Leicestershire and Rutland Association of Local Councils ...
Transcript of Leicestershire and Rutland Association of Local Councils ...
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Leicestershire and Rutland Association of Local Councils
Local Council Audits – 2012/13 Grant Thornton
29 April 2013
© 2013 Grant Thornton UK LLP. All rights reserved.
Today
• Grant Thornton
• Limited Assurance Audit
• The Annual Return
• Audit process
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Grant Thornton UK LLP
• Grant Thornton is the largest supplier of audit services to the public sector in the UK
• Appointed auditors to 40% of principal NHS and Local Government audits across the south and west of England.
• Appointed to around 40% of limited assurance audits
• From 1 November 2012 the Public Sector Assurance team at Grant Thornton totalled 400 professional staff
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Grant Thornton – Limited assurance
• Grant Thornton are appointed auditors for 14 counties in England
Avon Lincolnshire
Cornwall Nottinghamshire
Derbyshire Somerset
Devon Staffordshire
Gloucestershire Warwickshire
Herefordshire Wiltshire
Leicestershire Worcestershire
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Grant Thornton – Limited Assurance Audit
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Grant Thornton UK LLP
• Grant Thornton Limited Assurance audit team:
– Jon Roberts CPFA (Contact Partner)– Barrie Morris CPFA (Engagement Lead)– Bridget Bowen FCA (Senior Manager)– Ged Small FCA (Manager)
• Audits will be managed from the Bristol office• Leicestershire will be audited from our Liverpool
office
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Grant Thornton – Limited Assurance Audit
• A total of approximately 3,600 audited bodies– Parish and Town Councils– Parish Meetings– Internal Drainage Boards– Other Small Bodies
• Appointed for 5 years – 2012/13 to 2016/17• New contracts produced savings on audit fees of
around 30%• New contracts facilitated extension of the nil fee
band from £1,000 to £10,000
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Limited Assurance Audit Fees
• Audit fees are set by the Audit Commission for a five year period covering 2012/13 to 2015/17
• Based on whichever is the higher of income or expenditure of the year being audited– Income (Box 2 + box 3)– Expenditure (Box 4 + Box 5 + Box 6)
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Limited assurance audit fees
Income / Expenditure band (£)
Fee for limited assurance audit (Exc VAT) (£)
0 - 10,000 No fee payable10,001 - 25,000 10025,001 - 50,000 20050,001 - 100,000 300100,001 - 200,000 400200,001 - 300,000 600300,001 - 400,000 800400,001 - 500,000 1,000500,001 - 750,000 1,300750,001 - 1,000,000 1,6001,000,001 - 2,000,000 2,0002,000,001 - 3,000,000 2,4003,000,001 - 4,000,000 2,8004,000,001 - 5,000,000 3,2005,000,001 - 6,500,000 3,600
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Limited Assurance Audit Regime
• Lighter touch regime for councils with income and expenditure less than £500k introduced in 2002.
• Threshold increased to less than £1m in 2006• Threshold increased to less than £6.5m in 2011
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Aims of limited assurance audit regime
• Strengthen accountability• Reduce audit fees• Improve control environment within local councils• Produce financial and governance information in a
consistent format which resulted in introduction of Annual Return
• Generally considered a success
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Future of Local Government Audit
• Audit Commission is being abolished• Currently responsible for overseeing contracts with
suppliers• Current limited assurance regime will remain in
place until 2016/17• After that – DCLG is undecided but likely to
continue with a limited assurance / annual return based system
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Limited Assurance Audit Regime – types of audit
• Short form return – a declaration of no transactions
• Any transactions at all – Annual Return required• Basic audit, or• Intermediate audit
• Annual Return largely unchanged from 2012
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Limited Assurance Audit Regime – types of audit
Intermediate audit • All councils with income or expenditure >
£200,000• A sample of 5% of the remainder
• Intermediate audit requires us to ask for additional information to allow us to test one or more of the assertions on the annual governance statement
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The Annual Return
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Completion of Annual Return
Four sections in Annual Return• Audited body completes
– Section 1 – Accounting statements,– Section 2 – Annual Governance Statement
• Internal auditor completes – Section 4 – Annual internal audit report to the
council• Then send to us, we complete
– Section 3 – External auditors certificate and opinion
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© 2013 Grant Thornton UK LLP. All rights reserved.
© 2013 Grant Thornton UK LLP. All rights reserved.
© 2013 Grant Thornton UK LLP. All rights reserved.
© 2013 Grant Thornton UK LLP. All rights reserved.
Annual Return – Section 3External audit report
• Except for reports – qualification
• Other matters reports – not a qualification
• May be inserted into boxes on Annual Return or may be referred to a separate sheet
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Deadlines and Targets
• Statutory requirement for audited body to approve the accounts by 30 June following the year end
• Statutory requirement for audited bodies to publish the audited accounts by 30 September following the year end
• We are set targets by the Audit Commission –• 100% of audits complete by 30 September
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Annual audit requirements
• We send out the audit documentation to audited bodies in March each year– Annual Return– Accompanying letter sets audit date– Proforma Notice of Appointment of date for
the Exercise of Electors Rights
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Notice of Appointment of date for the Exercise of Electors Rights
• Legal obligation for the Parish Council to:
– Advertise the ‘Notice of Appointment of Date for the Exercise of Electors’ Rights’ prominently in a public place (even if no financial transactions)
– Allow electors full access to inspect the annual return and all books and records relevant to year being audited
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Notice of Appointment of Date for the Exercise of Electors Rights
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Notice of Appointment of date for the Exercise of Electors’ Rights
• The notice must go up at least six weeks before the audit date
• You will need to do this soon after the year end• Applies even if no financial transactions in the year
(ie a nil return)
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Notice of Appointment of date for the Exercise of Electors’ Rights
• Key dates
– Date of Announcement– Start of inspection period– End of inspection period– Audit date
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Completion of notice -suggested method
14 consecutive days 20 working days 1 day Notice advertised Inspection period starts Inspection period ends
Date andit called
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Completion of notice -suggested method
• Use a calendar
• Work backwards from audit date
– Minimum 20 working days for inspection• Exclude bank holidays, weekends, days where
clerk not available
– Minimum 14 consecutive days between date notice is advertised and start of inspection period
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Documentation required for audit
• All audits– a fully completed 2013 Annual Return;– your financial year-end bank reconciliation;– quantified explanations for any difference between box 7
and box 8 on section 1;– explanations for significant variations (greater than 15%)
from last year to this year. All explanations should be quantified and relevant analyses provided;
– explanations for any statement in section 2 to which the response is “no” and a note of the action the council intends to take;
– full explanations for any “no” or “not covered” responses in section 4.
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Documentation required for audit
• We will provide proforma layouts for:– bank reconciliation– explanations for variances– other explanations
• These can be used and will help you to provide the correct information
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Documentation for audit
• Intermediate audits– a list of the additional information we need will
be sent out with the annual return and letter in March
• Other information may be requested before or during the audit– to address matters that have come to our
attention– about large or unusual transactions in the year
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Common pitfalls
• Not sending us all the requested information• Sending in additional information not requested• Providing inadequate explanations of variances• Bank reconciliation incorrect• PWLB balances incorrect• Trust Funds declarations inconsistent• Approval by committee not full council (AA Regs
2011)• Late approval
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Help and guidance
• The Annual Return• Letter sent from Grant Thornton with the Annual
Return including proforma layouts• Governance and Accountability in England and
Wales: A Practitioner’s Guide• Your local SLCC or NALC association• BUT – REQUESTS FOR TECHNICAL ADVICE
SHOULD NOT BE DIRECTED TO US. WE ARE UNABLE TO GIVE ADVICE AS IT MAY IMPAIR OUR INDEPENDENCE
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Not sending in the correct information
• Not sending in the requested information means we must contact you to ask for the information again. This will lead to unnecessary delay and additional cost
• Sending in information we have not requested means we have to review that information and make a decision what to do with it
• If you send in all the requested information and we decide there is something additional we need –that is part of the audit process
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Inadequate explanation of variances
• We ask for quantified explanations of variances between last years figure and this years figures
• A quantified explanation has explanations for the change (may be more than one) and amount attributed to each of the explanations.
• Guidance on calculating the variances and suggested layouts for the explanations are included as a proforma in the letters we send out with the Annual Return in March
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Explanation of variancesIdentifying variances that need explanation
Box 2012 2013 Variance (2013
less 2012)
% (Variance
divided by
2012 figure
multiplied by
100)
Explanation
required?
Less than
£250? - NO
More than
15% - YES
Less than
15% - NO
1
2
3
4
5
6
7
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Explanation of variances
• We want:– Quantified explanations for all significant (i.e.
>15%) variances
• We do not want:– Supporting documentation (e.g. invoices) – Columns of figures merely comparing years– Unquantified explanations– Sets of accounts
We want to know that the council knows why the figures in the accounts have either increased or decreased.
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Explanation of variances - examples
• Poor example:– Payments were down in 2013 because there
were no capital projects in the year.
• Good example:– Payments have decreased by £7,568 in 2013
mainly due to expenses incurred last year on the children’s playground extension, which amounted to £6,211 in 2012.
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Explanation of variances - examples
• Poor example:
• Poor because we don’t know why precept is higher, what grants received were for or why other income is higher
2012 2013
Precept 4,000 7,900
Grants received 2,000 600
Land rent 0 2,000
Fayre 700 500
Other income 620 2,390 .
7,320 13,390
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Explanation of variances - examples
• Good example:– The precept was increased for 2011 in anticipation
of capital expenditure on playground equipment planned for the year.
– The parish council secured a rental agreement of council-owned land with the leisure centre in 2011, generating £2,000 income.
