Internal Audit Report 2012-13 (Interim Update)
Prepared by Nigel Archer
Stuart J Pollard
Director
Auditing Solutions Ltd
1
Background and Scope
The Accounts and Audit Regulations introduced from 1st April 2001 require all Town and Parish Councils to implement an independent internal audit examination of their Accounts and accounting processes annually. The Council complied with the requirements in terms of independence from the Council decision making process at the outset of the updated Regulations, appointing Auditing Solutions Limited to provide the function.
Our programme of cover has been designed to afford appropriate assurance that the Council’s financial systems are robust and operate in a manner designed to ensure effective probity of transactions and to afford a reasonable probability of identifying any material errors or possible abuse of the Council’s own and the national statutory regulatory framework. The programme of cover is also designed to facilitate our certification of the Annual Return that now, under the current Accounts and Audit Regulations, acts as the Council’s formal Statement of Accounts subject to external audit certification.
Internal Audit Approach
This report summarises our conclusions on each of the areas examined at our interim update visit undertaken on 6th March 2013,and supplements the work carried out at the initial visit in October 2012: it will be subject to further update following the final audit visit, on a date yet to be confirmed.
We have, as previously, employed a combination of selective sampling techniques (where appropriate) and 100% detailed checks on a number of key areas in accord with the previously agreed five year, rolling programme of work in order to gain sufficient assurance that the Council’s financial and regulatory systems and controls continue to be appropriate and fit for the purposes intended.
Conclusions
We have previously noted the changes in personnel that have occurred at the Council during the previous financial year and are pleased to note the improvements since then: external accounting contractors (DCK Beavers Ltd) continue to provide a transaction processing and management reporting function whilst a local third party (GH Online) undertakes all aspects of the Council’s payroll functions.
We are also pleased to note from our two interim visits to date in the current year that there are no significant matters arising, any minor queries being raised and agreed with officers during the course of the visit: consequently, no formal recommendations are considered necessary at present.
Detailed Report
Maintenance of Accounting Records & Bank Reconciliations
Our objective here is to ensure that the accounting records are being maintained accurately and currently and that no anomalous entries appear in cashbooks or financial ledgers. To that end, we have: -
Noted that third party contractors (DCK Beavers Ltd) continue to be engaged to undertake the majority of the Council’s financial transaction processing on Omega, generally fortnightly;
Ensured that the trading ledgers remain in balance at the present date;
Checked and ensured that the closing balances, as reported in the Statement of Accounts for 2011-12, have been correctly rolled forward as the opening balances for 2012-13 in the Omega software;
Checked to ensure that a comprehensive, meaningful and appropriate nominal ledger coding schedule is in place;
Checked and agreed transactions in both the Council’s Current and Business Reserve account cashbooks to the NatWest Bank account statements for three sample months (April and August 2012 and January 2013), including all inter-account “sweep” transfers for the same periods;
Noted that, other than the quarterly interest receipts, there have been no further transactions in 2012-13 to date on the Capital Reserve account; and
Checked detail on the Omega based bank account reconciliations for all three accounts as at 31st August 2012 and January 2013to ensure that no long-standing, uncleared cheques or other anomalous entries exist: no such issues were identified.
Conclusions
There are no issues in this area at present that warrant formal comment or recommendation.
Review of Corporate Governance
Our objective here is to ensure that the Council has robust corporate governance documentation and processes in place, that Council and Committee meetings are conducted in accordance with the adopted Standing Orders and that, as far as we are able to ascertain, no actions of a potentially unlawful nature have been or are being considered for implementation. We have: -
Examined the minutes of the Full Council and its Standing Committees meetings (with the exception of Planning, which we note has now been disbanded with Full Council considering the relevant matters periodically)for the municipal year to early February 2013to ensure that no potential issues affecting the Council’s financial stability either in the short, medium or long term exist: we note the ongoing confidential staffing tribunal matter, which appears unlikely to have a significant financial effect on the Council’s resources;
Previously reported that the Council’s Standing Orders and Financial Regulations were appropriately re-adopted in May 2011: subsequently, we note that the results of the revising working group were concluded and both extant documents were formally re-adopted at the Full Council meeting in August 2012;
Noted that the Clerk has successfully passed the necessary training for the Council to adopt the General Power of Competence;
Noted that a revised Members Code of Conduct, based broadly on the Central Beds Council model for all smaller councils in its environs, have been formally adopted for the current municipal year; and
Noted that the minutes of the Full Council meeting in February 2013 formally resolved to adopt the minutes of the “Precept” meeting on 22nd January 2013 at which an increase of 1.5% was approved.
