agendaitemno, and council 3 22 november 2000 finance … · finance council 22 november 2000 audit...

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AGENDAITEMNO, 3

ARGYLL AND BUTE COUNCIL

FINANCE

COUNCIL 22 NOVEMBER 2000

AUDIT OF ACCOUNTS 1999/2000 MEMBERS’ LETTER, AUDIT CERTIFICATE AND CERTIFIED ACCOUNTS

1. SUMMARY

The external auditors, PricewaterhouseCoopers, have completed their audit of the Council’s accounts for the year to 3 1 March 2000 and the audit certificate, certified accounts and Letter to Members are attached. The external auditors have issued a clear audit certificate.

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An action plan covering the external auditors’ recommendations is also attached and the Audit Committee‘s remit includes monitoring of action within the agreed timescales.

The Leisure Management DSO did not achieve a breakeven position in the year to 3 1 March 2000 due to a technical adjustment, the General Fund Balance position has improved to &332,000 and extra external audit days have been used.

2. RECOMMENDATIONS

The certified accounts and the terms o€ the audit certificate and Letter to Members are noted recognising that monitoring of the external auditors‘ recommendations on the action plan will be followed through by the Audit Committee.

3. DETAIL

3.1 The certified accounts, the audit certificate and the letter to Members are attached.

3.2 Members’ attention is drawn to the Action Plan on Appendix I of the auditors’ Final Report to Members. will be carried out by the Audit Committee during 2001.

Monitoring of action required

2 1

3.3 The Auditor’s Certificate on the Council’s financial statements for the year ended 3 1 March 2000 is unqualified. The Accounts were completed and submitted to Audit Scotland by the statutory date of 30 June 2000 and the audit has been completed within the timescale of 30 September 2000, set by Audit Scotland. The Auditors have acknowledged this achievement within their report to Members.

3.4 The Leisure Management DSO did not achieve a breakeven position in the year to 3 1 March 2000. Although a cash surplus was achieved for the year, interest credited to the DSO account has to be written back when calculating the financial position in terms of compliance with the Code of Practice. This technical adjustment resulted in the DSO failing to reach a breakeven position.

3.5 The audited accounts show an improvement in the General Fund Balance position from the position reported in the unaudited accounts. The surpius in the General Fund at 3 1 March 2000 is now 6332,000, an improvement of E34,OOO.

3.6 There has been an increase in audit days used over the two years 194811999 and 1999/2000. This has resulted from extra audit work undertaken on performance indicators, housing benefit subsidy claims and external audit covering main audits such as payroll, council tax and non-domestic rates. Over the two years, this amounts to approximately &18,000. Extra audit days will be required during the current year to cover other main audits, due to shortage of staff in the Council’s own Internal Audit Section.

4. CONCLUSIONS

The completion of the audit of accounts for the year 1999/2000 within the timescale set by Audit Scotland means that the Council is now completely up to date in completion and audit of accounts. In addition, there are now no qualifications on the audit certificate relating to vcrification of assets inherited from the former Strathclyde Regional Council or on bank reconciliation work. The General Fund Balance in surplus is a satisfactory position, although a higher level of balance would be more prudent to provide Members of the Council with reassurance on funds available to cover unforeseen events.

5. POLICY

5.1 Poticy: The completion of the accounts and the audit within set timescales complies with the Council’s objectives on providing timeous and accurate information to the pub1 i c .

5.2 Financial:

5.3 Legal:

The external auditors’ independent examination of the Council’s financial records has resulted in the issue of a clear audit certificate. Surplus balances are available both in the General Fund and in the Housing Revenue Account. The Council should continue with prudent financial management.

The accounts have been completed in accordance with all legislative and Code of Practice requirements.

5.4 Personnel: None

5.5 Equal Opportunities: None

Stewart McGregor Director of Finance 9 November 2000 Repork41 6novcmbcrcouncilmeztingauditof accs

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I Argyll @Bute 1999-2000 ANNUAL ACCOUNTS COUNCIL s

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t

ACCOUNTS FOR THE PERIOD

1 APRIL 1999 TO 31 MARCH 2000

1 t9W-2000 ANNUAL ACCOUNTS

@Bute COUNCIL CONTENTS

Page

FOREWORD BY THE DIRECTOR OF RNANCE 2-3

STATEMENT OF RESPONSlBlUTlES FOR THE STATEMENT OF ACCOUWS 4

STATEMENT OF ACCOUNTING POLICIES 5 - 6

CONSOLIDATED REVENUE ACCOUNT 7

NOTES TO THE CONSOLIDATED REVENUE ACCOUNT 8 -11

HOUSING REVENUE ACCOUNT 12

SUMMARY DLOIDSO REVENUE AND ."PPROPRIATION ACCOUNT 13

COUNCIL TAX INCOME ACCOUNT 14- 15

NON-DOMESTIC M T E INCOME ACCOUNT 16

CONSOLIDATED BALANCE SHEET 17-

NOTES TO THE CONSOLIDATED BAANCE SHEET 18-22

STATEMENT OF MOVEMENT ON RESERVES 23

CONSOLIDATED CASH ROW STATEMENT 24

NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT 25

AUDIT CERTIFICATE 26

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Page 1

Argyll W9-2000 ANNUAL ACCOUNTS

COUNCIL @Bute FOREWORD BY THE DIRECTOR OF FINANCE for the year ended 31 March 2000

Introduction

This foreword is intended as a comment on Argyll and Bute Council's financial position as presented within the Statement of Accounts for the financial year 199912000.

Statement of R e s p n s i b l l i s

This statement sets out the main financial responsibilities of the Council and the Director of Finance.

Accounting Policies

The Statement of Accounting Policies sets out the basis upon which the Financial Statements have been prepared, and exptains the accounting treatment of both general and spedfic items.

The Financial Statements

Consolidafed Revenue Account shows the income raised by the Council during the year and how it was spent on services, financing costs and contributions to/frorn reserves. A comparison to budget is also made in this statement. The surplus or deficit is carried to the Statement of Total Movement on Reserves. The notes to the Consolidated Revenue Account provide additional information on some costs and income included Whin the Consotidated Revenue Account

Housing Revenue A m n l reflects the statutory requirement to separately account for local authority housing provision, as defined in the Housing (Scotland) Act 1987. It shows the major elements of housing revenue expenditure and capital financing costs, and how these are met by rents, housing support grant and other income. The surplus or deficit is carried to the Statement of Total Movement in Reserves.

Summay DL O/DSO Revenue and AppmpnatYon Account gives the summarised financial outturn for each DLOlDSO for the financial year, It also shows how the overall surplus or de f id is dealt with. A note to the statement indicates whether the DLOIDSOs have achieved their statutory financial objectives. The overalt DLOlDSO position is carried to the Consolidated Revenue Account and Statement of Total Movement on Reserves.

CounciY Tax Income Amount explains how the council tax income shown for the financial year in Ihe Consoljdaled Revenue Account is made up.

Non-domesttc Rale Income Accounl shows the build up of nondomestic rate income, the contribution to or from the national pool and the resulting net income for the financial year to the Council which is shown in the Consolidated Revenue Account.

Consoldated Balance Sheet brings together alt the assets and liabilities of the Council's General Fund, Direct Labour and Direct Service Organisations and Loans Fund. It is the statement of the resources of the Council and the means by which they have been financed. It is also a report on the Council's financial position at one particular point in time, a snapshot of its financial affairs at the close of the year expressed in accounting terms. The notes to the Balance Sheet give further information on the make up of certain assets and tiabilities.

Sfatemenf of Total Movemnt in Resewes gives details of the balances on each reserve at the start of the financial year, movements during the financial year by source and the balance at the end of the financial year as shown in the Balance Sheet.

Consoldated Cash Flow Shtemem summarises the inflows and ouflows of cash arising from the transactions with third parties on both day to day revenue transactions and expenditure on capital activities.

Major Changes in Accounting Practice

The Council continues to adopt the amounting practices recommended by the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Local Authorities (Scotland) Accounts Advisory Committee (!A(S)AAC). There have been no major changes in accounting practice since the 1998199 Annual Accounts were prepared.

Property Valuation0

It is the intention of Argyll and Bute Council that all land and property inherited from the former District and Regional Councils be revalued through a rolling programme basis of revaluation. This programme was started during 199912000 with all properties of the former Argyll and Bute @istrict Council being vatued together with all other properties which had a valuation as at 1 April 1999 greater than Elm. This represents approximately 70% of the opening net book value of the "Other Land and Buildings' category of Fixed assets. This programme of revaluation will continue during 200012001.

In addition, Council Dwellings were revalued for the first time since 1995. It is our intention to revalue Council Dwellings annually at the 31st March.

Page 2

I 8 Argyll 1999-2000 ANNUAL ACCOUNTS

COUNCIL @Bute FOREWORD BY THE DIRECTOR OF FINANCE for the year ended 31 March 2000

Financial Performance

The budget for I99912000 was set at a level to utilise f0.309m of the accumulated surplus balance on the General Fund at 3t March 1999. In addition, during the course of the financial year 199912000, the Council decided to use a further f1.442m of accumulated surplus. As a result, an excess of expenditure aver income for the year in the sum of €1.7511~1 was planned. The actuai excess amounts to €1.764m, a difference of €13,000, which is very close to the original budget.

The accumulated General Fund surplus brought forward from 1998199 was P2.096m and deduction'of the f 1.764m surplus utilised in 199912000 leaves a balance of f0.332m carried forward to 200012001. During 199912000 provision was made in the sum of f0.364m in respect of liabilities expected to arise from insurance claims Jgatnst the former Strathclyde Regional Council. The provision was charged to Central Services to the Public and is incorporated in the net cost of services.

Balances on the Housing Revenue Accour! are kept separate from other balances. At 31 March 2000, the accumulated credit balance carried forward into 2000101 amounts to f2.192m. A surplus for 199912000 of f0.594m was achieved. There was a contribution to finance capital expenditure off 1.7m.

Revenue Expenditup

A summary of the Consolidatd Revenue Account is shown on page 7. Expenditure to be met from Government Grants and Local Taxation exceeds budget by F1,721m. The majority of the difference is in respect of the planned use of accumulated General Fund surplus.

Revenue Support Grant, Community Charge, Council Tax and Non Domestic Rate Income

Overall, income under these headings exceeds budget by f0.266m. This is mainly attributable to continuing collection of Community Charge.

DLOIDSOs

During I99912000 the Councils DLO/DSO's achieved a surplus of f0.28m. The surplus has been taken as a contribution to the General Fund. All DLOIDSOs met their statutory financial objective apart from the Leisure Management DSO.

Capital Expenditure '

The Council incurs capital expenditure within limits laid down by the Scottish Executive who issue consents under Seclion 94 of the Local Government (Scotland) Act 1973. Capital receipts (from the sale of buildings, land, etc.) and private sector contributions are used to enhance these consents, subject to certain Swtlish Executive restrictions placed on the use of receipts. Details of capital expenditure are as follows:

Net Allocation Usable Capital Receipts

Composite Rogramme Housing Revenue Account Cm f'm

9 627 1.629 1721 0.871

CFCR 0 643 1700 Gross Consent 1 $991 4.200

Capital Expenditure 12309 4.170

Excess Expenditure 4318 (0.022)

The excess expenditure on the cumposite programme is within tolerance limits allowed and will be offset against the consent available In 200012001 The composite programme includes all services other than Police, Fire and the Housing Revenue Amount Joint Boards wntrol capital expenditure on Police and Fire and are reported separately thereon The Housing Revenue Account covers capital expenditure on the Council's stock of houses

Conclusion I

The outturn for 199912000 sljows some variation from budget, service by service, although the total outturn compares favourably with the budget, once account is taken of supplementary estimates approved during the course of the year, and a surplus balance is .carried forward into 200012001. The Council continues to employ resources in collecting previous year's sums due on community charge and council tax. This has resulted in unbudgeted sums of money being collected. It is'prudent to assume that collection of debt in respect of earlier years Wilt continue to be difficult.

During the course of 1999120C4, budget monitoring arrangements were in place for both revenue and capital. This enabled ac tm to be taken where necessary during the course of 1999/2000. Such reporting mechanisms will continue in 200012001, utilisrng the Council's corporate financial management system in order to maintain effective financial control.

, - Stewart McGregor Director of Finance 29 June, 2000

Page 3

9 I

1999-ZOO0 ANNUAL ACCDUMS STATEMENT OF RESPONSIBILITIES FOR THE STATEMENT OF ACCOUNTS @'Bute

COUNCIL

The Authority is required:

to make arrangements for the proper administration of its finanaal affars and to secure that oneof its officers has the rsponsibiliy for the administration of those affairs. In this authority, that officer is the Director of Finance.

to manage its a i r s to secure economic, efficient and effective use of resources and safeguard its assets

THE DIRECTOR of FINANCE'S R€SWNSIBIUTIES

The Director of Finance is responsiMe for the preparation of the aulhoritfs statement of accounts which, in terms of the CIPFPJLAWC Code of Practice on local ALllhOrity AccounSng in Great Britain ('the Code of Pracbce'), is required to present fairly, the financial position of the authority as a1 31 March 2000 and its in-ome and expenditure for the year ended on that date.

In preparing this statement of accounts,the Director of Financehas:

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selected suitable accounting policies and then applied them consistently;

made judgemenls and estimates that were reasonable a d prudent

The Director of Finance has also:

. *

complied with the Code of Practice.

kept proper accounting records which were up to date;

taken reasonable steps for the prevention and detection of fraud and other irregularities.

Page 4

11 Argyll 1999-2000 ANNUAL ACCOUNTS ' COUNCIL @Bute STATEMENT OF ACCOUNTING POLICIES for the year ended 31 March 2000

The Accounts have been prepared in accordance with the Code of Practice for the publication of Financial Information. Due regard has been given to the Statements of Recommended Practice and Accounting Standards as they apply to Local Authorities in Great Britain.

1. REMNOE ACCOUMS Revenue transactions have been recorded on an income and expenditure basis, actual or estimated sums having been included in respect of known debtors and creditors,at the year end.

Customer and client receipts in the form of sales, fees, charges and rents have been accrued in the period to which they relate

Employee costs have been charged to the period within which the employees worked.

Interest payable on external borrowing and internal income has been accrued in the period to which it relates on the basis of the overall economic effect of the borrowing.

The cost of supplies and services has been accounted for in the period during which they were received or consumed.

All revenue grants are matched with the expenditure to which hey relate. Grants made to finance the general aclivities of a local authority or to compensate for loss of income are credited to the revenue account of the financial year to which they relate. Specific government grants are accounted for on an accruals basis when the conditions for receipt have been complied with.

2. OVERHEADS The cost of all Centrat Support Departments are fully allocated over user departments. Allocations have been based on actual or estimated activity levels, time and floor area.

3. PENSIONS The cost of providing pensions for employees is charged to the revenue account in accordance with the slalutory requirements governing the particular pension schemes to which the council contributes

The accounting treatment followed by the Council is not in accordance with the Statement of Standard Accounting Practice Number 24 "Accounting for Pension Costs', which requires that the pension costs should be charged to revenue in such a manner as to provide a substantially level charge for current and future pension costs. It is not considered appropriate to reflect non-cash items of this nature in the accounts of the Council and, therefore, the charge for the year represents only the actual contributions paid.

The employer's contributions to the scheme are assessed every three years by a consulting actuary and are calculated to ensure the actuarial solvency of the fund. The cost of pensions to the Council reflected in the financial statements, is the actual contribution paid in the year as determined by the actuary.

4. CAPITAL ACCOUNTING

AccounfJng Policy Statement

The accounts have been drawn up in accordance with the Code of Practice on Local Authority Accounting in Great Britain, which is recognised by statute as representing proper accounting practices. In Scotland the status of the 1993 Code is derived from the Scottish Oftice Circular 511985 and not from a statutory source.

Services have b w n charged for the assets based on their value rather than on the financing costs of debt outstanding on the asset

Fixed Assets All expenditure on the acquisition, creation or enhancement of fixed assets has been capitalised on an accruals basis.

Disposal of Fixed Assets The receipts arising from the disposal of fixed assets have been dealt with on an accruals basis. Those of a capital nature are credited to the Capital Financing Reserve. '

Depreciation Assets, other than Land and Community Assets, are being depreciated over their useful economic lives, except where the authority is making regular repairs and maintenance to extend the asset's useful life in its existing use so that any provision for depreciation would not be material.

Infrastructure and Deferred Government Grants Thereon Vehicles 4-20 years Equipment 3-10 years Vessels 25 years

40 years

Page 5

I 12 Argyll 19999000 ANHUAL ACCOUNTS STATEMENT OF ACCOUNTING POLICIES for the year ended 31 March 2000 COUNCIL

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a.

9.

10.

11.

12.

13.

DEFERRED CHARGES These are payments which are charged to capital but do not result in the creation of fixed assets but which are properly financed over a period of years. They include improvement grants, loans for house purchase and redundancy payments and are wrigen off in annual instalments.

STOCK a WORK IN PROGRESS Stock has been valued at the lower of cost and net realisable value

Work in progress is reflected in !lie Revenue Accounts and Balance Sheets of the appropriate trading activities at cost plus, where appropriate, a propodion of overheads together with attributable profits and allowances for future losses.

PROVISION FOR BAD AND DOUBTFUL DEBT Due account has been taken of the likelihood of the collection of outstanding debt, including local tax collection, and, where appropriate, debtor balances have been reduced to reflect this.

INSURANCE FUND An insurance fund has been established in accordance with the Local Government (Scotland) Act 1994.

RESERVE FUNDS

A Repairs and Renewals Fund has been established in accordance with the Local Government (Scotland) Act 1975. Reserve Funds for the Direct Labour and Direct Sdrvice Organisations have been established in accordance with the relevant CIPFA Code of Practice. A Capital Fund has also been established within the Direct Labour Organisation.

LEASING All current leases are classified as "operating leases" as defined by Statement of Standard Accounting Practice (SSAP 21). The annual rentals are charged to the appropriate Revenue Account.

ASSETS FINANCED BY COVENANT SCHEMES The accounting treatment of assets financed under Covenant Schemes is in accordance with Section 4.1 of Guidance Note I - Covenant Schemes Accounting Treatment ana Jisclosures - issued by the Local Authority (Scotland) Accounts Advisory Committee.

The Council's indebtedness is recorded as a Deferred Covenant Liability in the Consolidated Balance Sheet. The assets have been valued in amrdance with Note 4 above.

LOANS FUND In accordance with the Lwal Government (Scotland) Act 1975 Schedule 3 (12), the Council administers a Loans Fund. All loans raised by the Council are paid into h e fund and are p l e d .

Interest and expenses of the Loans Fund have been calculated and allocated to the revenue account on the basis of debt outstanding on each account at the start of the fiwicial year with a pro-rata adjuslment in respect of new advances.

Redemption of debt has been calculated and provided for in the Revenue Account on an annuity basis.

Interest on revenue balances is allocated on the basis of monthly balances held on the respective accounts.

DIRECT LABOUR AND DIRECT SERVICE ORGANISATIONS Accounts for Ihe Direct Labour and Direct Service Organisations are included in summary format in this document. A detailed set of accounts as required by statute are available on request from Council Headquarters. The Consolidated Revenue Account and Balance Sheet include entries for these as appropriate.

1 3 1 Argyll 19992000 ANNUAL ACCOUNTS

COUNCIL @Bute CONSOLIDATED REVENUE ACCOUNT for the year ended 31 March 2000

1998199

Actual Net

Expenditure fWO

55,886

15,921

19,275

(760)

19,186

3,509

2,076

10,513

125,606

124,755

760

5,627

(49)

131,093

30,825

76,336

24,742

234

1.044

1,052

1999noOO

Actual Actual Actual Budget Gross Gm.g Net Net

ExpenditUB Income Expenditure €xpendiiure Note f O O O fMH) COO0 Eo00

Council Sewices

Education 63,395 7,146 56,249 55,260

Development and Environment Service 22,976 5,954 17,022 16,362

Social Work and Housing Service 39,154 18,670 20,484 21,495

Housing Revenue Account 13,136 13,730 (594)

Roads and Transportation Service 40,057 19,897 20,160 18,349

Central Sefvices to the Public 7,170 5,364 1,806 1,724

Corporate and Democratic Core 2,262 2,262 2,101

Joint Boards

Net cost of sewices

1 11,017 11.017 11,027 ~ ~~

199,167 70,761 120,406 126,318

2 Net (income) I expenditure on the Asset Management Revenue Account

N e t Operating Expenditure

Surpluddeficit transfered tolfrom HRA Balances

39 542

1za,r145 126,860

594

Contributions to Capital Financing Reserve 3 6,261 6,439

Contribution from DLO/DSO

h u n t to be met from Government Grants and Local Taxpsyws

Council Tax

135,020 133,299

30,652 30,743

Revenue Support Grant 76,818 76,650

Non-domestic Rates 25,472 25,464

Community Charge and Old Rates

(Deficit) I Surplus for Year

surplus Brought Forward

314 125

2096 320

2,096 Surplus Carried Folward 332 11

Page 7

I Argyll 1999-2OoO ANNUAL ACCOUNTS 1 4 @Bute NOTES TU THE CONSOLIDATED REVENUE ACCOUNT COUNCIL

1. Joint Boards

This account shows payments to the Poke, Fire and Valuation Joint Boards and to the Authorities Buying Consortium.

1998199 PO00 6,256 3,343

876

10.513 3a

Strathclyde Police Joint Board Strathclyde Fire Joint Board Dunbartonshire and Argyll & Bute Valuation Joint Board Authorities Buying Consorlium Total Joint Boards

19g9moo PO00 6,481 3,512 1,006

18 11,017

2. Asset Management Revenue Account

This account shows the surplus arising from the capital charges made to the service accounts for the use of assets and the cast to the Council of financing these assets.

1998199 rooo 3,778

17,230 (21,404)

(455) (854)

Provision for Depreciation External Interest Payable Capital Charges Release of Government Grant Net Expenddune I ( Income)

1999izooo f0OO 4,056

17,978 (21,526)

(469) 39

3. Contributions to Capital Financing Reserve

This shows the amount of revenue resources used to finance capital expenditure during the year and the repayment of the principal instalment from the Loans Fund, offset by depreciation charges (net of Government Grants credit).

1998199 f O O O

275 8,675

(3,778) 455

5,627

Capital Financed from Current Revenue Principal Loans Fund Instalment Depreciation Release of Government Grant Total Contribution to Capital Financing Resowe

1999now f O O O

643 9,205 (4,056)

469 6,261

4. Operating Lease Rentals Paid

The Council uses land, buildings, vehicles, plant and equipment financed under the terms of an operating lease. The amount paid under these arrangements in 199912000 are as follows:

1998199 rooo

101 430 302 833

Land and Buildings Vehicles Plant and Equipment Total

199912000 f'ooo

136 52 1

1,215 558

In respect of vehicles the Council recovered f0.121m of leased car cosis from its employees during 199912000.

The future cash payments required under these operating leases are: rooo 2000101 2001 onwards Total

1,468 3,609 5,077

Page 8

1 1 5 1999-2OOO ANNUAL ACCOUNTS

NOTES TO THE CONSOLIDATED REVENUE ACCOUNT @'Bute COUNCIL

5. Local Government Act 1973, Section 83 Expenditure

The Council's Expenditure under this statute, which is for the benefit of lccal residents, is limited to the product of f3.80 and the population of the Council's area. For 199912000 that limit was f0.341m with expenditure of €0.285rn being incurred and included within service expenditure. This expenditure covered the cost of Leisure Management Grants and Joint Twinning.

6. Local Government Act 1986 - Separste Publicity Account

The Council is required under Section 5 of the Act to maintain a separate account for publicity. Expenditure of E0.412m was incurred during 199912000 and is included within service expenditure as follows:

1998199 PO00

140 16 56 99 e 31 f

Staff advertising Leaflets and publications Statutory notices Other Total

1999/2000 coo0

181 16 60

155 412

7. Agency Income

The Council has an agency agreement with Scottish Homes whereby the Council collects rents on their behalf and arranges for maintenance work to be carried out on their housing stock. In addition the Council has an agency agreement with the West of Scotland Water Authority to collect water and sewerage rates.

1998rSS L'WO

7 6

196 209

209

Scottish Homes -collection of rents Scottish Homes - repair of houses West of Scotland Water Authority

1999/2000 PO00

1 3

161 165

Agency Expenditure 165

8. Local Authorities (Goods and Servicef: Act 1970

The Council is empowered by this Act to provide goods and services to other public bodies lnmme from these services amounted to f3.406m and the related expenditure was E3.359m. The goods and services provlded were as foltows:

Joint Projects and Resource Transfers Trunk Road Mainlenance Property Rentals Catering and Cleaning Services Education - Provision of Special Needs

Income f'W0 1,005 1,711

16 453 221

3,406

Expenditure fWO 1,005 1,671

462 221

3,359

9. Pensions - Local Government Superannuation (Scotland) Schema

The Council participates in the Superannuation Fund administered by City of Glasgow Council's Strathclyde Pension Fund. This Fund provides members with defined benefits related to pay and service. The contribulins are based on rates determined by the Funds professionally qualified actuary and based on triennial vabations of the Fund, the most recent of which was a131 March 1996 and set employers contributions as follows:

1997198 - 100% of employees contributims 1998/99 - 135% of employees contributions I999100 - 170% of employees contributions

Page 9

1 1 6 1999-2000 ANNUAL ACCOUNTS NOTES TO THE CONSOLIDATED REYENUE ACCOUNT @Bute

COUNCIL

9. Pensions - Local Government Superannuation (Scotland) Scheme (Cod4

The value of assets of the scheme as at 31 March 1996 did not exceed 105% of the value of the liabilities of the scheme.

19W99 rooo 2,502

8.10%

Pension costs charged to the accounts (€)

as a percentage of pensionable pay (%)

8

0.03%

Discretionary payments made by the councit (E) as a percentage of pensionable pay (%)

373

1.21%

Expenditure on addd years awarded (€1

as a percentage of pensionable pay (%)

10. Teachers Penolons -administered by the Scottish Qfflce

1998199 coo0

1,503 Amount paid over (€)

6.90% Rate of contribution (%)

426 Amount of added years awarded by the Council (f)

Discretionary payments made by the council (fJ

11. Members Allowances

The total amount of members' allowances paid by the Council during the year were:

1998199 coo0

165 127 292

Basic Allowance Special Responsibility Allowance Total Allowancos

12. Officers Emoluments

The number of employees whose remuneration, excluding pension contributions was f40,OOO or more in bands off 10,000 were:

1998199 No 30 7 5

Remuneration Band f 40,000 - f49,999 f 50,000 - €59,999 f60,000 - €69,999 f70,000 - f79,999

1599/2000 €900

3,240

10.20%

16

0.05%

377

1.19%

199912000 c000

1,612

6.90%

4 1

56

199912000 c000

192 176 368

1999nooo No 30 3 6 1

Page 10

1 Argyll 1999-2000 ANNUAL ACCOUNTS 1 7 @Bute NOTES TO THE CONSOLIDATED REVENUE ACCOUNT COUNCIL

13. Related Party Transactions

During the year transactions with related parties arose as follows:

Central Government and Agencies: Revenue Grants: Revenue Support Grant

Non-domestic Rates Housing Benefits I Support Grant Council Tax Benefit Subsidy Other Government Grants

Capital Grants: European Grants Sporls Lottery Argyll and the Islands Enterprise

Related Bodies: Joint Boards (see note 1 for further details) Scottish Passenger Transport Loch Lomond Park Authority

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Other Related Party Transactions: Companies in which members have a significant interest

14. Year 2000

Income f'ooa

76,818 25,472 13,675 4,041 4,896.

121 493 68

Expenditure f O O O

11,017 995 10

113

The total cost of making all Council systems Year 2000 compliant, spread over the years leading up to 1 January 2000, was E0.518m. This expenditure was charged through the Council's capital programme during 1998199 and 199912000. The Council achieved a satisfadory state of readiness prior to 1 January 2000 and as a result the impact on systems due to the "Millenium Bug" was minimal.

Page 1 1

1 9 I

Argyll 1999-2000 ANNUAL ACCOUNTS

COUNCIL @Bute HOUSING REVENUE ACCOUNT for the year ended 31 March 2000

1998199 Actual PO00

3,946 3,485 5,070 270

41 1 13,182

13,571 56

1 1 1 204

13,942 . .

hpenditUB Repairs and Maintenance Supervision and Management Capital Financing Costs Void House Rents Bad Debt Write Off Provision for bad or doubtful debts Other expenditure Total Expendium

Income Rent of houses (gross) Nondwelling rents Housing Support Grant Other incme Total Income

760 (Deficit] I Surplus for Year

4,038

(1,500)

3,298

. . Surplus Brought Forward

Contributions to Capital Financing Rtsenre

Surplus Retained m Housing Revenue Account

199912000 t999moo ACtUal Budget rOOO PaQO

3,883 3,723 3,553 3,653 5,227 5,707 307 231 28 24

114 159 13,136 13,553

13,212 13,241 57 46 93 93 368 173

13,730 13,553

584

3,298 3,298

2.192 1,605

NOTES TO THE HOUSING REVENUE ACCOUNT

1. Gross Rent Incom

This is the total rent income for the year. Average annual rent charges were f36.45 per week in I99912000 (1998199 f36.45)

2. Housing Stock

1958199 No

182 3,706 1,680 1,470 7,038

Sheltered Housing Other houses Tenement flats Other flats Total Housing Stock

1999RWO No

182 3,592 1,658 1,453 6,885

3. Rent Arrears and Bad Debts

Rent arrears at 31 March 2000 were f0.322m (31.03.39 - f0.304m) and this equated to an average rent arrears per house of €46.77 (I998199 - f43.19) '

In accordance with the latest assessment of potential recovery and in order to reflect due prudence, the provision for bad debts has been adjusted to f0.144m (1998/99-LO.l20rn), this represents an increase off0.024m.

Page 12

I 20 1999-ZOO0 ANNUAL ACCOUNTS SUMMARY DLOlDSO REVENUE AND APPROPRIATION ACCOUNT @Bute

COUNCIL

DLO Property Maintenance Roads - Local

Roads -Trunk

DSO Vehicle Maintenance

Ground Maintenance

Street Cleansing

Refuse Collection

Leisure Management

Catering

Cleaning TOTAL

Appropriation Account

1999l2000

1gggnWO

Total (Surplus) (Surplus) Turnover Expenditure w D&it

Actual Actual m a l Budget rm PO00 coo0 row

2,816 2,721 (95)

8,309 8,305 (4) 1,711 1,671 (40)

1,744 1,707 (37)

2,425 2,419 (6! 11) 808 806 (2) (4

1,399 1,348 (51) Ill) 763 763 {3)

2,409 2,367 (42)

Z ,224 1,221 (3) 23,688 23,408 (280) (23)

Deficit Transferto Tafisferto Balance (Surplus) Geneml Fund Resenre Fund 3113100

FOOD FWO row rooo

NOTES TO THE SUMMARY DLORlSO REMNUE AND APPROPRIATION ACCOUNT

1. Further Information

The detailed accounts for the Direct Labour and Direct Services Organisations are contained in a separate Annual Report, published in accordance with the appropriate legislation, which is available on request from Council Headquarters.

2. Statutory Financial Objectives

The statutory financial objective for ail DSOs and DLO's is to break-even after applying the CIPFA Code of Practice on Capital Accounting. All Direct Labour and Direct Service Organisations have achieved the statutory financial objective except from the Leisure Management DSO. The Leisure Management DSO failed to adrieve the break-even objective after excluding revenue interest in accordance wilh the CIPFA code of practice.

Page 13

t 2 1 13992000 ANNUAL ACCOUNTS COUNCIL TAX INCOME ACCOUNT for the year ended 31 March 2000 COUNCIL

Shows the net income raised from council laxes levied under the Local Government Finance Act 1992.

19Q8/99 Actual COO0

199912000 Actual p000

38,249 Gross Council Tax levied and contributions in lieu 38,312

247 6,155 1,022 30.825

Less: Council Tax benefits (net of government grant) Other discounts and reductions Provision for bad and doubtful debts Net Council Tax Income

252 6,626 782

30,652

NOTES TO THE COUNCIL TAX iNCOME ACCOUNT

1. Calculation of the Council lax 0

Dwellings are valued by the Assessor and placed within a valuation band ranging from the lowest 'A' to the highest 'H'. The Council Tax charge is calculated using the Council Tax Base, ie. Band D equivalents as below. This value is then decreased or increased dependant upon the band of the dwelling. The charge for each band for 199912000 were as follows:

fparyear Band Valuation Band % Band D A Under €27,000 67% E 587.33 B f27,OOO - €35,000

C f35,OW -€45,000 D f45,000 -€58,000 E f58,000 - f80,000 F €80,000 - f 106,000 G €106,000 - f212,000 H Overf212,00(]

78% E 685.22 89% E 783.11 100% f 881.00 122% E 1,076.78 144% L 1,272.56 167% L 1,468.33 200% E 1.762.00

Page 14

I 2 2 1999-2006 ANNUAL ACCOUNTS @Bute COUNCIL TAX INCOME ACCOUNT for the year ended 31 March 2OOO

COUNCIL

NOTES TO THE COUNCIL TAX INCOME ACCOUNT - Cont'd

2. Calculation of the Councii f w Base 199912000

Council Tax Base A B C D E F G H T a l

Total Number of Properties 8,009 9,370 9,224 5,308 6,372 3,229 2;140 204 43.856

Less Exemptions I Deductions

847 594 1,267 376 493 156 91 25 3,849

Adjustment for

Charge payers - Single 912 938 662 372 314 119 76 8 3,401

Effective Number of Properties 6,250 1,030 7,295 4,560 5,565 2,954 1,973 171 36,606

Band D Equivalent Factor (ratio) 619 719 819 919 1119 1319 1519 1819

Band D Equivalent Number of Properties 4,167 6,096 6,484 4,560 6,802 4,267 3,288 342 36,006

Add Contribution in lieu in respect of Class 18 dwellings (Band D Equivalent) 883

Nominal Tax Yield

Less Provision for Non-Collection - 5 5%

Council Tax Base 1999/2000

36,889

2,029

34,860

. .

