To receive and consider report 17/09 of the Head of Finance.
The Committee received and considered report 17/09 of the Head of Finance which informed the Committee of an omission in the Statement of Accounts 2007/08, resulting in the General Fund balance being over-stated. The report looked at the impact on the Council’s Medium Term Financial Plan and made proposals on how to bring the Council’s budget back in line with the requirement for balances to be at least 5% of the Council’s annual budget requirement. The report also addressed the action to be taken to prevent any similar errors in the future.
The Head of Finance reported that two significant errors had been identified which seriously impacted on budget revenue balances. These had recently been discovered during the closedown of the 2008/09 accounts in May 2009. One error which had occurred in the 2007/08 statement of accounts related to the funding of capital expenditure where a government grant had been credited to the General Fund balance in the income and expenditure account but had not been reversed out again as expenditure. It was explained that this had not been discovered as the expenditure had not produced an asset for the authority and had already been written off. The regulatory accounting guidance, the Chartered Institute of Public Finance and Accountancy’s ‘Statement of Recommended Practice’, a large document of several hundred pages, had advised that this expenditure should be reversed out of the General Fund balance, but this had been overlooked as the reference was not in what was considered to be the most logical place in this reference document. The relevant part of the guidance was split between different sections on pages 104 and 610 of the document. The Head of Finance understood how this had been missed, given the tight timescale to produce the statement of accounts. The second error, which had occurred in the revised 2008/09 budget, had resulted from double-counting the income budget for the planning delivery grant. As a result of these two errors, less some unexpected relief from the unbudgeted income and lower over-spending in 2008/09, the General Fund balances had been overstated by £700k throughout the Medium Term Financial Plan approved by the Council in February 2009. The Chief Accountant gave her assurance that there were no other double-counted grants that had not been identified.
The Committee questioned the Officers on what action they proposed to take to ensure this did not happen again. In response the Head of Finance reported that the Committee must question the Officers and satisfy itself that the Statement of Accounts was correct before it was signed off for audit. To stop this happening again, the Officers were actively looking out for such errors and more training would be given to accountants in the specialist areas of accountancy. The report also recommended that the Chief Accountant should have sole responsibility for the Medium Term Financial Plan. The Chief Accountants at the Vale and South Oxfordshire District Councils had agreed to check each other’s Statement of Accounts before submission to the relevant committee for approval. The Chief Finance Officer could not guarantee that further errors would not occur, but stressed that the measures being put in place would make this much more unlikely. The risk would be minimised. However, the Officers warned that new international accounting reporting standards were to be introduced and these would put even greater demands on the accountants’ time.
In answer to a question from one Member, Maria Grindley of the Audit Commission reported that the capital accounting error had not been seen at other councils. The accounts were complex but when the Audit Commission gave its assurance and opinion on the Council’s Statement of Accounts it was restricted to looking at the key areas and not the detail. The Audit Commission was comfortable in its opinion on the Council’s 2007/08 accounts as this was based on a risk assessment of the likelihood of material errors in the financial statements. The Audit Commission assessed the capital accounting risk as low due to the experience of the Officer involved. To conduct a more detailed assessment of the Statement of Accounts would more than double the audit fee payable by the Council, which could result in public criticism.
In answer to a question from another Member, it was reported that the Chief Finance Officer would attempt to correct this error by replenishing reserves to 5% of the Council’s annual budget requirement by the end of March 2010. This could be achieved by re-profiling balances from other reserves that had been established for long term projects, such as funding the 2011 District Council elections. There were adequate reserves to cover this error. The reserves would then be replenished from managed under-spends over the course of 2009/10. To bring the Council’s budget back in line, the Management Team would stop all non-urgent or non-essential expenditure. Vacancies could be held in abeyance for longer periods and be subject to management review. Every effort would be made to avoid adversely impacting on the 2010/11 budget.
The Committee noted that if this error had been discovered before the Council had set its 2009/10 budget this would have had a significant impact on services. Members noted the explanations given but called for an independent investigation into this matter and asked for the findings to be reported back to this Committee.
By 8 votes to nil it was
(a) that the report containing explanations into the adjustment to the 2007/08 General Fund balance and the action being taken to prevent recurrences be noted;
(b) that the impact on the Medium Term Financial Plan and the action taken to bring the balances back to the minimum required level be noted; and
(c) that the Chief Executive be invited to carry out a full independent investigation of the causes of the errors highlighted in report 17/09 and present the findings and any recommended actions to the Committee.