Audit of Accounts 2002/03 23 December 2003democraticservices.hounslow.gov.uk/documents/s6045... ·...

London Borough of Hounslow

Annual Audit Letter Audit of Accounts 2002/03

23 December 2003

KPMG LLP

hounslow/deliverables/0203 annual audit letter

kpmg London Borough of Hounslow Annual Audit Letter 23 December 2003

Contents

1 Executive Summary 3 1.1 Purpose of this letter 3 1.2 2002/03 audit year 3 1.3 Areas for development next year 4 1.4 Status of this letter 4

2 Performance management 5 2.1 Performance management framework 5 2.2 Audit of the 2003/04 Best Value Performance Plan 6 2.3 Performance Information 6 2.4 Partnership management arrangements 7 2.5 ICT management arrangements 9

3 Financial Aspects of Corporate Governance 11 3.1 Financial Standing 11 3.2 Systems of internal financial control 12 3.3 Fraud and Corruption 15 3.4 Legality of transactions with a financial consequence 15

4 Accounts 16 4.1 Audit opinion 16 4.2 Issues arising from the audit of the accounts 16

Appendix A: Audit objectives 16

Appendix B: Summary of recommendations 18

Appendix C: Status of prior year recommendations 20

1 Executive Summary

1.1 Purpose of this letter

In Spring 2003 the Council developed an improvement plan that responded to the issues highlighted in its Comprehensive Performance Assessment (CPA). This plan informed the programme of audit and inspection work that has been carried out at Hounslow in the period February to November 2003.

The Audit Commission’s relationship manager issued a report to the Council in December 2003 that summarises the progress it has made in delivering service improvements during 2002/03.

This letter summarises the key findings arising from the work we have carried out as part of the audit element of the 2002/03 audit and inspection plan and highlights the issues facing Hounslow in the year ahead which we believe merit particular attention from officers and Members.

Our audit work is carried out in accordance with the Audit Commission’s Code of Audit Practice. A summary of the work carried out under each element of the Code of Audit Practice is provided in Appendix A to this letter.

1.2 2002/03 audit year

Hounslow has responded positively to the challenges it has faced in the 2002/03 audit year and continues to find ways to further refine and improve its performance. In particular:

the Council has responded positively to issues highlighted by its 2002 Comprehensive Performance Assessment. Good progress has been made in addressing the recommendations made in the corporate assessment helping the Council to strengthen key elements of its corporate framework for the delivery of services;

Hounslow has enhanced its service and financial planning framework with the development of a Executive Business Plan which incorporates a medium term financial strategy;

the 2003/04 revenue budget includes a ‘budget for change’ which enables the Council to direct resources towards addressing some of the areas highlighted for improvement in the Executive Business Plan;

the Council has strengthened its arrangements for monitoring the status of its key projects such as the redevelopment of its town centres. Progress reports to Members now include information on the risks associated with the project as well as the stages of the project to allow Members to track progress;

a corporate risk management framework has been developed and is being implemented;


the Council has strengthened its arrangements for the monitoring of the performance of its services through quarterly meetings of the Executive that are dedicated to the review of service performance;

the Council continues to maintain robust arrangements for the maintenance of its financial standing.

1.3 Areas for development next year

While the Council has had a positive year in tackling the challenges that it faced, there are still areas where the Council could further improve its performance. Key areas that the Council continues to need to focus on throughout 2003/04 include the:

• strengthening of its business planning arrangements to support the delivery of the Executive Business Plan;

• reinforcement of the arrangements for the calculation of performance indicators;

• embedding of its risk management framework; and

• strengthening its arrangements for validating information provided by third parties for inclusion in the Council’s accounts and published performance information.

1.4 Status of this letter

This letter will be presented to the Executive on 14 January 2004. It has been discussed with the Chief Executive, Assistant Chief Executive (Finance) and the Head of Policy and Performance and updated to reflect their substantive comments and management responses (which are reflected in Appendix B). The status of the recommendations made in our 2001/02 Annual Audit Letter is summarised at Appendix C.

Whilst we have sought to draw on our audit to make recommendations and suggestions that would be useful to the Council, our work has been designed solely for the purpose of discharging our responsibilities under the Audit Commission’s Code of Audit Practice. Accordingly, our work cannot be relied upon to identify every weakness or opportunity for improvement.

This report is addressed to the Members and officers of the London Borough of Hounslow. It has been prepared for the sole use of the Council and we take no responsibility to any Member or Officer acting in their individual capacities or to third parties.

2 Performance management

The performance element of our audit covers the following:

Section

Performance management framework 2.1

Audit of the 2003/04 Best Value Performance Plan

Performance Information

2.2

2.3

Partnership management arrangements 2.4

ICT management arrangements 2.5

2.1 Performance management framework

Following the 2002 comprehensive performance assessment (CPA) the Council developed an improvement plan. This included the development of an Executive Business Plan, changes to the Council’s approach to best value reviews and improved arrangements for monitoring the performance of services and delivery of improvement plans.

