Auditing the Accounts 2013/14 Local government bodies EMBARGOED UNTIL 00.01 THURSDAY 11 DECEMBER 2014

The Audit Commission’s role is to protect the public purse. We do this by appointing auditors to a range of local public bodies in England. We set the standards we expect auditors to meet and oversee their work. Our aim is to secure high-quality audits at the best price possible. We use information from auditors and published data to provide authoritative, evidence-based analysis. This helps local public services to learn from one another and manage the financial challenges they face. We also compare data across the public sector to identify where services could be open to abuse and help organisations fight fraud.

Contents

Summary ........................................................................................................... 4

Introduction ....................................................................................................... 7

Principal bodies ................................................................................................ 9

Background ................................................................................................. 9

Audit of the accounts ................................................................................... 9

Whole of Government Accounts returns .................................................... 15

Value for money arrangements conclusions .............................................. 18

Auditor reporting ........................................................................................ 20

Summary of performance between 2008/09 and 2013/14 ..................................................................................................... 21

Small bodies ................................................................................................... 26

Background ............................................................................................... 26

Accounting requirements ........................................................................... 26

The work of external auditors .................................................................... 27

Accounting statements .............................................................................. 28

Auditor reporting ........................................................................................ 32

Challenges for 2014/15 and beyond .............................................................. 36

Appendix 1: Types of principal audited bodies ............................................ 38

Appendix 2: Reasons for late audit opinions at principal bodies .............................................................................................. 39

Appendix 3: Summary of principal bodies named in this report ........................................................................................................ 40

Appendix 4: Opinions issued by 30 September 2014 on the 2013/14 annual return by county area ............................................... 44

Appendix 5: Assertions in the annual governance statement for small bodies ............................................................................ 45

Appendix 6: Qualified opinions for small bodies by county area ..................................................................................................... 46

References ...................................................................................................... 47

Summary

Audited accounts are the principal means by which public bodies discharge their accountability for the stewardship of public money. Publishing timely audited accounts, with an unqualified audit opinion, is a fundamental feature of good governance.

Since the Audit Commission published the first Auditing the Accounts report for 2008/09, the proportion of both principal and small bodiesi receiving an audit opinion by 30 September has improved significantly and reached 98 per cent and 99 per cent respectively by the time of this final report for 2013/14. In our view, one of the key drivers for this improvement has been the Commission’s annual public reporting of performance. The Local Audit and Accountability Act 2014 makes no provision for national collection and reporting of the outcome of the local audit process. Without this information, government departments and the public will need to seek other assurances about how well local public bodies are accounting for public money.

Almost all bodies received an audit opinion by 30 September 2014.

■ The audit opinion was issued by 30 September at 99 per cent of councils, 90 per cent of fire and rescue authorities, 97 per cent of police bodies, all other local government bodies, 99 per cent of parish councils and all internal drainage boards (IDBs). This is consistent with last year for most groups, but an improvement for councils and small bodies compared to 2012/13.

■ Overall, 506 out of 512 principal bodies met the statutory accounts publication requirements.

■ Sixteen principal bodies received an unqualified opinion by 31 July 2014 and published their audited accounts promptly. This compares to 13 bodies for 2012/13.

■ For the second consecutive year, no small bodies have failed to prepare and publish audited accounts for the last three years.

Responsible financial officers (RFOs) met their requirement to sign and certify the accounts by 30 June 2014 at almost all principal bodies.

■ The RFO failed to sign and certify the accounts by 30 June 2014 at five principal bodies.

i Principal bodies include councils, fire and rescue authorities, police bodies and other local government bodies. Small bodies include parish councils (also includes community councils, neighbourhood councils, village councils, town councils and parish meetings in parishes where there is no parish council) and internal drainage boards with annual turnover below £6.5 million.

The overwhelming majority of audited bodies received an unqualified audit opinion on their accounts.

■ At the date of preparing this report, no principal bodies had received a qualified audit opinion on the 2013/14 accounts.

■ The majority of small bodies (89 per cent of parish councils and 84 per cent of IDBs) received an unqualified opinion by 30 September on the 2013/14 annual return.

Bodies maintained the timeliness of the information provided to inform Whole of Government Accounts (WGA).

■ Auditors aimed to issue the assurance statement on the WGA return by 3 October 2014. They were able to do so at 95 per cent of principal bodies. This is a slight reduction from 2012/13, where auditors at 97 per cent of principal bodies were able to issue their assurance report by the specified submission date.

■ The timeliness of WGA reporting has improved since 2008/09 although there is scope for bodies to improve the quality of the information submitted to inform the WGA.

Principal bodies have put in place proper arrangements for securing value for money (VFM).

■ Of the 2013/14 conclusions on bodies’ arrangements to secure VFM issued by auditors at the date of preparing this report, only those for 14 councils and two police bodies were qualified. Auditors issued a ‘report on matters arising’ from their VFM work at one council and one other local government body.

Auditors exercised their public reporting powers at two principal bodies and five small bodies.

■ Auditors issued a public interest report to the Police and Crime Commissioner for Surrey and the Chief Constable for Surrey.

■ Auditors issued public interest reports to five small bodies: Keighley Town Council; Whitehill Town Council; Dalton Home Parish Council, Wormingford Parish Council and Broughton Hackett Parish Meeting.

All bodies have improved their performance in financial reporting since the first Auditing the Accounts report for 2008/09.

■ Since Auditing the Accounts was first published for 2008/09, principal and small bodies have made significant improvements in the quality and timeliness of their financial reporting.

■ For 2008/09, only 87 per cent of principal bodies received an audit opinion by 30 September, while 98 per cent received an opinion by 30 September for 2013/14.

■ For 2008/09, nine bodies were credited for early publication of their accounts, while this increased to 16 for 2013/14.

■ Auditors issued 14 non-standard opinions on the accounts for 2008/09 and this has improved each year to 2013/14 where none have been issued to date.

■ Since 2009/10 the percentage of small bodies where the auditor reported by 30 September has increased from 93 per cent to 99 per cent for 2013/14.

Bodies must continue adapting as they face further financial reporting challenges for 2014/15 and beyond.

■ The new Accounts and Audit Regulations, expected to come into effect from 1 April 2015, are likely to bring forward the accounts publication date for principal bodies from 30 September to 31 July for the 2017/18 accounts onwards. Principal bodies will need to start planning now for this significant change.

■ Government is intending to lay further regulations that will allow for the smallest bodies - those spending under £25,000 - to be exempt from an annual audit from 2017/18. However, 600 of these bodies were qualified in 2013/14 and this will weaken accountability for over 5,000 bodies that spend public money.

■ For principal bodies with material transport infrastructure assets, there will be a significant change to the measurement basis of these assets from the 2016/17 accounts. Relevant bodies will need to take action in 2014/15 and 2015/16 to plan for this change.

Introduction

1 Audited accountsi are the principal means by which public bodies discharge their accountability for the stewardship of public money. Publishing timely audited accounts, with an unqualified audit opinion, reflects well on bodies' financial management arrangements and is a fundamental feature of good governance.

2 The audit process also provides assurance to the accounting officers of relevant government departments that the funds distributed to local public bodies have been safeguarded and accounted for properly. The information in this report will help to inform the annual governance statement (AGS), included by government departments in their annual report and accounts, and the supporting annual ‘accountability system statement’ published on their website.

3 In this report, the Commission summarises the results of auditors' work at principal and small bodies.

4 The report names principal bodies where: ■ the RFO did not sign and certify the accounts by 30 June 2014; ■ the auditor’s opinion on the accounts was not issued by 30 September

2014; ■ the auditor's assurance statement on the WGA return was not issued by

3 October 2014; ■ the auditor issued a non-standard accounts opinion, non-standard

conclusion in the WGA assurance statement or non-standard VFM conclusion;

■ accounts were not published by 30 September 2014; ■ audited accounts were not published by 30 September 2014 when an

audit opinion had been issued on or before that date; ■ the AGS did not state that the body complied with the CIPFA Statement

on the role of the Chief Financial Officer, or explain how it had equivalent arrangements in place; and

■ the auditor issued a public interest report or made statutory recommendations.

5 Small bodies included in this report were required to publish their 2013/14 accounting statements and AGS by 30 September 2014. Small bodies do this in the form of an annual return. Auditors aimed to issue the opinion and certificate on the 2013/14 annual return by the same deadline. This enables small bodies to publish their annual return with an auditor's report.

i The terms ‘accounts’, ‘financial statements’, and ‘accounting statements’ are used in this report to refer to the annual statement of accounts that bodies are required to prepare in accordance with relevant regulations and proper practices.

6 The report names those small bodies where the auditor has issued a public interest report or made statutory recommendations.

7 A list published alongside this report also names the parish councils and IDBs that: ■ received a qualified opinion on their annual return for 2013/14; and ■ identifies those bodies that also received a qualification for 2012/13

and/or 2011/12.

8 This report is the final Auditing the Accounts report to be published before the Commission closes on 31 March 2015. We have therefore used this opportunity to highlight the progress made by local government bodies since the Commission first published an Auditing the Accounts report on the results of the 2008/09 audits.

