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20th May 2021
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Background
Statute requires all town and parish councils to arrange for an independent internal audit examination of their accounting records and systems of internal control and for the conclusions to be reported each year in the Annual Governance and Accountability Return (AGAR).
This report sets out the work undertaken in relation to our initial review for 2020-21, undertaken during October 2020, and our final review undertaken in May 2021. Again, due to the ongoing restrictions imposed by the Covid-19 pandemic, this work has been undertaken remotely. We wish to record our thanks to the Clerk for providing all the documentation requested, and promptly answering issues as they arose during the audit.
Internal Audit Approach
The objective of this review is to provide an appropriate level of assurance to the Council on their governance, procedures and financial control for the entire financial year, generating full and supportable assurances in the Annual Governance and Accountability Return (AGAR) for 2020-21.
In undertaking our review for the year, we have again had regard to the materiality of transactions and their susceptibility to potential misrecording or misrepresentation in the year-end Statement of Accounts / AGAR. Our programme of cover is designed to afford appropriate assurance that the Council has appropriate and robust financial systems in place that operate in a manner to ensure effective probity of transactions and to afford a reasonable probability of identifying any material errors or possible abuse of the Council’s own and the national statutory regulatory framework. The programme is also designed to facilitate our completion of the ‘Internal Audit Report’ as part of the Council’s AGAR process, which requires independent assurance over a number of internal control objectives.
Overall Conclusion
We continue to conclude that, based on our planned programme of work throughout the year, the Council is not maintaining adequate and effective internal control arrangements to the standards expected by Government Accounting. In particular we would highlight an absence of internal control, as required by the NALC Model Form of Financial Regulations which the Council has not fully adopted. We are concerned to note that our previous recommendation on this important point, made at the interim review, has not been actioned. We have reiterated this recommendation, along with others designed to enhance internal control by the Council in order to meet best practice, legal requirements, and the Council’s own policies, in the body of this report. We have registered appropriate assurances in the 2020-21 AGAR, which will now be subject to scrutiny by External Audit.
Detailed Report
Accounting Records and Bank Reconciliations
The Council continues to use the RBS Rialtas Alpha software to maintain its accounting records, with separate cashbooks for the Barclays (Current), Santander (used for the Local Neighbourhood Development Plan), and Newbury Building Society (Investments) accounts. We note that the Community Savings and Loan Account with the Berkshire Credit Union was closed down in July 2020 and the balance properly transferred to the Barclays account.
Our objective here is to ensure that the accounting records are being maintained accurately and currently and that no anomalous entries appear in cashbooks or financial ledgers. We have, consequently: –
- Verified that an appropriate cost centre and nominal coding structure remains in place;
- Agreed the opening accounts detail in 2020-21 to the closing Financial Statements / certified AGAR for 2019-20;
- Reviewed the external audit certificate for 2019-20, noting that the external auditors have again indicated the need for positive action to be taken to address the issues raised in our previous audit reports;
- Test-checked a range of cashbook transactions for the financial year on all accounts to the supporting bank statements; and
- Checked and agreed the monthly bank reconciliations for all accounts. We have not, however, found any evidence, either in the Minutes or on the reconciliations themselves, to suggest that these have been independently reviewed by Councillors, indicating a continuing lack of internal check that we have highlighted before.
Conclusions and recommendations
Based on the records presented to us, and the limited amount of testing that can be done remotely, we have no concerns at this time over the maintenance of the financial records by the Clerk, which is sound and addresses concerns which we have previously raised.
However we remain very concerned at the lack of financial overview by Councillors. This is a requirement of the NALC Model Form of Financial Regulations, the appropriate section of which has been deleted from the Council’s most recent version (approved in December 2020). We note that a Councillor was formally appointed to this role in July 2020, but subsequently resigned and this important role has not been reallocated. Therefore we believe that the Council should have given a negative assurance to Section 1 (Annual Governance Statement) Assertion 2 (System of Internal Control) in its 2020-21 AGAR, which it has clearly failed to do. The Council must amend and re-approve Section 1 of the AGAR before submitting it to the External Auditor and for Public scrutiny. We note, and agree with, the Council’s negative assertions against items 6 and 7 of the Governance Statement, relating to a lack of consideration and implementation of previous internal audit recommendations.
R1. An independent Councillor (ie. one who does not authorise payments) should be urgently appointed to review bank reconciliations and test-check a representative sample of financial transactions on at least a quarterly basis, in order to demonstrate a system of internal control in accordance with the NALC Model Form of Financial Regulations. Such checks should be evidenced by an appropriate signature / initials on each document examined, together with the date of the review, and the review should be subsequently reported to Council and recorded in the Minutes.
