Internal Audit in LAs - Department of Housing, Planning and Local ...

Local Government Audit Service

Activity Report

Comhshaol, Pobal agus Rialtas Áitiúil Environment, Community and Local Government

May 2011

© Department of the Environment, Community and Local Government 2011

The website of the Department of the Environment, Community and Local Government is the primary means of publishing reports of the Local Government Audit Service. Should any errors arise, they will be corrected and noted in the report published at http://www.environ.ie/en/Publications/LocalGovernment/AuditService/

Local Government Audit Service

Activity Report

Department of the Environment, Community and Local Government

Contents PAGE

Foreword

6

Introduction

7

Staff Resources

8

Overview

8

Local Government Audit Procedures

10

Audit Remit

12

Accountability of Local Authorities

12

Motor Taxation Audits

13

Review of Annual Financial Statements

13

Income and Expenditure Account

14

Capital Account

17

Local Government Auditors’ Reports

21

Accounting for Local Authority Staff Pensions and Gratuities

25

Value for Money Audit (VFM)

26

External Relationships

27

Appendix 1. General Revenue Balances

28

Appendix 2. Rates

29

Appendix 3. Commercial Water Charges

31

Appendix 4. Mortgage Loans Payable and Receivable

33

Appendix 5. Main Issues highlighted in Auditors’ Reports

34

____________________________________________________________________ Local Government Audit Service

Foreword This report covers the main issues highlighted by the local government auditors in their statutory reports on the audits of the City and County Councils annual financial statements for 2009. The relevant extracts from these are detailed in Appendix 5. The full audit reports are published on the Department of the Environment, Community and Local Government’s (the Department) website. Corporate governance in local authorities has been enhanced by the establishment of Audit Committees. I am pleased to note that these committees take an active role in progressing issues raised by both internal and external auditors. The Local Government Audit Service (LGAS) is committed to supporting this work. The Report of the Local Government Efficiency Review Group was published in July 2010. It contained 13 specific recommendations relating to audit and value for money and the LGAS is in the process of implementing those relating to external audit. The LGAS is continually improving the delivery of its audit work. One of its main objectives is to improve the timeliness of audit completion and reporting. This can only be achieved if local authorities publish their draft annual financial statements earlier. The draft accounts are required to be prepared by the end of March, following the year of account. Only five of the 34 City and County Councils submitted their 2009 draft accounts to the Department within the required timeframe. This has an adverse impact on the external audit process. This is not acceptable. 6

My thanks to our colleagues in the Department, particularly in corporate services and local government for all assistance given to the LGAS in 2010. My thanks to all in the LGAS for your professionalism and commitment to the audit of local government, your dedication is much appreciated.

_________________________________________ Noel O’Connell Director of Audit Local Government Audit Service May 2011

_____________________________________________________________________ Local Government Audit Service

Introduction The Minister for the Environment, Community and Local Government appoints auditors, known as local government auditors, to carry out or assist in the carrying out of audits of local authorities and other bodies. The Local Government Audit Service (LGAS) audits the accounts of all local bodies such as cities, counties, towns and miscellaneous bodies including some harbour authorities. The total number of bodies under its remit is 184. The LGAS provides independent scrutiny of the financial stewardship of local authorities. Its role is to: •

Carry out audits of local authorities and other bodies in accordance with its Code of Practice, thereby fostering the highest standards of financial stewardship, governance and public accountability;

•

Promote the achievement of value for money in local authorities by undertaking Value for Money (VFM) studies and publishing reports thereon.

The Director of Audit is the organisational head of the service. This post is a statutory position and the main functions, as prescribed in section 116 of the Local Government Act, 2001, are to: a)

Organise, direct and allocate resources within the LGAS;

b)

Assign audits of local authorities and other bodies to Local Government Auditors; 7

c)

Provide such advice and assistance as the Minister may, from time to time, require for the purposes of maintaining a Code of Audit Practice;

d)

Direct the Local Government Value for Money Unit established by section 14 of the Local Government (Financial Provisions) Act, 1997 and to ensure that the work of the unit is incorporated into local government audit practice.

Each local government auditor is assigned an audit district under warrant of authority from the Director of Audit. There are twenty-one local government audit districts. Local government auditors are independent of the Department when discharging their professional functions. This independence is protected in legislation in accordance with section 116(2) of the Local Government Act, 2001. Audit districts comprise a number of audits grouped, as far as possible, in convenient geographical areas, and these districts are further grouped into four regions, Western, Southern and two Eastern. Principal auditors lead in the regional organisation and supervision of audits. In addition they have direct responsibility for the major audits in their region. One principal auditor has responsibility for managing the Value for Money Unit.


Staff Resources The following is the current staff numbers in the Local Government Audit Service. Staff Grades

Complement

Current No.

Director of Audit

1

1

Principal Local Government Auditors

7

6

Local Government Auditors

20

18

Assistant Auditors

14

12

3

3

45

40

Clerical / Secretarial Total

Due to the moratorium on recruitment, the LGAS currently has five fewer staff. A principal local government auditor and a local government auditor are due to retire within the next twelve months. The necessary staff complement to service the overall workload accordingly requires early attention. 8

All audit staff are professionally qualified accountants and have, for many years been recruited externally, having worked in industry, public audit firms, public sector bodies, and this mix of skills enhances the organisation.

Overview This report sets out the main activities of the LGAS in its role in providing an independent scrutiny of the financial stewardship of local authorities. The LGAS has continued to develop its policies and procedures to meet the requirements of the Code of Audit Practice and to take account of the principles, which underpin public sector audit. The report provides an overview of local authority finances drawing on the results of audit and the engagement with local authorities through the audit process. Appendix 5 to the report provides details of main issues raised with authorities and the responses received from the relevant County or City Manager. These will be followed up in subsequent audits. The Local Government Act, 2001 sets out the primary duty of the auditor as follows: “In the course of the audit of accounts of the local authority or other body, the local government auditor shall carry out such audit tests as he or she considers appropriate in order to be satisfied as to: _____________________________________________________________________ Local Government Audit Service

(a)

whether the annual financial statement is prepared in accordance with section 107 or with the accounting requirements otherwise applicable to the body concerned,

(b)

whether the annual financial statement presents fairly the financial position of the authority or other body and of its income and expenditure for the period in question,

(c)

whether the transactions of the audited body conform with the statutory or other authorization under which they purport to have been carried out.”

In discharging their responsibilities, local government auditors must take account of matters arising from previous audit reports and management letters. Auditors should also: •

Plan the audit and allocate resources to achieve a balance of work between the various aspects of the audit, having due regard to availability of resources, and carry out cyclical reviews of financial systems.

•

Take a broad and analytical view of the audit work based on an assessment of the risk of material error in the financial statement.

•

Perform the audit in a professional manner and conclude it without undue delay.

•

Develop, with the Director of Audit, measures to ensure a standard audit approach. 9

In line with the recommendations contained in the Report of the Local Government Efficiency Review Group, published in July 2010, the Audit Service will continue to develop its strategic overview of financial management and audit across the local government sector. Subsequent reports will pursue particular issues identified at sectoral level. At this point, the principal issues which have been identified are: •

the deteriorating financial position of most authorities arising from the economic downturn;

•

the continued positive development of accrual accounting approaches;

•

the on-going requirement to manage finances to ensure that current and capital flows are kept in balance having regard to General Government Balance (GGB) requirements;

•

the need for close management of debt and debtors more generally;

•

the importance of ever more timely provision of financial management data to assist ongoing financial stewardship and overall year-end financial reporting and assessment;

•

the very clear need for a number of authorities to speed up greatly their provision of Annual Financial Statements (AFS) – the late provision of these has been a matter of _____________________________________________________________________ Local Government Audit Service

considerable concern and the authorities involved should take the necessary steps to ensure the provision of AFS in accordance with legal requirements. Subsequent to the 2009 reporting year, local authorities have, in response to work with the Department of the Environment, Community and Local Government, enhanced their financial reporting through the generation of quarterly summary financial reports. These have been added to further more recently by the requirements arising from the financial support arrangement arising from EU/IMF support at national level. It will be critical that local authorities meet these requirements on a timely basis. Value of money (VFM) audit has long been recognised as an important supplement to normal financial audit. VFM reviews also provide a means to take a sectoral stance to assist local government at authority and sectoral level to learn from best practice and enhance their effectiveness and efficiency. It also provides Government Departments, particularly the Department of the Environment, Community and Local Government with useful insights into the operation of specific policy areas. It is very important that VFM reports are fully utilised by authorities and relevant funding Departments. The follow-up to VFM reports is an area that will be given increasing attention in the context of the efficiency agenda.

Local Government Audit Procedures The statutory audit of local government is provided for in sections 114 to 126 of the Local 10

Government Act, 2001. Audits are carried out in accordance with a prescribed Code of Audit Practice, which covers: •

Purpose of audit

•

Powers and duties of auditors

•

The audit approach

•

Outputs from audit

•

Public accountability.

In recent years, the Local Government Audit Service has undertaken a financial audit improvement programme. This involved the development of audit guidelines on many aspects of the audit process and the implementation of an electronic working paper system (TeamMate). The aim of this process was to develop and improve a standard audit approach throughout the LGAS. Some of the features of the TeamMate software as implemented by the LGAS are: •

Risk Assessment module

•

Standard format of audit files

•

Standard audit tests

•

Improved tracking of matters arising at audit

•

Guidance notes for audit staff


•

Audit file and data encryption

•

Centralised retention of audit files.

This system has been fully implemented in the LGAS, with auditors now using this software on all audits. It is intended to further develop and improve the standard audit approach, including the use of TeamMate, on an ongoing basis. All electronic audit working papers on the TeamMate system are automatically encrypted. In order to reduce the risk of the loss of sensitive client data, all LGAS laptops and removable media devices are also encrypted.

Outputs from Audit Audit Opinion Auditors are required to give an audit opinion on the annual financial statements of local authorities and other audited bodies. This opinion is the culmination of the auditor’s work on reviewing the audited body’s transactions as reported in the annual financial statement. The auditor expresses an opinion as to whether the annual financial statement presents fairly, in accordance with the Accounting Code of Practice and Regulations the financial position of the body at the year-end (31 December) and of its income and expenditure for the year then ended. Audit Reports In addition to the audit opinion, it is custom and practice to issue statutory audit reports on the major audits covering any matter or matters, which the auditor considers should be reported. The manager of a local authority is required to respond to this report and his/her comments may be included as part of the final report. This procedure has enhanced public scrutiny of local government as management responses, to address the issues raised at audit, now form part of the published audit reports. Management Letters In accordance with professional audit practice, an auditor may issue a management letter drawing attention to any weaknesses in financial procedures and / or controls identified during audit, and make appropriate recommendations. A management letter may incorporate audit memoranda already issued to functional officers and line managers during the audit. Management letters were issued in respect of all thirty-four (34) city and county councils in the course of the 2009 audits. These referred to accounting and financial control issues identified in the course of audit tests carried out on selected activities of the local authorities. Progress in the implementation of recommendations made by the auditors will be reviewed at the 2010 audits.

Audit Work Programme The financial statements of local authorities are prepared to 31 December each year. Due to the time lag between the end of the financial year and the finalisation of the draft accounts, the work cycle of the audit service runs from April to the following March e.g. all audits for the year


11

ended 31 December 2009 are to be completed by 31 March 2011. Priority is given to the city and county council audits, of which all, apart from one, were completed, by 31 December 2010.

Audit Committees The work carried out by audit committees is adding real value to the oversight of the corporate governance agenda in local government. These committees normally comprise of five members, three external members (including the chairperson) and two councillors. They carry out their functions under a formal charter. It is now standard practice for the committees to meet with the local government auditors to discuss action taken by management arising from issues contained in the statutory audit reports. These committees have a major role in progressing risk management and value for money within their authorities. These matters should be included as regular agenda items for their meetings.

Audit Remit The following bodies are subject to local government audit: Status of Body

12

City Councils

Number 5

County Councils

29

Borough Councils

5

Town Councils

75

Regional Authorities

8

Regional Assemblies

2

Motor Taxation Offices

29

Miscellaneous

31

Total

184

Accountability of Local Authorities Local authorities are statutorily obliged to keep proper books of account and to prepare annual financial statements of their activities. These statements have to be prepared in accordance with the Department’s accounting requirements as prescribed in:


•

Section 107 of the Local Government Act, 2001

•

Accounting Code of Practice and guidelines

•

Local Government (Financial Procedures and Audit) Regulations, 2002.