Page 15

I 2 3 Argyll 1999-2000 ANNUAL ACCOUNTS

COUNCIL @Bute NON-DOMESTIC RATE INCOME ACCOUNT for the year ended 31 March 2000

Shows the income from the rate levied under the Local Government (Scotland) Act 1975 as amended by the Local Government F i n a w Act 1992 on non-domestic property.

1998199 Actual

f'000

29,588 Gross rates levied and contributions in lieu

LSS:

3,273- Reliefs and other deductions

24 , Payment of interest

(2,016) 28,307 Net Nondamstic Rate Income

Provision for bad and doubtful debts

26 Adjustments for years prior to introduction of national nondomestic rates pool

(3,591) Contribution from I (to) national non-domestic rate pool 0 24,742 Guaranteed Rate Income

199912000 Actual

COO0

30,636

3,998 (16) 230

26,424

NOTES TO THE NON-DOMESTIC RATE INCOME ACCOUNT

1. Analysis of Rateable Values

e f

3,090,370 31,194,945

8,183,975 3,765,125 5,398,480 4,348,220 8,320,205 64,301,320 e

Industrial and freight transport subjects Public utilities including British Rail, British Gas, Hydro Electric etc

Commercial subjects: Shops Offices Hotels, Boarding Houses etc. Others Miscellaneous and formula valued subjects

Total Rateable Vatue

8,280,645 3,783,285 5,343,005 4,421,665 8,284,462

64.699.775

2. Non-Domestic Rate Charge

Pence Pence

4 7 4 Rateperpound 48.9p

3. Calculation of Rate Charge for Each Property

The rates charge for each subject is determined by the rateable value placed upon it by the Assessor multiplied by the Rate per E announced each year by the Government.

Page 16

t Argyll 1999-2000 ANNUAL ACCOUNTS 2 4 @Bute CONSOLIDATED BALANCE SHEET as at 31 March 2000 COUNCIL

199m f'000

86,842 131,509

4,491 59,363

28

8,355

fixed Assets Operational Assets - Council Dwellings - Other Land and Buildings - Vehicles, Plant and Equipment - Infrastructure Assets - Community Assets Non-operational Assets - Non-operalional Land and Buildings

NOta

1

199912000 f O O O

62,364 152,756

4,232 59,383

28

10,280

290,588 43,845

334,433

1,650 14,404 1,310

351,797

-21,195

-2,576 -19,582

308,444 -187,610

-559 -1 1,002

109,273

71,009 29,655 3,117

2,096 3,298

98

109,273

Deferred Charges

Tote1 Long Term Assets

Current Assets - Stock and Work in Progress - Debtors - Cash at 3ank and in Hand

Current Liabilities - Short Term Borrowing - Creditors - Bank Overdraft

Total Assets less Current Liabilities Long Term Borrowing Deferred Covenant Liability Deferred Government Grants

Total Assets less Liabilities

Fixed Asset Restatement Reserve Capital Financing Reserve Earmarked Reserves Balances - General Fund - Housing Revenue Account

Total Equity

- DSOS

2

289,043

44,908

5 1,158

14,835 795

333,951

16,788

6 -29,765 -15,389 -2,315

350,739

47,469

-184,996 -479

-11,215

303,270

-1 96,690

106,580

60,836 39,748

3,369

332 2,192

103

106.580

Stawart Mc(3regor Director of Finance

June 29, 2000

Page 17

Argyll 1999-2000 ANNUAL ACCOUNTS

COUNCIL NOTES TO THE CONSOLIDATED BALANCE SHEET as at 31 March 2000

1 .I Movement of Fbted Assets

Balance at Expenditure Revaluatiino Disposalo TIWIS~K Depreciation Write off Balance at 1/4/99 in year toFARR 3113100 row fOIK) rooo f'ooo f O O O f'000 rooo rooo

Operational Assets - Council Dwellings 86,842 4,034 (22,669) (1,809) (4,034) 62,364 - Other Land and Buildings 131 ,50n 3,925 21,529 (56) (402) (3,749) 152,756 - Vehicles Plant and Equipment 4,491 1,180 (28) (1,417) 6 4,232 - Infrastructure Assets 59,363 2,967 (2,639) (308). 59,383 - Community Assets 28 28 Non-operational Assets 8,355 1,386 675 (179) 43 10,280

Total 290,588 13,492 (465) p,072) (359) (4,056) (8,085) 289,043

~.

Total 1998189 m,w 6,008

1.2 Valuation of Fixed Assets

in accordance with the Capital Accounting Code of Practice, fixed assets are shown at valuation. The basis on which each category of fixed asset is valued is as follows:

Council Dwellings The basis of valuation is Existing Use Value for Social Housing as defined in Practice Statement 4.1 of the RlCS Appraisal and Valuation Manual, the definition of which is as follows:

"Existing Use Value for SPcial Housing is defined as an opinion of the best price at which the sale of an interest in property would have been completed unconditionally for cash consideration on the date ot the valuation."

The valuations were carried out as at 29 Nover.her 1999 by an independent valuer, the District Valuer, on the aforementioned basis.

Other Land and Buildings The basis of valuation is Open Market Value for Existing Use, assessed on either a comparative or depreciated replacernenl cos1 basis.

During the current year, revaluations were carried out by the District Valuer on the freehold and leasehold properties which comprise the Ex Argyll and Bute District Council property portfolio. In addilion, the Estates Section of Transportation and Property started a revaluation programme of all other properties inherited from the former Dumbarton District and Strathclyde Regional Councils. This programme wi l continue during 200012001.

The properties valued during 1999iX100 represents approximately 70% of the value of Other Land and Buildings prior to the revaluation exercise being carried out.

Vehicles, Plant and Equipment These assets have been valued using historical cost as a proxy for current replacement cost

Infrastructure and Community As- These assets are valued at depreciated historic cost

Non Opentional Assets These have been valued on the bafis of open market value taking account of existing and alternative uses. The revaluation exercise carried out by the District Valuer covered the Ex Argyl and Bute District Council non operational properties. All other non operational properties are at 199495 valuations.

Page 18

t 2 6 Argyll 19992000 ANNUAL ACCOUNTS

COUNCIL @Bute NOTES TO THE CONSOLIDATED BAIANCE SHEET as at 31 March 2000

1.3 Fmed Assets Information on Assets Held

OPERATIONAL BUILDINGS Administrative Buildings Depots Social Work Homes for the Elderly Social Work Children's Homes Social Work Hostels Primary Schools Secondary Schools Special Schools Nursery Schools Halls Sports Centres Swimming Pools Museums and Libraries Community Centres Crematoria Public Conveniences Travelling Persons Sites

2. Deferred Charges

House Loans Improvement Grants Slum Clearance Other

199912000 No. 41 33 6 3 3 81 10 3 2 9 1 4 11 8 1 71 3

OPERATIONAL EQUIPMENT Vehicles and Heavy Plant

INFRASTRUCTURE ASSETS Highways (miles) Bridges Permanent Ways

COMMUNITY ASSETS Play Areas Parks Civic Regalia (Provosts' Chains) Civic Regalia (Bailies' Chains) Cemeteries

COUNCIL DWELLINGS

1999i2000 NO.

368

1,406 954 n!k

52 25 4 7 66

6.885

Batameat Expenditure Receipts Capital Balanceat 1\4/99 during year during year Discharged 3113100 EO00 COO0 E'OOO E'WO EO00 1,627 53 (149) (184) 1,347 34,159 1,766 (1,136) 34,789

407 22 (40) 389 7,652 1,154 (423) 8,383

Total 43.845 2.995 11491 11.7831 44.908

Total 1998/99 42.742 2.943 (1701 (1,670) 43,845

3. Spending on Capital Projects During the Year

Capital expenditure involves the creation of assets, the benefit of which will be available to future rate and council taxpayers. It is financed from borrowing and therefore the cost of the assets is effectively borne over a period of years. In 199912000 gross capital expenditure totalled f16,487rn, offset by Capital income of f4.934m, as foilows:

31 March 31 March 2000 1999 rooo EO00

Education 3,496 2,658 Development and Environmental Services 2,043 1,217 Social and Housing Service 3.244 3,039 Housing Revenue Account 4,170 3,928 Transportation and PropeQ 2,440 5,113 Central Support 1,078 1,175

Total Expenditure 16.487 17,130

Financed by Sale of Council Houses 743 . 727 Sale of Other Assets 305 107 Grants 1:129 771 Other Capital Receipts 414 515 Capital from Current Revenue 2,343 1,775 Borrowing 11,553 13,235

Total Financina f 6,487 17,130

Page 19

I 27 Argyll 19992000 ANNUAL ACCOUNTS @Bute NOTES TO THE CONSOLIDATED BALANCE SHEET as at 31 March 2000 COUNCIL

4. h a t s Held Under Finance leaper

There were no assets held under finance leases during the year

5. Debtors

Arrears of Local Taxation Council Tax less: provision for bad debls

PO00

10,221 -7,042

Community Charge less: provision for bad debts

2,379 8,270

-8,226

Non-domestic Rates less: provision for bad debts

House Rents less: provision for bad debts

Debtor Accounts 0

* less: provision for bad debt$

Government Grants

VAT Recoverable

44 2,516

-1.853

202 -144

663

58 4,228

-1.015 3,213

3,895

1,789

Other Debtors 2,794 Tntal Debtam 14,835

6. Analysis of Bornw%~g

6.1 Source of Loan

Public Works Loan Board Money Market €18 Other Loans

31March 31March Zoo0 1999 f W O PO00

185,910 182,795 26,026 22,830

2,590 3,143 235 37

Total Outstanding Loans 214,761 208,805

6 2 Maturity of Loans

Short Term Loans

31March 31March 2000 1999 f'm COO00

29,765 21,195

Total Short Term Loans 29,765 21,185 ~

1 - 2 years 1,048 3,327 2 - 5 years 3,959 14,457 6 ~ 10 years 16,291 18,941

Over 10 years 163,698 150,885

Tdal Long and Medium Term Loans 184,996 187,610

Tdai Outstanding Lmns 2$4,761 208,805

Page x1

I

19992000 ANNUAL ACCOUNTS 2 8 @Bute NOTES TO THE CONSOLIDATED BALANCE SHEET as at 31 March 2000 COUNCIL

7. Deferred Government Grants

Balance at 1 April 1999 Grants received during the year to finance capital projects

COO0 11,002

682 Credit to revenue account during the year 469 Balance at 31 March 2000 11,215

8. Analysis of Net Ass& Employed

Assets Fixed Assets

Deferred Charges

Stock and Work in Progress

Debtors

Cash at Bank and in Hand

Liabilities Short Term Borrowing

Creditors

Bank Overdraft

As at 31 March 2000 General Fund HRA DSOIOLOs Total

rooo f O O D f'000 coo0

226,679 62,364 289,043

44,664 244 44,908

241 917 1,158

14,765 58 12 i4,a35

795 795

-30,744 962 17 -29,765

-13,820 -48 1 -1.088 -15,389

-2,315 -2,315

Long Term Borrowing -142,559 -42,368 -69 -184,996

Deferred Covenant Liability , -479 479

Total Net Assets Employed 86,012 20,779 (211) 106,580

Government Grants Deferred -11,215 -11,215

9. insurance Fund

An Insurance Fund has been established in accordance with the Local Government (Scotland) Act 1994. The balance at 31 March 2000 was f1.178m (1998199 - f1.130m). The fund represents contributions made from the General Fund and does not yet cover specific uninsured risks.

10. Contingent Gains and Liabilities

The Council has inherited a number of applications for equal pay at various stages of completion at Industrial Tribunals. The final outcome of these applications is unknown at this time, although there is the possibility that the Council may lme at least some of these cases. No financial provision has been made in the 199912000 Accounts given the uncertainties which surround both the final outcomes and the settlement levels.

Contingent liabilities have continued to arise in respect of the former Strathclyde Regionai Council's operations. Cost sharing arrangements are in place with the other eleven authorities which make up the former Strathclyde Region. Argyll and Bute Council's share of liabilities which materialise in the future will be approximately 4%. At present. potential liabilities in respect of insurance claims and various legal actions could cost the Council f0.364million. Full provision for this amount has been made in the 199912000 Accounts.

As at 31 March 2000, the Council had incurred no expenditure and had made no commitments in respect of the costs associated with the introduction of the Euro. Prior to entry into full Euro tradins, a significant review of all systems will require to be undertaken. Consequently an estimate of costs is not available at this stage

11. Provisions

A provision for f0.364m in respect of insurance claims and various legal adions from the former Strathclyde Regional Council has been set up during the 199912000 financial year. This provision complies with the requirements of FRS 12 (Financial Reporting Standard 12 - Provisions. Contingent Liabilities and Contingent Assets) and meets the folowing criteria:

- There is a present obligation (legal or constructive) as a result of a past event; - It is probable that a transfer of economic benefit wit1 be required to settle the obligation; and - A reliable estimate can be made of the obligation.

Page 21

1 Argyll 1499-2000 ANNUAL ACCOUNTS 2 9 @Bute NOTES TO THE CONSOLIDATED BALANCE SHEET as at 31 March 2000 COUNCIL

12. Commitments Under Capital Contracts

At 31 March 2000, the Council had commitments on capital contracts of E5.068m. This expenditure will be funded from a combination of government capital consent (borrowing), income from selling assets and contributions from Revenue Accounts.

13. The Castle Tnst

Argyll and Bute Council, Eas! Renfrewshire Council and Glasgow City Council have entered a joint venture to operate the three educational outdoor centres at Ardentinny, Caslle Toward and Achnamara.

14. Trust Funds and Other Third Party Funds

The Council acts as sole or custodian trustee for 76 trust funds and 6 common good funds. In neither case do the funds represent assets of the Council, and as such have not been included in the Consolidated Balance Sheet. The funds have not been subject to an independenl audit by the Council's external auditors.

Funds for which Argyll and Bute Council act as sole trustee: Income Expenditure Assets Liabilities

E'OOO COO0 € W O coo0 ' Campbeltown Common Gwd Fund 20 20 420 420

Oban Common G o d Fund 57 31 716 716

lnveraray Common Good Fund

Lochgilphead Common Good Fund

Dunoon Common Good Fund

Rothesay Common Good Fund

Argyll Education Trust

GM Duncan Trust

McDougall Trust

Moore's Mortification Fund

2

6 2

19 12

4 2

20

5

1

5

a 93

163

68

410

94

1

5

8

93

183

68

410

94

Various Other Trust Funds 19 1 336 336

Total Trust Funds 160 68 2,334 2,334

Purpose of Common Good Funds: These funds are held for the benefit of residents of the former Burghs within Argyll and Bute

Purpose of Trust Funds: GM Duncan Fund: for the provision of fuel, clothing and foodstuffs for the needy of Campbeltown

McDougall Trust: for the provision of sheltered housing on the Ross of Mull.

Mocre's Mortification Fund: to provide benefits to the needy of that part of the Parish of Cardross lying between Auchentroe and Keppoch.

Argyll Education Trust: this is made up of a number of small trusts to award prizes, bursaries, etc. to pupils and ex pupils of schools within the former Argyll County Council area.

Further information on the Common Good and Trust Funds, administered by Argyll and Bute Council, can be obtained from the Treasury Section of the Finance DeDartment.

Page 22

t 3 0 Argyll 1999-2QOO ANNUAL ACCOUNTS

COUNCIL STATEMENT OF MOVEMENT ON RESERVES for the year ended 31 March 2000

Baiannce at 1 Aprlll999 Net surplus/(deficit) for year

CAPITAL RESERVES REVENUE RESERVES FbtedAsset Capital Earmarked General Houslng DLOIDSQ Total

Restatement Financing R~stxues Fund Revenue Resowe &me Account

FOOO €'WO COW eo00 PO00 9OQ8 fW0

71,009 236% 3,147 2,096 339298 98 109,273

(1,764) 594 280 (8901

(465) Unrealised (gains)/loss, from revaluation of fixed assets Interest

Contribution (to) /from General Fund

Contribution (to) I from HRA

Capital Discharged (Balance Sheet - Note 2)

159

6,261 147

1,700

(1,783)

Deferred Covenant 80 80 Net Book Value of assets disposed of (2,072) Capital Receipts Applied 3,835

Expenditure (54) W) Other Adjustments 455 455

Expenditure not through Fixed Asset Regisler (8,091) ( 8 , W Balance at 31 March 2000 60.836 39,748 3,369 332 2,192 103 106,580

NOTES TO THE STATEMENT OF MOMMEHY OF RESERVES

1. Fixed Asset Restatement Resene This reserve reflects the difference between the book value of assets prior to the implementation of the new system of Capitai Accounting and the revalued amounts. Any subsequent revaluations are also recorded here. It is n d a revaluation reserve and does not represent resources available to the authority. It cannot be used in any way to finance revenue or capital expenditure and can only be reduced by either writing out the book value of assets or a downward revaluation.

