Agenda item

(a)       That the final version of the Statement of Accounts 2011/12 be recommended to County Council;

(b)       That the reports from the Wales Audit Office be noted;

(c)        That the Letter of Representation - Flintshire County Council and Letter of Representation - Clwyd Pension Fund be recommended to County Council;

(d)       That the Corporate Finance Manager and Head of Corporate & Capital Accounting provide a separate response to Councillor Jones’ query on the increased amount for software licences; and

(e)       That Wales Audit Office colleagues share with Council officers the CIPFA model Accounts, together with other examples, at the closing Accounts meeting.

The Head of Finance and Corporate Finance Manager introduced the Statement of Accounts for 2011/12, together with the Wales Audit Office (WAO) report in connection with the audit of the 2011/12 financial statements for Flintshire County Council and the Clwyd Pension Fund.

The draft Accounts had been received by the Committee on 17 July 2012 when officers had responded to Members’ questions.  The remaining queries had been followed up by a written response, with no further queries received since that time.  Changes agreed with WAO colleagues during the course of the audit had been incorporated into the final Statement of Accounts to be presented to the County Council later in the day in order to meet the statutory approval deadline.

Mr. J. Herniman of WAO commented on the difficult task of producing a set of accounts that were easy to understand, whilst following the necessary requirements.  For both audits, the Council was required to provide a Letter of Representation to confirm that all necessary information had been disclosed and that the financial statements were accurate.

Audit of Financial Statements Report for Flintshire County Council 2011/12

It had been reported that whilst the audit work had been substantially complete, some areas of work remained outstanding due to a number of significant adjustments and delays in receiving information.  Mr. Herniman confirmed that this had been resolved and there were no further issues, additional to the report, which needed to be brought to the Committee’s attention.  He advised that although an unqualified opinion would be issued, a query on Communities First had been raised by a member of the public late in the process but prior to the audit sign-off.  As a result, the audit closure certificate could not be issued until the query had been investigated.

There were two uncorrected misstatements detailed in the report.  The first identified that a number of assets had not been depreciated appropriately which resulted in assets being overstated, and the second was an incorrect classification on the balance sheet between creditors and grants received in advance.  It was noted that although the auditor was required to raise these with the Committee, if the Committee chose not to correct them and included appropriate comment in the Letter of Representation, this would not change the audit opinion.

The Head of Finance said that the points raised by WAO had been accepted by management and would be dealt with accordingly for future years.  She explained that there had been a timing issue in deciding not to correct the two misstatements, due to audit work continuing late into the audit period; this left little time to correct any late issues raised at Audit within the time available.  The significant amount of work required in following through any corrections would have impacted on finalising the Statement of Accounts.

Councillor R.B. Jones said he hoped that the issue on fixed asset depreciation would be resolved with the introduction of the Technology Forge software.  On intangible assets, the Corporate Finance Manager and Head of Corporate & Capital Accounting agreed to respond separately to his query on the increased amount for software licences from zero in the draft Accounts.

On other significant issues identified in the report, Councillor G.S. Banks asked why six investment properties had been omitted from the annual revaluation process.  The Corporate Finance Manager replied that this had been due to a move from a spreadsheet-based system to a computerised system and that the properties were now included.

On general issues, Mr. Herniman commented on improvements which could be made to the style and format of the Accounts in future years to ensure clarity on the key messages.  The Corporate Finance Manager said that following similar comments in the past, the International Financial Reporting Standards (IFRS) had been adopted during 2011 and officers were working with WAO colleagues to make further improvements.  Councillor Jones asked whether an improved format would have helped to identify the issue with fixed assets at an earlier stage.  Mr. Herniman replied that this was not the case, however minor typographical errors may have been picked up more easily.  He went on to say that the nature of Accounts reporting within the regulations meant that errors could easily occur.

