Page 1 Barrow-upon-Humber Parish Council Internal Audit Report for the year ended 31 March 2016
Page 2 Barrow-upon-Humber Parish Council Internal Audit Report for the year ended 31 March 2016 Introduction Part 2, paragraph 5 (1) of the Accounts and Audit Regulations 2015 imposes a duty on Local Councils to undertake an effective Internal Audit to evaluate the effectiveness of its risk management, control and governance processes, taking into account public sector internal auditing standards or guidance. Internal audit is a key component of the system of internal control. The purpose of internal audit is to review whether the systems of financial and other controls over a council's activities and operating procedures are effective. At the request of the council I have conducted an Internal Audit review of the council s accounting records in respect of the financial year ended 31 March 2016. I have acted independently and, on the basis of an assessment of risk, carried out a selective assessment of compliance with relevant procedures and controls expected to be in place during the financial year. The audit has been carried out in accordance with the council s needs and planned coverage. On the basis of the findings in the areas examined, the internal audit conclusions and recommendations have been recorded in the table below.
Prioritisation of recommendations In accordance with good internal audit reporting practice and the Governance and Accountability for Local Councils Practitioners Guide, the recommendations contained in this report have been prioritised. The following traffic light system for the prioritisation of recommendations has been adopted: Page 3 Significant weakness in internal control requiring urgent attention. Moderate weakness in internal control requiring attention within the current year. Minor weakness in internal control, or matters of good practice the council may wish to consider, to be addressed within the current year. Distribution List Chairman of the Council All members of the Council Clerk to the Council
The findings of the audit are summarised below Tests Performed 1 Have appropriate books of account been properly maintained throughout the year? 2 Have the council s Financial Regulations and Standing Orders been formally adopted and complied with? and Recommendations The cash book is maintained on spreadsheets and is arithmetically correct. The spread sheets are analysed to provide the figures for the accounts and Annual Return. Further analysis is required, however, to provide the figure of staff costs for the Annual Return. The cash book has been regularly balanced and evidenced by monthly bank reconciliations. Recommendation Employment expenses, for the purpose of the Annual Return, should be included with salary costs in the cash book. The council reconfirmed Standing Orders and Financial Regulations at the annual meeting held on the 13th May 2015, min 8.15/16. During 2015 NALC revised its Model Standing Orders to acknowledge that the introduction of the Public Contracts Regulations 2015 impacts on all parish and town councils. The Regulations apply whenever a council procures a contract with a value in excess of 25,000 (net of VAT). The council must advertise the contract opportunity on the Contracts Finder website (www.gov.uk/contracts-finder) irrespective of wherever else it may be advertised. NALC also revised its Model Financial Regulations in 2016 to reflect changes in the contracting arrangements for the supply of goods and services. Recommendations The council should update its Standing Orders to the revised 2015 NALC Model to reflect the changes in procurement legislation. Page 4
3 Are payment controls effective and VAT properly accounted for? Has the council recorded s137 expenditure separately and is it within the statutory limit? The council should adopt the 2016 revised NALC Model Financial Regulations which have been amended to reflect changes in the contracting arrangements for the supply of goods and services. I have tested all high value invoices and a large sample of payments to ensure that there is a fully approved and authorised invoice, the payment appears in the bank account and that it has been reported to council. The testing has reviewed for completeness, accuracy, the correct year of account and classification in the cash book and council's accounts and compliance with Financial Regulations. It was noted that an invoice, which included VAT, was addressed to "Immingham Town Council" and not to Barrow upon Humber Parish Council. Several invoices were processed for payment during the Clerk's absence for which the VAT has been incorrectly claimed. Some of the invoices were not VAT invoices and for others the VAT had been incorrectly calculated and reclaimed from HMRC. I have not identified any expenditure for unusual items or payments which may be ultra vires. A separate account has correctly been established for s137 expenditure. The small amount of expenditure coded to this account is well within the statutory limit. I have reviewed compliance with the two signature rule. On one occasion the two cheque signatories have not initialled the cheque counterfoil to confirm agreement with the cheque and the documentation seen at the time of signing. Recommendations As reported last year all invoices should be correctly addressed to the council to enable the VAT element to be reclaimed from HMRC. The invoices processed during the Clerk's absence should be reviewed and adjustments made to the next VAT return where necessary. Page 5
