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Agenda item

Management Letter and Letter of Representation 2014/15

Minutes:

The Committee considered the report of the Head of Finance and Resources setting out the Management Letter and Letter of Representation which had been produced as part of the external audit of the accounts.

 

The Senior Finance Manager (Client Accountancy) explained that:

 

·  The Management Letter was produced by the external auditors and its purpose was to bring to the attention of the Committee various matters that had arisen as a result of the audit.

 

·  The first four sections of the Letter provided some background information and an overview to the audit process, and the final four sections dealt with more specific recommendations.

 

·  In addition to recommending that the capital accounting treatment for income and expenditure identified in the report relating to the audited Report and Financial Statements for the financial year 2014/15 be applied in future years, the auditors had also recommended a review of the Charity’s own financial records to ensure that the flow of transactions between the Charity and the Council was as clear as possible.

 

·  The Officers accepted that greater clarity in the financial relationship between the Charity and the Council would be helpful in ensuring that future financial statements were accurate, and the auditors had made suggestions as to how this could be achieved.  The Officers would discuss these possible approaches with the auditors, and consider which was the most appropriate.

 

·  The auditors had also identified some possible issues around accounting for VAT.  As a separate exercise to the audit the auditors had been asked to review the current arrangements whereby the majority of the Charity’s financial transactions (including VAT) were processed through the Council’s financial ledger.  Following their review the auditors had recommended that the Council stop reclaiming input tax on the Charity’s behalf, and this had been done.  The Officers would discuss the options and potential implications going forward as a matter of urgency with the auditors and the Council’s VAT advisor.  A meeting with the auditors had been scheduled for the following month.  The Officers were unable to quantify any financial impact at this stage, but intended to bring a report back to the Committee outlining the options and implications.  The report would cover the VAT exemptions for charities.

 

·  There was a further recommendation that consideration be given to changing the legal structure of the Charity.  It was suggested that consideration be given to changing the legal structure to a company limited by guarantee or a charitable incorporated organisation.  A report addressing the legal, financial and operational implications would be submitted to a future meeting of the Committee.

 

·  The final recommendation was to ensure that an annual impairment review of the value of fixed assets be undertaken to ensure that their value was correct.  Valuers would be instructed to undertake this review.

 

·  The final part of the Letter detailed changes to accounting practice that would apply for 2015/16, and a summary of the changes made to the accounts.

 

·  In overall terms the points raised around the accounting records, the VAT and the legal structure of the Charity were linked together to a degree, and would be considered alongside each other rather than as separate work streams.

 

·  The Letter of Representation was a form Letter written by the external auditors for approval by the Committee and signature by the Chairman.  The Letter attested to the accuracy of the Financial Statements that the Charity had submitted to the auditors for their analysis.  In essence, the Letter stated that all of the information submitted was accurate, and that all material information had been disclosed to the auditors.  It also included a summary of the accounting adjustments included in the Management Letter.

 

In response to questions by Members, the Senior Finance Manager (Client Accountancy) confirmed that:

 

·  The auditor’s observation relating to the lack of an audit trail in respect of the general Charity accounts would be looked into and consideration would be given to where improvements could be made.

 

·  Dates would be diarised for the follow-up of audit recommendations.

 

·  The requirements of the new charity SORP particularly in relation to current value and fair value would be clarified.

 

·  The report on the issue of VAT treatment would also clarify any possible implications for the introduction of car parking charges.

 

·  The report on the auditor’s recommendation relating to the legal status of the Charity would include an update on the status of Members of the Committee and indemnification.

 

RESOLVED:

 

1.  That the Letter of Representation for the financial year 2014/15 be approved.

 

2.  That the contents of the Management Letter be noted and that the Officers be requested to report back to the next meeting on the action being taken in response to the auditor’s recommendations.

 

Supporting documents: