Annual External Audit Report 2005/06 - Draft

1. INFRASTRUCTURE & GOVERNMENT Annual External Audit Report2005/06 - Draft Wyre Forest District Council December 2006 AUDIT

2. Content The contacts at KPMG in connection with this report are: Jon GorrieDirector KPMG LLP (UK)Tel: 0121 232 2741Fax: 0121 232 3578jonathan.gorrie@kpmg.co.uk Ian SkippSenior ManagerKPMG LLP (UK)Tel: 0121 232 2401Fax: 0121 232 3578ian.skipp@kpmg.co.uk Georgina DicksonAssistant ManagerKPMG LLP (UK)Tel: 0121 232 3694 Fax: 0121 232 3578georgina.dickson@kpmg.co.uk This report is addressed to the Authority and has been prepared for the sole use of Wyre Forest District Council. We take no responsibility to any member of staff acting in their individual capacities, or to third parties. The Audit Commission has issued a document entitled Statement of Responsibilities of Auditors and Audited Bodies. This summarises where the responsibilities of auditors begin and end and what is expected from the audited body. We draw your attention to this document. External auditors do not act as a substitute for the audited body’s own responsibility for putting in place proper arrangements to ensure that public business is conducted in accordance with the law and proper standards, and that public money is safeguarded and properly accounted for, and used economically, efficiently and effectively. If you have any concerns or are dissatisfied with any part of KPMG LLP’s work, in the first instance you should contact Will Carr, who is the engagement director to the Authority, telephone 0121 232 3308, email william.carr@kpmg.co.uk who will try to resolve your complaint. If you are dissatisfied with your response please contact Trevor Rees on 0161 236 4000, email trevor.rees@kpmg.co.uk, who is the national contact partner for all of KPMG’s work with the Audit Commission. After this, if you are still dissatisfied with how your complaint has been handled you can access the Audit Commission’s complaints procedure. Put your complaint in writing to the Complaints Team, Nicholson House, Lime Kiln Close, Stoke Gifford, Bristol, BS34 8SU or by e mail to: complaints@audit-commission.gov.uk. Their telephone number is 0117 9753131, textphone (minicom) 020 7630 0421.

3. Section 1Executive summary • 1.1 Scope of this report • This letter reflects our responsibilities under the Code of Audit Practice and summarises our audit work for the 2005/06 year. In particular, this report includes our findings and recommendations in relation to our: • Audit of accounts (section 2); • Audit of data quality (section 3); and • Work on the Authority’s Use of Resources (section 4). • This report also includes: • A summary of recommendations and action plan for the current year (Appendix A); • A follow up of recommendations from the previous year (Appendix B); • Our statutory report on the Best Value Performance Plan (Appendix C); and • A summary of the audit reports issued during the year (Appendix D). • 1.2 Summary of findings • 1.2.1 Audit of accounts • On 29 September 2006, we issued our opinion on the Authority’s 2005/06 financial statements. At the same time, we issued our audit certificate, which concludes our statutory responsibilities as auditors for that year. • We are awaiting the submission of a completed Whole of Government Accounts (WGA) return from the Authority which we will review for consistency with the statutory accounts. • 1.2.2 Use of resources • We reported our conclusion on the Authority’s use of resources as part of our accounts audit report on 29 September 2006. This was an unqualified conclusion, indicating that the Authority has achieved the criteria specified by the Audit Commission. • Our responsibilities under the Audit Commission’s Code of Audit Practice also include the review of topics relevant to the Authority’s use of resources which have been determined through a risk assessment and are detailed in the 2005/06 Annual Audit and Inspection Plan. • In this report we summarise our findings on our work on management arrangements for data quality and the review of the Authority’s BVPIs. The findings of our assessment against the updated 2005 Key Lines of Enquiry will be presented in the Annual Audit & Inspection Letter. • 1.2.3 Audit of data quality • During August and September 2006, we completed our first review of data quality at the Authority, following a methodology developed by the Audit Commission. This work forms part of our 2006/07 audit year. • We reviewed the management arrangements that the Authority has in place to ensure data quality. Following this work we awarded a score of 2 out of a maximum of 4 as we consider the Authority’s data quality arrangements to be adequate. The key issues identified, and recommendations raised, have been presented in detail in Section 3 to this report. • We were also required to review a number of the Best Value Performance Indicators included in the Authority’s 2006/07 Best Value Performance Plan. The review resulted in the amendment of two indicators, however in all other respects we consider that the BVPP is consistent with the relevant guidance and we have issued an unqualified opinion (see Appendix C)

