Chard TC Final update report 2017-18b

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Chard Town Council
Internal Audit Report 2017-18 (Final update)

Stuart J Pollard
Director
Auditing Solutions Ltd

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Background and Scope
Statute requires all Town and Parish Councils to implement an independent internal audit
examination of their Accounts and accounting processes annually. This report sets out those
areas examined during our two interim visits to the Council for 2017-18, which took place on 6th
November 2017 and 27th February 2018: it has been further updated following receipt of
appropriate information and documentation allowing us to complete the necessary additional
work off site, due to the physical incapacity of the auditor due to full hip replacement surgery,
following a fall.

Internal Audit Approach
In conducting our review for 2017-18 in accordance with the requirements of the Internal Audit
Report (as part of the Annual Governance and Accountability Return (AGAR) process) and the
latest edition of the Governance and Accountability Manual, we have again paid due regard to
the materiality of transactions and their susceptibility to potential misrepresentation in the
Accounts / AGAR, together with examining the overall governance framework. Our aim is to
ensure that the Council continues to operate robust control systems and that transactions are, as
far as we are reasonably able to ascertain, processed in accordance with national and locally
approved legislation.
We have checked progress on implementing / addressing the issues raised in previous reports
and are pleased to acknowledge that appropriate remedial action has been taken.

Overall Conclusion
We are pleased to advise that, in the areas examined this year, the Council’s financial systems
continue to operate effectively. We have, at our interim visits, identified a few anomalies with
the petty cash accounts, that required action by the RFO during the year.
Whilst no significant concerns have been identified with regard to the financial controls in
place, we are concerned to note that, despite our previous report reminders, members deferred
the review and formal re-adoption of the risk register review until the 2018-19 financial year.
The Governance and Accountability Manual (G&AM) requires that risk registers are reviewed
at least once annually, the output being formally approved and adopted by the Council. Whilst
we full appreciate the staffing pressures faced by the Council in recent months, the absence of
any formal re-adoption of the registers during the 2017-18 financial year will require a negative
response by the Council in the Governance Section, Box 5 of the year’s AGAR.

This report has been prepared for the sole use of Chard Town Council. To the fullest extent permitted by law, no responsibility or
liability is accepted by Auditing Solutions Ltd to any third party who purports to use or rely, for any reason whatsoever, on this report,
its contents or conclusions

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Detailed Report
Review of Accounting Arrangements & Bank Reconciliations
Our objective here is to ensure that the Council’s accounting records are being maintained
accurately and currently and that no anomalous entries appear in cashbooks or financial ledgers:
we also aim to ensure the integrity of the data and that appropriate arrangements are in place for
its security. We note that three bank accounts continue in use with the Co-op bank with the
current and deposit account transactions recorded in a single cashbook with a daily sweep
between the two accounts to retain a £2,000 balance in the current account. The third account
holds a small proportion of the Council’s surplus funds attracting interest payable at half-yearly
intervals: detail is recorded in a separate cashbook in the accounting software. Further surplus
funds are currently held in two deposit accounts with Nationwide.
We have: ➢ Verified the accurate carry forward, from 2016-17, of that year’s closing balances as
opening balances in the 2017-18 financial ledger;
➢ Verified that the ledger remains “in balance” at the financial year-end;
➢ Ensured that a comprehensive, meaningful and appropriate nominal coding schedule,
together with cost centres, remains in place;
➢ Checked and agreed a sample of transactions in the combined current and deposit
account cashbook with the Co-op Bank to the relevant bank statements for April and
September 2017, plus January and March 2018;
➢ Verified the full year transactions on the two Nationwide deposit accounts;
➢

Verified the content and accuracy of bank reconciliations as at 30th April and
September 2017, plus 31st January and March 2018 on the combined current and
deposit accounts to ensure that no long-standing uncleared cheques or other
anomalous entries exist;

➢

Similarly, verified the accuracy of the reconciliation of the Co-op 14-day instant
access account as 31st January and March 2018; and

➢

Reviewed the procedures in relation to the raising and checking of journals on the
accounting software.