Local authorities, other than the former town commissioners, have prepared their annual financial statements on the accruals basis for a number of years. The new financial accounting systems implemented in these bodies have enabled local authorities to produce full income and expenditure accounts and balance sheets. This has been achieved on an incremental basis and represents a significant change in local government accounting. The accounting year-end for local authorities is 31 December and the annual financial statements are required to be prepared by the end of March in accordance with the Accounting Code of Practice. These statements, having been considered at a meeting of the local authority, are submitted to the Department. Most of the audit work on the larger local authorities, (County Councils (29) and City Councils (5)), for the year ended 31 December 2009, was completed by 31 December 2010. Matters arising from these audits form the basis of this report. Delays in the completion of the annual financial statements can have an impact on the planning of audit work. Timely completion of the year-end procedures can be an indicator of good financial management procedures.

Motor Taxation Audits 13

Twenty-nine local authorities operate motor taxation. Authorised officers, in these motor tax offices, are responsible for the issue of vehicle, driving and other licences and certificates to the public, on behalf of the Department of Transport, Tourism and Sport and the Road Safety Authority. Monies collected are transferred to the Local Government Fund administered by the Department of the Environment, Heritage and Local Government and allocations are made from this fund to finance local authority activities. The audit of these local motor taxation offices is limited to an examination of a sample of licensing transactions to ensure that they have been properly accounted for in the financial and stock control records of the licensing authorities. The total collected by these offices in 2009 was €627m. The motor tax on-line service is located in the Driver and Vehicle Computer Services Division of the Department of Transport, Tourism and Sport and is not subject to audit by the LGAS.

Review of Annual Financial Statements The following is a review of some of the significant financial data included in the annual financial statements of the 34 city and county councils. The review covers the most recent audited financial statements i.e. the year ended 31 December 2009. The inclusion of data for the


years 2008 and 2007 allows for comparisons / trends. The financial data referred to in this review can be classified under the headings shown below with more detailed information by individual authority included in the appendices.

Income and Expenditure Account The income and expenditure account includes the day-to-day running costs of the local authority and includes payroll, operational, administration, establishment and financial expenditure. Income includes grants and subsidies as well as charges for the provision of goods and services. The chart below shows the level of revenue income and expenditure for 2009 with comparative figures for the previous two years.1

14

All amounts shown are €m It can be seen from the above that the expenditure and income for 2009 had fallen back to the levels in 2007. This trend illustrates the downturn in economic activity generally in the public sector, since the peak in 2008. A breakdown of the revenue expenditure for 2009, with comparative figure for 2007 and 2008, is shown below.

1

All figures shown relate to City and County Councils only


2007

2008

2009

€m

€m

€m

611

711

663

1,202

1,057

848

Water Services

673

732

743

Development Management

226

309

285

Environmental Services

861

901

848

Recreation & Amenity

343

394

368

Agriculture, Education, Health & Welfare

309

334

399

Miscellaneous Services

242

282

310

4,467

4,720

4,464

Housing & Building Roads Transportation & Safety

15


The main sources of revenue income for the major local authorities, as included in the annual financial statements for 2009, with comparative figures for 2007 and 2008, are as follows: 2007

2008

2009

€m

€m

€m

Income from Goods and Services

1,271

1,289

1,203

Income from Grants and Subsidies

1,138

1,155

1,106

Contributions from other Authorities

219

220

212

Local Gov Fund - Gen Purpose Grant

869

917

764

0

0

69

1,117

1,193

1,240

58

67

73

4,672

4,841

4,667

Pension Related Deduction Rates County Charge

16

2



The main revenue collections, including rates and income from goods and services constitute over fifty percent of revenue income of the main local authorities. The closing revenue balances in the thirty-four major authorities totalled €8.9m at the end of 2009, compared with €6.9m and €34m at the end of 2008 and 2007 respectively. It is noted that seven county councils had accumulated debit / unfavourable balances on their revenue account in excess of €3m at 31 December 2009. A list of the individual balances for each of the three years is shown in Appendix 1.

Capital Account The capital account includes expenditure on infrastructure projects and work-in-progress, as well as a number of other accounts. Total capital income and expenditure for 2007, 2008 and 2009 is shown below.

17

All amounts above are €m


The table below shows an analysis of capital expenditure for 2009, with comparative figures for 2007 and 2008.3 2007

2008

2009

€m

€m

€m

3,240

3,426

2,144

Purchase of Land

583

530

484

Purchase of Other Assets

933

481

299

Professional & Consultancy Fees

410

353

275

1,118

1,273

894

88

71

47

6,372

6,134

4,143

Payment to Contractors

Other Transfers to Revenue

18

3



The significant reduction in capital expenditure in 2009, when compared to previous years, is a reflection of the decrease in economic activity generally and in particular the reduced investment in infrastructure projects in the local government sector. There is a corresponding reduction in capital income, as shown in the tables below.4

2007

2008

2009

€m

€m

€m

3,506

3,499

2,811

Borrowings

553

555

487

Development Contributions

862

460

158

Property Disposals

341

299

120

Other

796

606

352

Transfers from Revenue

210

165

171

6,268

5,584

4,099

Grants

The proportion of income from the various sources for 2009 is illustrated in the following chart. 19

4

All figures shown relate to City and County Councils only _____________________________________________________________________ Local Government Audit Service

It can be seen from the above that approximately seventy percent of capital income is derived from government grants, illustrating the dependence on central government funding for infrastructure projects.

Audit of Capital Account The annual financial statements of local authorities include capital expenditure on infrastructure projects, as shown above, that may take a number of years to complete and therefore may span a number of annual audits. The audit examination of these projects does not involve a once-off examination of a project from preliminary stage to completion; however various aspects of different stages of the project may be examined at one or more annual audits. An audit plan, allocating resources to the various areas within the audit, is drawn up at the commencement of each annual audit. This is based on a risk assessment of all audit areas (including capital projects) that takes account of past knowledge and experience, judgement, analytical review, management discussions and materiality. Having allocated resources to the capital projects area, the auditor then decides the extent and scope of the audit procedures to be completed. This may include: •

Review of expenditure per project and progress on the larger projects,

•

Compliance tests and / or substantive tests on the tender process for selected projects,

•

Examination of the certification and payment of sample invoices received from contractors,

20

•

Review of other expenditure on selected projects including professional fees, land purchases, payroll and overhead costs,

•

Review of income, including funding arrangements, for selected projects. This may include confirmation from the Department for grants paid and approval for loans raised,

•

Examination of final accounts, including the approvals of the Manager, the Department or other authorising body.

Progress on the major capital projects and any issues arising from audit procedures are often referred to in the auditors’ statutory reports.


Local Government Auditors’ Reports The main issues reported on by local government auditors for 2009, including the managers’ responses, are detailed in Appendix 5.

Financial Position In a significant number of authorities, deterioration in the financial position has been identified as a matter of concern. The income available to local authorities has diminished and this is reflected in reduced budgets and cash balances. This is evidenced by the fall in the total revenue account balances from €34m to €8.9m between 2007 and 2009. The majority of the individual local authority financial statements show an accumulated revenue account deficit, some of which are significant, at the end of 2009 (See Appendix 1). A number of authorities also experienced reductions in bank balances or increases in bank overdrafts; with investments falling from €819m to €747m. Current liabilities also increased in the period from €1,138m to €1,467m. Authorities have taken steps to reduce current expenditure and this trend is likely to continue.

Revenue Collection Performance Revenue collection performances are also highlighted by the auditors. Rates income arrears, shown in Appendix 2, have increased from €84m to €188m between 2007 and 2009. The collection performance of rents and housing loans has also been raised in a number of reports. Authorities have undertaken to improve their debt collection and monitoring procedures. The level of bad and doubtful debt provision has also been found to be inadequate in some cases.

Commercial Water Charges Poor collection of commercial water charges is one of the most common issues arising in audit reports. The debtors in the larger authorities increased from €92m to €152m between 2007 and 2009, while the amounts collected increased from €133m to €165m, as detailed in Appendix 3. The deterioration in collection performance is attributed to a variety of reasons, including problems with the introduction of meters, the timing of the issue of invoices, disputed charges, changes in billing procedures, inadequate follow up of arrears and also financial difficulties experienced by customers. Local authority management have undertaken to address these issues in a number of ways, including the allocation of additional resources to this area and the improvement of debt management procedures. However, it is vital that local authorities prioritise efforts to improve collection performance in this area.

Affordable Housing Local authorities construct or purchase houses, mainly under Part V of the Planning and Development Acts, 2000 - 2007, to be sold as affordable houses to qualifying purchasers. These _____________________________________________________________________ Local Government Audit Service

21

are financed, in the main, by means of bridging finance. The intention was that these loans would be repaid from sale proceeds. In the current economic climate the sale of these houses has slowed considerably; resulting in an increase in the stock of unsold houses held by some local authorities. While local authorities continue to sell some units, the funding of these projects, including rolled-up interest costs, is a significant issue which is being examined by local authorities. A number of options for local authorities to utilise affordable housing units were set out in circular letter AHS1 issued in April 2009. These include: •

Sale under Incremental Purchase Scheme;

•

Transfer of affordable units to Rental Accommodation Scheme; and

•

Use of affordable units for a period to accommodate social housing applicants.

Loans Payable The increase in loans payable by local authorities, and the consequential cost of servicing this debt in the future, is highlighted in a number of audit reports. The total of loans payable by city and county councils increased from €4,265m to €5,100m between 2007 and 2009; an increase of 20%. These loans include mortgage and non-mortgage loans. The table below shows an analysis of the loans payable at the end of each of the years 2007, 2008 and 2009. 22

Mortgage Loans incl. Rented Equity Voluntary Housing Non-Mortgage Loans

2007

2008

2009

€m

€m

€m

1,499

1,585

1,577

767

994

1,079

1,999

2,347

2,444

4,265

4,926

5,100

The mortgage-funding gap, which is the variation between the amounts owed by the local authority to financial institutions and the amounts owed to the local authorities by mortgage holders, was referred to in a number of audit reports. Local authorities sometimes retain amounts received as redemptions for prolonged periods. It is important that these balances are monitored and matched to avoid future cash flow problems. A schedule of mortgage-related loans, payable and receivable, including rented equity, for each city and county council at the end of 2009, is shown in Appendix 4. Issues that were raised in respect of non-mortgage loans included: •

the level of bridging finance borrowed for affordable housing schemes;


•

the roll up of interest loans for unused land; and

•

the increase in the level of non-mortgage borrowing.

The future capacity of local authorities to redeem these non-mortgage loans from asset sales or capital funding is of concern. In 2010 the Department introduced the Land Aggregation Scheme, which provides for the transfer of unused land that was purchased for social and affordable housing to the Housing and Sustainable Communities Agency. Individual local authorities have provided details of such land for consideration under this scheme and these are being examined by the Agency.

Capital Account Balances Capital balances generally reflect the funding position on current, future and past projects. These balances are subject to timing differences such as delays in grant payments and contract disputes. The depletion of existing funds / reserves is also reflected in these balances. The favourable balance on the capital accounts of the city and county councils was €224m at 31 December 2009. It was €825m at 31 December 2007. The increase in the number of unfunded balances is a cause for concern in some authorities. The reported level of unfunded balances in city and county councils increased from €357m to €442m between 2007 and 2009. A number of auditors also referred to the need to review the classification of balances between funded and unfunded. Where a source of funding for a balance has not been identified, it should be regarded as unfunded. This also applies to a residual balance on a funded scheme if no further funding is expected. Unfunded balances need to be closely monitored and decisions made as to how these can be cleared.

Development Contributions Problems in the accounting for development contributions have been reported on in audit reports for a number of years. Most local authorities have implemented the Local Government Computer Services Board PDC system or an alternative system in 2009. In some local authorities the transfer of historical data to the new system is still outstanding and will require a significant effort. With the downturn in economic activity, the likelihood of the collection of arrears and the level of provisions / deferred income is an issue of concern. Contributions collected fund various infrastructure projects that facilitate existing and future developments. Contributions accrued but not yet transferred to specific or general schemes in the main authorities fell from €1,280m to €787m between 2007 and 2009. The balance at the end of 2009 includes current debtors of €453m. The amounts committed to fund particular capital projects are not disclosed in the financial statements.