Principal bodies

Background 9 This section of the report summarises the results of auditors’ work for 2013/14 at: ■ 356 councils; ■ 31 fire and rescue authorities; ■ 76 police bodies; and ■ 49 other local government bodiesi.

10 Auditors’ work includes the audit of the financial statements; a review of the WGA return; a review of arrangements to secure VFM; and the exercise of their statutory reporting powers.

Audit of the accounts

Requirements

11 The principal bodies covered by this section of the report are required to prepare and publish their annual accounts in accordance with: ■ statutory requirements and timetables, as set out in the Accounts and

Audit (England) Regulations 2011 (the Regulations) (Ref. 1); and ■ relevant financial reporting standards.

12 The Regulations require the RFO to sign and certify the accounts by no later than 30 June. The body is required, by no later than 30 September, to approve and publish its accounts, which must include publication on its website, together with any audit opinion issued. The RFO must recertify the presentation of the accounts before approval by the body.

Early issue of opinion and publication of audited accounts

13 Table 1 lists the 16 bodies where auditors were able to issue an unqualified opinion and VFM conclusion on the 2013/14 accounts by 31 July 2014, and the body published audited accounts promptly. For 2012/13, auditors were able to issue the opinion by 31 July 2013, and the accounts were published promptly, at 13 bodies.

i A breakdown of the types of principal bodies covered in the report is available at Appendix 1.

Table 1: Bodies with early publication of audited accounts Body Date opinion

issued Date audited accounts published

Councils Oldham Metropolitan Borough Council 28 May 2014 28 May 2014 City of Westminster Council 30 June 2014 30 June 2014 Transport for London 11 July 2014 16 July 2014 Bury Metropolitan Borough Council 15 July 2014 18 July 2014 Kent County Council 24 July 2014 25 July 2014 Borough of Broxbourne 25 July 2014 25 July 2014 South Norfolk District Council 25 July 2014 25 July 2014 Dacorum Borough Council 30 July 2014 31 July 2014 Royal Borough of Greenwich 31 July 2014 31 July 2014 Fire and rescue authorities Kent and Medway Fire and Rescue Authority

29 July 2014 30 July 2014

Other local government bodies Yorkshire Purchasing Organisationi 25 April 2014 2 May 2014 Transport for Greater Manchester 4 July 2014 4 July 2014 Nexus 24 July 2014 24 July 2014 Great Aycliffe Town Council 24 July 2014 25 July 2014 South Yorkshire Pensions Authority 24 July 2014 25 July 2014 Greater Manchester Waste Disposal Authority

31 July 2014 31 July 2014

Source: Audit Commission

14 The Commission congratulates the bodies in Table 1 on their performance.

15 It is particularly pleasing to note that three district councils have managed to publish their audited accounts early enough to feature in Table 1. This is the first year that any district council has achieved publication of audited accounts by 31 July.

16 Surrey County Council has demonstrated that other bodies can also significantly improve the timeliness of their financial reporting. The auditor was able to issue the opinion on 4 August 2014, 32 days earlier than for 2012/13, and the Council published its audited accounts on 13 August 2014, 45 days earlier.

17 The new Accounts and Audit Regulations, expected to come into effect from 1 April 2015, are likely to bring forward the accounts publication date for principal bodies from 30 September to 31 July for the 2017/18 accounts onwards. This will present a significant challenge, particularly given that only

i The Yorkshire Purchasing Organisation has a 31 December financial year-end, and received an unqualified audit opinion within four months.

21 principal bodies have managed to publish their audited accounts by 31 July since 2008/09.

Certification of accounts by the RFO

18 The Regulations require the RFO of a principal body, by no later than 30 June, to: ■ sign and date the statement of accounts; and ■ certify that it presents a true and fair view of the financial position of the

body at the end of the financial year and the body’s income and expenditure for that year.

19 The RFO certification demonstrates their confidence in the accuracy of the financial statements and the controls operating within the body. Late certification can cause delay to the audit and may result in members not being able to approve the accounts by 30 September. It may also potentially indicate wider concerns with the accounts production process.

20 The RFO at 99 per cent of bodies signed and certified the accounts by 30 June 2014. The five bodies where this did not happen are: ■ London Borough of Lambeth; ■ London Waste and Recycling Board; ■ Medway Council; ■ North Warwickshire Borough Council; and ■ South Yorkshire Integrated Transport Authorityi.

21 The RFO did not sign and certify the accounts for 2012/13 by 30 June 2013 at two councils, one police body and two other local government bodies.

Issuing audit opinions on the accounts

22 The Audit Commission Act 1998 (the Act) requires auditors to issue an opinion on the accounts on completion of the audit. Auditors aim to issue the opinion by the statutory accounts publication deadline of 30 September, to enable bodies to publish their accounts with an auditor's report.

23 Table 2 shows there were only nine bodies (2 per cent) where the auditor was unable to issue the opinion on the 2013/14 accounts by 30 September 2014.

i South Yorkshire Integrated Transport Authority closed on 31 March 2014.

Table 2: When auditors issued the opinion on the 2013/14 and 2012/13 accounts

Type of body Number of bodies

Bodies where the auditor issued the opinion by 30 September

Number 2013/14

Percentage 2013/14

Percentage 2012/13

Councils 356 352 99 99 Fire 31 28 90 100 Police 76 74 97 97 Other LG bodies 49 49 100 98 Total 512 503 98 98

Source: Audit Commission

24 Table 3 lists the nine bodies where the auditor was unable to issue the opinion on the 2013/14 accounts by 30 September 2014. Where the auditor has now issued the opinion, the date of issue is provided.

Table 3: Bodies where the auditor was unable to issue the 2013/14 opinion by 30 September 2014

Body Date opinion issued

Councils Gravesham Borough Council 1 October 2014 London Borough of Lambeth Not yet issued London Borough of Tower Hamletsi Not yet issued Newham London Borough Council Not yet issued Fire and rescue authorities Buckinghamshire and Milton Keynes Fire Authority 22 October 2014 Cambridgeshire and Peterborough Fire Authority 10 October 2014 Hampshire Fire and Rescue Authority 31 October 2014 Police bodies Chief Constable for Kent Police 10 October 2014 Police and Crime Commissioner for Kent 10 October 2014

Source: Audit Commission

25 The most common reasons for delays in issuing the opinion on the 2013/14 accounts were: ■ accounts submitted late for audit; ■ technical accounting issue; and ■ various errors identified during the audit.

26 Appendix 2 sets out the reasons for the delay at each of the bodies listed in Table 3.

i The auditor was unable to issue the accounts opinion by 30 September 2014 due to awaiting the publication of the report on the inspection ordered by the Secretary of State.

Non-standard audit opinions on the accounts

27 Auditors may issue five possible types of audit opinion (Table 4). An opinion other than unqualified is known as a 'non-standard opinion'.

Table 4: Types of audit opinion

Type of opinion Description Unqualified opinion The financial statements give a true and fair

view, in all material respects, in accordance with the identified financial reporting frameworki.

Non-standard opinions

Qualified ‘except for’ opinion – limitation of scope

The financial statements give a true and fair view, except for the effect of a matter where the auditor was unable to obtain sufficient evidence. For example, the auditor considers the accounting records for a material transaction or balance in the accounts to be inadequate.

Qualified ‘except for’ opinion – disagreement

The financial statements give a true and fair view, except for the effect of a matter where there was a material disagreement between the auditor and audited body about how the matter was treated in the financial statements.

Adverse opinion There was a disagreement that was so material, or pervasive, the financial statements as a whole were misleading or incomplete.

Disclaimer of opinion The auditor was not able to express an opinion, because he or she could not obtain evidence to such an extent the financial statements as a whole could be misleading or incomplete.

Source: Audit Commission

28 At the date of preparing this report, no non-standard opinions have been issued on the 2013/14 accounts at principal bodies. For 2012/13, the group accounts for one council received a qualified ‘except for’ opinion due to a limitation of scope.

Follow-up of 2012/13 outstanding opinions

29 In Auditing the Accounts 2012/13, published in December 2013, we noted the opinion had not been issued at one body because of an outstanding objection to the accounts. The auditor issued an unqualified opinion for 2012/13 at this body.

i Auditors at two bodies included an emphasis of matter paragraph in their reports.

Publishing the accounts

30 Bodies are required, by no later than 30 September, to approve and publish their accounts. The accounts must be published on the body’s website, together with any audit opinion issued. Overall, 506 bodies (98 per cent) met the requirements of the Regulations: 499 bodies published audited accounts on their website; and seven bodies that did not have an audit opinion by 30 September published unaudited accounts.

31 Four bodies published unaudited accounts on their website by 30 September, either in committee papers or elsewhere on their website, even though the audit opinion had been issued and the body was in a position to publish the audited accounts by this date. In the Commission’s view, this does not meet the requirements of the Regulations. These bodies are: ■ Chief Constable for South Yorkshire Police; ■ Salford City Council; ■ Southwark Council; and ■ Stoke on Trent and Staffordshire Fire and Rescue Authority.