– A new book about the history of the parish was launched at the end of 2009, £300 being received in 2010 and £2,200 being received in 2011.
– This was offset by the receipt of a one-off grant for £1,500 in 2010 for the recreation ground.
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Explanation of variances - examples
• Poor example:– Staff costs were higher in 2012 due to an increase
in the number of hours worked by the clerk and a pay increase of the clerk to bring her in line with the required pay scale.
• Good example:– Staff costs were higher in 2012 due to the pay
increase in June 2010 from £7.20 to £8.00 per hour and an increase in hours from November 2010 from 6 hours per week to 8 hours per week.
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Explanation of variancesSuggested layout
£ - Box 3
Figure in 2012 column 20,147
Figure in 2013 column 18,683
Variance (2013 figure less 2012 figure) 1,464
Reason Amount
£
Reason 1 A grant for play equipment was
received in 2012 but not in 2013
5,000
Reason 2 The council rents for allotments
increased
3,426
Reason 3
Reason 4
Unexplained 110
Confirm unexplained amount is less than
15% of 2012 figure
0.5% unexplained
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Bank reconciliation
• A bank reconciliation must– identify the balance on the bank statement– identify the balance per the cash book– list any outstanding items or -– state there are no outstanding items
• The bank reconciliation should be complete with no unexplained differences
• The bank reconciliation is a key control and should be undertaken regularly throughout the year
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Bank reconciliation
• Suggested format (included in letter with Annual Return for 2013)
Balance per bank statement at 31 March 2013 X
Less unpresented cheques (listed individually) (X)Plus uncleared credits (listed individually) X
Balance per cash book at 31 March 2013 X
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Bank reconciliation – common pitfalls
• Using wrong figure in box 8 of annual return
Balance per bank statement at 31 March 2013 1,287Uncleared cheques (153)Uncleared deposits -
------Balance per cash book at 31 March 2013 1,153
If receipts and payments basis then Box 7 = Box 8
If income and expenditure basis then difference between box 7 and 8 is debtors and creditors
�
31 March 2011
£
31 March 2013
£7 (=) Balances carried forward 1,153
8 Total cash & investments 1,287
31 March 2012
£
31 March 2013
£7 (=) Balances carried forward 1,153
8 Total cash & investments 1,153
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Bank reconciliation – common pitfalls
• Putting the wrong figure in Box 8 on the Statement of Accounts
• Not stating that there are no outstanding items• Sending a bank statement• Sending in a receipts and payments account• Omitting the date of the bank reconciliation• Using a date different from 31 March• Not providing a bank reconciliation when there are
no outstanding items• Including items other than unpresented cheques
and uncleared credits
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Common pitfalls – trust funds information
• Not completing declaration at Section 1
• Not completing statement of assurance at Section 2
• Information given at each section is inconsistent– If “YES” at section1 – must be “YES” or “NO” at sections 2 and 4– If “NO” at section 1 – must be “N/A” at sections 2 and 4
• Guidance on whether the council is a sole managing trustee is available to the council from NALC (not our role to make this decision)
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Section 4 – Internal audit
• Internal auditor is appointed by the council
• Internal auditor must be competent and independent, matter for the council to decide
• Internal audit can be done at any time during the year. It does not have to be done after 31 March
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Section 4 - Internal Auditor
• We need you to state the obvious for “not applicable” or “not covered”– e.g. petty cash– e.g. fixed assets
• If detailed report is referred to on section 4, we need a copy
• If detailed report is not referred to on the Annual Return then we do not need a copy
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Common qualifications of external auditors report
• Risk assessment• Late approval• Independence of internal auditor
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Risk Assessment
• Statutory requirement for body to have a sound system of internal control that includes arrangements for the management of risk
• A consideration of potential risks facing the Council:– Unique to each council– We cannot tell you what risks are– Guidance is available from NALC
• Practitioners Guide• Workshops and courses
• Council should then ensure risks are adequately managed
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Risk Assessment
• Risk assessment document should be:
– discussed at meetings
– reviewed at least every year.
• Evidence of the above should be recorded in the minutes.
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Electors
• Electors have rights to contact the auditor– At any time
• to let the auditor know of any concerns they may have about the accounts
• To give the auditor information that is relevant to their responsibilities
– For year in which the audit is open • to ask the auditor questions about the accounts
– can only ask “What” questions” not “why” questions
• make a formal objection to the accounts which must be copied to the council
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Electors
As auditors we –• Must consider all the information we are given• Decide whether any action is necessary• Councils, and so local taxpayers must meet the
costs of responding to questions and objections
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Billing
• We will invoice the council for our work after we have issued our audit opinion
• Invoice will arrive separately• Please pay invoice within 28 days• The discount in the scale of audit fees has been
given on the basis that councils comply with the audit requirements
• Additional fees will be charged if we have to chase for information or undertake additional work
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Questions?