23

The Value for Money Unit of the LGAS is to carry out a follow up study on development contributions in the first quarter of 2012.

Non Principal Private Residence (NPPR) Charge The Local Government (Charges) Act, 2009 introduced an annual charge imposed on the owners of second homes i.e. properties not used as a principal private residence. This charge, which is based on self-declaration, was €200 per property in 2009, with a penalty of €20 per month for late payment. The Local Government Computer Services Board (LGCSB) collected the charge for 2009 on an agency basis. The total amount collected, as stated in the LGCSB annual report for 2009, amounted to approximately €56m.

Internal Audit Article 16 of the Local Government (Financial Provisions and Audit) Regulations, 2002 state that “a local authority or joint body shall maintain an adequate and effective system of internal audit of its accounting records and control systems.” Local government auditors may place reliance on the work done by internal audit in carrying out their own audits and this reliance is referred to in a number of reports. There are references in audit reports to local authorities where no internal audit function exists and others where the function is under-resourced. There were no internal audit functions in place in Limerick City Council, Offaly County Council, and South Tipperary County Council during part of the audit period. The auditor for Sligo County Council 24

stated in his report that there was no internal audit function in Sligo County Council in 2007 or 2008, and there was no full-time post dealing with internal audit in 2009. The Report of the Local Government Efficiency Review Group, published in July 2010, recommended that internal auditors should carry out more work in relation to value for money. It also recommended that the internal audit function should be resourced by staff with suitable professional qualifications.

Fixed Assets The inclusion of fixed assets in the annual financial statements is a relatively new development and the value of these assets is substantial. Issues raised in audit reports include the following: •

Incomplete property / fixed assets register details;

•

Problems with the transfer of completed projects from work-in-progress to assets;

•

Inadequate insurance cover for assets.

The maintenance of proper fixed asset records is vital in order to safeguard the assets of a local authority. Department accounting guidelines provide for the revaluation of fixed assets every five years. This is particularly important in the case of land and buildings. To date no


revaluation of assets has taken place because of the scale of the task involved and uncertainty in the property market.

Tendering / Procurement Procedures Local authorities are subject to national and EU procurement guidelines covering the provision of services, supplies and works. While these guidelines are generally followed in the case of construction contracts, audit reports contain examples of cases where proper procedures were not followed. The procurement of legal services has been specifically raised by a number of auditors. Recommendations are also made for the review, documentation and implementation of improved procurement procedures. This is an important issue that must be addressed by local authorities. The report of the Local Government Efficiency Review Group recommended that regional procurement arrangements be formalised, through the Local Government Management Agency, and regional procurement specialists from the new National Procurement Service should work with local authorities to identify opportunities for maximum procurement co-operation across local authorities and the broader public sector.

Accounting for Local Authority Staff Pension and Gratuity Costs The Accounting Code of Practice for local authorities provides for the accounting treatment of staff pensions as follows:

25

“Similar to government departments, pension payments are treated as current expenditure. Pension contributions from employees are treated as part of current receipts. The accounts may not reflect the true cost of pensions or the future potential liabilities and local authorities should include a statement outlining their policy in the notes to the AFS.” From 2009 an additional pension related deduction was introduced for all public sector employees and income from this source is included in the income and expenditure account of local authorities in the annual financial statements. Deductions from payroll for this contribution in the city and county councils amounted to €69m in 2009. These amounts are not ring-fenced to meet future pension liabilities in the accounts of local authorities. The requirements of current accounting standards relating to pensions, and their applicability to local authorities, are being reviewed by the Department’s general accounts working group. The local authorities’ deferred liabilities for pensions has not been computed or reported on in the annual financial statements of local authorities.


Value for Money (VFM) Audit It is the responsibility of local authority management to ensure that value for money is achieved by establishing and maintaining sound arrangements, including procedures for planning, appraisal, authorisation and control of resources. The VFM audit unit of the LGAS consists of a central research team, staffed by a principal local government auditor and two local government auditors, together with additional audit days provided by assistant auditors at district level. A VFM audit consultative committee representing the main stakeholders, and chaired by the Director of Audit, has been established. It has an advisory role in the prioritisation of VFM projects and in reviewing the quality of draft reports before publication. Also, an advisory group is established for each VFM study undertaken, comprising representatives from local authorities, the Department and/or individuals with expertise in a particular field. The work of the VFM Unit has mainly focused on undertaking national studies on single-issue topics and publishing reports thereon. The Unit has produced 26 national reports to date and VFM Report No. 27 “Management and Maintenance of Vacant Dwellings in Local Authorities” is currently being finalised. The Unit is broadening its sphere of activity by preparing and issuing progress reports on the 26

implementation, by local authorities, of the recommendations contained in the national reports already issued by the Unit. In March 2010, the Unit issued Progress Report Number One on the development of internal audit in local authorities. The website of the Department is the primary means of publishing reports of the VFM Unit and national reports and progress reports issued by the Unit can be downloaded at http://www.environ.ie/en/Publications/LocalGovernment/AuditService/ The Unit has also carried out spot-checks and reviews, on behalf of the Department, of capital investment programmes funded by the Department and undertaken by local authorities in accordance with guidelines issued by the Department of Finance. The VFM Unit fulfils the requirement that spot-checks should be carried out by officials/persons who are independent of those directly involved in the appraisal, management and the delivery of the projects. During 2009/2010, the Unit’s staff visited 31 local authorities and examined 60 capital projects (which were either in progress or completed during 2008) and carried out spot-checks with a total value of €666.83m across 6 programme areas.


External relationships The LGAS has, over many years, developed relationships with a number of external bodies. These included the following: Comptroller and Auditor General (C&AG): Copies of all LGAS reports are made available to the C&AG as part of his audit of the Department. Northern Ireland Audit Office, Audit Scotland and Wales Audit Office: Staff from the LGAS have met their counterparts in the Northern Ireland Audit Office, Audit Scotland and Wales Audit Office on a number of occasions over the years and in recent times discussed audit approach and VFM matters. Representatives of these bodies have also attended the LGAS annual conference. The European Organisation of Regional Audit Institutions (EURORAI): The LGAS has been represented at conferences organized by this European institution for many years. This provides useful contact with public audit bodies and staff in other European countries. Working Groups and Committees: The LGAS continues to be represented on a number of the Department’s working groups and committees, which includes the following: •

General Accounts Working Group;

•

Planning and Development Contributions Project Board; and

•

Finance and Business Committee.

27


Appendix 1 General Revenue Balances5 2007

2008

2009

€

€

€

Carlow

(153,319)

(98,888)

(122,100)

Cavan

1,658,665

1,660,062

1,661,261

Clare

(1,971,791)

(1,774,045)

(1,856,538)

Cork

18,638,064

17,150,638

15,156,723

(13,139,378)

(12,998,286)

(12,893,134)

16,584,624

15,366,860

17,448,786

8,901,726

8,981,377

8,993,933

763,305

(1,149,537)

(1,272,551)

1,573,792

1,756,037

1,889,034

(6,463,441)

(5,653,544)

(4,885,744)

55,129

59,433

(35,333)

(534,289)

(529,372)

(521,605)

240,618

(60,731)

(88,264)

Limerick

1,138,929

70,449

81,220

Longford

1,499,795

505,178

(842,399)

Louth

4,050,865

1,720,511

1,670,221

Mayo

(3,924,961)

(3,513,410)

(3,049,924)

Meath

(9,797,254)

(9,613,934)

(9,304,735)

Monaghan

(916,313)

(1,503,720)

(1,064,263)

North Tipperary

(334,424)

(245,463)

25,026

Offaly

(64,990)

(332,082)

(484,669)

Roscommon

165,762

31,082

(322,505)

Sligo

(1,469,502)

(4,285,151)

(7,518,111)

South Dublin

15,299,118

12,418,975

12,070,177

2,906,569

3,092,261

2,940,207

Waterford

(6,949,137)

(6,916,777)

(6,933,807)

Westmeath

(3,665,511)

(2,911,003)

(2,796,050)

Wexford

(3,874,713)

(6,791,385)

(6,381,643)

Wicklow

(1,761,515)

(1,733,353)

(1,997,736)

207,922

251,417

317,023

Dublin City

7,745,909

4,326,015

9,765,759

Galway City

8,109,411

32,682

(525,870)

120,870

178,404

260,192

(566,465)

(517,189)

(447,887)

34,074,067

6,973,510

8,934,695

County Councils

Donegal Fingal Dun Laoghaire Rathdown Galway Kerry Kildare Kilkenny Laois Leitrim

28

South Tipperary

City Councils Cork City

Limerick City Waterford City

5



Appendix 2 Rates Collection % and Debtors6 Ref

Local Authority

2007

Rates

2008

Rates

2009

Rates

Rates %

Debtors

Rates %

Debtors

Rates%

Debtors

Collected

Dec 2007

Collected

Dec 2008

Collected

Dec 2009

%

€

%

€

%

€

County Councils 1

Carlow

90%

460,539

89%

641,223

77%

1,378,698

2

Cavan

95%

444,318

92%

840,175

82%

1,890,118

3

Clare

96%

1,165,743

96%

1,577,063

90%

3,851,576

4

Cork

96%

3,562,559

93%

6,962,639

88%

12,594,225

5

Donegal

90%

1,960,449

87%

2,629,298

71%

6,519,004

6

Fingal

96%

4,328,808

95%

6,397,361

88%

15,324,001

7

Dun L-Rathdown

95%

4,602,746

91%

7,571,064

85%

14,643,370

8

Galway

91%

1,755,661

91%

1,906,000

81%

4,171,364

9

Kerry

95%

819,839

90%

1,826,817

85%

2,977,486

10

Kildare

96%

1,369,640

91%

3,423,696

88%

5,079,832

11

Kilkenny

98%

245,881

97%

307,914

93%

780,610

12

Laois

91%

848,294

90%

983,501

84%

1,523,960

13

Leitrim

94%

231,423

91%

385,340

83%

735,825

14

Limerick

98%

625,468

95%

1,337,381

91%

2,239,979

15

Longford

94%

250,214

92%

345,990

88%

512,739

16

Louth

86%

1,032,108

87%

988,499

78%

1,797,286

17

Mayo

95%

600,199

92%

1,038,720

89%

1,348,616

18

Meath

98%

362,224

95%

1,026,382

91%

2,075,515

19

Monaghan

96%

211,222

92%

456,191

82%

1,075,664

20

North Tipperary

98%

133,192

96%

278,901

89%

749,966

21

Offaly

98%

228,331

94%

395,997

90%

747,568

22

Roscommon

93%

649,468

90%

899,858

84%

1,510,908

23

Sligo

96%

151,785

90%

459,029

81%

896,452

24

South Dublin

94%

6,898,292

92%

9,263,927

86%

18,122,445

25

South Tipperary

96%

277,395

96%

286,816

89%

860,411

26

Waterford

91%

536,365

91%

551,499

84%

1,156,478

27

Westmeath

97%

227,386

93%

547,254

82%

1,459,751

28

Wexford

94%

1,019,139

91%

1,390,481

83%

2,894,701

29

Wicklow

96%

543,965

94%

823,610

86%

2,232,643

City Councils 30

Cork City

92%

4,590,724

92%

5,230,442

86%

9,476,861

31

Dublin City

89%

34,577,502

89%

37,064,635

87%

44,455,944

32

Galway City

84%

5,019,318

80%

6,746,383

70%

11,071,910

33

Limerick City

86%

3,822,017

80%

6,205,776

70%

10,564,235

34

Waterford City

97%

608,815

92%

1,506,323

91%

84,161,028 6

112,296,188

1,666,660 188,386,800


29

Appendix 2 (contd.) Rates Annual Rate on Valuation and Rates Collected7 Ref Local Authority

