audit committee 30 september 2008 annual governance report ... committee/200809… · 30th...

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AUDIT COMMITTEE

30th September 2008

ANNUAL GOVERNANCE REPORT AND STATEMENT OF ACCOUNTS 2007/08

SUMMARY This report provides the Audit Committee with an update on key findings set out in the Governance report, and requests that the Committee adopts the amended Fire Pensions Accounts. CONTEXT It is very pleasing to be able to report that, despite the fact that a completely new SAP system, which covered all financial systems, was implemented from November 2007, the authority has again received a positive governance report which provides assurance on the control framework and unqualified audit opinions on the 2007/8 accounts of Gloucestershire County Council, Gloucestershire Firefighters’ pension fund and Gloucestershire Local Government Pension Fund Accounts. COMMENTARY This report seeks to provide to the Committee an update on the key issues within the Governance report, the letter of representation and details of the key changes made to the accounts including those made to the Fire Pensions account which, due to the very low materiality levels, were material. RECOMMENDATIONS That the Committee approves the • the amended Statement of Accounts for the year ended 31 March 2008

which include the changes set out in this report and in the Governance report

• adoption of the amended Fire Pensions Accounts • letter of representation (including the action proposed in relation to the

Statement of Recognised Gains and Losses), and authorises the Chief Financial Officer and Chair of the Committee to sign the letter on behalf of the authority.

Contact Officers: Mark Spilsbury – Head of Finance – Financial Accounting and Audit Tel :01452 426127 [email protected] John Kear – Finance Manager [email protected]

mailto:[email protected]

mailto:[email protected]

ANNUAL GOVERNANCE REPORT AND STATEMENT OF ACCOUNTS 2007-08 Purpose of the Report 1. The County Council is required to produce and approve an annual

Statement of Accounts. Background 2. Under the Accounts and Audit Regulations 2003 the Council, or an

appropriate committee, must approve the Statement of Accounts, by 30 June following the end of the financial year. The accounts were approved on 27 June 2008.

3. The Regulations require the Statement of Accounts to be published,

following the audit, by 30 September. 4. As part of the approval process the auditor has requested that a letter of

representation be agreed by the committee and signed by the Chief Financial Officer and the Chair of the committee.

Main Considerations for the Committee Audit of the Statement of Accounts

5. The Audit Commission have completed the audit of the accounts and

associated working papers and have suggested a small number of amendments, none of which have materially changed the results for the year. The uncommitted County Fund balance remains unchanged at £18.567 million with the balance sheet being changed from a net value of £136.2 million to £139 million.

6. The full and final document will be published on the Council’s internet site

following this meeting.

7. All of the non trivial amendments, set out in Appendix 1 in the Governance report, are accepted and the accounts have been amended to the satisfaction of the external auditors to address all of the required adjustments identified.

8. With regard to the Statement of Recognised Gains and Losses (STRGL) set

out in Appendix 2 in Governance report, although these are very technical areas where a number of authorities have experienced problems, it is accepted that these issues need to be examined in further detail for future years accounts, including having further discussions with the actuary regarding pension assets. Due to technical difficulties in relation to the adjustments required, and as set out in the letter of representation at Appendix 4 in the Governance report, it is proposed that the 2007/8 accounts will not be amended, but that action is taken to resolve these issues for the 2008/9 accounts, following the receipt of additional advice from the Audit Commission’s technical unit.

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9. Due to low materiality levels the adjustments required in relation to the

Firefighters’ Pension Fund, as set out in Appendix 3 in Governance report, are material.

The Firefighters’ pension fund accounts have now been amended to reflect the required adjustments and are attached at Appendix 1 to this report. These accounts have been changed from a cash basis to an accruals basis, resulting in the following key amendments :-

• Debtors increased by £22,000

• Payments-in-advance increased by £260,000

• Creditors increased by £42,000.

• Fund Balances & Reserves increased by £240,000 The Committee is asked to formally adopt the amended accounts.

10. Other minor changes have been made to the accounts which were not felt to be significant enough to bring to the attention of this Committee in this report or in the Governance report. Subject to the agreement of the recommendations in this report the amended accounts will be placed on the GCC website on 30th September 2008.

Letter of Representation 11. The Chief Financial Officer has historically been asked to provide a letter of

representation to the auditors as part of the closure of the annual accounts. This letter has confirmed that the Chief Financial Officer is not aware of any material errors or other matters that may affect the accounts of the authority.

12. The letter covers the legality of contracts, the valuation of assets and a

number of other points, and is included at Appendix 4 on page 19 of the Annual Governance Report

13. Part of the role of this committee is to be responsible for the corporate

governance of the authority. Due to this it is now felt to be good practice for the Audit Committee to approve the letter of representation, which then needs to be signed by the Chief Financial Officer and the Chair of the Audit Committee.