2. Capital Financing Reserve The Capital Financing Reserve contains the amounts which are required by statute to be set aside from capital receipts for the repayment of external loans as well as the amount of capital expenditure financed from revenue and capital receipts. It also contains the difference between amounts provided for depreciation and that required to be charged to revenue to repay the pnncipal element of external loans. As with the Fixed Asset Restatement Reserve it does not represent resources available to the authority.

3. Earmarked Reserves

Eaiam d Balance at 1 April Contributions interest Expenditure 31 March

1999 2000 f'ooo f'000 f'000 €000 f'OQ0

Education Reserves 324 56 16 (43) 353 Repairs and Renewals - Vehicles 447 81 24 552 Repairs and Renewals - General 1,145 60 1,205 Insurance Fund 1,130 59 1,178 DLO Capital Fund 76 5 81 Other Reserves {5) 5 Total Earmarked Reserves 3.1 47 147 159 (54) 3,369

4. Revenue Rerewes

Revenue reserves are made up of the annual movements in the Consolidated Revenue Account, Housing Revenue Account and the DSOlDLO Appropriatiori Account The Housing Revenue Account reserves carried forward are ring-fenced and as such can only be used for the benefit of Council House Tenants. Revenue reserves can be used to meet both capital and revenue expenditure.

Page 23

t 3 1 Argyll l9W-2OOO ANNUAL ACCOUNTS

COUNCIL @Bute CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 March 2000

~

1998199 Actual

f W 0 82,051 74,313 6,667 4,960

167,991

6,959 26,568 25,093

235 76,336 16,504 2,528

17,485 4,253

175,961

7,970

17,270 17,270

106 106

(17.164)

4,084 7,730

11,814

2,709 1,396

368 4473

(7,341)

121,753 121,753

140,527 140,527

18,774

REVENUE ACTMTIES &sb#lnbm Cash Paid for and on Behalf of Employees Other Operating Cash Payments Hodsing Benefit Paid Out National Non-domestic Rate Payments to National Pool Total Cash Outaows

&shh4hbs Rents (after rebates) Council Tax Income Non-domestic Rate Receipts Community Charge Revenue Support Grant DSS Grants for Penefits Other Government Grants Cash Received for Goods and Services Other Operating Cash Receipts Total Cash Inflows

Met Cash Inflow I (Outflow) From Revenue Activities

SERVICING OF FINANCE M o U M l K 3

Interest paid Total Cash UutFlows

&Sham Interest received Total Cash Inflows

Net Cash Inflow / (Outflow) From Sewicing of Finance

CAPITAL ACTMTIES &&&m Purchase of Fixed Assets Other Capital Cash Payments Total Cash Oufflows

cash* Sale of Fixed Assets Capital Grants Received Other Capital Cash Receipts Total Cash Inflows

Cash Inflow (Outflow) From Capital

Net Cash Inflow / (Outflow) Before Financing

FlNANClHG mw&?Ms Repayments of Amounts Borrowed Total Cash Outflows

c&inhbm New Loans Raised Total Cash Inflows

Het Cash Inflow / (Outflow) From Financing

Decrease I (Increase) in Cash and Cash Equivalents

199912000 Note Actual

PO00 83,742 74,076 4,757 1,804

1

164,379

6,672 26,094 25,424

314 76,818 16,734 5.107

19,630 5.058

181,851

16,760 16,760

41 41

(1 6,719)

3,814 8 800

12,614

2,954 1,025

878 4857

183,783 183,783

190,533 190,533

6,750

2,239 3 (254)

Page 24

I 3 2 Argyll 19992800 ANNUAL ACCOUNTS

COUNCIL NOTES TO THE CONSOblDATED CASH FLOW STATEMENT

I. Other Government Grants

199819% rooo 111 239

1,221 232 646 79

Housing Support Grant Rural Transport Grant Pre School Education Grants Gaelic Education Grants Other Educational Grants (e.g. Excellence Fund) Other Grants (e.g. Civil Defence)

1999l2000 e000

21 1 239

2,094 258

2,160 145

2,528 Total "Other Government Grants' 5,107

2. Net Cash Flow Reconciliation

1998199 rOO0

1,044 760

Surplus/(Deficit) f x Year Add back: Transfer to HRA Balance

1,804 956

20,653 -525

-4,371 - 10,547

7,970

3. Analysis of Net Debt

Cash at Bank and in Hand Bank Overdraft

lncmase in Cash and Cash Equivalents

Debt due after one year

Debt due within one year

Total Debt

Movements in Reserves Adjustments Not Involving Movement in Funds (1ncrease)IDecrease in Stocks (1ncrease)iDecrease in Debtors Increase/(Decrease in Creditors)

Revenue Activities Net Cash Flow

Total

4. Reconciliation of Movement in Cesh to Net Debt

1998199

2,239 (18,774)

(16,535)

moa I Increase I (Decrease) in Cash in Pertcd Increase I (Decrease) in Debl Financing Movement in Debt in hid

(193,536) 1240.071)

Net Debt as at 1 April 1999 Net Debt as at 4 April 2000

(f,1701 257

22,926 492

(774) (4,259)

17,472

hat Asat 31 March f April Cash

ZOO0 1999 Flow COO0 row row 795 1,310 (515)

(2,315) (2,576) 26 1

(30,559) (21,195) (9,364)

f184.996) (1 87,610) 2.614

(217,075) (210,071) (7r0w

1999/2000 p000

1254) (6,750) (7,0w

(210,071) I21 7,0751 . . .

Page 25

I 1999-2000 ANNUAL ACCOUNTS 3 3

@Bute AUDIT' CERTfFICATE COUNCIL

AUDIT CERTIFICATE TO THE MEMBERS OF ARGYLL AND BUTE COUNCIL AND THE ACCOUNTS COMMISSION FOR SCOTLAND

As auditor, appointed under statute by the Accounts Commission for Scotland, we have audited the accounts of Argyll and Bute Council for the year ended 31 March 2000, an abstract of which is set out on pages 4 to 25.

Respective responsibilities of management and auditors in relation to the accounts

As stated on page 4 , the management of Argyll and Bute Council is responsible for the preparation of the accounts. It is our responsibility to form an independent opinion, based on our audit, on the abstract of accounts and report that opinion to you.

Basis of opinion

We have conducted our audit in accordance with the requirements of part VI1 of the Local Government (Scotland) Act 1973 ctnd'the Code of Audit Practice approved by the Cornmission. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the accounts. It also includes an assessment of the significant estimates and judgements made by management in the preparation of the accounts and of whether the accounting policies are appropriate to Argyll and Bute Council's circumstances, consistently applied and adequately disdosed.

We planned and performed our audit of the accounts so as to obtain all the information and exptanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance thaf the accounts are free from material mis-statement, whether caused by fraud, other irregularity or error. In forming our opinion we also evaluated the overalt adequacy of the presentation of information in the accounts.

Opinion

In our opinion, the abstract of accounts presents fairly, in accordance with the accounting policies set out on pages 5 to 6, the financial position of Argyll and Bute Council as at 31 March 2000 and its income and expenditure for the year then ended.

Failure to comply wtth statutory mquIrements

It has not been necessary to qualify our opinion in respect of the following matter:-

We draw attention to the resuits of the Leisure Management Direct Service Organisation which are detailed on page 13. Directions given under the Local Government Planning and Land Act 1980 and the Local Government Act 1988 require Direct Labour and Direct Service Organisations to achieve at least a break-even position on their Income and Expenditure Account. The above organisation failed to meet this financiat objective.

Pricewaterhousebopers Chartered Accountants and Registered Auditors Glasgow

September 26,2000

Page 26

I 3 5

ARGYLL & BUTE COUNCIL

FINAL REPORT TO MEMBERS 1999/2000

1 3 7 y1

The Members Argyll & Bute Council Kilmory U -

Lochgilphead’

PA31 8RT . . Argyll

PricewaterhouseCoopers Kintyre llouse

Glargow C;2 Z t W Telephone +44 (0) 141 248 2644 Facsimile +44 (0) 141 242 7318

209 West George Street f

i The Controller of Audit Accounts Commission for Scotland 18 George Street EDINBURGH EH2 2QU

26 September 2000 ‘ I

Ladies and Gentlemen

Final Report to Members 1999/2000

We have completed our audit of Argyll & Bute Council (the “Council”) accounts for the year ended 3 1 March 2000.

The Final Report is primarily designed to direct your attention to matters of significance that have arisen out of the 1999/2000 audit process and to confirm what action has been agreed with management to address the areas of concern which have been identified.

Our statutory duties as your external auditor are contained within the Local Government (Scotland) Act 1973 as amended by the NHS and Community Care Act 1990. These duties and the responsibilities which are derived from them are contained in greater detail within the Code of Audit Practice which has been approved and issued by the Accounts Commission for Scotland. Section 2 and Appendix 2 of the report outline our key responsibilities and the responsibilities of management in this regard. e The matters dealt with in this Final Report came to our notice during the conduct of our normal audit procedures, which we carried out in accordance with the framework and principles embodied within the Code. It is emphasised that the Final Report should not be interpreted as providing legal or other advice to the Council or any other party.

We would like to take this opportunity to offer our thanks to those members of management and staff who have assisted us during the course of the audit.

Yours faithfully

PricewaterhouseCoopers /

PrisewatsrhowsscCoopm is the successor partnership to the UK firms of Vricc Walerhouse and Coopers & Lybrand. The principal place of busincss of PricewaterhousrCuupurs and its ils:ociatc partnerships. and of Coopers & L y h r d , is I Etnbankment Place, London WCZN 6NV The principal placc ofbusiness of Price Watcrhousc i s Southwark Towcn. 32 London Bridge St;eet. Imtdon SE1 9SY. Lists of the panned names are available iur inspcclion at those places.

All partners in thc associate parmerships are authorised to susduct business as agents of. and a11 m h d c t s fur Srrvices to clients arc with, PriccwaterhouseCuupm Pricewatcrhou~Cnnpers is auihorised by the lirstitutc of Chartered Accountanu in Erglnnd and Wales tn c w on investment business ’. 1

4

ARGYLL & BUTE COUNCIL 3 9 Final Report to Members 1999/2000

CONTENTS

Section

Executive Summary

I Public Sector Audit

I1 Audit Opinion

I11 Financial Statements

IV Financial Systems and Internal Control Environment

V Best Value

VI Value for Money

VI1 Performance Indicators

VI11 Legal Matters

Appendix 1 - Action Plan Appendix 2 - Responsibilities of Management and the Auditor Appendix 3 - Other reports submitted during the 1999/2000 process Appendix 4 - Audit Certificate placed on the Council’s Annual Accounts

Pape

1 - 5

6

7 - 8

9 - 1 6

17 - 25

26 - 31

32 - 36

37 - 38

39 - 42

1 si

d

September 2000 DW44$QWX&@”ERS @ i

1


EXECUTIVE SUMMARY

The Final Report is designed to direct your attention to matters of significance that have arisen out of the 1999/2000 audit process and to confirm action agrced with management tu address any areas of concern which have been identified. It is important that members consider the detailed comments within the Report and do not rely solely on the Management Summary.

Audit Opinions

Our certificate on the Council’s financial statements for the year ended 31 March 2000 is unqualified

We make reference in the audit opinion tu the individual results of the Leisure Management Direct Service Organisation which has not achieved the financial objective of break even.

Financial Statements

As a result of a decision to use a proportion af its reserves accumulated from previous years, the Council budgeted for a deficit of E0.309 million. Following approval of supplementary estimates, the Council approved 51.4 million of additional expenditure. As a result, an accumulated surplus of E0.332 million is being carried forward to 2000/2001.

The financial statements and supporting schedules were presented to us for audit within the agreed timetable and were appropriate in terms of clarity and completeness. Wc haw continued to note an improvement in the working papers provided to us during the course of the audit. This has enabled us to complete the audit and sign off the accounts significantly earlier than in previous years.

The Council identified two asset impairments, in accordance with FRS 11 “Impairment of Fixed Assets and Goodwill”. These related to:

-

- Council housing stock in the Ballochgoy area, and An impairment of the Council’s waste disposal sites.

7

8

9

10

11

September 2000

1 41 ARGYLL & BUTE COUNCIL


EXECUTIVE SUMMARY (CONTINUED)

Financial Statements (Continued)

The Council appointed Enviros Aspinwall to perform a specialist valuation of the waste management landfill sites as part of the Public Private Partnership (PPP) proposal. They identified that significant costs will be required to be incurred in hture to bring the land up to current environmental standards. Current estimates of these environmental costs are significant, but it is presently envisaged that such costs will require to be incurred by the PPP contractor who will assume responsibility for these sites. In the event that the PPP transaction does not proceed, the Council will need to consider establishing a provision for these liabilities.

The Council commenced a rolling programme of fixed asset revaluations during the 1999/2000 financial year. This has been performed by the Council’s own Estates department and the District Valuer, both in accordance with the Statement of Asset Valuation Practice and Guidance Notes of the Royal Institute of Chartered Surveyors.

Further details of our findings arising from work on the financial statements are included within Section 111.

Financial Systems and Internal Control Environment

0 During 199912000, we have issued two Interim Management Letters, that contained a number of control matters for attention.

In addition to these letters, we have specifically reviewed the Council’s arrangements in respect of internal audit, budget setting and control and reconciliation arrangements during the year. We have recommended that continuing priority should be given by management to upgrading the quality of bank reconciliations. Further details arising from our work on these systems are detailed in Section IV.

11

13

17

j

September 2 000 2

, ARGYLL & BUTE COUNCIL 42 Final Report to Members 1999/2000


Best Value

0 Our Best Value programme comprised reviewing the Performance Management and Planning framework of the following services :

-

- -

Finance Department - Non-domestic rates. Transportation and Property Services Department- Estates Managemenl Housing and Social Work Department -Sheltered Housing.

Findings relating to these reviews are included in Section V.

Value for Money

0 The following value for money studies were undertaken during the year :

- Management Information for DLO/DSO; - Community Safety (set up); - Commissioning Pre-School Education.

0 In addition, the following studies are ongoing from 1998/99 :

- Rent Arrears Management; - Administration in Schools; - Refuse Collection

Findings relating to these reviews arc included in Section VI.

PAGE

26

31

September 2000 3

ARGYLL & BUTE COUNCIL I 63 Final Report to Members 1999/2000


UTIVE SUMM PAGE

Performance Indicators

Legal Matters

We have considered and reported upon the general standard of the Council’s arrangements for collecting and reporting statutory performance indicators. A number of indicators in the following areas did not meet the specified requirements:

Benefits administration - Gross administration costs; Benefits administration - Applicants processed within required time; Environmental Health - Food safety hygiene inspections; Environmental Health - Workplace inspections; Libraries - Book requests time taken; Libraries - Stock turnover; Libraries - Use of libraries; Roads and Lighting - Traffic light repairs response; Social Work - Community Care; Social Work - Respite Care.

Our overall findings are included in Section VIZ.

Through discussions with management, reviewing Council minutes and noting the role of the Monitoring Officer, we have endeavoured to keep under review the legality of transactions or events that have a significant financial consequence.

,

37

39

The Department of Development and Environmental Services are at an advanced stage of negotiating the Council’s Public Private Partnership for waste management within Argyll and Bute. We understand that the Council are at the best and final offer stage of negotiations and we anticipate receiving details of the Council’s preferred option within the next month and we will review whether the project should be capitalised on the Council’s balance sheet.

In addition, we reviewed the Council’s tendering arrangements. While an audit trail existed for the award of individual contracts and detailed records were maintained within each department, we noted that the Council did not maintain a central tender register which we believe would be best practice.

Findings relating to our review of legal matters are included in Section VII.

September 2000 4

4 4 ARGYLL & BUTE COUNCII..



Matters raised in this Final Report have been discussed previously with executive management. Our Interim Management Letter, Systems Audit Management Letter and this Final Report to Members are supported with management action plans and we recommend that these should be monitored formally by Management and by Members through the new Audit Committee process to ensure that agreed action will be implemented within the agreed timescales.

September 2000

I 4 5 ARGYLL & BUTE COUNCIL


.

