Chard TC Final update Report 2016-17

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Chard Town Council
Internal Audit Report 2016-17 (Final update)

Stuart J Pollard
Director
Auditing Solutions Ltd

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Background and Scope
The Accounts and Audit Arrangements introduced from 1st April 2001 require all Town and
Parish Councils to implement an independent internal audit examination of their Accounts and
accounting processes annually. The Council complied with the requirements in terms of
independence from the Council decision making process from the outset appointing a local
contractor to undertake the work; she subsequently resigned and we, at Auditing Solutions Ltd,
were appointed with effect from 2012-13. This report sets out those areas examined during the
course of three visits to the Council for 2016-17, which took place on 18th October 2016, 16th
March and 22nd May 2017.

Internal Audit Approach
In conducting our review for 2016-17 in accordance with the requirements of the Internal Audit
Certificate in the Annual Return and the latest 2016 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 / Annual Return, 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 able to ascertain,
processed in accordance with national and locally approved legislation.
We have checked progress on implementing / addressing the issues raised in our previous
reports for the year and are pleased to record that appropriate action has been taken in most
cases. We have, consequently, updated the report to reflect the current status in each instance.

Overall Conclusion
We are pleased to advise that, in the areas examined this year, the Council’s financial systems
continue to operate effectively with no major concerns identified. As indicated above, we have
identified a few issues, detail of which is set out in the body of the following detailed report
with resultant recommendations summarised in the appended Action Plan. We have also
reflected the current status of issues raised previously both in the body of the report and
appended Action Plan. In reviewing the detailed Statement of Accounts prepared on behalf of
the Council by DCK Beavers, detail of which feeds into the Annual Return, we have identified a
few matters that require referral back to the accountants for appropriate correction.
Notwithstanding these residual issues, we have signed off the Internal Audit Report in the year’s
Annual Return assigning positive assurances in each relevant area.

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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 remain in operation 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 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
August 2016, plus January and March 2017;
➢ Verified the full year’s transactions on the Co-op 14-day deposit account;
➢

Verified the content and accuracy of bank reconciliations as at 30th April and 31st August
2016, plus 31st January and March 2017 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 at 31st August 2016, January and March 2017;

➢

Ensured the accurate disclosure of the combined cash and bank balances in the year’s
Annual Return;

➢

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

➢

Discussed the IT back-up arrangements following migration to an on-site server and
remote back-up from the previously used Citrix system.

Conclusions and recommendations
We are pleased to record that no significant issues have been identified in this area, although
we note that the former practice of the independent scrutiny of bank reconciliations and
journals has again fallen into disuse: the Governance and Accountability Manual (G&AM 2016 update) requires the Council to undertake a periodic, ideally at least quarterly, review of
bank reconciliations. We also consider that, in line with best practice, journals raised on
Omega should be subject to independent scrutiny, preferably by the Town Clerk, as was the
case previously.
In considering the effectiveness of the new server and IT back-up procedures, we note that no
attempt has been made as yet to ensure the robustness of the backed-up media: we consider it
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sound practice to periodically ensure that backed-up data can be successfully restored to the
Council’s IT hardware.
R1. The Council should ensure that it complies with the requirements of the Governance and
Accountability Manual with bank reconciliations on all accounts subjected to periodic
independent scrutiny and sign off by a nominated councillor: similarly, journals should be
subjected to review and sign off, ideally by the Town Clerk. Some reviews have been
undertaken during the year, but none recently: to be re-introduced n 2017-18.
R2. In line with best practice and to ensure the robustness of backed-up media, periodic
attempts to restore the backed-up data to the Council’s IT hardware should be
undertaken.

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 we are reasonably able to ensure that no actions of a potentially unlawful nature
have been or are being considered for implementation. To meet that objective, we have:
➢ Noted that the Council has reviewed and updated its Standing Orders (SOs) to reflect the
recent legislative changes affecting procurement with a tender value of £25,000 reflected
therein;
➢ Noted that members are still debating the content of the revised Financial Regulations
(FRs) and will again review progress at our 2017-18 first interim review visit;
➢ Continued our review of the Council and its standing committee minutes for the full
financial year and to date in 2017-18 to ensure that no issues affecting the Council’s
financial stability either in the short, medium or long term exist, also that 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 and recommendation
Whilst no significant issues have been identified in this review area, we consider that the
formal approval and adoption of the revised Standing Orders and Financial Regulations
should be expedited as a matter of urgency in order to ensure compliance with extant
legislative requirements. We shall continue to review minutes and consider the Council’s
approach to governance issues at future visits.
R3.

