Governance and Audit Committee

Final Accounts guidance

June 2011 - Version 1

Introduction

Under the Audit Commission’s Use of Resources assessment, the auditors needed to satisfy themselves that the accounts were subject to robust member scrutiny prior to approval. Over the last few years, officers provided training to members prior to the accounts being approved to ensure members had the necessary skills to engage in effective scrutiny. Although the Government has announced that Use of Resources work has ceased, it is still important that the quality of scrutiny of the accounts continues to be of a high standard so as to give assurance to the public that those with responsibility for approving the accounts take that responsibility seriously. Members will therefore continue to receive annual training on the accounts. The purpose of this document is to support this training and act as an aide memoir for members in the scrutiny of accounts process.

Roles and Responsibilities

Responsibility for the Council’s Statement of Accounts belongs to the whole Council. Specific responsibilities are set out below:

The Council

Responsible for making arrangements for the proper administration of its financial affairs and to secure that one of its officers has the responsibility for the administration of those affairs. That officer is the Chief Executive (S151 Officer)
Is required to manage its affairs to secure economic, efficient and effective use of resources and safeguard its assets
Is required to approve the Statement of Accounts. This responsibility has been delegated to the Governance and Audit Committee

Chief Executive and S151 Officer

Has statutory responsibility for the overall financial administration and financial stewardship of the Council
Has overall responsibility for ensuring that the closedown and accounts preparation process is carried out in accordance with proper practices
Responsible for selecting suitable accounting policies and ensuring they are applied consistently
Must ensure that any judgements and estimates made in preparing the accounts are reasonable and prudent
Is responsible for keeping proper accounting records that are up to date
Has responsibility for taking reasonable steps for the prevention and detection of fraud and other irregularities
Must gain appropriate assurance over the accuracy of the accounts prior to approval

Financial Services Manager and Finance Team

Have overall responsibility for ensuring efficient and effective closedown of the accounts of the whole Council
Have responsibility for preparing the accounts and dealing with queries from the external auditors on the accounts
Work closely with budget managers to obtain the financial data required for the accounts
Plan the closedown process and ensure it is delivered within the required deadlines

Budget Managers

Are responsible for ensuring that they can provide the information required by Finance to feed into the closedown process by the due deadlines and in the required format

External Audit

Provides a report to those charged with governance (the Governance and Audit Committee) summarising the work of the auditor
Provides an audit report, including the auditor’s opinion on the accounts and a conclusion on whether the Council has put in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources

General

The Accounts and Audit (England) Regulations 2011 require the S151 Officer by 30 June to sign and date the statement of accounts, and certify that it presents a true and fair view of the financial position of the Council at the end of the year to which it relates and of that Council’s income and expenditure for that year. The Governance and Audit Committee must approve the accounts by 30 September. The accounts must also be published by this date.

Previously members were required to approve the accounts by 30 June, prior to the audit. This has now been moved to 30 September so that members can be made aware of the findings of the audit and hence make a better informed decision. However, this Council will continue presenting its pre-audited statements to members in June to give members an early notification of the financial outcome of the previous financial year.

Examination of the accounts can provide vital information to members about the revenue expenditure, income levels, capital programme, cash flow and borrowing activities of the Council. Members will want to be assured:

That the Council’s spending has been broadly in line with the plans set out at budget setting time and that any significant variations have been properly approved and are explained in the accounts.
That the Council’s financial standing is sound and that it has adequate balances and reserves to cover its level of operation and future plans.

To satisfy themselves that the accounts have been properly prepared, members should be considering the following:

What issues were raised in last year’s audit letter and have these been addressed?
Are the Finance team adequately qualified and trained?
Have the accounts been prepared in accordance with the latest Statement of Recommended Practice?
Has a peer review of the accounts been undertaken?
Has a senior officer reviewed the accounts?
Are the internal controls around the financial management system sufficiently strong to give assurance that the information from the financial management system that feeds into the accounts is accurate?
Have regular reconciliations been undertaken throughout the year?
Have the accounts been checked for casting and cross referencing errors?
Have the accounting policies been reviewed?
Have working papers been completed that meet the requirements of the auditor?

The Financial Statements

The following pages set out the purpose of the individual statements within the accounts. At the end of each section there are a number of possible questions which members may wish to consider when scrutinising the accounts.

