 1999/2000 and relates to land transfers in connection with the development of the former Cattle Market site. Further documentation and information has recently been received from the Council which is currently being considered. Once these enquiries are complete a bundle of material documents will be prepared and sent to all parties. The objector may then wish to make oral submissions before the objection is decided. We will keep officers informed of the progress with these objections. Financial standing While the Council continues to face a difficult financial position and it is only the recent more favourable financial settlement which has eliminated the projected budget shortfall of approximately £0.3m for 2003/2004, overall financial management remains sound. The Council’s budget setting and budgetary control procedures are good and appropriate steps have been taken to establish a sustainable base budget and medium term financial strategy. The level of historical arrears remains a high priority for improvement. However, appropriate action is being taken and recent statistics show a significant reduction in arrears. Overall arrangements We reviewed the Councils overall arrangements for ensuring that its finances are soundly based. We also reviewed the Councils budget setting and budgetary control procedures as part of our accounts work. We found that the Council has established a sound medium term financial strategy and that further progress has been made to improve budgetary control arrangements, including: the production of monthly budget reports to senior management team introduction of quarterly monitoring reports to Members preparation of monthly spreadsheets for departments. We reported our findings in our Interim Audit Report, which has been agreed with officers. Annual Audit Letter - Audit 2001/2002
Kettering Borough Council
Revenue Spending The Council successfully applied for a capitalisation direction in 2001/2002 to finance its management re-structure. This meant that the net expenditure for 2001/2002 of £7.98m was £0.42m greater than the original budget but was consistent with expectations. The closing general fund working balance was £0.15m higher than expected as there was no need to use revenue reserves which had been set aside for redundancy costs. The general fund reserve increased to £1.1m at 31 March 2002 which represents approximately 3.3% of gross revenue expenditure. The HRA generated a slightly higher than expected deficit of £0.12m compared to the original estimate of £0.03m deficit. The main differences were a higher allocation of corporate costs and reduced rent income due to increased Council house sales. This has reduced the working balance to £0.83m (representing approximately 4.8% of gross expenditure). Financial prospects The Councils overall framework for financial planning has improved significantly and the current arrangements are sound. An overall budget strategy is prepared in September which identifies local and national budget pressures and quantifies any funding gaps and the implications for the current budget round. A draft budget is then prepared in December and detailed consultation on service priorities is carried out in December and January. Final budget proposals are then presented to Members in February each year. As a result, financial and service planning cycles are harmonised and there is a clear and transparent financial management process. In February 2002 the Council set its 2002/2003 budget with a view to maintaining a general fund balance of at least £1m. This resulted in a Council tax increase of 16.7% to close a funding gap of approximately £0.5m. This demonstrates a willingness to make difficult decisions in order to establish and maintain a sustainable base budget and a stabilisation of revenue reserves.
Kettering Borough Council (Final) - Page 7
audit 2001/2002 In September 2002 the Council considered its 5 year budget strategy and identified a further funding gap of £0.44m for 2003/2004, primarily due to uncontrollable factors such as a higher than expected national pay award and increases in pension and national insurance contributions. Bridging this gap by increasing Council Tax alone would require a similar level of increase to the previous year. The Council is therefore considering a combination of measures, including increases in fees and charges, efficiency savings and reductions in service provision. The effectiveness of the Councils overall arrangements enables it to respond to uncontrollable and unexpected factors such as these in a managed and effective way. Action taken during the process has reduced the current funding gap to £0.3m, although this has now been eliminated because of the recent favourable financial settlement from Central Government.
Capital expenditure The Council has continued to demonstrate sound management of its capital programme. Spending in 2001/2002 was consistent with the approved budget. The Council spent £4.72m and had slippage of just £0.2m. Collection of income and arrears levels The collection rate for Council Tax has improved significantly since last year but Non-domestic Rates has deteriorated. Collection rates for both remain significantly below the national average at 31 March 2002 (Exhibit 4).