Conclusions
We are pleased to record that no issues have been identified in this area currently, also that
independent scrutiny of bank reconciliations is in place in accordance with the requirements
of the G &AM. We note the existence of one long-standing uncleared cheque (dating from
June 2017), which is being pursued by the RFO.

Review of Corporate Governance
Our objective here is to ensure that the Council has a robust regulatory framework 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 ensure, no actions of a potentially unlawful
nature have been or are being considered for implementation. To meet that objective, we have:
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➢ Noted that the Council has reviewed and adopted revised Standing Orders (SOs) and
Financial Regulations (FRs) in the current financial year to reflect legislative changes
affecting procurement with a tender value of £25,000 reflected therein;
➢ Noted that, due to the difficulties being experienced as banks cease to operate locally,
the Council has approved a further amendment to the FRs permitting the use of cash
income to “top-up” the petty cash account: we understand that further revised FRs will
be presented to the Council for formal adoption to reflect this change in the near future;
➢ Extended our review of the Council and its standing committee minutes for the full
financial year to ensure that no issues affecting the Council’s financial stability either in
the short, medium or long term exist, also that, as far as we may reasonably be expected
to ascertain, no legal issues are apparent whereby the Council may either be considering
or have taken decisions that might result in ultra vires expenditure being incurred.
Conclusions
No issues arise in this review area this year warranting formal comment or recommendation.
We shall continue to review minutes and consider the Council’s approach to governance
issues at future visits. We also wish to draw members and officers attention to the very recent
issue by NALC of their model Standing Orders to reflect recent legislative changes in both
procurement and GDPR and have provided the Deputy Clerk with an electronic copy, which
we commend as a sound basis for the Council’s next review of its own extant documentation.

Review of Expenditure
Our aim here is to ensure that: ➢ Council resources are released in accordance with the Council’s approved procedures
and budgets;
➢ Suitable documentation supports payments, 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;
➢ An official order has been raised on each occasion that one would be anticipated; and
➢ The correct expense codes have been applied to invoices when processed.
We have again reviewed the control procedures in place over the ordering of goods and services,
together with the payment approval and release procedures, all of which we consider sound.
We have selected a test sample comprising 31 payments processed to the end of February 2018
including all those individually in excess of £1,750, plus a more random selection of every 25th
payment as listed in the cashbook. Our test sample also includes 4 NNDR accounts paid halfyearly, together with the annual Aviva insurance premium paid monthly by direct debit and
totals £150,700 equating to 56% by value of all non-pay related payments made throughout the
financial year.
At the time of our interim update visit we had reviewed the monthly VAT reclaims prepared and
submitted for the current financial year to 31st December 2017 ensuring that the year to date
reclaims corresponded to VAT as recorded in the relevant control account to that date with no
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issues arising. We have also now verified the accurate inclusion of the year-end reclaim of
£3,000 as a debtor in the detailed Statement of Accounts prepared by the Council’s external
contract accountants and similarly its accurate reflection in the AGAR Accounts.
Conclusions
We are pleased to record that no issues have been identified in this area of our review process
warranting formal comment at this stage of the year’s review.

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 to minimise the
opportunity for their coming to fruition.
We note from our review of minutes that risk assessments using the LCRS software were last
updated and presented to the Finance and Personnel Committee in January 2017 for formal readoption in line with the requirements of the G&AM. We also note that the risk register was due
to be reviewed by the Finance and Personnel Committee meeting in March 2018, but, per the
minutes, this was deferred to the next meeting. Consequently, the Council has not met the
G&AM criteria and will need to give a negative assertion in the year’s AGAR at Section 1, Box
5: we will similarly have to give a negative assertion in the IA Report.
The Council’s insurance cover for 2017-18 remains with Aviva. We have examined the year’s
insurance schedule and consider that appropriate cover is in place with both Employer’s and
Public Liability standing at £10 million, Fidelity Guarantee cover at £0.7 million and Business
Interruption cover “Loss of Revenue” cover in place at £90,000.
Conclusions and recommendation
No areas of concern exist in this area, other than in relation to the absence of any formal
review and adoption of the Council’s risk registers during the financial year, contrary to the
requirements of the G&AM.
R1. The Council must ensure that appropriate arrangements are put in place to ensure risk
registers are both reviewed and adopted at least once in each financial year.

