The Audit Plan – template user guide
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1. Grant Thornton Audit Committee Update for Worcestershire County Council Year ended 31 March 2014 March 2014 Kyla Bellingall Director T 0121 232 5359 E kyla bellingall uk gt com Helen Lillington Audit Manager T 0121 232 5312 E helen m lillington uk gt com Kathryn Kenderdine Audit Executive T 0121 232 5316 E kathryn a kenderdine 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 Progress at end of February 2014 Emerging issues and developments Local government guidance Grant Thornton Accounting and audit issues 2014 Grant Thornton UK LLP Page 10 12 Introduction This paper provides the Audit Committee with a report on progress i2. 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 research 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 Issues to consider challenge questions How 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 beyo
3. area teams by 14 February with a 4 April 2014 deadline for submission of finalised plans Issues to consider challenge questions Is the local Health and Wellbeing Board on track to finalise and sign off the joint health and social care plan for submission to the NHS England area team Has the size of the pooled budget been clarified Is the Authority collaborating with its partner bodies to work through funding and delivery arrangements Have roles and responsibilities been defined and understood for the Authority and its partner CCGs NHS Trusts and the Health and Wellbeing Board 2014 Grant Thornton UK LLP 79 of Councils anticipate Tipping Point soon Grant Thornton 2016 tipping point 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 i
4. 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 Challenge questions e Does your s151 officer regularly update the accounting model e Has your authority disclosed the impact of past and future inflation on its commitments e Has your authority disclosed the fair value of its PFI liability 2014 Grant Thornton UK LLP 13 Revaluing your assets clarification of accounting guidance 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 e the condition of t
5. have completed the first phase of our interim Our interim fieldwork visit includes March 2014 visit This has included updating our understanding updating our review of the Council s control of the Council s control environment and environment understanding of financial systems We have also completed the initial risk assessment for the value updating our understanding of financial systems for money conclusion e review of Internal Audit reports on core financial systems early work on emerging accounting issues The second phase of the interim work is due to commence on the 3 March and will include work on emerging accounting issues an agreed programme of early substantive testing and an interim review of key areas for the value for money conclusion e early substantive testing proposed Value for Money conclusion 2013 14 final accounts audit 12th May 2014 No We have agreed key dates and outputs with officers Including for the delivery of the final accounts audit We will e audit of the 2013 14 financial statements continue to maintain a dialogue with officers to ensure the process remains on track and any potential problems are dealt with as early as proposed Value for Money conclusion possible proposed opinion on the Council s accounts 2014 Grant Thornton UK LLP Progress at end of February Work Value for Money VfM conclusion The scope of our work to inform the 2013 14 VfM conclusion compris
6. and equipment note Challenge question Has your 151 officer consulted you on the programme of valuations and the proposals for disclosing information about classes of assets 2014 Grant Thornton UK LLP 14 Reporting the costs of public health Accounting and audit issues Changes 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 Challenge question e Is your s151 officer confident that he can provide accurate information and a robust audit trail for the public health line within cost of services 2014 Grant Thornton UK LLP Accounting for pensions 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
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8. 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 is spread over the three years 2014 Grant Thornton UK LLP 16 Accounting for pensions Accounting and audit issues Challenge questions e ls your local authority confident of getting the information from its actuary to meet the changes in the requirements for accounting for the LGPS including restating the comparatives If your authority is considering making an early payment to the pension fund has it set out a reasonable argument for how it proposes to charge this amount to the general fund Is this supported by legal advice 2014 Grant Thornton UK LLP Changes to the public services pension scheme 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 A
9. em 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 Issues to consider challenge questions 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 Joint Health and Social Care Plans to be in place by 4 April Local government guidance 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 ensure 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
10. es areview of our understanding of your processes in relation to securing financial resilience areview of our understanding of your processes in relation to securing economy efficiency and effectiveness e review of key documents such as the medium term financial plan and the risk register e review of the arrangements for utilisation of the Better Care Fund e review of the arrangements in place for ensuring value for money is achieved in the delivery of the energy to waste plant at Hartlebury Other areas of work We are currently responding to a number of questions from members of the public in relation to the energy from waste plant at Hartlebury Other activity undertaken We have met with officers to discuss the accounting implications associated with the contract variation for the energy from waste plant Further work is planned in this area the scope of which is being agreed 2014 Grant Thornton UK LLP Planned date Complete Comments March May witha No final update in June prior to giving the conclusion On going On going On going On going Emerging issues and developments Councils must continue to adapt to meet the needs of local people Local government guidance Audit Commission research Tough Times 2013 The Audit Commission s latest research http Awww audit commission gov uk wp content uploads 2013 1 1 T ough Times 2013 Councils Responses to Financial Challenges w1 pdf shows that
11. he authority s property portfolio at 31 March 2014 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 financial statements that are a mixture of costs and values as at different dates e 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
