Stratford-on-Avon District Council

Transcription

1 Stratford-on-Avon District Council Annual Audit Letter 2014/15 Government and Public Sector October 2015

2 Contents Code of Audit Practice and Statement of Responsibilities of Auditors and of Audited Bodies Introduction 2 Audit Findings 5 Fees update 13 In April 2010 the Audit Commission issued a revised version of the Statement of responsibilities of auditors and of audited bodies. It is available from the Chief Executive of each audited body. The purpose of the statement is to assist auditors and audited bodies by explaining where the responsibilities of auditors begin and end and what is to be expected of the audited body in certain areas. Our reports and letters are prepared in the context of this Statement. Reports and letters prepared by appointed auditors and addressed to members or officers are prepared for the sole use of the audited body and no responsibility is taken by auditors to any member or officer in their individual capacity or to any third party. Stratford-on-Avon District Council PwC Contents

3 Introduction The purpose of this letter This letter summarises the results of our 2014/15 audit work for members of the Authority. We have already reported the detailed findings from our audit work to the Audit and Standards Committee (formerly the Audit Committee) in the following reports: 2014/15 Audit Plan; Annual Certification Report summarising the results of our certification work on the Authority s 2013/14 grant claims and returns; and Report on the results of our audit of the 2014/15 financial statements issued under the requirements of the International Standard on Auditing (ISA) (UK and Ireland) 260 (ISA (UK&I) 260). Any work undertaken since the September 2015 Audit and Standards Committee meeting is reported in this Audit Letter. As you will be aware, this is our final year as auditors of Stratford-on-Avon District Council and we would like to thank members of the Authority, management and staff for their assistance during the course of our period as your external auditors. Scope of work The Authority is responsible for preparing and publishing its Statement of Accounts, accompanied by the Annual Governance Statement. It is also responsible for putting in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources. Our 2014/15 audit work has been undertaken in accordance with the Audit Plan that we discussed and agreed with the former Audit Committee at its meeting in March 2015 and has been conducted in accordance with the Audit Commission s Code of Audit Practice, International Standards on Auditing (UK and Ireland) and other guidance issued by the Audit Commission. We have set out in the rest of this Audit Letter what we consider to be the most significant matters arising from our audit. Stratford-on-Avon District Council PwC 2

4 We met our responsibilities as follows: Audit Responsibility Perform an audit of the accounts in accordance with the Auditing Practice Board s International Standards on Auditing (ISAs (UK&I)). Report to the National Audit Office on the accuracy of the consolidation pack the Authority is required to prepare for the Whole of Government Accounts. Results We reported our findings to the Audit and Standards Committee at its meeting on 21 September 2015 in our 2014/15 Report to those charged with governance (ISA (UK&I) 260). On 29 September 2015 we issued an unqualified audit opinion on your 2014/15 accounts. We reported our findings to the National Audit Office on 29 September We were only required to issue an containing a completed assurance statement to confirm your financial statements were below the audit threshold above which we would have been required to conduct full procedures on the return. We had no issues to report. Audit Responsibility Form a conclusion on the arrangements the Authority has made for securing economy, efficiency and effectiveness in its use of resources. Results We reported our findings to the Audit and Standards Committee at its meeting on 21 September 2015 in our 2014/15 Report to those charged with governance (ISA (UK&I) 260). On 29 September 2015 we issued an unqualified audit conclusion on your arrangements for securing economy, efficiency and effectiveness in your use of the Authority s resources. Stratford-on-Avon District Council PwC 3

5 Audit Responsibility Results Audit Responsibility Results Consider the completeness of disclosures in the Authority s Annual Governance Statement, identify any inconsistencies with the other information of which we are aware from our work and consider whether it complies with CIPFA/SOLACE guidance. Consider whether, in the public interest, we should make a report on any matter coming to our notice in the course of the audit. We reported our findings to the Audit and Standards Committee at its meeting on 21 September 2015 in our 2014/15 Report to those charged with governance (ISA (UK&I) 260). There were no issues to report in this regard. There were no issues to report in this regard. Determine whether any other action should be taken in relation to our responsibilities under the Audit Commission Act. Issue a certificate that we have completed the audit in accordance with the requirements of the Audit Commission Act 1998 and the Code of Practice issued by the Audit Commission. There were no issues to report in this regard. We issued our audit completion certificate on 29 September Stratford-on-Avon District Council PwC 4

