Auddit of thhe Finnanciaal Stattements Report

Carrmarthhenshhire CCountyy Couuncil

Audit yyear: 2012-13 Issued: Septembeer 2013 Documment referennce: 531A22013

Status of report

This document has been prepared for the internal use of Carmarthenshire County Council as part of work performed in accordance with statutory functions, the Code of Audit Practice and the Statement of Responsibilities issued by the Auditor General for Wales.

No responsibility is taken by the Wales Audit Office (the Auditor General and his staff) and, where applicable, the appointed auditor in relation to any member, director, officer or other employee in their individual capacity, or to any third party.

In the event of receiving a request for information to which this document may be relevant, attention is drawn to the Code of Practice issued under section 45 of the Freedom of Information Act 2000. The section 45 Code sets out the practice in the handling of requests that is expected of public authorities, including consultation with relevant third parties. In relation to this document, the Auditor General for Wales (and, where applicable, his appointed auditor) is a relevant third party. Any enquiries regarding disclosure or re-use of this document should be sent to the Wales Audit Office at infoofficer@wao.gov.uk.

Contents

Anthony Barrett as Appointed Auditor intends to issue an unqualified audit report on your financial statements although the audit report will highlight an emphasis of matter regarding what we consider to be unlawful expenditure. There are some other issues to report to you prior to their approval.

Summary report

Introduction

Status of the audit

Proposed audit report

Significant issues arising from the audit

Independence and objectivity

Appendices

Draft Letter of Representation

Proposed audit report of the Appointed Auditor to the Members of Carmarthenshire County Council

Summary report

Introduction

1. 1. Anthony Barrett, as Appointed Auditor, is responsible for providing an opinion on whether the financial statements give a true and fair view of the financial position of Carmarthenshire County Council (the Council) at 31 March 2013 and its income and expenditure for the year then ended.

2. 2. We do not try to obtain absolute assurance that the financial statements are correctly stated, but adopt the concept of materiality. In planning and conducting the audit, we seek to identify material misstatements in your financial statements, namely, those that might result in a reader of the accounts being misled.

3. 3. The quantitative levels at which we judge such misstatements to be material for the Council are 5.5 million for income and expenditure items and working capital balances, and 14.2 million for other balances. Whether an item is judged to be material can also be affected by certain qualitative issues such as legal and regulatory requirements and political sensitivity. Specific examples include remuneration and related party disclosures.

4. 4. International Standard on Auditing (ISA) 260 requires us to report certain matters arising from the audit of the financial statements to those charged with governance of a body in sufficient time to enable appropriate action.

5. 5. This report sets out for consideration the matters arising from the audit of the financial statements of the Council, for 2012-13, that require reporting under ISA 260.

Status of the audit

1. 6. We received the draft financial statements for the year ended 31 March 2013 on 30 June 2013 and have now completed the majority of the audit work. We will discuss any additional matters identified between drafting this report and completion of the audit work with the Audit Committee when we present this report.

2. 7. We are reporting to you the more significant issues arising from the audit, which we believe you must consider prior to approval of the financial statements. The audit team has already discussed these issues with the Director of Resources.

Proposed audit report

1. 8. It is the Appointed Auditor’s intention to issue an unqualified audit report on the financial statements but this will include an emphasis of matter paragraph regarding what we consider to be unlawful expenditure. An emphasis of Matter paragraph refers to a matter appropriately disclosed in the financial statements that, in the auditor’s judgment, is of such importance that it is fundamental to users’ understanding of the financial statements. The audit report can be issued once you have provided us with a Letter of Representation based on the suggested wording set out in Appendix 1.

2. 9. The proposed audit report is set out in Appendix 2. The emphasis of matter has arisen as there is a difference of opinion between the Council and ourselves about two decisions the Council has made which, in our view has resulted in unlawful expenditure being included in the accounts. The first decision was to allow the senior officers to receive the equivalent of the employer’s pension contribution where they have opted out of the Local Government Pension Scheme. The second decision was to grant an indemnity to the Chief Executive to proceed with a libel counter-claim against a claimant. For both decisions, payments made (16,353 and 23,217 respectively) have been disclosed in the financial statements (see note 6.50). The Council does not agree with our view that these items of expenditure are unlawful but the Council has made sufficient disclosure in the financial statements for us to complete the audit.

3. 10. Given the different legal views, we need to obtain clarification of the position for both issues and for this reason we are unable to issue the Audit Certificate formally closing the audit.

