KPMG Report to those charged with corporate governance

8/3/2019 KPMG Report to those charged with corporate governance

1/34

Report to thosecharged withgovernance2008/09

Kettering BoroughCouncil

29 September 2009

INFRASTRUCTURE,GOVERNMENT AND HEALTHCARE

AUDIT

AppendixA


2/34 2009 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member

firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its cir culation and use are restricted.KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.

1

Page

Executive summary 2

Use of resources 4

Financial statements 6

Appendices 9

1. Proposed use of resources conclusion2. Use of resources key findings3. Use of resources criteria and link to VFM conclusion4. Proposed audit report5. Audit differences6. Accounts risk areas7. Recommendations8. Follow up of previous recommendations9. Treasury management return10. Data quality spot checks11. Audit reports issued12. Declaration of independence and objectivity13. Draft management representations letter14. Audit fee

Content

The contacts at KPMG inconnection with this report are:

Saverio Della RoccaDirectorKPMG LLP (UK)

Tel: 0121 335 [email protected]

Deborah StokesManagerKPMG LLP (UK)


Claire Adams

Assistant ManagerKPMG LLP (UK)


This report is addressed to the Authority and has been prepared for the sole use of the Authority.We take no responsibility to any member of staff acting in their individual capacities, or to thirdparties. The Audit Commission has issued a document entitled Statement of Responsibilities ofAuditors and Audited Bodies. This summarises where the responsibilities of auditors begin and

end and what is expected from the audited body. We draw your attention to this document.External auditors do not act as a substitute for the audited bodys own responsibility for putting inplace proper arrangements to ensure that public business is conducted in accordance with the

law and proper standards, and that public money is safeguarded and properly accounted for, andused economically, efficiently and effectively.

If you have any concerns or are dissatisfied with any part of KPMGs work, in the first instance

you should contact Saverio Della Rocca, who is the engagement director to the Authority,telephone 0121 335 2367,[email protected] who will try to resolve yourcomplaint. If you are dissatisfied with your response please contact Trevor Rees on 0161 236

4000, email [email protected], who is the national contact partner for all of KPMGs workwith the Audit CommissionAfter this, if you are still dissatisfied with how your complaint has been

handled you can access the Audit Commissions complaints procedure. Put your complaint inwriting to the Complaints Investigation Officer, Westward House, Lime Kiln Close, Stoke Gifford,

Bristol, BS34 8SR or by e mail to: [email protected]. Their telephone numberis 0844 798 3131, textphone (minicom) 020 7630 0421




2

Section one

Executive summary

Scope of this report

The Audit Commissions Code of Audit Practice (the Code) requires us to summarise the work we have carried outto discharge our statutory audit responsibilities together with any governance issues identified and we report tothose charged with governance (in this case the Monitoring and Audit Committee) at the time they are consideringthe financial statements. We are also required to comply with International Standard on Auditing (ISA) 260 whichsets out our responsibilities for communicating with those charged with governance.

This report meets both these requirements. It summarises the key issues identified during our audit of KetteringBorough Councils(theAuthority's) financial statements for the year ended 31 March 2009. In addition, this reportsummarises our key findings from our assessment of how the Authority is managing and using its resources todeliver value for money and better and sustainable outcomes for local people.

This report does not repeat matters we have previously communicated to you. In particular, we draw your attentionto our Interim Audit Report 2008/09, which summarised our planning and interim audit work. A summary of allreports we have issued in the year is set out in Appendix 11. Once we have finalised our opinions and conclusionswe will prepare our Annual Audit Letter and close our audit.

Summary of findings

Use of Resources

The Authority is responsible for putting in place proper arrangements to secure economy, efficiency andeffectiveness in its use of resources and regularly reviewing their adequacy and effectiveness .

We are required to conclude whether the Authority has adequate arrangements in place to ensure effective use ofits resources. This assessment draws on the findings from the new use of resources assessment frameworkintroduced by the Audit Commission for this year.

The new assessment framework forms part of the Comprehensive Area Assessment (CAA). This assessment is aharder test than the previous assessment and is focused on outcomes for local people rather than processes. Thismeans direct comparisons with the previous assessment are not possible.

The assessment comprises three themes which focus on:

sound and strategic financial management;

strategic commissioning and good governance; and

the management of natural resources, assets and people.

We have assessed the Authority against the detailed guidance set out on the Audit Commission website which canbe accessed by the following link http://www.auditcommission.gov.uk/useofresources/guidance/index.htm .Judgements have been made for each KLOE using the four point scale from 1 to 4, (1 meaning that the Authoritydoes not meet minimum requirements and 4 being significantly exceeding minimum requirements).

The Authority has been assessed overall as level 2 which equates to performing adequately.

Based on this assessment, we have concluded that the Authority has made proper arrangements to secureeconomy, efficiency and effectiveness in its use of resources.

Our findings are detailed in Section two of this report and our proposed conclusion is set out in Appendix 1.

Financial statements

The Authority is responsible for having in place effective systems of internal control which ensure the regularity andlawfulness of transactions, to maintain proper accounting records and to prepare financial statements that presentfairly its financial position and its expenditure and income. It is also responsible for preparing and publishing anAnnual Statement of Governance with its financial statements.

During the course of our audit we have identified one material adjustment required to the financial statements inrelation to the accounting treatment for the impairment of council dwellings. There are a number of areas where ourwork is continuing. Subject to all the outstanding queries being resolved to our satisfaction, we anticipate issuing anunqualified opinion by the 30th September 2009.

We shall be holding a detailed debrief meeting with the finance team to obtain two way feedback on the audit

process and the quality of the working papers and how we can continue to work together to improve the closedownprocess and financial statement audit.

Our findings are detailed in section three and our proposed opinion on the accounts is presented in Appendix 4.
http://www.audit-commission.gov.uk/localgov/audit/CAA/Pages/CAAframework.aspxhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.audit-commission.gov.uk/localgov/audit/CAA/Pages/CAAframework.aspxhttp://www.audit-commission.gov.uk/localgov/audit/CAA/Pages/CAAframework.aspxhttp://www.audit-commission.gov.uk/localgov/audit/CAA/Pages/CAAframework.aspxhttp://www.audit-commission.gov.uk/localgov/audit/CAA/Pages/CAAframework.aspxhttp://www.audit-commission.gov.uk/localgov/audit/CAA/Pages/CAAframework.aspxhttp://www.audit-commission.gov.uk/localgov/audit/CAA/Pages/CAAframework.aspxhttp://www.audit-commission.gov.uk/localgov/audit/CAA/Pages/CAAframework.aspx




3

Section one

Executive summary (continued)

Status of the audit

At the date of this report our audit of the financial statements is substantially complete, subject to the following:

verifying the final amended set of accounts; and

receipt of a signed management representation letter. We have provided a draft version at Appendix 13. This

includes a request for a specific management representation over the adequacy of impairments in the accounts.Declaration of independence and objectivity

In relation to the audit of Kettering Borough Council for the year ending 31 March 2009, we confirm that there wereno relationships between KPMG LLP and Kettering Borough Council, its directors and senior management and itsaffiliates that may reasonably be thought to bear on the objectivity and independence of the audit engagement leadand audit staff. We also confirm that we have complied with Ethical Standards and the Audit Commissionsrequirements in relation to independence and objectivity.