4. Section 1Executive summary • 1.3 Forward Look • The Authority faces another challenging year in 2006/07. Some of the challenges faced are detailed in our 2006/07 audit plan. This plan was issued to the Authority in March 2006. • The key issues identified in the 06/07 plan were: • Financial Standing - the Authority faces a number of challenges in relation to its ongoing financial standing including the setting of council tax precept levels over the medium term, limited opportunities to draw on capital receipts to finance capital expenditure and a need to generate further efficiency savings. • Joint Working - It is likely that there will be increased use of joint working with neighbouring forces and authorities designed to address regional budget pressures and to develop capacity to deliver wider efficiency savings. These arrangements will require careful monitoring to ensure they are effectively governed and deliver agreed outcomes. • 1.4 Acknowledgements • We would like to take this opportunity to thank the officers and Members for their help and co-operation given to us throughout our work.

5. Section 2Audit of Accounts • 2.1 Scope of our work • Our Interim Memorandum, issued on 29 September 2006, set out our findings in relation to the Authority’s controls and internal audit function. Further to this document, our ISA260 Report to Those Charged with Governance gave our findings and initial conclusions in relation to the Authority’s accounts. • This report sets out our findings in greater detail, including our recommendations for improvements in financial control and financial reporting procedures. • 2.2 Findings of the accounts audit • 2.2.1 Opinion and certificate • We issued an unqualified opinion and certificate on the accounts on 29 September 2006. This means that we believe that the accounts present fairly the financial affairs of the Authority and of the income and expenditure recorded by the Authority during the year. • For the first time this year, our audit report incorporated a conclusion on the Authority’s use of resources. This is discussed in more detail in section 4 and in our ISA260 Report to Those Charged with Governance, Issued on 30 September 2006. The detailed findings of our assessment against the 2005 KLOEs will however be presented in our Annual Audit and Inspection Letter in March 2007. • We have no further issues to report other than those in our ISA 260 Report to Those Charged with Governance. • 2.2.2 Accounts production and adjustments to the accounts • We received a complete set of draft accounts by the agreed deadline and they were supported by good quality working papers. • The accounts were amended for a number of errors and presentational disclosures, however, none of these were considered to be material. There were no uncorrected errors. • 2.2.3 Statement on Internal Control • We reviewed the information provided to support the Authority’s Statement on Internal Control for 2005/06 and concluded that it was consistent with our understanding of the Authority. • 2.2.4 Internal Audit • We concluded that we were able to place reliance on the work of Internal Audit in 2005/06. We noted however that Internal Audit raised a number of recommendations aimed at improving the Authority’s financial controls throughout the year which we continue to support. • 2.3 Financial position • 2.3.1 Revenue • For the year ended 31 March 2006 the Authority reported a surplus of £0.55 million, bringing its general fund to £5.54 million. The year end surplus represents an underspend of £0.49 million against its total 2005/06 budget of £12.02 million. The main area of increased income facilitating the surplus is the receipt of increased Housing Benefit subsidy of £0.23 million, an increase of £0.11 million against budget of external interest, and savings of £0.11 million relating to staff vacancies. • The Authority has set a balanced revenue budget for 2006/07 of £15.01 million, and currently forecasts a year end underspend of £0.50 million, relating primarily to an increase in interest rates received, slippage of direct revenue funding and salary savings. • This is partly offset by extra costs of £0.24 million, relating to payments to travel operators, and a reduced contribution from Worcestershire County Council. • 2.3.2 Capital • The Authority approved a capital programme of £8.71 million for 2005/06, against which only £4.17 million was incurred. The underspend represents total slippage of 52% against budget, relating mainly to the receipt of a £6 million allocation from the Housing Corporation which funded a number of schemes which would have been funded through Affordable Housing Grants within the capital programme. • Contractual issues have led to further slippage, and these will have to be carefully managed in the current year to avoid recurrence. • Cabinet approved a revised 2006/07 capital programme of £7.08 million, of which £1.78 million had been spent at the end of quarter two. The main area of underspend relates to the Wyre Forest Glades scheme, and the use of Affordable Housing Grants. Although the Authority is confident of spending its planned capital programme by the year end, contractual issues encountered within 2005/06 will need to be carefully managed to avoid unnecessary slippage.