The Council should ensure that the revised Standing Orders and Financial Regulations
are approved and adopted as soon as is practicable, ideally prior to the current financial
year-end. Standing Orders have been reviewed, updated and formally adopted by the
Council: Revised Financial Regulations are still under discussion.

Review of Expenditure
Our aim here is to ensure that: ➢ Council resources are released in accordance with the Council’s approved procedures
and budgets;
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➢ Payments are supported by suitable 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;
➢ 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 43 payments covering the full financial year
including all those individually in excess of £1,750, plus a more random selection of every 25th
payment as listed in the cashbook. We have also examined documentation supporting the two
half-yearly paid NNDR fees, plus the Aviva annual insurance paid monthly by Direct Debit,
ensuring compliance with the above anticipated controls. Our test sample totals £186,200
currently and equates to 58% by value of all non-pay related payments made in the year.
We have also reviewed the monthly prepared VAT reclaims, agreeing detail to the Omega
control account and ensuring the accurate disclosure of the year-end reclaim as a debtor in the
Accounts / Annual Return.
Conclusions and recommendation
We are pleased to record that no issues have been identified in this area of our review process
warranting formal comment.
At our first visit, we noted a few payments where net expenditure had been charged directly to
earmarked reserve codes: such treatment would result in the understatement of expenditure
for the year, as it has effectively been charged directly to the Balance Sheet. We are pleased to
note that appropriate correcting journals have been raised.
During the course of our final visit, the Finance Officer identified a few mispostings with
grant moneys included in one of the staff costs nominal account codes. The amount totals
£4,932 and will require an amendment to the value of Staff costs to be recorded in the Annual
Return at Box 4, also increasing Box 6 by a corresponding amount. We also identified a
further error in this respect with the Pension Deficit funding of £9,800 omitted from the value
identified by the accountants for inclusion at Box 4, being included erroneously at Box 6.
R4.

Appropriate action should be taken to correct the identified erroneous expenditure
postings and ensure that, in future, expenditure is not charged directly to earmarked
reserves. These have been adjusted accordingly.

R5. Detail of staff costs as identified by the accountants to be included in the Annual Return at
Box 4 £384,902) require uplift by £4,867 (£9,800 - £4,932) with a corresponding
reduction in the value to be recorded at Box 6.

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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
opportunity for their coming to fruition.
We note from our review of minutes that risk assessments using the LCRS software have been
updated and presented to the Finance and Personnel Committee in January 2017 for formal readoption I line with the requirements of the aforementioned G&AM.
The Council’s insurance cover for 2016-17 has again been provided by 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
No areas of concern exist in this area: as indicated above, we shall review the risk assessment
documentation at our final visit commenting accordingly in the update to this report.

Budgetary Control & Reserves
In considering the Council’s approach to budget determination and precept setting, we aim to
ensure that decisions are made on the basis of sound information and that an appropriate level of
precept is determined to meet the Council’s future planned expenditure.
We note that, following due consideration, members have agreed the budget and precept
requirements for 2017-18, formally approving and adopting the latter at £608,741.
We are again 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 year-end budget outturn report, 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 £754,462 are held at 31st March 2017, comprising Earmarked reserves of £377,524
(£294,861 as at 31st March 2016 including £100,000 for a cemetery extension or new site), plus
Capital Receipts Reserve which has reduced to £5,862. The residual General Fund balance has
decreased from £397,488 to £371,076, which equates to 7 months’ revenue spending at the
2016-17 level and is considered appropriate for the Council’s ongoing needs.
Conclusions
No issues arise in this area 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
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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 have specifically examined the following aspects during the course of this year’s visits:
➢ Obtained detail of interments between 1st January and 16th March 2017 ensuring that an
appropriate undertakers’ application forms and burial / cremation certificates have been
received with appropriate fees charged and recovered with no issues arising in this
respect;
➢ Examined the RBS allotments register for the year commencing 1st October 2016
ensuring that, for each occupied plot and incumbent tenant recorded thereon, an
appropriate invoice was raised and fees recovered accordingly;
➢ Examined hall bookings over a 10-day period in February 2017 ensuring that the
appropriate fees have been charged and been recovered accordingly: as the invoices were
only raised in mid-March 2017, one or two still remain to be settled at the date of this
final visit; and
➢ Examined the procedures in place for the collection and banking of fees for the weekly
street market examining the supporting documentation for the four markets held in
February 2017: whilst no significant issues have been identified in this area, we had a
few concerns regarding the security of cash collected and held in the Council’s offices
prior to banking the following week. We have discussed the issues with the relevant staff
and agreed appropriate improvements in the controls, which reduce the opportunity for
other staff to have access to the cash collected and affords greater protection for staff
undertaking the collection from stall holders.
Finally, in this area, we have re-examined the “Sales Ledger – All Unpaid Invoices by Date”
report generated by the accounting software with no significant or long-standing debts
remaining to be settled. We are also pleased to note that appropriate action has been taken to
clear few receipts not matched to invoices on the report.
Conclusions
We are pleased to record that no significant issues arise in this area warranting formal
comment or recommendation.