The Council has made good progress in the implementation of its improvement plan. Performance management arrangements have been strengthened through the:

• development of an Executive Business Plan that sets out the Council’s priorities for the period 2003 – 2006 and includes detailed objectives for 2003/04;

• introduction of quarterly performance monitoring meetings of the Executive at which the performance of Hounslow’s services is reviewed using business critical performance indicators; and

• formal mid year review of the implementation of the Executive Business Plan.

We reviewed various drafts of the Executive Business Plan providing comments to help strengthen the document prior to its publication.

Each service department is expected to produce a business plan that sets out how it will be taking forward the Executive Business Plan during the year. We reviewed the business plans produced by departments for 2003/04. We noted that whilst each plan contained some examples of good practice there is a need to strengthen some business plans in the following areas:

• there needs to be clearer linkages between the Council’s corporate objectives and departmental activities;

• targets for all business critical indicators need to be included in departmental business plans;


• actions need to be expressed in a SMART manner to help managers monitor their delivery; and

• links to other statutory and local plans should be explained.

Recommendation 1

The Council needs to strengthen its arrangements for the production of departmental business plans.

2.2 Audit of the 2003/04 Best Value Performance Plan

Hounslow published its 2003/04 Best Value Performance Plan (BVPP) by the statutory deadline of 30 June 2003. We are required to audit the BVPP and provide an opinion on whether the BVPP contains all the information that is required by the Office of the Deputy Prime Minister.

As in previous years, we have concluded that Hounslow’s overall arrangements for producing its BVPP were satisfactory. During 2002/03 there has been an improvement in Hounslow’s arrangements for the production of performance information. However, as noted in section 2.3 of this letter, the Council still needs to take further steps to ensure that reported indicators are accurate and in line with government definitions.

The ODPM made changes to its requirements for the information to be included in the BVPP from 2003/04. Local authorities are required to include information on improvements that have been delivered over the past three years (as distinct from the measures in place to obtain these improvements) and their plans for improvement over the current and subsequent 2 years. This has changed the emphasis of the BVPP from a plan that reported progress on a year by year basis to a medium term plan that tracks the delivery of the Council’s improvement plans.

The Council has started to expand the timeframe of the BVPP with the inclusion of targets to 2005/06 for its performance indicators, information on its PSA targets and a summary of the progress made in implementing the recommendations made in best value reviews completed over the past three years.

The Council will need to continue to develop its BVPP in line with ODPM guidance. There is some overlap between the material included in the Executive Business Plan and BVPP so there is the potential to integrate these documents so the Council has one rather than two medium term plans.

2.3 Performance Information

We are required to assess the adequacy of the Council’s arrangements for the production of performance information for publication in the Council’s BVPP and its outturn Performance Indicator return to the Audit Commission.

In prior year’s annual audit letters we have highlighted weaknesses in the Council’s arrangements for the generation of specific performance indicators. During 2002/03

Hounslow has strengthened its arrangements for the production of performance indicators.

We have carried out two audits of the Council’s arrangements for producing performance indicators:

• in April 2003 we reviewed a sample of indicators being reported to CMT to assess whether the indicator was being calculated in accordance with the ODPM or local definition; and

• we audited the Council’s outturn performance indicators in August 2003.

We noted an improvement in the quality of outturn performance information provided for audit during 2002/03. In particular the Council has addressed the weaknesses in its arrangements for producing certain performance indicators highlighted in 2001/02. We issued a reservation on the Council’s arrangements for producing one indicator in 2002/03. This compares well to the 15 reservations issued in 2001/02.

However 27 indicators reported in the 2003/04 BVPP were amended following the audit. Whilst the majority of these amendments did not materially change the reported performance of the Council the number of amendments highlights the importance of maintaining robust processes for producing performance information.

We made a number of recommendations to help the Council further improve its arrangements for producing performance information in 2003/04. These include:

• where data is provided by a third party, ensuring that a methodology for the generation of data and supporting papers is in place and adhered to by the other body;

• ensuring that working papers are retained to support data extracted from computer systems at a particular point in time;

• where procedures for the collection of data involve several departments, a named co-ordinator should document procedures and perform periodic checks to ensure that the procedures are being followed;

• the review of performance indicator calculations by a manager prior to the indicator being reported to Members and CMT; and

• carrying out sample checks to validate key performance indicators.

Recommendation 2

The Council should continue to reinforce its arrangements for the production of performance information. In particular the Council should ensure that there is a documented process in place for producing those indicators that Hounslow is required to report in its BVPP.

2.4 Partnership management arrangements

The Council works with third parties to deliver services in a wide variety of areas including the management of its housing stock, provision of care, collection of Council Tax, the payment of housing benefits and the provision of libraries and leisure facilities. Such arrangements are governed by contracts or partnership agreements.


The government is encouraging local authorities to deliver services in conjunction with other providers in the private, public and voluntary sectors. Whilst such arrangements can help deliver good services to residents and ensure that service provision is more ‘joined up’ with other bodies such as the NHS, there are risks for the Council that need to be managed.

As part of our audit we have continued to monitor the Council’s partnership management arrangements. We have focussed on two areas:

• the robustness of the Council’s arrangements for entering into a pooled budget arrangement with Hounslow PCT; and

• the Council’s arrangements for validating information provided by Hounslow Homes for inclusion in its accounts and BVPP.

2.4.1 Pooled budgets

For several years the Council has been developing integrated services with the local health economy in line with good practice. Authorities have the ability to establish pooled budgets with the NHS to help better target resources to clients and reduce duplication in administrative processes.

Over the past year the Council has been exploring the potential to establish pooled budgets with Hounslow PCT for the provision of services to clients with learning disabilities and to those requiring aids and adaptations to help them to live more independently in their own homes.

Whilst pooled budgets can potentially lead to a more effective targeting of resources and reduced administrative costs, there are associated risks that need to be managed by the Council. In particular robust arrangements need to be in place to manage overspends sharing them fairly between the parties involved. In our 2001/02 Annual Audit Letter we recommended that the Council prepare a formal risk assessment for such arrangements.

We have reviewed various drafts of the partnership agreement for the proposed pooled budget for learning disabilities and provided feedback to the Council. In particular we were concerned that the risk assessment of the proposed pooled budget arrangement needed to be more robust and expressed in sufficient detail to enable it to be evaluated by non Social Service specialists and that clear targets and performance measures be included in the partnership agreement to enable the evaluation of its effectiveness in delivering better services for residents.

In response to our comments the Council engaged AtosKPMGConsulting to carry out a risk assessment of the proposed pooled budget for learning disabilities. Following the completion of AtosKPMGConsulting’s work we would expect a report to be provided to Members to enable them to decide whether Hounslow enters the proposed pooled budgets. We would expect such a report to include a summary of the:

• risks that Hounslow would need to manage were it to pool its resources with Hounslow PCT;

• measures that would be put in place to manage these risks; and

• arrangements for monitoring the effectiveness of the outcomes for both clients and the parties involved in the pooled budget.

2.4.2 Hounslow Homes

The Council monitors the performance of Hounslow Homes through management meetings, performance indicators and the review of financial information.

Our audit of Hounslow’s 2002/03 performance indicators identified weaknesses in the Council’s arrangements for validating performance information provided by Hounslow Homes. We issued a reservation on one of the performance indicators published by the Council that had been calculated by Hounslow Homes as we were unable to confirm that it had been calculated in accordance with the ODPM definition. We understand that performance information provided by Hounslow Homes is reviewed by the Council but, at the time of our audit, no detailed checks were undertaken by Housing Strategy and Services to provide assurance to Members and Chief Officers that the information is accurate.

As noted in section 2.3 above the Council needs to improve its arrangements for validating performance information that is provided to it by third parties.

Recommendation 3

The Council needs to ensure that Hounslow Homes have a documented system for the production of each of the performance indicators that the Council is required to publish. Periodic sample checks should be undertaken by the Council to validate the performance information provided by Hounslow Homes.

Hounslow Homes is also responsible for administering various financial processes on behalf of the Council including the:

• billing and collection of housing rents;

• generation of various balances for reporting in the Housing Revenue Account and preparation of some of the notes to the account; and

• calculation of entries for the housing benefits and subsidy claims.

Our audit work has identified weaknesses in the Council’s arrangements for validating financial information provided by Hounslow Homes. These arrangements are discussed further in sections 3.2.3 and 4 of this letter.

2.5 ICT management arrangements

We have reviewed two aspects of the Council’s ICT management arrangements during 2002/03:

• e government; and

• acquisition of ICT systems and services.

We also followed up the progress being made by the Council in implementing recommendations arising from our 2001/02 work. The main findings and recommendations arising from these reviews are discussed briefly below.


E-government

• the Council has yet to produce a formal ICT strategy or e-government strategy; and

• Hounslow is continuing to assess the skills and staffing required to develop e-government effectively and has set up a project team to co-ordinate all e-government projects.

Acquisition of ICT systems and services

• decisions to purchase new ICT systems are largely driven by departmental needs. More robust business cases need to be prepared to establish and quantify the business benefits for the Council of the acquisition of a new system;

• business cases should include information on the changes to processes, total costs and risks involved in any project; and

• arrangements for measuring and monitoring the delivery of the expected benefits of acquiring a new system need to be introduced.

Implementation of prior year recommendations

• performance indicators to monitor ICT performance have yet to be introduced.

Our detailed findings and recommendations have been reported to officers.

The Council has recently commissioned a comprehensive external review of its corporate ICT function. We understand that the findings are to be reported to the Executive in January 2004. As part of our 2003/04 audit plan we will be tracking the progress made by the Council in implementing the recommendations arising from this review.

3 Financial Aspects of Corporate Governance

We are required to assess the adequacy of Hounslow’s arrangements for ensuring the proper conduct of its financial affairs. We have evaluated Hounslow’s arrangements through the following work:

Section

Financial standing 3.1

Systems of internal financial control 3.2

Fraud and corruption 3.3

Legality of transactions with a financial consequence 3.4

3.1 Financial Standing

At 31 March 2003 Hounslow’s revenue balances totalled £22.8M of which £19.7M was earmarked for schools or specific projects.

