Agenda item

To receive the attached report.

Officers informed the Committee that the Council had successfully closed its accounts and prepared its Financial Statements for 2013/14. There were a number of technical changes required under the Code of Practice and for local reasons in 2014/15. The priority for the closure programme was to ensure that all key activities had been captured in the timetable and roles and responsibilities identified and understood.

The following key issues would need to be addressed during the 2014/15 closedown.

·         Voluntary Aided and Foundation Schools

In October 2012, the Chartered Institute of Finance and Accountancy (CIPFA) had published a Financial Reporting Advisory Board Paper on the Exposure Draft of the Updated Code of Practice on Local Authority Accounting 2011/12 and the 2012/13 Code. This had recommended that Foundation and voluntary aided schools should not normally be recognised on the balance sheets of local authorities as their assets were not usually deemed as being owned by the authority. Arising from this, and on the direction of the Council’s auditors PricewaterhousCoopers, the Council had removed these schools from its balance sheet.

However, following adoption of IFRS 10 Consolidation of Financial Statements, CIPFA was now of the view that “the single entity financial statements were also defined as including the income, expenditure, assets, liabilities, reserves and cash flows of the local authority maintained schools in England and Wales within the control of the local authority”. Local authority maintained schools were defined as community, voluntary controlled, voluntary aided, foundation, community special, foundation special and nursery schools; accordingly, voluntary aided and Foundation schools would need to be brought back on to the Council’s balance sheet for 2014/15.

Officers are considering with the auditors the presentation of prior year figures, and liaising with the valuers over current values of the assets involved.

·         Infrastructure Assets

Infrastructure assets included roads, highways, bridges and street furniture. These assets were currently recorded on the Balance Sheet on a Depreciated Historic Cost (DHC) basis. The Whole of Government Accounts guidance had included a requirement to record such assets on a Depreciated Replacement Cost (DRC) basis since 2012/13. It would be necessary to identify all such assets, with appropriate measurements, and then establish the cost of replacing these assets at current prices (in accordance with The Code of Practice on Transport Infrastructure Assets). Valuations would need to be updated regularly in order to ensure compliance with The Code.

Recognition of infrastructure within the Council’s accounts had now been deferred to 2016/17. But it would represent a change in accounting policy from 1 April 2016 and would require full retrospective restatement in accordance with the requirements of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and IAS 1 Presentation of Financial Statements as adopted by The Code.

Officers were therefore establishing information collection arrangements to apply full retrospective restatement resulting from the measurement of transport infrastructure to enable the Council to establish opening balances of the assets for 1 April 2015 and comparative information on transactions in the preceding year, i.e. 2015/16.

The Council would also need to disclose in the 2015/16 financial statements

i)       narrative explaining that transport infrastructure assets were to be recognised as a separate class of property, plant and equipment and measured at depreciated replacement cost for the first time in the 2016/17 financial statements;

ii)      the carrying amount of assets expected to be reclassified as transport infrastructure assets, i.e. the original 1 April 2015 measurement at depreciated historical cost;

iii)    the expected amount of any revaluation gains and losses to be recognised on reclassification and re-measurement, and

iv)    the expected change in depreciation, impairment, revaluation gains and losses, gains and losses for disposals or decommissioned assets to be recognised (or derecognised) in 2015/16 comparatives in the 2016/17 financial statements.

·         One Oracle

Havering had implemented the One Oracle self-service package from August 2014 in conjunction with five other London authorities. The new coding structure had been incorporated into updated working papers for preparing the accounts, and work was on-going in resolving other balance sheet issues from mapping from the previous Havering system.

There would also be implications on the audit in that the auditors would need to verify the balance sheet had been mapped correctly and would need to select their transactions for sample testing from two systems.

·         oneSource

The Council had entered a joint arrangement with Newham from April 2014 for the provision of back office services. Development of this was on-going, but there would be additional disclosures required in the notes to the accounts and the recharging process between the two Councils needed to be included in the closedown timetable.

However, oneSource posed risks to closedown in that key staff were supporting Newham in implementing One Oracle. Additionally, the implementation of new structures in oneSource services meant that closedown duties of individual staff might be changing.

The implications of this were that;

1.    critical parts of the accounts might not be completed in accordance with the timetable, with consequential impact on subsequent deadlines; and

2.    there was a potential need for additional audit work, and an increased risk of adverse audit findings in the auditors’ ISA260 report.

·         Progress to Date

The finalised year end closure of accounts timetable would be issued shortly and monitored. Regular meetings had been scheduled until June 2015. The timetable would be aligned with Newham’s timetable where possible, but scope for harmonisation of procedures was limited until Newham adopt One Oracle from 2015/16.

The guidance notes were being consulted upon and would be issued in early January 2015.

The closedown planning process began in earnest in November 2014. The process would be monitored routinely by Corporate Finance. Regular reports would be made to both Corporate Management Team and Audit Committee.

In closing the accounts for 2014/15 officers would ensure that all matters raised by PWC in the report to Management were addressed. These included:

·         Bank A/c

All five bank accounts were reconciled by the due date, but the wrong documentation had initially been supplied to the auditors. These accounts were reconciled on a daily basis and had a monthly summary/reconciliation at the end of each month and at the end of year. Receipts were cleared on a daily basis, and any items not allocated at the end of each day were dealt with as information came to light to enable them to be identified.

There was a balance of £29k on the Number 1 account due to some un-presented cheques not being reconciled at the start of the audit due to a reporting issue/error. However, the account had been reconciled on a daily and summarised on a monthly basis throughout the year. This had been resolved and cleared with the auditors.

During the last quarter of 2013/14 and the first quarter of 2014/15, staffing secondments and the parallel introduction on One Oracle had contributed to temporary under resourcing in the Team, although it continued to fully cover the bank reconciliation workload.

·        Payroll Rec

The payroll reconciliation had been handed over to Payroll during 2013/14, but support had been required at the year end from the Systems Team. This function was now undertaken by Payroll, who were completing it on a monthly basis. With the introduction of OneOracle  a payroll reconciliation report was now available.

·        Accruals and revenue Financing for Capital

In the 2013/14 accounts, the auditors had identified errors in accruals that should or should not have been raised. Similarly, the auditors identified two instances of expenditure being charged to revenue that should have been capitalised. The latter had no impact on the revenue bottom line as this expenditure would have been funded as a revenue contribution to capital, but the accounting treatment was wrong.

The amounts from these issues were not material to the Statement of Accounts, but for 2014/15 Corporate Finance would be liaising with Operational Finance to ensure cost centre managers were aware of the accounting requirements relating to the raising of accruals and to capital expenditure.

The Committee noted the report.