Office of the Police and Crime Commissioner for Staffordshire and Office of the Chief Constable for Staffordshire

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1 Government and Public Sector October 2015 Office of the Police and Crime Commissioner for Staffordshire and Office of the Chief Constable for Staffordshire Annual Audit Letter 2014/15

2 Contents Code of Audit Practice and Statement of Responsibilities of Auditors and of Audited Bodies 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 management 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. Introduction 1 Audit Findings 3 Other matters reported to those charged with governance 5 Fees 6 Annual Audit Letter PwC Contents

3 An audit is not designed to identify all matters that may be relevant to those charged with governance. Our audit does not ordinarily identify all such matters. Introduction The purpose of this letter This letter summarises the results of our 2014/15 audit work for members of the Group (Police and Crime Commissioner for Staffordshire and Chief Constable of Staffordshire). and Ireland) and other guidance issued by the Audit Commission. We met our responsibilities as follows: We have already reported the detailed findings from our audit work to the Audit Committee (ETAP) in the following reports: External audit annual plan; Progress report; Audit opinion for the 2014/15 financial statements, incorporating conclusion on the proper arrangements to secure economy, efficiency and effectiveness in its use of resources; and Report to those charged with Governance (ISA (UK&I) 260). The matters reported here are the most significant for the Authority. Scope of Work The Group 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 issued on January 2015 and is conducted in accordance with the Audit Commission s Code of Audit Practice, International Standards on Auditing (UK 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 ETAP at its meeting on 22 September 2015 in our 2014/15 Report to those charged with governance (ISA (UK&I) 260). On 30 September 2015 we issued an unqualified audit opinion. We reported our findings to the National Audit Office on 30 September We were only required to issue an with completed assurance statement to confirm your financial statements were below the audit threshold above which we would be required to conduct full procedures on the return. We had no issues to report. Annual Audit Letter PwC 1

4 Audit Responsibility Results Audit Responsibility Results Form a conclusion on the arrangements the Authority has made for securing economy, efficiency and effectiveness in its use of resources. 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. We reported our findings to ETAP at its meeting on 22 September 2015 in our 2013/14 Report to those charged with governance (ISA (UK&I) 260). On 30 September 2015 we issued an unqualified audit opinion We reported our findings to ETAP at its meeting on 22 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. 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 30 September 2015 Consider whether, in the public interest, we should make a report on any matter coming to our notice in the course of the audit. There were no issues to report in this regard. Annual Audit Letter PwC 2

5 Audit Findings Accounts We audited the Authority s accounts in line with approved Auditing Standards and issued an unqualified audit opinion on 30 September We noted significant issues arising from our audit within our Report to Those Charged with Governance (ISA (UK&I) 260). This report was presented to ETAP on 22 September We wish to draw the following points, included in that report, to your attention in this letter. Accounts Preparation You completed your draft accounts by the end of June, and provided them to us in advance of the audit as agreed. Our audit identified issues in the quality of the accounts/working papers presented for audit. We agreed in advance what we would need for our audit and this was in parts ready for us when we arrived. The working papers were provided to us electronically and this helped us perform our audit. However, due to resourcing constraints and limited continuity among key staff responsible for now preparing the accounts, there were substantial issues encountered with the clarity and quality of working papers. The significant impact of this was that it made it difficult to confirm the balances and transactions to be audited within all the relevant financial statements. This resulted in a considerable amount of additional time being spent trying to reconcile numbers between the single entities and group financial statements, before the detailed testing of the transactions and balances was able to be productively started. This did re-emphasise some of the concerns raised at the June Panel meeting on 29 June 2015, where the accounts were not presented as planned due to changes being processed and reviewed. The draft accounts were prepared and approved right up to the 30 June deadline following a subsequent presentation to a selection of Panel members on 30 June as agreed at the 29 June meeting. This resulted in considerable additional time being spent on the audit during the main site fieldwork visit and subsequent time to follow up from the issues and outstanding queries following the initial planned site work. This was not budgeted for in the initial fee and was due to the quality of working papers. However, we would stress and want to emphasise that like in previous years, the finance team worked hard to meet the large amounts of follow up and additional requests needed and were again extremely helpful in resolving our queries. We recommended that management review its procedures and detailed accounts production timetable and notes so that staff are able to pick up with limited handover or understanding, especially when resources are still constrained and the accounts timetable is to be further accelerated over the coming years. Valuation of Property, Plant and Equipment Your accounts include property, plant and equipment with a net book value of 71.7 million, largely made up of land and buildings ( 51.3 million). The total value of your land and buildings has decreased slightly from 52.9million in the prior year. Annual Audit Letter PwC 3