We have provided a detailed declaration in Appendix 12 in accordance with ISA 260.

Exercise of other powers

We have a duty under Section 8 of the Audit Commission Act 1998 to consider whether, in the public interest, toreport on any matter that comes to our attention in order for it brought to the attention of the public. In addition wehave a range of other powers under the 1988 Act. We did not exercise these powers or issue a report in the publicinterest in 2008/09.

Certificate

We are required to certify that we have completed the audit in accordance with the requirements of the AuditCommission Act 1998 and the Code of Audit Practice. If there are any circumstances under which we cannot issuea certificate, then we are required to report them to you and to issue a draft opinion on the financial statements.

At present there are no issues that would cause us to delay the issue of our certificate of completion of the audit.

Fees

Our fee for the audit is 111,000 (excluding work on grant claims which is billed separately). This has beencontained within the fee agreed with you in our audit plan. We have not performed any non-audit work.

Looking forward

The Authority needs to consider and address a number of financial challenges in the coming year. These include:

revisiting its Medium Term Financial Strategy to mitigate any potential risks as a result of the current economicclimate and also developing a strategy to increase the HRA balances to an acceptable level; and

convergence of Local Government Accounting to International Financial Reporting Standards (IFRS) is likely topresent a number of reporting and technical challenges. The Authority should ensure sufficient planning isundertaken to ensure an efficient transition to IFRS. We understand the Authority are currently seeking guidance on

IFRS from a number of sources.

Acknowledgements

We would like to take this opportunity to thank officers and members for their continuing help and co-operationthroughout our audit work.




4

Section two

Use of resources

Introduction

In our Annual Audit and Inspection Plan 2008/09we outlined the work streams which we complete to assess theadequacy of your arrangements which ensure that your resources are deployed effectively. Our conclusion isbased on these work streams, our cumulative audit knowledge and any specific local risk work, as detailed below.

The new use of resources assessment

The Audit Commission introduced a new assessment this year. This assesses how well organisations are

managing and using their resources to deliver value for money and better and sustainable outcomes for localpeople.

This new assessment forms part of the Comprehensive Area Assessment (CAA) framework. It defines use ofresources in a broader way than previously, embracing the use of natural, physical and human resources and it alsoplaces a new emphasis on commissioning services for local people.

This assessment is a harder test than the previous assessment and is focused on outcomes for local people ratherthan processes. It is not sufficient for bodies to put in place well designed processes. They must be able todemonstrate the impact that those processes have made in relation to value for money and outcomes for localpeople. As a consequence it is not possible to make direct comparisons with the previous years assessment.

The assessment is based on three Key Lines of Enquiry (KLOEs) themes which cover:

Managing finances - focusing on sound and strategic financial management;

Governing the business - focusing on strategic commissioning and good governance; and

Managing resources - focusing on the effective management of natural resources, assets and people.

The scores for each theme are based on the scores assessed for the underlying Key Lines of Enquiry (KLOE). TheKLOEs are generic and applicable equally to all organisations.

The Commission specifies each year which KLOEs are to be assessed and for District Councils those relevant for2008/09 are set out in Appendix 2.

We have assessed the Authority against the detailed guidance set out on the Audit Commission website which canbe accessed by the following link http://www.auditcommission.gov.uk/useofresources/guidance/index.htm .

Judgements have been made for each KLOE using the four point scale from 1 to 4, (1 meaning that the Authoritydoes not meet minimum requirements and 4 being significantly exceeding minimum requirements).

Findings

We have assessed the Authority as an overall score of level 2 which means the Authority is performing adequately.This score reflects the fact that the Authority has some strong arrangements in place and areas where it performswell such as producing their financial statements on a timely basis, managing spend within budget and improvingperformance in areas such as leisure. However, there is some work required across all KLOEs to achieve a level 3.

The table below shows our Use of Resources assessment across the three themes.

We are required to conclude whether the Authority has adequate arrangements to ensure effective use ofits resources. This assessment draws on the new use of resources assessment framework introduced bythe Audit Commission.

The new framework assesses local authorities against three themes: managing finances, governing thebusiness and managing resources and the Authority has been assessed as performing adequately

against these themesBased on this, we concluded that the Authority has made proper arrangements to secure economy,efficiency and effectiveness in its use of resources.

KLOE Theme Score

1 Managing finances 2

2 Governing the business 2

3 Managing resources 2
http://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htmhttp://www.auditcommission.gov.uk/useofresources/guidance/index.htm




5

Section two

Use of resources (continued)

To move to level 3 the Authority will need to demonstrate that arrangements are performing well across all threethemes and we have highlighted in Appendix 2 a number of areas the Authority should consider.

The scores have been quality checked by KPMGs national quality control processes, through a local area basedchallenge process. The scores are subject to completion of Audit Commission national quality assurance andreview processes, and may change. Final score will be published on 5 October 2009.

We have made 2 recommendations as follows:

Other work

If we identify specific risks at the Authority which may impact on our value for money conclusion, we are requiredto perform additional work to meet our responsibilities under the Code. We highlighted three specific risks in the2008/09 audit plan these were:

Town Centre Regeneration/ Service convergence project;

IT Partnership with the Borough Council of Wellingborough; and

Equal pay/Single Status.

We considered the Town Centre Regeneration capital spend, the IT Partnership arrangement and the EqualPay/Single Status provision as part of the final accounts work and our conclusions are included in Appendix 6.

Use of resources (value for money) conclusion

We are required to give an annual conclusion on the adequacy of theAuthoritys arrangements to ensure effectiveuse of its resources. This is the use of resources or value for money (VFM) conclusion.

For 2008/09, the KLOEs for the scored use of resources assessment directly map to the criteria for the VFMconclusion. The Audit Commission has specified which of the KLOEs will form the relevant criteria for the VFMconclusion and these are summarised in Appendix 3.

Based on our use of resources assessment and relevant local risk work set out above, we conclude that theAuthority has appropriate arrangements in place to ensure the effective use of its resources. Our proposedconclusion is set out in Appendix 1.

Recommendation 1: Self assessment

The Authority should build on the 2008/09 self assessment process and develop a more focused assessmentwhich:

contains an executive summary setting out a balanced assessment of the Authoritys progress against theKLOEs over the last year;

is supported by evidence and is clearly signposted to the assessment;

is accompanied by case studies to demonstrate outcomes; and

is approved by the Corporate Management Team and has been subject to challenge by the Monitoring and AuditCommittee.

Recommendation 2: Action planning

The Authority should develop an action plan in response to the findings of this report. The action plan shouldhave named responsible officers and a timescale for implementation.