Conclusions
There are no significant issues worthy of note in this area, although we did discuss with the Deputy Clerk, during the course of this recent update visit, our understanding that the actual monetary value of the adopted precept should be recorded in the minutes: we shall follow up the outcome of this retrospective amendment at the final visit.
Review of Expenditure
Our aim here is to ensure that: -
Council resources are released in accordance with the Council’s approved procedures and budgets;
Cheques are signed by two elected members of the Council;
Payments are supported by appropriate documentation, either in the form of an original trade invoice or other appropriate form of document confirming the payment as due and/or an acknowledgement of receipt, where no other form of invoice is available;
An official order has been raised for all purchases and service delivery where one would be expected;
All discounts due on goods and services supplied are identified and appropriate action taken to secure the discount;
The correct expense codes have been applied to invoices when processed; and
VAT has been appropriately identified and coded to the control account for periodic recovery.
We have extended our sample testing in this area, examining all those payments individually in excess of £2,000, together with a more random selection of every20th cashbook transaction irrespective of value, for the year to 31st January 2013. Our sample, including the monthly non-domestic rate payments, now totals more than £240,000 and represents56% of all non-pay related payments for the year to date.
We have also checked and agreed the 3rd quarter’s VAT submission (to 31st December 2012), undertaken electronically as required by extant legislation, to the underlying Omega control account records whilst also noting that DCK Beavers have prepared the annual partial exemption computations for 2011-12 with no further action being required.
Conclusions
All the above criteria were met in the sample of payments examined to date: we shall undertake any further testing in this area as considered necessary, including the update of our year-on-year analysis of expenditure across the range of Council activities, at the final visit.
Assessment and Management of Risk
Our aim here is to ensure that the Council has put in place appropriate arrangements to identify all potential areas of risk of both a financial and health and safety nature, whilst also ensuring that appropriate arrangements exist to monitor and manage those risks identified in order to minimise the opportunity for their coming to fruition. Therefore:
We have previously reported that Financial Risk Assessment Registers were formally re-adopted by Full Council at its meeting in November 2011: no further work has been identified in this area at present;
We note that two members of staff have successfully passed their training courses in relation to RoSPA style play area inspections, whilst there are also appropriate H&S risk assessments in place for the bi-weekly street traders’ market; and
We have examined the current year insurance policy documentation (to 31stMarch 2013), cover continuing to be provided by Zurich plc. Employer’s Liability stands at £10 millionand Public Liability, as re-affirmed as adequate by members in November 2011, at £5 million. Similarly, members have previously determined that Fidelity Guarantee cover of £300,000 is sufficient to meet their requirements at present, which, as the majority of the Council’s funds are held in periodic Treasury deposits is not considered a formal issue at present.
Conclusions
Further consideration will be given to the area of detailed asset coverage within the insurance policy schedule in comparison with the asset registersduring our final visit for the year. We would also take this opportunity to remind the Clerk and members that financial risk assessments should be the subject of annual review, update (if necessary) and formal re-adoption by Full Council.
Precept Determination and Budget Control
We aim in this area of our work to ensure that the Council has appropriate procedures in place to determine its future financial requirements leading to the adoption of an appropriate budget and the formal determination of the amount to be precepted on the District Council or local Unitary Authority (where applicable), that effective arrangements are in place to monitor budgetary performance throughout the financial year and that the Council has identified and retains appropriate reserve funds to meet future spending plans. To meet this objective, we:
Note that the Council discussed in some detail its budget and precept requirements for 2013-14, with some conflicting proposals being considered at length at both the Finance & General Purposes Committee and the Full Council Meetings commencing in November 2012 and concluding with the approval of the final minutes in February 2013. An increase of 1.5% was approved but, as noted earlier in this report, the resultant specific monetary amount (which would, from supplementary working papers, appear to be £596,227 excluding the Council tax Support Grant from Central Beds) was not readily identifiable in the minutes; and
Note that members continue to be provided with regular management accounting information, with budget monitoring reports extracted directly from the Omega accounting system: we have reviewed those for the year to January 2013 with no unexplained variances arising to warrant further enquiry or explanation at present.