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Fire Pension Accounts

Fund Account for the year ended 31st March 2008

2006/07 FPS NFPS Total £’000 £’000 £’000 £’000 Total Contributions Receivable

From employer -1,568 normal -1,603 -139 -1,742

0 early retirements 0 0 0 -70 other: Ill Heath Retirement -54 0 -54

From members -812 normal -838 -114 -952

-5 other: Added Years -5 0 -5 Transfers In

-13 Individual transfers in from other schemes

-3 -127 -130

0 other 0 0 0 Benefits Payable

2,066 pensions 2,150 0 2,150

384 commutations & lump sum retirement benefits

574

0

574

0 lump sum death benefits 0 30 30 876 other: Annual increase in pensions 953 0 953

Payments to and on account of

leavers

refunds to contributions 21 individual transfers out to other

schemes 56 0 56

- other - - - 872 Sub Total 1,230 -350 880

Net amount payable/receivable for the year before top-up grant receivable/amount payable to sponsoring department

-872 Top-up grant receivable/payable to sponsoring department

-1,230

350

-880

___ - - - 0 Net amount payable/receivable for

year 0 0 0

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Net Assets Statement for the year ended 31 March 2008

Total FPS NFPS Total£’000 £’000 £’000 £’000

Net current assets and liabilities

0 contributions due from employer 0

0 0

-238

pension top-up grant receivable from sponsoring department -906

350 -556

0 unpaid pension benefits 0 0 0

0 amount due to sponsoring department

0 0 0

0 other current assets and liabilities 906 -350 556238 Amount owing to general fund 0 0 0

0 0 0 0

Notes

a) The Firefighters pension fund is administered by the County Council. It is split into two schemes ‘Firefighter Pension Scheme’ (FPS) which is for wholetime firefighters who were employed before 5th April 2006 and have not transferred to the new scheme and the ‘New Firefighters Pension Scheme’ (NFPS) for all wholetime firefighters who have joined since 6th April 2006, those that have transferred from the old scheme and all Retained Firefighters.

It is an unfunded scheme which is “contracted out” of the state scheme and is termed a defined benefit (or final salary) scheme. The funding arrangements for this scheme changed on the 1st April 2006. The fund is financed by contributions paid in by existing firefighters and the Fire Service with any balance receivable from or payable to the Department for Communities and Local Government. Therefore there are no investment assets belonging to the Fund

b) Employees and employers contribution levels are based on percentages of pensionable pay set nationally by the DCLG and subject to triennial revaluation by the Government Actuary's Department.

c) The Fund has been prepared to meet the requirements of the Statement of Recommended Practice (SORP) Code of Practice on Local Authority Accounting in the United Kingdom 2007. There are no administration charges included in the accounts and also the accounts do not take account of liabilities to pay pensions and other benefits in the future.

d) The fund’s financial statements do not take into account any liabilities to pay pensions or other benefits after the period end.

e) The liability under FRS 17 is disclosed in note 40 on page 51 of the Notes to the Accounts

f) A Fire Service Pensions Circular was issued on 21st May 2008 advising that commutation factors for Firefighters in the FPS would be changed from 1st October 2007. All Firefighters who have retired between 1st October 2007 and 31st March 2008 are subject to a revised commutation factor and will receive an additional payment amount which includes interest. The effect of this has been included in these statements at a cost of £28k.

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Annual Governance Report Gloucestershire County Council Audit 2007/08 September 2008

Status of our reports The Statement of Responsibilities of Auditors and Audited Bodies issued by the Audit Commission explains the respective responsibilities of auditors and of the audited body. Reports prepared by appointed auditors are addressed to non-executive directors/members or officers. They are prepared for the sole use of the audited body. Auditors accept no responsibility to:

• any director/member or officer in their individual capacity; or • any third party.

Contents

Summary 3

Financial statements and Annual Governance Statement 4

Value for money 10

Formal audit powers 12

Independence 13

Appendix 1 – List of adjusted errors (greater than £0.5 million) 15

Appendix 2 – List of unadjusted errors (greater than £0.5 million) 17

Appendix 3 – Firefighters Pension Fund - List of adjusted errors (greater than £37,000) 19

Appendix 4 – Proposed letter of representation 20

Appendix 5 – Proposed audit opinions and value for money conclusion 24

Appendix 6 – Action plan 29

Summary

3 Gloucestershire County Council

Summary Purpose 1 This report summarises the findings from our 2007/08 audit, which is substantially

complete. It identifies the key issues that you should consider before we issue our opinions on the financial statements, our value for money conclusion and our certificate confirming completion of the audit.

2 This report includes only matters of governance interest that have come to our attention in performing our audit. Our audit is not designed to identify all matters that might be relevant to you.

3 This report also covers our opinions on the Gloucestershire Local Government Pension Fund and the Firefighters Pension Fund which are included in the Council's financial statements.

4 This report will be considered by the Audit Committee on 30 September 2008.

Financial statements 5 We expect to issue unqualified opinions on the financial statements, the local

government pension fund and the firefighters’ pension fund by the audit deadline of 30 September 2008. This is subject to those amendments agreed with officers and summarised in this report and obtaining a letter of representation from the Council.

Value for money 6 We propose issuing an unqualified conclusion on the Council’s arrangements for

securing economy, efficiency and effectiveness in the use of resources.

Next steps 7 We ask the Audit Committee to:

• consider the matters raised in the report before approving the amended financial statements;

• consider adjusting the financial statements as set out in Appendix 1 (officers have already amended the accounts) and Appendix 2 (officers wish to amend the accounts in 2008/09 following further investigation);

• agree to adjust the financial statements as set out in Appendix 3; • approve the representation letter on behalf of the Council to us before we issue our

opinions, conclusion and certificate; and • agree the Council’s proposed action plan.

Financial statements and Annual Governance Statement

Gloucestershire County Council 4

Financial statements and Annual Governance Statement 8 The Council’s financial statements and Annual Governance Statement are an

important means by which the Council accounts for its stewardship of public funds. As Audit Committee members you have final responsibility for the financial statements and Annual Governance Statement. It is therefore important that you consider our findings before you adopt the revised financial statements.