6 Audit Findings Accounts We audited the Authority s accounts in line with approved Auditing Standards and issued an unqualified audit opinion on 29 September Accounts preparation The Authority completed preparation of its draft accounts by the end of June 2015, and provided them to us in advance of the audit as agreed. Our audit identified no significant issues in the quality of the accounts presented for audit. Our audit identified no uncorrected or corrected misstatements above the reporting level of 60,000 agreed with the former Audit Committee. Some minor disclosure issues were identified which were discussed and agreed and the accounts were amended accordingly. We agreed in advance what we would need for our audit and this was ready for us when we arrived. The working papers were provided to us electronically and any additional requests were responded to promptly and efficiently. The Finance team worked hard to meet the timescales and as always were helpful in resolving our queries. We would like to thank the Finance team (and others involved in supporting the audit process) for their support and assistance during the audit. Accounting issues We noted the following accounting matters arising from our audit within our Report to Those Charged with Governance issued under the requirements of the International Standard on Auditing (ISA) (UK and Ireland) 260 (ISA (UK&I) 260). This report was presented to the Audit and Standards Committee at its meeting on 21 September Business Rates Appeal Provision Business Rate payers can appeal against the rateable value of their properties to the Valuation Office Agency (VOA). If they are successful, councils are liable to refund a proportion of the rates which may previously have been paid. The Authority has once again this year made a provision for the cost of refunding ratepayers who successfully appeal against the rateable value of their property. A provision of 3,043,000 relating to 188 appeals was estimated as at 31 March 2015 and included in the accounts. The estimated provision as at 31 March 2014 was 2,623,000. The Authority s share of the provision included in the 2014/15 accounts is 40% of the total, or million. There were a number of key judgements that were exercised by the Authority in determining its provision. We concluded that on balance: Stratford-on-Avon District Council PwC 5

7 there had been no change to the methodology and judgements used by the Authority compared to those used in 2013/14; and the data and information had been compiled and reviewed in the same manner also. We concluded that the Authority s methodology, key judgements and accounting treatment for determining and disclosing this provision were appropriate and we were satisfied that the provision would not result in the Statement of Accounts being materially misstated. Valuation of property, plant and equipment (PPE) Property, Plant and Equipment is the largest asset figure on the Balance Sheet and was valued at 41,552,000 at 31 March In accordance with your accounting policies, to ensure that the carrying value of property, plant and equipment reflects its fair value, assets are revalued on a rolling basis so that all assets are revalued at least once every 5 years. We assessed the appropriateness of the judgements, assumptions, key inputs and estimation techniques used by Gerald Eve LLP, the external valuers that you appointed to perform an impairment review of your asset base and a review of the fair value of your investment assets. We also reviewed the accounting entries made to recognise revaluation and impairment changes in the accounts. The Authority s methodology, key judgements and accounting were appropriate and we were satisfied that the assets in the Statement of Accounts were not materially misstated. Pension liability The most significant estimate in the Statement of Accounts and largest liability on the Balance Sheet is in the valuation of net pension liabilities for employees in the Warwickshire pension fund. Your net pension liability at 31 March 2015 was million ( million). The increase in your pension fund deficit reflects an increase in the net deficit for Local Government Pension Funds as a whole over the last few years. The 2013 triennial valuation increased the total deficit from 36 billion in 2010 to 46 billion, an increase of over 25%. Although the trend for your scheme has been for assets to gradually increase in value over this period, the value of the liabilities has increased at a faster rate over the last several years. We utilised the work of actuarial experts to assess the assumptions applied by the Authority and found them to be within expected and reasonable ranges for the type and nature of the scheme. We validated the data supplied to the actuary on which to base their calculations. No issues were identified as part of this work. Stratford-on-Avon District Council PwC 6