Conclusions
No issues have been identified in this area at present. We shall review the year-end budget outturn and levels of retained Earmarked Reserves and General Funds afterDCK Beavers have finalised work on the Statement of Accounts for the year.
Review of Income
Our objective in this area is to ensure that all income due to the Council is identified for prompt recovery and banking. In addition to the precept, the Council receives income from a variety of other sources including office and playing field rentals, allotments, cemetery activities, bank interest, weekly “general” and monthly “farmers” markets, grants and donations.
At our first interim visit, we:
Checked and agreed two months’ cashbook receipts to relevant bank statements; and
Visually reviewed the relevant Omega income code, nominal ledger transaction report for the bi-weekly traders’ markets during April and August 2012 to ensure that there were appropriate entries for each week as expected: these funds were also checked and agreed to the relevant Superintendent’s control sheets for the same periods with no issues arising.
At this subsequent update visit, we have:
Noted that members review and agree updates to the full scale of fees and charges annually and have obtained details of all those pertaining for 2012-13, also noting that some interim changes, such as temporary market fee reductions have been approved “in year”;
Checked and agreed income arising from Cemetery activities by reference to the Burial Register entries for all sites for six months to September 2012 to ensure that they were properly supported by Funeral Directors’ application forms for interment / certificates of cremation, that the fees charged were in accord with the published scales and that all receipts, via the Omega cashbooks rather than sales ledger invoicing, were complete; and
We have verbally discussed with the Deputy Clerk the position with regard to any potential bad debts, having identified approximately £100 as already written off in relation to allotment rentals: we are advised that no significant items arise at present, although Council will probably decide to clear approximately £300 of long standing debt relating to old services provided such as waste collection from local shops who no longer trade in the town.
Conclusions
We shall undertake any further testing as considered necessary in this area, including the update of our year-on-year analysisof income arising across all Council services at our final visit for the year.
Petty Cash Account
The Council operates a very limited petty cash scheme in the administration office, with a maximum float of £100 which is “topped up” as and when required.
At present, due to time constraints and in accord with our previously agreed 5-year rolling programme of work, no further testing has been undertaken in this area other than to note that a small Excel spreadsheet control account is in place and that the total spend during the months of June to September 2012 was just £112.
Conclusions
We shall examine the controls in place over the operation of the petty cash account at our final visit.
Salaries and Wages
In examining the Council’s payroll function, we aim to confirm that extant legislation is being appropriately observed as regards adherence to the Employee Rights Act 1998 and the requirements of HM Revenue and Customs (HMRC) in relation to the deduction and payment over of income tax and NI contributions, together with meeting the requirements of the local government pension scheme, as further revised from 1st April 2012 to reflect updated salary bandings.
To meet these objectives, we have examined the payroll procedures in place and the physical payments made to staff to date in 2012-13, as detailed below, by reference to the Week 25 (15th September) and the September 2012 monthly payroll documentation, which continues to be producedby a local third party contractor (GH Online) utilising bespoke payroll software. This work included: -
Ensuring that the Council had approved employee pay rates for the financial year and that these have been duly and accurately applied;
Checking to ensure that appropriate PAYE tax codes are being applied in 2012-13, following the annual budgetary increases in personal allowances with effect from April 2012;
Checking to ensure that national insurance deductions were being computed accurately depending on whether the employee was a member of the pension scheme or not;
Checking that the correct scales of superannuation deductions, based on the revised LGPS salary bandings as further updated in April 2012, were being applied where appropriate;
Ensuring that appropriately approved timesheets are submitted by all employees in support of any flexible hours worked and / or claimed as overtime; and
Verifying detail of the net salary payments and third party settlements of PAYE and LGPS by comparison of payslips, etcwith the NatWest Autopay settlements.
Conclusions
No issues arise in this area at present: we shall undertake any further testing, also ensuring the timely submission of the Council’s P14 / P35 Annual PAYE Returns at the final visit.
Investments and Loans
Our objectives here are to ensure that the Council is “investing” surplus funds, be they held temporarily or on a longer term basis in appropriate banking and investment institutions, that an appropriate investment policy is in place and that the Council is obtaining the best rate of return on any such investments made and that interest earned is brought to account correctly and appropriately in the accounting records.
We have previously noted that the Council has invested “surplus” funds in two periodic Term deposits which, at the date of the first interim review, had yet to reach maturity in the current financial year: no further testing has been undertaken in this area at this update visit; and