6 You have to keep the values of your own land and buildings up to date. The Police s accounting policy is to include land and buildings in the balance sheet at open market value for existing use or at depreciated replacement cost for specialised assets where there is no market. You performed a revaluation of land and buildings at the balance sheet date. The work was completed by an external valuation team. We engaged our internal PwC valuation specialist to review the work of your valuation expert. We considered the applicable professional requirements and industry standard indices used to revalue specialised assets, and the steps taken by the organisation to account for the full impact of these across all assets. We also challenged the assumptions you have made in valuing your assets. We identified no issues to report as a result of this work. Cannock Road (PCC and Group) In 2011/12 the (former) Authority had agreed a sale of the former HQ site but this sale fell through. Our audit work considered the continuing progress with the sale of the Cannock Road site and the associated year-end accounting for the site and/or sale. The Cannock Road site continued to be classified as an asset held for sale within current assets in the PCC single entity and Group financial statements. The value in the accounts of 7m is management s best estimate of the market value of the site. The only other accounting option would be to hold the site as a fixed asset. Given that the site would be non-operational, not in owner occupation for service delivery or use and primarily held for capital appreciation purposes only until a sale is made, it would be classified and held as an investment property and valued at market value. This would be the same valuation basis as it is currently in the financial statements. Given the materiality levels for the Group and PCC single entity financial statements, the current valuation would have to be misstated by between 70% for the Group and 56% for the PCC single entity accounts to be material and there is no evidence or indication that this is likely. Neither the site nor a change in its value is material to the accounts, and we therefore concluded there was no merit in changing the disclosure of the asset. Property consultants are dealing with the disposal, and management are determined to dispose of the site. We understand an offer has been received (at a higher value) but is currently going through appropriate due diligence before any decision is made. We concluded that the classification, carrying value and disclosure were materially fairly stated. Pensions Liability The most significant estimate in the Statement of Accounts is in the valuation of net pension liabilities for employees in the Local Government Pension Scheme and the Police Pension Schemes. The net pension liability at 31 March 2015 was 2,052 million (2014-1,798 million). We reviewed the reasonableness of the assumptions underlying the pension liability, and we are comfortable that the assumptions are within an acceptable range. We utilised the work of actuarial experts to assess the assumptions applied by the Group for its Police Pension schemes and local government pension scheme. We validated the data supplied to the actuary on which to base their calculations. We identified no issues to report as a result of this work. Annual Audit Letter PwC 4

7 Pension Deficit Prepayment Single Lump Sum Payment Pension Contributions Following receipt of a letter from the Administrating Authority Pension Fund Actuary Hymans Robertson in June 2014, the Group paid the total required deficit contributions for the triennial period 1 April 2014 to 31 March 2017 as a single lump sum payment in 2014/15, rather than paying the deficit contributions annually which were disclosed within the Rates and Adjustment Certificate. The purpose of this was to realise a saving of over the 3 financial years. Initial treatment essentially double-counted the benefit the Group gets from increasing its share of the pension scheme funds an increased pension scheme asset and a prepayment for the remaining two years. Following the audit, it was proposed by the Group to use the Pensions Reserve to smooth out the payments rather than accounting for it as a prepayment. We agreed with the Group s revised accounting treatment and adjustment to account for the payment through reserves. GAD vs Milne - Police Pension The Pensions Ombudsman s recently ruled on a complaint brought by Mr W Milne regarding Firefighters Pension payments. The Government has ruled that additional payments are to be made to Scheme members whose pension commenced between 1 December 2001 and 30 November 2006 and who chose to commute pension for lump sum at retirement. This is to address the Ombudsman s conclusion that the scheme s commutation factors should have been reviewed before This ruling was also deemed relevant to the applicable police pension schemes by the Ombudsman. There are 337 pensioners who will have revised calculations at Staffordshire. Based on initial calculations the additional lump sums are estimated to be in the region of 4.6m and interest payments 1.0m. The Home Office has advised that the Government will meet the immediate cost of the lump sum payments and interest through the existing top-up grant process and that the revised calculations should be completed by December 2015 and payments made by 31 March Staffordshire have accounted for this by putting a creditor into the accounts with a matching asset to the police pension fund. This shows that the organisation has an obligation to make the payments to the relevant pensioners but the cost is being funded by the Home Office. Due to late technical guidance issued on 14 September 2015 which confirmed the final position of the NAO s technical view this was accounted for as an adjusting post balance sheet event and through a prior period adjustment to correct a material error in the financial statements of an understated net pension liability. 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. Annual Audit Letter PwC 5