- SECTION I - PUBLIC SECTOR AUDIT

The Nature of Public Sector Audit

1.01 It is generally acknowledged that Public Sector Audit involves a wider public interest dimension to the audit of public funds. There is therefore a reasonable public expectation that the Council expends its funds only for duly authorised purposes, there is a high standard of probity and resources are applied to best effect. 1

1.02 The Accounts Commission Code of Audit Practice requires a public sector auditor to consider:

e

e

e

yhether the financial statements presents fairly the Council’s financial

whethcr the proper accounting practices have been observed in preparing accounts. the adequacy of the Council’s internal financial controls; and

position. /

certain arrangements the Council has in place for :

e

e

the prevention and detection of fraud and corruption; securing economy, efficiency and effectiveness in its use of resources; the collection, recording and publishing of prescribed performance dala; and ensuring the legality of significant transactions or events with a financial consequence.

1.03 We have considered the matters set out above in the context of our audit work in the Council for the 1999/2000 accounts and the matters arising are set out in the sections of the report which follow. In addition, we have noted in Appendix 2, in greater.detai1, the respective duties of management and external audit in relation to the‘ areas of audit focus above.

September 2000 6

ARGYLL & BUTE COUNCIL I 46


SECTION 11- AUDIT OPINION

Accounting Code of Practice

2.01 Under the terms of our appointment as auditors to the Council we are required to issue two specific audit opinions.

Audit Certificate on the Annual Accounts

2.02 The Local Government (Scotland) Act 1973 requires that, following the completion of an audit, the auditors shall place on the abstract of accounts a certificate which sets out the basis on which they have formed their audit opinion.

2.03 This is our opinion on the accounts which states :

e

that the audit has been conducted in accordance with the requirements of the Local Government (Scotland) Act 1973 and the Code of Audit Practice; the respective responsibility of management and auditors in relation to the accounts; whether, in our opinion, the accounts present fairly the financial position of the Council as at 31 March.

2.04

2.05 For 1998199, our audit certificate was qualified on two matters :

(a) we were unable to obtain sufficient assurance regarding the material accuracy of the opening balances inherited from Strathclyde Regional Council on 1 April 1996. Following the exercise to revalue fixed assets (paragraphs 3.27 to 3.34) and other assurances obtained regarding the accounting records, we consider that the financial position of the Council at 3 1 March 2000 is unlikely to be materially impacted by outstanding issues regarding the transfer of opening balances from Strathclyde Regional Council. I t has, therefore, not been necessary to qualify our opinion this year in respect of this matter.

(b) a bank reconciliation difference of &204,000 remained uncleared at 31 March 1999 and we were, therefore, unable to conclude that the expenditure bank account balance was fairly stated. As mentioned in paragraph 4.1 1, the uncleared dillerence was reduced to &160,000 at 31 March 2000 and has now been adjusted to correct the year cnd expenditure bank balance in the accounts.

I


SECTION II - AUDIT OPINION (CONTINUED)

Audit Certificate on the Annual Accounts of the DLOs/DSOs

2.06

2.07

2.08

2.09

We are required to provide an opinion on the statements contained within the Annual Report for the Council’s Direct Labour and Direct Service Organisations. Scottish Office Circular (8196) issued in March 1996 amended the required financial objective from a 6% rate of return on capital employed to the achievement of a break even position.

It has been necessary to make reference within our audit opinion on the Leisure Management DSO in respect of its failure to achieve the required break even position. The Council complies with the LASAAC guidance statement number 2, which indicates that it is best practice to allocate interest on revenue balances to DLOIDSOs. However, in terms of ascertaining compliance with the statutory financial objective, any such income or expense should be excluded. The original DLO/DSO accounts prepared for audit all showed a surplus, but had not been adjusted to exclude the interest on revenue balances as required for consideration for meeting the statutory financial objective of breaking even. Once these adjustment were identified and processed, the exclusion of interest income from the Leisure Management service accounts resulted in that service failing to meet the break even requirement.

We recommend that, in future, all DLO/DSO statements should include a financial objective statement, showing the adjustment for interest on revenue balances and the impact on the overall financial result.

The following DLOs/DSOs have reported surpluses and, as a result, we will issue unqualified audit opinions in respect of them :

!

Roads Local Roads Trunk Vehicle Maintenance Property Maintenance Grounds Maintenance Street Cleansing Refbse Collection Catering Cleaning

8 September 2000 @CW-CmPES

ARGYLL & BUTE COUNCIL I

Final Report to Members 1999/2000 48

SECTION 111 - FINANCIAL STATEMENTS

Basis of Preparation of Annual Accoants/Financial Statements

3.01

3.02

3.03

3.04

The Council’s fiiiancial statements need to comply with the Code of Practice on Local Authority Accounting in Great Britain, a Statement of Recommended Practice (“the SOW”). This is in accordance with the Scottish Office circular 5/1985 which indicates that local authorities should follow recommendations made by LASAAC regarding the form of accounts and accounting practice.

Audit Adiustments to the Financial Statements

To meet the above requirement, audit adjustments to the format of and figures within the financial statements were made in respect of the following items :

0

0

0

Adjustment to bank balance per the Council’s year end reconcilation (paragraph 4.13); Expansion ofrevised disclosures in respect of the Council’s revaluation of fixed assets; Adjustment to the consolidated revenue account to include the provisions for ex- Strathclyde Rcgional Council (“SRC”) legal claims within the ‘Net Cost of Services’.

Financial Performance 1999/2000

The Council originally budgeted for a deficit of L0.309 million on net expenditure to be met from brought forward surpluses. Following the approval of supplementary estimates, the Council approved E1.4 million of additional expenditure.

The Council exceeded the revised budgeted net expenditure by E0.7 million. This, together with the transfer to the Housing Revenue Account (E0.6 million), was offset by unbudgeted savings in loan charges (E0.7 million), additional contributions from DLOdDSOs (E0.3 million) and additional local taxation income (E0.23 million).

September 2000 Y


Final Report to Members 1999/2000 1 4 9

SECTION 111 - FINANCIAL STATEMENTS (CONTINUED)

Financial Performance 1999/2000 (Continued)

3 .OS

3.06

3.07

3.08

3.09

3.10

3.1 1

3.12

While the Policy and Resources Committee authorised individual services to incur additional expenditure of &1,4 million through the financial year, certain excess costs were not originally identified in advance for authorisation. Management should continue to refine the Council’s achievement of its budgetary targets for the 2000/2001 financial year.

While the Policy and Resources Committee approved additional spending as noted above in the 199912000 financial year to be offset against the brought forward surplus, the. small accumulated surplus carried forward will not provide the Council with such flexibility for 2000/2001. We note that the Council is forecasting a balanced budget for the 2000/2001 financial year. The importance of detailed and accurate budget setting procedures combined with timely and reliable budget monitoring will therefore become more important through the 2000/2001 financial year if the Council is to avoid an accumulated deficit at the end of the year.

Submission of Accounts

The Council was required 10 submit a copy of the Abstract of the Accounts to the Controller of Audit by 30 June 2000 and we were pleased to note that this target was achieved.

Audit Process

The financial statements and supporting schedules were presented to us for audit within the agreed timetable. While a small number of areas within the statements did not originally comply fully with the requirements of the SOW, these were discussed with the Director of Finance and the majority amended.

A number of other audit adjustments to the format of and figures within the financial statements have also been agreed and amended as mentioned in paragraph 3.02 above.

The target date set by the Accounts Commission for the completion of the audit was 30 September 2000 which was achieved.

As in previous years, we have continued to note an improvement in the working papers provided to us by the Council during the course of the audit. This has helped us complete the audit and sign off the accounts significantly earlier than in previous years.

We are grateful for the time and assistance made available by the Director of Finance and his staff during the audit process and acknowledge the significant efforts which have been made to bring financial reporting up to date in the Council.

September 2000 10 /%CWAW~OU@DPERS E!

I 5 Q ARGYLL & BUTE COUNCIL

Final Report to Members 1999/2000 ~~

SECTION 111- FINANCIAL STATEMENTS (CONTINUED)

m l i c a t i o n of FRS 11 - Impairment of Fixed Assets and Goodwill

3.13

3.14

3.15

3.16

3.17

3.18

Financial Reporting Standard “FKS 11 - Impairment of Fixed Assets and Goodwill” applies to Local Authorities for the I999/2000 accounts. This standard is intended to ensure that fixed assets are recorded in the balance sheet at no more than their recoverable amount which is the higher of their expected sales proceeds or present value of the future cash flows derived from the asset.

Recommended practice has been revised to take account of FRS 11 impairment of fixed assels and goodwill, and the Authority will have to account for any impairments of fixed assets.

Where an impairment loss is brought about from a fall in the economic benefit of an asset, ie, it is similar to depreciation, it will be recognised in the asset management revenue account and the service revenue account. Other impairments (reflecting a general fall in prices) will be recognised in the fixed asset restatement reserve. If a reversal of an impairment loss is required, the accounting should mirror the original treatment applied.

Other trigger events for impainnent that may affect an Authority include bringing assets into use or declaring assets as surplus. As a consequence, an Authority will havc to carry out a detailed review of the composition of its revaluation reserve to allow the Authority to identify the effect of any impairment.

During our audit, we have confirmed the Council’s awareness of the requirements of FRSl 1 and its procedures for the identification of asset impairments. The Council has identified a number of impairments at 31 March 2000, largely as a result of the extensive revaluation exercise conducted during 1999/2000.

The largest of these related to the revaluation of the Council’s waste management sites during 1999/2000. The Council appointed Enviros Aspinwall to perform a specialist valuation of the sites as part of thc Public Private Partnership (“PPP”) proposal. Enviros Aspinwall valued the land relating to the waste management sites at &1.44m, identifying that costs will be required to be incurred in fbture to bring the land up to current environmental standards. The Council has recorded details of the land on its fixed asset register but has assigned a ‘nil’ value to the property due to the environmental costs identified. Current estimates of these environmental costs are significant, but it is presently envisagcd that such costs will require to be incurred by the PPP contractor who will assume responsibility for these sites. In the event that the PPP lransaction does not procccd, the Council will need to consider establishing a provision for these liabilities.



3.19

3.20

3.21

3.22

SECTION III - FINANCIAL STATEMENTS (CONTINUED)

Application of FRS 11 - Impairment of Fixed Assets and Goodwill (Continued’)

The Council also appointed the District Valuer in 1999/2000 to prepare a valuation of the housing rental stock. The District Valuer noted that 70 properties within the Ballochgoy area should be impaired. These properties are no longer active housing stock and have been declared derelict.

Our review of Council minutes during the financial year has not intimated that there should have been any additional impairments, but we understand that the Council will continue with the revaluation exercise through 2000/2001. Management should continue to identify any asset impairments and implement the necessary arrangements to achieve compliance with FRS11.

Application of FRS 12 - Provisions, continpent liabilities and continpent assets

A new Financial Reporting Standard “FRS 12 - Provisions, contingent liabilities and contingent assets” is applicable to the accounts of Local Authorities for 199912000. FRS 12 ensures that appropriate recognition criteria are applied to provisions and contingent assets and liabilities and that the disclosure enables users of the accounts to understand the nature, timing and amount of such items. A provision should only be recognised when there is :

0

0

0

a present obligation arising from a past event; where it is probable that a transfer of economic benefits will be required to settle the obligation; and when a reliable estimate can be made of the amount of the obligation. FRS 12 tightens the rules for the creation of provisions, contingent liabilities and contingent assets by applying more rigorous criteria.

The Council has made provision in 1999/2000 in respect of insurance claims and legal actions from operation of the former Strathclyde Regional Council. Glasgow City Council advised the Council during 1999/2000 of these liabilities. We have examined !he supporting details provided for audit which indicates that the provision meets the conditions required within FRS12. The vaiue of the provision is &0.4m and this has been reflected within the consolidated revenue account.

12 /%WATmW@REE September 2000


Final Report to Members 1999/2000 ~~~~~~~~~ ~


New Guidance for 2000/01 : FRS1S - Tanpible Fixed Assets

3.23

3.24

3.25

3.26

3.27

3.28

3.29

The SOW for accounts for 2000101 adopts FRS 15 Accounting for Fixed Assets. This will have a significant impact on the way that local authorities account for fixed assets. The adoption of the new standard will result in local authority accounts moving more into line with Generally Accepted Accounting Practice (GAAP.)

The present arrangements are governed in the main by the requirements of the Local Government and Housing 1989 Act. The main differencc betwcen GAAP and current local authority practicc is in the treatment of depreciation. The most immediate change will be that authorities will no longer be able to use the argument that assets are regularly repaiied and maintained as a means of avoiding charging depreciation on their fixed assets.

In future the only way of avoiding charging depreciation will be on the grounds of materiality. Depreciation will continue to apply even where assets have been revalued during the financial year. However, under the current method of capital accounting in local authorities, the charges for depreciation do not impact on the Council Tax and, whilst the introduction of FRS 15 will increase the total depreciation charge in a local authorities accounts, charges are reversed out so that they do not result in higher expenditure that has to be met by council taxpayers.

The Council should ensure that it has procedures in place [or implementing the requirements of FRS 15 during the 2000101 financial year.

Revaluation of Assets

The current system of local authority capital accounting was implemented from 1 April 1994. As part of this process all assets included on the balance sheet are required to be formally rcvalued at least every five years.

In recognition of this, thc Council has commenced a rolling programme of revaluations during the 1999/2000 financial year which will continue through financial years 2000/2001 and 200112002.

During 1999/2000 the Council revalued 82% by value of its fixed asset balance as at 1 April 1999. This consisted of two main exercises performed by the District Valuer and the Council’s own estates department, both in accordance with the Statement of Asset Valuation Practice and Guidance Notes of the Royal Institute of Chartered Surveyors.


Final Report to Members 1999/2000 I 5 3


Revaluation of Assets (Continuted)

The District Valuer was appointed to value the Council’s housing stock and the valuation was prepared on the basis of the ‘existing use value for social housing’. This has reduced the value of these properties by i22.7 million or 26% of the opening valuation. Correspondence received from the valuer indicates that the previous valuation basis assumed an average annual rent increase of the retail price index plus 1% per annum. This was not achieved as the Council elected to freeze rents for two years. This reduced future rental streams and so reduced the valuation. We understand that the condition of these properties has not declined with the exception of the Ballochgoy properties noted under paragraph 3.19.

/

3.30

3.3 1 The Council’s estates department won the tender to revalue the Council’s other properties. These include the Council’s non-operational properties. Of these, the Council opted to revalue those classified as ‘major’ properties, i.e those with a book value in excess of Elmillion during 1999/2000. This resulted in E92 million or 72% of the Council’s non operational properties and other land and buildings (1 83 properties) being subject to valuation during the year.

3.32 As a result, there remains approximately E39.5 million of the Council’s property and land (1 55 properties) which have not been revalued within the last five years. The Council has therefore not yet achieved full compliance with local authority capital accounting guidance. Management and Members should ensure that the rolling programme of fixed asset revaluations is compfeted as soon as practical and that, in future, all assets are revalued at least every five years.

3.33 While the proportion of the Council’s fixed assets that were not revalued is not inconsiderable, we are not of the opinion that the accounts are materially misstated as a result. We acknowledge the significant progress which has been made in revaluing the Council’s fixed assets and believe that the proportion of the total properties revalued and the valuation results give considerable additional assurance regarding the Council’s fixed asset balances at 3 1 March 2000. Accordingly, we have not qualified our opinion in this respect this year.

3.34 During our review of the valuations, we noted that the Ardentinny and Castle Toward Outdoor Centres were not included in the Council’s asset register or revalued. These assets were removed from the asset register in 1997198 as information available at that time suggested that the assets were not under the Council’s ownership. We now iinderstand from the Council’s Legal Department that sufficient evidence exists to claim that the Council has noted title to these assets. We recommend that the position of the Ardentinny and Castle Toward Outdoor Centres should be verified and the assets revalued for inclusion in the balance sheet at 31 March 2001.

1 5 4 ARGYLL dk BUTE COUNCIL


SECTION I11 - FINANCIAL STATEMENTS (CONTINUED)

Year 2000 Treatment

3.35

3.36

3.37

3.38

3.39

3.40

3.41

The Urgent Issues Task Force (UITF) published “Abstract 20 - Year 2000 issues: accounting and disclosures”. This addressed the accounting treatment and disclosures required in respect of the costs incurred in relation to the Year 2000 issue.

Costs incurred in rendering existing sofiware Year 2000 compliant should be written off to the income and expenditure account. The only permitted exception is where the entity concerned has a policy of capitalising existing soltware costs and only to the extent that the expenditure clearly represents an enhancemcnt of the asset’s value beyond its original value.

We have reviewed the Council’s treatment of the costs incurred and note that the treatment adopted by the Council may, in some cases, be inconsistent with the requirements of the Abstract, noting that the Council incurred E3 14,000 during 1999/2000 within its capital programme. Although E2 10,000 of this expenditure is in relation to the purchase of new hardware, the capitalisation of the remaining items is not wholly consistent with the treatment of UJTF 20.

