The Audit Plan – template user guide
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1. Grant Thornton Emerging Issues Briefing for Cheshire East Council Year ended March 2014 11 March 2014 Jon Roberts Engagement lead T 0121 232 5410 E jon roberts uk gt com Allison Rhodes Manager T 0121 232 5285 E allison rhodes uk gt com Naomi Povey Executive T 0121 232 5294 E naomi j povey uk gt com The contents of this report relate only to the matters which have come to our attention which we believe need to be reported to you as part of our audit process It is not a comprehensive record of all the relevant matters which may be subject to change and in particular we cannot be held responsible to you for reporting all of the risks which may affect your business or any weaknesses in your internal controls This report has been prepared solely for your benefit and should not be quoted in whole or in part without our prior written consent We do not accept any responsibility for any loss occasioned to any third party acting or refraining from acting on the basis of the content of this report as this report was not prepared for nor intended for any other purpose Contents Section Introduction Local government guidance Audit Commission research Tough Times 2013 Local Audit and Accountability Act Better Care Fund Helping the High Street Help for housing building Grant Thornton 2016 tipping point Challenging the current Alternative delivery models in local government Reaping the benefits2. first impressions of the impact of welfare reform Accounting and audit issues Private Finance Initiative Schemes and Service Concessions Property plant and equipment valuations Business rate appeals provisions Changes to SeRCOP new public health line Accounting for and financing the local government pension scheme costs Changes to the Local Government Pension Scheme 2014 Grant Thornton UK LLP Page oOo ON O A 11 12 13 14 15 16 17 18 Introduction This paper provides the Audit and Governance Committee with summary of emerging national issues and developments that may be relevant to you as a unitary council This includes a number of questions that the Committee may wish to consider to order to assess whether it has sought sufficient and appropriate assurance to fulfil its governance responsibilities Members of the Audit Committee can find further useful material on our website www grant thornton co uk where we have a section dedicated to our work in the public sector Here you can download copies of our publications 2016 tipping point Challenging the current Responding to the challenge alternative delivery models in local government Reaping the benefits First impressions of the impact of welfare reform Local Government Governance Review 2014 Working in tandem If you would like further information on any items in this briefing or would like to register with Grant Thornton to receive r
3. is spread over the three years 2014 Grant Thornton UK LLP 17 Emerging issues and developments Accounting and audit issues To consider Are members satisfied that arrangements are in place to obtain the information from its actuary to meet the changes in the requirements for accounting for the LGPS including restating the comparatives and that any considerations of early payments to the fund will also ensure that the charge to the general fund is appropriate and supported by legal advice 2014 Grant Thornton UK LLP Emerging issues and developments Accounting and audit issues Changes to the Local Government Pension Scheme The Public Service Pensions Bill received Royal Assent in April 2013 becoming the Public Service Pensions Act 2013 the Act The Act makes provision for new public service pension schemes to be established in England Wales amp Scotland Consequent regulations have been laid to introduce changes to the LGPS in England and Wales from 1st April 2014 The regulations for the changes in Scotland have not yet been laid and will only impact from 1 April 2015 These introduce a number of changes including achange from a final salary scheme to a career average scheme introduction of a 50 50 option whereby members can choose to reduce their contributions by 50 to receive 50 less benefit e calculation of contributions based on actual salary which could lead to some staff with irregular patter
4. to SeRCOP new public health line SeRCOP for 2013 14 introduces a new cost of service line for Public health This has been introduced to reflect new responsibilities placed upon local authorities following restructuring in the NHS We expect this new service line to be presented on the face of the CIES within cost of services If there were material amounts relating to this service in 2013 14 we would expect comparative figures to be restated To consider Are members satisfied that accurate information and a robust audit trail can be provided for the new public health line within cost of services 2014 Grant Thornton UK LLP Emerging issues and developments Accounting and audit issues Accounting for and financing the local government pension scheme costs Accounting issues The 2013 14 Code follows amendments to IAS 19 and changes the accounting requirements for defined benefit pension liabilities such as those arising from the local government pension scheme LGPS This is a change in accounting policy and will apply retrospectively The main changes we expect to see are areallocation of amounts charged in the comprehensive income and expenditure statement CIES more detailed disclosures We do not expect changes to balance sheet items the net pension liability and pension reserve balance This means that whilst we would expect the CIES to be restated a third balance sheet is not required Actuaries should be pr