Petty Cash Account
We are required, as part of the Annual Return Internal Audit Certificate, to provide assurance on
the satisfactory (or otherwise) operation of any petty cash accounts at the Council. A relatively
small petty cash account is in place within the admin office, the balance being topped up
periodically during the year by round-sum transfers, generally of £300, from the Current
account.
We have examined usage of the account during the current year, reviewing a sample of
transactions recorded in the three months from 1st June to 31st August 2016, ensuring that each
was supported by an appropriate invoice, till receipt or casual expenses claim; that VAT has
been identified appropriately for recovery and that detail has been coded to the appropriate
expense code. We have also checked the physical cash held on the date of this visit.

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Conclusions and recommendations
Whilst no significant matters of concern have been identified as result of the work
undertaken in this area, we noted a few instances where VAT had not been identified for
recovery: whilst the amounts involved were small, the VAT element of the amounts expended
should be identified for routine recovery.
In checking the physical cash held on the date of our first Final visit, we noted an apparent
excess cash holding of £8.59 when compared to the latest / current recorded Omega cashbook
balance of £342.81. Consequently, we have rechecked the petty cash holding at this update
visit, together with un-reimbursed receipts, noting a small cash surplus of £0.11, which we
again suggest is banked as miscellaneous income.
R6.

Care should be exercised to ensure that any VAT incurred on expenses is identified and
coded accordingly for recovery from HMRC. Noted and being applied where
appropriate.

R7.

Whilst appreciating the difficulties arising from the RFO’s sickness absence at our Final
visit, the physical petty cash holding, together with expended till receipts, etc. should be
checked periodically and agreed to the Omega cash book record with any identified
surplus cash deposited in the Council’s bank account. From April 2017, the account is to
be operated on an “imprest” basis with a float of £300.

Salaries and Wages
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 last amended with effect from 1st April 2015 in
relation to employee contribution percentages. We have examined and verified that: ➢ Salary payments have been accurately processed in October 2016 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;
➢ Superannuation deductions and employer’s contributions have been calculated
appropriately, ensuring compliance with the revised employees’ percentage scale of
deductions / contributions effective from 1st April 2015; and
➢ Examined the records supporting any overtime payments made with the October 2016
salaries for the three employees subject to variable working hours ensuring appropriate
approval for payment.
Conclusions
We are pleased to record that no issues have been identified in this review area this year,
other than in relation to the aforementioned misanalysis of staff costs in the year’s annual
Return information provided by the accountants.

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Asset Registers
We note that DCK Beavers (the Council’s externally contracted accountants) have provided the
Council with detail in the Statement of Accounts prepared by them of asset values as at 31st
March 2017 taking account of new acquisitions in the year, which have been included correctly
net of VAT.
We have made previous reference to the existence of a detailed register of equipment, noting
that it is more in the form of an inventory. We also note that various alternative forms of asset
register have been examined by the Council’s officers although no formal decision has yet been
made by members to proceed with the acquisition of appropriate software to aid the
development of an appropriate and comprehensive asset register.
Several of our clients have acquired and used the Pear Technology software, which not only
provides an appropriate data base register of assets but also provides mapping and photographic
detail of assets owned by councils. The inclusion of photographic information in an asset
register has been found invaluable by some of our clients when assets such as street furniture
have been damaged accidentally or vandalised necessitating an insurance claim, as it facilitates
demonstration to the insurers on the status of assets prior to any damage being incurred and the
swift progression of any claim.
In reviewing the accountants prepared detailed Statement of Accounts, we noted that two assets
(Jocelyn Park Rec and Chard Cemetery and Chapels), whilst only recorded in the 2015-16
Statement of Accounts Notes with a nominal value of £1 each are shown with no value in the
2016-17 Statement of Accounts. We have drawn this to the attention of the Finance Officer who
will pursue the matter with the accountants and ensure the reinstatement of the value, which
will, although insignificant in value terms, need to be reflected in the Annual Return asset value.
Conclusions and recommendation
We urge the Council to take positive action and ensure that appropriate software is acquired
as soon as practicable to facilitate the development of an appropriately detailed asset register
and comply with the requirements of the aforementioned G&AM.
The Statement of Accounts and Annual Return asset values will also require amendment to
reflect the existence of the two assets, which have now been recorded with an unexplained nil
value in 2016-17 by the accountants.
R8. The Council should ensure that appropriate action is taken to develop a comprehensive
register of its stock of assets in accordance with the requirements of the Governance and
Accountability Manual.