Each year Members need to take increasingly difficult decisions as to the targeting of resources as part of the budget setting process. We welcome the establishment of a ‘budget for change’ as part of the 2003/04 budget to enable the Council to target areas highlighted for improvement in the Executive Business Plan.

Whilst the level of non earmarked revenue balances has increased over the past year it is relatively low for a Council of Hounslow’s size. Members need to keep the level of balances held by the Council under review and be satisfied that a reasonable level of balances are being held given the significant financial pressures that the Council faces. The medium term financial strategy highlights these pressures most notably in areas such as Social Services and changes in government funding. The implementation of the Council’s risk assessment framework should also help identify areas where there are significant financial risks and measures that can be used to help monitor Hounslow’s financial exposure in these areas.

Recommendation 4

Members need to be satisfied that the Council maintains a reasonable level of balances to enable it to respond to unforeseen events.

It is therefore important that the Council continues to maintains robust systems for analysing and reporting on expenditure against budgets so that any projected overspends are identified and addressed as soon as possible. We welcome the Council’s plans to strengthen budgetary control further by introducing quarterly budget monitoring at Heads of Finance meetings. These meetings will provide an opportunity for Heads of Finance to monitor the wider financial pressures facing the Council and develop action plans to address issues arising during the year.


3.2 Systems of internal financial control

We are required by the Code of Audit Practice each year to assess the adequacy of Hounslow’s arrangements for its systems of internal financial control. Our work assessed the adequacy of:

• Hounslow’s Internal Audit Function for providing assurance to the Council on its key financial systems;

• the arrangements which the Heads of Finance have in place in their departments to ensure compliance with the Council’s financial procedures and regulations;

• Hounslow’s significant financial systems to generate materially accurate balances for the Council’s accounts and grant claims; and

• the Council’s arrangements for the billing and collection of Social Services income.

We have also reviewed Hounslow’s response to the CIPFA/SOLACE corporate governance framework focussing in particular on the development and implementation of a risk management framework.

3.2.1 Hounslow’s Internal Audit Function

It is the responsibility of managers to have in place systems of internal financial control that are adequate in design and are operating as intended. One source of information to management and Members on the adequacy of control is the work undertaken by Internal Audit.

We have reviewed the Council’s Internal Audit function as operated in the year to 31 March 2003 and concluded that it was adequate. We identified the following areas of good practice:

• the 2002/03 Annual Internal Audit Plan was risk based and in accordance with the Strategic Internal Audit Plan for 2002-05;

• the audit work to be undertaken is summarised in a terms of reference which is agreed in advance of commencement of work and findings are discussed during the exit meeting with the responsible officer prior to the issue of a draft report;

• follow up work is undertaken by Internal Audit to establish whether recommendations made have been implemented by the relevant department;

• there are clear reporting lines to the Assistant Chief Executive (Finance) with regular meetings to monitor the delivery of the Annual Internal Audit Plan.

We noted a few minor areas where the Internal Audit function could be further improved. These have been reported to officers and an action plan has been agreed to address the recommendations made.

3.2.2 Heads of Finance arrangements

Heads of Finance within service departments are responsible for ensuring compliance with the Council’s financial rules and regulations. They must have in place systems to satisfy themselves that financial rules and regulations are being adhered to at all times. These include the review of key systems reconciliations or the issuing of local procedure notes.

During 2002/03 our audit work generally found arrangements to be satisfactory in service departments, with controls operating in a robust manner. We noted that in some areas controls have been strengthened. For example, the arrangements for compiling government grant claims and returns produced within Social Services have been strengthened reducing the number of audit adjustments to such claims.

3.2.3 Adequacy of significant financial systems

As part of our audit of the Council’s accounts we carried out an assessment of the adequacy of Hounslow’s significant financial systems in conjunction with Internal Audit. Overall, we found that controls in place over key financial systems were adequate in design and in some areas had been strengthened from 2001/02.

There are however a number of areas where the operation of controls needs to be further strengthened. In particular the Council needs to strengthen its arrangements for ensuring that key controls are operating over its housing systems. As noted in section 2.4.2 the billing and collection of housing rents is administered by Hounslow Homes. The Council needs to strengthen its arrangements for ensuring that reconciliations between the housing rents system and other systems (general ledger, housing benefits and cash receipting) are properly undertaken in a timely manner and that reconciling items are investigated.

We have made recommendations to the Council to strengthen its financial management arrangements within Housing and in a number of other areas. We are pleased to report that the Council has responded positively to these recommendations and actions are being taken to address the issues raised.