The action plan should be approved by the Corporate Management Team and be subject to challenge by theMonitoring and Audit Committee during the year.




6

Section three

Financial statements

The Authority is responsible for having effective systems of internal control to ensure the regularity andlawfulness of transactions, to maintain proper accounting records and to prepare financial statementsthat present fairly its financial position and its expenditure and income. It is also responsible forpreparing and publishing an Annual Statement of Governance with its financial statements.

We have substantially completed our work on the 2008/09 financial statements. We have identified one

material adjustment required to the financial statements in relation to the accounting treatment for theimpairment of council dwellings.

Subject to all the outstanding queries being resolved to our satisfaction, and receiving your managementrepresentations letter we anticipate issuing an unqualified audit opinion by 30 September 2009.

We will also report that the wording of your Annual Statement of Governance accords with ourunderstanding.

Stage Tasks Timing Completed

Planning

Updating our business understanding and risk assessment

Assessing the organisational control environment

Issuing our accounts audit protocol

December 2008 to

February 2009

Controlevaluation

Reviewing the accounts production process

Evaluating and testing controls over key financial systems

Review of internal audit

February to

March 2009

Substantivetesting

Planning and performing substantive work

Evaluating the accounts production and audit process

Concluding on critical accounting matters

Identifying audit adjustments

Reviewing the Annual Governance Statement

July to

August 2009

Completion

Declaring our independence and objectivity

Obtaining management representations

Reporting matters of governance interest

Forming our audit opinion

September 2009 In progress

Introduction

Our financial statements work can be split into four phases. We previously reported on our work on the first two

stages in our Interim Audit Report 2008/09issued 30 April 2009.

This report focuses on the findings from the substantive testing and completion stages. The findings from ourplanning and control evaluation have been reported in our Interim Audit Report 2008/09.




7

Substantive testing accounts production and audit process

As part of our use of resources assessment we assess theAuthoritys process for preparing the accounts and itssupport for an efficient audit. We considered these against three criteria:

Substantive testing critical accounting matters

During our interim visit we identified a number of key audit risks for 2008/09 financial statements which we detailedin our interim report. We have now completed our testing of these areas and the outcome of our work issummarised in Appendix 6. The key findings arising are:

an impairment review has been carried out at the financial year end, which has resulted in an impairment chargeof 51,217k being recognised in the accounts;

the Authority is in the process of assessing the financial impact of implementing equal pay. The Authority doesnot know with any certainty when or the amount it will need to pay out due to constant changes in case law. Acontingent liability has been recognised in the financial statements and the Authority have set up a reserve of200k in; and

the level of provision for bad and doubtful Council Tax and NNDR debts recognised in the accounts appearsreasonable.

Substantive testing adjustments to the accounts

In accordance with ISA 260 we are required to report uncorrected audit differences to you. We also report anymaterial misstatements which have been corrected and which we believe should be communicated to you to helpyou meet your governance responsibilities.

We have identified two issues that havebeen adjusted for by management, including one material misstatementrelating to the impairment charge calculated by the Authority as detailed below.

The impairment charge calculated by the Authority had been overstated by 4,968k. The overstatement occurreddue to an error in the formulae contained within the electronic working papers used by the Authority to calculatethe total impairment charge recognised in the financial statements. There is no impact on the General Fund as theentry is reversed out via the Statement of Movement on the General Fund Balance.

Of the other audit adjustments we have identified, the most significant in monetary value are as follows:

Credit balances amounting to 110k had been incorrectly included in the debtors balance;

Both debtors and receipts in advance had been overstated by 54k as a number of invoices relating to the

2009/10 financial year had been incorrectly included in both balances.We have provided a summary of audit differences in Appendix 5. These have been adjusted for in the final versionof the financial statements.

Section three

Financial statements (continued)

Element Commentary

Completenessof draft

accounts

We received a set of draft accounts on 22 June 2009, prior to commencement of our final accounts auditwhich began on 29 June 2009. However, through completion of the Statement of RecommendedPractice (SORP) Checklist it was identified that some disclosure notes had not been included.

Quality ofsupporting

working papers

Our Accounts Audit Protocol, which we issued on 25 February 2009 and discussed with the GroupAccountant, set out our working paper requirements for the audit.

Working papers were provided in accordance with the agreed timetable and met the standards specifiedin our Accounts Audit Protocol.

Response toaudit queries

Our audit queries were dealt with quickly and efficiently.

We held regular meetings with the Authoritys Group Accountants during the accounts process tocommunicate progress with the audit and to co-ordinate the work of the Finance team to assist in thedelivery of the audit within the agreed timetable.




8

Section three

Financial statements (continued)

In addition, we identified a number of presentational adjustments required to ensure that the accounts are compliantwith the Code of Practice on Local Authority Accounting the United Kingdom 2008: A Statement of RecommendedPractice(SORP) for example, pension and financial instrument disclosures. We understand that the Authority willbe addressing these where significant.

We have provided a summary of both the corrected and uncorrected audit differences in Appendix 5.

Substantive testing Annual Governance Statement

We have reviewed the Annual Governance Statement and confirmed that

it complies with Delivering Good Governance in Local Government: A Frameworkpublished by CIPFA/SOLACE inJune 2007; and

it is not misleading or inconsistent with other information we are aware of from our audit of the financialstatements.

Completion declaration of independence and objectivity

As part of the finalisation process we are required to provide you with representations concerning ourindependence.

In relation to the audit of the financial statements of Kettering Borough Council for the year ending 31 March 2009,we confirm that there were no relationships between KPMG LLP and Kettering Borough Council, its directors andsenior management and its affiliates that we consider may reasonably be thought to bear on the objectivity andindependence of the audit engagement lead and audit staff. We also confirm that we have complied with EthicalStandards and the Audit Commissions requirements in relation to independence and objectivity.

We have provided a detailed declaration in Appendix 12 in accordance with ISA 260.

Completion management representations

You are required to provide us with representations on specific matters such as your financial standing and whetherthe transactions within the accounts are legal and unaffected by fraud. We have included a copy of a representationletter as Appendix 13. We require a signed copy of your management representations before we issue our audit

opinion.

For 2008/09 we are seeking specific assurance that sufficient and appropriate consideration has been given topotential impairments of the assets included in the accounts in light of the current macro economic climate and that,where any such impairment has been identified, it is reflected accordingly in the accounts. This includes compliancewith the accounting policy for periodic revaluation of assets (under FRS 15), as well as the need for management toundertake a review of assets to determine whether there is any impairment to their value in accordance with FRS11.

Completion other matters

ISA 260 requires us to communicate audit matters of governance interest that arise from the audit of the financialstatements to you which includes:

material weaknesses in internal control identified during the audit;

matters specifically required by other auditing standards to be communicated to those charged with governance(e.g. issues relating to fraud, compliance with laws and regulations, subsequent events etc); and

other audit matters of governance interest.