6. Section 2Audit of Accounts • 2.3.3 Reserves and balances • The Authority reported levels of specific revenue reserves of £3.84 million at the end of 2005/06, and working balances of £0.70million. Planned use of £1.53 million in 2006/07 will still enable the Authority to maintain a positive reserves balance. • 2.4 Questions and objections from electors • Electors of Wyre Forest District Council are entitled by law to raise with the auditor questions or objections to items of account. These queries can then require us to investigate the issue raised. • We have not received any such questions or objections during the audited year. • 2.5 Legality of financial transactions • We are required to review the arrangements that the Authority has in place, to identify whether transactions undertaken that might have a significant financial consequence and contracts that are entered into are legally sound. • We have not identified any significant weaknesses in the framework established by the Authority for ensuring the legality of its significant financial transactions. • 2.6Internal Audit • We reviewed the quality and scope of Internal Audit’s work under the Managed Audit approach to assess the extent to which reliance could be placed on its annual coverage of the Authority’s main financial systems. We have concluded that we were able to place reliance on their work in forming our opinion on the Authority’s financial statements for 2005/06. • Internal Audit’s overall assessment is that the Authority has an adequate framework of control. It should be noted that Internal Audit has made a number of recommendations throughout the year to further strengthen the Authority’s overall control environment and we support and encourage the adoption and implementation of their recommendations. • 2.7 Standards of financial conduct and the prevention and detection of fraud and corruption • The Authority’s management are responsible for governance arrangements and for taking all reasonable steps to prevent and detect fraud and other irregularities. We are required to review the adequacy of the Authority’s arrangements to manage its affairs in accordance with proper standards of financial conduct and to prevent and detect fraud and corruption. • We have, therefore, assessed the Authority’s arrangements over a number of related activities, including: • ensuring compliance with appropriate codes of conduct; • ensuring compliance with Standing Orders and Financial Regulations; and • the monitoring of its policies for the prevention and detection of fraud and corruption. • We discussed with officers the arrangements and controls currently in place and we continue to maintain open communication lines with Internal Audit to ensure we are made aware of any developments or potential irregularities that could have a significant impact on our audit. • The Authority has good arrangements in place for the detection of fraud and corruption and to maintain standards of financial conduct during the year. We have not been made aware of any fraud and corruption incidents during the year. • 2.5 Certification of grant claims and returns • We are currently in the process of reviewing and certifying the Authority’s grant claims and returns for the financial year 2005/06. • We have no issues to report relating to our work to date.

7. Section 3Audit of data quality • 3.1 Scope of our work • The Audit Commission has introduced a new review of local authorities’ data quality arrangements in 2006/07. • The work is timely since, with the continued development of the performance management framework in many organisations, there is increased reliance on information for decision-making, consequently the accuracy of the information is vital for effective management of the organisation. • Data is also important to external stakeholders wishing to assess authorities’ performance. Our work includes the validation of certain indicators to assist the Audit Commission’s CPA process. • Our review of data quality was informed by the Audit Commission’s Audit Guides specified by the Audit Commission. These divide our work into three stages: • Stage 1: Review of management arrangements. We consider the Authority’s arrangements in place for defining its objectives for data quality and aims to ensure that they are achieved. The results of this stage form part of the assessment of the Authority’s overall use of resources as part of the Use of Resources conclusion, as discussed in Section 4 of this report. • Stage 2: Comparison to other authorities. This involves responding to the Audit Commission where they raise questions on the Authority’s indicators. These questions may arise through analysis of historical trends or comparison to other authorities. The results of this stage are reported to the Audit Commission via the Electronic Data Collection (EDC) system. • Stage 3: Data testing. We perform detailed testing on a number of indicators selected by the Audit Commission, carrying out the tests specified in the Audit Guide. The number of indicators tested is dependent upon our assessment of the adequacy of arrangements in Stage 1. The results of this stage are reported to the Audit Commission via the Electronic Data Collection (EDC) system. • This section of the report focuses on our findings from Stages 1 and 3. • Review of Management arrangements • The Authority has been awarded a score of two out of a possible four, for each of the five areas, giving an overall score of two. • A summary of the areas assessed and the score awarded is shown below:

8. Section 3Audit of data quality • Comparison to other authorities • We received no queries from the Audit Commission in respect of the Authority’s indicators. • Data testing • As part of our work on data quality we are required to review a number of indicators, based on our assessment of the arrangements surrounding data quality. • Three indicators were selected for review. Of these, two were amended to comply with reporting criteria, and one was not subject to any amendment.

9. Section 3Audit of data quality • 3.8 Findings of data testing • As a result of our assessment of data quality arrangements a total of three indicators were selected for testing. The indicators selected are listed below along with a brief explanation of why they were selected for review. • Of the three indicators tested the results were the following: • The results of our findings indicate a weakness in the Authority’s quality control processes. • Assessment against the Audit Commission’s Key Lines of Enquiry (KLOEs) for Data Quality • The Authority has satisfied the criteria for level two, meaning we consider that the Authority’s arrangements are adequate. • The Authority should seek to improve its data quality arrangement during 2006/2007 by performing a self assessment against the level 3 and 4 data quality KLOEs. This will enable the Authority to both identify where progress has been made, and where scope for further improvement remains. Recommendation 1: Review process for BVPIs prior to submission The Authority should implement a robust and independent review process prior to the submission of BVPIs. This should include a review of the indicator for full compliance against definitions. This is especially important for those indicators which are new, or whose indicators have changed from prior year. Recommendation 2: Routine self assessment against the Audit Commission’s Data Quality Key Lines of Enquiry The Authority should enhance its data quality arrangements by routinely self assessing against the Audit Commissions Key Lines of Enquiry for Data Quality. This would highlight areas where the Authority can make improvements to its data quality arrangements.

10. Section 4Use of Resources • 4.1 Scope of our work • Our responsibilities under the Code of Audit Practice in relation to the Authority’s use of resources, and where we report these, is set out in the following table. • This document only covers those issues set out in the 2005/06 Annual Audit and Inspection Plan which have not previously been reported. • 4.2 Use of Resources conclusion • We have undertaken our review of Use of Resources in line with the Code of Audit Practice and have no issues to raise as a result of the review. An unqualified Use of Resources conclusion was issued on 29 September 2006. • We will present the results of our Use of Resources scored judgement in our Annual Audit and Inspection Letter, in March 2007. • 4.3 Best Value Performance Plan • We have reviewed the Authority’s 2006 Best Value Performance Plan, as part of our 2006/07 audit work, to ensure that its contents comply with statutory requirements. • Our opinion is included in Appendix C.

11. AppendicesAppendix A: Summary of Recommendations and Action Plan This appendix summarises the two recommendations that we have identified while preparing this annual external audit report. We have given each of our observations a risk rating (as explained below) and agreed with management what action they will need to take. We will follow up our recommendations as part of our audit in 2006/07.