EXHIBIT 4 Council tax % Non-domestic Rates % 2001 2002 2002 2001 2002 2002 Av Av 93.7 95.3 97.4 97.3 95.9 98.2 Source ODPM Statistics The overall level of rent arrears reduced during 2001/2002 to £0.8m. However, this still represents approximately 8.4% of gross rental income which is also significantly higher than the national average). Annual Audit Letter - Audit 2001/2002
Kettering Borough Council
Last year we expressed concern about the Councils overall performance for the collection of its major sources of income. It is clear that the Council has responded positively and is taking appropriate steps to address the issue. It will obviously take time for the overall level of arrears to reduce to a acceptable level although the trends in performance have been reversed, and improvements are already being achieved. Latest statistics show that the overall level of historic debt has fallen from £5.08m at the beginning of the year to £4.12m at the end of November. In addition, collection rates for Council Tax and Business Rates are higher than they were at the same time last year. Nevertheless, the overall levels of debt are still considerable and Members need to ensure that this remains a high priority area for improvement and continue to monitor progress on a regular basis.
Systems of internal financial control We identified weaknesses in the Council’s internal financial controls and were unable to place sufficient reliance on the work of Internal Audit in 2001/2002. Internal Audit Internal Audit constitutes one of the most important elements of the internal control environment and has a key role to play in ensuring that an adequate level of control is maintained over all areas of Council activity. Last year we carried out a detailed review of Internal Audit and concluded that it did not meet the requirements of the CIPFA Code, particularly in respect of having a robust, risk-based approach to audit planning. This year we carried out an overview of Internal Audit and followed up the recommendations in our 2000/2001 report. None of the recommendations in our report had been actioned and we have therefore concluded that Internal Audit also did not meet the required professional standards during 2001/2002. We also noted that there was no internal audit plan for 2001/2002 and that resources had been necessarily diverted to reactive fraud work.
Kettering Borough Council (Final) - Page 8
audit 2001/2002 However, the Head of Finance took action to ensure that core financial systems were reviewed during 2001/2002 by arranging additional contract cover. The weaknesses in Internal Audit were discussed in detail with officers last year. As a result, management took the decision to consider alternative forms of service provision. The Council is committed to developing partnership working where appropriate and entered into a consortium arrangement with neighbouring councils for the provision of Internal Audit services from 1 April 2002. We will carry out a more detailed review of these arrangements as part of next years audit but would expect the increased availability of resources, skills and experience to result in a considerable improvement to the Councils internal audit function. Overall arrangements We reviewed the Councils overall internal financial controls and made the following recommendations: complete and implement procedure notes for business critical systems review risk management arrangements increase the frequency of bank reconciliations. Our findings were reported to officers in our interim audit memorandum. Standards of conduct, and the prevention and detection of fraud and corruption Satisfactory arrangements for maintaining standards of conduct, and for preventing and detecting fraud and corruption, are in place. We updated our assessment of the Councils overall arrangements to maintain standards of conduct and prevent and detect fraud and corruption. We concluded that the Councils arrangements are satisfactory and were strengthened during the year as a result of the adoption of a formal anti-fraud policy, supported by appropriate staff training. Annual Audit Letter - Audit 2001/2002
Kettering Borough Council
As part of this years audit we also reviewed the action taken by the Council in response to a number of suspected frauds. We found that satisfactory action had been taken in all cases but that weaknesses in systems and procedures had been identified during the investigations. It is important to ensure that appropriate action is taken to address the identified weaknesses and that there is a clear awareness throughout the organisation as to the standards of financial conduct expected. Performance management Use of resources Best Value Performance Plan Performance information Use of resources We focused our ‘use of resources’ work following our risk based planning process on major issues affecting the Council: Democratic renewal E-government Risk management Property management IT security. We have sought to assess progress from our external perspective as well as offer constructive feedback and suggestions for improvement where appropriate.
Kettering Borough Council (Final) - Page 9
audit 2001/2002 EXHIBIT 5 USE OF RESOURCES REVIEWS 2001/2002 Fieldwork is complete on five of our six reviews Study Status Democratic renewal Fieldwork complete draft report issued E-government Complete Risk management In progress Property management Complete IT security Fieldwork complete draft report issued IT audit follow-up Fieldwork complete draft report issued For those studies where fieldwork is complete and findings reported to officers, we present further details below. Democratic Renewal The main focus of our work was to undertake an overview of the Councils new political arrangements in order to assess whether they are in line with the intended changes set out by the Government in Part II of the Local Government Act 2000. Our objective was to provide an independent assessment of how the new structures are working in practice. Our approach for this particular overview consisted of: interviews with Senior Officers and Members a survey of Members views about the operation of the new arrangements a review of Council documentation and reports detailing the new political arrangements. Our main conclusion is that the Council has made good progress in implementing this fundamental change and officers and Members are still working on implementing and refining the new arrangements. The following areas of good practice were identified by the audit: the high proportion of independent members appointed to the Standards Committee the continuous review and updating of the constitution.