There are no others matters which we wish to draw to your attention.

Completion opinion

We anticipate issuing an unqualified audit opinion by 30 September 2009. Our proposed opinion on the financialstatements is presented in Appendix 4.




9

Appendices

Appendix 1: Proposed use of resources conclusion

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

Authoritys Responsibilities

The Authority is responsible for putting in place proper arrangements to secure economy, efficiency andeffectiveness in its use of resources, to ensure proper stewardship and governance and regularly to review theadequacy and effectiveness of these arrangements.

Auditors Responsibilities

We are required by the Audit Commission Act 1998 to be satisfied that proper arrangements have been made bythe Authority for securing economy, efficiency and effectiveness in its use of resources. The Code of Audit Practiceissued by the Audit Commission requires us to report to you our conclusion in relation to proper arrangements,having regard to relevant criteria specified by the Audit Commission for principal local authorities. We report ifsignificant matters have come to our attention which prevent us from concluding that the Authority has made suchproper arrangements. We are not required to consider, nor have we considered, whether all aspects of theAuthoritys arrangements for securing economy, efficiency and effectiveness in its use of resources are operatingeffectively.

Conclusion

We have undertaken our audit in accordance with the Code of Audit Practice. Having regard to the criteria forprincipal local authorities specified by the Audit Commission and published in May 2008 and updated in February2009, we are satisfied that, in all significant respects, Kettering Borough Council made proper arrangements tosecure economy, efficiency and effectiveness in its use of resources for the year ending 31 March 2009.

Saverio Della Rocca

(Senior Statutory Auditor)

for and on behalf of KPMG LLP

Chartered Accountants

Statutory Auditor

2 Cornwall StreetBirminghamB3 2DL

30 September 2009




10

Appendices

Appendix 2: Use of resources key findings

0

1

2

3

4

KLOE 2.1 KLOE 2.2 KLOE 2.3 KLOE 2.4

KLOE 1 How effectively does the organisation manage its finances to deliver value for

money?

Overall score is 2.

The Authority has adequate arrangements for financial planning, understanding its costs and performance andfinancial reporting. It will need to be able to demonstrate consistent outcomes across all KLOE focus areas toimprove its scores.

KLOE 1.1 Does the organisation plan its finances effectively to deliver its strategic priorities and securesound financial health?

The Authority meets the basic requirements for financial planning and is considered to be performing adequately.The key areas that the Authority should consider are:

developing a medium term efficiency savings plan i.e. over a 3 5 year period and develop strategies to deliverthese savings. These savings should then flow through to individual service plans and monitored and reported toMembers and Senior Management team on a regular basis;

reassessing where it spends its budget in relation to its priorities as part of the budget setting process for2010/11. While the Council has shifted resources into key areas such as recycling and more recentlyredeploying staff into housing benefits, in light of the current financial climate and outlook, it will again need tolook at whether it can disinvest further in non-priority areas;

develop the Medium Term Financial Strategy further to incorporate more modelling of different scenarios such

as the impact of changes to planned and responsive repairs on spend within the HRA and the impact on the levelof reserves and balances;

ensuring the Medium Term Financial Strategy is more widely communicated and consulted on withstakeholders and demonstrate how the consultation has changed the way the Council have allocated resources;

as part of its budget setting process, the Council will need to continue to challenge how services are delivered,in particular those services which are considered to be performing less well when compared to other authorities,and encourage service managers to consider all alternative options; and

reviewing the Treasury Management Policy/Strategy to ensure it is in line with revised guidance. For moredetail see Appendix 9.

The scores by sub KLOE are summarised in the graph below:

0

1

2

3

4

KLOE 1.1 KLOE 1.2 KLOE 1.3

As the Authority has scored at least level 2 for all criteria, it has met the requirements for the VFM conclusion.

This appendix summarises key messages from the use of resources assessment by theme. As the new use ofresources framework requires us to apply rounded judgements, we remind the Authority that it is not a checklistapproach. In our findings we highlight areas where the Authority can make improvements to its arrangements, butthey are not exhaustive.




11

Appendices

Appendix 2: Use of resources key findings (continued)

KLOE 1.2 Does the organisation have a sound understanding of its costs and performance and

The Authority understands its own costs and compares its performance level year on year but it has performedAuthority should consider are:

using comparative data more systematically to consider the costs and ensure they are commensurate with theareas where efficiencies or service changes can be made;

demonstrating the effective use of the newly introduced capital bidding process;

developing benchmarking information for key areas of spend i.e. priority areas or high spend and then use itperformance. In particular it should use the Audit Commission profiles to challenge services and back office

demonstrating increased delivery of savings from partnerships eg with NAPS on procurement.

KLOE 1.3 Is the organisations financial reporting timely, reliable and does it meet the needs of internal

The Authority meets the basic requirements for financial reporting and is considered to be performing

developing external reporting which includes environmental and social information with an analysis of the

consistently reviewing the financial performance of the Councils significant partners;

continuing to effectively project manage the implementation of IFRS and keep the Monitoring and Audit

making progress towards Equality Standard level 3 and ensuring diversity issues are reported in financial




12

Appendices


0

1

2

3

4


KLOE 2 How well does the organisation govern itself and commission services thatprovide value for money and deliver better outcomes for local people?

Overall score is 2

The Authority has adequate arrangements for commissioning and procurement, data quality, good governance

and internal control.It will need to be able to demonstrate consistent outcomes across all KLOE focus areas to be able to improve itsscores.

KLOE 2.1 Does the organisation commission and procure quality services and supplies, tailored tolocal needs, to deliver sustainable outcomes and value for money?

The Authority meets the basic requirements for commissioning and procurement and is considered to beperforming adequately. The Council has been and continues to be creative in the way it delivers and designs

services for its people and wins a number of awards for its work. However, its overall value for moneyperformance, as measured by the Audit Commission profiles, shows mixed performance with some servicessuch as housing benefits, although improving, still below average. The key areas that the Authority shouldconsider are:

demonstrating that the Councils approach to procurement and service delivery is improving performance (asmeasured by KPIs) and achieving value for money;

updating and developing the Councils Procurement Strategy document;

developing a strategic focus on commissioning and procurement which ensures that it considers the best wayto commission and procure services in the future and ensures delivery of value for money; and

demonstrating the benefits for local people from changing service arrangements thorough partnership workingor outsourcing e.g. from the procurement shared service with Northamptonshire Area Procurement Service (NAPS).

KLOE 2.2 Does the organisation produce relevant and reliable data and information to supportdecision making and manage performance?

The Authority meets the basic requirements for data quality and is considered to be performing adequately. Thekey areas that the Authority should consider are:

developing its performance reports further which summarise and pull together information from all sources togive an overall judgement on how well the Council is achieving its priorities. The reports should also highlighthow well individual services are achieving their service objectives. Reports could be enhanced further by using

comparative/benchmarking data; demonstrating that the Council uses performance information consistently across the Council to driveimprovement there are areas such as Housing Benefits where improvement has been slow;

developing local PIs which clearly link to individual service plans; and

formally report on the accuracy of data as well as the appropriateness of the procedures in place;

The scores by sub KLOE are summarised in the graph below:

0

1

2

3

4


As the Authority has scored above level 2 for all criteria, it has met the requirements for the VFM conclusion.




