HERTFORDSHIRE COUNTY COUNCIL
AUDIT COMMITTEE
THURSDAY 29 SEPTEMBER 2010 AT 10.00AM
RESPONSE TO THE ANNUAL GOVERNANCE REPORT – HERTFORDSHIRECOUNTY COUNCIL (INCLUDING FIRE FIGHTER PENSION FUND) FINANCIAL STATEMENTS
Report of the DirectorResources and Performance
Author: Claire Cook (Tel: 01992 555737)
1.Purpose of the Report
1.1To provide the Committee with arecommended response to the Audit Commission’s Annual Governance Report presented to this meeting.
2.Response to the Annual Governance Report
2.1The Audit Commission has issued an Annual Governance Report for the Council’s accounts following the audit of the 2010/11 annual report and accounts. The Audit Commission has made six recommendations in their report and the initial officer response to these recommendation are set out in the following paragraphs. Following this meeting officers will work with the Audit Commission to complete the action plan in Appendix 4 of the Audit Commission’s report.
2.2R1 –Consider amending the financial statements for the unadjusted misstatement identified in Appendix 3. Amend the draft letter of representation accordingly to include reasons for not adjusting the statements.
The adjustments relate to two areas; the treatment of interest in relation to section 106 agreements and the final position in relation to pension fund liabilities for the authority. In relation to the section 106 interest the authority allocatesboth the principal and the interest earned on it to identified schemes in accordance with its policy. In strict accounting terms once the scheme is identified then the interest should be held in an earmarked reserve. However, this would require the authority to identify a specific reserve for each individual scheme which would result in significant additional administration. Given this the authority does not propose to adjust the accounts for this item.
The pension fund surplus or deficit is included in the accounts on the basis of the actuarial estimate on the performance of the fundas at 31 March. The actual position in performance may vary from this. Given that this estimate is based on expert advice from the actuary and that the final performance is in the authority’s view not materially different,particularly given current market conditions, it is not proposed to adjust the accounts for this item.
2.3R2 - Establish a procedure for identifying which vehicle, plant and equipment assets have been disposed; and introduce regular checking for the continuing existence of vehicles, plant and equipment assets.
Agreed. This will be addressed as part of the second phase of work to address further improvements in the production of the authority’s accounts and underlying process (BPAP Phase 2)
2.4R3 - Carry out data cleansing and rationalisation of infrastructure assets as part of setting up the new asset register.
Agreed. This will be addressed as part of the BPAP Phase 2 project.
2.5R4 - Amend the ledger so that it can produce information on gross income and expenditure in the form needed for the cost of services section of the Comprehensive Income and Expenditure Statement.
This area has already been identified as one of the work packages within the BPAP Phase 2 project and will be developed for the 2011/12 accounts.
2.6Ensure that issues identified with the treatment and classification of grants and contributions are addressed in 2011/12.
Given that this was a significant area of change for the business in 2010/1, additional support and training was provided before the audit. Whilst there was some good practice in this area, it is recognised that further reinforcement and consolidation of the accounting practice in this area is required across the finance teams. This will be undertaken through the coming year.
2.7Ensure compliance with the statutory requirements for advertising the audit.
The Council advertised the audit in accordance with the statutory requirements except for the notice of the inspection period which only gave 3 to 5 days rather than the 14 days required. This was due to a misunderstanding over the lead-in time for placing public notices via TMP, the council's advertising agent. In order to deal with this issue the authority extended the period of inspection to the close of the audit. The authority has also been part of the Local Direct Government initiative to promote accounts publication and public scrutiny dates on the web-site. Officers of the authority have also been engaged this year, for the first time in many years, in supporting members of the public in inspecting the accounts. We will ensure full compliance with the statutory requirement for 2011/12.
3.Letter of Representation
3.1Paragraph 42 on page 14 of the Audit Commission’s report sets out the requirement for a letter of representation and Appendix 5 of their report is the formal request from the auditors for it. As noted in the Audit Commission’s request, this is to be signed by the Chairmen of the Audit Committee and the Chief Finance Officer. A draft is attached at Appendix A to this report for members to review. The final letter must then be signed within 14 days of the District Auditor issuing his opinion on the accounts.
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Appendix A
Mr. M. Hodgson Hertfordshire County Council
District Auditor County Hall
Audit Commission Hertford SG13 8DP
Regus House
1010 CambourneBusinessParkFax : 01992 555505
Cambourne Telephone: 01992 555601
CambridgeE-mail:
CB23 6DP Minicom: 01992 556611
Contact: Mike Parsons
My Ref:
Your Ref:
Date: 27 September 2011
Dear Mr. Hodgson
HertfordshireCounty Council –Hertfordshire County Council (including Firefighter Pension Fund) Accountsfor the year ended 31 March 2011
I am writing further to the letter provided to us at the beginning of your audit of the Council’s accounts. I confirm to the best of my knowledge and belief, having made appropriate enquiries of officers of Hertfordshire County Council, the following representations in connection with your audit of the Council’s financial statements for the year ended 31 March 2011.