8 Targeted audit work Heart of England Housing Association Litigation 2014/15 saw the resolution of the claim pursued by Heart of England Housing Association, which is part of the Orbit Housing Group, in relation to the condition of Council housing on the transfer of the stock to Heart of England Housing Association in the mid-1990s. For simplicity, during the rest of this Audit Letter we will refer to Orbit. The Authority s 2013/14 financial statements included provision for the final settlement of 3.6 million to fund a schedule of capital works required to be completed on the housing stock and to cover Orbit s legal costs arising from the claim. The Court Order was signed by both parties on 20 June 2014 and was subsequently approved by the Judge hearing the case on 4 July In our 2014/15 Audit Plan we reported that whilst there was no significant or elevated risk to the 2014/15 audit in relation to this matter, the actual settlement was agreed and payment made during the 2014/15 financial year. Therefore, we included in our Audit Plan that we would undertake the following as part of the 2014/15 audit: consider the appropriateness of disclosures relating to the settlement and payment within the 2014/15 financial statements; undertake a final review of the settlement and any activity since the settlement was made to assess whether any residual liabilities may exist; and update our understanding of the impact of the settlement on the Authority s Medium Term Financial Strategy (MTFS). We completed the above tasks as part of the 2014/15 audit as we said we would and our work identified the following points: we considered the disclosures in the 2014/15 financial statements to be appropriate; we found no further evidence of subsequent events or appeals, through minutes review and discussion with management, that would change or cause us to revisit the conclusion reached as part of the 2013/14 financial statements audit; and we found no factors that had an impact upon our value for money conclusion for 2014/15. Stratford-on-Avon District Council PwC 7

9 We concluded that the Authority had taken appropriate steps to: secure financial resilience for the Authority, given the circumstances of a legal claim relating to events which originally occurred many years ago; avoid ongoing and potentially significant further legal costs, as the next court hearing was not scheduled until November 2015; and reach a conclusion with agreement from both parties. Draft Core Strategy: Lighthorne Parish Council complaint The Authority received a complaint in a letter dated 17 October 2014 from Lighthorne Parish Council in relation to the Authority s approval, on 15 September 2014, to submit its Core Strategy for consideration by the Government Inspector. We then received a letter dated 20 October 2014 from Cllr. Laura Steele of Lighthorne Parish Council, via the Audit Commission, making a formal complaint following an initial response issued by the Authority. We wrote to Cllr. Laura Steele of Lighthorne Parish Council on 28 November 2014 explaining our responsibilities as the appointed auditor for the Authority and that we would consider the matter raised with us as part of our planning for the 2014/15 audit process. As a result, in our 2014/15 Audit Plan that we referred to previously, we said that we would consider the following with respect to this matter: the outcome of the Government Inspector s review of the submitted 2014/15 strategy (which at the time was expected by 20 March 2015); and any subsequent correspondence between the Authority and Lighthorne Parish Council in relation to this matter. We completed these tasks as part of the 2014/15 audit as we said we would and our work identified the following points: the Core Strategy was submitted to the Secretary of State for examination on 30 September 2014; the Inspector held examination hearings in January 2015 and published his interim conclusions on 18 March 2015; the Council was invited to undertake further work on the housing requirement and the most appropriate manner of meeting any increase in this, and to resolve specific deficiencies in the Sustainability Appraisal; this work has now been undertaken and the Council, at its meeting on 20 July 2015, endorsed a number of proposed modifications; and these modifications specifically, along with supporting documents, are now the subject of a period for public representations. Stratford-on-Avon District Council PwC 8

