Chard TC Final Update Report 2015-16

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Chard Town Council
Internal Audit Report 2015-16 (Final update)

Stuart Pollard
Director
Auditing Solutions Ltd

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Background
All town and parish councils are required by statute to make arrangements for an
independent internal audit examination of their accounting records and system of internal
control and for the conclusions to be reported each year in the Annual Return. Auditing
Solutions Ltd has provided this service the Council since initial appointment in 2012-13.
This report sets out the work undertaken in relation to the 2015-16 financial year, during our
three visits to the Council, which took place on 18th November 2015, 1st February and 29th
April 2016.

Internal Audit Approach
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/Annual Return. Our programme of cover has again been
designed to afford appropriate assurance that the Council’s financial systems remain robust
and 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’ in the Council’s Annual Return, which requires
independent assurance over a number of internal control objectives.

Overall Conclusion
We have concluded that, on the basis of the programme of work undertaken this year, the
Council has again maintained adequate and effective internal control arrangements. We are
again pleased to acknowledge the quality of records maintained by the RFO and thank her
for her assistance, which has ensured the smooth progress of our review process.
We have completed and signed the ‘Internal Audit Report’ in the year’s Annual Return,
having concluded that, in all significant respects, the control objectives set out in that Report
were being achieved throughout the financial year to a standard adequate to meet the needs
of the Council.

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 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 gross at halfyearly 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: ➢ Ensured the accurate bring forward of closing balances as recorded in the 2014-15
Accounts and Annual Return as opening balances in the 2015-16 financial records;
➢ Ensured that a comprehensive, meaningful and appropriate nominal coding schedule,
together with cost centres, remains in place;
➢ Verified that the ledger remains “in balance” as at the financial year-end;
➢ 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
October 2015, plus March 2016;
➢ 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
October 2015, plus 31st March 2016 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 October and December 2015 and March 2016; and

➢

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

Conclusions and recommendation
We are pleased to record that no adverse issues have been identified in this area: however, we
note that in recent years, the only transactions on the third Co-op account have been the
periodic receipt of minimal interest. We consider that a potentially improved rate of interest
return could be achieved were the account closed and these funds also placed in a term
deposit account.
R1. Consideration should be given to closing the third Co-op deposit account and placement
of the funds in a term deposit account probably with a higher rate of return.

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
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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 to date:
➢ Noted previously that the Council had reviewed and updated both its Standing Orders
and Financial Regulations bringing them into line with the latest NALC model
documents formally adopting them during 2014-15;
➢ Continued our review of the Council and its standing committee minutes for the current
financial year 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
We are pleased to report that no issues arise in this area warranting formal comment or
recommendation: we shall continue to review minutes and consider the Council’s approach
to governance issues at future visits.
In our first Final report for the year we advised the new Clerk and members of the potential
impact on the Council of recent changes in EU Regulations that require all tenders in excess
of £25,000 to be advertised on the Government “Contract Finder Website” and provided the
RFO with electronic copies of recent NALC guidance in this respect. We have also drawn the
RFO’s attention to a further review of the NALC Model Financial Regulations to take
account of the changes in EU legislation regarding procurement and have provided the RFO
with an electronic copy of the document.
As before, we suggest that the Council reviews, updates and re-adopts their existing
documentation accordingly, also ensuring that Standing Orders comply with the revised
guidelines. We also suggest that, at that time, the formal limit for tendering should be
reviewed and brought into line with the £25,000 advertising value, as above.

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 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;
➢ 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 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.
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We have extended our test sample to include 64 payments processed in the year, ensuring
compliance with the above anticipated controls. Based on the satisfactory conclusions arising
from last year’s review, we have further restricted the selection criteria this year to include all
payments individually in excess of £1,750 plus a more random selection of every 25th payment
in order to provide a broad cross section of expenditure heads examined. Our test sample totals
£276,630 equating to 61% by value of all non-pay related payments made in the year.
We have also examined the monthly prepared VAT returns, submitted electronically, as now
required by HMRC agreeing detail of those completed to date to the Omega control account
record with one exception where a minor difference of £6.88 appeared to exist on an income
item in the July 2015 return, which did not appear to have been adjusted automatically in a
subsequent moth’s return. We drew this to the RFO’s attention at the time of our first visit and
note that appropriate adjustment has been made in a subsequent reclaim. We have also verified
the accuracy of the year-end reclaim by reference to the accounting control records ensuring its
accurate disclosure as a debtor in the detailed Accounts and Annual Return.
Conclusions
We are pleased to report that no significant issues have been identified in this area of our
review process warranting formal comment or recommendation with sound and effective
controls in place over the approval and release of funds.

