Summary3

Financial statements and Annual Governance Statement4

Value for money9

Formal audit powers10

Independence11

Appendix 1 – adjusted misstatements14

Appendix 2 – Draft Letter of representation15

Appendix 3 – Draft Opinion18

Status of our Reports

The Statement of Responsibilities of Auditors and Audited Bodies issued by the Audit Commission explains the respective responsibilities of auditors and of the audited body. Reports prepared by appointed auditors are addressed to

non-executive directors/members or officers. They are prepared for the sole use of the audited body. Auditors accept no responsibility to:

@ any director/member or officer in their individual capacity; or

@ any third party.

1 This report summarises the findings from our 2007/08 audit, which are substantially complete. It identifies the key issues that you should consider before we issue our opinion, conclusion and certificate.

2 This report includes only matters of governance interest that have come to our attention in performing our audit. Our audit is not designed to identify all matters that might be relevant to you.

Financial statements

3 We expect to issue an unqualified opinion on the financial statements.

4 The financial statements submitted for audit were timely and complete and contained only trivial errors or omissions, which have been amended.

5 In our 2006/07 Annual governance report we commented that our value for money conclusion should be qualified on grounds of inadequate arrangements for asset management. We are pleased to note that since then the Council has prepared an asset management plan which was adopted in October 2007 and introduced improved reporting arrangements.

6 We therefore propose issuing an unqualified conclusion on the Council's arrangements for securing economy, efficiency and effectiveness in the use of resources.

Formal audit powers

7 We have not exercised any formal powers during the audit year and do not anticipate doing so. We have not received any objections to the Council's 2007/08 accounts.

8 All required adjustments to the financial statements have already been made and we do not need to ask the Audit Committee to make any further adjustments. We therefore ask the Audit Committee to:

  • consider the matters raised in the report before approving the financial statements/recommend the financial statements for approval;
  • approve the representation letter on behalf of the Council before we issue our opinion, conclusion and certificate; and
  • agree the proposed action plan.

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Financial statements and Annual Gov

Governance Statement

9 The Council's financial statements and Annual Governance Statement are important means by which the Council accounts for its stewardship of public funds. As Council members you have final responsibility for the financial statements and Annual Governance Statement. It is therefore important that you consider our findings before you adopt the financial statements and the Annual Governance Statement.

10 In planning our audit we identified specific risks and areas of judgement that we have focused on during our audit. We report to you the findings of our work in those areas.

11 In addition, auditing standards require us to report to you:

  • the draft representation letter which we are asking management and you to sign;
  • our views about the Council's accounting practices and financial reporting;
  • errors in the financial statements;
  • any expected modification to our report;
  • weaknesses in internal control; and
  • certain other matters.

Key areas of judgement and audit risk

12 In planning our audit we identified key areas of judgement and audit risk that we have considered as part of our audit. Our findings are set out in Table 1.

Table 1 Key areas of judgement and audit risk

Issue or risk

__ n_~~·~""~'~_~~~"~"'''' ______

Asset management records:

possible weakness in the reconciliation between property and financial services

records which could mean that the asset values in the financial statements might not be correct.

(source-supplementary opinion letter)

Finding

Our initial work confirmed that this possible weakness was a real risk to our audit opinion and we determined that additional work and extended testing would be necessary in this area if we were to be able to issue a safe opinion.

We agreed a programme of additional work and audit tests with the Acting Head of Financial Services. BOP staff undertook a good deal of the additional work which we subsequently tested.

We were able to conclude that despite inherent weaknesses in the systems that the tests confirmed that fixed assets were fairly stated.

4

We agreed a programme of testing which internal audit carried out on our behalf subject to our review.

Financial statements and Annual Governance Statement

Issue or risk I Finding

We refer in more detail to the weaknesses in table 2 weaknesses in internal control.

A review of internal audit work We decided that substantive testing of

identified a failing in the creditor payments for the year would be necessary to

operation of controls in the mitigate the risk.

creditors system.

A payment was made for

£75,000 when it should have

been £7,500. This failure was

indicative that appropriate

controls within the creditors that creditors were fairly stated.

section had not been followed, even though this appeared to be

We agreed a programme of testing which internal audit carried out on our behalf subject to our review.

a one off item. We were able to conclude that the tests confirmed that creditors were fairly stated.

The Council had taken appropriate action to ensure the staff concerned were aware that the proper following of control procedures was mandatory.