12. AppendicesAppendix B: Follow Up of Last Year’s Principal Recommendations

13. AppendicesAppendix B: Follow Up of Last Year’s Principal Recommendations

14. AppendicesAppendix B: Follow Up of Last Year’s Principal Recommendations

15. AppendicesAppendix C: Auditor’s Statutory Report on the Best Value Performance Plan • Auditor’s Statutory Report on the Best Value Performance Plan • Auditor’s Report to Wyre Forest District Council on its Best Value Performance Plan for the 2006/07 financial year • Certificate • We certify that we have audited the Best Value Performance Plan of Wyre Forest District Council (“the Authority”) in accordance with section 7 of the Local Government Act 1999 (“the Act”) and the Audit Commission's Code ofAudit Practice. We also had regard to supplementary guidance issued by the Audit Commission. • This report is made solely to the Authority, in accordance with section 7 of the Act. A copy of this report will be sent to the Audit Commission under 7(5)(b) of the Act in relation to our recommendation to the Audit Commission under section 7(4)(e). A copy of this report will be sent to the Secretary of State under 7(5)(c) of the Act if we include a recommendation under section 7(4)(f) that the Secretary of State should give a direction under section 15 of the Act. • Our audit work has been undertaken so that we might state to the Authority, to the Audit Commission and (where necessary) to the Secretary of State those matters we are required to state to them in such an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than (i) the Authority, for our audit work, for this report, or for the opinions we have formed, (ii) the Audit Commission, for our recommendation under section 7(4)(e) and (iii) the Secretary of State, for our recommendation (if positive) under section 7(4)(f) of the Act. • Respective Responsibilities of the Authority and the Auditor • Under the Local Government Act 1999, the Authority is required to prepare and publish a Best Value Performance Plan summarising its assessments of its performance and position in relation to its statutory duty to make arrangements to secure continuous improvement to the way in which its functions are exercised, having regard to a combination of economy, efficiency and effectiveness. • The Authority is responsible for the preparation of the Plan and for the information and assessments set out within it. The Authority is also responsible for establishing appropriate performance management and internal control systems from which the information and assessments in its Plan are derived. The form and content of the Best Value Performance Plan are prescribed in section 6 of the Act and statutory guidance issued by the Government. • As the Authority's auditors, we are required under section 7 of the Act to carry out an audit of the Best Value Performance Plan, to certify that we have done so, and: • to report whether we believe that the Plan has been prepared and published in accordance with statutory requirements set out in section 6 of the Act and statutory guidance and, where appropriate, recommending how the Plan should be amended so as to accord with statutory requirements; • to recommend: • where appropriate, procedures to be followed in relation to the Plan; • whether the Audit Commission should carry out a Best Value inspection of the Authority under section 10 of the Local Government Act 1999; and • whether the Secretary of State should give a direction under section 15 of the Local Government Act 1999. Opinion Basis of this opinion For the purpose of forming our opinion as to whether the Plan was prepared and published in accordance with the legislation and with regard to statutory guidance, we conducted our audit in accordance with the Audit Commission’s Code of Audit Practice. In carrying out our audit work, we also had regard to supplementary guidance issued by the Audit Commission. We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide an opinion on whether the Plan has been prepared and published in accordance with statutory requirements.

16. AppendicesAppendix C: Auditor’s Statutory Report on the Best Value Performance Plan • In giving our opinion, we are not required to form a view on the completeness or accuracy of the information or the realism and achievability of the assessments published by the Authority. Our work therefore comprised a review and assessment of the Plan and, where appropriate, examination on a test basis of relevant evidence, sufficient to satisfy ourselves that the Plan includes those matters prescribed in legislation and statutory guidance and that the arrangements for publishing the Plan complied with the requirements of the legislation and statutory guidance. • Where we have qualified our audit opinion on the Plan, we are required to recommend how the Plan should be amended so as to comply in all significant respects with the legislation and statutory guidance. • Unqualified opinion • In our opinion, Wyre Forest District Council has prepared and published its Best Value Performance Plan in all significant respects in accordance with section 6 of the Local Government Act 1999 and statutory guidance issued by the Government. • Recommendations on procedures followed in relation to the Plan • Where appropriate, we are required to recommend the procedures to be followed by the Authority in relation to the Plan. • For the current financial year, we have not made any such recommendations. • Recommendations on referral to the Audit Commission/Secretary of State • We are required each year to recommend whether, on the basis of our audit work, the Audit Commission should carry out a Best Value inspection of the Authority or whether the Secretary of State should give a direction. • On the basis of our work: • we do not recommend that the Audit Commission should carry out a Best Value inspection of Wyre Forest District Council under section 10 of the Local Government Act 1999; and • we do not recommend that the Secretary of State should give a direction under section 15 of the Local Government Act 1999. • KPMG LLP • Chartered Accountants • Birmingham 31 December 2006

17. AppendicesAppendix D: Audit Reports Issued