Significant issues arising from the audit

Uncorrected misstatements

11. There are no misstatements identified in the financial statements, which remain uncorrected.

Corrected misstatements

Accounting practices and financial reporting

1. 13. In the course of the audit, we consider a number of matters both qualitative and quantitative relating to the accounts and report any significant issues arising to you.

2. 14. We found the information provided to be relevant, reliable, comparable, material and easy to understand. We concluded that accounting policies and estimates are appropriate and financial statement disclosures are unbiased, fair and clear.

Significant difficulties during the audit

1. 15. We received information in a timely and helpful manner, were not restricted in our work and did not encounter any significant difficulties during the audit.

2. 16. In previous years we have reported concerns around the quality and timeliness of working papers supporting the financial statements and the quality assurance processes over the financial statements. Following this we have worked with the Council and agreed an ‘Audit Deliverables’ document to improve the working papers for audit. It is pleasing to report that officers agreed with and utilised this document and the working papers provided were of a good standard.

Significant matters discussed and corresponded upon with management, which we need to report to you

17. Other than the matters referred to in paragraphs 8 and 9 above, there were no significant matters discussed and corresponded upon with management, which we need to report to you.

Material weaknesses in your internal controls

1. 18. We are required to report material weaknesses where you are not already aware of them or where they may be symptomatic of broader weaknesses in the overall control environment.

2. 19. The Council’s Annual Governance Statement sets out the overall control environment arrangements, following a review during 2012-13, and highlights a number of issues and actions identified for improvement.

3. 20. We did not identify any material weaknesses in your internal controls that have not been reported to you already.

4. 21. In previous years we have reported that controls within the capital accounting fixed assets system needed to be improved. The Council has worked to address the issues we have previously raised and whilst there still remain areas for improvement, the direction of travel is positive and there is marked improvement from previous years. We will continue to work with the Council to secure further improvement.

Other matters specifically required by auditing standards to be communicated to those charged with governance

22. There are not any other matters specifically required by auditing standards to be communicated to those charged with governance.

Independence and objectivity

1. 23. As part of the finalisation process, we are required to provide you with representations concerning our independence.

2. 24. We have complied with ethical standards and in our professional judgment, we are independent and our objectivity is not compromised. There are no relationships between the Wales Audit Office and Carmarthenshire County Council that we consider to bear on our objectivity and independence.

Appendix 1

Final Letter of Representation

Mr Anthony Barrett Appointed Auditor Wales Audit Office 24 Cathedral Road Cardiff CF11 9LJ [Date]

Representations regarding the 2012-13 financial statements

This letter is provided in connection with your audit of the financial statements of Carmarthenshire County Council for the year ended 31 March 2013 for the purpose of expressing an opinion on their truth and fairness and their proper preparation.

We confirm that to the best of our knowledge and belief, having made enquiries as I/we consider sufficient, I/we can make the following representations to you.

Management representations

Responsibilities

We have fulfilled our responsibilities for the preparation of the financial statements in accordance with legislative requirements and CIPFA’s Code of Practice on Local Authority Accounting in the United Kingdom 2012-13; in particular the financial statements give a true and fair view in accordance therewith.

We acknowledge my/our responsibility for the design, implementation, maintenance and review of internal control to prevent and detect fraud and error.

Information provided

We have provided you with:

‒additional information that you have requested from us for the purpose of the audit; and ‒unrestricted access to staff from whom you determined it necessary to obtain audit evidence;

• the results of our assessment of the risk that the financial statements may be materially misstated as a result of fraud;

. • the identity of all related parties and all the related party relationships and transactions of which we are aware; and

. • any other matters that the auditor may consider necessary (see below for comment on difference in legal views).

Financial statement representations

All transactions, assets and liabilities have been recorded in the accounting records and are

reflected in the financial statements.
Significant assumptions used in making accounting estimates, including those measured at
fair value, are reasonable.

Related party relationships and transactions have been appropriately accounted for and

disclosed.
All events occurring subsequent to the reporting date which require adjustment or disclosure
have been adjusted for or disclosed.

All known actual or possible litigation and claims whose effects should be considered when
preparing the financial statements have been disclosed to the auditor and accounted for and
disclosed in accordance with the applicable financial reporting framework.

There is a difference of opinion between the Council and the Appointed Auditor about the
lawfulness of two decisions the Council has made. As set out in note 6.50 to the accounts,
the first item relates to remuneration totalling 16,353 paid to the Chief Executive in lieu of
employer pension contributions. The second item relates to 23,217 of expenditure incurred
in granting an indemnity to the Chief Executive to bring a libel counter-claim against a
claimant. It is the Council’s view that these transactions are lawful.