Annual

Rates

Annual

Rates

Rate on Valuation

Collected

Rate on

2007

Valuation

2007

Annual

Rates

Collected

Rate on

Collected

2008

Valuation

2009

2008

2009

€

€

€

€

€

€

4,269,341

66.82

4,936,111

67.82

4,615,309

County Councils

30

1

Carlow

63.34

2

Cavan

54.14

8,218,084

56.85

9,077,253

56.85

8,603,408

3

Clare

67.61

31,413,554

70.31

32,811,509

72.99

32,996,202

4

Cork

71.30

86,011,248

74.75

90,999,463

74.75

90,972,573

5

Donegal

72.29

17,209,010

74.46

17,633,477

74.46

15,658,398

6

Fingal

63.92

103,739,335

66.32

120,721,058

68.64

117,887,956

7

Dun L-Rathdown

67.37

79,465,704

68.72

79,314,344

70.61

80,006,996

8

Galway

62.61

17,439,371

65.61

18,820,596

66.59

17,502,006

9

Kerry

75.90

16,664,337

78.93

16,804,077

80.35

16,875,495

10

Kildare

66.44

37,052,488

69.12

36,730,454

70.36

37,248,297

11

Kilkenny

49.82

9,930,637

52.31

10,086,427

52.31

9,704,411

12

Laois

62.14

8,283,294

64.63

8,709,980

64.63

8,105,288

13

Leitrim

60.08

3,343,814

62.78

3,844,568

62.78

3,704,221

14

Limerick

60.22

24,868,249

60.22

24,070,136

60.22

22,942,636

15

Longford

65.24

3,684,299

67.36

3,784,351

68.03

3,589,772

16

Louth

53.00

6,137,694

55.40

6,629,710

56.79

6,313,800

17

Mayo

68.28

11,109,870

70.16

11,648,360

70.16

10,962,439

18

Meath

65.05

18,493,501

68.27

20,856,003

69.62

20,475,209

19

Monaghan

54.03

5,348,952

56.20

5,337,869

56.20

4,984,210

20

North Tipperary

61.67

6,345,252

63.93

6,475,859

63.93

6,376,522

21

Offaly

54.06

6,294,267

56.77

6,776,627

56.77

6,459,394

22

Roscommon

73.35

8,631,548

76.28

8,264,170

76.66

8,156,169

23

Sligo

63.97

3,925,892

66.08

4,109,497

66.08

3,730,381

24

South Dublin

69.48

112,784,213

0.17

112,235,925

0.17

110,634,633

25

South Tipperary

53.00

6,682,219

55.12

7,131,904

56.77

7,139,326

26

Waterford

66.24

5,242,987

68.21

5,762,747

69.92

5,932,664

27

Westmeath

50.24

7,258,287

51.75

7,261,546

52.27

6,771,849

28

Wexford

65.81

15,926,784

69.10

14,461,292

71.52

14,398,434

29

Wicklow

71.76

12,955,728

75.35

13,546,465

76.78

13,701,249

30

Cork City

70.75

56,380,937

73.28

58,660,355

74.05

56,121,873

31

Dublin City

59.52

286,946,966

61.87

296,591,099

63.91

307,480,452

32

Galway City

63.07

26,239,448

65.47

26,405,089

66.12

26,407,815

33

Limerick City

74.56

24,250,191

74.37

24,332,057

76.46

24,116,791

34

Waterford City

63.29

18,214,978

65.82

18,569,138

66.22

17,810,528

City Councils

1,090,762,478

1,133,399,514

1,128,386,704

A revaluation of all commercial properties in South Dublin County Council rating area, carried out in 2007, became effective in 2008. This had an effect on the calculation of the Annual Rate on Valuation for 2008 and 2009. 7



Appendix 3 Commercial Water Charges Collected and Debtors8 Ref Local Authority

2007 Commercial Commercial Water

Water Commercial Charges

Charges% Debtors Dec Collected

2008 Commercial

2007

2009 Commercial

Water Commercial

Water

Charges

Charges % Debtors Dec Collected

2008

€

Water

Water Charges

Charges % Debtors Dec Collected

€

2009 €

County Councils 1

Carlow

68%

234,150

57%

428,729

31%

831,676

2

Cavan

52%

707,126

33%

1,702,379

47%

1,903,905

3

Clare

79%

882,823

65%

1,524,876

30%

6,511,277

4

Cork

54%

13,476,420

62%

14,235,770

59%

14,437,859

5

Donegal

44%

4,206,411

32%

9,563,926

40%

10,808,845

6

Fingal

71%

4,950,875

71%

5,602,215

66%

7,195,551

7

Dun L-Rathdown

43%

4,015,175

31%

7,638,388

39%

9,019,915

8

Galway

19%

5,018,234

47%

5,404,441

56%

4,542,483

9

Kerry

80%

1,801,416

76%

2,373,955

74%

2,572,154

10

Kildare

64%

5,710,081

67%

5,257,397

60%

6,303,713

11

Kilkenny

58%

1,202,962

49%

2,272,907

57%

2,345,612

12

Laois

63%

806,302

47%

1,806,047

59%

1,713,232

13

Leitrim

63%

358,090

38%

608,338

35%

864,666

14

Limerick

88%

699,968

74%

1,877,247

77%

2,085,419

15

Longford

60%

980,111

54%

1,233,983

52%

1,320,871

16

Louth

29%

1,080,447

40%

1,106,284

34%

1,229,063

17

Mayo

59%

2,608,011

37%

5,131,344

49%

5,948,122

18

Meath

60%

1,049,538

25%

3,412,835

30%

5,085,184

19

Monaghan

58%

1,043,927

65%

1,021,882

63%

964,533

20

North Tipperary

89%

211,714

82%

390,438

64%

1,517,791

21

Offaly

53%

590,896

36%

1,197,336

29%

2,360,511

22

Roscommon

27%

2,483,270

49%

2,162,067

57%

1,571,007

23

Sligo

40%

3,037,636

46%

3,400,667

47%

3,364,804

24

South Dublin

52%

6,516,081

51%

7,213,938

43%

8,763,742

25

South Tipperary

95%

135,636

93%

199,859

80%

614,978

26

Waterford

92%

139,568

92%

148,900

77%

459,742

27

Westmeath

72%

552,204

31%

1,623,395

42%

2,646,156

28

Wexford

55%

2,294,668

23%

10,763,926

27%

11,368,929

Wicklow

48%

945,007

23%

2,935,381

37%

2,816,501

29

City Councils 30

Cork City

86%

1,594,686

81%

1,763,543

78%

1,636,203

31

Dublin City

51%

17,333,535

49%

18,976,431

49%

21,373,541

32

Galway City

36%

3,335,399

52%

2,896,112

54%

3,173,645

33

Limerick City

78%

1,242,565

62%

2,686,985

69%

3,016,409

34

Waterford City

69%

811,337

56%

1,348,616

68%

92,056,269

8

129,910,535

1,380,934 151,748,973


31

Appendix 3 (contd.) Commercial Water Charges Collected9 Ref

Local Authority

Commercial Water

Commercial Water

Commercial Water

Charges Collected

Charges Collected

Charges Collected

2007

2008

2009

€

€

€

County Councils

32

1

Carlow

489,809

572,231

380,215

2

Cavan

761,759

845,752

1,674,130

3

Clare

3,340,592

2,829,392

2,810,005

4

Cork

15,829,615

23,623,552

20,485,257

5

Donegal

3,242,682

4,414,423

7,116,830

6

Fingal

12,420,456

13,451,815

13,852,784

7

Dun L-Rathdown

2,998,785

3,462,177

5,717,026

8

Galway

1,185,432

4,811,021

5,854,787

9

Kerry

7,078,085

7,466,602

7,194,857

10

Kildare

10,345,955

10,735,243

9,460,171

11

Kilkenny

1,655,153

2,218,010

3,078,004

12

Laois

1,351,451

1,614,509

2,443,817

13

Leitrim

612,805

367,496

463,350

14

Limerick

5,162,102

5,275,608

6,971,170

15

Longford

1,464,916

1,472,927

1,448,384

16

Louth

441,671

727,717

636,378

17

Mayo

3,827,587

3,043,442

5,706,226

18

Meath

1,557,398

1,116,750

2,222,330

19

Monaghan

1,419,543

1,937,814

1,621,274

20

North Tipperary

1,692,986

1,764,608

2,755,790

21

Offaly

665,217

673,939

974,574

22

Roscommon

912,285

2,082,477

2,053,756

23

Sligo

2,034,017

2,925,057

2,978,075

24

South Dublin

7,029,254

7,596,754

6,638,308

25

South Tipperary

2,587,309

2,819,838

2,483,150

26

Waterford

1,553,285

1,763,349

1,569,001

27

Westmeath

1,431,170

740,843

1,897,570

28

Wexford

2,810,978

3,185,757

4,130,028

29

Wicklow

861,725

870,039

1,640,848

City Councils 30

Cork City

10,063,143

7,515,292

5,830,559

31

Dublin City

17,912,710

18,516,590

20,214,658

32

Galway City

1,886,447

3,176,472

3,704,981

33

Limerick City

4,397,101

4,415,930

6,665,404

34

Waterford City

1,772,701

1,706,785

2,919,883

132,796,123

149,740,242

165,593,580

9


_____________________________________________________________________ Local Government Audit Service, VFM Unit

Appendix 4 Mortgage Loans Payable and Receivable at 31 December 200910 Mortage Loans

Mortgage Loans

Payable incl.

Receivable incl.

€

€

Carlow

8,548,044

8,524,388

Cavan

8,481,159

8,617,960

Clare

18,346,944

18,539,685

Cork

105,901,272

107,656,991

42,732,501

38,088,703

196,802,488

195,052,146

Dun L-Rathdown

32,181,873

17,070,721

Galway

34,314,567

35,204,875

Kerry

17,387,203

19,574,694

Kildare

53,274,429

65,383,450

Kilkenny

36,240,392

32,561,082

Laois

77,593,306

77,476,343

2,111,743

2,049,397

Limerick

13,981,927

14,645,208

Longford

14,030,954

16,119,211

Louth

4,967,018

3,527,312

Mayo

32,906,302

36,416,422

Meath

20,432,527

21,816,889

Monaghan

18,148,197

16,044,842

North Tipperary

8,968,595

9,009,277

Offaly

9,567,875

8,944,384

Roscommon

4,313,955

3,336,160

Sligo

18,085,257

14,969,914

South Dublin

80,556,416

79,617,851

South Tipperary

14,157,461

13,550,961

Waterford

15,829,509

16,053,655

Westmeath

36,763,022

37,449,595

Wexford

57,157,385

57,520,821

Wicklow

34,035,109

23,763,869

35,408,978

35,569,700

Dublin City

449,374,892

390,017,655

Galway City

28,403,715

23,567,046

Limerick City

9,516,625

10,048,211

Waterford City

36,673,741

38,127,622

1,577,195,381

1,495,917,041

County Councils

Donegal Fingal

Leitrim

City Councils Cork City

10

All figures shown relate to City and County Councils only _____________________________________________________________________ Local Government Audit Service, VFM Unit

33

Appendix 5 Appendix 5 Main Issues Highlighted in Auditors’ Reports Main Issues from Audit Reports

Authority

Subject

Cork City Council

Unfunded Capital The Council’s capital account Balances moved from a credit balance of €17m at beginning of year to a debit balance of €32m at year-end. A review of the account highlighted capital debit balances of €55.9m for which funding had not yet been secured. It is anticipated that application for government grants will be made for most of the balances. However, at least €12m will have to be funded from the revenue/capital account over the next few years.

34

Affordable Housing

The Council has 218 affordable units on hand and available for sale at end of 2009. The downturn in the housing market has affected the sales of the affordable houses. In the meantime the Council is using bridging loans to fund the cost of the units and continues to roll up the interest charge, which was €1.12m in 2009. Agreement has been reached with the Department of the Environment Heritage and Local Government to transfer 85 of the units to social leasing.


Manager’s Responses The more significant changes relate to Housing & Building, which moved from €24.4m debit to €63.4m debit reflecting the Council’s activities in the provision of Social/Affordable and Voluntary Housing. These debit balances will be funded over time from Central Government Allocations and sales of Affordable Houses. Internal capital receipts are available to be put towards the €12m referred to which will be supplemented by existing annual contributions from revenue.

Main Issues from Audit Reports

Manager’s Responses

Authority

Subject

Dublin City Council

Affordable Housing

Expenditure on Affordable Housing in 2009 amounted to €107m. There were 351 housing units on hand and available for sale at the end of 2009 and, although lower than the number reported last year (529) this is still significant, particularly given the current economic conditions.

Every effort has been made by Dublin City Council, in accordance with Circular Letter AHS1 2009 dated 7th April 2009 “Measures to Deal with Unsold Affordable Homes and Related Issues” to either sell the unsold affordable units or to utilise the alternative options set out in the Circular. The number of unsold affordable housing units currently on hand is 115 of which 91 are included in the pilot “Rent to Buy” Scheme that was launched on the 20th July.”