9 In planning our audit we identified specific risks and areas of judgement that we have focused on during our audit. We report to you the findings of our work in those areas.

10 In addition, auditing standards require us to report to you:

• errors in the financial statements; • our views about the Council’s accounting practices and financial reporting; • weaknesses in internal control; • certain other matters; • the draft representation letter which we are asking management and you to sign;

and • any expected modification to our report.

Key areas of judgement and audit risk 11 In planning our audit we identified key areas of judgement and audit risk that we have

considered as part of our audit. Our findings are set out in Table 1.

Table 1 Key areas of judgement and audit risk

Issue or risk Finding

Gloucestershire Unified System (GUS) otherwise known as a SAP system The Council implemented a major new financial management system (GUS) half way through 2007-08. We considered that there was a significant inherent risk about the ability of the GUS system to produce timely, materially accurate accounts and financial management information.

We are satisfied that the draft accounts and financial management information are materially accurate. Our overview of the GUS system indicated that its implementation was well managed by the Council, however, some controls during the year did not operate effectively and consequently there is some further scope for improvement.




New Business Service Centre (BSC) In line with the introduction of GUS, the Council's business management directorate was restructured which led to the administration of financial transactions (payroll, accounts receivable and accounts payable) being transferred from Finance into a new Business Service Centre. We considered that there was a risk that BSC would not; • be fully familiar with maintaining system

controls; and • with the year end requirements for the

preparation of the annual financial statements.

We found some gaps in financial controls including, for example, an absence of payroll reconciliations; but we found no evidence that these gaps in control led to material error. Going forward there is a need to: • re-clarify the roles and responsibilities

between BSC and the central financial accounting team to ensure that there are no gaps in internal control; and.

• review the capacity and training in BSC to deal with audit queries from internal and external auditors.

SORP 2007/08 We considered that changes to the regulatory framework introduced in the 2007/08 Statement of Recommended Practice may not be implemented.

We are satisfied that SORP changes were successfully implemented by the Council.

Annual Governance Statement (AGS) For the first time this year the Council was required to prepare and publish an Annual Governance Statement that subsumes the previous Statement on Internal Control. The purpose of the AGS is that it provides a single framework for good governance.

The Council adopted a robust approach to collating information to support the production on the AGS. We are satisfied that this document is a fair representation on the governance arrangements of the Council.

Recommendations R1 Re-clarify roles and responsibilities, for maintaining effective systems controls,

between BSC and financial accounting.

R2 Review the capacity and training in BSC to deal with audit queries from internal and external auditors.

Adjustments and errors in the financial statements 12 We identified non-trivial adjustments (greater than £0.5 million) in the financial

statements and reported these to management.

13 Management has amended the financial statements for the adjustments identified in Appendix 1.



14 Management has not amended the financial statements for the errors identified in Appendix 2. Management would prefer to investigate these errors and will endeavour to amend the accounts in 2008/09 to rectify this problem. Management are satisfied that these are non-material errors and because of their potential complexity wish to investigate the accounting entries further in order to amend the accounts in 2008/09. We ask the Council to confirm this approach in its letter of representation.

15 The Firefighters Pension Fund is included in the Council's financial statements as a separate item. We audit the Fund and we provide a separate audit opinion. We identified material errors in the Fund statements and reported these to management.

16 Management has agreed to adjust for the Firefighters Pension Fund for the errors identified in Appendix 3.

Accounting policies and financial reporting 17 We consider the qualitative aspects of your financial reporting. Table 2 contains the

issues we want to raise with you.

Table 2 Accounting practice and financial reporting


Teachers' unfunded pension liabilities The cost of teachers early retirements are unfunded by the Teachers' Pension Fund and the costs fall to the Council. The estimated liability should be provided by a professional Actuary (in accordance with Financial Reporting Standard 12).

We found that the Council do not use an Actuary and that a liability amounting to £1.95 million is calculated by officers. Whilst this creates some uncertainty over the precise potential liability to the Council we do not consider that this will be material to the overall pension liability of £310 million.

Bad debt provision - trade creditors Provisions for likely bad debts are necessary to ensure that the Council's accounts provide for known liabilities. Provision should however be in accordance with reporting standards and with supporting evidence. At 31 March 2008, the Council had trade debtors which amount to £10.1 million and a provision for bad debts of £1.13 million.

We found that the Council applies a measure that assumes all trade debts outstanding for more than 90 days are irrecoverable and need to be fully provided for in full. This method is unlikely to be a proper basis for providing for bad debts and should be reviewed.




Firefighters' pension fund In accordance with SoRP 2007, the Fund should be accounted for on an accruals basis rather than a cash basis.

We found that the firefighters' pension fund had been incorrectly completed on a cash basis. The revised accounts now include the firefighters' pension fund on an accruals basis and are being re-submitted to the audit committee for re-approval on 30 September 2008.

Accounting for schools Education is the largest council service and inevitably forms a substantial part of the Council's financial statements. Much of the education transactions are through individual schools which have differing levels of autonomy and financial control. For example, the larger schools (mostly secondary) have their own bank account. It is important therefore that the Council has proper arrangements for combining school transactions within the Council's accounts.

We have undertaken sample audit tests to gain assurance on: • the value of cash balances (£26 million);

and • accruing for expenditure at 31 March. We found that: • the Council relies on statements from

schools on the level of cash balances without direct confirmation with the Banks used by schools; and

• most schools (but mainly primary schools) account for expenditure on a cash basis and not an accruals basis.