13

Appendices


demonstrating how it gains its assurances that data from partners is reliable and fit for purpose, arrangementsmay include shared internal audit reviews or joint site or desk-top reviews; and

update and formalise the Councils IT policies and procedures and demonstrate their compliance across theCouncil.

KLOE 2.3 Does the organisation promote and demonstrate the principles and values of goodgovernance?

The Authority meets the basic requirements for good governance and is considered to be performingadequately. The key areas that the Authority should consider are:

developing a consistent and appropriate form of governance which is formally documented in the form of aService Level Agreement for all its significant partners e.g. Connect Law, Consortium Audit and IT partnershiparrangements with Wellingborough. The documentation should include legal status, accountabilities, decisionmaking process, roles and responsibilities;

ensuring follow-up issues raised by internal audit on partnerships have been addressed;

ensuring recommendations made by external audit and the Audit Commission in the Annual External Audit

Report are implemented on a timely basis;

expanding consultation methods to include all hard to reach groups and demonstrating the local assessment ofneeds has been considered and been addressed; and

demonstrating the Council is pro-active in raising standards of ethical conduct for example by providing regularupdates/reminders to employees and Members on the Councils whistle blowing policy and regularly updating theCouncils anti-fraud and corruption policy.

KLOE 2.4 Does the organisation manage its risks and maintain a sound system of internal control?

The Authority meets the basic requirements for internal control and is considered to be performingadequately. The key areas that the Authority should consider are:

developing its risk managements arrangements further to ensure risk management is working consistently at alllevels of the Council. This needs to include ownership of risks and a clear understanding of the controls thatmitigate the risks;

ensuring recommendations made by internal audit in September 2008 regarding anti-fraud and corruptionarrangements are implemented;

developing proactive anti-fraud and corruption arrangements such as introducing fraud risk registers orassisting internal audit to carry out proactive fraud work;

putting in place arrangements to finalise the Councils Business Continuity plan and ensure staff and membersare notified of the processes and procedures and ensuring the Council schedules a programme of tests; and

demonstrating success stories of how the Monitoring and Audit Committee has helped improved internalcontrol.

Audit Commission Return Data Quality Spot Checks

As part of our assessment of KLOE 2.2, we are required to undertake spot checks on a sample of PerformanceIndicators (PIs).

During our review one minor error was identified. These were discussed with the relevant Manager who agreedto take these forward. There are no matters which we need to bring to the attention of Members. For furtherdetail please refer to Appendix 10.




14

Appendices


KLOE 3 How well does the organisation manage its natural resources, physicalassets, and people to meet current and future needs and deliver value for money?Overall score is 2.

KLOE 3.3 Does the organisation plan and develop its workforce effectively to support the achievementof its strategic priorities?

The Authority meets the basic requirements for workforce and is considered to be performing adequately. Thekey areas that the Authority should consider are:

developing benchmarking tools to allow comparison of its staff costs with other organisations and demonstratethe Council has used business process improvement approaches to identify potential areas for efficiency savingsand increased productivity;

developing a workforce plan which identifies the needs of the Council over the next three to five years and how

it intends to get there. It should be clearly aligned with the priorities and strategic objectives and demonstratehow it will deliver improvements in productivity and VFM;

developing post-implementation reviews following NextSteps reviews of services to evaluate the impact onstaff;

carrying out a staff survey and morale survey as the one completed was undertaken a number of years agoand demonstrating how it has communicated the findings to staff and actioned the areas for improvement; and

working towards achieving a level 3 or above on the current Equality Standard for local government.

As there is only one KLOE within this theme for 2008/09 (workforce planning), the score for KLOE 3.3 is also a

level 2.




15

Appendices

Appendix 3: Use of resources criteria and link to VFM conclusion

Use of resources KLOE Relevance to theAuthority

Managing finances

1.1 Financial planning

1.2 Understanding costs and achieving efficiencies

1.3 Financial reporting

Governing the business

2.1 Commissioning and procurement

2.2 Data quality and use of information

2.3 Good governance

2.4 Risk management and internal control

Managing resources

3.3 Workforce planning

The Audit Commission has specified which of the use of resources KLOEs form the criteria for the VFM conclusion.These criteria are summarised below.




16

Appendices

Appendix 4: Proposed audit report

Independent auditors report to the Members of Kettering Borough Council

Opinion on the accounting statements

We have audited the accounting statements and related notes of Kettering Borough Council for the year ended 31March 2009 under the Audit Commission Act 1998. The accounting statements comprise the Income andExpenditure Account, the Statement of Movement on the General Fund Balance, the Balance Sheet, the Statement

of Total Recognised Gains and Losses, the Cash Flow Statement, the Housing Revenue Account Income andExpenditure Account, the Statement of Movement on the Housing Revenue Account and the Collection Fund. Theaccounting statements have been prepared under the accounting policies set out in the Statement of AccountingPolicies.

This report is made solely to Kettering Borough Council, as a body, in accordance with Part II of the AuditCommission Act 1998. Our audit work has been undertaken so that we might state to Kettering Borough Council, asa body, those matters we are required to state to them in an auditors report and for no other purpose. To the fullestextent permitted by law, we do not accept or assume responsibility to anyone other than Kettering Borough Council,as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of the Head of Financeand auditors

The Head of Finances responsibilities for preparing the financial statements in accordance with relevant legal andregulatory requirements and the Code of Practice on Local Authority Accounting in the United Kingdom 2008 are setout in the Statement of Responsibilities for the Statement of Accounts.

Our responsibility is to audit the accounting statements and related notes in accordance with relevant legal andregulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the accounting statements and related notes present fairly, inaccordance with relevant legal and regulatory requirements and the Code of Practice on Local Authority Accountingin the United Kingdom 2008 the financial position of the Authority and its income and expenditure for the year.

We review whether the governance statement reflects compliance with Delivering Good Governance in LocalGovernment: A Framework published by CIPFA/SOLACE in June 2007. We report if it does not comply with proper

practices specified by CIPFA/SOLACE or if the statement is misleading or inconsistent with other information weare aware of from our audit of the financial statements. We are not required to consider, nor have we considered,whether the governance statement covers all risks and controls. Neither are we required to form an opinion on theeffectiveness of theAuthoritys corporate governance procedures or its risk and control procedures.

We read other information published with the accounting statements and related notes and consider whether it isconsistent with the audited accounting statements and related notes. This other information comprises only theExplanatory Foreword. We consider the implications for our report if we become aware of any apparentmisstatements or material inconsistencies with theaccounting statements and related notes. Our responsibilities donot extend to any other information.