8 To reach our conclusion, we carried out a programme of work that was based on our risk assessment. We issued an unqualified conclusion on the ability of the organisation to secure proper arrangements to secure economy, efficiency and effectiveness in its use of resources. We found the following matters which we wish to bring to your attention. We recognised the track record of Staffordshire in delivering savings has been strong (which is supported by previous and recent HMIC work as well as our own views), there must be continued focus to ensure plans remain realistic and delivered in line with agreed plans. You concluded that there are adequate reserves to meet any short term downside scenarios should they materialise but action would be needed over the medium term and should be modelled and factored in where appropriate. balance concluded that this did not have an impact on our overall conclusions for 2014/15. However, we re-emphasized the conclusions made that delivery and the phasing of delivery is monitored regularly so that any change in assumptions or timing can be managed within the current headroom planned or any realization of downside sensitivities in base assumptions. Annual Governance Statement Local authorities are required to produce an Annual Governance Statement (AGS) that is consistent with guidance issued by CIPFA/SOLACE. The AGS accompanies the Statement of Accounts. 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. Overall, we had no concerns to report over the assumptions and modelling used in your MTFS. However, we support your view that the MTFS needs to be kept under close review especially after the Comprehensive Spending Review in November, where further clarity around future funding will be determined. Savings We considered your savings plans and projected timings. There are no individually material savings schemes for the Group over the MTFS period and therefore no over reliance on any particular or unrealistic saving plans. We therefore on Annual Audit Letter PwC 6

9 Whole of Government Accounts We undertook our work on the Whole of Government Accounts consolidation pack as prescribed by the National Audit Office. The Authority were under the threshold of 350million set by the NAO and we submitted our assurance statement on 30 September Electors questions and objections We did not receive any electors questions or objections regarding the 2014/15 financial statements. Audit independence We confirmed that in our professional judgement: we complied with UK regulatory and professional requirements, including the Ethical Standards issued by the Auditing Practices Board; and our objectivity was not compromised. Annual Audit Letter PwC 1

10 Other matters reported to those charged with governance We did not identify any significant weaknesses in internal controls. In light of our overall comments within the accounts preparation comments earlier in this report, we highlight the need to review and consider finance team resilience and documented detailed accounts closedown procedures and processes. Deficiency Recommendation Target Implementation Date Finance Team Resilience There has been a considerable change and pressure on finance team resources over the last year in particular, with the continued reduction on funding and also transformation work programmes being implemented in order to deliver planned budgets and savings. This impacted on the overall performance, clarity and quality of the accounts and working papers for the 2014/15 audit. Staffordshire Police should review its resilience within the finance team especially given the continuing resource constraints and ongoing demands of the finance team. Handover processes must also be carefully managed, particularly if the handover will be continued to be intersected by further or additional interim appointments in key roles, as there is a risk of key messages being diluted, processes not fully understood or not undertaken. Staffordshire Police should also review succession planning arrangements in the finance team. This is currently under review Annual Audit Letter PwC 5

11 Fees Final Fees for 2014/15 We reported our fee proposals in our audit plan. We are currently in the process of agreeing the fee over and above the scale element with Public Sector Audit Appointments Limited (PSAA) and will report the final position in due course. Our estimated final fees are therefore: Police and Crime Commissioner/Group 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 2014/15 estimated outturn 31,810 10, /15 fee proposal 31,810 10, /14 final outturn 31,810 10, Chief Constable 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 2014/15 estimated outturn 15,000 5, /15 fee proposal 15,000 5, /14 final outturn 15,000 5,000 Proposed variation 3, TOTAL 23,555 20,000 20,000 * Variation is due to the following as previously reported in our ISA260 and earlier in our AAL Late confirmation and additional time spent on GAD v Milne Pension issues as reported earlier; and - Proposed variation 10, TOTAL 52,780 42,310 42,310 Finance team resilience and quality of working papers. Annual Audit Letter PwC 6

12 In the event that, pursuant to a request which Office of the Police and Crime Commissioner (OPCC) and/or the Chief Constable of Staffordshire (CC) has received under the Freedom of Information Act 2000, it is required to disclose any information contained in this report, it will notify PwC promptly and consult with PwC prior to disclosing such report. Office of the Police and Crime Commissioner (OPCC) and/or the Chief Constable of Staffordshire (CC) agrees to pay due regard to any representations which PwC may make in connection with such disclosure and Office of the Police and Crime Commissioner (OPCC) and/or the Chief Constable of Staffordshire (CC) shall apply any relevant exemptions which may exist under the Act to such report. If, following consultation with PwC, Office of the Police and Crime Commissioner (OPCC) and/or the Chief Constable of Staffordshire (CC) discloses this report or any part thereof, it shall ensure that any disclaimer which PwC has included or may subsequently wish to include in the information is reproduced in full in any copies disclosed. This document has been prepared only for Office of the Police and Crime Commissioner (OPCC) and/or the Chief Constable of Staffordshire (CC) and solely for the purpose and on the terms agreed through our contract with Public Sector Audit Appointments Limited. We accept no liability (including for negligence) to anyone else in connection with this document, and it may not be provided to anyone else PricewaterhouseCoopers LLP. All rights reserved. In this document, "PwC" refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details JA-UK