5. 2013 the government announced plans to secure a 1 billion 6 year investment in house building to simplify the local authority planning process and help to achieve the stated objective of delivering 250 000 new homes Key objectives e nationally to increase the housing supply in England through a 1 billion 6 year investment programme e ata local level helping councils to increase the supply of affordable social housing supply in their area by allowing them to bid for up to 300 million of additional borrowing against their housing revenue account improving labour market mobility by introducing a Right to Move for those needing to move to take up a job or training Allowing councils outside London to keep all of their New Homes Bonus and have full control over how they use it to support new homes in their area the New Homes Bonus is a grant paid by central government to local councils for increasing the number of homes and their use is paid each year for 6 years and is based on the amount of extra Council Tax revenue raised for new build homes conversions and long term empty homes brought back into use To consider Have members satisfied themselves that the implications and potential financial impact for the Council of the help for housing building measures announced in the Autumn statement are reflected in financial plans 2014 Grant Thornton UK LLP Emerging issues and developments Grant Thornton 2016 tipping poin
6. al statements that are a mixture of costs and values as at different dates aclass of assets may be revalued on a rolling basis provided revaluation of the class of assets is completed within a short period and provided the revaluations are kept up to date There has been much debate on what is a short period and whether assets that have been defined as classes for valuation purposes should also be disclosed separately in the financial statements These considerations are secondary to the requirement that the carrying value does not differ materially from the fair value However we would expect auditors to report to those charged with governance where for a material asset class e all assets within the class are not all valued in the same year e the class of asset is not disclosed separately in the property plant and equipment note To consider Are members assured that there are appropriate arrangements in place for the valuation of assets and proposals for disclosing information about classes of assets in accordance with the Code 2014 Grant Thornton UK LLP 14 Emerging issues and developments Accounting and audit issues Business rate appeals provisions Local authorities are liable for successful appeals against business rates They should therefore recognise a provision for their best estimate of the amount that businesses have been overcharged up to 31 March 2014 However there are practical difficulties which mean that mak
7. as they develop their options and implement innovation strategies e Considers aspects of risk To consider Have members considered whether the three checklists on supporting innovation in service delivery setting up a company and relevant questions when considering the development of a new delivery model may be used as helpful tools as the Council continues to develop its commissioning strategy 2014 Grant Thornton UK LLP 11 Emerging issues and developments Grant Thornton Reaping the benefits first impressions of the impact of welfare reform The potential scope of this topic is broad so our report Reaping the benefits focuses on the financial and managerial aspects of welfare reform This involves Understanding the challenges currently facing local government and housing associations in regard to welfare reform and what organisations have been doing to meet this challenge in terms of strategy projects and new processes Reporting on the early indications of effectiveness following the implementation of these measures and the impact of reform e Providing early insight into challenges facing these organisations in the near future We have pulled together information from a variety of sources including our regular conversations across the local government and housing sectors and surveying local authorities and housing associations in England We found that e In general organisations have been very active in engag
8. ccounting model which in turn is derived from the operators costing model The initial accounting model will have included a range of assumptions such as inflationary increases We would expect authorities to update the accounting model for actual information such as inflationary increases and performance variations during the contract Disclosing the impact of inflation on commitments We expect authorities to disclose the impact of inflation on their service concession commitments These commitments are affected by e past inflation previous price rises will be built into future payments e fluctuations in future inflation this gives rise to uncertainties about future payments Disclosing the fair value of the service concession liability Service concession liabilities are financial instruments Therefore we would expect authorities to disclose the fair value of the liability unless this is not materially different from the carrying value In most cases we would expect the fair value for operational schemes to be higher than the carrying value This is because once a scheme is operational authorities have access to lower interest rates for refinancing This is because the pre construction interest rate reflects the risks associated with construction To consider Are members satisfied that there are arrangements in place to regularly update the accounting model disclose the impact of past and future inflation on its commitments disclo