Compliance with the statutory authorities
I acknowledge my responsibility under the relevant statutory authorities for preparing the financial statements in accordance with theCode of Practice for Local Authority Accounting in the United Kingdom and the Financial Reports of Pensions Schemes – A Statement of Recommended Practicewhichgive a true and fair view of the financial position and financial performance of the Pension Fund and for making accurate representations to you.
Uncorrected misstatements
I confirm that the effects of any uncorrected financial statements misstatements (to be listed in the annual governance report) are not material to the financial statements, either individually or in aggregate and that these misstatements have been discussed with those charged with governance.
The authority has decided not to adjust the accounts for these items given in relation to:
- the proposed treatment of interest for section 106 agreements would require the authority to identify a specific reserve for each individual scheme which would result in significant additional administration. Given this, and as the use of these receipts is in line with authority policy, it is not proposed to adjust the accounts for this item.
- the estimated pension fund surplus or deficit as at the 31st March which is based on expert advice from the actuary. Given that the final performance is in the authority’s view not materially different, particularly given current market conditions, it is not proposed to adjust the accounts for this item.
Supporting records
I confirm that all the accounting records, other records and related information, including minutes of all Council and Committee meetings have been made available to you for the purpose of your audit and all the transactions undertaken by the Council have been properly reflected and recorded in the accounting records
Irregularities
I acknowledge my responsibility for the design and implementation of internal control systems to prevent and detect fraud or error.
There have been no:
- irregularities involving management or employees who have significant roles in the system of internal accounting control;
- irregularities involving other employees that could have a material effect on the financial statements; or
- communications from regulatory agencies concerning non-compliance with or deficiencies on, financial reporting practices which could have a material effect on the financial statements.
I also confirm that I have disclosed:
- my knowledge of fraud, or suspected fraud, involving either management, employees who have significant roles in internal control or others where fraud could have a material effect on the financial statements;
- my knowledge of any allegations of fraud, or suspected fraud, affecting the Pension Fund’s financial statements communicated by employees, former employees, analysts, regulators or others; and
- the results of my assessment of the risk that the financial statements may be materially misstated as a result of fraud.
Law, regulations, contractual arrangements and codes of practice
There are no instances of non-compliance with laws, regulations and codes of practice, likely to have a significant effect on the finances or operations of Hertfordshire County Council.
The Council has complied with all aspects of contractual arrangements that could have a material effect on the financial statements in the event of non-compliance. There has been no non-compliance with requirements of regulatory authorities that could have a material effect on the financial statements in the event of non-compliance.
I confirm that there are no actual or possible litigation and claims, whose effects should be considered when preparing the financial statements, to be disclosed to you and accounted for and disclosed in accordance with the applicable financial reporting framework.
Fair values
I confirm that the significant assumptions within the Council’s financial statements, covering investments, loans, depreciation and accruals assumptions, are reasonable. Specifically in relation to:
- the appropriateness of the measurement method;
- the completeness and appropriateness under the financial reporting framework; and
- whether subsequent events require adjustment to the fair value measurement.
Group entities
I confirm that the Council does not have any material interests in other entities that would require the preparation of group accounts.
Assets
I confirm that the following have been properly recorded and, where appropriate, adequately disclosed in the Council’s financial statements:
- losses arising from sale & purchase commitments;
- agreements & options to buy back assets previously sold; and
- assets pledged as collateral.
Compensating arrangements
I confirm that there are no formal or informal compensating balancing arrangements with any of the Council’s cash and investment accounts. Except as disclosed in Note 19 to the financial statements the Council has no other lines of credit arrangements.
Contingent liabilities
I confirm that there are no other contingent liabilities, other than those that have been properly recorded and disclosed in the Council’s and the Firefighters’ Pension Fund financial statements. In particular:
- there is no significant pending or threatened litigation, other than those already disclosed in the financial statements
- there are no material commitments or contractual issues, other than those already disclosed in the financial statements
- no financial guarantees have been given to third parties.
Related party transactions
I confirm the completeness of the information disclosed regarding the identification of related parties and that the Council’s registers of interest are complete and up to date in respect of Councillors and senior staff. The Council has ensured that all senior staff are aware of the requirement to declare all interests relevant to the Council, including interests of families, partners and entities controlled by them.
Post balance sheet events
I confirmthat since the date of approval of the financial statements by the Audit Committee, no additional significant post balance sheet events have occurred which would require additional adjustment or disclosure in the Council’s or the Firefighters’ Pension Fund financial statements.
I confirm that the Council has no plans or intentions that may materially alter the carrying value or classification of assets and liabilities reflected in the financial statements.
I confirm that this letter has been discussed and agreed by the Audit Committee on 29th September 2011.
Signed on behalf of Hertfordshire County Council
………………………………………………...
Mike Parsons
Director of Resources and Performance
……………………………………………….
Councillor Seamus Quilty
Chairman of the Audit Committee
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