12. income and expenditure statement CIES e 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 providing 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 the wording in the rates and adjustments certificate setting out when amounts are payable for
13. le 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 Outlines the main alternative delivery models available to local authorities Aims to assist other authorities as they develop their options and implement innovation strategies e Considers aspects of risk Challenge question Our report includes a number of case studies summarising how public services are being delivered through alternative service models Has the Authority reviewed these case studies and assessed whether there are similar opportunities available to it e Our report includes three short checklists on supporting innovation in service delivery setting up a company and questions that members should ask officers when considering the development of a new delivery model Are
14. n delivering our responsibilities as your external auditors The paper also includes asummary of emerging national issues and developments that may be relevant to you as a County Council includes a number of challenge questions in respect of these emerging issues which the Committee may wish to consider 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 Local Government Governance Review 2013 Towards a tipping point The migration of public services The developing internal audit agenda Preparing for the future and Surviving the storm how resilient are local authorities If you would like further information on any items in this briefing or would like to register with Grant Thornton to receive regular email updates on issues that are of interest to you please contact either your Engagement Lead or Audit Manager 2014 Grant Thornton UK LLP Progress at end of February Work Planned date Complete Comments 2013 14 Accounts Audit Plan l March 2014 Yes Audit plan included in the papers for this audit We are required to issue a detailed accounts audit committee plan to the County Council setting out our proposed approach in order to give an opinion on the 2013 14 financial statements Interim accounts audit February and In part We
15. nd 2014 Grant Thornton UK LLP Councils choosing their auditors one step closer Local government guidance 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 National 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 it
16. ndicators 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 Challenge questions Our report includes a good practice checklist designed to provide senior management and members with an overview of key tipping point risks Has the s151 officer completed the checklist and reported it to the Audit Committee The report also includes good practice case studies in strategic financial planning financial governance and financial control Has the 151 officer reviewed these case studies and considered whether there is scope to adopt these 2014 Grant Thornton UK LLP 10 Alternative Delivery Models are you making the most of them 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 availab
17. pril 2015 These introduce a number of changes including achange from a final salary scheme to a career average scheme e 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 patterns of working moving between contribution rate bandings on a regular basis changes in employee contribution rates and bandings 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 a
18. r authority e Do you have any partially built assets at the year end under such a scheme which would now need to be accounted for differently As the standard is retrospectively applied do your financial statements require a prior period adjustment for the financial statements year ending 31 March 2013 2014 Grant Thornton UK LLP 12 Keeping your PFI accounting up to date 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 accounting 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
19. re not expected to be implemented until 1 April 2015 continued overleaf 2014 Grant Thornton UK LLP 18 Changes to the public services pension scheme Accounting and audit issues Changes to Local Government Pension Scheme continued Challenge questions Is the administering authority communicating effectively with employers to ensure that they are able to make necessary changes to their payroll systems in time for implementation from 1 April 2014 Has the administering authority considered how it will obtain assurance about the accuracy and completeness of contributions from employers from April 2014 onwards Has the administering authority fully evaluated the impact of LGPS 2014 on its pensions administration system and processes identified the changes needed and related risks and developed a realistic action plan for implementation including on going monitoring of related risks Is the administering authority s pensions committee aware of the implications and receiving appropriate reports to enable it to oversee the effective implementation In its employer role have appropriate actions been taken to ensure changes to the employer s payroll system to enable accurate calculation of contributions from 1 4 2014 Has the administering authority begun to consider its existing governance arrangements in preparation for the new changes to be implemented in April 2015 2014 Grant Thornton UK LLP 19 Grant Thornton 2014 Gr
20. the checklists being considered as part of the development of the Authority s commissioning strategy 2014 Grant Thornton UK LLP 11 How do you recognise a PFI Accounting and audit issues Private Finance Initiative Schemes and Service Concessions The Government financial reporting manual FReM and the Local Government CIPFA Code of Practice have now adopted IPSAS 32 International public sector accounting standards Service Concession Arrangements Previously under IAS 17 International Accounting Standards Leases the recognition point for an asset and a liability in the financial statements for such a scheme was at the commencement date of the contract when the asset was handed over to the public sector and ready for use Now under IPSAS 32 the recognition point is when e itis probable that future economic benefits associated with the asset will flow to the organisation e the cost of the asset can be measured reliably This suggests that some authorities may need to consider recognising service concession assets during the construction phase as assets under construction In reaching a judgement as to whether to recognise an asset under construction we would expect authorities to consider the extent to which they bear construction risk and whether they can get reliable information on the cost of construction from the operator Challenge questions e Has your s151 officer considered whether IPSAS 32 is relevant to you
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