Commercial Water Charges

The collection of Commercial Water Charges remains low, being a yield of forty-nine percent (49%) of the total amount collectable. It appears unlikely that the debtors’ balance of €21m will be collected in full as some of the balances relate to previous years and some of the charges were raised in error. A review of these balances is currently in progress.

The process commenced in 2010 to examine aged debtors and ensure that historical balances and duplicate accounts are written off will be continued and should be finalised by year end. This exercise will ensure that remaining aged debtors are accurate and can be pursued. In addition, it provides certainty where disconnections are pursued that the outstanding balances are accurate and appropriate to the existing occupier.

Expenditure on Housing Capital projects accounts for over 60% of all capital expenditure in 2009. A number of issues, in relation to the accounting for housing capital projects, arose during the course of the audit. I have recommended that a comprehensive review of all housing capital accounts be carried out so that funding issues, where they exist, are identified and addressed.

The review of all housing capital costs centres, social, voluntary, affordable and regeneration has been completed. A monthly “Capital Cost Centres” review meeting regime has been set up to ensure that all issues that arise can be dealt with as quickly as possible.

Housing Capital Accounting

_____________________________________________________________________ Local Government Audit Service, VFM Unit

35

Authority

Galway City Council

Subject



Mortgage Funding Gap

The Mortgage-Funding gap, as shown in Note 13 to the Annual Financial Statement for 2009, amounted to €59m, compared to €43m in 2008. This represents the difference between the amounts due by borrowers to the council and the corresponding amount due by the council to financial institutions.

In order to eliminate the deficit and ensure that the deficit does not reoccur, controls and procedures for loan reconciliations have been reviewed. Borrowing approvals, both mortgage and nonmortgage, will be matched against the mortgagefunding gap during 2010 with a view to the elimination of the deficit in the shortest time frame possible. The funding gap has been reduced to €31m as at the end of July 2010.

Register of Lands and Buildings

The City Council has not registered title to €85.6 million worth of land, houses and buildings

A comprehensive procedure for registration of title to property assets is in place, and the Council is currently addressing an historical issue relating to the completion of registration of a number of properties which were acquired some years ago. In terms of value, the most significant properties [accounting for over €55 million] are City Hall, Sandy Road, and the Town Hall Theatre, all of which are in the possession of, and occupied by Galway City Council, together with Leisureland, which is managed by Galway Salthill Failte Ltd. In certain instances, the requirement is to amend the title documents, and this is under way at present. The appropriate registration arrangements for Leisureland are under consideration at the moment.

Mortgage Funding Gap

The City Council has a mortgage funding gap of €4.8 million at the end of 2009.

The process of reducing the historical funding gap is currently under way.

36


Authority

Main Issues from Audit Reports Unfunded Capital The City Council had an Balances adverse capital balance of €21 million at the end of 2009 and has identified capital balances of approximately €6 million, which will have to be funded from future revenue sources. Subject

Eyre Square Contract


The capital account is under ongoing review, and provision has been made in the 2011 budget to fund a portion of the historical adverse balances. It is expected that similar provision will be made in future budgets. A decision to overturn both The process of recovering the Arbitrator’s and the High the performance bond, and Court’s decision in relation to the legal costs awarded to the Eyre Square case was the Council by the given by the Supreme Court Supreme Court, is in March 2010. continuing.

Since this decision was issued, the Council has been engaged with the contractor, through both legal teams, in finding the most cost effective method to bring this case to a conclusion. The contractor provided a Bond of €1 million at the start of the project and this Bond, along with the legal costs awarded to the Council by the Supreme Court, needs to be resolved between the parties. Annual Report

Limerick City Council

The Council has not met its legal requirement to prepare and adopt an Annual Report for 2009.

The Annual Report for 2009 has been prepared and will be presented to the December meeting of the Council. Arrangements will be made to ensure that the Report for 2010 will be adopted by June of 2011. Unfunded Capital Included in the capital The capital account is Balances account balance are the reviewed by management combined net expenditure on a monthly basis. It balances of €20m on sixteen should be noted that there separate final contract has been a net accounts relating to the improvement in the Limerick City Main Drainage Capital Account at the end Scheme. In addition the of 2009 compared to 2008 Council is also awaiting which highlights the decisions on budget continuing efforts made by applications for a number of Limerick City Council staff non-contract items totalling to ensure outstanding final €1.95m. accounts and grant monies _____________________________________________________________________ Local Government Audit Service

37

Authority

Subject

Main Issues from Audit Reports It is important that all of the debit and credit balances within each of the capital programmes be evaluated and appropriate financing put in place. It is imperative that all outstanding final accounts on completed projects be obtained, agreed and forwarded to the appropriate grant aiding bodies for agreement on outstanding funding.

Revenue Collection Performance

38

Rates Collection The closing arrears increased by over €4.358m to €10.564m in 2009. It was noted that €8.25m by way of bad provision was made for these arrears. The collection yield of only 70% is a matter of concern. It is essential that a monthly age profile of the arrears due by revenue collectors’ districts be produced for management action and prioritisation.

Manager’s Responses are recouped. Such effort will continue during 2010. With regards to the outstanding balances for Limerick Main Drainage (LMD), it should be noted that final determination of the Water Pricing Policy which incorporates the calculation of Marginal Capital Cost (MCC) has not been finalised/ agreed by the Department of the Environment, Heritage and Local Government. The outcome of this determination may impact on the final funding decision with regards to LMD.

Management are aware of the need to collect monies due to Limerick City Council on a timely basis. Such a collection effort has become more difficult due to the impact of the economic downturn on the cash flow position of Limerick City Council’s ratepayers and other customers. This downturn has also resulted in significant vacancy of commercial properties in Commercial Water Collection the Limerick City Council The Council achieved an area. Every collection increase of 7% on the effort is being made to collection yield to 69% for ensure collection commercial water charges. percentages are However, this level of maximized, which will collection is far from include commencement of satisfactory. It is essential legal proceedings, and in that collection procedures be certain circumstances improved in this area, discontinuation of service. including recourse to legal proceedings.


Authority

Subject Internal Audit Resources

Fixed Assets Insurance

Waterford City Council

Loans Payable

Main Issues from Audit Reports Internal Audit is an independent appraisal function within an organisation, which operates as a service to management by reviewing and evaluating the operations of the internal control systems. There was no internal audit function in the Council from June 2009 to April 2010.


I can confirm that an internal auditor in now in place since April 2010 which was made possible by an internal transfer of staff. An internal staff transfer was the method used to fill this post due to the ongoing restrictions arising from the staffing moratorium in the public sector, and ongoing The local authority continues budgetary constraints. I to lack an adequate internal can confirm that the audit function in order to internal auditor has full carry out this work in an access to my office as efficient and effective required. manner. The non-availability of I note comment in relation insurance cover on the to this matter. I’m housing stock of the City satisfied with the current Council has been referred to arrangements in this area in previous audit reports. due to the cost of Management should address purchasing insurance this issue. cover. I will ensure this issue is kept under constant review to determine if a change in approach is required. During 2009, the Council All loans for water funded repayments on services have subsequently €11.7m of the asset loans been converted to an from its income and interest and capital basis. expenditure account. The The bridging funding was remaining loans comprised: drawn down to facilitate water services €4.5m on an the continuation and interest only basis, drawn in acceleration of the late 2009, and land loans of Council’s extensive regeneration and remedial €9m on a rolled up interest basis. housing programme and to fund resultant The new loans drawn down outstanding balances. This funding will be in late 2009 of €4.5m financed the construction of repaid. water treatment schemes. Further borrowing will be necessary to complete these schemes and will fall to be funded from water charges. Bridging loans of €14.6m were held on an interest only basis with the interest charges funded from capital housing annuities. _____________________________________________________________________ Local Government Audit Service

39

Authority

40

Main Issues from Audit Reports Unfunded Capital The Council’s construction Balances activity had significantly reduced with the main exception been the works on the Carrickphierish (Upper) housing scheme. At year end the programme recorded an unfavourable balance €9.1m which including a number of longstanding funding issues that remain to be addressed including: Subject

Manager’s Responses The unfavourable balances on the Housing Capital programme will reduce significantly by year end 2010 and this work will continue.

• The expenditure of €2.9m refers to additional necessary works (and) has been funded by and claimed from DOE. • €2.9m for housing • The €3.2m funding for refurbishment works that affordable houses has exceeded budget. been addressed and • €3.2m in respect of 15 will be fully funded unsold affordable houses through the Social and other additional Leasing scheme when works. the houses are • €1.8m for the purchase of completed in February land, without loans, for 2011. Only when future housing schemes. houses are occupied • €1.4m for the provision can the funding be of RAPID related facilities drawndown. at Manor St John. • The balance in respect • €0.6m in respect of of travellers refers to various Traveller the provision of a road accommodation to service a Traveller proposals. Group Housing • Funding of compensation Scheme and a future payments made to development site. This contractors for delay and will be funded from disruption on housing Council’s own schemes referred to in the resources. last audit report. • Funding on the Rapid facilities has been In addition, the Council clarified and the final holds almost €1m in respect grant will be paid over of grants and loans drawn in on completion of legal advance for voluntary formalities. schemes that have not • Compensation progressed payments made to contractors have been funded by the DOE. • The grants and loans drawndown in advance of schemes will be resolved in the context of overall funds due to the City Council.


Authority

Subject Revenue Collection Performance

Affordable Housing

Main Issues from Audit Reports The performance on the collection accounts were below those achieved the previous year with the exception of commercial water. Charges increased slightly to €32.46m. However, after waivers and the write off of uncollectable accounts of €1.6m, overall arrears increased to €4.77m. The increase in arrears was mainly attributable to housing rents and loans accounts which increased by €579,988.

In previous audits I have highlighted a number of instances where the Council had over a considerable period failed to effectively pursue or collect an estimated €1.5m in outstanding contributions from certain developers, despite the majority of the relevant developments

Manager’s Responses Whilst it is regrettable that arrears on some collection accounts have increased some slippage is inevitable in the light of current economic conditions. Customers are taking longer to pay. We are in continuous contact with clients, who are experiencing difficulties, with a view to coming up with revised sustainable payment schedules. Amounts outstanding in respect of some collections refer to historical balances. A review is being undertaken of these in order to assess their collectability. The collection rate on housing rents has been improving in recent years with a collection yield for the year 2009 of approximately 95% on current accruals. The apparent reduction in collection levels in 2009 is wholly attributable to historical arrears. This is now being addressed in the context of irrecoverable arrears. Arrears on housing loans are under constant review so as to achieve the optimum outcome for both customer and Council. With regard to the Part Vs and the Council’s capital housing programme the policy was focused on achieving Housing units from developers, which was the primary purpose of Part V, rather than cash contributions. Any amounts outstanding in this regard relate only to


41

Authority

Subject

Procurement / Tendering Procedures

42

Carlow County Planning and Council Corporate Governance

Main Issues from Audit Reports having been sold or privately rented. At the last audit I received management assurances that the financial contributions in lieu would be pursued. However, no effective action was taken by the Council until I again raised the matter at this audit. During 2009, the Council made significant payments to some of these developers without effectively addressing the collection of the outstanding accounts.

Manager’s Responses the small number of developments where the units are not suitable or sustainable for social and affordable housing. All these outstanding Part Vs are being pursued to achieve full equivalent monetary value including enforcement action through the Courts. All actions taken have been fully in accordance with our own legal advice.

In general, there is an obligation on local authorities to follow a competitive process, carried out in an open, objective and transparent manner. At previous audit, I have highlighted particular issues in respect of Council procurement practice and procedures for small contracts. A selection of contracts that were awarded in 2009 without a proper public procurement procedure been undertaken are set out in the audit report.

In the procurement process the City Council’s objective at all times is to achieve best value. Best practice and guidelines are in the main followed. However, it is, on occasion, in the best interests of the City Council to procure on the basis of experience in specific areas and availability of the consultant or contractor as well as local and regional knowledge. Our procurement processes are continually being assessed with a view to obtaining best value. Suppliers both local and others are encouraged to participate in the various tendering procedures.

Arising from my previous audit, the County Manager commissioned a report into these issues. He appointed an independent specialist planning consultant to review the whole planning administration. A report was issued in October 2010 to the County Manager which was subsequently presented to

I am committed to implementing the recommendations contained in the Corporate Governance Review which I received in October, 2010.