Budgetary Control & Reserves
In considering the Council’s approach to budget determination and precept setting, we aim to
ensure that decisions are made based on sound information and that an appropriate level of
precept is determined to meet the Council’s future planned expenditure.
We note that, following due deliberation, members agreed the budget and precept requirements
for 2018-19, formally approving and adopting the latter at £631,340 at the January 2018 full
Council meeting.
We are also pleased to note that members continue to be provided with detailed budget
performance information based on the Omega accounting software at regular intervals
throughout the financial year. We have reviewed the latest budget performance report, as at 31st
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January 2018, seeking and obtaining appropriate explanations for the few significant variances
existing.
We have reviewed the level of retained reserves at the financial year-end noting that funds
totalling £902,189 are held at 31st March 2018, comprising the General Reserve balance of
£441,486, together with “ring fenced capital receipts” of £5,862 and total other reserves of
£377,524, earmarked for specific projects. We consider the spread of these reserves appropriate
for the Council’s ongoing revenue spending and development plans.
Conclusions
No issues arise in this area warranting formal comment or recommendation this year.

Review of Income
In examining the Council’s sources of income, we aim to establish that robust procedures are in
place to ensure that income due to the Council is identified and invoiced accordingly (where
appropriate); that arrangements for the secure handling of any cash income are in place and that
income due to the Council is recovered within a reasonable time span.
We examined a selection of the council’s income streams at our previous visit including those
arising from allotment rents, interment and associated fees and hire of the Town Hall.
We obtained a current print of the RBS allotments register for the year commencing 1st October
2017 checking to ensure that, for each occupied plot and incumbent tenant recorded thereon, an
appropriate invoice was raised and fees recovered accordingly. Whilst no significant concerns
were identified in this respect, we identified a few instances where we were unable to identify
that an appropriate invoice had been raised, together with a few instances where the Sales
Ledger indicated the raising of invoices for tenants not identified on the allotment register. We
provided the RFO with detail of the above anomalies and will follow up the outcome of her
further enquiries at our next visit. We do, however, suggest that a clearer audit trail between the
allotment register and invoices raised should be put in place.
We also examined a sample of ten interments between mid-November 2017 and 31st January
2018, ensuring that each was supported by an undertaker’s interment application form and that
the appropriate fees and charges had been levied and recovered in a timely manner. No issues
were identified in this review area.
We examined hall bookings for the week commencing 6th January 2018 ensuring that a signed
hire agreement form was in place; that appropriate fees had been charged in accordance with the
Council’s approved scale of fees and charges.
We have also examined the “Sales Ledger – All Unpaid Invoices by Date” report at the financial
year-end generated by the accounting software with no significant or long-standing debts
existing, although there are one or two instances where receipts are not matched directly to
invoices: these should be reviewed in due course and offset appropriately.
Conclusions
We are pleased to record that no issues arise in this area.

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Petty Cash Account
We are required, as part of the Annual Internal Audit Report process, to provide assurance on
the satisfactory (or otherwise) operation of any petty cash accounts at the Council. A relatively
small account is in place within the admin office, being operated on an imprest basis with a cash
float of £300, the balance being topped-up periodically during the year from the Current account
and, as indicated above, occasionally from cash income.
We examined usage of the account at our first visit, reviewing a sample of transactions between
1st September and 6th November 2017, ensuring that each was supported by an appropriate
invoice, till receipt or casual expenses claim; that VAT had been identified appropriately for
recovery and that detail was coded to the appropriate expense code. We also checked the
physical cash held on the date of that visit. We noted an apparent surplus of £0.75 cash in the
petty cash tin and one or two instances where VAT had not been identified for recovery.
In examining the transactions and their recording in the Omega financial ledger we noted a
couple of anomalies. Firstly, the petty cash account cashbook remained in place with a few
transactions recorded in the current year and a balance of £425.30 at the date of our first visit:
we are pleased to note the satisfactory resolution of the previously identified issues with the
petty cash account balance now shown at the correct balance of £300.
Conclusions and recommendation
We are pleased to acknowledge the satisfactory resolution of the previously identified
accounting anomalies in recording petty cash account transactions and balances with no
residual issues existing.
R2.