9. e a transformation in integrated health and social care through local single pooled budget arrangements Pooled budget arrangements are formally underpinned by Section 75 of the NHS Act 2006 Key issues 3 8 billion for funding will be available from 2015 16 largely through a top slice of existing Clinical Commissioning Group CCG budgets Local Authorities with Adult Social Services CCGs and NHS Trusts will need to collaborate through a single pooled budget arrangement to support the delivery of health and social care services in their designated local areas finalised joint health and social care plans must be in place setting out how pooled budgets will be spent draft plans must be formally signed off by each statutory Health and Well Being Board and submitted to NHS England area teams by 14 February with a 4 April 2014 deadline for submission of finalised plans To consider Have members satisfied themselves that the local Health and Wellbeing Board is on track to finalise and sign off the joint health and social care plan for submission to the NHS England area team the size of the pooled budget is understood the Council is collaborating with its partner bodies to work through funding and delivery arrangements the roles and responsibilities are defined and understood for the Council and its partner CCGs NHS Trusts and the Health and Wellbeing Board 2014 Grant Thornton UK LLP Emerging issues and developments Local go
10. egular email updates on issues that are of interest to you please contact either your Engagement Lead or Audit Manager Jon Roberts Allison Rhodes Naomi Povey Regional Lead Partner Engagement Lead Manager Executive T 0121 232 5410 T 0121 232 5285 T 0121 232 5294 M 07786 198 735 M 07880 456 118 E jon roberts uk gt com E allison rhodes uk gt com E naomi j povey uk gt com 2014 Grant Thornton UK LLP Emerging issues and developments Local government guidance Councils must continue to adapt to meet the needs of local people Audit Commission research Tough Times 2013 The Audit Commission s latest research http www audit commission gov uk wp content uploads 2013 1 1 T ough Times 2013 Councils Responses to Financial Challenges w1 pdf shows that England s councils have demonstrated a high degree of financial resilience over the last three years despite a 20 per cent reduction in funding from government and a number of other financial challenges However with uncertainty ahead the Commission says that councils must carry on adapting in order to fulfil their statutory duties and meet the needs of local people The Audit Commission Chairman Jeremy Newman said that with continuing financial challenges Councils must share what they have learnt from making savings and keep looking for new ways to deliver public services that rely less on funding from central government Key findings The Audit Commission s researc
11. h found that the three strategies most widely adopted by councils have been reducing staff numbers securing service delivery efficiencies and reducing or restructuring the senior management team three in ten councils exhibited some form of financial stress in 2012 13 exhibited by a mix of difficulties in delivering budgets and taking unplanned actions to keep finances on track e auditors expressed concerns about the medium term prospects of one third of councils 36 per cent To consider Have members satisfied themselves that the Council can deliver a balanced budget that the medium term strategy budget has been subject to appropriate challenge and that the Council s finances are resilient over the medium term 3 years and beyond 2014 Grant Thornton UK LLP Emerging issues and developments Local government guidance Councils choosing their auditors one step closer Local Audit and Accountability Act The Local Audit and Accountability Act received Royal Assent on 30 January 2014 Key points amongst other things the Act makes provision for the closure of the Audit Commission on 31 March 2015 arrangements are being worked through to transfer residual Audit Commission responsibilities to new organisations there will be a new framework for local public audit due to start when the Commission s current contracts with audit suppliers end in 2016 17 or potentially 2019 20 if all the contracts are extended the Nat
12. hanges to its payroll system and processes by 1 April 2014 to liaise with the administering authority over any changes they may need in the assurances provided over the completeness and accuracy of contributions 2014 Grant Thornton UK LLP 20 Grant Thornton 2014 Grant Thornton UK LLP All rights reserved Grant Thornton means Grant Thornton UK LLP a limited liability partnership Grant Thornton is a member firm of Grant Thornton International Ltd Grant Thornton International Reference to the brand under which the Grant Thorni s to Grant Thornton are ion member firms operate and refer to one or more member firms as the context requires Grant Thornton International and the member firms are not a worldwide partnership Services are delivered independently by member firms which are not responsible for the services or activities of one another Grant Thornton International does not provide services to clients grant thornton co uk
13. ing a reliable estimate for the total amount that has been overcharged is challenging e the appeals process is managed by the Valuation Office Agency VOA and so local authorities are reliant on the information provided to them by the VOA some businesses may have been overcharged but not yet made an appeal We would expect local authorities to work with the VOA to make sure that they have access to the information they need e where appeals have been made to determine a methodology for estimating a provision and to apply this methodology consistently e where appeals have not been made to consider the extent to which a reliable estimate can be made for example in relation to major businesses to recognise a provision where a reliable estimate can be made to disclose a contingent liability where a reliable estimate cannot be made to provide a rationale to support their judgement that a reliable estimate cannot be made e to revisit the estimate with the latest information available immediately before the audit opinion is issued To consider Have members sufficient assurance that e the Council will obtain the information it needs from the VOA e the Council has a robust rationale and methodology to estimate and recognise a provision or to disclose a contingent liability and to refresh this before the opinion is issued 2014 Grant Thornton UK LLP Emerging issues and developments Accounting and audit issues Changes
