SUBJECT Final Accounts 2011/12 Annual Governance Report. Open

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1 Agenda Item 6 AUDIT COMMITTEE DATE 30th August 2012 REPORT OF Chief Finance Officer SUBJECT Final Accounts 2011/12 Annual Governance Report STATUS Open CONTRIBUTION TO THE COUNCIL PLAN/STRATEGIC AIMS The financial statements are the main method of demonstrating financial accountability and stewardship. The statements confirm the Council s financial position and can be used to inform key financial decisions and forward planning. EXECUTIVE SUMMARY The Audit Committee will receive the District Auditor s Annual Governance Report for 2011/12. The report outlines the key messages that the Committee should consider before the District Auditor issues his opinion on the financial statements and value for money conclusion. The District Auditor expects to be able to issue an unqualified audit opinion in respect of the financial statements and confirm they are free from material error. This report sets out adjustments that have been made to the final accounts in consultation with the Auditor. With regard to the value for money assessment, the District Auditor is expected to conclude that the Council has made proper arrangements to secure economy, efficiency and effectiveness in its use of resources. RECOMMENDATIONS 1. That the Committee considers whether they regard the Council as a going concern as part of the annual accounts process 2. That the Annual Governance Report at Appendix 2 be received. 3. That the financial statements at Appendix 3 be approved and signed by the Chairman of the Audit Committee. 4. That the Chairman of the Audit Committee signs the letter of representation on behalf of the Council. 5. That the Audit Committee agree the proposed action plan outlined in the Annual Governance Report.

2 REASON FOR DECISION Having completed the audit of the financial statements, the auditor is required to give an opinion on those statements and report to the Audit Committee. During the audit amendments have been agreed to the statements that were originally approved by the Chief Finance Officer in June and the Committee is asked to approve the revised statements. RISK ASSESSMENT Key risks are included within the Annual Governance Statement. 1. BACKGROUND AND ISSUES 1.1 The year-end accounts have been prepared on the assumption that the Council is a going concern. 1.2 The concept of a going concern assumes that an authority, its functions and services will continue in operational existence for the foreseeable future, but at least for a period of 12 months after the Statement of Accounts is signed. 1.3 In particular, this means that the Council s financial statements assume there is no intention or likely need to liquidate or severely curtail the scale of operations. 1.4 Where the Council is aware of material uncertainty related to events or issues that cast significant doubt upon the ability to continue as a going concern particular care is needed in the valuation of assets, as inventories and property, plant and equipment may not be realisable at their book values and provisions may be needed for closure costs or redundancies. An inability to apply the going concern concept can have a fundamental impact on the financial statements. 1.5 The Committee should therefore formally consider and confirm whether the Council has the ability to continue as a going concern and a review is completed at Appendix 1 to help with that assessment. 1.6 The Audit Committee will receive the District Auditor s Annual Governance Report for 2011/12, at Appendix 2. The report outlines the key messages that the Committee should consider before the District Auditor issues his opinion on the financial statements and value for money conclusion. 1.7 The District Auditor expects to be able to issue an unqualified audit opinion in respect of the financial statements and confirm that they are free from material error, but requires that the Audit Committee consider the matters raised in his report before approving the revised financial statements, which are provided at Appendix 3.

3 1.8 In particular, the Audit Committee are asked to take note of the adjustment to the financial statements set out in the Annual Governance Report (Annual Governance Report s Appendix 3). The required adjustment ( m) is in respect of a comparator figure for 2010/11 that impacts on two related disclosure notes, which has no impact on the Council s financial position. 1.9 There is also an error identified in the Annual Governance Report (Annual Governance Report s Appendix 3) which is proposed is not corrected in the 2011/12 accounts as it is not a material amount ( 0.417m) and will only result in a movement between the Revaluation Reserve and Capital Adjustment Account, which are both non usable technical accounting reserves. The amendment can be addressed in 2012/ The District Auditor also proposes issuing an unqualified conclusion in respect of the value for money judgement, stating that the Council has made proper arrangements to secure economy, efficiency and effectiveness in its use of resources The Annual Governance Report also includes a draft letter of representation that has to be signed at the meeting by the Chair of the Audit Committee, on behalf of the Council, before the District Auditor issues his opinion on the financial statements and conclusion on value for money Further findings and recommendations are made in the Annual Governance Report and the Audit Committee is also asked to agree the resultant proposed action plan. 2. OTHER OPTIONS CONSIDERED 2.1 None. 3. FINANCIAL IMPLICATIONS 3.1 The Accounts have been amended in line with this report. The amendments do not have any impact on the General Fund Balance of the Council. 4. LEGAL IMPLICATIONS 4.1 There are no legal implications relating to this paper. 5. HUMAN RESOURCES IMPLICATIONS 5.1 None 6. WARD IMPLICATIONS 6.1 The financial statements are relevant to all wards. 7. BACKGROUND PAPERS Unaudited Statement of Accounts signed by interim Chief Finance Officer June 2012