Authority

Subject

Main Issues from Audit Manager’s Responses Reports the members of Carlow County Council on the13 December 2010. In addition, the Minister for the Environment, Heritage and Local Government has issued a statement that he is to appoint planning consultants to review six planning authorities, one of which is Carlow County Council. An emphasis of matter paragraph has again been included in the audit opinion this year expressing my concern on these matters.

Land Purchase Loans

Legal Title to Land

I noted during my audit that the balance on loans for land acquisition is €8.7m, however the rolled up interest has now exceeded €1.2m. As a result, the Council is now incurring increased servicing costs for these loans. A number of these loans are close to expiry and my concern is that the loan value may now exceed the market value of the land.

Under the terms of circular SHIP 2010/09 Local authorities may transfer lands which are not currently required for their social housing program to Housing and Sustainable Communities Agency when the related land purchase loans mature. In December 2010 the Council sanctioned the transfer of 8.43 hectares with outstanding loans including rolled up interest of € 2.034 million. It is the intention of the Council to transfer additional lands as the related land purchase loans mature in future years

It was noted at audit that a question arose as to the legal ownership of the Pound at Borris. However not withstanding the fact that this land was used as a Pound, the Council following legal advice was unable to substantiate a case for adverse possession.

The area in question had not been used as a Pound since 1925 and an application for registration by the Council was rejected by the Land Registry in November 2008.


43

44

Main Issues from Audit Reports There was a reduction in income from rates, rent and annuities and housing loans, while the return from commercial water, though showing an improvement on the previous year is none the less quite low. The total collected in the year was stated at €13.5m and arrears at the year-end amounted to €4.2m.

Authority

Subject

Cavan County Council


Clare County Council

Unfunded Capital It is important that all of the Balances debit and credit balances within each of the capital programmes be evaluated and appropriate financing put in place or where set offs could take place. It is imperative that all outstanding final contract accounts on completed projects be obtained, agreed and forwarded to the appropriate grant aiding bodies for agreement on outstanding funding.

The capital account is reviewed by management on a regular basis both at an overall level and individually within each directorate. The auditor’s comments under this heading this year and previous years are noted and final accounts are reviewed promptly. The decrease in the capital account arises as we continued to honour contractual commitments on infrastructural projects primarily in roads and water services at a time when income from development contributions had declined significantly.


Management accept that the collection performances on water and waste water charges is unsatisfactory having decreased from a level of 65% in 2008. This decrease arises as a result of the continued rollout of the non – domestic water metering project in County Clare and the time delay experienced in the reading of an increased number of meters and issuing of bills to the customer. Every

The collection yield at 30% is most unsatisfactory, which gives rise to a significant increase in the closing arrears to €6.511m at year end.


Manager’s Responses The reduction in rates income reflects the serious downturn in economic activity in 2009 across a number of key sectors including hospitality sector, construction sector and motor sector. Whilst percentage collection in water has improved work is ongoing to further increase collection yield in 2010, this is proving quite challenging in the current economic environment.

Authority

Subject

Fraud

Land Purchase Loans


The previous audit report referred to the misappropriation of funds by an agent of the Council. These monies were repaid by the individual concerned and there were no loss to public funds. This matter was referred to An Garda Síochána.

Long-term loans raised for the purchase of land, including accumulated interest, amounted to approximately €9.651 million at 31 December 2009. The interest on these loans (2009: €821k) has not been charged to revenue but continues to increase the capital balance.

Manager’s Responses effort is made by Clare County Council to collect this income stream on a timely basis. We are at present reviewing our overall processes and structures in this area with a view to improving the level of customer service, timeliness and collection percentages. This misappropriation of funds by an agent of the council was identified and investigated internally by the Council in 2009 and resulted in repayment of the sum involved with no loss to the Council’s funds. This Council subsequently lodged a formal complaint to the Gardaí in late 2009 and a prosecution has been brought before the courts in 2010. We have no further update at this time as this case is ongoing. Loans of €9.6m have been drawn for the purpose of funding the purchase of lands for the construction of Local Authority housing. Department guidelines allow the interest on these loans to be rolled up and charged to the construction code. In 2010 specific updated Department guidance has been received in relation to the value of land purchased for future Local Authority Housing (SHIP 2010 /9 ). This has resulted in a detailed survey completed and this is available for review as part of the 2010 audit.


45

46

Authority

Subject

Cork County Council

Increase in Long Term Borrowings

Main Issues from Audit Manager’s Responses Reports In 2009, the Council funded €118m of its assets loans from the revenue account. The remaining balance of €107m comprises €47m borrowed in late 2009 and €60m of land loans that are held on a rolled up interest basis pending development of the land for housing. From 2010, the Council may have to fund a substantially higher proportion of its assets loans from the revenue account due to recent changes in the national accounting requirements for local authorities.

Review of Capital At the last audit I Account Balances recommended that a detailed review of the individual capital account balances be undertaken to clearly identify funding issues. The Council commenced work on this review in 2009, which included the consolidation of codes, transfer of reserves and an examination of funding ‘flags’ assigned to individual projects. The transfers of reserves included the reallocation of development contributions of €48m and other reserves of €31m. The reallocations were approved by the council members and Head of Finance respectively. Waste Management Financial Implications

In September 2010 the Council ceased providing a domestic waste collection service but retained a number of landfill and civic amenity sites. Council borrowings in respect of waste treatment amounted to €50m at year-end in addition to unfunded capital balances of almost €20m in respect of completed waste


Authority

Subject

Main Issues from Audit Reports infrastructure. Limited state grant aid may be available for some of the unfunded balances.


Bottlehill (Landfill) This facility was completed in 2007 and the final account was approved by the Council in 2009. A cost overrun of €6m was recorded on the construction element of the contract, mainly due to additional road works. Total project expenditure to date amounted to €45m, with some additional land acquisition costs yet to be finalised. The Council financed the facility from reserves of €6.5m and borrowings of €37m. Loan repayments were to be financed from gate fees. However, the facility has not opened to date and the loan repayments are funded from revenue account. Civic Amenity Sites The Council completed civic amenity sites in Mallow and Kanturk at a cost of €3.9m and €2.9m respectively. These facilities have been completed for some time but remain unopened.

47

Following the reallocation of staff as a result of the sale of the refuse collection service, Kanturk Civic Amenity Site opened on the 11th October 2010 and Mallow is due to open on the 26th October 2010.


Authority


Main Issues from Audit Reports The performance on the collection accounts was below those achieved the previous year. Overall charges levied decreased to €157m, while the write off of uncollectable accounts increased to €5.4m. Arrears also increased by €7.9m to close at €36m. The increase in arrears was mainly attributable to a €5m increase in rate arrears in the hospitality sector. Arrears increases of over 30% were recorded in respect of housing rents, loans and rates.


At the last audit I raised my concerns with management in relation to certain aspects of the Council’s adherence to proper public procurement procedures. I received acknowledgements and assurances that the matters raised would be addressed. At this audit, a review of revenue account expenditure again highlighted shortcomings in certain aspects of the Council’s procedures.

Affordable Housing

Included in the Council’s trade debtors was €159m in respect of the accumulated construction cost of its affordable houses for resale. Details presented at audit indicated that the Council’s stock of unsold affordable houses had increased by 20% to 573 at December 2009. The Council also has long standing arrangements in place for the imminent delivery of a significant number of additional houses. These deliveries are the subject of on-going negotiations with developers

48


Manager’s Responses Collecting all monies has increased in difficulty since 2008. The Council is encountering a genuine inability to pay in many circumstances. Every effort is being made in very difficult times to maximise collections while at the same time acknowledging the difficult financial position many of our customers are encountering.

Public Procurement is an area that Cork County Council is focusing on. In this regard the Council’s Internal Audit Section is carrying out a review. Procedures and practices will be examined to ensure compliance going forward.

Authority

Subject



To December 2009, the acquisitions were financed from borrowings of €144m and internal resources of €20m. A detailed reconciliation between the financial records and the affordable housing monthly management reports should be considered. The Council also has in place related arrangements with these developers for the provision of further social houses that are normally funded from state grants. Donegal Financial County Council Standing

The following matters are of concern in respect of the Council’s finances:

The financial standing figures in your report are noted. When the specific reserve credit balance of • There was a debit balance €2.24m is taken into of €12.89m (€13.00m in account the net debit 2008) on the income and balance of €12.89m is expenditure account at reduced to €10.65m. the end of 2009. Following discussions • The Council had net with the Department of current liabilities of the Environment, Heritage €37.64m at the end of and Local Government in 2009 (€29.89m in 2008). early 2010 it is proposed to • Loans payable by the request the sanction of the Council increased by Department of the €6.4m to €142.56m at 31 Environment, Heritage December 2009. and Local Government to • The Council had net set off the specific reserve unfunded project credit balance against the balances of €29.042m at general revenue reserve. 31 December 2009. The debit balance of €12.89m shows an improvement of €0.105m over the 2008 debit balance and 2009 represents the sixth year in succession that an improvement in the debit balance has been achieved. The debit balance has reduced by €3.453m over this 6-year period. This improvement could have been greater (€1.52m), however, a number of provisions were _____________________________________________________________________ Local Government Audit Service

49

Authority

Subject


Manager’s Responses made in respect of debtors taking into account the emerging economic environment at the time of completion of the Draft (Unaudited) AFS for 2009 (June 2010). The decrease of €9.667m in the bank overdraft in 2009 was attributable to timing and was mainly to do with the draw down of Water Services Loans in the sum of €9.940m that were approved by the Council in 2008 but not drawn down until 2009”. The major movements in relation to loans payable relates to the drawdown of mortgage related loans (Affordable Housing of €5.6m and Standard Annuity of €3.2m).

50

Unfunded Capital As recommended at previous Balances audits, the Council undertook a review of the accounting codes (caprev flags) associated with various capital projects, in particular those resulting in the creation of fixed assets. As a result of this review, a total of 129 projects previously flagged as being funded were reclassified as unfunded, increasing the net unfunded balances on projects to €29.042m at 31 December 2009 (€12.14m in 2008).

Due to the various funding methods used by the Council, there can be substantial timing differences in the recognition of project related income.

It came to notice during the audit that an account code included in the capital account described as ‘Disposal of Assets’, which should only be used for the purposes of recording receipts from the sale of fixed assets had a debit balance of

The net unfunded project balances of €29.042m are in respect of balances on completed asset codes and balances on capital codes, not resulting in assets, for which funding has yet to be identified. A detailed examination of Caprev


Capital balances deteriorated by €5 million net in the financial year ended 31st December 2009. Over one thousand projects had expenditure and income attributable to them in that year.

Authority

Subject

Main Issues from Audit Reports €4.209m at the end of 2009. A further account code used for recording receipts and expenditure in respect of the sale and purchase of land contained a debit balance of €6.640m at the end of 2009.

Manager’s Responses flags was undertaken in 2009 resulting in 129 projects, previously flagged as being funded, being reclassified as unfunded due to the uncertainty in respect of all the funding being available. The projects were mainly in the following areas: Marine (31), Water Services (23), Community and Enterprise (17), Planning (8) and Fire Services (8). The debit balance of €4.209m on the capital account described as ‘Disposal of Assets’ is attributable to the decision to redeem high interest rate loans in 2007 on the basis that the redemptions would be funded from the disposal of surplus assets at a future date. The disposal of these surplus assets has not transpired due to the current economic environment, however the income from any surplus assets disposed of is credited to this account on an ongoing basis. The debit balance on the sale and purchase of land is as a result of the redemption of Land Acquisition Loans (€11.8m) over a number of years. As in the case of the ‘Disposal of Assets’ balance this debit balance will be funded from the use of the lands or possibly some disposals as well.