Recommendations R3 The Council should obtain from a recognised Actuary the value the teachers'

unfunded benefits.

R4 The calculation of the bad debt provision should be reviewed in future years with levels of provision being influence by both the age and type of debtor in question.

R5 The Council should review the year end arrangements for accounting for schools' cash balances and for accruing for expenditure.



Weaknesses in internal control 18 We have not identified any material weakness in the design or operation of an internal

control that might result in a material error in your financial statements of which you are not aware.

19 In Table 3 we wish to draw the following weakness to your attention as they need consideration to ensure weaknesses are avoided next year.

Table 3 Weaknesses in internal control


Payroll system Controls over starters and leavers are some of the important suite of controls applied to the payroll system.

We found controls over starters and leavers are not fully effective. Specifically checks on accuracy of information within the payroll system do not appear to be happening in all cases and exception reports are not being fully utilised to confirm accuracy.

Recommendation R6 We recommend the Council ensure key payroll controls are operating as intended.

20 We have not provided a comprehensive statement of all weaknesses which may exist in internal control, nor of all improvements which may be made. We have reported only those matters which have come to our attention because of the audit procedures we have performed.

Other matters 21 There are no other matters that auditing standards require me to report to you.

Draft representation letter 22 Before we issue our opinion, auditing standards require us to obtain from you and

management, written representations that:

• you acknowledge your collective responsibility for preparing financial statements in accordance with the applicable financial reporting framework;

• you have approved the financial statements;



• you acknowledge your responsibility for the design and implementation of internal controls to prevent and detect fraud and error;

• you have told me the results of your assessment of the risk that the financial statements might be materially misstated because of fraud;

• you have told me any actual or suspected fraud by management, employees with significant roles in internal control or others (where the fraud could have a material impact on the financial statements);

• you have told me of any allegations of fraud, or suspected fraud, affecting the financial statements communicated by employees, former employees, regulators or others;

• you have told me about all known actual or possible non-compliance with laws and regulations whose effects should be considered when preparing financial statements;

• you have assessed the reasonableness of significant assumptions, including whether they appropriately reflect management's intent and ability to carry out specific courses of action on behalf of the Council where relevant to the fair value measurements or disclosures;

• you are satisfied that all related parties requiring disclosure in the financial statements have been disclosed and that the disclosure is adequate;

• you are satisfied that the individual or collective impact of errors we have identified, but that you have not corrected, is not material; and

• cover areas where other sufficient appropriate evidence cannot reasonably be expected to exist, for example the completeness of the disclosure of contingent liabilities.

23 Appendix 4 contains the draft of the letter of representation we seek from you.

The audit report 24 Subject to satisfactory clearance of the matters raised above, we plan to issue an

unmodified report including unqualified opinions on the financial statements, the local government pension fund and the firefighters’ pension fund. Appendix 5 contains a copy of our draft report.

Value for money


Value for money 25 We are required to conclude whether the Council put in place adequate corporate

arrangements for securing economy, efficiency and effectiveness in its use of resources. We assess your arrangements against 'relevant criteria' specified by the Commission and covering 12 specific aspects of the Council's arrangements. Our conclusion is informed by our work on Use of Resources, a scored judgement reported to the Audit Commission.

26 We have assessed the arrangements of the Council as adequate in all 12 aspects (Table 2) and we therefore propose to issue an unqualified conclusion.

Table 4 VFM criteria

Code criteria Conclusion

1. The body has put in place arrangements for setting, reviewing and implementing its strategic and operational objectives.

Yes

2. The body has put in place channels of communication with service users and other stakeholders including partners, and there are monitoring arrangements to ensure that key messages about services are taken into account.

Yes

3. The body has put in place arrangements for monitoring and scrutiny of performance, to identify potential variances against strategic objectives, standards and targets, for taking action where necessary, and reporting to members.

Yes

4. The body has put in place arrangements to monitor the quality of its published performance information, and to report the results to members.

Yes

5. The body has put in place arrangements to maintain a sound system of internal control.

Yes

6. The body has put in place arrangements to manage its significant business risks.

Yes

7. The body has put in place arrangements to manage and improve value for money.

Yes

8. The body has put in place a medium-term financial strategy, budgets and a capital programme that are soundly based and designed to deliver its strategic priorities.

Yes

9. The body has put in place arrangements to ensure that its spending matches its available resources.

Yes

10. The body has put in place arrangements for managing performance against budgets.

Yes

Value for money


Code criteria Conclusion

11. The body has put in place arrangements for the management of its asset base.

Yes

12. The body has put in place arrangements that are designed to promote and ensure probity and propriety in the conduct of its business.

Yes

Formal audit powers


Formal audit powers 27 We have:

• a power to issue a public interest report. We do so where we believe this is necessary to draw a matter to your attention, or to that of the public;

• a power to apply to court for a declaration that an item in the Council's accounts is contrary to law;

• a power to issue an advisory notice An advisory notice requires the Council to meet and consider the notice before: − making a decision that might give rise to unlawful expenditure; or − taking an unlawful course of action that would give rise to a loss; or − making unlawful entry in the accounts; and

• a power to seek judicial review of a decision of the Council.

28 We have not and do not propose to exercise these powers.

Independence


Independence 29 The Code of Audit Practice and the Auditing Practices Board's (APB’s) Ethical

Standards with which auditors must comply require that auditors act, and are seen to act, with integrity, objectivity and independence.