3.2.4 Billing and Collection of Social Service Income

Our 2001/02 audit identified weaknesses in the Council’s arrangements for the collection of Social Services income. As part of our audit in 2002/03 we carried out a review of the Council’s arrangements for the assessment of clients’ care needs, their ability to contribute towards the cost of their care, billing and income collection processes and the Council’s arrangements for the payment of care providers. The key issues identified from our review were:

• we identified inaccuracies in the data held by the Council on care placements. This was contributing to the underreporting of the Council’s performance in the review of cases and issuing of care plans Following the audit officers carried out a ‘data cleansing’ exercise which led to the updating of the records of clients and the reporting of more accurate level of performance.


Recommendation 5

A timetable of periodic checks over the accuracy of data held on the Social Services client management system needs to be implemented to help ensure that performance is being accurately reported.

• some key documentation relating to the client was not held on the client’s personal file. We recommended that a checklist should be prepared to assist social workers and care managers in ensuring that all relevant documentation is held on the client file;

• we recommended improvements to the communication channels between the care management team, management information team and Finance to help Finance identify clients whose financial assessments have not been completed; and

• the Council needs to reduce the length of time taken to recover amounts due from clients. We recommended that officers should regularly review aged debt reports to ensure that appropriate recovery action is being taken. The Council has since revisited its corporate approach to debt recovery and has set targets to encourage the collection of arrears.

Social Services have responded very positively to our report and action is being taken in response to our recommendations.

3.2.5 CIPFA/SOLACE Corporate Governance Framework

The Council has responded positively to the CIPFA/SOLACE Corporate Governance Framework that was published in 2001. Hounslow has recently has a second peer review from IDeA to help it evaluate the effectiveness of its overall corporate governance arrangements.

The Council has identified that it needs to strengthen its risk management arrangements. The role and membership of the corporate Risk Management Group has been reviewed and strengthened. An external consultant has been engaged to help the Council develop and implement a risk management framework. The framework is supported by an action plan which includes briefing sessions for officers as well as milestones such as the preparation of departmental risk registers.

The corporate group has taken a facilitatory role in the assessment and identification of risks. It has ensured that managers have received training on risk assessment to help them prepare risk registers within departments. The risks identified by departments have been collated to form a corporate risk register and from this the most significant risks facing the Council have been identified. The key risks identified from this process have been reported to CMT and to Members.

There are plans to revisit the risk register on an annual basis to ensure that key risks to the Council are reviewed. Now that risks have been formally identified and their impact assessed it is important to ensure that the operation of the controls that are in place to manage these risks are monitored. This could be achieved by integrating the outcomes from the risk assessment exercise into the Council’s overall framework for managing its performance. Significant risks need to be reflected in the Executive Business Plan and departmental business plans developed for 2004/05 and business critical indictors need to

be in place to help Members and Chief Officers ensure that they are being appropriately managed.

Recommendation 6

The arrangements for the management of significant risks facing the Council should be reflected in the Executive Business Plan and departmental business plans for 2004/05.

3.3 Fraud and Corruption

During the year we undertook a review of the Council’s overall arrangements for the prevention and detection of fraud and corruption based on good practice guidance issued by the Audit Commission.

On the basis of this review we can conclude that the Council’s overall arrangements are adequate in design. In particular the Council continues to respond promptly to concerns that are brought to the attention of Internal Audit or the Assistant Chief Executive (Finance).

We have made recommendations to officers to address a number of minor areas where improvements need to be made.

3.4 Legality of transactions with a financial consequence

We have carried out the following work to provide an opinion on the adequacy of Hounslow’s arrangements for ensuring the legality of transactions with a financial consequence:

• Review of the minutes of Council meetings;

• Discussions with the Assistant Chief Executive (Legal) as to the arrangements in place for the ensuring the legality of transactions; and

• Responding to enquiries from Members and residents.

We have concluded that overall the Council’s arrangements for ensuring the legality of transactions with a financial consequence are adequate in design. These arrangements rely in part on officers making appropriate referrals to Legal Services. It is therefore important that the Council continues its policy of periodic training updates on key legal issues to officers who are involved in the letting of contracts.

We have not received any formal enquiries from electors during 2002/03.


4 Accounts

The Council’s published accounts are the means by which it publicly accounts for the stewardship of the resources at its disposal and its financial performance in the use of those resources.

We are required to audit the Council’s accounts and give an opinion on whether they present fairly the financial position of the Council and its expenditure and income for the year to 31 March 2003 and have been properly prepared in accordance with legislation and applicable accounting standards.

4.1 Audit opinion

We issued an unqualified opinion on the Council’s accounts and those of the London Borough of Hounslow Pension Fund for the year to 31 March 2003 and concluded our audit on 12 December 2003.

4.2 Issues arising from the audit of the accounts

The Council provided draft accounts for audit by 25 July 2003. Whilst the Council’s overall arrangements for producing its accounts have improved since 2001/02, there were still a number of issues that hindered the progress of the audit. As in prior years, there were a number of presentational changes to the accounts and related disclosures as a result of the audit.

We have particular concerns about the arrangements within the Council’s housing finance team for producing information to support balances in Hounslow’s accounts. These have been reported to and discussed with officers. In particular there is a need to ensure that:

• year end reconciliations are properly completed on a timely basis;

• working papers are made available by Hounslow Homes earlier in the year to help ensure consistency between disclosures in the Housing Revenue Account and balance sheet; and

• working papers are more clearly referenced to the accounts to make it easier to link them to reported balances.