17

Appendices

Appendix 4: Proposed audit report (continued)

Basis of audit opinion

We conducted our audit in accordance with the Audit Commission Act 1998, the Code of Audit Practice issued bythe Audit Commission and International Standards on Auditing (UK and Ireland) issued by the Auditing PracticesBoard. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in theaccounting statementsand related notes. It also includes an assessment of the significant estimates and judgments

made by the Authority in the preparation of the accounting statements and related notes, and of whether theaccounting policies are appropriate to theAuthoritys circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considerednecessary in order to provide us with sufficient evidence to give reasonable assurance that the accountingstatementsand related notes are free from material misstatement, whether caused by fraud or other irregularity orerror. In forming our opinion we also evaluated the overall adequacy of the presentation of information in theaccounting statementsand related notes.

Opinion

In our opinion the accounting statements and related notes present fairly, in accordance with relevant legal andregulatory requirements and the Code of Practice on Local Authority Accounting in the United Kingdom 2008, the

financial position of the Authority as at 31 March 2009 and its income and expenditure for the year then ended. Certificate

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

Saverio Della Rocca

(Senior Statutory Auditor)

for and on behalf of KPMG LLP

Chartered Accountants

Statutory Auditor

2 Cornwall StreetBirminghamB3 2DL

30 September 2009




18

Appendices

Appendix 5: Audit differences

We are required by ISA 260 to report all uncorrected misstatements, other than those that we believe are clearlytrivial, to the Audit Committee. We are also required to report all material misstatements that have been correctedbut that we believe should be communicated to you to assist you in fulfilling your governance responsibilities.

Corrected audit differences

The following table sets out the significant audit differences identified by our audit of Kettering Borough Councils

financial statements for the year ended 31 March 2009. It is our understanding that these will be adjusted.However, we have not yet received a revised set of financial statements to confirm this. There were nouncorrected audit differences.

Impact

Basis of audit differenceIncome andexpenditure

Statement ofMovement onGF Balance

Assets Liabilities Reserves

Cr

4.9m

Dr

4.9m

Dr Fixed

Assets4.9m

Cr CapitalAdjustment

Account

4.9m

The impairment charge recognised in the

accounts had been overstated. This wasdue to a formula error within theAuthorityselectronic working papers.

Dr Debtors

110k

Cr Creditors

110k

A number of credit balances had beenincorrectly included within the debtorsaccount.

Dr Debtors

30k

Cr Creditors

30k

A number of debit balances had beenincorrectly included within creditors.

Dr Receipts inAdvance

54k

Cr Debtors

54k

Three invoices relating to 2009/10 hadbeen incorrectly included in both debtorsand receipts in advance.

Dr LocalAuthorityDebtors

63k

Cr SundryDebtors

63k

A number of invoices relating to LocalAuthority debtors had been incorrectlyincluded within sundry debtors.




19

Appendices

Appendix 6: Accounts risk areas

This appendix summarises the key accounting issues for the 2008/09 financial statements and our final findingsfollowing our substantive work.

Issue Risk and implications Findings during final audit

Statement of Recommended Practice

(SORP) 2008

The 2008 SORP includes a number ofchanges, including prohibiting the revaluationof fixed assets and introducing the concept ofrevenue expenditure funded from capitalunder statute.

The Statement ofAccounts may not bepresented in accordancewith SORP requirements.

During the course of testing we identified thatadditional disclosure was required for anumber of areas. See recommendation 5 inAppendix 7 below.

Equal Pay/Single Status

The Authority is examining whether it has anypotential liability for Equal Pay/Single Statusclaims which could impact on the financial

statements. At the time of our interim review,the Authority estimated this to be in the regionof 200k.

The Authority may nothave recognisedadequate provision in the

financial statements.

The Councils work on this area is stillongoing. For the moment the Council haveassumed that implementation of equal pay

would result in an ongoing inflationaryincrease in pay of between 3-5%. Thisdoesn't take account of the costs associatedwith making payments to employees as part ofthe introduction of a new pay and gradingstructure. The Council does not know withany certainty when or the amount it will needto pay out, due to constant changes in caselaw. We have recommended that the Councilinclude a contingent liability note in thefinancial statements.

Town Centre Regeneration

The Authority has commenced a project toregenerate Kettering town centre. This projectinvolves complex large value financial andland transactions which could impact on thefinancial statements.

Construction work on the Market Place phaseof the Town Centre regeneration projectcommenced in February 2009. Howeverduring March 2009, the contractor engaged bythe Authority to undertake this work, WrekinConstruction, went into Administration. The

Authority has appointed a new contractor,Weldon Plant Ltd.

The Authority may notaccount for thetransactions correctly inthe financial statements.

The Authority may nothave complied with theconditions attached togrant funding receivedduring the financial year.

During the course of testing we reviewed theaccounting treatment of additions and grantfunding relating to the Town Centreregeneration project and confirmed that theyhad been accounted for correctly in thefinancial statements.

IT Partnership

The Authority has entered into an ITpartnership with the Borough Council ofWellingborough, whereby the Authority ishosting the financial ledger.

There may be inadequategovernancearrangements in placesurrounding thearrangement.

It has been confirmed that there is no ServiceLevel Agreement in place between the twoAuthorities which outlines the roles andresponsibilities of both parties in relation tothis arrangement. It is recommended that aSLA is put in place which clearly details roles,responsibilities and monitoring arrrangements.




20

Appendices

Appendix 6: Accounts risk areas (continued)

Issue Risk and implications Findings during final audit

Impairment

The reduction in property prices nationallymay have an impact on the value of theAuthoritys land and buildings, and the value

of its fixed assets may be impaired. TheAuthority is currently undertaking animpairment review to ascertain the impact ofthis issue on its asset base.

The Authoritys fixedassets may be overstatedas the reduction in

property prices have notbeen taken into accountwhen valuing their assetsat the year-end.

Our testing confirmed that an impairmentreview was undertaken at the year-end. Thisresulted in an impairment charge of 51,217k

being recognised in the statement of accounts.

Council Tax and NNDR Arrears

Council Tax and NNDR payers may also befinding it more difficult to pay, which couldimpact on account balances such as theAuthoritys income and its assessment of therecoverability of debt.

The provision for bad anddoubtful debts may not besufficient based on thelevel of arrears at theyear-end.

During testing, we identified that at the year-end Council Tax arrears amounted to 1,735kand NNDR arrears amounted to 662k.

The Authority has recognised provisions forbad and doubtful debts of 918k and 201k

against Council Tax and NNDR arrearsrespectively. As such the Authority hasprovided for 53% of the Council Tax arrears atthe year-end and 43% of the NNDR arrears atthe year-end. The level of provisionrecognised in the accounts appearsreasonable.




21

Appendices

Appendix 7: Recommendations

Priority rating for recommendation

Priority one:issues that are

fundamental and material to yoursystem of internal control. We believethat these issues might mean that youdo not meet a system objective orreduce (mitigate) a risk.