Investments and Loans
As indicated earlier in this report the Council has placed surplus funds in two deposits with the
Nationwide: we again note that there has been no movement on these accounts to date in 201617, also noting that members are considering alternatives to holding all funds in the one banking
institution.
The Council has one outstanding loan repayable half-yearly to PWLB: we have verified the two
repayment instalments for the financial year by reference to the PWLB demand advices and, at
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this final visit checked the value of the outstanding loan liability to be recorded in the Annual
Return by reference to the UK Debt Agency website, noting that the accountant’s working paper
provided to the Council records an incorrect value. We have drawn this to the finance Officer’s
attention, providing her with the correct value for inclusion in the 2016-17 Return.
Conclusions
No issues arise warranting formal comment or recommendation in this area, having agreed
the correct value of the outstanding loan liability for inclusion in the year’s Annual Return.

Statement of Accounts and Annual Return
The Annual Return now forms the Council’s statutory annual Statement of Accounts subject to
external audit review and certification. However, as at many councils, DCK Beavers 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, apart from the
aforementioned issues, no significant errors or anomalies have been identified in this year’s
detailed Accounts, although a few amendments are required to the Annual Return detail.
Conclusions
No additional issues to those previously referred to in this report arise warranting further
comment or recommendation and, on the basis of the work undertaken during the course of
our visits to the Council for 2016-17, we have duly signed off the Internal Audit Report in the
Annual Return assigning positive assurances in each relevant area.

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Rec.
No.

Recommendation

Response

Review of Accounting procedures and Bank Reconciliations
R1

The Council should ensure that it complies with the requirements of the Governance and
Accountability Manual with bank reconciliations on all accounts subjected to periodic independent
scrutiny and sign off by a nominated councillor: similarly, journals should be subjected to review
and sign off, ideally by the Town Clerk.

R2

In line with best practice and to ensure the robustness of backed-up media, periodic attempts to
restore the backed-up data to the Council’s IT hardware should be undertaken.

Some reviews have been undertaken during the year, but
none recently: to be re-introduced n 2017-18.

Review of Corporate Governance
R3

The Council should ensure that the revised Standing Orders and Financial Regulations are approved
and adopted as soon as is practicable, ideally prior to the current financial year-end.

Review of Expenditure
R4
Appropriate action should be taken to correct the identified erroneous expenditure postings and
ensure that, in future, expenditure is not charged directly to earmarked reserves.
R5

Standing Orders have been reviewed, updated and
formally adopted by the Council: Revised Financial
Regulations are still under discussion.
These have been adjusted accordingly.

Detail of staff costs as identified by the accountants to be included in the Annual Return at Box 4
£384,902) require uplift by £4,867 (£9,800 - £4,932) with a corresponding reduction in the value to
be recorded at Box 6.

Review of Petty Cash Account
R6

Care should be exercised to ensure that any VAT incurred on expenses is identified and coded
accordingly for recovery from HMRC.

Noted and being applied where appropriate.

R7

Whilst appreciating the difficulties arising from the RFO’s sickness absence, the physical petty cash
holding, together with expended till receipts, etc. should be checked periodically and agreed to the
Omega cash book record with any identified surplus cash deposited in the Council’s bank account.

From April 2017, the account is to be operated on an
“imprest” basis with a float of £300.

Asset Register
R8

The Council should ensure that appropriate action is taken to develop a comprehensive register of its
stock of assets in accordance with the requirements of the Governance and Accountability Manual.

Chard TC: 2016-17 (Final update)

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Auditing Solutions Ltd