Recommendation 7

An action plan needs to be agreed with Hounslow Homes to strengthen the arrangements for producing balances for the Council’s accounts.

The Council also needs to strengthen its arrangements for the identification of debtors and creditors to ensure balances are appropriately disclosed in the notes to the balance sheet.

From 2003/04, the deadlines for the approval of the annual accounts by Members and publication of the accounts will be brought forward by one month each year until 2005/06. Responding to these tighter deadlines will represent a significant challenge to

the Council both in terms of resourcing the completion all the necessary stages of the closing process earlier in the year and ensuring the quality of accounting estimates.

It is therefore important that Hounslow, as part of the closure processes for 2003/04, continues to improve the quality of its accounts particularly in the areas where weaknesses were identified during the 2002/03 audit.


Appendix A: Audit Objectives Our annual audit letter is presented to Members and officers to summarise how we have met our audit objectives as set by the Audit Commission in its Code of Audit Practice and to summarise matters of significance which have come to our attention during the audit.

The table below sets out the objectives of our audit and how they have been addressed in this letter.

Audit objective per the Audit Commission’s Code of Audit Practice… Reference in this letter…

Are adequate arrangements in place to ensure Hounslow’s financial standing is soundly based?

3.1

Has Hounslow put in place adequate arrangements to satisfy itself that its systems of internal financial control are both adequate and effective in practice?

3.2

Are adequate arrangements in place to maintain proper standards of financial conduct and to prevent and detect fraud and corruption?

3.3

Has the Council put in place adequate arrangements to ensure the legality of transactions that might have financial consequences?

3.4

Has the Council put in place adequate arrangements to secure economy, efficiency and effectiveness in its use of resources?

2.1, 2.4, 2.5

Has the Council put in place adequate arrangements for collecting, recording and publishing specified performance information?

2.3

Did the Council publish a BVPP which contained all the required information by 30 June 2003?

2.2

Have the accounts been prepared in accordance with relevant legislation and applicable accounting standards and do they present fairly the financial position of the Council at 31 March 2003?

4.1

Our detailed findings and recommendations are set out in the various reports and letters that we have issued to the Council during the year. These include:

Report Date Issued Review of departmental business plans (one letter per department) April – July 2003 Performance Indicators; Interim Review 3 June 2003 Systems of Internal Financial Control 17 June 2003 Financial Aspects of Corporate Governance 13 July 2003 Review of Internal Audit 13 July 2003 Social Services Billing and Income Collection 3 October 2003 Computer Audit; Watching Brief 2 October 2003 (draft)

Computer Audit; Review of Business Cases for the Acquisition of ICT systems and services

11 November 2003 (draft)

The fees charged for the completion of your 2002/03 audit are summarised in the graph below.

0 10 20 30 40 50 60 70 80 90 100

PerformanceManagement

FACG

Accounts

Audit Management

Audit Fee (£K)Proposed Actual

The overrun on the audit of the accounts is due to additional time being required to audit the housing general fund and Housing Revenue Account,

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thro

ugh

the

2004

/05

finan

cial

yea

r. T

his m

ay m

itiga

te

agai

nst o

ur e

ffor

ts in

this

are

a.

Chi

ef E

xecu

tive

30 A

pril

2004

The

Cou

ncil

need

s to

ensu

re th

at H

ouns

low

Hom

es h

ave

a do

cum

ente

d sy

stem

for t

he p

rodu

ctio

n of

eac

h of

the

perf

orm

ance

indi

cato

rs th

at th

e C

ounc

il is

requ

ired

to

publ

ish.

Per

iodi

c sa

mpl

e ch

ecks

shou

ld b

e un

derta

ken

by th

e C

ounc

il to

val

idat

e th

e pe

rfor

man

ce in

form

atio

n pr

ovid

ed b

y H

ouns

low

Hom

es.

Acc

epte

d. A

pro

toco

l will

be

deve

lope

d be

twee

n th

e C

ounc

il an

d H

ouns

low

Hom

es.

Chi

ef E

xecu

tive

and

Hea

d of

Hou

sing

Stra

tegy

31 M

arch

200

4

Mem

bers

nee

d to

be

satis

fied

that

the

Cou

ncil

mai

ntai

ns

a re

ason

able

leve

l of b

alan

ces t

o en

able

it to

resp

ond

to

unfo

rese

en e

vent

s.

Agr

eed.

Ass

essm

ent o

f the

ade

quac

y of

the

Cou

ncil’

s ba

lanc

es h

as a

lway

s bee

n, a

nd w

ill c

ontin

ue to

be,

a k

ey

part

of th

e bu

dget

pro

cess

and

will

be

fully

dis

cuss

ed in

th

e C

ounc

il Ta

x se

tting

repo

rt to

Cou

ncil.