30 We confirm that we comply with the APB’s Ethical Standards, that we are independent and that our objectivity is not compromised.

31 We communicate to you:

• any relationships between us and the Council, its members and senior management that might affect our objectivity and independence and any safeguards put in place;

• total fees charged to you for audit and non-audit services; and • our arrangements to ensure independence and objectivity.

Relationships with the Council 32 We have identified no relationships that might affect objectivity and independence

Audit fees 33 We reported our fee proposals as part of the Audit Plan for 2007/08. The table below

reports the outturn fee against that plan.

Table 5 Audit fees

Plan 2007/08 Actual 2007/08

Financial statements 157,570 174,718

Value for Money 70,809 61,249

National Fraud Initiative 1,550 1,550

Total Audit Fees 229,929 237,517 Inspections 83,917 83,917

Certification of claims and returns (est.) 30,000 30,000

34 The analysis above shows that we have increased our overall audit fee by £7,588 to reflect the costs of our additional substantive testing on the draft financial statements as reported to the audit committee on 27 June 2008.

Independence


35 Under the Audit Commission’s advice and assistance power it may provide non-audit services to the Council. During 2007/2008 we were asked to undertake a review of the neighbourhood policing partnership, the total fee for this work was £15,456.

Our arrangements to ensure independence and objectivity 36 We have comprehensive procedures to ensure independence and objectivity. These

are outlined in Table 6.

Table 6 Arrangements to ensure independence and objectivity

Area Arrangements

Independence policies

Our policies and procedures ensure that professional staff or an immediate family member: • do not hold a financial interest in any of our audit clients; • may not work on assignments if they have a financial interest

in the client or a party to the transaction or if they have a beneficial interest in a trust holding a financial position in the client; and

• may not enter into business relationships with UK audit clients or their affiliates.

Our procedures also cover the following topics and can be provided to you on request: • the general requirement to carry out work independently and

objectively; • safeguarding against potential conflicts of interest; • acceptance of additional (non-audit) work; • rotation of key staff; • other links with audited bodies; • secondments; • membership of audited bodies; • employment by audited bodies; • political activity; and • gifts and hospitality.

Code of Conduct The Code of Conduct forms part of the terms and conditions of all Audit Commission employees. The Code of Conduct states that staff have to comply with ethical guidance issued by their relevant professional bodies.

Confidentiality All staff are required to sign an annual undertaking of confidentiality as a condition of employment.

Appendix 1 – List of adjusted errors (greater than £0.5 million)


Appendix 1 – List of adjusted errors (greater than £0.5 million) Adjusted errors 1 The following misstatements were identified in the financial statements during the

course of our audit and the financial statements have been adjusted by management. We bring them to your attention to assist you in fulfilling your governance responsibilities.

Income and Expenditure Account

Balance Sheet

Description Nature of Adjustment

Dr £000s

Cr £000s

Dr £000s

Cr £000s

1. Cash balance - The year end cash balance included £28.346m of schools balances that has now been revised to £26.252m following detailed testing on your cash entries.

This error has had the effect of overstating your balance sheet by £2.094m at 31 March 2008.

- - 2094

2094

2. Suspense A/C 49600 - The Council has not cleared this suspense account to the Income and Expenditure account at year end

Both the income and expenditure heading of a number of service headings in the Income and Expenditure account have been understated by £2.246m

2246 2246 - -

Appendix 1 – List of adjusted errors (greater than £0.5 million)



Balance Sheet

3. Supporting people grant - The Council received grant monies of £24.6 million in 2007/08 for supporting people. The Council now has a cumulative underspend against this grant of £2.6 million. This underspend had been incorrectly accounted for as a receipt in advance and as such has not been included in the Income & Expenditure account for 2007/08. This treatment incorrectly implies that an element of the 2007/08 grant was awarded for 2008/09.

This underspend has now been re-categorised as an earmarked reserve for use against future years supporting people expenditure. The Council will also be reviewing the accounting treatment of other receipts-in-advance as part of next year's closedown.

2600 2600

Total 4846 2246 2094 4694

Appendix 2 – List of unadjusted errors (greater than £0.5 million)


Appendix 2 – List of unadjusted errors (greater than £0.5 million) 1 The table below details errors in the accounts where management has decided not to

amend.


Balance Sheet

Description Nature of Adjustment

Dr £000s

Cr £000s

Dr £000s

Cr £000s

Statement of Recognised Gains and Losses (STRGL) *

We know that the Council's STRGL includes a number of incorrect entries as follows: - Other £3.054m - differences between the balance sheet and the STRGL on pension assets amounting to £1.423m

- differences between the income & expenditure account and the STRGL

The Council accepts that several items could have been treated differently and will be reviewed in advance of preparing the 2008/09 accounts.

* The STRGL reconciles the movement in the net worth of the balance sheet between the current and previous years. Given that all realised gains and losses must pass through the income and expenditure account and thus the STRGL, the existence of additional non-standard entries within the STRGL is a potential indicator of underlying accounting errors elsewhere in the statement of accounts in either:

• the balance sheet and/or • the income and expenditure account and/or • the Statement of Movement on the General Fund Balance (SMGFB).

Appendix 2 – List of unadjusted errors (greater than £0.5 million)


Recommendation R7 The Council should investigate the errors in the STRGL and amend the 2008/09

accounts accordingly.