32 The two principal bodies that did not publish their accounts, either audited or unaudited, by 30 September 2014 are: ■ Hampshire Fire and Rescue Authority; and ■ London Borough of Lambeth.

Annual Governance Statement

33 The Regulations require bodies to: ■ conduct a review at least once a year of the effectiveness of the system

of internal control; and ■ approve and publish an AGS in accordance with proper practices (Ref .2).

34 In 2010, the Chartered Institute of Public Finance and Accountancy (CIPFA) published its Statement on the Role of the Chief Financial Officer in Local Government (the Statement). The Statement sets out how the chief financial officer (CFO) should fulfil the requirements of legislation and professional standards in carrying out their role. It also sets out five principles that define the core activities and behaviours that belong to the role of the CFO and the organisational arrangements needed to support them. This includes the principle that the CFO is a key member of the leadership team. A similar publication, the CIPFA Statement on the Role of the Chief Finance Officer of the Police and Crime Commissioner and the Chief Finance Officer of the Chief Constable, was issued in July 2012, and applies to police bodies.

35 The Code of Practice on Local Authority Accounting in the United Kingdom 2013/14 (the Local Authority Code), published by CIPFA/LASAACi, requires bodiesii to confirm in their AGS that the body’s financial management arrangements conform to the governance requirements of the Statement. Where they do not, the body must provide

i Local Authority (Scotland) Accounts Advisory Committee iiThe three small bodies that elected to account as larger relevant bodies

are not subject to this requirement.

an explanation of how its financial management arrangements deliver the same impact.

36 For 2013/14, 508 bodies (99 per cent) included a disclosure in their AGS that met the requirements of the Local Authority Code. Twenty-six of these bodies (5 per cent) disclosed that their arrangements did not conform to the governance requirements of the Statement, and included an explanation of how their arrangements achieved the same impact.

37 Only one body did not meet the requirements of the Local Authority Code as it did not include the relevant disclosure in the AGS: Warwick District Council.

Whole of Government Accounts returns

Issuing assurance statements on the WGA returns

38 The WGA is a set of consolidated financial statements for the entire UK public sector, covering about 3,000 bodies. The Department for Communities and Local Government (DCLG) and HM Treasury (HMT) require specified local government bodies to submit a WGA return. The WGA return is based on, but separate from, the body’s statutory financial statements. Auditors review and report on WGA returns under the Code of Audit Practice (the Code).

39 Of the 512 principal bodies covered by this report, 449 were required to submit a WGA return for 2013/14. The breakdown of these bodies is given at Appendix 1.

40 The National Audit Office (NAO) sets an audit threshold above which auditors are required to carry out specified procedures on the WGA return. The threshold for 2013/14 was set at income, expenditure, assets or liabilities above £350 millioni.

41 For 2013/14, 168 bodies were above the audit threshold. For bodies above the threshold, auditors are required to issue an assurance statement with a conclusion on whether the WGA return: ■ has been prepared in accordance with HMT's guidance and

instructions; and ■ is consistent with the body’s audited statutory accounts.

42 A further 281 bodies were required to submit a WGA return but were below the audit threshold. At these bodies, the auditor is only required to confirm to the NAO that the body is below the threshold and that a review of the WGA return is therefore not required.

43 The target date for auditors to issue the 2013/14 assurance statement was 3 October 2014. This is the date specified by DCLG and HMT for the submission of WGA returns within the overall timetable for HMT to prepare the 2013/14 WGA consolidated accounts and for the NAO to audit them.

i The threshold for 2012/13 was set at £300 million.

44 At 5 per cent of bodies for 2013/14 (3 per cent for 2012/13), auditors were unable to issue their WGA assurance statement by the submission date specified by DCLG and HMT (Table 5).

Table 5: When auditors issued their assurance statements on the 2013/14 and 2012/13 WGA returns

Type of body Number of bodies

(2013/14)

Bodies where the auditor issued the assurance statement by the deadline Number 2013/14

Percentage 2013/14

Percentage 2012/13

Councils 149 141 95 97 Fire 1 1 100 100 Police 15 14 93 92 Other LG bodies 3 3 100 96 Total 168 159 95 97

Source: Audit Commission

45 Table 6 identifies nine bodies where the auditor was unable to issue the assurance statement on the 2013/14 WGA return by 3 October 2014. Where the auditor has now issued the assurance statement, the date of issue is provided.

Table 6: Bodies where the auditor was unable to issue the 2013/14 assurance statement on the WGA return by the specified submission date

Body Date assurance statement issued Councils London Borough of Lambeth Not yet issued London Borough of Tower Hamlets Not yet issued Medway Council Not yet issued Newham London Borough Council Not yet issued Slough Borough Council 12 November 2014 South Tyneside Council 21 October 2014 Southend on Sea Borough Council 28 October 2014 Southwark Council 9 October 2014 Police bodies Police and Crime Commissioner for Kent

28 October 2014

Source: Audit Commission

Non-standard conclusions in the auditor’s assurance statement on the WGA return

46 Auditors may issue three types of conclusion in their assurance statement on the WGA return (Table 7) at bodies above the audit threshold. A conclusion other than ‘Agree’ is known as a non-standard conclusion.

Table 7: Types of WGA assurance statement conclusion

Type of conclusion Description

Agree The WGA return is consistent with the audited statutory accounts and there are no unadjusted errors above the threshold of £1 million.

Non-standard conclusions

Agree except for The WGA return is consistent with the audited statutory accounts except for immaterial uncorrected misstatements above the £1 million threshold; or, the WGA return is consistent with the audited statutory accounts apart from counterparty information where auditors have not been able to provide assurance over their completeness.

Disagree There is a material level of error between the WGA return and the audited statutory accounts.

Source: Audit Commission

47 Of the assurance statements issued at the date of preparing this report, auditors had issued no non-standard ‘disagree’ conclusions. Auditors issued non-standard ‘agree except for’ conclusions on the 2013/14 WGA return at three councils, one police body and one other local government bodyi. These are: ■ Buckinghamshire County Council; ■ Greater Manchester Waste Disposal Authority; ■ Mayor’s Office for Policing and Crime; ■ South Gloucestershire Council; and ■ Worcestershire County Council.

48 It is important that auditors and RFOs maintain a dialogue during the review of the WGA return. This will ensure that the implications of uncorrected misstatements above the £1 million threshold are understood and accepted by the RFO, and that there are no surprises in the auditor’s assurance statement.

49 The number of non-standard conclusions has slightly increased compared with 2012/13 where auditors issued non-standard assurance statements at four councils and one police body.

i The auditors at four further bodies issued a non-standard ‘agree except for’ conclusion due to reasons outside of the body’s control.

Follow-up of 2012/13 outstanding WGA assurance reports

50 In Auditing the Accounts 2012/13, published in December 2013, we noted there were WGA assurance reports outstanding for two councils, one police body and a body where the accounts opinion had not been issued due to an outstanding elector challenge. Auditors have now issued ‘agree’ conclusions on the 2012/13 WGA assurance report at all four bodies.

Value for money arrangements conclusions

Background

51 Auditors have a duty under section 5(1)(e) of the Act to satisfy themselves that the audited body has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources. In discharging this duty, auditors are required to carry out their work in accordance with the Code. The Code requires auditors to issue a VFM arrangements conclusion alongside the opinion on the financial statements.

52 It is the responsibility of the audited body to put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources, and to ensure proper stewardship and governance. It is also the responsibility of the audited body to review the adequacy and effectiveness of these arrangements regularly. The audited body is responsible for reporting on aspects of these arrangements as part of its AGS.

53 For 2013/14, auditors of councilsi, fire and rescue authorities and police bodies gave their VFM arrangements conclusion based on the following two criteria specified by the Commission: ■ the organisation has proper arrangements in place for securing financial

resilience; and ■ the organisation has proper arrangements for challenging how it

secures economy, efficiency and effectiveness.

54 For other local government bodies covered by this report, the Commission did not specify criteria for the auditor to report against. Auditors meet their VFM duty by: ■ reviewing the AGS; ■ reviewing the results of the work of the Commission and other relevant

regulatory bodies or inspectorates, to consider whether there is any impact on the auditor's responsibilities at the audited body; and

■ undertaking other local risk-based work as appropriate, or any work mandated by the Commission.

55 Auditors conclude whether or not there are any matters arising from their VFM work that they need to report.

i The Council of the Isles of Scilly is treated as an other local government body for the purposes of the VFM arrangements conclusion.

Non-standard VFM arrangements conclusions

56 Where the specified criteria apply, auditors may issue three types of VFM arrangements conclusion (Table 8). A conclusion other than unqualified is known as a non-standard conclusion.

Table 8: Types of VFM arrangements conclusion

Type of conclusion Description Unqualified The auditor is satisfied that, in all

significant respects, the body made proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ended 31 March 2014.

Non-standard VFM arrangements conclusions

Qualified except for The auditor is satisfied that the body made proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ended 31 March 2014, in all significant respects, except for one or more specific weaknesses.

Adverse The auditor is not satisfied that the body made proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ended 31 March 2014, as significant weaknesses were identified.

Source: Audit Commission

57 Where the specified criteria do not apply, the auditor may issue a ‘report on matters arising’ if they believe there is a matter arising from their VFM work that they need to report.