In response to a question from Councillor I.B. Roberts on best practice example Statement of Accounts reports, Mr. Herniman said that a model example was available from the Chartered Institute of Public Finance Accountancy (CIPFA) and that this together with reports from other Local Authorities could be shared with the Finance team at the closure meeting of the Accounts process.  Councillor Roberts’ proposal that the WAO and the Welsh Government (WG) be asked to provide a standard set of accounting procedures for Local Authorities in Wales was seconded.  However, Mr. Herniman suggested that the format set out within the CIPFA model could be used as a starting point and that this would be subject to further changes.  After a further question, Mr. Herniman confirmed that the Statement of Accounts for Flintshire were materially accurate.

Councillor Jones asked if balancing entries could be eliminated for the 2012/13 Accounts.  The Head of Finance acknowledged that this was a reasonable target but said that some review work would be required first and that she would report on progress.

Following a question by the Chair on the potential liability for Equal Pay settlements with employees, Mr. Herniman explained that an estimate had been given based on independent expert advice however this had not been challenged by Council officers, which had led to a significant adjustment.  The Head of Finance went on to say that due to the Single Status and Equal Pay issues not yet being concluded, an accountancy entry had been required based on the potential liability and that accounting provision was different to settlement provision.  The expert advice had been valid, however officers were working with advisers on the total liability to the Council.

On the same issue, the Head of Legal & Democratic Services explained that final figures could not be calculated until the pay model was available which meant that the external consultant had worked on the basis of the ‘worst case scenario’.  The note of caution advised by WAO colleagues had been acknowledged by the Council, however the information could not have been known at the time and this was a form of business planning.  Councillor Jones referred to the difference between the figures provided by the consultant and the WAO.  Mr. Herniman explained that the £5.5M difference had been moved from one part of the balance sheet to another to better reflect the potential liability as a provision, with the difference moved to the reserves, so there was no loss.

Following concerns raised by the Chair on any slippage in the Single Status timetable, Mr. Herniman referred to differing legal advice given to WAO and the Council on pension contributions in relation to Equal Pay claims, which applied to most Local Authorities in Wales.  The Head of Legal & Democratic Services said that this could prove to be beneficial for the Council in not yet having implemented Single Status and he went on to state that the WAO had confirmed that the Council were acting appropriately in basing its position on the legal advice received.

The Chair commented on the failure of ten Members to return related party declarations for Accounts disclosure consideration purposes.  The Democracy & Governance Manager said that both officers and Members needed chasing after a cut-off date for replying.  The Head of Finance said that a ‘chasing up’ system was in place on which she would work with the Democracy & Governance Manager to improve.

Audit of Financial Statements Report for Clwyd Pension Fund 2011/12

Mr. Herniman explained that the Accounts for 2011/12 did not include an Emphasis of Matter which had been included for the previous year and he went on to detail one uncorrected misstatement.  Investments were understated because more up-to-date valuation information had been received in between the preparation of the accounts and the audit.  He explained that in previous years, management had corrected for this, but for this year management had taken the view not to correct for 2011/12 because of the additional work involved.  The Clwyd Pension Fund Manager said that this was a timing issue each year when information was received from investment managers at a late stage: this was a situation outside his control but he would continue to pursue.

The Head of Finance made reference to the significant amount of work in producing the Statement of Accounts and thanked WAO colleagues for their work.  She expressed her gratitude to the Committee for their interest at the draft and final stages of the process and gave assurance that the issues raised had been acknowledged.  In extending personal thanks to Finance officers, she said that the work had been completed during an ongoing team review of the Finance department and the implementation of a new software system.  The Chair also thanked those involved.

RESOLVED:

(a)       That the final version of the Statement of Accounts 2011/12 be recommended to County Council;

(b)       That the reports from the Wales Audit Office be noted;

(c)        That the Letter of Representation - Flintshire County Council and Letter of Representation - Clwyd Pension Fund be recommended to County Council;

(d)       That the Corporate Finance Manager and Head of Corporate & Capital Accounting provide a separate response to Councillor Jones’ query on the increased amount for software licences; and

(e)       That Wales Audit Office colleagues share with Council officers the CIPFA model Accounts, together with other examples, at the closing Accounts meeting.