The Council achieved a “satisfactory” rating in the Accounts Commission’s review of year 2000 preparedness. We are not aware of m y serious issues emerging as a conscquence of the Year 2000 changeover date which may require management actions.

Loans

During the financial year Glasgow City Council notified all of the ex-SRC unitary authorities that each of the authority’s disaggregated debt included loan balances in respect of the Strathclyde Passenger Transport Authority (SPTA) which should be reflected in the accounts of SPTA. Accordingly, an adjustment has been made to transfer this debt from the Council to SPTA.

While the Council’s abstract of accounts for 1999/2OOO reflects the transfer of this debt to SPTA, the cash transaction did not occur until April 2000. The transaction has no effect on the Council’s consolidated revenue account.

Trust Funds and Other Third Party Funds

The Council has included, for the first year, a statement of the Trust funds and other third party h n d s for which the Council acts as sole trustee. These funds do not represent assets of the Council and as such have not bccn consolidated within the consolidated balance sheet. The funds are noted in the financial statements in accordance with the requirement of the SOW.

ARGYLL & BUTE COUNCIL I

Final Report to Members 1999/2000 5 5

SECTION 111 - FINANCIAL STATEMENTS (CONTINUED)

DLOlDSO Statements - Central Administration Overhead

3.42

3.43

During the financial year, the Catering and Cleaning DSOs changed the basis of allocation of their central administration overhead. We noted the absence of supporting documentation for this change and it would appear that the cleaning DSO might not have met its financial target of break even without the adjustment.

Accordingly, no evidence exists to support the basis of this allocation and we recommend that the basis of the allocation of the central administration overhead to the Catering and Cleaning DSOs is reviewed and documentary evidence retained for future years.

16 @CNAT~OL!S@P€RS a September 2000



SECTION IV - FINANCIAL SYSTEMS AND INTERNAL CONTROL FRAMEWORK

4.01

4.02

4.03

4.04

4.05

Overview

We have discharged our audit responsibility in this area, principally by reviewing the monitoring, application and certain computer controls in the main financial systems, assessing the effectiveness of internal audit and completion of our work on the internal financial control statement.

Interim Management Letter, Systems Audit ManaPement Letter and Follow Up of Previous Final Report

As part of our normal audit process for 1999/2000, we have submitted previously an Interim Management Letter and a Systems Audit Management Letter. These letters identified recommendations for improvements in financial controls and accounting and processing systems which were operating within the Council. Only the more significant of these recommendations require to be brought to the attention of Members and these are detailed in the following paragraphs.

We also identified that management had not fully implemented all of the agreed recommendations made in our 1998/99 Final Report to Members. Of the 16 recommendations, 13 had been actioned for implementation at the year end, with the remaining 3 due to be addressed during 2000/2001.

Budget SettinP and BudPetary Control

In order to properly review and manage the operations of the Council, it is essential that a comprehensive budgetary control system is in place. This system should ensure that timely reporting of financial performance takes place at all levels and action is taken to investigate and act on variations from budget. Budget holders should receive timely and accurate information to allow this. As part of our audit, we ascertain and assess the operation of the Council’s budget setting and budgetary control arrangements.

We were pleased to note that the Council’s monthly budgetary control reports included a comparison between the actual expenditure to date and budgeted expenditure to date, as recommended within our 1998/99 Annual Report to Members. However, there were a number of areas that could further be developed and may improve current budget monitoring.

September 2000 17 /%WA%RHOL@PFE a

ARGYLL & BUTE COUNCIL 5 8


SECTION PV - FINANCIAL SYSTEMS AND INTERNAL CONTROL FRA1CZEWORK (CONTINUED)

Budpet Setting and Budgetary Control (Continued)

4.06

4.07

4.08

4.09

4.10

In particular, a number of services did not phase the income and expenditure budgets in accordance with the actual spending profiles. For example, the payroll budget for 1999/2000 was phased in equal 12 monthly charges when, due to the different pay arrangements existing within the Council, a one month financial period may reflect up to six weeks actual costs. The absence of suitable budget profiling results in a mis- match between budget and actual. As a result, the control exercised through budget monitoring is less effective and the Council is exposed to the risk of an overspend. Management should seek to improve budget phasing for a13 areas of income and expenditure.

The review highlighted that individual services monitor the cost inputs, for example employment, property, equipment, purchases, etc, at a departmental level. Services monitor total costs, rather than the specific components of these costs to identify common cost pressures and trends. The absence of such analysis reduces the ability of the service to take appropriate action to reduce unfavourable variances.

Management should implement budget reporting variance analysis at a service level for cost inputs.

During the 1949/2000 financial year, individual service departments had strict cost improvement targets to implement. We understand, through our year end review, that not all of these targets were met, in particular, Transport and Property Services department. Except for the routine budget monitoring process, there is currently no formal reporting mechanism to monitor individual departments’ progress in achieving savings targets. This reduces the likelihood of these targets being met. Members and management should consider requesting a regular monitoring report from each of the service departments reporting their progress in implementing material savings initiatives. Members should then consider authorising any rescheduling of the original targets.

Bank Reconciliations

In 1998199 the Council’s Abstract of Accounts was qualified in respect of the unreconciled difference of E204,OOO on the expenditure bank account. During the I998/99 financial year, bank reconciliations were not performed monthly as a matter of course and internal audit staff were seconded to prepare year cnd reconciliations. The unreconciled balance lead us to be unable to conclude whethcr the expenditure bank account was fairly stated.

I



I

5 9

SECTION IV - FINANCIAL SYSTEMS AND INTERNAL CONTROL FRAMEWORK (CONTINUED)

Bank Reconciliations (Continued)

4.1 1 During 199912000, the Finance Department made considerable efforts to improve monthly bank reconciliation processes. We are advised the detailed comparison of bank statements with accounting records was undertaken monthly. The unreconciled difference of E204,OOO at 31 March 1999 was reduced to E160,OOO during the year and remained unadjusted until the year end. In addition, the monthly reconciliations contained further unreconciled items which arose during the year, but were not promptly cleared. At 3 1 March 2000, the unreconciled differences on the bank account comprise :

(a) (b) (c)

the &160,000 unreconciled difference brought forward from 1998199; unreconciled differences of 535,000 on the income account; and further unreconciled differences totalling E42,OOO (gross) which arose in 1999/2000 and remain uncleared.

4.12 An audit adjustment has now been processed to write back the E160,OOO dilference in (a) above, which increases bank balances and is a credit to the income and expenditure account. The remaining differences remain to be investigated and have not yet been adjusted.

4.13 On audit examination of the income bank account, we noted that reconciling items totalling E128,OOO had not been posted as required to the general ledger prior to the year end. An audit adjustment in respect of these items was made in the final accounts.

4.14 While acknowledging the efforts made during the year in this area, we are concerned that the differences referred to above remained unresolved until the year end audit and, in some cases, still require further investigation. High priority should be given to achieving an appropriate quality of balanced reconciliations monthly and clearing reconciling items promptly. All reconciliations should be rigorously reviewed to ensure compliance with these principles and signed and dated to evidence the review.


I Final Report to Members 1999/2000 6 0


Other Reconciliations

4.15

4.16

4.17

4.18

In addition to bank reconciliations, we reviewed a number of other finarxial reconciliations to confirm whether management have appropriate arrangements in place to monitor the transfer of information between individual subsidiary systems and the financial ledger.

We were pleased to note that, in response to previous requcsts, a reconciliation of gross payroll expenditure had becn prcpared between ainounts shown in the payroll system and the financial ledger. However, the foilowing reconciliations with thc financial ledger had not initially been provided for audit :

Housing Rental Income ( H M account);

Transport Costing System. 0 Roads Costing System;

The absence of these reconciliations is of concern as wc understand that management make usc of information from these subsidiary systems, In addition, differences between the systems and the genci-al lcdgcr may represent errors which should be identified and addressed. Management should consider preparing a formal reconciliation of these systems on a monthly basis and investigate and correct any differences identified.

Financial Svstems

We have evaluated significant systems and associated intei-nal controls operating within thc Council to help form our opinion on the statement of accounts and have provided management with our cornnients on these systems and controls in our Systems Audit Management Letter. In practice wc cannot examine every financial activity and accounting procedure, and we cannot substitute for management’s responsibility to maintain adequate systems of internal control. It therefore needs to be recognised that we may not have identified all control weaknesses that may exist.



SECTION 1%' - FINANCIAL SYSTEMS AND INTERNAL CONTROL FRAMEWORK (CONTINUED)

Financial Systems (Continued)

4.19 The main findings from our review were as follows :

0 A number of key control weaknesses have been identified from our review of the new payroll system, principally Concerning access security, the calculation of PAYE, NI and Superannuation calculation and a system issue surrounding the reconciliation between the payroll system and general ledger; No significant control weakncsses were identified from our accounts payable review, although a number of routine controls that we would expect to be performed are currently not in operation. These include the absence of evidence that key reconciliations were subject to regular review and issues surrounding access to the Supervisor profile and the regular review of access levels; Only one new significant control weakness was identified from our council tax and housing benefit review principally concerning the absence of evidence that the Incomplete Claims Report was subject to review on a regular basis. In addition, a number of key control weaknesses highlighted previously still remain of concern; A number of significant control weaknesses have been identified from our roads and transport review. In particular, there is no reconciliation between the corporate payroll and costing systems, access controls over the Manifest system are not in place and there is no evidence that the weekly dayworks bill is reviewed by the responsible personnel.

0

0

Arrawements desimed to prevent Fraud and Corruption

4.20 To ensure proper stewardship of funds, it is essential that the Council has adequate arrangements in place to minimise the risk af fraud and corruption. These arrangements should include corporate policies in respect of the prevention of fraud and corruption on a Council wide basis as well as detailed controls at an operational level.

0

4.21 On a cyclical basis we seek assurance that certain policies and procedures exist within the Council relating to the prevention of fraud and corruption. We also rely on the detailed work performed by internal audit on the control environment. Specifically, during 1999/2000, we reviewed the work of internal audit and followed up recommendations made in previous year's management letters.

4.22 It is not our policy to repeat the findings of internal audit, but rather to raise with management additional matters that have come to our attention during the conduct of the audit.

21 / ? v m ~ m o ~ c P F m E4 September 2000

6 2 ARGYLL & BUTE COZJNCIL



Arranpements desimed to wevent Fraud and Corruption (Continued)

4.23

4.24

4.25

4.26

4.27

4.28

We must emphasise, however, that the responsibility for the prevention and detection of fraud or corruption lies with management and our work does not remove the possibility that fraud or corruption may have occurred and remained undetected.

In our 1998/99 Annual Report to Members, we recommended that a Fraud and Corruption Policy should be developed and adopted. In their response, the Council undertook to develop a policy through the Standards Committee, established as part of the Ethical Framework. We will Mlow up on this issue as part of our 2000/01 audit and report on whether a policy has been adopted.

As part of our audit, we have submitted to the Accounts Commission fraud and corruption returns detailing instances of fraud during the year as notified to us by the Council. There were no matters reported on this return which we require to bring to the attention of Members.

Audit Committees

“Local Government Reorganisation and the Stewardship of Public Funds” pub1 ished by the Accounts Commission encouraged councils to establish a mechanism incorporating the principles of Audit Committees. In a document published around the same time (“Corporate Governance A Framework for Public Service Bodies”), CIPFA also recommended that public service bodies should establish Audit Committees. A report of the Commission on Local Government and The Scottish Parliament has also commented on the advantages of an Audit Committee as a means of providing independent reassurance to the Council and its electorate that the Council’s resources are used properly and cost effectively. Councils which have not yet established audit committee principles have been urged to take cognisance of the substantial body of independent opinion in ravour of this concept.

The Director of Finance has been in contact with us during the financial year to discuss the establishment of such a committee and we are pleased to note that the Policy & Resources Committee of the Council recommended the establishment of an Audit Committee at its meeting on 8 June 2000 and this was endorsed by the full CounciI on 29 June 2000.

Members should now move to introduce Audit Committee principles and develop a suitable framework to monitor the work of internal and external audit, and raise standards of Corporate Governance within the Councit.

ARGYLL & BUTE COUNCIL 6 3



Internal Audit

4.29 As part of our normal audit approach, we have reviewed the work performed by the Council’s Internal Audit function which is provided by the Council’s in-house team. We considered this function from the main perspectives of audit planning, approach, execution and reporting.

4.30 From our review of Internal Audit, we are pleased to note that, unlike previous years, the service did not perform day to day financial duties and was fully engaged in internal audit activities.

4.3 1 Internal Audit prepared an operationa1 plan for the financial year based upon the strategic plan originally developed in 1996/97. While this is certainly a positive step forward, we noted that their operational plan only covered two main financial systems reviews. The absence of regular Internal Audit testing of financial controls limits management’s ability to assess the effectiveness of expected controls. We note that the 200012001 operational plan intends to cover five core systems, Management should monitor the progress of Internal Audit in achieving its coverage of core financial systems.

0

4.32 In addition we noted limited amounts of staff training conducted in the 199912000 financial year. The absence of formal training, combined with limited Internal Audit activity in the past few years, reduces the effectiveness of the Internal Audit staff. We have been informed that the department has undertaken a programme of visits to other councils’ internal audit departments during 2000/2001 to learn from audit practice elsewhere and we recommend that all Internal Audit staff attend appropriate technical or update courses and that the CounciI support unqualified staff in obtaining appropriate qualifications and training.

Our review of Internal Audit work indicated that the department does not have an audit manual and the review of Internal Audit work indicated that there did not always appear to be a clear audit trail to support whether audit files were subject to an appropriate level of supervisory review. The absence of operational guidelines for Internal Audit staff and limited evidenced review of Internal Audit work may result in issues being overlooked and not being prioritised for reporting to management. We recommend that an Internal Audit manual, incorporating current best practice, be adopted as a matter of urgency and we are advised that this will be addressed during 2000/2001.

4.33 a

23 September 2000 /%WA?$!HWsCWERS a




Section 19 of the Social Security Administration (Fraud) Act 1997

4.34

4.35

4.36

4.37

4.38

4.39

4.40

Section 19 of the Social Security Administration (Fraud) Act 1997, which requires claimants to supply National Insurance Numbers (NINOs) and evidence that these numbers were properly allocated to them was applied to Housing Beneft/Council Tax Benefit on 6 September 1999.

However, in order to ease authorities’ application of Scction 19, the DSS made provision for authorities to phase in the application of Section 19 for renewal cases only over a two year period. All new cases slill had to comply with the requirements of Section 19 from 6 September 1949.

The responsibility for ensuring that the correct Section 19 procedures are in place rests with local authority Housing Benefit/Council Tax Benefit management. Any benefit paid on claims made on or after 6 September 1999, where the necessary NINO information has not been collected, is an unlawful payment and therefore not eligible for subsidy.

We have been advised that the Council is complying with Section 19 of the Social Security Administration (Fraud) Act I997 and will review this area through our detailed testing of the1999/2000 Housing Benefit and Council Tax Benefit grant claim,

Verification Framework

The Verification Framework was introduced in 1998 and since then the DSS has, in consultation with local authorities, modified the Verification Framework to simplify its implementation whilst ensuring that its inlegrity is maintained.

The latest version of the Verification Framcwork has been produced in the form of a three part manual which has been issued to all local authority benefits managers, with future updates being issued by way of amendments to this manual, rather than by circulars.

The Verification Framework was introduced as a fraud preventative measure. It sets out the information which must be verified before benefit is paid, indicates what is acceptable as evidence in support of that information, identifies the checks that n u t be madc by a local authority during the life of a claim and specifies maximum benefit periods for claims in different risk groups. The Framework is generally regarded as representing good practice for benefits administration. Its adoption is not compulsory, but local authorities which implement it receive additional funds fi-om the DSS.


Final Report to Members 1999/2000 I


Verification Framework (Continued)

4.41 We have confirmed that the Council adopted the Verification Framework on 1 July 1999. The Council’s compliance with the requirements of the Verification Framework will be reviewed during the audit of the 1999/2000 Housing Benefit and Council Tax Benefit grant claim.

4.42 As part of the adoption of the Verification Framework, the Council should incorporate anti-fraud measures outlined in Appendix 7 to the DSS HBiCTB Circular A2/2000.

4.43 Management should ensure that the Council’s Fraud and Corruption Policy, once drafted, incorporates the provisions of Appendix 7 of HB/CTB Circular A2 1/2000.

0

25 mwmw~mPm I September 2000

ARGYLL & BUTE COWNCIL

I Final Report to Members 1999/2000 6 8

SECTION V - BEST VALUE

Introduction

5.01

5.02

5.03

5.04

5.05

5.06

5.07

Best Value was introduced in Scotland in 1997, with a Best Value Task Force was established to develop the framework arid timetable for implementing Best Value in Scottish councils. The Best Value Task Force included representatives of The Scottish Office, the Convention of Scottish Local Authorities (“CoSLA”) and the Accounts Commission.

Best Value Task Force Report (July 1997)

The first Best Value Task Force report was issued on 4 July 1997 and set out the principles and essential eleinents of a Best Value approach to managing and delivering services in local government.