4 Has the council assessed the significant risks in delivering its activities and services and regularly reviewed the adequacy of these assessments? Is insurance cover appropriate and adequate? Are financial controls documented and regularly reviewed? 5 Has the annual precept requirement resulted from an adequate budgetary process? Has progress against budget been regularly monitored and reported? Are reserves adequate and appropriate? The council holds Risk Assessments in respect of Financial Control and Management, Physical equipment and Play Areas. They were presented to council on the 13th May 2015, min. 9.15/16d. The council's insurance cover has been reviewed and the levels of indemnity provided are considered to be adequate. The policy does not confirm, however, whether both officers and members are covered for Fidelity Guarantee. The descriptions of the council s assets in the Asset Register do not match those included in the insurance policy. It is difficult therefore to confirm that all council assets are insured. Also, some items covered by the insurance policy, such as mowers and machinery and sports equipment, do not appear on the Asset Register. It is understood that the insurance policy is due for review on the 5th May 2016. Recommendations Council members as well as the clerk should be covered for Fidelity Guarantee and confirmation in writing should be sought from the insurance company to ensure that this is the case. The descriptions and values in the Insurance policy and Asset Register should be compared to ensure that all council assets appear in the Asset Register and are insured if the council so wishes. I have reviewed the annual budget that was adopted in setting the precept for 2015/16 and confirm that it agrees to the precept levied by the council. The amount received by the council from North Lincs. Council agrees with the precept and Council Tax Grant. Detailed budget monitoring reports were presented to council quarterly. The approval of the 1st and 2nd quarter's reports was minuted at the meeting held on the 14th October 2015. The 3rd quarter report was approved on the 13th January 2016. At the 31st March 2016 the council held reserves of 28,000. This total comprises earmarked reserves of 15,000 and a general reserve of 13,000 which is considered to be both adequate and prudent. Page 6
6 Was all expected income fully received in accordance with the current scale of charges, properly accounted for and promptly banked? Were security controls over cash and cash equivalents effective? 7 Were petty cash payments appropriate and supported by receipts? All income was correctly analysed in the cash book and banked without undue delay. Was all expenditure approved and reported to members? Has VAT been correctly accounted for? 8 Do all employees have contracts of employment with clear terms and conditions? I have checked all income received by the council to documentary evidence, the cash book and the bank. Apart from the precept and Council Tax grant the council received a VAT refund, rents, a donation in respect of the Market Place survey and a small amount of bank interest. The council has not reviewed its scale of charges for several years. Unfortunately, owing to the Clerk's absence last year, the review was delayed. All income was correctly analysed in the cash book and banked without undue delay. Recommendation The council should formally review all charges and approve a scale of charges to include any miscellaneous income. The council does not maintain a petty cash system. Any petty disbursements are reimbursed to the clerk together with salary payments as part of the normal payment process. The council's only employee is the clerk. The contract of employment has been signed and dated by the clerk and the Chairman of the council. Page 7
Are salaries to employees and all other payments and allowances paid in accordance with council approvals? Has PAYE and NI been correctly deducted and paid to HMRC? 9 Is the asset and investment register complete and accurate and reviewed on a regular basis? I have agreed all salary payments to those approved by the council and the original contract of employment. It was noted, however, that the second instalment of the non-consolidated element of the 2014-2016 NJC pay settlement has not been paid. The amount due would be less than 5.00. The allowance paid to the Clerk since January 2016 has not yet been minuted. The clerk is subject to PAYE and NI regulations and PAYE deductions have been correctly paid to HMRC during the year. Recommendation The allowance paid to the Clerk since January 2016 should be minuted. The council may wish to consider paying the second instalment of the non-consolidated element of the 2014-2016 NJC pay award. The council maintains an Asset Register in the form of a spread sheet which is updated annually for additions and deletions. The notice board purchased during the year has been included in