4 8. CONTACT OFFICER(S) Paul Allen Finance Manager. Tel Rob Woollatt Head of Corporate Finance. Tel Angie Ridgwell Interim Chief Finance Officer. Tel Angie Ridgwell Interim Chief Finance Officer

5 Appendix 1 Going Concern Detailed Review General (a) Local authorities are generally assumed to be going concerns as they carry out functions essential to the local community and are themselves revenue raising bodies, with limits on their revenue-raising powers arising only at the discretion of central government. (b) If an authority were in financial difficulty, the prospects are that alternative arrangements might be made by central government either for the continuation of the services it provides or for assistance with the recovery of a deficit over more than one financial year. (c) The Council has a strategic plan that outlines the Council s priorities and plans over the period 2012/ /15 and that is aligned with its Medium Term Financial Plan Financial Stability (d) The Council has approved a balanced Medium Term Financial Plan covering the period 2012/ /15, that was approved by Council in February The Council s budget is sustainable and maintains General Fund reserves at a prudent level, providing flexibility to help manage the financial impact of unforeseen and one-off events, that may occur in the current volatile economic climate. (e) The Medium Term Financial Plan contains a professional view from the then S151 Officer on the robustness of the estimates and the adequacy of reserves. The final utilisation of reserves in 2011/12 was also less than originally planned. (f) There remain a number of risks to the Council s financial position which include Non achievement of planned savings Potential further reductions in central government funding Potential fall in income as a result of the recession Additional spend pressures as a result of inflation, demographic pressures and other factors Changes in legislation that could transfer risk to local authorities (e.g. business rates retention) Cash Flow, Borrowing and Investments (g) The Council has an approved Treasury Management Strategy and sets its own prudential borrowing limits each year. To date, the Council has always operated within these limits and no problems are anticipated in future years.

6 (h) The Council maintains investments to which it has immediate access to cover any potential cash flow pressures and in the unlikely event that this is insufficient it is also able utilise short-term borrowing. (i) The Council s general policy in respect of investments is to invest prudently, optimising yield that is commensurate with its priorities of security and liquidity of invested capital Financial Performance (j) Despite having to achieve savings of 13.9m in 2011/12, the Council s outturn position showed an underspend of 1.1m, which was transferred to General Fund balances. (k) The Council had also budgeted to utilise 14.5m from earmarked reserves to fund in-year expenditure but it was actually able to reduce this to 4.9m. (l) As in previous years, the system of cash limit monitoring by and accountability of directorates had in most cases reduced potential overspends identified throughout the year, as well as mitigating the challenges faced from falls in Government funding. (m)total efficiencies achieved over the last two financial years was 17.4m and this underpins the strong financial standing of the Council which was maintained in 2011/12 with General Reserves of 9.0m and earmarked reserves of 49.3m as at 31 March Conclusion There are concerns going forward relating to factors outside of the control of the Council such as the economic climate and political environment. The Council has assessed and continues to monitor the risks associated with the above and the projected falls in central government funding and has a Medium Term Financial Plan that mitigates those risks to help ensure continued financial stability and service provision both in the short and medium term. Insofar as it can, the Council continues to position itself to be best placed to cope with these challenges and there are no particular issues casting doubt upon the Council being a going concern.