14. ing with stakeholders and putting in place appropriate governance arrangements and systems to implement specific reforms A minority of organisations did not fully exploit all the options open to them in preparing for reform So far the indication is that the impact of reform experienced by local authorities and partners has been managed effectively This may be because the full impact has not yet been felt Some worrying signs are emerging including rising rental arrears homelessness and reliance on food banks which may be linked to the reforms Looking ahead further reforms such as the implementation of universal credit and the move to direct payments present significant uncertainties and challenges over the next few years To consider Are members satisfied that they are kept informed of progress with stakeholder engagement and changes to governance arrangements to implement specific reforms e the Council has carried out impact assessment on council tax localisation the benefit cap and housing benefit the spare room subsidy and changes to the Social Fund The Council has a plan in place or in development for the introduction of universal credit 2014 Grant Thornton UK LLP 12 Emerging issues and developments Accounting and audit issues Private Finance Initiative Schemes and Service Concessions Updating the accounting model during the operational phase Most authorities derive their accounting entries from an a
15. ional Audit Office will be responsible for the codes of audit practice and guidance which set out the way in which auditors are to carry out their functions Local Authority s will take responsibilities for choosing their own external auditors recognised supervisory bodies accountancy professional bodies will register audit firms and auditors and will be required to have rules and practices in place that cover the eligibility of firms to be appointed as local auditors Local Authority s will be required to establish an auditor panel which must advise the authority on the maintenance of an independent relationship with the local auditor appointed to audit its accounts existing rights around inspection of documents the right to make an objection at audit and for declaring an item of account unlawful are in line with current arrangements transparency measures give citizens the right to film and tweet from any local government body meeting To consider Have members considered the implications of the Local Audit and Accountability Act for the Council s future external audit arrangements 2014 Grant Thornton UK LLP Emerging issues and developments Local government guidance Joint Health and Social Care Plans to be in place by 4th April Better Care Fund In the June 2013 Spending Round the Government announced the prospective implementation of the Better Care Fund formerly the integration transformation fund The key aim is to ensur
16. ior management and members with an overview of key tipping point risks or the good practice case studies in strategic financial planning financial governance and financial control provide comparative information to support their governance role 2014 Grant Thornton UK LLP 10 Emerging issues and developments Grant Thornton Alternative delivery models in local government This report http www grant thornton co uk en Publications 2014 Responding to the challenge alternative delivery models in local government discusses the main alternative delivery models available to local government These are based on our recent client survey and work with local government clients It aims to assist others as they develop their options and implement innovation strategies Local government has increased the variety and number of alternative delivery models it uses in recent years including contracts and partnerships with other public bodies and private sector organisations as well as developing new public sector and non public sector entities With financial austerity set to continue it is important that local authorities continue innovating if they are to remain financially resilient and commission better quality services at reduced cost This report is based on a brief client survey and work with local authority clients and e Outlines the main alternative delivery models available to local authorities Aims to assist other authorities
17. ns of working moving between contribution rate bandings on a regular basis e changes in employee contribution rates and bandings e transitional protection for people retiring within 10 years of 1 April 2014 further regulations are still awaited The above changes have implications for all employers involved in the LGPS introducing required changes to their payroll systems to ensure pension contributions are calculated correctly This has consequent implications for administering authorities to communicate with employers and consider how they will obtain assurance over the accuracy and completeness of contributions going forwards since the calculations are more complex going forwards and less predictable In addition changes are also required to pension administration payment systems as well as much more detailed processes around maintaining individual pension accounts for all members to ensure the correct payment of future pensions The Act also requires changes to the governance arrangements although regulations for the LGPS have not yet been laid for these and the changes in governance arrangements are not expected to be implemented until 1 April 2015 continued overleaf 2014 Grant Thornton UK LLP 19 Emerging issues and developments Accounting and audit issues Changes to Local Government Pension Scheme continued To consider Are members satisfied that there are arrangements in place to ensure implementation of the required c