Recommendation

The weaknesses inherent within the property records should be resolved as soon as practicable. In the event that these remain outstanding at the 31 March 2009 the Council should repeat the additional work necessary to produce the additional

assurance.

Draft representation letter

13 Before we issue our opinion, auditing standards require us to obtain from you and management, written representations that:

  • you acknowledge your collective responsibility for preparing financial statements in accordance with the applicable financial reporting framework;
  • you have approved the financial statements;
  • you acknowledge your responsibility for the design and implementation of internal controls to prevent and detect fraud and error;

5 Borough of Poole

  • you have told me the results of your assessment of the risk that the financial statements might be materially misstated because of fraud;
  • you have told me any actual or suspected fraud by management, employees with significant roles in internal control or others (where the fraud could have a material impact on the financial statements);
  • you have told me of any allegations of fraud, or suspected fraud, affecting the financial statements communicated by employees, former employees, regulators or others;
  • you have told me about all known actual or possible non-compliance with laws and regulations whose effects should be considered when preparing financial statements;
  • you have assessed the reasonableness of significant assumptions, including whether they appropriately reflect management's intent and ability to carry out specific courses of action on behalf of the Council where relevant to the fair value measurements or disclosures;
  • you are satisfied that all related parties requiring disclosure in the financial statements have been disclosed and that the disclosure is adequate;
  • you are satisfied that the individual or collective impact of errors we have identified, but that you have not corrected, is not material; and
  • cover areas where other sufficient appropriate evidence cannot reasonably be expected to exist, for example the completeness of the disclosure of contingent liabilities.

Accounting policies and financial reporting

14 We considered the qualitative aspects of your financial reporting and have not identified any significant issues to raise with you.

Errors in the financial statements

15 We have not identified any errors (other than those of a trivial nature) that management has declined to correct. Appendix 1 includes details of significant adjusted misstatements.

16 We plan to issue an unmodified report including an unqualified opinion on the financial statements. Appendix 3 contains a copy of our draft report.

Material weaknesses in internal control

17 We have identified weaknesses in the design or operation of an internal control that might result in a material error in your financial statements. These weaknesses are set out in Table 2.

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Creditors

property records

Finding

The Council's system of recording property assets is split between the Council's financial property register maintained by financial services, the Council's property register maintained by property services and the Councils register of deeds maintained by legal services.

We found that these various records had not been regularly or recently reconciled and that the references between the systems were in need of improvement and updating.

As a result we concluded that there was a risk that the council's property assets were incorrectly stated. We agreed a programme of additional work to mitigate this risk. The Council undertook the additional work required which we then tested.

As previously reported we concluded that following this additional work that the property assets were not misstated.

Nevertheless there is an underlying significant weakness in the council's systems for recording property assets that should be addressed. Ideally the estates asset register needs to be improved using more modern software to help control and safeguard assets.

In addition for Community assets we identified that there is a risk of encroachment which may not be detected. There is a lack of commitment to independently inspecting and monitoring community assets to prevent encroachment.

W«~'W·~~~"~'_"~wmwm~,_., •. ~",~~.wm"".~=.·_~,vh"~v'm_'.""~w~« __ ~m~~",,~w."'v"VW~ __ ~_.'.~,, ______

The council had implemented a range of controls in its creditors section designed to prevent error and overpayment. As previously reported these were not followed properly and an overpayment was made.

This incident has been thoroughly investigated by the Council and action taken where necessary for the failure to follow proper procedures.

Given the action taken there is reason to believe that this risk has been adequately responded to.

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Financial statements and Annual Governance Statement

Recommendation

R2 The estates asset register needs to be improved, ideally by adopting and using more modern software to help control and safeguard assets .

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18 We have not provided a comprehensive statement of all weaknesses which may exist in internal control, nor of all improvements which may be made. We have reported only those matters which have come to our attention because of the audit procedures we have performed.

Other matters

19 There are no other matters that auditing standards require me to report to you.

Borough of Poole 8

Value for money

"______

Value for money

20 We are required to conclude whether the Council put in place adequate corporate arrangements for securing economy, efficiency and effectiveness in its use of resources, We assess your arrangements against twelve criteria specified by the Commission, Our conclusion is informed by our work on Use of Resources, a scored judgement reported to the Audit Commission,

21 Last year we reported that the Council had not yet been able to put in place adequate arrangements for the management of its asset base and qualified our VFM conclusion in this respect The Council has since introduced an asset management plan and the arrangements for reporting to members have been improved.