Explanatory Foreword

The purpose of the foreword is to provide the reader with an understanding of the accounting statements, a review of the Council’s financial performance and an explanation of the overall financial position.

Key questions:

Are the financial messages within the quarterly budget monitoring reports to Cabinet consistent with the overview within the Explanatory Foreword?
How does the General Fund balance compare to the recommended level per the risk assessment of reserves reported to members as part of the budget report?
How does actual capital expenditure compare to the approved programme?
Have capital receipts been in line with the anticipated asset disposals?
Has the treasury management activity been in line with the Treasury Management Strategy?

Movement in Reserves Statement

This Statement shows the movement in the year on the different reserves held by the authority, analysed into “usable” reserves (those that can be applied to fund expenditure or reduce local taxation) and other reserves. The “Surplus or (Deficit) on provision of services” line shows the true economic cost of providing the authority’s services, more details of which are shown in the Comprehensive Income and Expenditure Statement. These are different from the statutory amounts required to be charges to the General Fund balance and Housing Revenue Account for Council Tax setting and dwellings rent setting purposes. The “Net increase/decrease before transfers to Earmarked Reserves” line shows the statutory General Fund balance and Housing Revenue Account balance before any discretionary transfers to or from Earmarked reserves undertaken by the Council.

Key questions:

How do the balances differ to what was anticipated per the Medium Term Financial Plan?

Comprehensive Income and Expenditure Account

This represents a summary of the resources generated in and consumed during the financial year in providing services and managing the Council. This includes all day-to-day expenditure and income on an accruals basis (matching income and expenditure to the period when the goods and services were consumed).

This Statement sets out the net cost of services and compares these to the previous year.

Key questions:

Are there any significant variances which have occurred between the current and previous year and what is the explanation for any such variances?
Were these variances anticipated when the budget was set?
If not, were the variances reported to Cabinet during the year as part of the budget monitoring report?
Have there been any exceptional items this year?

Balance Sheet

This statement shows the value as at the Balance Sheet date of the assets and liabilities recognised by the authority. The net assets of the authority (assets less liabilities) are matched by the reserves held by the authority. Reserves are reported in two categories. The first category of reserves are usable reserves, ie those reserves that the authority may use to provide services, subject to the need to maintain a prudent level of reserves and any statutory limitations on their use (for example the Capital Receipts Reserve that may only be used to fund capital expenditure or repay debt). The second category of reserves are those that the authority is not able to use to provide services.

Key questions:

Have there been any significant revaluations of fixed assets during the year?
Have there been any major asset acquisitions or disposals?
Has there been any significant increase in the level of debtors and creditors from last year?
Are the levels of usable capital receipts and revenue reserves at financial year end in line with the budgeting requirements?

Cash Flow Statement

This Statement shows the changes in cash and cash equivalents of the authority during the reporting period. The statement shows how the authority generates and uses cash and cash equivalents by classifying cash flows as operating, investing and financing activities. The amount of net cash flows arising from operating activities is a key indicator of the extent to which the operations of the authority are funded by way of taxation and grant income or from the recipients of services provided by the authority. Investing activities represent the extent to which cash outflows have been made for resources which are intended to contribute to the authority’s future service delivery. Cash flows arising from financing activities are useful in predicting claims on future cash flows by providers of capital (ie borrowing) to the authority.

Key questions:

Are there any major variations between years?
If so, why?
Is activity in line with what was expected?

Notes to the Core Financial Statements

These are set out after the above core statements. They provide further information and interpretation of the content of the individual statements.

The notes detail the accounting policies of the Council. These explain the basis for the recognition, measurement and disclosure of transactions and other events in the accounts.

The notes include information on:

Capital expenditure and commitments entered into by the Council and how that expenditure was funded
The level of the Council’s borrowing
Details of the Council’s debtors (amounts owing to the Council) and creditors (amounts owing by the Council)
The Council’s pension liability
Details of the Council’s reserves
Details of senior officer renumeration
Details of the level of audit fees
Any post balance sheet events
Any contingent liabilities
Details of any related party transactions

Key questions:

Are there any significant movements between years against any line on the balance sheet?
If so, what is the explanation for any variance?
Is any action necessary?
What action is being taken to chase debtors?
Have there been any significant write-offs of debtor balances?
Are the levels of reserves in line with the budget requirement?
How can Members be sure that all contingent liabilities have been disclosed?
Have all related party transaction forms been returned?