Councils, fire and rescue authorities and police bodies

58 Of the 2013/14 conclusions issued at councils, fire and rescue authorities and police bodies at the date of preparing this report, auditors had issued a non-standard conclusion at 14 councils and two police bodies. There were no adverse conclusions issued. ‘Qualified except for’ conclusions were issued to: ■ Birmingham City Council; ■ Buckinghamshire County Council; ■ Chief Constable for South Yorkshire Police; ■ City of York Council; ■ Coventry City Council; ■ Cumbria County Council;

■ Devon County Council; ■ Lancashire County Council; ■ Manchester City Council; ■ Police and Crime Commissioner for South Yorkshire; ■ Redditch Borough Council; ■ Rochdale Metropolitan Borough Council; ■ Sheffield City Council; ■ Slough Borough Council; ■ Somerset County Council; and ■ Thanet District Council.

59 At the date of preparing this report, the 2013/14 VFM arrangements conclusion for four councils had not been issued.

Other local government bodies

60 Auditors issued a ‘report on matters arising’ for 2013/14 at two other local government bodies: ■ Council of the Isles of Scilly; and ■ Lee Valley Regional Park Authority.

61 At the date of preparing this report, the auditor at one other local government body had not reported on the outcome of their VFM work.

Follow-up of 2012/13 outstanding conclusions

62 In Auditing the Accounts 2012/13, published in December 2013, we noted the VFM conclusion for one body was outstanding; this body was not named as the delay was due to an outstanding objection to the accounts. The auditor issued an unqualified conclusion for 2012/13 at this body.

Auditor reporting 63 The Act requires auditors to consider whether they should report, in the public interest, on any matter that comes to their attention during the audit. Auditors may issue a public interest report where they consider a matter is sufficiently important to be highlighted to the audited body or the public, either as a matter of urgency or at the conclusion of the audit.

64 Auditors also have a duty under the Act to consider whether to make any written recommendations to the audited body that need to be considered and responded to publicly; these are known as section 11 recommendations.

Public interest reports

65 Since publishing Auditing the Accounts 2012/13, auditors issued one public interest report to two bodies: the Police and Crime Commissioner for Surrey and the Chief Constable for Surrey. This report was issued in June 2014 and related to the PCC’s decision in April 2013 to terminate a major IT project.

66 All public interest reports are available on the Commission's website.

Section 11 recommendations

67 Auditors have issued no section 11 recommendations to principal bodies since the publication of Auditing the Accounts 2012/13.

Summary of performance between 2008/09 and 2013/14

Background

68 The Commission has published an annual Auditing the Accounts report for principal local government bodies since 2008/09. The first report was introduced because of the Commission’s concerns regarding the timeliness of reporting and the quality of the information provided.

Accounts

69 The number of local government bodies that received an audit opinion by 30 September has increased significantly since Auditing the Accounts was first published. For 2008/09, only 87 per cent of bodies received an audit opinion by 30 September, while 98 per cent received an opinion by 30 September for 2013/14. Furthermore, for 2008/09, 15 bodies had not received an opinion by 30 November, while only three were outstanding by the same point for 2013/14.

70 Figure 1 below shows when audit opinions were issued for accounts relating to the period from 2008/09 to 2013/14. Figure 1: When auditors issued the opinion on the accounts

Source: Audit Commission

71 The Commission has continued to encourage bodies to improve the timeliness of the accounts production process by naming those bodies that have been late. For 2008/09, bodies were named by the Commission if their opinion had not been issued by 30 November, while for 2009/10 and 2010/11 the Commission used a reporting date of 31 October. For the

431

475

422

463

502

503

20

28

17

6

5

5

42

18

18

3

3

4

80% 100%

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

Per cent of bodies with an opinion issued by this date

By 30 September October After 31 October

2011/12 and subsequent reports, the Commission has named bodies that failed to receive an audit opinion by 30 September.

72 The Commission has also named those bodies that publish their audited accounts early. For 2008/09 and 2009/10, bodies that received an audit opinion by 31 August, and published the accounts shortly thereafter, were credited. For 2010/11, the reporting date was brought forward to 31 July, which has been used in every report since. Nine bodies were credited for publishing their accounts early for 2008/09, with 16 credited for 2013/14.

73 Table 9 below identifies the eight bodies that have been credited for early completion four or more times since the first Auditing the Accounts report was published in respect of the 2008/09 audits.

Table 9: Bodies with early publication of audited accounts Body Years credited in

report Councils Kent County Council 2008/09 to 2013/14

inclusive Oldham Metropolitan Borough Council 2009/10 to 2013/14

inclusive Royal Borough of Greenwich 2008/09 to 2013/14

inclusive Transport For London 2008/09 to 2009/10

and 2011/12 to 2013/14

Fire and rescue authorities Kent And Medway Fire And Rescue Authority 2008/09 to 2013/14

inclusive Other local government bodies Great Aycliffe Town Councili 2010/11 to 2013/14

inclusive Nexus 2008/09 to 2013/14

inclusive Transport for Greater Manchesterii 2009/10 to 2013/14

inclusive

Source: Audit Commission

74 The Commission is disappointed that more local government bodies have not managed to publish audited accounts earlier, improving the timeliness of reporting to their local communities, rather than simply achieving the statutory deadline. As previously noted in paragraph 17, the

i The Council was not included in the 2010/11 principal bodies report but did publish its accounts early in accordance with the definition used that year.

ii This includes Greater Manchester Passenger Transport Executive for 2009/10.

deadline for publishing audited accounts is likely to be moved forward to 31 July with effect from the 2017/18 accounts so the vast majority of bodies will need to focus on improving the timeliness and efficiency of their final accounts process.

75 The Commission has also noted an improvement in the quality of the accounts published by local government bodies. For 2008/09, 14 bodies (3 per cent) received a non-standard audit opinion on their accounts. Since then, the number of non-standard opinions issued by auditors has fallen to two for 2009/10, one for each of the following two years and none to date for 2013/14.

Whole of Government Accounts

76 The requirement for the WGA return to be reviewed by the auditor was introduced in 2009/10, and was included for the first time in Auditing the Accounts 2009/10. For 2009/10 and 2010/11, the deadline for submission was 30 September. Seventy-seven per cent of bodies had their WGA return submitted by the deadline for 2009/10, falling to 74 per cent for 2010/11.

77 In Auditing the Accounts 2010/11, the Commission recommended that DCLG and HMT allow a small period between the 30 September accounts publication deadline and the WGA submission deadline. For 2011/12 WGA submissions, the deadline was extended and this has continued in subsequent years. As a result of the extension to the WGA submission deadline, the submission rate of WGA returns improved to 97 per cent for 2011/12 and 2012/13. For 2013/14, the submission rate fell slightly to 95 per cent.

78 Also for 2011/12, the NAO changed the audit requirements, so that bodies that fell below a specified threshold (expenditure, assets or liabilities below £100 million) had a more limited review compared to previously. This change meant that only 61 per cent of principal bodies included in Auditing the Accounts 2011/12 required a full review. The threshold was increased for both the subsequent years, meaning that for 2013/14, where the threshold was £350 million, only 33 per cent of principal bodies required a full review.

79 While the timeliness of WGA reporting improved markedly over the period due to the extension of the submission deadline, the quality remained largely consistent with non-standard conclusions on the assurance statement varying between 1 and 5 per cent over the five-year period. This remains an area where there is scope for bodies to improve the quality of the information submitted to inform the WGA.

Value for money arrangements

80 For 2008/09, 71 bodies (14 per cent) received a non-standard conclusion on VFM arrangements. For 2009/10, 47 bodies (9 per cent) were named for receiving a non-standard conclusion.

81 For 2010/11, a new approach was introduced to allow auditors to meet their duty under section 5(1)(e) of the Act through a revised Code of Audit Practice issued by the Commission. The new approach reflected the fact that auditors no longer undertook Use of Resources work under the Commission’s Comprehensive Performance Assessment. It was not directly comparable with the previous approach.

82 The number of non-standard conclusions on VFM arrangements issued by auditors has shown a small increase from 2 per cent for 2010/11, 3 per cent for both 2011/12 and 2012/13, and 4 per cent for 2013/14.

Auditor reporting

83 The level of auditor reporting, comprising both public interest reports and the issuing of section 11 recommendations, has reduced since Auditing the Accounts was first published. This trend was most marked in the first few years the report was published.

84 The number of bodies receiving a public interest report or section 11 recommendations is shown in Figure 2. Figure 2: Level of auditor reporting

Source: Audit Commission

Conclusions

85 Since Auditing the Accounts was first published for 2008/09, principal bodies have made significant improvements in the quality and timeliness of their financial reporting. Auditors have been able to issue their opinion on the accounts by 30 September at a higher number of bodies and more bodies are meeting the WGA submission deadline. Auditors are also issuing fewer non-standard opinions on the accounts, although the level of non-standard conclusions on the WGA assurance statement has slightly increased. There have also been fewer cases where auditors have used their powers to issue public interest reports or section 11 recommendations.