18. oviding local authorities with the information they need to prepare the financial statements including restated comparatives Financing issues The amount to be charged to the general fund in a financial year is the amount that is payable for that financial year as set out in the actuary s rates and adjustments certificate Some local authorities are considering paying pension fund contributions early in exchange for a discount but not charging the general fund until later Local authorities must be satisfied that the amounts charged to the general fund in a financial year are the amounts payable for that year Where local authorities are considering making early payments we would expect them to obtain legal advice either internally or externally to determine the amounts that are chargeable to the general fund We would expect this to include consideration of e the actuary s opinion on the amounts that are payable by the local authority into the pension fund the agreement between the actuary and the local authority as to when these payments are to be made e the wording in the rates and adjustments certificate setting out when amounts are payable for each financial year For example if a local authority agrees to make a payment to the pension fund in a single year and proposes to charge this amount to the general fund over a three year period we would expect the rates and adjustments certificate to show unambiguously that the amount payable
19. se the fair value of its PFI liability 2014 Grant Thornton UK LLP 13 Emerging issues and developments Accounting and audit issues Property plant and equipment valuations The 2013 14 Code has clarified the requirements for valuing property plant and equipment and now states explicitly that revaluations must be sufficiently regular to ensure that the carrying amount does not differ materially from that which would be determined using the fair value at the end of the reporting period This means that a local authority will need to satisfy itself that the value of assets in its balance sheet is not materially different from the amount that would be given by a full valuation carried out on 31 March 2014 This is likely to be a complex analysis which might include consideration of the condition of the authority s property portfolio at 31 March 2014 e the results of recent revaluations and what this might mean for the valuation of property that has not been recently valued general information on market prices and building costs e the consideration of materiality in its widest sense whether an issue would influence the view of a reader of the accounts The Code also follows the wording in IAS 16 more closely in the requirements for valuing classes of assets e items within a class of property plant and equipment are to be revalued simultaneously to avoid selective revaluation of assets and the reporting of amounts in the financi
20. t Challenging the current This report http Awww grant thornton co uk Global Publication_pdf LG Financial Resilience 2016 tipping point pdf is the third in an annual series which assesses whether English local authorities have the arrangements in place to ensure their sustainable financial future Local authorities have so far met the challenges of public sector budget reductions However some authorities are predicting reaching tipping point when the pressure becomes acute and financial failure is a real risk Based on our review of forty per cent of the sector this report shows that seventy nine per cent of local authorities anticipate some form of tipping point in 2015 16 or 2016 17 Our report rates local authorities in four areas key indicators of financial performance strategic financial planning financial governance and financial control It also identifies a series of potential tipping point scenarios such as local authorities no longer being able to meet statutory responsibilities to deliver a range of services Our report also suggest some of the key priorities for local authorities in responding to the challenge of remaining financially sustainable This includes a relentless focus on generating additional sources of revenue income and improving efficiency through shared services strategic partnerships and wider re organisation To consider Have members considered whether the good practice checklist designed to provide sen
21. vernment guidance Helping the High Street Support for UK high streets On December 6 2013 the Communities Secretary set out a 1 billion package of support for UK high streets the stated objectives being to support business and the private sector to have a greater stake in their high streets make it easier to diversify town centres ensure town centres remain accessible to visitors promote the use of technology to modernise town centres Key elements of the strategy include e a 1 000 discount in 2014 15 and 2015 16 for retail premises with a rateable value of up to 50 000 including shops pubs caf and restaurants capping the Retail Price Index RPI increase in bills to 2 in 2014 15 extending the doubling of Small Business Rates relief to April 2015 areoccupation relief for 18 months with a 50 discount for new occupants of retail premises empty for a year or more assisting business cash flow by allowing businesses to pay their bills over 12 months rather than 10 To consider Have members satisfied themselves that the Council has assessed the local economic impact of the measures announced by the Communities Secretary and the impact of this upon the Council s finances and the 2014 15 and 2015 16 budgets 2014 Grant Thornton UK LLP Emerging issues and developments Local government guidance Councils keep New Homes Bonus Help for housing building In the Autumn statement 5 December
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