10 We have considered these developments and we would wish to comment as follows: we noted the findings of the Inspector s review that were issued on 18 March 2015; we noted the Authority s response and timescale of actions to be completed (which is available on the Council s website); we noted the revised Core Strategy as published; and we found no instances of non-compliance with Council policy and appropriate governance, procedures and consultations appear to us to have been undertaken in relation to the Council s Core Strategy. We had no concerns to raise or further comments to make on this matter. Use of Resources We carried out sufficient, relevant work in line with the Audit Commission s guidance, so that we could conclude on whether you had in place, for 2014/15, proper arrangements to secure economy, efficiency and effectiveness in your use of the Authority s resources. In line with Audit Commission requirements, our conclusion was based on two criteria: that the organisation has proper arrangements in place for securing financial resilience; and that the organisation has proper arrangements for challenging how it secures economy, efficiency and effectiveness. To reach our conclusion, we carried out a programme of work that was based on our risk assessment and informed by these criteria and our statutory responsibilities. Medium Term Financial Strategy Our Audit Plan highlighted a specific value for money risk in relation to your savings requirement and financial plans over the next few years. We agreed in the Audit Plan that we would review your Medium Term Financial Strategy (MTFS), benchmarking the assumptions you have used within it against other local authorities. The MTFS was last updated by the Assistant Chief Executive in February There is currently no certainty over medium-term local government funding settlements. The Comprehensive Spending Review (CSR), due in November 2015, is expected to provide greater clarity but it is widely anticipated further cuts in local government funding will be announced. The Authority is continuing to monitor its budget position in the context of the likely outcome of any future funding settlement. Benchmarking of assumptions within the MTFS Assumptions can often have a significant impact on budget predictions. The current economic climate is very difficult and with many assumptions being applied there is an increased risk that one of the influencing factors may vary significantly from the Authority s expectations. We benchmarked the assumptions you have used in the MTFS in the following key areas: Stratford-on-Avon District Council PwC 9

11 inflation (pay and non-pay expenditure); Council Tax increase; and level/use of reserves. The Authority s General Fund Reserves as a percentage of net budget is planned to be between 15% 35% over the period covered by the MTFS. There is planned use of reserves over the period of the MTFS, with increasing use in the last two years of the current plan, however we noted these are in line with policy and don t fall below the Authority s target reserve balance and remains a reasonable percentage of your overall net budget requirement. On the basis of this work we concluded that the assumptions used in setting your MTFS are broadly in line with other similar authorities that PwC audit and we identified no significant areas for concern. The accuracy of your assumptions could have a significant impact in relation to the use of reserves and the level of savings required in the future. If reductions in funding over and above those already confirmed were to be announced, this would result in the need to identify additional savings to offset any variation from the assumptions in the plan. The savings you identified for 2015/16 have again been examined using a Star Chamber approach, which reaffirmed that they should be deliverable. The process also identified additional/alternative savings and pressures that have been incorporated into your MTFS. As you acknowledged in your MTFS, there is a risk associated with the uncertainty of funding arrangements for 2016/17 and beyond. The effect of the reforms to local government finance is unknown and as a consequence remains the most significant risk to future years budgets. This risk has been mitigated in part by your assumption of continuing reductions in government grants (between 10% to 15% further reductions) and the level of reserves you hold. You have not assumed any increases in Government funding to achieve a balanced budget over the course of your MTFS and although there is some use of your reserves over the period to 2019/20, these remain in line with the Authority s policy and above its stated target level of reserves to be held. As you also acknowledged, there is a large proportion of the budget that is now effectively met by the New Homes Bonus. Whilst this has been set based on anticipated and average performance over the previous few years, should any changes to the scheme be announced following the CSR or thereafter, the Authority will need to consider and respond to this financial challenge should this risk materialise. Service performance The Authority reports into Cabinet its performance against its Strategic Indicators on a quarterly basis. The Authority had 17 Strategic Indictors and 13 key indicators where performance had been reported on for 2014/15. Stratford-on-Avon District Council PwC 10