Subject to the matters identified above, the financial statements are free of material
misstatements, including omissions. The effects of matters reported in the ‘Audit of Financial

statements’ report are immaterial, both individually and in the aggregate, to the financial statements taken as a whole.

Representations by those charged with governance

We acknowledge that the representations made by management, above, have been

discussed with us. We acknowledge our responsibility for the preparation of true and fair financial statements in accordance with the applicable financial reporting framework. The financial statements were approved by the Audit Committee on 27 September 2013.

Signed by:

Signed by:

Officer who signs on behalf of management

Member who signs on behalf of those

(Chief Executive)

charged with governance

 

(Chair of the Audit Committee)

Date:

Date:

Appendix 2

Proposed audit report of the Appointed Auditor to the Members of Carmarthenshire County Council

Independent auditor’s report to the Members of Carmarthenshire County Council

I have audited the accounting statements and related notes of:

. • Carmarthenshire County Council; and

. • Dyfed Pension Fund

for the year ended 31 March 2013 under the Public Audit (Wales) Act 2004.

Carmarthenshire County Council’s accounting statements comprise the Movement in Reserves Statement, the Comprehensive Income and Expenditure Statement, the Balance Sheet, the Cash Flow Statement, the Movement on the Housing Revenue Account Statement and the Housing Revenue Account Income and Expenditure Statement.

Dyfed Pension Fund’s accounting statements comprise the Fund Account and the Net Assets Statement.

The financial reporting framework that has been applied in their preparation is applicable law and the Code of Practice on Local Authority Accounting in the United Kingdom 2012-13 based on International Financial Reporting Standards (IFRSs).

Respective responsibilities of the responsible financial officer and the independent auditor

As explained more fully in the Statement of Responsibilities for the Statement of Accounts set out on page 6, the responsible financial officer is responsible for the preparation of the statement of accounts, including the pension fund accounts, which gives a true and fair view.

My responsibility is to audit the accounting statements and related notes in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require me to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the accounting statements

An audit involves obtaining evidence about the amounts and disclosures in the accounting statements and related notes sufficient to give reasonable assurance that the accounting statements and related notes are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to Carmarthenshire County Council’s and Dyfed Pension Fund’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the responsible financial officer and the overall presentation of the accounting statements and related notes.

In addition, I read all the financial and non-financial information in the Explanatory Foreword to identify material inconsistencies with the audited accounting statements and related notes. If I become aware of any apparent material misstatements or inconsistencies, I consider the implications for my report.

Opinion on the accounting statements of Carmarthenshire County Council

In my opinion, the accounting statements and related notes:

. • give a true and fair view of the financial position of Carmarthenshire County Council as at 31 March 2013 and of its income and expenditure for the year then ended; and

. • have been properly prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom 2012-13.

Opinion on the accounting statements of Dyfed Pension Fund

In my opinion, the pension fund accounts and related notes:

. • give a true and fair view of the financial transactions of Dyfed Pension Fund during the year ended 31 March 2013 and of the amount and disposition of the fund’s assets and liabilities as at that date; and

. • have been properly prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom 2012-13.

Emphasis of matter – unlawful transactions

I draw attention to the matters disclosed in note 6.50 to the accounts in relation to (i) remuneration totalling 16,353 paid to the Chief Executive in lieu of employer pension contributions; and (ii) 23,217 of expenditure incurred in granting an indemnity to the Chief Executive to bring a libel counter-claim against a claimant. These transactions are considered to be unlawful. Our opinion is not qualified in respect of these matters.

Opinion on other matters

In my opinion, the information contained in the Explanatory Foreword for the financial year for which the accounting statements and related notes are prepared, is consistent with the accounting statements and related notes.

Matters on which I report by exception

I have nothing to report in respect of the Governance Statement on which I report to you if, in my opinion, it does not reflect compliance with Delivering Good Governance in Local Government: Framework published by CIPFA/SOLACE in June 2007, or if the statement is misleading or inconsistent with other information I am aware of from my audit.

Certificate of completion of audit

The audit cannot be formally concluded and an audit certificate issued until further enquiries regarding the lawfulness of transactions mentioned above and enquiries arising from matters raised by members of the public have been formally completed.

Anthony Barrett Appointed Auditor Wales Audit Office 24 Cathedral Road Cardiff CF11 9LJ

27 September 2013