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 have acknowledged previously the existence of a Financial Risk Assessment
document, which was subject to annual review and re-adoption, last being adopted on
21st July 2014. We previously suggested and were pleased to note that the Council had
approved and acquired the Local Council Risk System (LCRS) software;
➢ We noted at our last visit that the locum clerk had completed an update review of the
assessments in October 2015, detail being submitted to and adopted by the Council as
required by the Governance and Accountability Manual; and
➢ The Council’s insurance cover for 2015-16 has again been provided by Aviva. We have
examined the insurance schedule and consider that appropriate cover is in place with
both Employer’s and Public Liability at £10 million and Fidelity Guarantee cover at £0.7
million.
Conclusions
No areas of concern exist in this area warranting formal comment or recommendation.

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.
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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 seeking and
obtaining appropriate explanations for any significant variances existing.
We note that the Council has completed its deliberations on the budget and precept for 2016-17,
formally adopting the latter at the December 2015 full Council meeting at £515,341, together
with the Support Grant of £49,650. We also note that the approved budget will also be funded
partly through application of existing reserves, together with the establishment of a further
earmarked reserve in the form of a “Cemetery sinking fund”. We discussed the reserves position
with the Clerk and RFO at our second interim visit suggesting that members should, ideally, in
advance of the financial year-end, review the level of retained earmarked reserves and formally
agree any movements in the levels of each to be carried forward to 2016-17: we are pleased to
note appropriate action with earmarked funds approved as £294,861 at the financial year-end,
together with a General Fund balance of £397,488, which equates to 7 months’ spending at
present levels and is consider appropriate for the Council’s ongoing spending requirements.
We now note, following our previous recommendation, members have considered the level of
fees and charges to be applied for 2016-17, agreeing that they should remain as for 2015-16,
also retrospectively indicating that those fees should have remained unchanged from the 201415 levels.
Conclusions and recommendation
No significant issues remain in this area, the Council having, following our previous
recommendation, duly considered the level of fees and charges to be applied in 2016-17 in
accordance with the Council’s Financial Regulations.
R2.

The Council should ensure that, in accordance with the Financial Regulations and as part
of its budget deliberations, due consideration is given to any revisions to the level of fees
and charges to be applied in 2016-17: if no increases are deemed appropriate, that
decision should be minuted formally. Appropriate action has been taken within the
financial year, with members agreeing to hold prices unchanged for a further 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 all income due to the Council is identified and invoiced accordingly; 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.
At our interim update visit we undertook detailed work in this area examining income arising
from burial and memorial fees, allotment rents and Guildhall hirings. We noted that the Council
has switched to the RBS allotments and hall booking software packages, which are in use by a
large number of councils nationally and provide sound controls to help ensure all income due is
identified and recovered.
We specifically examined the following aspects:
➢ We obtained detail of interments between 1st October and 31st December 2015 ensuring
that an appropriate undertaker’s application form was received and that fees due were
invoiced appropriately: no issues arise, although we noted that one undertaker had made
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a duplicated payment for an interment, which the RFO was well aware of, and was to be
offset against a future invoice;
➢ We examined the invoices raised in relation to stonemasons’ applications for the same
period also ensuring that the appropriate fees were charged;
➢ We examined the RBS allotments register for the year commencing 1 st October 2015
ensuring that, for each tenant recorded thereon, an appropriate invoice was raised; and
➢ Examined the RBS bookings software for Guildhall hires in the first two weeks of
December 2015, ensuring that appropriate fees had been charged on the resultant
invoices raised, which are due for issue imminently: we noted one apparent fee anomaly,
detail of which we have left with the RFO to follow up with the software supplier.
Finally in this area, we have again examined the “Sales Ledger – All Unpaid Invoices by Date”
report generated by the accounting software noting the existence of a few invoices seemingly
unmatched to income received: we drew these to the attention of the RFO who made the
necessary adjustments during the course of our Final update visit: we are pleased to note that
there are no significant long-standing uncleared debts at the present time.
Conclusions
We are pleased to record that no issues arise from testing undertaken in the above areas
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 in operation by the Council.
The Council operates a small petty cash account in the admin office, the balance being topped
up periodically during the year by round sum transfers from the Current account.
We have examined the usage of the account, reviewing a sample of transactions recorded from
1st September 2015 to the date of this Final visit, 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, ensuring agreement with the
balance as recorded in the accounting software’s control account.
Conclusions
No matters of concern have been identified in this area this year