0

1

2

3

4

5

6

7

8

2008/09 2009/10 2010/11 2011/12 2012/13 2013/14

Num

ber o

f rep

orts

issu

ed

Public interest report Section 11 recommendation

86 Recent years have seen a small increase in the number of non-standard conclusions on local government bodies’ arrangements to secure VFM; this is not a surprise given the financial challenges faced by many local government bodies.

87 The Commission believes it is important that information on the work of auditors at local government bodies continues to be published. Government departments use the information contained in this report to support their annual accountability system statements to Parliament. The public can use the information to hold bodies to account. After the Commission closes on 31 March 2015, the transitional body, Public Sector Audit Appointments Limited, will be asked to continue to publish information on the results of auditors’ work at local government bodies until the end of the current contracts with audit firms. Once the contracts end, there are no plans for any national reporting on the outcome of auditors’ work at local public bodies.

Small bodies

Background 88 This section of the report summarises the results of auditors’ work for 2013/14 at 9,637 parish councils and 122 IDBs with annual turnover below £6.5 millioni. Turnover is taken as the greater of gross annual income or gross annual expenditure. Together these bodies are classed as 'small bodies', and are covered by the Commission's limited assurance regimeii.

89 Parish councils are elected bodies that represent their community and provide or contribute to a range of services – for example, parks and open spaces, cemeteries, allotments and village halls. They serve about 15 million people in England and spend over £500 million of public money each year. This expenditure is funded mainly through an annual charge, known as a precept, set by the parish council and collected on its behalf as part of council tax.

90 IDBs are bodies that provide flood risk and water level management services in areas of special drainage need. They spend around £70 million of public money each year. This expenditure is funded mainly through drainage rates on land occupiers and special levies on the local authorities in each IDB drainage area.

Accounting requirements 91 Small bodies included in this report are required to prepare their accounting statements in accordance with statutory requirements and timetables, as set out in the Accounts and Audit Regulations (England) 2011, and proper practices (Ref. 3 and Ref. 4).

92 Small bodies complete their accounting statements in the form of an annual return. The annual return includes the: ■ accounting statementsiii; ■ AGS; and ■ external auditor’s certificate and opinion.

i There were also 213 other miscellaneous small bodies, mainly joint committees. The results of auditors’ work at these bodies are not included in this report.

ii Small bodies may choose to prepare accounts as if they were a larger relevant body. One parish council, one IDB and one joint committee chose this approach and are therefore included in the principal bodies' section of the report.

iii The accounting statements are the annual income and expenditure account and statement of balances, or the receipts and payments account that a small body is required to prepare in accordance with proper practices.

93 The external auditor, appointed by the Commission, is required to review the annual return in accordance with Schedule 1 to the Code. Paragraphs 95 to 98 of this report provide further information on the work of external auditors and their responsibilities.

94 Small bodies were required to approve their 2013/14 accounting statements and AGS by 30 June and publishi these by 30 September 2014. In practice, small bodies fulfil this requirement by publishing the annual return.

The work of external auditors

Limited assurance framework

95 The Commission has established the ‘limited assurance’ framework for small bodies with an annual turnover of up to £6.5 million. The framework does not require a full audit in accordance with professional auditing standards. Instead it provides a level of assurance proportionate to the amounts of public money managed by these small bodies.

96 Under the limited assurance approach, auditors undertake a basic review of the annual return at bodies with annual turnover up to £200,000 and an intermediate review at bodies with a turnover between £200,001 and £6.5 million. Under the basic review approach, small bodies are required to submit a minimum amount of informationii to the auditor with a completed annual return. As well as the basic review requirements, the intermediate review approach requires auditors to consider the small body’s overall control environment in more detail. Auditors obtain additional evidence to support their opinion to reflect the greater risk associated with higher levels of activity or expenditure.

Auditors’ responsibilities

97 The Code requires external auditors of small bodies to examine the accounts and any additional information and explanation provided. Auditors give an opinion on the annual return and certify completion of their work. Auditors issue an unqualified opinion where they consider the annual return meets the specified requirements.

98 In addition, the Act requires auditors to consider whether, in the public interest, they should report on any matter that comes to their attention during their work. Auditors report where they consider a matter is sufficiently important to be highlighted to the audited body or to the public, either urgently or when their work is concluded. This might include reporting on governance issues such as the failure to produce, or provide evidence to support, the annual return.

i Small bodies can meet the publication requirement by displaying a notice containing the required information.

ii The year-end bank reconciliation and a brief explanation of any significant variances compared to the figures for the previous year.

Accounting statements

Issuing the auditor’s certificate and opinion

99 Auditors aimed to issue the opinion and certificate on the 2013/14 annual return by 30 September 2014, to enable small bodies to publish their annual return with an auditor's report by the statutory deadline.

100 By 30 September 2014, auditors had issued the opinion and certificate on the 2013/14 annual return at 9,550 parish councils (99 per cent) and all IDBs. This is an improvement on 2012/13 where auditors issued the opinion and certificate by 30 September 2013 at 98 per cent of both parish councils and IDBs.

101 Appendix 4 shows, by county area, the number of parish councils and IDBs where auditors issued the opinion and certificate on the 2013/14 annual return by 30 September 2014.

Qualified opinions

102 Auditors issue an unqualified opinion where they consider the annual return is in accordance with the specified requirements. Where this is not the case, the auditor will qualify the opinion, setting out the reasons.

103 Auditors may qualify the opinion on the Annual Return because of issues identified in the accounting statements; the AGS; or both. A qualification on the AGS may relate to one or more of the assertions the small body is required to make. These assertions are listed in Appendix 5.

Number of qualified opinions

104 Auditors issued a qualified opinion on the 2013/14 annual return by 30 September 2014 at 1,015 parish councils (11 per cent) and 19 IDBs (16 per cent). For parish councils the level of qualifications has increased from 8 per cent for 2012/13, and for IDBs it has increased from 9 per cent for 2012/13. Of the 1,034 small bodies receiving a qualified opinion by 30 September 2014, 271 parish councils had also received a qualified opinion for 2012/13.

105 Of continuing concern are the 74 parish councils where auditors have qualified the opinion for three consecutive years (2011/12 to 2013/14). The persistent qualification of the opinion at these parish councils suggests systemic weaknesses in their financial management and governance arrangements which need to be addressed locally.

106 The Commission has published on its website lists of those individual parish councils and IDBs where auditors issued a qualified opinion on the 2013/14 annual return by 30 September 2014i. The lists show where the opinion was also qualified for either or both of the previous two years.

i A third list shows the status of the small bodies where an opinion on the annual return had not been issued by 30 September 2014.

107 Figure 3 and Table 10 show the number and percentage of qualified opinions, by annual turnoveri, for parish councils and IDBs respectively.

108 There were 600 small bodies that had annual turnover of £25,000 or less and received a qualified opinion on their annual return for 2013/14. The government intends to lay regulations that will allow these bodies to be exempt from a routine annual audit from 2017/18. The Commission’s view is that this will reduce local accountability for over 5,000 bodies that will no longer be subject to independent external review.

Figure 3: Qualified audit opinions at 30 September 2014 for parish councils by annual turnover

Source: Audit Commission

Table 10: Qualified opinions at 30 September 2014 for IDBs by annual turnover

Annual turnover Number of IDBs Number of qualified opinions issued by 30 September 2014

£1 to £25,000 19 2 (10%) £25,001 to £200,000 46 2 (4%) £200,001 to £1 million 35 13 (37%) £1 million to £6.5 million

22 2 (9%)

Total 122 19 (16%) Source: Audit Commission

i There are 852 bodies with a zero turnover that are excluded from this analysis.

2,990 1,799 1,004

768 564

236

117

76 89

47 80

408190 106

11362

47

35

1819

6 11

75%

80%

85%

90%

95%

100%

Opi

nion

s

Annual turnover (£)

Unqualified or not issued by 30 September Qualified

109 Table 11 shows the number of bodies with a qualified opinion by annual turnover for parish councils and IDBs combined.

Table 11: Number of small bodies with qualified opinions by annual turnover

Annual turnover Number of small bodies

Number of qualified opinions issued by 30 September 2014

£1 to £25,000 6,258 600 (10%) £25,001 to £200,000 2,663 283 (11%) £200,001 to £1 million 725 138 (19%) £1 million to £6.5 million

113 13 (11%)

Total 9,759 1,034 (11%) Source: Audit Commission

110 Appendix 6 shows the number of qualified opinions for 2013/14 by county area, with comparative information for 2012/13.

Follow up of prior year opinions

111 In Auditing the Accounts 2012/13, we reported that auditors at 199 parish councils and two IDBs had not been able to issue an opinion on the annual return by 30 September.

112 By December 2013, when the report was published, auditors had completed their limited assurance reviews at 145 of these parish councils, of which 76 (52 per cent) received qualified opinions. Subsequently, 48 of the remaining 54 parish council reviews for 2012/13 have been completed at the time of publishing this report. The remaining six reviews are still not complete because auditors are dealing with issues arising from the exercise of local electors’ rights.

113 Of the two IDBs, one received an unqualified opinion on the annual return before Auditing the Accounts 2012/13 was published, while the other, Middle Level Commissioners, received a qualified opinion after publication.