the register. The assets in the asset register have been valued at cost for the new notice board and play equipment and at the insurance valuation for 12 seats, the Gateway Signs and the Mayoral Chain. The Parish Pump, War Memorial and seasonal lights have been valued at a nominal 1 each as the original purchase prices are not known. All of these valuations are appropriate and in accordance with the guidance contained in the 2014 Governance and Accountability for Local Councils - a Practitioners Guide. It is understood that the Asset Register is due for review on the 5th May 2016. Recommendation In accordance with NALC/SLCC guidance, the valuations attributed to the assets in the register, must not be increased in line with inflation or the increased insurance valuations when the policy is next renewed. Page 8
10 Were bank reconciliations performed on a regular and timely basis? Has a year-end reconciliation been performed and balanced? Have all bank reconciliations been reviewed by an appointed member and evidenced as such? 11 Were the year-end accounts prepared on the correct accounting basis and are they supported by adequate working papers and adjustments, transfers, contra entries etc. which are fully explained and justified? Is there is an adequate audit trail from underlying records and, where appropriate, have debtors and creditors been properly accounted for? Has the previous year's Internal Audit Report been submitted to council and actioned as necessary? The council performs a bank reconciliation each month and at the year end to agree with the Annual Return. The reconciliations include both of the council's bank accounts and agree to the cash book and do not include any unusual or balancing figures. The reconciliations are presented to council monthly and all but one has been signed by the Chairman. This was, however, when the Clerk was absent. The year-end statements have been prepared on the correct accounting basis (Receipts and Payments) and debtors and creditors have correctly been excluded. The statements agree with the cashbook. It was noted, however, that the payments to the clerk in respect of travelling expenses have not been included in box 4 (staff costs) of the Annual Return in accordance with the guidance provided in the 2014 Governance and Accountability Guide for Local Councils - a Practitioners Guide. The payment of 250.00 paid to an outside body in respect of a funding bid should not be included in box 4, staff costs. There is an audit trail from underlying financial records to the year-end statements but further analysis is required to identify the figure for staff costs for the Annual Return. See the recommendation in section 1 above. The 2014/15 Internal Audit Report was submitted for review and approval to council on the 10th June 2015. The figure included in box 2 of the Annual Return includes the Council Tax grant received by the council in support of the precept. The guidance notes that accompany the Annual Return, however, require any grants received to be excluded from box 2. Page 9
Recommendations Box 2 of the Annual Return should be reduced by 1,544, the amount of the Council Tax grant, and box 3, all other receipts, should be increased by this amount. As recommended in 2014/15 box 4 of the Annual Return must be amended to include the total paid in the year in respect of the clerk's travelling costs. Page 10 The amount paid out in respect of a funding bid must be excluded from box 4, staff costs. Box 6 of the return must be amended to agree to total expenditure less staff costs. 12 Has the council met its responsibilities as a trustee? 13 Are council's minutes maintained in accordance with legislative requirements? I have seen no evidence that the council has responsibility for Trust Funds and the Clerk has confirmed that this is the case. The minutes provided to audit cover the whole year. The minutes are maintained in a loose leaf format and each page, with the exception of the minutes for the meeting held on the 10th June 2015, has been initialled. Each page of the minutes has been consecutively numbered in accordance with legislative requirements. Recommendation In accordance with the Local Government Act 1972 (schedule 12.41 (2)) the minutes of each meeting must be signed and each page comprising the minutes mast be initialled.
Executive Summary Page 11 The accounts and governance arrangements of the council continue to be maintained to a high standard and the co-operation of the clerk of the council in the completion of this audit was much appreciated. It is acknowledged, however, that during the period of the Clerk s absence during the year the financial control environment was not maintained to the same high standard. The internal financial control environment within the council is generally good and the adoption of the above recommendations will serve to further enhance and strengthen the systems, procedures and governance arrangements already in place. The Internal Audit has been conducted in accordance with the Governance and Accountability for Local Councils Practitioners Guide 2014. I confirm that I have no relationship or interest, financial or otherwise, with any member or officer of the council. Richard Dixon 9 th May 2016