Housing Revenue Account

The Housing Revenue Account is a separate ring-fenced account comprising all income and expenditure transactions relating to the provision of council housing.

Key questions:

Are any significant variances which have occurred between the current and previous year in line with what was expected when the budget was set?
How do the final accounts for the Housing Revenue Account compare to the position reported quarterly to Cabinet?
What are the main variances and why did they arise?
Is the level of the Housing Revenue Account balance adequate in relation to future HRA needs? Is it in line with the Housing Revenue Account Business Plan?

Collection Fund

The Collection Fund sets out the transactions of the Billing Authority (Thanet District Council) in relation to Council Tax and Non Domestic Rates and shows how the money collected has been paid to the precepting authorities (Kent County Council, Kent Police Authority, Kent and Medway Fire and Rescue Authority and the Town and Parish Councils), to the National Non Domestic Rates Pool and to the Council’s General Fund.

Key questions:

How is the balance on the Collection Fund monitored?
How often is the balance shared amongst the authorities?
What was the effect of the Council’s share for the year of account on the council tax level for the following year?

Glossary of Terms

Below is a list of key financial terms, together with their meaning, that may help members in understanding the accounts.

Accruals

The concept that income and expenditure is recognised as it is earned or incurred, not as money is received or paid.

Asset

An item having value measurable in monetary terms. Assets can be defined as fixed or current. A fixed asset has a value for more than one year (for example a building or long term investment). A current asset can be readily converted into cash (for example stocks or a short term debtor).

Capital Expenditure

Expenditure on the acquisition of a fixed asset or expenditure that adds to, and not merely maintains, the value of an existing fixed asset.

Capital Financing

The raising of money to pay for capital expenditure. There are various methods of financing capital expenditure, including borrowing, leasing, using capital receipts, grants or contributions from third parties, or directly from revenue budgets.

Capital Programme

The capital schemes the Council intends to carry out over a specified period of time.

Capital Receipts

Proceeds from the sale of capital assets

Creditor

Amounts owed by the Council for works done, goods received or services rendered before the end of the accounting period but for which payment had not been made by the end of that period.

Debtor

Amounts due to the Council for works done, goods or services provided before the end of the accounting period but for which payment had not been received by the end of that period.

Depreciation

The measure of the wearing out, or other reduction in the useful economic life of a fixed asset, whether arising from use, passage of time or obsolescence through technological or other changes.

Exceptional Items

Exceptional items are ones that are material in terms of the Council’s overall expenditure and not expected to recur frequently or regularly.

Finance Lease

A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee.

Fixed Assets

Tangible or Intangible assets that yield benefits to the local authority and the services it provides for a period of more than one year.

Impairments

A reduction to the value of a fixed asset (below its carrying amount in the Balance Sheet) due to a clear consumption of economic benefits or a general fall in market value.

Intangible Assets

An intangible fixed asset is one that has no physical substance but is identifiable and the Authority has control (either through custody or legal protection) over the future economic benefits. An example would be a software licence.

Liability

An amount owed by the Council that will be paid at some time in the future.

Non-operational Assets

Fixed assets held by a local authority but not directly occupied, used or consumed in the delivery of services. Examples of non-operational assets are investment properties and assets that are surplus to requirements, pending sale or redevelopment.

Operating Lease

A lease where the ownership of the asset remains with the lessor, not the Council.

Operational Assets

Fixed assets held and occupied, used or consumed by the local authority in the direct delivery of those services for which it has either a statutory or discretionary responsibility.

Precept

The levy made by precepting authorities on billing authorities, for example the Kent Police Authority levies a precept on Thanet District Council.

Provision

An amount set aside for liabilities or losses which are certain to arise, but which due to their nature cannot be quantified with certainty.

Reserves

Money set aside as a contingency or for a specific purpose. Reserves of a revenue nature are available and can be spent or earmarked at the discretion of the Council. Some capital reserves such as the revaluation reserve cannot be used to meet current expenditure.

Revenue Account

The main account of the Council into which grants and other income is paid and from which the cost of providing services is met.

Download: Final Accounts Guidance (PDF 148KB)

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