51

Authority

Main Issues from Audit Reports Borrowing/Use of The issue of mortgages Mortgage Loans receivable / borrowed by the Council should be reviewed. Mortgage loans borrowed by the Council should be matched as far as possible in terms of maturity periods and interest rates payable, to the corresponding loans lent on by the Council to borrowers. Subject

Upgrading of Revenue Collectors

52

There is a national salary scale for the post of Revenue Collector. The Revenue Collectors in this local authority were upgraded in October 2005, (the pay was backdated to March 2002). An increase in travelling allowances from 17.5% to 22.5% of their new gross basic pay was also awarded with effect from 1 May 2005. The Council should have obtained Departmental approval for this deviation from the national pay scales / continued payment of travelling allowance. Despite being informed at previous audits by management that they would seek approval from the Department to this upgrading, this approval was never sought. An agreement was reached with the Department to effect this upgrading as and from 1 July 2009 in return for


Manager’s Responses A comprehensive review of all the headings making up Mortgage Loans Funding was carried out in the Finance Directorate during 2010. Reconciliations were done under all relevant headings including all monies borrowed / lent in respect of Affordable Housing and options are presently being considered in the context of how the resultant deficit can be addressed. It is proposed that all future borrowings are matched as far as possible in terms of maturity periods and interest rates payable. A letter has since been sent by the Council to the Department of the Environment, Heritage and Local Government seeking retrospective sanction for the upgrading of Revenue Collectors in the Council for the period March 2002 to July 2009 and the continued payment / increase in travelling allowances during this period also.

Authority

Subject

Fixed Assets Insurance

Dun Laoghaire Financial Rathdown Standing County Council


Main Issues from Audit Manager’s Responses Reports complying with certain conditions. The cost to the Council of this upgrading from March 2002 to 1 July 2009 (the period for which there was no Department approval) was approximately €900,000. It has been highlighted at previous audits that procedures relating to the insuring of fixed assets are weak. It was noted again at this audit that fixed assets additions in 2009 amounting to €3.313m were not insured.

We are currently reviewing this matter with a view to having a more systematic way of identifying new assets that need to be insured and it is proposed to do this through the Asset Management Group that has been established.

The Council had bank investments of €134m at the 31 December 2009 and these included refundable deposits of €4.5m. This is a big decrease from the amount of €179m at the 31 December 2008. There was cash in transit of €1m but these are really outstanding lodgements and should be treated as such in the bank reconciliation. However, the Council also had a bank overdraft of €2.5m at this time. The collection of commercial water charges improved slightly in 2009 but still remains very unsatisfactory. The management of this collection must be improved.

53

From 2006 to 2008 during the course of the installation of the water meters and the implementation of the Agresso Billing system, there were significant year on year increases in arrears. The water metering project led to an increase in customer queries while customers adapted to the new system of charging. Priority at this time was given to resolving customer issues and issuing invoices.


Authority

Subject


Manager’s Responses On examination of payments received on bills it would appear that current charges are being paid e.g. of the bills payable in 2009 - 80% of the current charges on the bills have been paid. Detailed analysis of the arrears is currently underway with a view to taking appropriate action regarding arrears outstanding. During 2009 process improvements were introduced which have had a significant impact on stabilising the end of year arrears figure

Affordable Housing

54

The Council has 158 affordable units on hand and available for sale at end of 2009. The downturn in the housing market has affected the sales of the affordable houses. Every effort should now be made to maximise housing unit sales while ensuring that the Council receives the best available value for the properties sold. The proposed sale price in all cases is at a substantial discount as compared to the acquisition price. Agreement has been reached with the Department of the Environment, Heritage and Local Government to transfer 14 of the units to social leasing.

Cherrywood Science and Technology Park

In 1997, the Council entered into a joint venture agreement with two other companies to develop a site at Loughlinstown as a Science and Technology Park. As at the end of 2008 the Council had a one-third share of expenditure and income of the joint venture.


I have forwarded to you a copy of a detailed report, which I presented to the December 2009 meeting of the Council that covers among other things the background to the JV, the legal proceedings and details of the proposed Settlement Agreement.

Authority

Subject

Main Issues from Audit Reports In the years before 2006 the Council received statements from the other partners in the joint venture showing the expenditure and income for certain periods. These statements were periodically sent to the Council but not on a consistent timely basis and no proper financial accounts were drawn up for the joint venture before 2006. In my previous audit reports, I expressed concern over the validity of the figures coming from the joint venture partners. The accounts of the joint venture were then audited by a firm of accountants for the period 2006 onwards. The Council have now cumulatively reconciled the figures per these statements with the figures in the Council’s accounts per the Agresso system.

Manager’s Responses In February 2009 I informed Councillors that the Cherrywood JV, which had been due to expire on 31 December 2008, was being extended to 30 June 2009. I also advised the Councillors that I had appointed Mr Derek Brady, former County Manager, to consider the Council’s options in relation to the JV Agreement.

I considered that Mr Brady was especially well qualified to undertake this work given his knowledge of the JV and his unique background in both the local authority and property development sectors. Mr Brady, who reported directly to me, oversaw the Council’s involvement with the JV from February 2009. This In 2009, the Joint Venture included the management agreement was terminated of the legal proceedings and the Council instituted and the mediation process. legal proceedings to protect Mr Brady was assisted by its investment in the Optimum Asset Managers Cherrywood Science and and Amory Solicitors. Technology Park. A draft From time to time Counsel agreement in relation to these and other expert opinion proceedings had been was sought. Mr Brady and reached between the parties other members of his team on a proposed settlement as reported to me on a at the end of 2009. regular basis. An agreement was signed by the Council in June 2010 following mediation with the other parties, namely, Cherrywood Science and Technology Park, Bank of Scotland, AIB and NIB. The main items in the agreement that the Council (through its subsidiary company, DLR

In relation to the matter of value for money, I sent a memo on 30 November 2009 to the Chief Valuer, Dublin City Council giving him details of the proposed Settlement Agreement, asking him to assess the value of the land and buildings being transferred to the Council and seeking any other


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Authority

Subject

Main Issues from Audit Reports Properties Limited) is to receive are as follows:


comments he wished to make on the Agreement. (The Chief Valuer, Dublin Unencumbered (i) City Council provides freehold title to four valuation services for Dun plots of land marked Laoghaire Rathdown respectively Lots 1,2,3 County Council). The and 6. Chief Valuer responded on (ii) Unencumbered title to 3 December 2009. He by way of a 10,000 year estimated the value of the lease to office Block buildings and land to be AA. transferred to the Council (iii) Unencumbered title to at €60.1m. He commented by way of a 10,000 year on the Settlement as lease to office Block G2. follows: I enquired from the County Manager how the Council had ensured that it had obtained Value for Money in this matter, and whether separate independent legal, financial and valuation advice had been obtained in respect of this complex transaction. 56

The accounts of DLR Properties Limited will have to be consolidated with the Council’s accounts in 2010 in accordance with the requirements of the Department of the Environment, Heritage and Local Government’s accounting code of practice.


“In addition, I find the quantum and capital value of the buildings and lands to be transferred to the Council under the terms of the proposed Settlement Agreement, to be a fair and reasonable resolution and outcome in the difficult circumstances (including potential exposure and risks to the Council) that pertained in this case.” The gross investment by the Council in the JV over an 11-year period was €59.4m. Under the Settlement Agreement the Council exited the JV with assets of €60.1m (valued at 3 December 2009). The Council also received €15m over the period of the JV in respect of its share of the rents on JV properties. Given the collapse in the property market and the risks to the Council as a consequence of the financial difficulties of our JV partner I believe the outcome was very satisfactory from the Council’s perspective and represented value for money for the Council.

Authority Fingal County Council

Main Issues from Audit Reports Unfunded Capital At the year-end unfunded Balances project and non-project balances amounted to €124.39 million (€121.88 million in 2008) see Note 11 in the AFS. Subject

Manager’s Responses The bulk of the unfunded project balances of €64.1m relate to acquisition costs of industrial, housing and school lands. These lands represent a valuable asset to the Council. The lands are strategically located so that the Council will be in a position to avail of an upturn in the economy. The debit balance will be funded from the eventual sales of these and other lands in council ownership, when market conditions improve.

Affordable Housing

At 31 December 2009, the Council had 141 affordable housing units available for sale. In addition to the affordable units the Council also had 276 affordable units available for rent under various Department approved schemes.

In 2009 and previous years Local Authorities were encouraged to act proactively in relation to the acquisition and provision of Affordable Housing. This Council has performed very well in relation to containing the potential liability arising The Council funds the from purchase agreements which it was obliged to purchase/construction of affordable housing units by make, at Planning means of bridging finance Permission Stage ( in borrowed from the Housing accordance with the Part V Finance Agency, pending the of the Planning & sale of the units. The balance Development Act 2000) on bridging loans at the year- and in furtherance of the end was €111.71 million. said Government Policy, some 2 years before the The net effect of the above is economic downturn. that the Council is facing a bridging finance debt with There is no doubt that the questionable prospects of downturn in the economy selling the properties to and particularly in the enable the Council redeem housing sector has the bridging loans in view of impacted significantly on the current economic climate. the Council’s ability to dispose of its affordable housing stock. It is a concern and something we have addressed and are


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Subject


Manager’s Responses continuing to address in collaboration with Central Government. It should be noted, that despite the difficulties in the market place the Council continues to sell units. Over 300 units were sold in 2009.


The reduction in the yield from rates is of concern as income from this source represents 48% of the Council’s total revenue Income. Debtors for commercial rates increased from €6.3 million at 31 December 2008 to €15.3 million at the year-end. The Council has increased its bad debts provision in respect of rates by €5.5 million in 2009. The debtors for commercial water charges at 31 December 2009 is €7.1m, an increase of 26.8% over the amount due at 31 December 2008 of €5.6m.

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Galway County Financial Council Standing

The Council will need to continue to implement strict budgetary controls to ensure that budgeted expenditure and income targets are achieved in the more financially difficult times ahead. Loans payable have increased by €18m in 2009. Loans of €24m were taken out in the year, while repayments of €5m were made on the principal amount of loans during the year and another €1m was redeemed early.


With a major reduction in credit availability and shrinking cash flows available to the business community it is proving difficult to collect our commercial rates and water. As a result there is a significant reduction year on year in income collection of 7% in respect of rates and 5% in respect of commercial water specifically related to the economic downturn. This trend continues into 2010. In the meantime every effort continues to be made to improve collection performance. Fingal County Council has a policy of vigorously pursuing all debts. The Council has managed, despite depleting resources to maintain its financial position in a reasonably good position. Prudent financial management, together with a focus on recouping outstanding monies due to the council, supplemented by borrowing to address difficulties on the Capital account has ensured that the Council has managed to minimise the deterioration in the Councils financial position.

Authority

Subject

Main Issues from Audit Reports Borrowings of €19m were taken out to fund long term water capital projects, loans of €2.5m were used as bridging finance for affordable houses and €1.5m was used to fund voluntary housing schemes. It should be noted that in 2010 further loans in excess of €7m have been taken out to fund long term water capital projects. As was pointed out by the Manager in the 2008 report, the servicing of these loans has put pressure on the finances of the Council. This pressure will increase over the coming years with the additional loans taken out in 2010. The Council will have to manage their finances in such a way as to allow for the ever increasing debt burden in their revenue account.


Manager’s Responses Council note the increased debt burden being placed on the revenue account arising from the borrowing requirement to fund Council’s contribution towards the cost of water services capital infrastructure. The current water pricing policy typically requires the Council to fund between 25% and 40% of the capital cost, which, with development contributions having declined significantly in recent years, can only be funded by borrowing. In light of the increasing debt burden the Council have restructured their water services borrowing from 20 years to 35 years but recognise that if the current funding structure is not changed then the provision of future infrastructure may well become unaffordable for the Council.

With the exception of commercial water, all other collections showed a slippage in 2009. Although it is clear that this slippage is as a result of the downturn in the economy, nevertheless there are some individual accounts that require attention. It is noted that closing arrears of rates have gone from €1.9m in 2008 to €4.1m in 2009.

We acknowledge the slippage in collection performance in 2009 which, as acknowledged above, is a direct consequence of the changed economic conditions we now find ourselves in. We have established an income collection unit which will focus on the area of income collection and have engaged with our While the commercial water customers in an effort to collection percentage remains facilitate their cash flow weak at 56% it is situations through the acknowledged that this provision of phased collection has shown a payment agreements, etc. consistent increase over the We will continue to work last few years. This increase on clearing the arrears and


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Subject

Development Contributions

60

Main Issues from Audit Reports must continue until the collection percentage is reasonable.

Following on the introduction of the PDC system some issues have been identified that may need to be raised with the Local Government Computer Services Board (LGCSB). These relate to the layout of an invoice where there are multiple properties, the issue of statements for customers and the quality and lack of reports available from the new system. In 2009 development contributions amounting to €12.1m (€17.6m in 2008) were used to finance various works and balances on completed schemes.

