Audit Commission’s Annual Governance report - MPA Audit 2007/08

Report: 4
Date: 11 September 2008
By: Treasurer and Director of Resources on behalf of the Commissioner

Summary

The report brings to the attention of the Committee the Audit Commission’s Annual Governance report on the MPA audit 2007/08.

A. Recommendation

That the Audit Commission’s annual governance report be received.

B. Supporting information

1. Attached at Appendix 1 is the Audit Commission’s annual governance report on the MPA audit 2007/08. This is the annual governance report covering the audit of the Authority for the year ended 31 March 2008 and is presented by the District Auditor.

2. The Audit Commission is required by the Audit Commission's statutory Code of Audit Practice for Local Government bodies (the Code) to issue a report to those charged with governance summarising the conclusions from their audit work. For the purposes of the audit, the Authority's Corporate Governance Committee is considered to fulfil the role of ‘those charged with governance’.

3. The Audit Commission is required by professional auditing standards to report to the Corporate Governance Committee certain matters before it gives its opinion on the financial statements. The section of their report covering the financial statements fulfils this requirement.

4. The main purposes of the governance report are:

• to reach a mutual understanding of the scope of the audit and the respective responsibilities of the auditor and the Corporate Governance Committee;
•  to share information to assist both the auditor and those charged with governance to fulfil their respective responsibilities; and
• to provide the Corporate Governance Committee with recommendations for improvement arising from the audit process.

5. In undertaking its audit, District Audit’s responsibilities are to review and report on, to the extent required by the relevant legislation and the requirements of the Code:

•  the Authority’s financial statements; and
•  whether the Authority has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources.

Financial statements audit opinion

6. Based on the District Auditor’s current work he proposes issuing an unqualified audit opinion by 30 September.

7. The auditors have identified areas where adjustments are required and these have been accepted by the officers:

1.  Capital reserves – in line with a large number of other councils, including London boroughs, the Authority is being requested to change a long-standing practice of treating capital grants as reserves rather than liabilities. The officers accept that a more consistent treatment is as suggested by the auditors on the basis the grant has not yet been applied to specific assets. There is no impact on the general fund balance
2.  Deferred Government Grants – the Auditors have identified that the deferred government grants (DGD) account was not being written down correctly to the income and expenditure account. This DGD account is not a cash-backed account, and the adjustment to the income and expenditure account is immediately ‘reversed out’, having a neutral effect. There is therefore no impact on the general fund balance.
3.  Deferred Charges – some deferred charges of £2.5m while correctly written off the Authority’s asset base, were not correctly passed ‘in’ and ‘out’ of the income and expenditure account. This again has a neutral effect with no effect on the general fund balance.
4.  Financial Instruments – the auditors have reviewed the information included in the accounts for the new requirements on Financial Instruments (Financial Reporting Standard 25/6 and 29), and are recommending that an enhanced level of disclosure is made. Officers have agreed this recommendation and prepared the required disclosure for the auditors’ attention. This has no financial impact on the accounts.

8. The auditors have also noted that there are longstanding long-term debtors on the balance sheet for the Inner London Probation Service and the Greater London Magistrates’ Court Authority. The MPA/MPS has been in dialogue with the Home Office about recovery of these statutory debts, which are deemed to be central government’s responsibility. Dialogue is continuing and meetings have been held with the Home Office, but it is proposed that if no progress in recovery is forthcoming that a report be brought to the Committee in December outlining in more detail the issues, and if necessary seeking authority for legal action.

Value for money opinion

9. It is pleasing to record that, based on the District Auditor’s current work the Authority, for the first time will be given an unqualified Value for Money Conclusion. The Auditor’s note that this year has seen an improvement in the management of the main financial systems and the weaknesses in estates procurement addressed. They also note that there have been significant developments during 2007/08 aimed at strengthening governance arrangements, for example, revised Standing Orders, contract regulations and more improvements are planned.

10. The Auditor’s comment that the Authority and Service still faces a significant challenge to embed a stronger culture of compliance is accepted. Key initiatives have previously been reported to the Committee, which are intended to improve the compliance culture, and indeed the current agenda has papers that report progress. Included in this are proposals around improved resource management and stronger procurement compliance.

C. Race and equality impact

There are no race and equality implications directly arising from this report.

D. Financial implications

1. The Audit Commission has reported on the Authority’s financial statements; and whether the Authority has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources.

2. The District Auditor has recognised the improvements made by the Authority / Service since the 2006/07 Management Letter and issued an unqualified Value for Money Conclusion. Work is however continuing to improve the systems of internal control within the Service.

E. Background papers

None

F. Contact details

Report author: Ken Hunt, Treasurer, MPA.

For information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

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