Priority two:issues that have an

important effect on internal controls butdo not need immediate action. You maystill meet a system objective in full or inpart or reduce (mitigate) a riskadequately but the weakness remainsin the system.

Priority three: issues that would, if

corrected, improve the internal controlin general but are not vital to the overallsystem. These are generally issues ofbest practice that we feel would benefityou if you introduced them.

We have given each recommendation a risk rating (as explained below) and agreed what action management willneed to take. We will follow up these recommendations next year.

No. Risk Issue and recommendation Management responseOfficer and

date

1 (two)

Use of Resources self assessment

The Authority should build on the 2008/09 self assessmentassessment which:

contains an executive summary setting out a balancedagainst the KLOEs over the last year;

is supported by evidence and is clearly signposted to the

is accompanied by case studies to demonstrate outcomes; and

is approved by the Corporate Management Team and has beenMonitoring and Audit Committee.

Agreed SMT / CMT

2 (two)

Action planning

The Authority should develop an action plan in response to theplan should have named responsible officers and a timescale for

The action plan should be discussed and challenged by theprogress reports should be submitted to the Monitoring and Audit

Agreed SMT / CMT

3 (two)

Rent Assistance Scheme

During 2007/08 the Authority introduced the Rent Assistancehomeless households to secure accommodation in the private

Our testing identified the following issues relating to this scheme:

records maintained by the Authority of all the householdssignificant number of accounts which are in credit. Detailedthese accounts are not in fact in credit, rather the debtor hasrepayment schedule.

records also identified 13 cancelled cheques amounting tospecific debtor accounts as the Authority is unable to identify to

working papers prepared by the Authority also identified that loanfor 19 debtor accounts.

It is recommended that the Authority carry out a detailed review ofarrangements in place for the Rent Assistance Scheme to ensureand that adequate arrangements are in place to recover the debts.

The Council is already in thereviewing the recoverygiven under the Rent

Head of

November




22

Appendices

Appendix 7: Recommendations (continued)

No. Risk Issue and recommendation Management responseOfficer anddue date

4

(two)

Building Control Disclosure

The statement is produced in accordance with the Building (LocalAuthority Charges) regulations 1998. There is a statutoryrequirement to break-even over a three-year rolling period. The

general principles of setting charges mean that authorities shouldnot set charges with the intention of generating a surplus. If asurplus or deficit arises, then the authority will need to considerwhether it needs to introduce a new scheme that will bring incomeinto closer alignment with expenditure.

The account has been in deficit for the past three years, and isshowing a deficit of 107,000 for the current year.

It is recommended that the Authority continues to explore theoptions available to meet the break even requirement for 2009/10.

The deficit is largely causedby capital chargesand depreciation,

which are accountingadjustments and not realexpenditure. Theseoccur because ofCapital investment inbuilding control system. TheCouncil did not increasecharges as a result becausethe costs are notional.

N/A

5

(two)

Statement of Recommended Practice (SORP) DisclosureChecklist

The draft Statement of Accounts omitted a number of disclosuresrequired by the SORP. Additional disclosures were required forexample on:

financial instruments;

retirement benefits;

leases, specifically where the Authority is the lessor; and

non-operational assets.

By completing the SORP checklist the Authority can identify thedisclosures required when preparing the Statement of Accounts.

It is recommended that the Authority completes the SORP

checklist once the Financial Statements have been drafted in2009/10.

Agreed GroupAccountant

June

2009




23

Appendices

Appendix 8: Follow up of previous recommendations

Report

Number of recommendations that were:

Included in originalreport

Implemented in year orsuperseded

Remain outstanding (re-iterated below)

ISA 260 Report 2007/08 14 9 5

Annual External Audit Report 2007/08 6 4 2

Total 28 21 7

This appendix summarises the progress made to implement the recommendations identified in our previous reports.We have detailed the outstanding recommendations and would re-iterate the importance of actioning theoutstanding recommendations as soon as possible.




24

Appendices

Appendix 8: Follow up of previous recommendations (continued)

No. Risk Issue and recommendationManagement

responseOfficer and due

date

Managementresponse at

September 2009

ISA 260 Report 2007/08

1

(two)

Capital Accounting

The Authority does not perform a full physicalverification exercise of plant and equipment. Failure todo this may result in the Authority not recognisingdisposal or obsolescence of fixed assets.

Agreed. GroupAccountant

December2008

See Page 25 AssetManagement Plan

2

(two)

Back-ups

The integrity of data backups is not subject to regulartesting.

There has been no full restoration of the back-up tapesfor the network to confirm that a full restoration would

be successful.A full restoration of the back-up tapes or key datashould be undertaken periodically.

This will bereviewed during2009/10.

IT Manager This forms part ofthe Councils review

of its BusinessContinuity

arrangementsThe

Council regularlycompletes successfuldata backups in a liveenvironment, whichgives confidence of

resilience. In addition,undertaking full

system restorationand regular testingwould be expensive

and resourceintensive.

3

(two)

User Access

There is no corporate-wide policy in place regarding theneed to undertake regular reviews of user access rightsto business critical IT applications. The aim of which,being to identify users who no longer require access orstaff who have left the Authority whose access has notbeen deleted.

The structure of the system access restrictions andsystem capabilities should be subject to periodic reviewand amendment. As part of this process, as aminimum, management should conduct a formal

process at regular intervals to review users accessrights so that:

users access rights are reviewed at regular intervals(a period of 12 months is recommended) and after anychanges;

authorisations for special privileged access rightsshould be reviewed at more frequent intervals; a periodof 3 months is recommended; and

privilege allocations are checked at regular intervals toensure that unauthorised privileges have not beenobtained.

This will bereviewed during2009/10.

IT Manager A review processwill be implemented

as part ofGovernment

Connect compliance it is important tonote that there is aprocess to ensure

leavers are removedfrom the network andindividual systems.




25

Appendices

Appendix 8: Follow up of previous recommendations (continued)

No. Risk Issue and recommendationManagement

responseOfficer anddue date

Managementresponse at

September 2009

4

(one)

Payroll Application Controls

The password parameters in place are not in line withbest practice (complexity, alphanumeric, forced

password change).

In line with Information Security best practice, Officersshould liaise with the supplier to ensure that passwordcontrols, as a minimum, include the following:

forced password change after 90 days or number oflog-ins;

forced password change after 30 days for SystemAdministrators / Super Users;

the system should prevent the same password beingreused within 12 months; and

temporary passwords are forcibly changed at the firstlog-on.

The Authority is inthe process of

undertaking areview of thePayroll functionas a result of thisservicetransferring toFinance. This willaddress thepoints raised at11, 12 and 13 andshould beconcluded by

December 2008.Head of Finance

Head ofFinance

Partiallyimplemented The

Council is stillawaiting a system

upgrade to addressall of the the

outstanding issues.

5

(two)

Upgrades

Application patches / upgrades are not always subjectto testing in test environments prior to being uploadedon to the live system.

The Authority should ensure that all system upgradesare tested in test environments before being uploadedon to the live system.

Agreed ITManager

Under reviewIf asystem has a testenvironment an

upgrade is testedprior to live upload. Ifnot, e.g. for networkpatches, localisedtesting within IT isundertaken before

rolling out to all staff.

Annual External Audit Report 2007/08

1

(two)

Asset Management Plan

The Asset Management Plan should be furtherdeveloped to show how the Authoritys land andbuildings will be used and developed to help delivercorporate priorities and service delivery needs, nowand in the future. The plan should also show howproperty assets will be maintained, modernised andrationalised to ensure that they are fit for purpose. The

Plan should highlight any backlog maintenance and beregularly reported to Members. In addition, theAuthority should obtain accurate data on the efficiency,effectiveness, asset value and running costs for each ofits buildings which can be used to support decisionmaking on investment and disinvestment property.

The points madewill be discussedin detail and afurther review ofthe AssetManagementPlan undertaken.

This will need tobe consideredalong with therequirements ofIFRS.

Head ofFinance

July 2009

In Progress -

2

(two)

Risk Management

The Authority should develop its risk managementarrangements further, in particular it should ensure:

risks associated with specific partnerships areconsidered, monitored and appropriate action is taken

to mitigate any identified risks; formal risk training is provided to both Members andstaff who have responsibility for risk management; and

regular reports are produced for Members to allowthem to take appropriate action to ensure corporaterisks are being identified and effectively managed.

Arrangements arein place with ourrisk managementpartner ZurichMunicipal to

address all of therecommendationsraised.

Head ofFinance

April 2009

Risk Managementprocedures, which

address therecommendations

raised, will be

submitted toMonitoring & Audit

Committee inSeptember 2009.Staff & Membertraining sessions

will follow.




26

Appendices

Appendix 9: Treasury management return

We have completed a questionnaire on behalf of the Audit Commission around the Authoritys TreasuryManagement arrangements. Through completion of the questionnaire we have identified the following areas whichare considered best practice which the Authority should consider implementing.

No. Issue and Recommendation Best Practice

1

CIPFA Treasury Management Panel Bulletin

A Treasury Management Panel Bulletin was issued byCIPFA in March 2009 with interim guidance surroundinginvestments in Icelandic Banks. Due to the Authoritystimetable for the approval of the Treasury ManagementStrategy, the 2009/10 Strategy document had already beenapproved before this guidance was issued.

The Authority should consider reviewing the 2009/10Treasury Management Strategy against this guidance andmaking any necessary revisions. When preparing the2010/11 Strategy document, the Authority should makereference to all available guidance issued by CIPFA.

2

Treasury Management Policy / Strategy

Review of the Treasury Management Policy / Strategydocument confirmed that it does not clearly identify:

theAuthoritys risk-reward appetite;

the balance the Authority wants to achieve betweensecurity, liquidity and the yield to be achieved;

the maximum period for which funds can be invested;

the criteria for choosing investment counterparties withadequate security; or

the level of country risk.

Members are responsible for setting the risk-rewardadvice from appropriate officers, e.g. s151 Officer).

TheAuthoritys risk-reward appetite should be condensedTreasury Management policy, with clear consequential

The Authority manages their investment portfolio basedplaced.

The Authority maintains a concern for risk despite highasking questions like:

- what actions can be taken to reduce credit risk?

- given our perception of the current market conditions, domore risk averse manner than the policy currently allows?

3

Treasury Management Reporting

Through discussion with Authority officers it was confirmedactivities are currently only formally reported to thethe annual Treasury Management Policy/Strategy is

In light of the current economic climate, the Authorityfrequency of reporting Treasury Management activities.

Monthly reporting to the Corporate Management Team (ordetails of:

- the investment portfolio (detailed list of all funds placeddate and interest rate);

- market commentary highlighting developments inwhich the Authority is investing; and

- forthcoming cash flows and plans for the funds.

4

Member Training

Discussion with Authority officers identified that MembersTreasury Management prior to reports being presented toHence this is only on an annual basis.

A formal Member training programme should be introducedresponsible for overseeing the Treasury Management




27

Appendices

Appendix 10: Data quality spot checks

Purpose of spot checks

The purpose of spot checking selected data is to confirm whether the Authoritys arrangements for securing dataquality are working in practice, are consistently applied, and comply with relevant national and local requirements.

Sample selection

In addition to our work specified by the Audit Commission on housing and council tax benefits data quality, anadditional sample of Performance Indicators (PIs) was selected for spot check testing based on local priorities andrisks. The results of our testing are below.

Results of data testing

Indicatorreference

Indicator description Managementarrangements

Audittrail

Pass /Fail

Out-turn Revisedout-turn

NI157a Percentage of planning applicationsdetermined in line with theGovernment target (i) majorcommercial applications within 13

weeks

Adequate Fail 72.73% 72.09%

LPI12 Days sick per member of staff Adequate Pass 7.61 -




28

Appendices

Appendix 11: Audit reports issued

Report Date issued

Audit and Inspection Plan 2008/09 30 September 2008

Interim Audit Report 2008/09 30 April 2009

A summary of the reports issued in the year to date is set out below.




29

Appendices

Appendix 12: Declaration of independence and objectivity

Declaration of Independence and Objectivity 2008/09

Auditors appointed by the Audit Commission must comply with the Code of Audit Practice(the Code) which statesthat:

Auditors and their staff should exercise their professional judgement and act independently of both the AuditCommission and the audited body. Auditors, or any firm with which an auditor is associated, should not carry out

work for an audited body, which does not relate directly to the discharge of auditors functions, if it would impair theauditors independence or might give rise to a reasonable perception that their independence could be impaired

In considering issues of independence and objectivity we consider relevant professional, regulatory and legalrequirements and guidance, including the provisions of the Code, the detailed provisions of the Statement ofIndependence included within the Audit CommissionsAnnual Letter of Guidance and Standing Guidance (AuditCommission Guidance) and the requirements of APB Ethical Standard 1 Integrity, Objectivity and Independence(EthicalStandards).

The Code states that, in carrying out their audit of the financial statements, auditors should comply with auditingstandards currently in force, and as may be amended from time to time. Audit Commission Guidance requiresappointed auditors to follow the provisions of ISA (UK &I) 260 Communication of Audit Matters with Those Charged

with Governance that are applicable to the audit of listed companies. This means that the appointed auditor mustdisclose in writing:

Details of all relationships between the auditor and the client, its directors and senior management and itsaffiliates, including all services provided by the audit firm and its network to the client, its directors and seniormanagement and its affiliates, that the auditor considers may reasonably be thought to bear on the auditorsobjectivity and independence.

The related safeguards that are in place.

The total amount of fees that the auditor and the auditors network firms have charged to the client and itsaffiliates for the provision of services during the reporting period, a

Documents

KPMG Report to those charged with corporate governance