Appendix 3 – Firefighters Pension Fund - List of adjusted errors (greater than £37,000)


Appendix 3 – Firefighters Pension Fund - List of adjusted errors (greater than £37,000) 1 Due to the relative small value of transactions through the firefighters' pension fund

we were required by our professional standards to set an appropriately small level of materiality which for 2007/08 was just £37,000.

2 The firefighters' pension fund top-up grant receivable at the year end had been incorrectly accounted for in both the firefighters' fund account and the net assets statement. This debtor was incorrectly disclosed at £286,000 whereas the correct year end debtor should have been £556,000 (allowing for an additional adjustment of £27,000 to reflect a post balance sheet event). The revised firefighters' pension fund accounts have been updated to reflect this error and have also been updated to reflect the change in commutation factors notified to the Council on the 21 May 2008. This change had the effect of increasing the lump sums retirement benefits by £27,000

Appendix 4 – Proposed letter of representation


Appendix 4 – Proposed letter of representation Draft management representation letter

Stephen Malyn Audit Commission Westward House Lime Kiln Close Stoke Gifford, Bristol BS32 8SR

Dear Mr Malyn

Gloucestershire County Council - Audit for the year ended 31 March 2008

We confirm to the best of our knowledge and belief, having made appropriate enquiries of other directors and officers of Gloucestershire County Council, the following representations given to you in connection with your audit of the Council’s financial statements for the year ended 31 March 2008.

Compliance with the statutory authorities

We acknowledge our responsibility under the relevant statutory authorities for preparing the financial statements in accordance with the Code of Practice for Local Authority Accounting in the United Kingdom: A Statement of Recommended Practice which present fairly the financial position and financial performance of the Council and for making accurate representations to you.

Supporting records

All the accounting records have been made available to you for the purpose of your audit and all the transactions undertaken by the Council have been properly reflected and recorded in the accounting records. All other records and related information, including minutes of all Council and Committee meetings, have been made available to you.

Irregularities

We acknowledge our responsibility for the design and implementation of internal control systems to prevent and detect fraud or error.

There have been no:

• irregularities involving management or employees who have significant roles in the system of internal accounting control;



• irregularities involving other employees that could have a material effect on the financial statements; or

• communications from regulatory agencies concerning non-compliance with, or deficiencies on, financial reporting practices which could have a material effect on the financial statements.

We also confirm that we have disclosed:

• our knowledge of fraud, or suspected fraud, involving either management, employees who have significant roles in internal control or others where fraud could have a material effect on the financial statements; and

• our knowledge of any allegations of fraud, or suspected fraud, affecting the entity’s financial statements communicated by employees, former employees, analysts, regulators or others.

Law, regulations, contractual arrangements and codes of practice

There are no instances of non-compliance with laws, regulations and codes of practice, likely to have a significant effect on the finances or operations of the Council.

The Council has complied with all aspects of contractual arrangements that could have a material effect on the financial statements in the event of non-compliance. There has been no non-compliance with requirements of regulatory authorities that could have a material effect on the financial statements in the event of non-compliance.

Fair Values

We confirm the reasonableness of the significant assumptions within the financial statements. For each of the assumptions set out in the accounting policies section and in Note 54 to the Financial Statements, we confirm:

• the appropriateness of the measurement method; • the basis used by management to overcome the presumption under the financial

reporting framework; • the completeness and appropriateness under the financial reporting framework;

and • that subsequent events do not require adjustment to the fair value measurement.

Group entities

The Council does not hold any interest in organisations which would require incorporation in Group Accounts.

Assets

The following have been properly recorded and, where appropriate, adequately disclosed in the financial statements:

• losses arising from sale & purchase commitments; • agreements & options to buy back assets previously sold; and • assets pledged as collateral.



Compensating arrangements

There are no formal or informal compensating balancing arrangements with any of our cash and investment accounts.

Contingent liabilities

There are no other contingent liabilities, other than those that have been properly recorded and disclosed in the financial statements. In particular:

• there is no significant pending or threatened litigation; • there are no material commitments or contractual issues, other than those already

disclosed in the financial statements • no financial guarantees have been given to third parties and not reflected in the

Accounts

Outstanding claims against the Council

There are no significant financial claims against the Council at 31 March 2008 which have not been provided for in the 2007/08 Accounts.

The Council has not made any financial guarantees to third parties other than any already reflected in the Accounts.

Related party transactions

I confirm the completeness of the information disclosed regarding the identification of related parties.

The identity of, and balances and transactions with, related parties have been properly recorded and where appropriate, adequately disclosed in the financial statements

FRS17 figures

All unfunded liabilities e.g. discretionary added years awarded to staff in the LGPS and discretionary benefits awarded to teachers under the Teachers Pension scheme are included in the FRS17 liability figures.

Post balance sheet events

Since the date of approval of the financial statements by the Council, no additional significant post balance sheet events that have occurred which would require additional adjustment or disclosure in the financial statements.

The Council has no plans or intentions that may materially alter the carrying value or classification of assets and liabilities reflected in the financial statements.

Unadjusted errors in the Statement of Total Recognised Gains and Losses (STRGL)

The STRGL contains a number of incorrect accounting entries that have not been resolved at the year end. These are set out below:

• The inclusion of £3.054 million under 'Other recognised gains' in the STRGL ; • The difference between the balance sheet and the STRGL on pension actuarial

gains totalling £1.423 million, and



• The £0.639 million of unfunded benefit contributions (loss) charged to STRGL is inconsistent with the £1.944 million income appearing in the income and expenditure account.