Review of Corporate Governance
Our objective is to ensure that the Council has a robust series of corporate governance documentation in place; that Council and Committee meetings are conducted in accordance with the adopted Standing Orders and that, as far as we are reasonably able to ascertain, no actions of a potentially unlawful nature have been or are being considered for implementation.
We remain concerned that important policies remain unreviewed, despite the resolution of the Finance Committee at its July 2020 meeting.
We note with concern that, while the Council has maintained an interim website, it does not provide any of the information required by the Transparency Code 2015. In particular, while Full Council Minutes are available for review, the website does not record the actions of various Committees in the second half of the financial year.
Conclusions and recommendation
We have concerns about the strength of Corporate Governance evidenced by the Council, as we have referred to above and in previous reviews, and particularly note a complete lack of compliance with the requirements of the Transparency Code 2015. We are also concerned at the level of internal control exhibited by the Council over its Committees.
R2. The Council must urgently review its Financial Regulations, and adopt a set more in line with the NALC Model Form, especially where it relates to the internal control responsibilities by Councillors.
R3. The Council must reassess its response to the assertions on Section 1 (Annual Governance Statement) of the 2020-21 AGAR, assigning a negative assurance to Assertion 2 (System of Internal Control), before submitting it to the External Auditor.
R4. Urgent action must be undertaken to implement a new website that meets the legal requirement of the Transparency Code. This should be seen as a necessary step in publicly demonstrating sound internal control by the Council.
Review of Expenditure
Our aim here is to ensure that: –
- Council resources are released in accordance with the Council’s approved procedures and budgets;
- Payments are supported by appropriate documentation, either in the form of an original trade invoice or other appropriate form of document confirming the payment as due and/or an acknowledgement of receipt, where no other form of invoice is available;
- All discounts due on goods and services supplied are identified and appropriate action taken to secure the discount;
- The correct expense codes have been applied to invoices when processed; and,
- VAT has been appropriately identified and coded to the control account for periodic recovery.
We have examined the procedures in place for the approval and release of payments noting that Councillors review invoices when signing cheques (no payments are currently made by electronic means, apart from a limited number of Direct Debits and Standing Orders). We note that a certification stamp is now in use which records the cheque number and date, and the initials of the Clerk and the certifying Councillor(s).
We have undertaken a test-check of a range of invoices over £1,000 (necessarily limited by remote working), with all checked invoices being properly certified, entered into the accounting system and traceable through to bank statements.
We note that manual VAT recovery claims continue to be submitted periodically.
Conclusions
No issues arise in this area warranting formal comment or recommendation.
Assessment and Management of Risk
Our aim here is to ensure that the Council has put in place appropriate arrangements to identify all potential areas of risk of both a financial and health and safety nature, whilst also ensuring that appropriate arrangements exist to monitor and manage those risks in order to minimise the likelihood of their coming to fruition.
We have not seen any evidence that the LCRS Risk Register was reviewed during 2020-21, due to the lack of meetings of the Finance Committee after July 2020. We note the existence of a Risk Register dated 21 April 2021, which would meet the requirement in 2021-22.
We have reviewed the Council’s insurance cover, which is currently provided by Zurich Municipal. Public Liability cover is set at £12 Million, with Employers Liability at £10 Million and Fidelity Guarantee at £250,000. However, we cannot find any level of cover for Officials Indemnity, which is normally in place for Councils of this size.
We note from the Minutes of the Burial and Open Spaces Committee that attention has been given to inspecting the Council’s playparks following the lifting of pandemic restrictions.
Conclusions and recommendation
R5. The Council should review its insurance cover to ensure that all normal covers are in place at a sufficient level to meet the Council’s operations.
Precept Determination and Budgetary Control
We aim in this area of our work to ensure that the Council has appropriate procedures in place to determine its future financial requirements leading to the adoption of an approved budget and formal determination of the annual precept; that effective arrangements are in place to monitor budgetary performance throughout the financial year and that the Council has identified and retains appropriate reserve funds to meet future spending plans.
At its January 2021 meeting, the Council agreed its budget for 2021-22, setting the Precept at £145,000.
The Council has set Earmarked Reserves totalling £68.881. This leaves a General Reserve, after allowing for year-end debtors and creditors, of £36,798, which represents around 25% (3 months) of the Precept. This is a low level for a Council of this size, and should be kept under review to ensure that unforeseen issues can be appropriately responded to.
We would, however, repeat our concern from previous reviews that budgetary detail has not been fully entered onto the Alpha accounting software for the year, as it derives from a spreadsheet maintained by the Chair. This therefore affords Councillors no obvious means of comparing actual income and expenditure against that set in the year’s budget, or for profiling it over the year, and hinders proper financial control and reporting by the Clerk.