Annual Audit Letter - Audit 2001/2002
Kettering Borough Council
One of the key challenges now facing the Council is embedding the cultural change and engaging all Members in the new decision making processes. Above all the Council needs to ensure that both Members and officers understand the roles and relationships in the new structure and that they all have a part to play in the decision-making process. In common with many other councils, there is a need to further develop the overview and scrutiny role. These issues have already been recognised by the Council. Briefing notes have been produced and training sessions have been undertaken. Furthermore, a number of initiatives have been introduced to assist this learning and developing process. For example, the State of the Borough debate and the following Special Debate were particularly useful vehicles for focussing on community views, Council priorities and work programmes. This is clearly an evolving situation and the key steps which we believe the Council needs to take in order to further develop its arrangements are to: continue to develop Members understanding of the new arrangements and their respective roles and responsibilities and consider undertaking further training further develop the role of scrutiny, particularly in respect of policy formulation. E-Government Like all local authorities, the Council has had to rise to the challenge of implementing electronic government (e-government) and embark on a programme which will not just result in new uses of technology, but will challenge and change the way all council services are delivered. Such a large change agenda involves a high risk exposure for the Council and so we undertook a diagnostic review to examine how the Council is responding to this challenge.
Kettering Borough Council (Final) - Page 10
audit 2001/2002 The Council has recently undergone a period of fundamental structural change both for Members and officers. At the heart of this change was a belief that service provision within the Council had to change to become more customer focussed. The vision that is set out in the Councils Implementing Electronic Government (IEG) Statement reflects this change and is an ambitious blueprint for moving the Council towards its goal of customer focussed, joined up services. It is clear that the Council will have to move through a period of considerable cultural change. We identified good practice in the way that this change is being managed. For example, a considerable investment is being made in helping staff to understand and manage the changes that will be required and task and finish groups that have achieved success in the past are being used again as part of the IEG programme. Also crucial in the change agenda is the Councils commitment to challenge service delivery options and business processes. The Council has taken steps to facilitate this approach to re-engineer service delivery. More recently, the Council has been assessing the skills that staff will need to enable electronic service delivery to inform its training and development programme. There has been no detailed staff capacity planning specifically for IEG but this is being carried out as part of the Councils overall capacity planning at a corporate level and financial resources have been allocated to support the project. Our report has been discussed and agreed with officers and we will follow up progress as part of next years audit. Property management We undertook a full review of the Councils asset management arrangements in 1999/2000 and made a number of recommendations for improvement. Since that time the Council has undergone considerable management and structural change and we agreed to revisit this area to review progress and compare the Councils new arrangements with best practice. We concluded that all the items in our original report had been addressed. Annual Audit Letter - Audit 2001/2002
Kettering Borough Council
At the time of our follow-up work we were concerned that the Council did not have up-to-date knowledge of the condition of its property assets. However, we understand that detailed surveys have now been completed and that the latest version of the Asset Management Plan includes a clear assessment of the condition of all assets. The Councils Capital Strategy has been assessed by the Government Office as good and the Asset Management Plan as satisfactory. This has resulted in the Council being allocated an additional £0.125m discretionary funding in 2003/2004. A considerable amount of time has been invested in the production of these documents and it is important that they are now used by Members to inform future decisions on resource allocation. Our report has been discussed and agreed with officers and we will follow up progress again as part of next years audit. IT Security Information and the systems that provide and process it are important business assets of the Council. Their availability, integrity and confidentiality are vital to ensuring business continuity. We undertook a broad diagnostic review of the Councils IT security arrangements in comparison with British Standard 7799. The purpose of our review was to help inform the Councils risk management processes by determining whether appropriate policies and procedures were in place. We highlighted the following key areas where documented policies and/or procedures did not exist for officers to consider the impact: procedures for reporting security incidents preparation and testing of a disaster recovery plan documentation of the back-up policy and procedures. An action plan has been prepared for discussion and agreement with officers.
Kettering Borough Council (Final) - Page 11
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