We believe these are non-material errors that require further investigation. We plan to review and rectify the STRGL and any other financial statements impacted by these errors in 2008/09.

Signed on behalf of Gloucestershire County Council

I confirm that the this letter has been discussed and agreed by the Audit Committee on 30 September 2008

Signed: Signed

Stephen Wood, Group Director, Bruce Hogan, Chairman

Business Management Audit Committee

Date: Date:

Appendix 5 – Proposed audit opinions and value for money conclusion


Appendix 5 – Proposed audit opinions and value for money conclusion Independent auditor’s report to the Members of Gloucestershire County Council

Opinion on the financial statements I have audited the accounting statements, the firefighters’ pension fund accounting statements, the local government pension fund accounts, and related notes of Gloucestershire County Council for the year ended 31 March 2008 under the Audit Commission Act 1998. The accounting statements comprise the Explanatory Foreword, Income and Expenditure Account, the Statement of the Movement on the General Fund Balance, the Consolidated Balance Sheet, the Statement of Total Recognised Gains and Losses, the Cash Flow Statement and the related notes. The firefighters’ pension fund accounting statements comprise the Fund Account, the Net Assets Statement and the related notes. The local government pension fund accounts comprise the Fund Account, the Net Assets Statement and the related notes. The accounting statements, the firefighters’ pension fund accounting statements and local government pension fund accounts have been prepared under the accounting policies set out in the Statement of Accounting Policies.

This report is made solely to the members of Gloucestershire County Council in accordance with Part II of the Audit Commission Act 1998 and for no other purpose, as set out in paragraph 36 of the Statement of Responsibilities of Auditors and of Audited Bodies prepared by the Audit Commission.

Respective responsibilities of the Group Director, Business Management and auditor

The Group Director, Business Management’s responsibilities for preparing the financial statements, including the firefighters’ pension fund accounting statements and local government pension fund accounts, in accordance with relevant legal and regulatory requirements and the Statement of Recommended Practice on Local Authority Accounting in the United Kingdom 2007 are set out in the Statement of Responsibilities for the Statement of Accounts.

My responsibility is to audit the accounting statements, firefighters’ pension fund accounting statements and the local government pension fund accounts and related notes in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).



I report to you my opinion as to whether the accounting statements, firefighters’ pension fund accounting statements and the local government pension fund accounts present fairly, in accordance with relevant legal and regulatory requirements and the Statement of Recommended Practice on Local Authority Accounting in the United Kingdom 2007:

• the financial position of the Authority and its income and expenditure for the year; • the financial transactions of the firefighters’ pension fund during the year and the

amount and disposition of the fund’s assets and liabilities, other than liabilities to pay pensions and other benefits after the end of the scheme year; and

• the financial transactions of the local government pension fund during the year and the amount and disposition of the fund’s assets and liabilities, other than liabilities to pay pensions and other benefits after the end of the scheme year.

I review whether the governance statement reflects compliance with ‘Delivering Good Governance in Local Government: A Framework’ published by CIPFA/SOLACE in June 2007. I report if it does not comply with proper practices specified by CIPFA/SOLACE or if the statement is misleading or inconsistent with other information I am aware of from my audit of the financial statements. I am not required to consider, nor have I considered, whether the governance statement covers all risks and controls. Neither am I required to form an opinion on the effectiveness of the Authority’s corporate governance procedures or its risk and control procedures

I read other information published with the accounting statements, firefighters’ pension fund accounting statements, the local government pension fund accounts and related notes and consider whether it is consistent with the audited accounting statements, firefighters’ pension fund accounting statements, the local government pension fund accounts and related notes. This other information comprises the Explanatory Foreword the Annual Report and the Pension Fund Annual Report. I consider the implications for my report if I become aware of any apparent misstatements or material inconsistencies with the accounting statements, firefighters’ pension fund accounting statements, the local government pension fund accounts and related notes. My responsibilities do not extend to any other information.

Basis of audit opinion I conducted my audit in accordance with the Audit Commission Act 1998, the Code of Audit Practice issued by the Audit Commission and International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Authority accounting statements, pension fund accounts and related notes. It also includes an assessment of the significant estimates and judgments made by the Authority in the preparation of the accounting statements, firefighters’ pension fund accounting statements, the local government pension fund accounts and related notes, and of whether the accounting policies are appropriate to the Authority’s circumstances, consistently applied and adequately disclosed.



I planned and performed my audit so as to obtain all the information and explanations which I considered necessary in order to provide me with sufficient evidence to give reasonable assurance that the accounting statements, firefighters’ pension fund accounting statements, the local government pension fund accounts and related notes are free from material misstatement, whether caused by fraud or other irregularity or error. In forming my opinion I also evaluated the overall adequacy of the presentation of information in the accounting statements, firefighters’ pension fund accounting statements, the local government pension fund accounts and related notes.

Opinion In my opinion:

• The Authority financial statements present fairly, in accordance with relevant legal and regulatory requirements and the Statement of Recommended Practice on Local Authority Accounting in the United Kingdom 2007, the financial position of the Authority as at 31 March 2008 and its income and expenditure for the year then ended;

• The firefighters’ pension fund accounting statements present fairly, in accordance with the Statement of Recommended Practice on Local Authority Accounting in the United Kingdom 2007, the financial transactions of the firefighters’ pension fund during the year ended 31 March 2008 and the amount and disposition of the fund’s assets and liabilities as at 31 March 2008, other than liabilities to pay pensions and other benefits after the end of the scheme year; and

• The local government pension fund accounts and related notes present fairly, in accordance with the Statement of Recommended Practice on Local Authority Accounting in the United Kingdom 2007, the financial transactions of the local government pension fund during the year ended 31 March 2008 and the amount and disposition of the fund’s assets and liabilities as at 31 March 2008, other than liabilities to pay pensions and other benefits after the end of the scheme year.

