Agenda item - Audit Commission: Annual Governance Report 2011/12

Report of the Audit Commission (copy attached).

34.1         The Committee considered a report of the Audit Commission summarising the findings of the 2011/12 audit which was now substantially complete. It included key messages arising from the audit of the financial statement and the results of work undertaken to assess the Council’s arrangements to secure value for money in its use of its resources. By way of introduction the District Auditor, Helen Thompson, highlighted the key messages including: reference to three uncorrected errors for Members’ consideration; recommendations and actions for improvement, and stated that the audit had been delivered within the agreed fee.

34.2         Councillor Wealls asked a series of questions in relation to the assessment of value for money, and in particular how the Council attributed overheads. In response, and discussion, Officers explained this was undertaken by looking at how services were delivered within the normal budget, and by comparing historic data with other similar authorities. Consideration was also given to performance against targets as well as benchmarking with other authorities when assessing the value for money provided by a service. Officers explained that there was a standard methodology for calculating and presenting overheads when comparing the cost of services. This is determined by central government when collecting financial information, for example, in the annual ‘Revenue Outturn’ (RO) returns. When services were compared it was also important this was done on a like for like basis within and across sectors. To establish the full costs it was necessary to include all relevant corporate overheads; overall these were relatively small for the Council, approximately 5% of gross expenditure, but the Council still needed to be satisfied that these were correct and reasonable.

34.3         Councillor Sykes pointed to comments in the report in relation to payroll, and asked questions about the backlog of documentation referred in the report. In response it was explained that the process had been easier this year than in the previous, but there were still issues with the complexity of the payroll system. Priority had been given to addressing the problem, and improvements had already been made.

34.4         Councillor Sykes went on to ask what more radical solutions the Council could consider to achieve value for money. In response it was explained that many other local authorities were in a very similar position, facing a continued reduction in funding, and had looked at similar value for money initiatives to those undertaken by the Council. ‘Systems Thinking’ initiative had been praised as a good way to help deliver better value for money in more processed based services. Councillor Norman asked further queries in relation to the initiative, and it was explained that the Council was currently developing this; two temporary posts had been appointed to as part of this work, and there was currently a pilot in HR that was nearing completion.

34.5         Councillor Wealls pointed to differences between the actual and estimate of employer contributions to the pension scheme, and asked for an explanation about this. It was explained that the difference was not material, and the Council was required to provide an estimate to the Actuary each year; the estimate was produced using end of month data, and it was normal for there to be a degree of difference. Councillor Wealls asked if there was adequate provision to properly estimate the impact of auto-enrolment into the pension scheme, and it was explained that the Council was managing this and were planning on the basis of a greater employer’s contribution rate.

34.6         In response to a query from the Chair, Councillor Hamilton, further details were provided in relation to the three errors which the Council had declined to amend. The first related to the payroll findings which was an estimated error only and therefore it was not considered appropriate to adjust the accounts; the second related to the timing for the depreciation of an asset, which had been done earlier than normal but which had no other implications, and the final error was a presentational error only where a creditor and debtor entry were netted off but which did not effect the bottom line of the Council’s net assets. Following further queries it was confirmed that the depreciation in question related to construction of BACA and that the calculation of depreciation would be correct over the useful life of the asset regardless of the error; it was also explained that the Council was not funded to provide for depreciation; only the actual borrowing and financing costs on its assets, and therefore depreciation had no real cash flow implication for the council. Officers also highlighted that the three errors were not material, and the key aspect of the report was that they would not affect the external auditor’s unqualified opinion on the accounts.

34.7         RESOLVED –

         (1)      That note is taken of the adjustments to the financial statements which are set out in Appendix 3 of the report.

         (2)      That it be agreed to adjust the errors in the financial statements which management has declined to amend set out in Appendix 2 of the report or set out the reasons for not amending the errors.

         (3)      That the letter of representation on behalf of the Council before the audit opinion and value for money conclusion is given be approved. A draft of the letter of representation is included at Appendix 4 of the report. This contains management’s reasons for not adjusting errors in the financial statements set out at Appendix 2 of the report.

         (4)      That the Committee response to the proposed action plan included at Appendix 6 of the report be agreed.