12 Two indicators were reported as information only as a target was not appropriate: Net average cost of bringing homes back into use ; and income generated by new homes bonus as a result of empty properties being brought back in to use. For two indicators data was not available for the following reasons: Personal visitors seen within 10 minutes of arrival. The Authority no longer uses the system that recorded and calculated the wait times, therefore there was no year end result. A new electronic system is being developed for future monitoring; and Reduction in the Council s carbon footprint result was not available at the time. The remaining 13 indicators showed performance against target of: 8 (62%) achieved target; and 5 (38%) missed the target. The targets that were achieved showed a good performance in relation to major and minor planning applications, customer access and contacts, as well as affordable housing completions and bringing empty homes back into use. The targets that were not achieved related to timing of the Core Strategy and the revision to timetable and some targets regarding the amount recycled and residual waste that narrowly missed the targets set and therefore on balance we concluded that these were not indicative of material service performance issues. The Cabinet should continue to ensure that careful monitoring takes place to ensure that agreed actions are taken and performance does indeed improve in the areas where performance is currently just under set targets. Conclusions We reviewed your assumptions and savings plans and found them to be appropriate in the current circumstances. However, as we know that you appreciate fully, these should be kept under regular review, particularly given the uncertainty over future local government funding settlements that will be announced following the CSR in November In overall terms, we concluded positively on the two stated criteria and as a result, we were able to issue an unqualified value for money conclusion on your use of the Authority s resources on 29 September Annual Governance Statement Local authorities are required to produce an Annual Governance Statement (AGS) that is consistent with guidance issued by the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Society of Local Authority Chief Executives (SOLACE): Delivering Good Governance in Local Government. The AGS accompanies the Statement of Accounts. Stratford-on-Avon District Council PwC 11

13 We reviewed the AGS to consider whether it complied with the CIPFA/SOLACE guidance and whether it might be misleading or inconsistent with other information known to us from our audit work. We found no areas of concern to report in this context. Whole of Government Accounts As part of our work on the Statement of Accounts we were also required to examine the Whole of Government Accounts schedules submitted to the Department for Communities and Local Government. The threshold set by the National Audit Office (NAO) for detailed procedures to be performed was 350 million; the Authority fell under this threshold. Electors questions and objections We did not receive any electors questions or objections regarding the 2014/15 financial statements. Summary of recommendations Our audit identified no significant matters that we wish to bring to your attention in this Audit Letter. We issued the NAO assurance statement confirming this at the same time as issuing our financial statements opinion on 29 September 2015 and in advance of the October 2015 deadline set nationally for Whole of Government Accounts. We had no issues to report. Certification of Claims and Returns We presented our most recent Annual Certification Report for 2013/14 to the former Audit Committee at its meeting in March We certified one claim worth 29.2 million. A qualification letter was required to set out a number of issues arising from the certification of the claim. These issues were also set out in our Annual Certification Report for 2013/14. We will issue the Annual Certification Report for 2014/15 later this calendar year. Stratford-on-Avon District Council PwC 12

14 Fees update Fees update for 2014/15 We reported our fee proposals in our Audit Plan that we presented to, and agreed with, the Authority s Audit Committee (now the Audit and Standards Committee) at its meeting in March Our actual fees are expected to be in line with our proposals as follows: Audit work performed under the Code of Audit Practice - Statement of Accounts - Conclusion on the ability of the organisation to secure proper arrangements for the economy, efficiency and effectiveness in its use of resources - Whole of Government Accounts Expected actual fee 2014/15 Planned fee 2014/15 Actual fee 2013/14 62,428 62,428 61,528 Audit work on the specific audit risk regarding the litigation with Orbit Housing Group Additional audit work given no reliance could be placed on National Non Domestic Rates (NNDR) certification work Certification of Claims and Returns Total Audit and Certification fees Expected actual fee 2014/15 17,070 See note Planned fee 2014/15 Actual fee 2013/ , ,070 See note 19,008 79,498 79,498 83,620 Non-audit work Total fees 79,498 79,498 83,620 Note: Our fee for certification of claims and returns is yet to be finalised for 2014/15. It will be reported to the Audit and Standards Committee within our Certification Report in relation to 2014/15 claims and returns when our certification work is complete and our fee agreed. Stratford-on-Avon District Council PwC 13

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