Positive and prompt action should be taken to rectify the identified accounting anomalies
in recording petty cash balances and transactions in the Omega ledger with appropriate
training provided to ensure transactions are recorded appropriately in future. This has
been resolved satisfactorily.

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 Employee Rights Act 1998 and the
requirements of HM Revenues and Customs (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, as most recently mended with effect from 1st April
2017 in relation to employee contribution percentages. We have examined and verified that: ➢ Salary payments have been accurately processed in October 2017 for each employee
agreeing gross pay to the Council’s approved NJC pay scale spinal point and basic
working hours;
➢ Income tax and NI deductions from employees’ and employer’s NI contributions for the
same month are accurate by reference to the HMRC PAYE Tools software; and
➢ Superannuation deductions and employer’s contributions have been calculated
appropriately, ensuring compliance with the employees’ percentage scale of deductions /
contributions effective from 1st April 2017.

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Conclusions
We are pleased to record that no issues have been identified in this review area at present: we
shall undertake further work at our next visit including examining a sample of employment
contracts and ensuring that appropriate net salary payments for October 2017 have been paid
to employees together with the correct amounts to HMRC and the Pension Fund
Administrators.

Asset Registers
We have noted previously that DCK Accounting (the Council’s externally contracted
accountants) provided the Council with detail of assets and their values in the Statement of
Accounts prepared by them as at 31st March annually taking account together with asset
movements in the year.
We noted in our first report that members approved the purchase of the Pear Technology Asset
Register software and that data has been duly entered based on the asset register detail
maintained by the contract accountants. We now understand that a photographic record is also to
be prepared and embodied in the Pear software.
Conclusions
No issues arise in this area warranting formal comment or recommendation.

Investments and Loans
As indicated earlier in this report the Council has placed surplus funds in two deposits with the
Nationwide: we note that a single sum of gross interest has been added to both accounts at the
financial year-end and have verified the year-end closing balances accordingly by reference to
the underlying bank statements.
The Council has one outstanding loan repayable half-yearly to PWLB: we have verified the
half-yearly repayment instalments for the financial year by reference to the PWLB demand
advices and have now also verified the accurate disclosure of the outstanding loan liability in the
AGAR by reference to the UK Debt Agency website.
Conclusions
No issues arise warranting formal comment or recommendation in this area currently.

Statement of Accounts and AGAR
The AGAR now forms the Council’s statutory annual Statement of Accounts subject to external
audit review and certification. However, as at many councils, DCK Accounting are contracted to
prepare a more detailed Statement of Accounts, which provides members and the electorate with
more informative detail of the Council’s financial standing and activities.
We have reviewed the content of the detailed Statements ensuring consistency with the
underlying financial and other supporting records and are pleased to report that no significant
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errors or anomalies have been identified in this year’s detailed Accounts or data to be reported at
Section 2 of the AGAR.
Conclusions
No additional issues arise to those previously referred to in this report arise warranting
further comment or recommendation and, based on the work undertaken during the course of
our visits to the Council for 2017-18 and our subsequent final review at our own offices, we
have duly signed off the Internal Audit Report in the Annual Return assigning positive
assurances in each relevant area, with the exception of that relating to risk management.

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Rec.
No.

Recommendation

Response

Assessment and Management of Risk
R1

The Council must ensure that appropriate arrangements are put in place to ensure risk registers are
both reviewed and adopted at least once in each financial year.

Review of Petty Cash Account
R2

Positive and prompt action should be taken to rectify the identified accounting anomalies in
recording petty cash balances and transactions in the Omega ledger with appropriate training
provided to ensure transactions are recorded appropriately in future.

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This has been resolved satisfactorily.

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