Ass

ista

nt C

hief

Exe

cutiv

e (F

inan

ce)

31 M

arch

200

3

kpmg

Lo

ndon

Bor

ough

of H

ouns

low

An

nual

Aud

it Le

tter

KPM

G L

LP

23 D

ecem

ber 2

003

houn

slow

/del

iver

able

s/02

03 a

nnua

l aud

it le

tter

Rec

omm

enda

tion

Man

agem

ent R

espo

nse

Res

pons

ible

off

icer

and

da

te b

y w

hich

act

ion

is

due

A ti

met

able

of p

erio

dic

chec

ks o

ver t

he a

ccur

acy

of d

ata

held

on

the

Soci

al S

ervi

ces c

lient

man

agem

ent s

yste

m

need

s to

be im

plem

ente

d to

hel

p en

sure

that

pe

rfor

man

ce is

bei

ng a

ccur

atel

y re

porte

d.

Acc

epte

d. A

tim

etab

le w

ill b

e de

velo

ped

by th

e de

partm

ent.

Chi

ef E

xecu

tive

and

Cor

pora

te D

irect

or S

ocia

l Se

rvic

es

31 M

arch

200

4

The

arra

ngem

ents

for t

he m

anag

emen

t of s

igni

fican

t ris

ks fa

cing

the

Cou

ncil

shou

ld b

e re

flect

ed in

the

Exec

utiv

e B

usin

ess P

lan

and

depa

rtmen

tal b

usin

ess

plan

s for

200

4/05

.

Acc

epte

d. T

his w

ill b

e re

flect

ed in

the

new

bus

ines

s pl

anni

ng g

uida

nce

and

will

als

o be

refle

cted

in th

e 20

04/0

5 Ex

ecut

ive

Bus

ines

s Pla

n.

Chi

ef E

xecu

tive

30 A

pril

2004

An

actio

n pl

an n

eeds

to b

e ag

reed

with

Hou

nslo

w

Hom

es to

stre

ngth

en th

e ar

rang

emen

ts fo

r pro

duci

ng

bala

nces

for t

he C

ounc

il’s a

ccou

nts.

Agr

eed.

Dis

cuss

ions

hav

e co

mm

ence

d w

ith H

ouns

low

H

omes

and

Hou

sing

Stra

tegy

and

Ser

vice

s to

prod

uce

a ro

bust

act

ion

plan

.

Ass

ista

nt C

hief

Exe

cutiv

e (F

inan

ce)

31 Ja

nuar

y 20

04

kpmg

Lo

ndon

Bor

ough

of H

ouns

low

An

nual

Aud

it Le

tter

23 D

ecem

ber 2

003

ho

unsl

ow/d

eliv

erab

les/

0203

ann

ual a

udit

lette

r A

ppen

dix

C:

Stat

us o

f Pri

or Y

ear

Rec

omm

enda

tions

Rec

omm

enda

tion

Man

agem

ent R

espo

nse

Cur

rent

Sta

tus

The

Cou

ncil

need

s to

agre

e its

Exe

cutiv

e B

usin

ess

Plan

in e

arly

200

3 an

d en

sure

it is

take

n fo

rwar

d th

roug

h th

e Se

rvic

e Pl

ans a

nd it

s Per

form

ance

M

onito

ring

syst

ems d

urin

g 20

03/0

4.

Agr

eed,

Exe

cutiv

e m

eetin

g 5

Nov

embe

r 200

2 Im

plem

ente

d. T

he E

xecu

tive

Bus

ines

s Pl

an h

as b

een

publ

ishe

d an

d bu

sine

ss

plan

ning

gui

danc

e is

sued

.

As p

art o

f its

revi

ew o

f its

arr

ange

men

ts fo

r car

ryin

g ou

t Bes

t Val

ue S

ervi

ce R

evie

ws t

he C

ounc

il ne

eds t

o ta

ke st

eps t

o st

reng

then

its i

mpr

ovem

ent p

lann

ing

and

ensu

re th

at th

e ro

le o

f Mem

bers

in B

est V

alue

, pa

rticu

larly

in re

spec

t of t

he m

onito

ring

of th

e im

plem

enta

tion

of Im

prov

emen

t Pla

ns, i

s cle

arly

id

entif

ied.

Issu

e al

read

y re

cogn

ised

by

the

Cou

ncil

and

bein

g di

scus

sed

inte

rnal

ly a

nd w

ith E

xter

nal

Aud

itor a

s par

t of t

he “

Impr

ovem

ent P

lann

ing”

ch

ange

s.

Will

be

take

n fo

rwar

d as

par

t of t

he E

xecu

tive

Bus

ines

s Pla

n.

Impl

emen

ted.

Key

bes

t val

ue re

view

s ar

e m

onito

red

via

the

Exec

utiv

e B

usin

ess P

lan

mon

itorin

g pr

oces

ses.

B

est V

alue

act

ion

plan

s reg

arde

d as

su

bsta

ntia

lly c

ompl

ete

are

now

sign

ed

off a

nnua

lly in

the

BV

PP.