The four key principles which underpin Best Value are:

accountability;

continuous improvement; and ownership.

tramp aren c y ;

The report also set out the essential elements of Best Value:

sound governance - customer/citizen focus - sound strategic management - sound operational management - sound financial management; performance measurement and monitoring; continuous improvement through competition and other tools; and long-term planning and budgeting.

A three-year plan for the development of Best Value in Scottish councils was set out and each couricil had to submit a Best Value implementation plan to The Scottish Office detailing how the principles and elements of Best Value would be implemented.

Every Scottish council is also committed to a fundamental review of all services and activities over a three to five-year period. Scwice review approaches should be based on the Four Cs: Challenge, Compare, Consult, Compete. Through service rcviews, councils should examine what they do, how they do it, and why they do it.

Performance should also be compared with other councils or bodies that provide similar services, including the private and voluntary sectors where appropriate. Service reviews should be designed to assist continuous improvement in the delivery of council activities.



SECTION V - BEST VALUE (CONTINUED)

Performance Management and Planniw Audit

5.08

5.09

5.10

5.11

5.12

The second Best Value Task Force report (July 1998) stated that a council delivering Best Value will have in place:

an established performance management and planning (“PMP”) framework which delivers continuous improvement; a clear commitment to the four “Cs” ie challenge, compare, consult, compete; a rigorous approach to analysing service delivery mechanisms and processes; and consistency with the four key principles of Best Value.

This report contained four questions which the performance management and planning frameworks of individual councils should enable them to answer:

Q1 4 2 4 3 44

How do we know we are doing the right things? How do we know we are doing things right? How do we plan to improve? How do we account for our performance?

The PMP audit was applied this year at service level in all councils, with three service areas being audited at each council. The PMP has three main objectives :

to provide independent external assurance that councils are making progress on implementing PMP frameworks; to identify good practice and areas of concern; to ensure that services are planning for improvement.

The audit is designed to assess :

the extent to which a performance management and pl nning syst rn is in place; the evidence for improvements in service delivery andor service management that have been achieved as a result; the service’s planned improvements to its PMP framework, against which progress will be audited in future years.

Given the different structures and organisation of councils, it was not possible to prescribe for every council what constituted a service area for review. As a result, we consulted with the Chief Executive to determine appropriate services for our review.

A number of factors were considered in deciding on the service areas for review, including the organisational structure of the council, the existence of a distinct service plan, clear management and reporting structures, the size of the service area and the scope of completed Best Value reviews. The following service areas were reviewed :

Finance Department- Non-domestic rates Transportation and Property Services Department- Estates Management Housing and Social Work Department- Sheltered Housing

27 September 2000 /%C€WATmN@$P€RS @




Performance Management and Planninp Audit

5.13 Each service area selected for audit was required to prepare a written submission that covered ten criteria grouped under the four PMP questions. This formed the basis for the audit.

5.14 The results of each service review are summarised below :

I Overall Assessment of Status

Rates I I

Q1 How do we know we’re doing the right things? I

1. We understand the needs, expectations and priorities of all our stakeholders.

We have decided on the best ways to meet these needs, expectations and priorities.

We have detailed plans for achieving our goals.

2.

3.

4. Our plans are clearly based on the resources we have available.

4 2 How do we know we’re doing things right?

5. We make best use of our available resources

6.

7.

8.

We make best use of our people

We monitor and control our overall performance

We have sound financial control and reporting

4 3 How do we plan to improve?

9. We actively support continuous improvement

J I i I J J

I x

I

Jv/ j J

J X

J X I

1

Slzeltered Housing

J

J

JJ

X

J

JJ

JJ

J

d

Key : X Significant level of work required; designate as priority area. J Some action required, with work planned for completion within next three months. JJ Broadly in line with best practice.




Performance Mandpement and Plannine Audit (Continued)

5.15 Our review identified the following common findings across the three services

0 . A performance appraisal and development programme for all Council staff is in place;

0 The Council’s budget is largely incremental;

0 There is a Council wide reporting of variances of actual from budgets however, actions required to address significant variances are not clearly identified.

In addition, the following findings were specific to the individual service reviews : 0 5.16 Non-domestic Rates

At the time of our audit the Service Review was nearing completion and recommendations for Service improvements should soon be finalised. It is important that improvements to the Review process identified during this audit are actioned before the next Service Review starts;

The Service Review Plan contained most of the information recommended by the Accounts Commission but did not clearly identify the criteria to be used to evaluate the results of the consultation and benchmarking processes;

The Service Plan is consistent with other Services within the Finance Department and shows a level of coordination with outside organisations;

Performance measures are identified within the Service Plan for most objectives but targets have not been set for most of these. Information on resource performance is available for the overall cost of collection indicator and for individual staff performance objectives. At present, only the collection rate indicator is reported monthly to senior management and quarterly to Members;

The Service has been able to demonstrate improvements in performance, as reported in the Local Collection of Taxes Follow Up Report;

The Service Review process, largely developed by local NDR Service staff, was generally well documented. Several areas for improvement have been identified and, once implemented, should form a good basis for future reviews.

29 September 2000 ~ c w m o ~ m P f & I


7Q Final Report to Members 1999/2000


Performance ManaPernent and Plauiiinp Audit (Continued)

Estates Management

At the time of our audit the Service Review process was at a very early stage with formal approval on Review objectives and methodology still to be taken. Documentation to support the process had been produced in draft form and it is anticipated that this will be adopted for use across the Department;

The priorities of the Service are identified in its Service Plan but it is not clear what the Service intends to achieve or how its success will be monitored;

* Management information is available and being further developed locally but the greatest scope for improvement, including benchmarking, comes from ensuring that the Service can fully access information currently available at Departmental level. Benchmarking is in place to identify best practice elsewhere for processes and procedures;

. While some performance measures have been identified, targets have not been set.

Sheltered Housing

* The Service has identified its key stakeholders and has recently undertaken an information gathering survey which focused on quality aspects. The results of this identified a Service which stakeholders felt was meeting their needs;

As stakeholder surveys become more complicated in their objectives, a clear evaluation criteria should be set by which the success of the consultation exercises can be evaluated;

The Service has prioritised areas of its activity whereby a systematic and detailed evaluation of options to meet stakeholder requirements should now be completed. A variety of options have been put forward including service reconfiguration; however, no agreed approach for undertaking the evaluation of these options has been agreed;




Performance Management and Planninp Audit (Continued)

Sheltered Housing (Continued)

There are a variety of plans relating to Housing and Social Work Department activities which are broadly consistent with each other. However, the link between the Housing and Social Work Department strategy and Sheltered Housing Service review could be clearer;

Work remains to be performed in developing costing systems for the Housing and Social Work Department’s key activities;

A variety of meaningful and measurable performance indicators have been identified for the Housing and Social Work Department; unfortunately, while similar indicators have been recommended for Sheltered Housing, they are still to be introduced;

Within the Housing and Social Work Department’s Service Plan and the Sheltered Housing’s Service Review, there is evidence to support that continuous improvement of the Service is on the Council’s agenda;

With regard to benchmarking, the Department does have an agreed approach to undertaking benchmarking exercises. We reviewed one such benchmarking exercise, which mostly complied with best practice in the areas of rationale, resource implication, benchmarking partners, timetabling and objective setting. There is, however at a Sheltered Housing Service operational level, still some debate over what actually to benchmark;

The Sheltered Housing Service Review followed the Service Review process which has been produced by the Council. The Service Review undertaken was the starting point of the PMP process as far as the Sheltered Housing Service is concerned and, as such, it raised as many questions as it answered. As a result, there is still some way to go to get agreement with stakeholders to identify and objectively consider alternative longer term delivery options

5.17 As part of our work on Best Value for 2000101, we will address the final question “How do we account for our performance?” by reviewing the progress of the service areas in improving their best practice. In addition, a further three service have been selected for a PMP audit during 2000/01. These will be:

0

Central Sevices to the Public- Registration Services Transport and Property Services- Transport Services Corporate and Democratic Core- Personnel Services, Health and Safety.



SECTION VI - VALUE FOR h3ONEY

Introduction

6.01 As part of our responsibilities under the Local Government (Scotland) Act 1973, we consider the overall arrangements that have been made by the Council for securing value for money (economy, efficiency and effectiveness) from its resources.

6.02 In terms of this responsibility, the following studies were planned in relation to 1999/2000 :

Manageiiient Information for DLOs and DSOs; Community Safety - set up audit Commissioning preschool education Rent Arrears Management

6.03 In addition, two studies originally planned by the Accounts Commission for 1998/99, were extended and are currently in progress :

Administration in Schools Refuse Collection

Management Information for DLOs and DSBs

6.04 The review was intended to assess the extent to which the core information needs of the Officers and Members are being met by the Council’s current performance management information. The principle objectives of the audit were :

* To assist councils in identifying areas where performance management information and reporting arrangements in relation to DLOdDSOs could be more effective; and To encourage councils 10 take appropriate steps to address these.

6.05 We expect to meet DLO/DSO managers in the next month and a draft report will be issued at a later date.



SECTION VI - VALUE FOR MONEY (CONTINUED)

Community Safetv - Set U a Audit

6.06 The primary focus of the study will be the corporate management and ownership of community safety, including the development and implementation of community safety strategies and effective partnership working.

6.07 The study aims to assist the development of effective community safety partnerships by :

Providing a position statement on current progress in relation to the strategic development of community safety in Scotland; Identifying any barriers to implementing community safety strategies and offering advice and recommendations on how these might be overcome; Developing management tools to assist community safety partnerships to work more effectively together; and Examining the key financial issues relating to the costs to councils of crime prevention, the quantification of the direct (and indirect) costs of the effect of crime, and the systems and processes available to councils to measure these,

6.08 The community safety audit work for 1999/2000 was to plan for and launch the main audit to be undertaken in 2000/2001. The main audit will be structured around a self-assessment process designed to help partnerships work more effectively in developing and implementing their community safety strategies. This study will commence over the next few months.

CommissioninP Pre-School Education

6.09 The study will assess the scope for authorities to be more effective in the way they manage partnerships with providers in the pre-school education service. The focus will be on how authorities use Government funding to secure quality places for children.

6.10 The review will concentrate on how the Council manages the commissioning of places for three and four year old children, whether from in-house establishments run by the Council itself (typically by the education and social work departments) or externally from establishments in the private, voluntary or independent sectors.

6.1 1 It is intended that the study will improve the extent to which councils’ management of pre-school education gives value for money, by identifying :

The way partnership arrangements are handled generally; The way the needs of parents and their children are assessed; The way options available to the council to meet these needs are explored; The use made of the funds provided by the Scottish Executive.

The study will commence over the next few months.

September 2000 33 p?/C€M64~~W~WP€Rs Q


Final Report to Members 1999/2000 I 74


Rent Arrears ManaEernenf

6.12

6.13

6.14

This study focused on the extent to which councils are implementing accepted good practice in the effective management of rent arrears. Rent arrears continues to be a problem area for many Scottish councils. The Accounts Commission performance indicators show that :

In 1997/98, rent arrears in councils wcre f33.4 million, 7.7% of total rent due; The number of tenants owing more than 13 weeks’ rent has risen in around half of councils.

The focus of the review was to :

Assess the extent to which the Council is implementing accepted good practice in the management of rent arrears and to agree a programme of improvement actions with the Council; Ascertain the average time taken to process housing benefit applications for council tenants and for association tenants; Provide the central study team with information from the audit in order that comparisons may be made among councils and between councils and housing association performance.

The Accounts Commission has produced a national report on managing rent arrears. The report focused on the national position and how Councils can improve their rent arrears management. A local report is currently being drafted and will focus specifically on the Council and its performance nationally.

From the draft report, the following areas of favourable performance were identified :

The Council performed well within the Accounts Commission’s suggested family grouping, with the Council receiving an ‘A’ grading; Good progress was made in improving levels of rent arrears in the Helensburgh area office.

Areas were identified for further development as follows:

0

0

Consideration should bc given to appointing an individual member of staff to be responsible for monitoring the level of former tenant arrears; The Council should fully assess the tenants’ ability to repay when setting up rcpayment schedulcs for arrcars.

34 @CW$WQU@WP€RS @ September 2000

ARGYLL dk BUTE COUNCIL



Administration in Schools (Started 1 Y98/99)

6.15

6.16

6.17

6.18

6.19

6.20

The study is based on the Accounts CommissiodHM Inspectors of Schools report “Time for Teaching” which examined the ways in which administration is handled in schools. The report focused on three questions:

Are there administrative tasks currently done by teachers, promoted teachers and other staff which could give better value for money by using different methods? Are there administrative tasks which could give better value for money by using different methods? Are there administrative tasks which could give better value for money if done by other people?

The audit forms part of the follow up arrangements, focusing at Council level with HMI complementing our work at school level.

The Council has completed assessing their status against the recommendations in the “Time for Teaching” report and an action plan was produced in August 2000. We have carried out an initial review of the Council’s self-assessment and the action plans produced have been discussed with Council officers. We identified that the Council followed the approach outlined in the “Time for Teaching” report when compiling the action plan and each action on the plan has been prioritised. The draft report will be issued at a later date.

Refuse Collection (Started 1998/99)

The study was intended to provide the Council with benchmarking information on the cost and quality of its refuse collection service.

We have already completed a data-gathering exercise in February and March 1999 and returned detailed information to the Accounts Commission. From this, the Accounts Commission produced a national report in April 2000, “Benchmarking refuse collection”.

In addition, data was produced which allowed us to benchmark the Council against family groups of Councils as identified by the Accounts Commission. The report benchmarks performance indicators for each council against groups of councils closely resembling that council’s demographic and geographic profiles. The report focuses on four areas:

Cost performance indicators e Service performance indicators e Staffing & fleet performance indicators e Environmental performance indicators

35 / 4 ? I W N r n ~ r n r n I September 2000


Final Report to Members 1999/2800 U 7 6


Refuse Colhxtion (Started 199$/99) {Continued)

6.21 In respect of the cost performance indicators, it was noted that the Council has:

0

0

0

Low gross costs of mainstream refise collection per uplift, per tonne collected and per property served; Low gross costs of domestic refuse collection per uplift and property served; and, A high level of incorne from commercial refuse collection service as a percentage of cost of colleclion. High staff and vehicle costs per uplift and property servcd.

6.22 In respect of the service performance indicators, it was noted that the Council has:

e

0

0

0

0

A low number of service visits per week for non-domestic properties; A low number of service visits per week €or bulky uplifts; A low percentage of domestic properties on assisted pull out scheme; A low level of bulky uplifts per vehicle per annum; A low average tonnage collccted per RCV per annum; and, A low percentage of bulky upliltis carried out within S days of request.

6.23 In respect of the staffing and fleet performance indicators, it was noted that the Council has:

0 Low percentage of days lost due to sickness/ injury for drivers and loaders Low average overtime costs for drivers and loaders

6.24 We expect to meet rcfuse collection managers within the next month to discuss the results of the benchmarking exercise and agree a number of performance indicators that will be implemented to monitor the Council’s progress in improving their p erfonnance.

1998/99 Value for Money Reviews

6.25 In our Final Report to Members €or last year, we advised Members of progress in respect of the reviews carried out. The current status of each review is as follows:

0 Administration in Schools - See above Kefuse Collection - Sce above Council Tax Collection Follow Up ~ Closed



SECTION VI1 - PERFORMANCE INDICATORS

7.01

7.02

7.03

7.04

7.05

7.06

It is the responsibility of the Council to ensure that, as far as practicable, the information which is published is complete and accurate.

There are 61 performance indicators in total, all of which have been graded by us as either ‘A’ or ‘ X ’ as follows:

A - X -

The data appears to be reliable in material respects The lack of available systems, andior reliable data, andor decision rules has resulted in the authority producing information which, in the auditor’s view is unreliable.

A number of ‘X’ gradings were allocated to the following indicators:

Benefits administration-Gross administration costs Benefits administration- Applicants processed within required time Environmental Health- Food safety hygiene inspections Environmental Health- Workplace inspections Libraries- Book requests time taken Libraries- Stock turnover Libraries- Use of libraries Roads & Lighting- Traffic light repairs response Social Work-Community care Social Work- Respite care

The main reasons for these ‘X’ gradings may be summarised as follows:

4

4

Council staff could not provide back up details; or Supporting documentation was not always retained; or The system could not provide an adequate audit trail; or Council staff failed to compile the indicator in accordance with the Accounts Commission definitions.

In 1998199 we issued a Performance Indicator Management Letter, following the qualification of 9 indicators. We noted that a number of issues identified within this letter would appear to have been addressed throughout the 1999/2000 financial year, however, we were disappointed to note that 5 of the indicators qualified this year, were awarded an ‘A’ grading in prior years.

The management letter issued in 1998/99 specifically highlighted that there was in general a need to raise the profile of the performance indicator process through a greater emphasis on improved co-ordination arrangements, better quality supporting documentation, improved monitoring and a greater commitment at a departmental level.

37 pafwJiiw@= I September 2000


I 7 8 Final Report to Members 1999/2000

SECTION VI1 - PERFORMANCE INDICATORS (CONTINUED)

7.07 While there would appear to have been a genera! improvement on prior years across most departments, much of the improvement would appear to lie with work performed by inteimal audit and the performance indicator co-ordinator. It is disappointing to note that the number of qualified indicators is consistent with prior years.

7.08 Members should review individual departments' arrangements for ensuring that qualifications on performance indicators are removed for 2000/01.

38 p c w ~ w o ~ m m I September 2000


Final Report to Members 1999/2000 1 7 9

SECTION VI11 - LEGAL MATTERS

8.01

8.02

8.03

8.04

8.05 0

Introduction

We plan and perform our audit procedures recognising that non-compliance by the Council with statute or regulations may materially affect the financial statements. In addition, as part of our normal audit process we are alert to the legality of certain . significant transactions and events with a financial consequence.

-.

In considering the arrangements put in place by the Council with reference to legality, we have focused our attention on significant areas of decision making within the Council which may involve unlawful expenditure or courses of action which may be illegal and which might lead to a loss or deficiency.

It is emphasised that the responsibility for assessing the legality of such matters rests with management and that by reporting in this Section, we do not purport to offer advice to the Council or any other party.

During 199912000, we have assessed the Council’s arrangements as they relate to legality by :

holding discussions with officers;

Reviewing general arrangements in place for ensuring the legality of transactions; eg, the role of the monitoring officer; reviewing the minutes of the Council’s principal committees;

having regard to the Council’s implementation of significant new legislation or statutory requirements; taking account of advice issued by the Accounts Commission; reviewing statutory requirements concerning the accounts.

1

In addition, specific national issues which we considered during 1999/2000 related to:

DLO/DSO statutory targets Termination payments Debt restructuring PPP Council Tendering Arrangements Electors’ QuestiondObjections

September 2000 39 ~ C ~ ~ ~ O U ~ P r n I



SECTION VI11 - LEGAL MATTERS (CONTINUED)

DLOlDSO Statutory Tarpets

8.06 We reviewed all the Council’s DLOsiDSOs for the achievement of their statutory financial objective, ie, to break even. This is detailed in Section 3.

Termination Payments

8.07 Our review included testing of a sample of individuals who had left the Council during 1999/2000 to identify if such payments existed. In addition, we also reviewed certain individual redundancy packages to ensure that these complied with standard conditions. While this sample testing did not identify any specific termination payments which were outwith standard level authority redundancy packages, we noted a former employee had been re-empoyed by the Council on a temporary contract. It is emphasised that our review only incorporated a sample of such payments.

8.08 Management informed us that the employee in question was offered an early retirement package, but reinstated on a part time temporary basis at her original pay level. While this may meet an operational requirement, the Council should satisfy itself that any skilled individual identified for redundancy in one post, is unlikely to be required to fill other duties. Members should consider monitoring whether future redundancy packages offer value for money to the authority.

Debt Restructuring

8.09 During the 1999/2000 financial year the Council refinanced a number of their long term loans to take advantage of lower interest rates. The Council takes professional advice from their brokers in respect of these transactions.

8.10 The restructuring of debt often incurs either a premium or discount on the repayment of the original principal. In 1999/2000 the Council incurred a premium of &822,950 on a loan of f7.5111. Management has informed us that this loan was replaced by a short term loan for one year and that they intend to replace this loan with a longer term loan during the financial year 2000/01. CIPFA’s guidance on the accounting treatment of such premiums is to amortise these balances over the term of the new loan. The Council will require to amortise this balance over the period of the permanent replacement loan when this is in place.


Final Report to Members 1999/2000 I 81

SECTION VI11 - LEGAL MATTERS (CONTINUED)

Public Private Partnerships

8.12

8.13

8.14

8.15

8.16

8.17

8.18

The Department of Development and Environmental Services is at an advanced stage of negotiating the Council’s public private partnership proposal for waste management within Argyll & Bute.

In recent years the Government has undertaken a fundamental reappraisal of waste management policy in an effort to ensure that waste is treated in an environmentally sustainable manner. This policy has significant cost implications for the Council, whch until recently used landfill as the cheapest and easiest method of waste disposal. From October 1996 the government imposed a landfill tax on all waste currently taken to landfill sites and stricter regulatory standards have been introduced in relation to the landfill of waste.

The Council estimated that to meet future environmental targets a significant amount of capital investment would be required and submitted an outline business case to the Scottish Office in June 1998.

We understand from management that the Council are currently at the best and final offer stage of negotiations, and that they have received a holding opinion on the accounting treatment of this preferred option from Deloitte and Touche, their appointed financial advisors.

The,last two years have seen a number of important developments with regard to the accounting treatment of private finance initiative (“PFI”) transactions. In May 1997, the “Bates” report on PFI acknowledged that uncertainty surrounding the accounting treatment was a barrier to progress and recommended that the Treasury should issue interim accounting guidance, pending the deliberations of the Accounting Standards Board (“ASB”). The Treasury obliged and published PFI Technical Note No 1 on 29 Speternber 1997 (the “Interim Guidance”).

Subsequently, following the publication of the ASB Application Note in September 1998 the Treasury has developed new accounting guidance, in the form of PFI Technical Note 1 (Revised) “How to Account for PFI Transactions” (the “TN”). The objective of the TN is to complement the Application Note by providing additional practical guidance for certain public sector bodies on key aspects of the Application Note. The TN was issued in final form on 24 June 1999.

I

The introduction of the Application Note and the TN has meant that we have had to consider the separability of the contract, whether S S A P 21 or FRS 5 applies and assess certain Treasury determined quantitative, qualitative and other indicators of risk transfer. We anticipate receiving details of the Council’s preferred option within the next month and will review whether the project should be capitalised on the Council’s balance sheet.

September 2000 41 pcmTmo~wP€R!i I



SECTION vm - LEGAL MATTERS (CONTINUED)

Council Tendering Arrangements

8.19 It is recognised good practice for all organisations to tender the award of contracts over a certain capital or revenue value. We reviewed a sample of contracts awarded by the Council during 1999/2000 to confirm whether a transparent audit trail existed for the award of the contracts and whether the details had been appropriately recorded.

8.20 While an audit trail existed for the award of individual contracts and detailed records were maintained within each department, we noted that the Council did not maintain a central tender register. The absence of such details may delay the Council being able to demonstrate that they have followed good practice. Members should consider monitoring the implementation of a centrally maintained tender register, which we believe would be best practice, and request regular reports on activities subject to new contracts.

Electors’ Ouestions/Obiections

8.2 1 We did not receive any electors’ questions or objections during 1999/2OOO that required external audit investigation.

ARGYLL & BUTE COUNCIL Appendix 1

Action Plan Final Report to Members 1999/2000

Issue

We recommend that, in future, all DLOiDSO statements should include a financial objective statement, showing the adjustment for interest on revenue balances and the impact on the overall financial result.

Management should continue to monitor the Council’s achievement of its budgetary targets for the 2000/2001 financial year.

Management should continue to be alert to any asset impairment and implement the necessary arrangements to achieve compliance with FRS 11.

Management and Members should ensure that the rolling programme of fixed asset revaluations is completed as soon as possible and that, in future, all assets are revalued at least every five years.

Agreed Action

Agree recommendation

Agreed

Impairment will be -

considered as part of review of fixed asset during year. In addition Property Services and Housing will be asked to provide details of any properties impaired during the year.

Agreed in principle June 1999. Estates have prepared a programme for the current financial year with a view to completing as many revaluations as possible, taking advantage of the rating revaluations, which are being performed in parallel.

Responsible for Irnglemen tation

Report Reference

2,OS

3.05

3.20

3.32

September 2000 p m T ~ ! ~ m P E l u B .

Bruce West Head of Accounting

All with responsibility for budgetary performance

Moira Miller Corporate Accounting Manager

Moira Miller Corporate Accounting Manager

Due Date

Now implemented

Ongoing

March 200 1

Ongoing

ARGYLL; & BUTE COUNCIL


3.34

r

We recommend that the position ofthe Ardentinny and Castle Toward Outdoor Centres should be verified and the assets revalued for iiiclmion in the balance sheet at 3 1 March 200 1.

A review will be performed at the end of the financial year of the remaining properties to by revdued and a programme prepared from there for 2001/02 and 2002/03.

Discussions will take place with Estates to establish a rolling programme, which will ensure that all assets are revalued at least every five years.

Verification of ownership by Legal Service. Valuation by Estates

Appendix 1

Action Plan

Susan Mair Head of Legal Services Nick Allan Principal Estates Surveyor

Legal have ;ompleted.

Estates by bfarch 2001.

September 2000



Appendix 1

Action Plan

I Report Reference

3.43

4.06

4.08

4.09

4.14

- Issue

We recommend that the basis of the allocation of the central administration overhead to the catering and cleaning DSOs is reviewed and documentary evidence retained for future years.

Management should consider improvements to budget phasing for all areas of income and expenditure.

Management should implement budget reporting variance analysis at a service level for cost inputs.

Members and management should consider requesting a regular monitoring report from each of the service departments reporting their progress in implementing savings targets. Members should then consider authorising any rescheduling of the original targets.

High priority should be given to achieving items promptly. All reconciliations should be rigorously reviewed to ensure compliance with these principles and signed and dated to evidence the review.

Agreed Action

This has now been completed. A further review will take place in March 200 1.

Improvements to budget phasing are given ongoing consideration.

Consideration will be given to this during 2000/2001

Failure to achieve savings should be identified through budget monitoring

Guidance note on bank reconciliations currently being prepared.

Responsible for Implementation

Alan Brough Support Services Manager

All Budget Holders

Bruce West Head of Accounting

All Budget Holders

All officers responsible for bank reconciliation

Due Date

Complete. Review again March 200 1.

Ongoing

March 2001

Ongoing

Dec 2000

____

ARGYLL &BUTE COUNCIL


Appendix 1

Action Plan

Report Reference

4.17

I

1 I

Issue

Management should consider preparing a formal reconciliation of these systems on a monthly basis and investigate and correct any differences identified.

Agreed Action

Rent arrears: A monthly recondiation of house rents income will commence with effect October 2000.

Roads Costing: A monthly reconciliation is now in place. Internal Audit have identified some further amendments which ill bc actioned. The detailed reconciliation of payroll i s dependent upon completion of the payroll interface.

Transport Costing: Monthly reconciliation of income component in place. System no longer used for individual vehicle costs therefore no need to reconcile.

Responsible for Implementation

D MacVicar

A Brough

A Brough

~

Due Date

October

In place

in place

~ ~ ~ m o & ~ ~ P € F s a 0 0 September 2000



4.28

4.3 1

4.32

4.33

Members should now move to introduce Audit Committee principles and develop a suitable framework to monitor the work of internal and external audit and raise standards of Corporate Governance within the Council.

Management should monitor the progress of Internal Audit in achieving its coverage of core financial systems.

Internal Audit staff should attend appropriate technical or update courses and the Council should support unqualified staff in obtaining appropriate qualifications and training.

An Internal Audit manual, incorporating current best practice, should be adopted as a matter of urgency.

Agreed

5 core systems planned for review in 200 1/2002

Agree. Support in place To assist 2 members of staff to obtain AAT qualification. Other staff will be -

supported as budget permits.

A draft procedure manual has been prepared and is undergoing ongoing review.

Appendix 1

Action Plan

S McGregor Director of Finance

I Nisbet Internal Audit Manager

B West Head of Accounting

I Nisbet Internal Audit Manager

Ongoing

In place

Ongoing

Ongoing

September 2000 /%EkW%WWs~WPEK a


Final Report to IMembers 1999/2000

Appendix 1

Action Plan

Issue

Management should ensure that the Council’s Fraud and Corruption Policy, once drafted, incorporates the provisions of Appendix 7 of HB/CTB Circular A21/2000.

Members should review individual departments’ arrangement for ensuring that qualifications on performance indicators are removed for 2000/0 I .

Agreed Action

Agreed

Primary responsibility for maintaining accurate information systems and ensuring they are properly used rests with service departments. Details of the reasons for qualification will be forwarded to Directors, with all affected departments to submit a plan for passing audit in 2000/01 or as soon as possible after that.

Responsibk for Implementation

Standards Committee

Relevant directors to implement.

Reference

~ c W m O U s ~ W P E ~ a 0

Due Date

2000/ 200 1

Ongoing



8.08

8.20

Management should continue to consider monitoring whether future redundancy packages offer value for money to the authority.

Members should consider monitoring the implementation of a centrally maintained tender register and request regular reports on activities subject to new contracts.

Appendix 1

Action Plan

Already in place. Redundancies normally arise as a result of changes within services which are reported to Committee and therefore the cost of redundancy would be included within these reports to allow Members to make an informed decision on the costs and benefits of any proposed service changes.

Consideration will be given to the implementation of a central tender register by the Audit Committee.

Nigel Stewart Director of Corporate and Legal Services

June 2001

September 2000 ~ ~ ~ m O ~ ~ P E R 5 I



Appendix 2

RESPECTIVE FWSPONSIBILlTIES OF MANAGEMENT AND THE AUDITOR

General Stewardship

Controls Framework

Fraud and Corruption

Financial Statements

Value for Money

Legality

Accountable for the way it has discharged its stewardship of public funds.

It is the responsibility of Members and officers to decide the extent of the internal control systems which are appropriate to the Council. In this regard, a strong internal audit function is an important feature of an effective internal control system.

The primary responsibility for the prevention and detection of fraud and corruption rests with management.

The possibility for ensuring the preparation of financial statements which present a fair statement of the financial position of the Council rests with management.

It is management's responsibility to ensure that arrangements are in place that are designed to achieve economy, efficiency and effectiveness in the use of resources.

The responsibility for ensuring the legality of all activities and transactions rests with management.

Provides an independent and objective consideration of the stewardship hnction.

We assess certain control features of the Council's main financial systems and report on any significant control weaknesses that come to our attention from this normal audit process.

Our responsibility is to give consideration to the arrangements made by management in this regard.

We need to be satisfied that evidence from our audit testing is sufficient to give us a reasonable basis for our opinion that the financial statements present fairly the financial position of the Council at the year end and its income and expenditure for the year.

We consider by examination of the accounts or otherwise certain of the Council's management arrangements for securing economy, efficiency and effectiveness in its use of resources.

As part of our normal audit process, we consider the Council's arrangements for ensuring the legality of transactions or events with a significant financial consequence.

9 2 ARGYLL & BUTE COUNCIL

Final Report to Members 1999/2000 Appendix 3

~~ ~ ~~ ~

OTHER REPORTS SUBMITTED BY US RELATING TO 1999/2000

Systems Audit Management Letter

Interim Management Letter

e Best Value Reports : Sheltered Housing,; Non-Domestic Rates; Estates Management

Value for Money Reports

Various correspondence, principally with the Director of Finance, mainly relating to technical and accounting matters.

September 2000



Appendix 4

AUDIT CERTIFICATE TO THE MEMBERS OF ARGYLL AND BUTE COUNCIL AND THE ACCOUNTS COMMISSION FOR SCOTLAND

As auditor, appointed under statute by the Accounts Commission for Scotland, we have audited the accounts of Argyll and Bute Councii for the year ended 3 1 March 2000, an abstract of which is set out on pages 0 to a.

Respective responsibilities of management and auditors in relation to the accounts

As stated on page a, the management of Argyll and Bute Council is responsible for the preparation of the accounts. It is our responsibility to form an independent opinion, based on our audit, on the abstract of accounts and to report that opinion to you.

Basis of opinion

We have conducted our audit in accordance with the requirements of Part VI1 of the Local Government (Scotland) Act 1973 and of the Code of Audit Practice approved by the Commission. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the accounts. It also includes an assessment of the significant estimates and judgements made by management in the preparation of the accounts and of whether the accounting policies are appropriate to Argyll and Bute Council’s circumstances, consistently applied and adcq uately disc losed.

0

We planned and performed our audit of the accounts so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the accounts are free from material mis-statement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the accounts.

Opinion

In our opinion, the abstract of accounts presents fairly, in accordance with the accounting policies set out on pages to a, the financial position of Argyll and Bute Council as at 31 March 2000 and its income and expenditure for the year then ended.

a

Failure to comply with statutory requirements

It has not been necessary to qualifL our opinion in respect of the following matter:

We draw attention to the results of the Leisure Management Direct Service Organisation which are detailed on page 13. Directions given under the Local Government Planning and Land Act I980 and the Local Govcmment Act 1988 require Direct Labour and Direct Service Organisations to achieve at least a break even position on their Income and Expenditure Account. The above organisation failcd to meet this financial objective.

PricewaterhouseCoopers Chartered Accountants and Registered Auditors Glasgow

26 September 2000

September 2000

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