Basis for qualified opinions

114 Auditors qualified the opinion on the 2013/14 annual return at small bodies mainly because of governance issues identified in the AGS (Table 12).

Table 12: Nature of qualified opinions on the 2013/14 and 2012/13 annual return at small bodies

Basis Number of bodies with a qualified opinion 2013/14

Number of bodies with a qualified opinion 2012/13

Accounting statements 127 (12%) 173 (23%) AGS 661 (64%) 488 (64%) Both accounting statements and AGS

246 (24%) 101 (13%)

Total 1,034 (100%) 762 (100%) Source: Audit Commission

115 Figure 4 shows the number of qualifications relating to each of the AGS assertions. Some small bodies may receive a qualified opinion relating to more than one assertion.

Figure 4: The number of small body qualifications relating to each AGS assertion

Source: Audit Commission

116 The qualifications on the AGS for 2013/14 shown in Figure 4 were issued to 907 small bodies. There were 202 small bodies where the auditor qualified two or more assertions in the AGS.

117 The most common reasons for AGS qualifications at small bodies for 2013/14 related to accounts preparation, risk management and internal control. For 2012/13 most qualifications related to accounts preparation and risk management.

0 50 100 150 200 250 300 350 400

9. Trust funds

8. Accounting disclosures

7. Audit reports

6. Internal audit

5. Risk management

4. Electors' rights

3. Regulatory compliance

2. Internal control

1. Accounts preparation

Number of qualifications

Auditor reporting 118 The Act requires auditors to consider whether they should report, in the public interest, on any matter that comes to their attention during their work. Auditors may issue a public interest report where they consider a matter is sufficiently important to be highlighted to the audited body or the public, either as a matter of urgency or when their work is concluded.

119 Auditors also have a duty under the Act to consider whether to make any written recommendations to the audited body that need to be considered and responded to publicly. These are known as section 11 recommendations.

Public interest reports

120 Auditors issued five public interest reports to small bodies between December 2013 and November 2014. Two reports related to the failure to produce, or provide evidence to support, the 2013/14 annual return, while three related to a failure of governance or accountability.

Failure to produce, or provide evidence to support, the 2013/14 annual return ■ Dalton Holme Parish Council; and. ■ Wormingford Parish Council.

Governance or accountability issues ■ Broughton Hackett Parish Meeting – issued in January 2014, for

failing to produce an annual return for 2012/13 and for failing to hold a bank account in the name of the parish meeting, which meant that the annual precept was paid into the Clerk’s wife’s bank account.

■ Keighley Town Council – issued in November 2014, regarding a number of significant weaknesses in the Council’s governance arrangements resulting in the Council making decisions without due consideration of its legal powers.

■ Whitehill Town Council – issued in May 2014, regarding serious internal control and corporate governance failings between April 2007 and December 2012 which included a significant fraud perpetrated by the former clerk.

121 All public interest reports are available on the Commission's website.

Section 11 recommendations

122 Since publishing Auditing the Accounts 2012/13, auditors have issued no section 11 recommendations to small bodies.

Summary of performance between 2009/10 and 2013/14

Background

123 The Commission has published annual Auditing the Accounts reports summarising the results of auditors’ work at small bodies since 2009/10. Specific reports were produced for parish councils for 2009/10 and 2010/11,

while the first report on IDBs was published for 2010/11. Since 2011/12, parish councils and IDBs have been included with principal bodies in a single Auditing the Accounts report.

124 During this period, the number of parish councils in England that the Commission has made an auditor appointment to has increased from 9,397 in 2009/10 to 9,637 in 2013/14. Between 2010/11 and 2013/14, the number of IDBs with an auditor appointment fell from 163 to 122 mainly due to mergers.

Issuing the certificate and opinion

125 Since 2009/10, the percentage of small bodies where the auditor was able to issue the certificate and opinion on the annual return by 30 September has increased from 93 per cent for 2009/10i to 99 per cent for 2013/14. This movement is shown in Figure 5.

Figure 5: When auditors issued the certificate and opinion on small

bodies’ annual returns

Source: Audit Commission

Persistently late annual returns

126 In Auditing the Accounts 2009/10, eight parish councils were identified as not having produced an annual return for 2009/10 and at least the previous two years despite receiving at least one public interest report on the matter. This number increased to 14 in the 2010/11 report, but for 2012/13 the Commission was pleased to report that all of these bodies had complied with their reporting obligations, and were providing local people with the information they were entitled to receive.

i For 2009/10, the small body Auditing the Accounts report only reported on parish councils with a turnover below £1 million.

8768

9038

9330

9526

9672

629

574

305

201

87

80% 100%

2009/10

2010/11

2011/12

2012/13

2013/14

Per cent of bodies with the certificate and opinion issued by this date

By 30 September After 30 September

Qualified annual returns

127 Since 2009/10, the Commission has reported on the number of small bodies receiving a qualified opinion on the annual return by 30 September. For 2009/10, 13 per cent of parish councils with a turnover under £1 million received a qualified opinion. For 2010/11, 6 per cent of all parish councils and IDBs received a qualified opinion, rising to 7 per cent for 2011/12, 8 per cent for 2012/13, and 11 per cent for 2013/14. Of the 1,034 small bodies that received a qualified opinion for 2013/14, 600 of these had a turnover below £25,000. The government intends to lay regulations that will enable these bodies to be exempt from a routine annual audit from 2017/18.

128 Figure 6 shows the number of qualifications split by turnover band.

Figure 6: Number of qualifications split by turnover band

Source: Audit Commission

129 The significant majority of qualifications issued since 2009/10 have related to compliance failures with the assertions in the AGS produced by the small body. Of the 4,549 AGS assertions that were qualified between 2009/10 and 2013/14, 1,322 (29 per cent) related to small bodies’ risk management arrangements. This is because the small bodies have been unable to provide the auditor with evidence to confirm that they have assessed their risks and taken steps to manage them.

130 While the number of qualifications has increased over the last four years, the number of bodies that are qualified for multiple years (not necessarily for the same reasons) is decreasing. Of the 1,232 bodies qualified for 2009/10, 602 of these had been qualified in the previous year, and 275 had been qualified for the last three years. For 2013/14, these numbers had fallen to 271 and 74 respectively.

0

200

400

600

800

1000

1200

1400

2009/10 2010/11 2011/12 2012/13 2013/14

Number of qualifications by turnover band

£0 - £25,000 £25,001 - £200,000 £200,001 - £1,000,000 £1 ,000,001 - £6,500,000

Auditor reporting

131 The general improvement in the timeliness of financial reporting by small bodies has led to a significant decrease in the level of auditor reporting. Table 13 shows the number and types of reports issued each year.

Table 13: Number of public reports issued by auditors Year Public interest

report – failure to complete annual return

Public interest report – other matters

Section 11 recommendations

2009/10 55 3 0 2010/11 35 1 0 2011/12 39 3 2 2012/13 3 3 0 2013/14 2 3 0 Total 134 13 2

Source: Audit Commission

132 This table shows that the number of small bodies failing to complete an annual return has reduced significantly over the last four years. Monitoring Officers at many council tax authorities have worked effectively to identify and support small bodies that struggled to meet their financial reporting requirements.

Conclusions

133 Since Auditing the Accounts was first extended to cover small bodies for 2009/10, there has been a general improvement in accountability by small bodies. While the number qualifications has shown a slight increase since 2010/11, no bodies are now persistently failing (for three years in a row) to produce an annual return, and the number of bodies receiving qualified opinions for two or more years consecutively has also reduced significantly since the first report was produced.

134 This mean that local people are receiving more timely financial information about their local small bodies which helps them in holding these parish councils and IDBs to account. The number of qualifications issued by auditors remains a concern, particularly at the smallest bodies. The majority of the smallest bodies will no longer be subject to routine annual audit from 2017/18.

135 The Commission believes that the publication of information on the work of auditors at small bodies has been a contributing factor in the improvements identified in this report. As noted in paragraph 87, Public Sector Audit Appointments Limited will be asked to continue to publish information on the results of auditors’ work at local government bodies, including small bodies, until the end of the current contracts with audit firms. Once the contracts end, there are no plans for any national reporting on the outcome of auditors’ work at small bodies.

Challenges for 2014/15 and beyond

Financial reporting timetable

136 The new Accounts and Audit Regulations, expected to come into effect from 1 April 2015, are likely to bring forward the accounts publication date for principal bodies from 30 September to 31 July for the 2017/18 accounts onwards. This is to encourage more timely publication of local bodies’ audited accounts and improve accountability.

137 Bodies will have three years to prepare for this change to the timetable but it will still present a significant challenge. For 2013/14, 94 per cent of principal bodies published their accounts with the auditor’s opinion during September and just 16 bodies achieved publication of audited accounts by 31 July. Moving the timetable forward by two months will require a detailed review of the final accounts closedown process and on-going discussions with external auditors to agree a suitable timetable.