22 We have therefore assessed the arrangements of the Council as adequate in all twelve areas this year and we therefore propose to issue an unqualified conclusion.

9 Borough of Poole

Formal audit powers

23 We have:

@ a power to issue a public interest report. We do so where we believe this is necessary to draw a matter to your attention, or to that of the public;

* a power to apply to court for a declaration that an item in the Council's accounts is contrary to law;

@ a power to issue an advisory notice. An advisory notice requires the Council to meet and consider the notice before:

-making a decision that might give rise to unlawful expenditure; or

-taking an unlawful course of action that would give rise to a loss; or

-making unlawful entry in the accounts; and

@ a power to seek judicial review of a decision of the Council.

24 There are no such issues and therefore we have not and do not propose to exercise these powers.

25 Although we received a number of communications from members of the public and, or local government electors we were able to deal with these without significant extra work and they did not identify any problems which we need to bring to your attention.

26 At the conclusion of last years audit a formal objection was received to the 2006/07 accounts which was received after the accounts had been signed off and could not be formally considered in relation to the 2006/07 accounts. The objection concerned the Councils land and property records with respect to public open space, licenses and encroachment and the concerns were not necessarily restricted to the 2006/07 year.

27 As a result we decided that two aspects of the objection should be further investigated and we extended our testing of property assets in 2007/08 to address these concerns. We also agreed that Internal Audit would review the system for licenses to access points to or across public open space.

28 Our work revealed some deficiencies in the Council's systems for safeguarding community assets and these are reported in table 2 "weaknesses in internal control."

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Independence

Independence

29 The Code of Audit Practice and the APB's Ethical Standards with which auditors must comply require that auditors act, and are seen to act, with integrity, objectivity and independence.

30 We confirm that we comply with the APB's Ethical Standards, that we are independent and that our objectivity is not compromised.

31 We communicate to you:

  • any relationships between us and the Council, its members and senior management that might affect our objectivity and independence and any safeguards put in place;
  • total fees charged to you for audit and non-audit services; and
  • our arrangements to ensure independence and objectivity.

Relationships with the Council

32 We have identified the following relationship that might affect objectivity and independence and have put appropriate safeguards in place.

Table 3

Relationships and safeguards

Relationship

We are not aware of any relationships that may affect the independence and objectivity of the District Auditor and the audit staff, which we are required by auditing and ethical standards to communicate to you in connection with the Borough of Poole.

One member of the audit team has a non financial relationship with an employee of Poole Housing Partnership, a company

wholly owned by the Council, who have aninput into the figures in the Council's HRA.

Safeguard

Any issues concerning PHP are handled by other staff who report any issues should they arise directly to the District Auditor.

Audit fees

33 We reported our fee proposals as part of the Audit Plan for 2007/08. The table below reports the outturn fee against that plan.

11 Borough of Poole

4

Financial statements and Annual Governance Statement

Value for Money

& National Fraud Initiative Total Audit Fees

Other work

Plan 2007108 111,733

N/A

Actual 2007/08 111,733

N/A

34 The analysis above shows that we contained our audit fee within the totals you have already agreed even though some additional work was necessary on property assets. Some of the work on VFM and a small amount of work on the financial statements is not yet complete but these are not expected to lead to the need for additional fee.

35 Under the Audit Commission's advice and assistance power it may provide non-audit services to the Council. We have submitted a draft proposal to undertake a review of the Council's arrangements for scrutiny and corporate governance, but this has not yet been agreed.

Our arrangements to ensure independence and objectivity

36 We have comprehensive procedures to ensure independence and objectivity. These are outlined in Table 8.

Table 5Arrangements to ensure independence and objectivity

AreaArrangements

Independence policiesOur policies and procedures ensure that professional staff or

an immediate family member:

w do not hold a financial interest in any of our audit clients;

  • may not work on assignments if they have a financial interest in I the client or a party to the transaction or if they have a beneficial I interest in a trust holding a financial position in the client; and I
  • may not enter into business relationships with UK audit clients or their affiliates.

Our procedures also cover the following topics and can be

provided to you on request:

  • the general requirement to carry out work independently and

objectively;

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Independence

Area Arrangements

  • safeguarding against potential conflicts of interest;
  • acceptance of additional (non-audit) work;
  • rotation of key staff;
  • other links with audited bodies;
  • secondments;
  • membership of audited bodies;
  • employment by audited bodies;
  • political activity; and
  • gifts and hospitality .

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