Conclusions and recommendation
R6. The Council should review its methods of budgetary control in order to facilitate both independent review by Councillors and the normal function of the Clerk.
Review of Income
In considering the Council’s income streams, we aim to ensure that robust systems are in place to ensure the identification of all income due to the Council from its various sources, to ensure that income is invoiced in a timely manner and that effective procedures are in place to pursue recovery of any outstanding monies due to the Council.
We note that various fees and charges pertaining to the Cemetery, Parish Hall, Market and Paddock Rentals have been reviewed by both the Burials and Open Spaces Committee (May 2020) and the Hall and Street Lighting Committee (June 2020).
We have test-checked a range of income transactions (focussed on market and burial receipts, which have continued during the pandemic), with all transactions being properly accounted for in the financial records.
We have also examined the nominal ledger, income code transaction reports for the financial year to date to ensure that there are no obvious coding errors or indications that income due has not been received, with no obvious issues arising.
Conclusions
No issues arise in this area warranting formal comment or recommendation.
Petty Cash and Debit Cards
The Council does not operate any petty cash account, any expenses incurred by staff or Councillors being reimbursed through the normal payment process.
Review of Staff Salaries
In examining the Council’s payroll function, we aim to confirm that extant legislation is being appropriately observed as regards adherence to the requirements of HMRC legislation in relation to the deduction and payment over of income tax and NI contributions, together with meeting the requirements of the local government pension scheme (where applicable).
The payroll is produced “in-house” by the Clerk using HMRC PAYE Tools software. We have test-checked the procedures in place and payments made for payments up to March 2021, with no issues arising.
Conclusions
No issues arise in this area warranting formal comment or recommendation.
Fixed Asset Registers
We have previously expressed concerns over the completeness of this Register, and the valuation of identified assets in accordance with Government (Governance and Accountability Manual) requirements. Suitable recommendations were made in both the interim and final Internal Audit reports for 2019-20, and again in the 2020-21 interim review.
Conclusions and recommendation
R7. The Council should continue to review the Fixed Asset Register to ensure that all assets are (a) properly identified, and (b) recorded at original cost or, if this cannot be ascertained, a suitable valuation which can be a nominal £1.
Investment and Loans
The Council holds surplus funds at the Newbury Building Society and Santander (the Community Savings and Loan Account having been closed this year, as noted above).
The Council has no loans either repayable by it, or to it.
Conclusions
No issues arise in this area warranting formal comment or recommendation.
Statement of Account and AGAR
The AGAR incorporates the Council’s Annual Accounts, which are subject to external audit scrutiny and verification.
Conclusions
There are no further matters arising in this area of our review process and we have duly signed off the Internal Audit Certificate at Page 3 of the AGAR, assigning appropriate and supportable assurances in all relevant categories.
Response Document
| Recommendation | Response |
|---|---|
| Review of Accounting Arrangements and Bank Reconciliations R1 An independent Councillor (ie. one who does not authorise payments) should be urgently appointed to review bank reconciliations and test-check a representative sample of financial transactions on at least a quarterly basis, in order to demonstrate a system of internal control in accordance with Financial Regulation 2.2. Such checks should be evidenced by an appropriate signature / initials on each document examined, together with the date of the review, and the review should be subsequently reported to Council and recorded in the Minutes. | to be completed |
| Review of Corporate Governance R2 The Council must urgently review its Financial Regulations, and adopt a set more in line with the NALC Model Form, especially where it relates to the internal control responsibilities by Councillors. | to be completed |
| R3 The Council must reassess its response to the assertions on Section 1 (Annual Governance Statement) of the 2020-21 AGAR, assigning a negative assurance to Assertion 2 (System of Internal Control), before submitting it to the External Auditor | to be completed |
| R4 Urgent action must be undertaken to implement a new website that meets the legal requirement of the Transparency Code. This should be seen as a necessary step in publicly demonstrating sound internal control by the Council. | to be completed |
| Assessment and Management of Risk R5 The Council should review its insurance cover to ensure that all normal covers are in place at a sufficient level to meet the Council’s operations. | to be completed |
| Budgetary Control R6 The Council should review its methods of budgetary control in order to facilitate both independent review by Councillors and the normal function of the Clerk. | to be completed |
| Review of Asset Registers R7 The Council should continue to review the Fixed Asset Register to ensure that all assets are (a) properly identified, and (b) recorded at original cost or, if this cannot be ascertained, a suitable valuation which can be a nominal £1. | to be completed |