Accounting for transport infrastructure assets

138 For authorities with material transport infrastructure assets, there will be a significant change to the measurement basis of these assets from 1 April 2016. CIPFA/LASAAC has agreed that the Local Authority Code for 2016/17 will adopt the measurement requirements of the CIPFA Code of Practice on Transport Infrastructure Assets (Transport Code). This will mean the adoption of Depreciated Replacement Cost (DRC), bringing local government in line with the measurement basis used by central government. This alignment will potentially remove the on-going qualification of the WGA by the NAO.

139 To support relevant authorities in meeting this challenging timetable CIPFA issued, in July 2014, LAAP Bulletin 100 Project Plan for Implementation of the Measurement Requirements for Transport Infrastructure Assets by 2016/17. The Bulletin sets out key actions and milestones, including work relevant authorities should be undertaking in 2014/15 and planning to undertake in 2015/16.

140 For 2014/15 accounts, relevant authorities should: ■ identify the asset data and system changes requirements for the

financial statements in accordance with the Local Authority Code and the Transport Code; and

■ undertake a dry run as part of the accounts closedown and preparation processes.

141 For 2015/16 accounts, relevant authorities should: ■ restate the 1 April 2015 balance sheet on a DRC basis; and ■ produce the required disclosures.

Auditing the Accounts reports

142 This is the final Auditing the Accounts report the Commission will publish before it closes on 31 March 2015. The Local Audit and Accountability Act 2014 makes no provision for the national collation and reporting of the results of the local audit process. The Commission believes that this information is important to taxpayers and accounting officers and should continue to be produced in the future.

143 The Commission believes these reports are an important part of its legacy and that the insight they provide into the outcomes of local audit work has helped drive up performance across local government through bodies improving the timeliness and quality of their financial reporting. The transparency provided has in turn improved the standard of financial management in local government overall.

Appendix 1: Types of principal audited bodies

Type and number of bodies

Breakdown

Councils (356)

Includes 27 county councils, 201 district councils, 33 London borough councils, 36 metropolitan district councils, 56 unitary councils, the Greater London Authority, London Legacy Development Corporation and Transport for London.

Fire and rescue authorities (31)

The analysis for fire and rescue authorities excludes the 15 county council fire and rescue authorities as they are part of the relevant county council for financial reporting purposes.

Police bodies (76)

Includes one police and crime commissioner (PCC) and one chief constable in each of the 37 local police areas in England outside of London, the Mayor's Office for Policing and Crime (MOPAC) and the Commissioner of Police for the Metropolis (CPM). The City of London Police Authority is included within the City of London Corporation for financial reporting purposes. For WGA purposes, PCCs produced a consolidated WGA return covering the relevant chief constable. The MOPAC and the CPM also produce one combined WGA return.

Other local government bodies (49)

Includes one combined authority, four individual corporate bodies, five integrated transport authorities (ITAs), 13 joint committees, nine national park authorities, six passenger transport executives (PTEs), two pension authorities, six waste disposal authorities and three small bodies (one parish council, one IDB and one joint committee) that elected to account as a larger relevant body for 2013/14. For WGA purposes, the pension authorities, joint committees, two independent corporate bodies and the three small bodies are exempt. Four of the five ITAs produced a consolidated WGA return covering the relevant PTE.

Source: Audit Commission

Appendix 2: Reasons for late audit opinions at principal bodies

Body

Acc

ount

s w

ere

subm

itted

late

for a

udit

Aud

itor r

esou

rce

co

nstr

aint

s

Rep

rese

ntat

ions

not

re

ceiv

ed fr

om th

ose

char

ged

with

gov

erna

nce

in a

ccor

danc

e w

ith IS

A

260

Aw

aitin

g as

sura

nce

from

an

othe

r aud

itor

Insu

ffici

ent a

vaila

bilit

y of

st

aff a

t the

aud

ited

body

to

sup

port

the

audi

t

Lega

l iss

ue

Tech

nica

l acc

ount

ing

is

sue

Obj

ectio

n is

sue

Vario

us e

rror

s id

entif

ied

durin

g th

e au

dit

Oth

er re

ason

s

Councils

Gravesham Borough Council

London Borough of Lambeth

London Borough of Tower Hamlets

Newham London Borough Council

Fire and rescue authorities

Buckinghamshire and Milton Keynes Fire Authority

Cambridgeshire and Peterborough Fire Authority

Hampshire Fire and Rescue Authority

Police bodies

Chief Constable for Kent Police

Police and Crime Commissioner for Kent

Appendix 3: Summary of principal bodies named in this report

Body

Acc

ount

s no

t cer

tifie

d by

R

FO b

y 30

Jun

e 20

14

Aud

it op

inio

n no

t iss

ued

by

30 S

epte

mbe

r 201

4

Non

-sta

ndar

d au

dit o

pini

on

Aud

ited

acco

unts

not

pu

blis

hed

by 3

0 Se

ptem

ber

2014

CIP

FA s

tate

men

t not

co

mpl

ied

with

WG

A a

ssur

ance

repo

rt n

ot

issu

ed b

y 4

Oct

ober

201

4

Non

-sta

ndar

d W

GA

as

sura

nce

stat

emen

t

Non

-sta

ndar

d VF

M

conc

lusi

on

Publ

ic in

tere

st re

port

Sect

ion

11

reco

mm

enda

tion

2012

/13

prio

r yea

r iss

ues

Councils

Birmingham City Council

Buckinghamshire County Council

City of York Council

Council of the Isles of Scilly

Coventry City Council

Cumbria County Council

Devon County Council

Gravesham Borough Council

Lancashire County Council

London Borough of Lambeth

London Borough of Tower Hamlets

Manchester City Council

Medway Council

Newham London Borough Council

Body

Acc

ount

s no

t cer

tifie

d by

R

FO b

y 30

Jun

e 20

14

Aud

it op

inio

n no

t iss

ued

by

30 S

epte

mbe

r 201

4

Non

-sta

ndar

d au

dit o

pini

on

Aud

ited

acco

unts

not

pu

blis

hed

by 3

0 Se

ptem

ber

2014

CIP

FA s

tate

men

t not

co

mpl

ied

with

WG

A a

ssur

ance

repo

rt n

ot

issu

ed b

y 4

Oct

ober

201

4

Non

-sta

ndar

d W

GA

as

sura

nce

stat

emen

t

Non

-sta

ndar

d VF

M

conc

lusi

on

Publ

ic in

tere

st re

port

Sect

ion

11

reco

mm

enda

tion

2012

/13

prio

r yea

r iss

ues

North Warwickshire Borough Council

Redditch Borough Council

Rochdale Metropolitan Borough Council

Salford City Council

Sheffield City Council

Slough Borough Council

Somerset County Council

South Gloucestershire Council

South Tyneside Council

Southend on Sea Borough Council

Southwark Council

Thanet District Council

Warwick District Council

Worcestershire County Council

Fire and rescue authorities

Buckinghamshire and Milton Keynes Fire Authority

Body

Acc

ount

s no

t cer

tifie

d by

R

FO b

y 30

Jun

e 20

14

Aud

it op

inio

n no

t iss

ued

by

30 S

epte

mbe

r 201

4

Non

-sta

ndar

d au

dit o

pini

on

Aud

ited

acco

unts

not

pu

blis

hed

by 3

0 Se

ptem

ber

2014

CIP

FA s

tate

men

t not

co

mpl

ied

with

WG

A a

ssur

ance

repo

rt n

ot

issu

ed b

y 4

Oct

ober

201

4

Non

-sta

ndar

d W

GA

as

sura

nce

stat

emen

t

Non

-sta

ndar

d VF

M

conc

lusi

on

Publ

ic in

tere

st re

port

Sect

ion

11

reco

mm

enda

tion

2012

/13

prio

r yea

r iss

ues

Cambridgeshire and Peterborough Fire Authority

Hampshire Fire and Rescue Authority

Stoke on Trent and Staffordshire Fire and Rescue Authority

Police bodies

Chief Constable for Kent Police

Chief Constable for South Yorkshire Police

Chief Constable for Surrey Police

Mayor's Office for Policing and Crime

Police and Crime Commissioner for Kent

Police and Crime Commissioner for South Yorkshire

Police and Crime Commissioner for Surrey

Other local government bodies

Greater Manchester Waste Disposal Authority

Lee Valley Regional Park Authority

London Waste And Recycling Board

Body

Acc

ount

s no

t cer

tifie

d by

R

FO b

y 30

Jun

e 20

14

Aud

it op

inio

n no

t iss

ued

by

30 S

epte

mbe

r 201

4

Non

-sta

ndar

d au

dit o

pini

on

Aud

ited

acco

unts

not

pu

blis

hed

by 3

0 Se

ptem

ber

2014

CIP

FA s

tate

men

t not

co

mpl

ied

with

WG

A a

ssur

ance

repo

rt n

ot

issu

ed b

y 4

Oct

ober

201

4

Non

-sta

ndar

d W

GA

as

sura

nce

stat

emen

t

Non

-sta

ndar

d VF

M

conc

lusi

on

Publ

ic in

tere

st re

port

Sect

ion

11

reco

mm

enda

tion

2012

/13

prio

r yea

r iss

ues

South Yorkshire Integrated Transport Authority Bodies named for early publication of audited accounts ■ Borough of Broxbourne ■ Bury Metropolitan Borough Council ■ City of Westminster Council ■ Dacorum Borough Council ■ Great Aycliffe Town Council ■ Greater Manchester Waste Disposal Authority ■ Kent County Council ■ Kent and Medway Fire and Rescue Authority ■ Nexus ■ Oldham Metropolitan Borough Council ■ Royal Borough of Greenwich ■ South Norfolk District Council ■ South Yorkshire Pensions Authority ■ Transport for Greater Manchester ■ Transport for London ■ Yorkshire Purchasing Organisation