The

Cou

ncil

need

s to

take

step

s dur

ing

2002

/03

to

stre

ngth

en it

s arr

ange

men

ts fo

r the

pro

duct

ion

of

Perf

orm

ance

Info

rmat

ion.

On-

goin

g im

plem

enta

tion

from

repo

rts

subm

itted

to E

xecu

tive

thro

ugho

ut 2

002/

03.

Impl

emen

ted

thro

ugho

ut 2

003/

04 v

ia

quar

terly

mon

itorin

g of

serv

ice

perf

orm

ance

.

kpmg

Lo

ndon

Bor

ough

of H

ouns

low

An

nual

Aud

it Le

tter

KPM

G L

LP

23 D

ecem

ber 2

003

houn

slow

/del

iver

able

s/02

03 a

nnua

l aud

it le

tter

Rec

omm

enda

tion

Man

agem

ent R

espo

nse

Cur

rent

Sta

tus

As p

art o

f the

con

tinue

d de

velo

pmen

t of i

ts

partn

ersh

ip w

orki

ng a

rran

gem

ents

the

Cou

ncil

need

s to

ens

ure

that

a fo

rmal

risk

ass

essm

ent i

s car

ried

out

befo

re e

nter

ing

join

t wor

king

arr

ange

men

ts w

hich

in

volv

e th

e tra

nsfe

r of r

esou

rces

. Th

is n

eeds

to

cons

ider

the

serv

ice,

gov

erna

nce,

fina

ncia

l and

lega

l im

plic

atio

ns o

f ent

erin

g th

e ar

rang

emen

t and

be

fed

into

the

Term

s of R

efer

ence

and

Per

form

ance

M

easu

res s

et fo

r any

new

ly e

stab

lishe

d go

vern

ing

body

.

Agr

eed.

Ris

k as

sess

men

t wor

k un

derw

ay in

co

njun

ctio

n w

ith K

PMG

. R

isk

asse

ssm

ent n

ow fo

rms p

art o

f the

as

sess

men

t pro

cess

of w

heth

er to

ent

er

into

par

tner

ship

wor

king

arr

ange

men

ts

and

incl

udes

bot

h fin

anci

al a

nd se

rvic

e ris

ks.

Gui

danc

e on

a ro

bust

ass

essm

ent

proc

ess h

as b

een

obta

ined

from

Ato

s K

PMG

Mem

bers

nee

d to

be

satis

fied

that

the

Cou

ncil’

s 20

03/0

4 bu

dget

stra

tegy

allo

ws f

or th

e m

aint

enan

ce

of a

dequ

ate

leve

ls o

f rev

enue

bal

ance

s to

prov

ide

a bu

ffer

aga

inst

unf

ores

een

expe

nditu

re a

nd a

llow

for

inve

stm

ent i

n se

rvic

e de

velo

pmen

ts.

Part

of th

e 20

02/0

3 bu

dget

deb

ate.

Th

e ad

equa

cy o

f rev

enue

bal

ance

s fo

rmed

par

t of t

he 2

003/

04 b

udge

t pr

oces

s and

spec

ific

prov

isio

n w

as

mad

e fo

r an

incr

ease

in b

alan

ces o

f £0

.5M

.

In p

repa

ratio

n fo

r the

intro

duct

ion

of th

e re

quire

men

t to

incl

ude

an in

tern

al c

ontro

l sta

tem

ent i

n its

200

2/03

ac

coun

ts th

e C

ounc

il ne

eds t

o fo

rmal

ly re

view

its

arra

ngem

ents

for s

atis

fyin

g its

elf t

hat i

ts sy

stem

s of

inte

rnal

con

trol a

re a

dequ

ate

and

are

oper

ated

in

prac

tise.

Agr

eed,

dis

cuss

ed w

ith E

xter

nal A

udito

r. A

cor

pora

te g

over

nanc

e st

atem

ent w

as

incl

uded

in th

e 20

02/0

3 St

atem

ent o

f A

ccou

nts.

The

Cou

ncil

need

s to

ensu

re th

at re

gula

r tra

inin

g up

date

s cov

erin

g le

gal,

finan

cial

, and

per

sonn

el

issu

es a

re p

rovi

ded

to H

eads

of S

ervi

ce a

s par

t of i

ts

Cor

pora

te T

rain

ing

Prog

ram

me.

Agr

eed,

and

will

be

deve

lope

d in

Tra

inin

g Pr

ogra

mm

e fo

r 200

3/04

. R

esou

rces

issu

e w

ill

have

to b

e ad

dres

sed.

Impl

emen

ted.

Tra

inin

g ha

s bee

n pr

ovid

ed o

n va

rious

topi

cs d

urin

g 20

02/0

3 in

clud

ing

risk

man

agem

ent,

proc

urem

ent a

nd th

e Pr

uden

tial C

ode.

Audit of Accounts 2002/03 23 December 2003democraticservices.hounslow.gov.uk/documents/s6045... ·...

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Transcript of Audit of Accounts 2002/03 23 December 2003democraticservices.hounslow.gov.uk/documents/s6045... ·...