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 amended from 1st April 2015, as regards employee
contribution percentages. We have examined and verified that: -

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➢ Salary payments have been accurately processed in October 2015 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 2014; and
➢ Examined the time sheets supporting payments in October 2015 to those employees
subject to variable working hours ensuring appropriate approval for payment.
Conclusions and recommendation
In examining the payroll detail, we noted that, with the exception of one, all those employees
supposedly on the standard tax code for the year (1060L) were actually being taxed on code
1050L. We have discussed this with the RFO who had based the coding on information
obtained from the HMRC website, although it appears to be information posted in advance of
the budget announcement for 2015-16. We have revisited this area examining the January
payroll detail ensuring that the appropriate tax codes are now being applied: their application
will have automatically corrected any previous over deduction of tax.
R3.

The RFO should ensure that the appropriate tax codes are applied in future years and that
the 2015-16 detail is amended accordingly to correct the over-deduction of tax from the
affected employees to date in the current financial year. This has been actioned
appropriately.

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 2016 taking account of new acquisitions in the year, which have been included correctly
net of VAT. In discussion with the RFO, we note that she believes that a few assets acquired
during 2014-15 may have been overlooked by the accountants when preparing that year’s
detailed Statement of Accounts. She is following these up accordingly and will ensure that, if
appropriate, the Accounts detail and that to be recorded in the Annual Return is updated
accordingly.
We again note that, whilst a detailed register of assets and equipment is in existence, it is more
in the form of an inventory and still requires review and update, appropriate action having been
delayed due to the departure of the former clerk and other time pressures. We understand that
arrangements are being made for demonstration and probable installation of an asset register
provided by RBS and will monitor progress in that respect at our next visit.
In order to comply with best practice, the new register, when created, should include the
following basic information, where detail is known or readily identifiable: ❖ Date of purchase
❖ Detail of item
❖ Serial number (where applicable)
❖ Location
❖ Purchase price (net of VAT)
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❖ Replacement cost / insurance value (for budgeting purposes)
❖ Date of disposal (where applicable)
❖ Sale proceeds (where applicable)
Conclusions
Whilst no formal recommendation is considered necessary at present in this area, we urge the
Council to ensure that a more detailed asset register (than that currently in existence as
reported in the Statement of Accounts) is developed as soon as practicable and maintained
currently in future.

Investments and Loans
We have examined detail of the Nationwide account transactions for the year to date, ensuring
that interest received is paid “Gross” and is recorded appropriately in the accounting software.
The Council has one outstanding loan repayable half-yearly to PWLB: we have verified the two
repayment instalments made in the current financial year by reference to the PWLB demand
notice as part of our aforementioned expenditure review process, also verifying the accuracy of
the residual loan liability value as reported in the year’s Annual Return by reference to the
PWLB website detail.
Conclusions
No issues arise warranting formal comment or recommendation in this area at present.

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 a
minor apparent printing error on the Income & Expenditure Account where one line of
expenditure on Section 137 grants totalling £50 in the year appears to have been “lost”, no
significant errors or anomalies have been identified in this year’s detailed Accounts or
information to be reported at Section 2 (formerly Section 1) of the Annual Return. We have
drawn this anomaly to the attention of the RFO who will pursue with DCK Beavers and ensure
that an appropriately amended page is provided in the Accounts
Conclusions
No issues arise warranting formal comment or recommendation this year and, on the basis of
the work undertaken during the course of our visits to the Council for 2015-16, 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 Arrangements
R1

Consideration should be given to closing the third Co-op deposit account and placement of the funds
in a term deposit account probably with a higher rate of return.

Budgetary Control / Fees & Charges
R2

The Council should ensure that, in accordance with the Financial Regulations and as part of its
budget deliberations, due consideration is given to any revisions to the level of fees and charges to
be applied in 2016-17: if no increases are deemed appropriate, that decision should be minuted
formally.

Appropriate action has been taken within the financial
year, with members agreeing to hold prices unchanged for
a further year.

Salaries and Wages
R3

The RFO should ensure that the appropriate tax codes are applied in future years and that the 201516 detail is amended accordingly to correct the over-deduction of tax from the affected employees to
date in the current financial year.

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This has been actioned appropriately.

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