Bodies named for earlier production of audited accounts ■ Surrey County Council

Appendix 4: Opinions issued by 30 September 2014 on the 2013/14 annual return by county area

County area Number of parish councils

Opinions issued by 30 September 2014

Number of IDBs

Opinions issued by 30 September 2014

Avon 136 136 (100%) 1 1 (100%) Bedfordshire 125 124 (99%) 1 1 (100%) Berkshire 103 101 (98%) 0 N/A Buckinghamshire 217 208 (98%) 1 1 (100%) Cambridgeshire 259 258 (96%) 43 43 (100%) Cheshire 235 235 (100%) 0 N/A Cleveland and Durham 185 183 (99%) 0 N/A Cornwall 213 210 (99%) 0 N/A Cumbria 266 265 (99%) 0 N/A Derbyshire 257 253 (98%) 0 N/A Devon 400 400 (100%) 1 1 (100%) Dorset 193 192 (99%) 0 N/A East Sussex 103 103 (100%) 4 4 (100%) Essex 283 283 (100%) 0 N/A Gloucestershire 263 263 (100%) 0 N/A Hampshire and Isle of Wight 295 293 (99%) 0 N/A Herefordshire 138 135 (98%) 1 1 (100%) Hertfordshire 124 124 (100%) 0 N/A Humberside 245 245 (100%) 15 15 (100%) Kent 314 313 (99%) 5 5 (100%) Lancashire 247 244 (99%) 1 1 (100%) Leicestershire 283 278 (98%) 0 N/A Lincolnshire 472 467 (99%) 9 9 (100%) Norfolk 528 513 (97%) 13 13 (100%) North Yorkshire 608 606 (99%) 10 10 (100%) Northamptonshire 262 261 (99%) 0 N/A Northumberland 156 154 (99%) 0 N/A Nottinghamshire 209 206 (99%) 1 1 (100%) Oxfordshire 317 316 (99%) 0 N/A Shropshire 193 188 (97%) 4 4 (100%) Somerset 316 315 (99%) 2 2 (100%) South Yorkshire 93 92 (99%) 2 2 (100%) Staffordshire 186 182 (98%) 0 N/A Suffolk 427 426 (99%) 4 4 (100%) Surrey 87 87 (100%) 0 N/A Warwickshire 224 221 (99%) 1 1 (100%) West Sussex 156 155 (99%) 3 3 (100%) West Yorkshire 90 88 (98%) 0 N/A Wiltshire 268 267 (99%) 0 N/A Worcestershire 161 160 (99%) 0 N/A Total 9,637 9,550 (99%) 122 122 (100%)

Appendix 5: Assertions in the annual governance statement for small bodies

AGS assertion ‘Yes’ means that the small body took the following action:

1. We have approved the accounting statements, which have been prepared in accordance with the requirements of the Accounts and Audit Regulations and proper practices.

Prepared its accounting statements in the way prescribed by law.

2 We have maintained an adequate system of internal control, including measures designed to prevent and detect fraud and corruption and reviewed its effectiveness.

Made proper arrangements and accepted responsibility for safeguarding the public money and resources in its charge.

3 We have taken all reasonable steps to assure ourselves that there are no matters of actual or potential noncompliance with laws, regulations and codes of practice which could have a significant financial effect on the ability of the body to conduct its business or on its finances.

Has only done things that it has the legal power to do and has conformed to codes of practice and standards in the way it has done so.

4 We have provided proper opportunity during the year for the exercise of electors’ rights in accordance with the requirements of the Accounts and Audit Regulations.

During the year has given all persons interested the opportunity to inspect and ask questions about the body’s accounts.

5 We have carried out an assessment of the risks facing the body and taken appropriate steps to manage those risks, including the introduction of internal controls and/or external insurance cover where required.

Considered the financial and other risks it faces and has dealt with them properly.

6 We have maintained throughout the year an adequate and effective system of internal audit of the body's accounting records and control systems.

Arranged for a competent person, independent of the financial controls and procedures, to give an objective view on whether these meet the needs of the body.

7 We have taken appropriate action on all matters raised in reports from internal and external audit.

Responded to matters brought to its attention by internal and external audit.

8 We have considered whether any litigation, liabilities or commitments, events or transactions, occurring either during or after the year-end, have a financial impact on the body and, where appropriate have included them in the accounting statements.

Disclosed everything it should have about its business activity during the year including events taking place after the year-end if relevant.

For parish councils only

9 Trust funds (including charitable) – in our capacity as the sole managing trustee we have discharged our responsibility in relation to the accountability for the fund(s)/assets, including financial reporting and, if required, independent examination or audit.

Has met all of its responsibilities where it is a sole managing trustee of a local trust or trusts.

Appendix 6: Qualified opinions for small bodies by county area The number of qualified opinions for each county area as a percentage of small bodies in that area.

County area Parish council qualified opinions issued by 30 September

IDB qualified opinions issued by 30 September

2013/14 2012/13 2013/14 2012/13 Avon 9 (7%) 6 (4%) 0 (0%) 0 (0%) Bedfordshire 7 (6%) 11 (9%) 0 (0%) 0 (0%) Berkshire 0 (0%) 4 (4%) N/A N/A Buckinghamshire 7 (3%) 7 (3%) 0 (0%) 0 (0%) Cambridgeshire 60 (23%) 19 (7%) 10 (23%) 1 (2%) Cheshire 36 (15%) 27 (12%) N/A N/A Cleveland and Durham

17 (9%) 22 (12%) N/A N/A

Cornwall 21 (10%) 13 (6%) N/A N/A Cumbria 20 (8%) 18 (7%) N/A N/A Derbyshire 15 (6%) 21 (8%) N/A N/A Devon 46 (12%) 14 (4%) 1 (100%) 0 (0%) Dorset 14 (7%) 15 (8%) N/A N/A East Sussex 24 (23%) 12 (12%) 0 (0%) 3 (75%) Essex 67 (24%) 33 (12%) N/A N/A Gloucestershire 18 (7%) 13 (5%) N/A N/A Hampshire and Isle of Wight

21 (7%) 40 (14%) N/A N/A

Herefordshire 12 (9%) 7 (5%) 0 (0%) 0 (0%) Hertfordshire 13 (10%) 10 (8%) N/A N/A Humberside 53 (22%) 32 (13%) 7 (47%) 0 (0%) Kent 60 (19%) 22 (7%) 0 (0%) 2 (40%) Lancashire 24 (10%) 27 (11%) 1 (100%) 0 (0%) Leicestershire 25 (9%) 22 (8%) N/A N/A Lincolnshire 46 (10%) 23 (5%) 0 (0%) 0 (0%) Norfolk 17 (3%) 26 (5%) 0 (0%) 1 (8%) North Yorkshire 88 (14%) 46 (8%) 0 (0%) 0 (0%) Northamptonshire 12 (5%) 12 (5%) N/A N/A Northumberland 13 (8%) 21 (13%) N/A N/A Nottinghamshire 21 (10%) 24 (11%) 0 (0%) 0 (0%) Oxfordshire 28 (9%) 28 (9%) N/A N/A Shropshire 10 (5%) 6 (3%) 0 (0%) 0 (0%) Somerset 16 (5%) 11 (3%) 0 (0%) 1 (50%) South Yorkshire 11 (12%) 11 (12%) 0 (0%) 0 (0%) Staffordshire 17 (9%) 27 (15%) N/A N/A Suffolk 42 (10%) 44 (10%) 0 (0%) 0 (0%) Surrey 15 (17%) 10 (11%) N/A N/A Warwickshire 24 (11%) 26 (12%) 0 (0%) 0 (0%) West Sussex 29 (19%) 11 (7%) 0 (0%) 3 (100%) West Yorkshire 16 (18%) 9 (10%) N/A N/A Wiltshire 34 (13%) 16 (6%) N/A N/A Worcestershire 7 (4%) 5 (3%) N/A N/A Total 1,015 (11%) 751 (8%) 19 (16%) 11 (9%)

References

1 Accounts and Audit Regulations (England) 2011 2 CIPFA/SOLACE, Delivering Good Governance in Local Government:

Framework, CIPFA/SOLACE, 2007 3 Joint Practitioners’ Advisory Group, Governance and Accountability in

Local Councils: A Practitioners’ Guide (England) 2010, National Association of Local Councils and the Society of Local Council Clerks, 2010

4 Joint Practitioners’ Advisory Group, Governance and Accountability in Internal Drainage Boards in England: A Practitioners’ Guide 2007, Association of Drainage Authorities, 2007