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Office of the Deputy Prime Minister

Comments from ACCA

December 2002

Executive Summary

1. The Association of Chartered Certified Accountants (ACCA) is pleased to have this opportunity to provide comments on the planned revision of the Accounts and Audit Regulations 2003 for local authorities (the Regulations). These comments have been developed in conjunction with our Public Sector Technical Issues Committee, a group of experienced accountants working in the public sector.
   
   
2. ACCA welcomes this revision to the Regulations and agrees with most of the proposals.
   
   
3. We believe however, that the scope of internal audit included in the draft Regulations should be improved by not restricting that function to an authority’s financial affairs. We also believe that smaller councils should be able to make their own decisions on whether it is cost effective to maintain an internal audit service.
   
   
4. The Regulations should recognise the costs of producing accrual-based annual accounts by relaxing this requirement for smaller councils on the other hand, they should include the requirement for councils to establish audit committees and should outline the remit of such committees.
   
   
5. ACCA does not support the proposal to extend the period for which a council's accounts and supporting records should be available for inspection by electors.

Detailed Comments

1. Regulation 4(3) should specify that the annual statement of assurance produced by a parish council should refer to the soundness of its internal control system.

   Regulation 6 - Internal Audit

2. ACCA supports the new requirement for authorities to maintain adequate and effective internal audit services in accordance with proper practices. We believe, however, that the phrase ‘an adequate and effective system of internal audit of its accounting records and accounting control system’ is an unnecessarily limiting description of its scope. Internal audit rather than the body itself should determine the information or explanations necessary for the purpose of its work.
   
3. Thus, the requirements for internal audit should be strengthened by including in the Regulations wording along the following lines:

   The relevant body shall ensure that:

   • the scope of internal audit includes the whole system of internal controls established by the authority, including financial, operational and compliance controls and risk management
     
   • internal audit has unrestricted rights of access to all personnel, records (both electronic or otherwise) and assets and the right to obtain such information and explanations as it considers necessary for the proper fulfilment of its responsibilities
     
     and
     
   • the head of internal audit reports directly to a senior director, preferably the chief executive, with direct access, as necessary, to the chair of the audit committee (or equivalent) and the leader of the council.
     
     
4. We do not believe that it is generally cost effective for smaller councils (especially those with budgeted income or expenditure of less than £500,000) to have internal audit services. The smallest councils (those with budgeted income or expenditure of less than £100,000) should not be required to have internal audit services. The slightly larger councils (with budgeted income or expenditure of between £100,000 and £500,000) should be required to consider the need to have internal audit services and, if they decide that this is not necessary, to explain the decision. In councils which decide not to have internal audit services, the work of the external auditors should, where necessary, be extended to ensure that appropriate assurances are provided on arrangements for financial management.

   Regulation 7 - Statement of accounts
   

5. The Code of Practice on Local Authority Accounting in the United Kingdom, referred to in the commentary on the Regulations, was developed by the CIPFA/LASAAC Joint Committee and should be cited as such.

   Regulation 7 - Salaries of senior staff
   

6. ACCA welcomes the new requirement for principal authorities to provide information on the remuneration of senior staff. We believe, however, that the proposed regulation should be made more explicit by indicating that the definition of remuneration covers pension contributions and taxable benefits in kind, for example, a car or accommodation.
   
7. It would be consistent with this approach to include within this proposed requirement the remuneration of elected mayors and other senior elected members. We also believe that information on councillors' allowances should be disclosed alongside the salary information for council officers.

   
   Regulation 9 - Other accounting statements
   

8. ACCA supports the proposal to reduce the accounting burden on smaller local councils by allowing them to complete records of receipts and payments rather than requiring them to prepare income and expenditure accounts. We believe that this burden should be further reduced by raising to £500,000 the threshold above which councils are required to prepare income and expenditure accounts and raising to £750,000 the threshold above which full accruals reporting applies.

   Regulation 11 - Publication of statement of accounts

9. Interpretation of the word ‘publish’ has caused difficulties over the years and led to inconsistent practices. The word ‘publish’ should be defined in the Regulations as meaning that a copy of the statement of accounts is made available and put on display at council offices and public libraries in a form approved by the auditor. In addition, a written copy should be made available without charge to electors on request. We believe that making the accounts available on the Internet should be in addition and not an alternative to other means of making the accounts available.

   Regulation 14 - Public inspection of accounts

10. ACCA does not support the proposal to extend the period for which the accounts and supporting records would be available for inspection by electors. We believe the cost and administrative burden of this proposal, especially for smaller councils, to be disproportionate to the limited benefits arising from greater openness.

    Regulation 18 - Notice of conclusion of audit

11. The notice of conclusion of audit should include the address at which copies of the statement of accounts may be obtained. Electors should be able to request copies at no charge, while others should be able to pay to obtain them.

    Separate regulations

12. ACCA believes that the opportunity should now be taken to prepare a set of Regulations which are specific to non-principal authorities.

    Offences for contravening the Regulations

13. Rather than, as currently, a contravention of defined paragraphs, contravention of any of the Regulations should be made an offence.

    Accounting for planning purposes
    

14. It is important that the cost of producing additional accounting information should not outweigh the benefits. We do not consider that it is cost- effective for councils to be required to produce separate accounts for individual functions. It may be appropriate, however, for councils to produce segmental accounts for their main functions - for example, housing, education and planning.
    

    Audit committees

15. ACCA believes that the requirement for councils to establish and maintain audit committees should be included within the Regulations. We believe that wording along the following lines should be used:

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