Stephen Malyn

District Auditor

Audit Commission

Westward House

Lime Kiln Close

Stoke Gifford

Bristol, BS34 8SR

30 September 2008



Conclusion on arrangements for securing economy, efficiency and effectiveness in the use of resources

Authority’s Responsibilities The Authority is responsible for putting in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources, to ensure proper stewardship and governance and regularly to review the adequacy and effectiveness of these arrangements

Auditor’s Responsibilities I am required by the Audit Commission Act 1998 to be satisfied that proper arrangements have been made by the Authority for securing economy, efficiency and effectiveness in its use of resources. The Code of Audit Practice issued by the Audit Commission requires me to report to you my conclusion in relation to proper arrangements, having regard to relevant criteria specified by the Audit Commission for principal local authorities and fire and rescue authorities. I report if significant matters have come to my attention which prevent me from concluding that the Authority has made such proper arrangements. I am not required to consider, nor have I considered, whether all aspects of the Authority’s arrangements for securing economy, efficiency and effectiveness in its use of resources are operating effectively.

Conclusion I have undertaken my audit in accordance with the Code of Audit Practice and having regard to the criteria for principal local authorities and fire and rescue authorities specified by the Audit Commission and published in December 2006, I am satisfied that, in all significant respects, Gloucestershire County Council made proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ending 31 March 2008.

Best Value Performance Plan I have issued our statutory report on the audit of the authority’s best value performance plan for the financial year 2007/08 on 30 August 2007.

I did not identify any matters to be reported to the authority and did not make any recommendations on procedures in relation to the plan.



Certificate I certify that I have completed the audit of the accounts in accordance with the requirements of the Audit Commission Act 1998 and the Code of Audit Practice issued by the Audit Commission.

Stephen Malyn

District Auditor

Audit Commission

Westward House

Lime Kiln Close

Stoke Gifford

Bristol, BS34 8SR

30 September 2008

Appendix 6 – Action plan


Appendix 6 – Action plan Page no.

Recommendation Priority1 = Low2 = Med3 = High

Responsibility Agreed Comments Date

5 R1 Re-clarify roles and responsibilities, for maintaining effective systems controls, between BSC and financial accounting.

3 Mark Spilsbury/ Cheryl Chambers

Yes Although the vast majority, and all significant, payroll control accounts were reconciled, the need for further improvements in controls and full documentation of responsibilities between BSC and Financial Accounting is accepted. Such improvements and agreement of responsibilities will be completed by December 2008.

December 2008

5 R2 Review the capacity and training in BSC to deal with audit queries from internal and external auditors.

3 Cheryl Chambers Yes In future BSC will allocate a key co-ordinator for all audits who will be responsible for ensuring BSC staff are appropriately briefed on the scope of the audit, will ensure appropriate staff are available, and will act as early escalation point in case of difficulties.

December 2008

7 R3 The Council should obtain from a recognised Actuary the value the teachers' unfunded benefits.

2 Neil Eggles/ Haroon Lulat

Yes Recommendation accepted. We will seek further advice from the actuary.

For 2008/09 accounts

7 R4 The calculation of the bad debt provision should be reviewed in future years with levels of provision being influence by both the age and type of debtor in question.

2 John Kear/ Steve Panting

Yes A detailed review will be undertaken during 2008/09 in order that a new methodology is implemented for the 2008/09 accounts if appropriate.


Appendix 6 – Action plan


Page no.

Recommendation Priority1 = Low2 = Med3 = High

Responsibility Agreed Comments Date

7 R5 The Council should review the year end arrangements for accounting for schools' cash balances and for accruing for expenditure.

2 Shane Blackshaw/ Neil Eggles

Yes New arrangements will be implemented for future years to address this recommendation including the requirement for copy year end bank statements to be sent in with school returns.


8 R6 We recommend the Council ensure key payroll controls are operating as intended.

2 Cheryl Chambers/ Andy Palfreyman

Yes A specific review is to be undertaken by the BSC to confirm current checking procedures (both pre & post Gross and Net) and to identify improvements to checking procedures. This will include seeing how source documents can be best included in the checking.

December 2008

18 R7 The Council should investigate the errors in the STRGL and amend the 2008/09 accounts accordingly.

3 John Kear/ Kathy Oakey

Yes The Council accepts that several items could have been treated differently and will be reviewed in advance of preparing the 2008/09 accounts. Additional help has been sought from the Audit Commission's technical unit to resolve this outstanding issue.


The Audit Commission The Audit Commission is an independent watchdog, driving economy, efficiency and effectiveness in local public services to deliver better outcomes for everyone.

Our work across local government, health, housing, community safety and fire and rescue services means that we have a unique perspective. We promote value for money for taxpayers, covering the £180 billion spent by 11,000 local public bodies.

As a force for improvement, we work in partnership to assess local public services and make practical recommendations for promoting a better quality of life for local people.

Copies of this report If you require further copies of this report, or a copy in large print, in Braille, on tape, or in a language other than English, please call 0844 798 7070.

© Audit Commission 2008

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