Manager’s Responses will use all remedies available to us including the issuing and enforcement of legal proceedings where required. We acknowledge the improvement in the area of commercial water and continue to work with our agent at improving this collection. Significant progress has been made in 2009 in improving the accounting for development contributions, with the implementation of the PDC system and work will continue in 2010. However, the contribution that this source of funding will make to the Council’s financial requirements has diminished dramatically and this situation is likely to continue for the foreseeable future.

Development contributions are accounted for in the capital account and do not affect the revenue deficit or surplus for the year. Kerry County Council

Income and Expenditure chargeability

Audit tests identified transactions, net value €2.7m, which have been accounted for in the capital account and specific revenue reserve, which in my opinion should have been charged to revenue. Reflecting the above transactions correctly in revenue would have created a revenue deficit in 2009,


My response hereunder refers to the matters in the order in which they are raised. Revenue Account Chargeability – General Firstly, I have received legal opinion confirming the correctness of the Council’s position

Authority

Subject

Main Issues from Audit Reports eliminated the general reserve brought forward of €1.9m, and resulted in a general revenue deficit going forward.


regarding the chargeability of the in-house Water Services Planning and Design Team costs to the Development Contributions Income – An emphasis of matter copy attached as per paragraph has been included Appendix A. Therefore the in my audit opinion €1.1m is properly expressing my concern. chargeable to Development The transactions are: Contributions as the Council has done. • €2m staff payroll and associated costs, Secondly, an analysis of including travel and the capital account clearly subsistence, charged to shows that the housing capital without overheads expenditure has Department of the been a capital charge for Environment, Heritage several years past and and Local Government funded within capital from (the Department) capital housing grant approval. €1.1m relates assignments. Your to water services incorrect analysis of the investment programme Council’s accounts as set (WSIP) and €0.9m relates out in your email of 14 to housing. April that ‘the Housing Overheads payroll and • €190k plant and associated costs including machinery and stores travel and subsistence losses charged to capital referred to, have been funded by revenue • €217k included as a transfer for the past receipt in revenue to number of years as per fund loan charges for the analysis of the capital relief road from code” makes your position “anticipated future” on this matter untenable development and as a corollary upholds contributions receipts the correctness of the arising from An Council’s position. Daingean Relief Road Accordingly then, the sum and car park of €0.9m is properly supplementary scheme. chargeable to capital. This has created a deficit in the capital account, Therefore, and which may be notwithstanding any other unsustainable. considerations, your stated net value of €2.7m., as • €280k bad debt provision mentioned earlier, is not correct and allowing for for property entry levy the €1.1m attributable to (PEL) and fire debtors, the Water Services Capital charged against the specific revenue reserve. Team, and the €0.9m for _____________________________________________________________________ Local Government Audit Service

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Authority

Subject

Main Issues from Audit Reports This charge should have been made against revenue. Although the council undertakes a significant programme of capital works under WSIP, without Departmental budgetary approval, the payroll and associated costs should be a revenue charge. The Council has stated that, under the terms of their scheme, the WSIP costs of €1.1m are properly chargeable to development contributions. To clarify matters in this regard, I would urge the Council to obtain legal advice on the matter. I will examine this matter at my next audit. In all other matters referred to above, under article 24 of the Local Government (Financial Procedures and Audit) Regulations 2002, I have directed that correction be made to the income and expenditure account through the annual financial statement 2010.

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I note that an amount of €600k approved in 2008 towards the 2009 budget was retained in the 2009 capital account for use in the 2010 budget, following member approval. I also note that members were advised that the money was not needed in 2009. The Council should consider whether the level of approved transfers to capital as set out in Note 15, €5.9m in 2009 (€7.5m in 2008) is sustainable going forward, in the light of the deteriorating

Manager’s Responses the Housing Capital Overheads, the remaining balance of €0.7m is much less than the general reserve at 31st December 2009 and, so, your opening statement above does not reflect the actual financial position. On that basis, your draft emphasis of matter paragraph is not correct either as the general reserve brought forward is not eliminated and does not result in a general revenue deficit going forward. In any event, I totally reject your hypothesis that a revenue account deficit could have occurred in 2009 even on the basis of the remaining figures you set out and which I dispute in any event in later paragraphs. Apart from the actual loan/lease charges of €1.9m, the balance of the transfers amounting to approx. €5.9m was discretionary – Par. 3.4.12 of the Accounting Code of Practice, December 2009, refers. There was therefore considerable scope available within revenue income for coping with many eventualities including the €0.7m remaining in your hypothesis had we believed the need to do so. Before any transfer was made to reserves for the purposes of AFS 2009, full account was taken of the impact on the revenue account balance, as is the required accounting code. In addition, there is a sum of €1.9m available to the


Authority

Subject

Main Issues from Audit Reports position on its revenue account.

Manager’s Responses Revenue Account from the “Historical Opening Mortgage Funding Surplus” (note 11 AFS 2009) in accordance with the DoEHLG deaggregation rules. Both the Elected Members and the executive here have taken many very tough work programme and financial decisions in the interests of balanced budgetary management over very many years. A number of comparable Councils have significant Revenue Account debit balances and others have converted revenue debit balances into term loans and both of which this Council has avoided through prudent management both at Elected Member and executive levels. Accordingly, then, this Council is well able to manage its affairs and in such circumstances I do not understand the grounds for an emphasis of matter paragraph. Furthermore, I am very surprised at your intention to include an emphasis of matter paragraph as you did not mention it at any one of our meetings held on 17 December, 9 February and 4 March and the first indication of it was in your third Draft Audit Report issued on 30 March and which was issued before the meeting with the Head of Finance and Financial/ Management Accountant on 31st March.


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Subject


Manager’s Responses €2m staff payroll and associated costs The allocation of €1.1m of development contributions for payroll and associated costs mentioned is in respect of the in-house Water Services Planning and Design Team based in Castleisland. That team is deployed solely on the work for the delivery of new water and waste water schemes and the upgrading of existing schemes and is advancing capital works valued in the region of €110m. The team is integral to the delivery of the water services capital programme which is a Government national priority. The expenditure on this team and related costs are clearly for capital purposes and, so, are properly chargeable to development contributions pursuant to S48 of the Planning and Development Act, 2000, (as amended) and are not in contravention of DoEHLG Circular PD4/2003. Previous Local Government Auditors have reviewed this matter and have not raised any issue with it given the circumstances outlined as evidenced by previous Local Government Audit Reports. As mentioned above, I have received legal advice confirming the eligibility of this expenditure as capital for the purpose of chargeability to the development contributions.

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Authority

Subject


Manager’s Responses The amount of €0.9m mentioned relates to housing capital overheads. The sum represents advance design/ preliminary work on the social housing capital programme mainly and has been properly charged to capital expenditure. Historically for very many years past, these costs have been funded by DoEHLG through the Social Housing Investment Plan capital allocation and our accounting records clearly show they have not been funded by revenue transfer. In 2009, for the first time, a contribution of €200,000 was made from the Revenue Account in recompense for work carried out by staff of the Housing Capital Unit on the Housing Aids for the Elderly and Housing Adaptation Grant Schemes. However, with the change in public policy on the provision of social housing, some of the schemes are unlikely to now proceed and some will proceed to construction, of course. We are exploring opportunities for funding this balance from various sources and examining the possibilities o+f grant funding as has happened with water services legacy schemes (DoEHLG Cir. L4/10). The advance capital expenditure on housing is no different from the advance capital expenditure on water schemes or road schemes which, for any one of a variety of reasons, do not


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Subject


Manager’s Responses proceed. Such expenditure continues to be capital expenditure and funding sources are identified over time. The availability of funding does not change in intrinsic purpose, nature and classification of the expenditure. Plant and Machinery and Stores For very many years Kerry County Council has managed these accounts within the Capital Account arising from a proposal of a former local government auditor here. This practice is a good one in that it keeps a sharp focus on the net position on a multi-annual basis. In that way timely corrective action on any structural changes required can be identified promptly. Kerry County Council was amongst the earliest group of local authorities to move to the Balance Sheet AFS format and has continued the accounting treatment following contact with the DoEHLG at that time. These accounts are monitored regularly and the Council does not intend to allow any unsustainable debit balances to develop taking one year with another. In any event, the Council is reviewing extensively its Machinery Operations Programme at the present time. A summary of the accounts from the Capital Account will be included in note 14 in the coming years.

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Authority

Subject


Manager’s Responses An Daingean Relief Road Pursuant to Section 49 of the Planning and Development Act, 2000, the Elected Council has adopted a supplementary development contribution scheme specifically for the purposes of providing a relief road and associated coach park at An Daingean. The scheme provides that it “shall remain in force until such time as the cost of the infrastructural project (An Daingean Relief Road and Associated Coach Park) is fully recovered”, and, so, accordingly, no revenue budget contribution is envisaged under the Scheme. The Council’s treatment of the expenditure as we have done is giving effect to that decision of the Elected Council. We will be monitoring carefully the creation of any likely unsustainable deficit with a view to returning to the Elected Council for further decision. This will be further reviewed in the context of the Council’s budget for 2012. €280,000 Bad Debt Provision Given the extent of the AGRESSO Miscellaneous Billing in Kerry, the Council is in compliance with Fin.21/2002 (Par. 3.4 and Par. 5) in respect of the debtors mentioned. I am very surprised at your intended direction under Article 24 of the Local Government (Financial Procedures and


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Subject


Manager’s Responses Audit) Regulations, as there had been no indication or mention of such direction until I received your third Draft Audit Report on 30th March and even though you issued a first Draft Audit Report as far back as 17th December. Also, you did not mention it at any one of our meetings held on 17 December, 9 February and 4 March. I am now responding to your fifth Draft Audit Report. Your inclusion of the intended direction without any prior discussion or indication is unfair and contrary to accepted practices. In my opinion, the items mentioned do not come within the meaning of Article 24 in view of the details outlined.

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Revenue Account – General As mentioned earlier, both the Elected Members and the executive here have taken many very tough work programme and financial decisions in the interests of balanced budgetary management over very many years. A number of comparable Councils have significant Revenue Account debit balances and others have converted revenue debit balances into term loans


Authority

Subject


Manager’s Responses and both of which this Council has avoided through prudent management at both elected member and executive levels. Regard needs to be given to that. End – Manager’s Response Auditor Comment: The direction to change was included in my first draft report in December. The Council made no objection to it at that time. My audit opinion was finalised following clarification given by the Council on the 2009 approved discretionary transfers.

Council Land Assets

Previous audit reports have highlighted the need to reconcile the Council’s Fixed Asset Register (FAR) with the subsidiary records for land and fleet records. Progress in this regard has been slow. The Council has identified a number of land holdings, where title has not been properly established. In 2009, two plots of land were lost to the Council due to adverse possession.

Substantial progress has been made on the necessary validation and verification of the land holdings; however, this is a time consuming task in a sizeable county such as Kerry and is taking some time to complete owing to the size of our assets and land portfolios and competing needs at a time of reducing staff numbers and ever increasing service expectations and demands against reducing budgets. Work will continue to complete the relevant validation and verification as quickly as circumstances allow. There were particular historical circumstances attached to the two adverse possession cases mentioned.


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Authority

Subject Development of Internal Audit

Main Issues from Audit Reports I have placed reliance upon the work of Internal Audit for the purpose of my audit. I have recommended to the Audit Committee, that Internal Audit, undertake a look-back review of their strategy, annual plans, audit assignment days and audit reports. Previous audits have identified shortcomings in the staffing and reporting structure of internal audit in the Council. In 2009 the Head of Internal Audit spent 40% of her time on nonaudit work. This is not satisfactory.

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Kildare County Revenue Account Council Balance

Superannuation Register

The Income & Expenditure Account showed a surplus of €0.77m, which reduced the closing deficit to €4.88m. The Council will need to continue to implement strict budgetary controls to ensure that the trend of the last six years of reducing the deficit continues over the coming years. The superannuation register has not been kept up to date since 2003. The council is currently installing a new HR system, which incorporates a module for superannuation.


Manager’s Responses In the past, I have set out my position in relation to Internal Audit and the competing demands, pressures and expectations I, as County Manager, deal with in the allocation of resources, both staffing and financial. The overall position has even become more demanding due to reduced budgets and loss of staff owing to the public sector moratorium. While I fully appreciate and support the role of Internal Audit, I must secure the delivery of the Council’s core statutory functions, as well, and balance the needs of all. The challenge for the future is the retention of the existing resources in Internal Audit as far as possible rather than the allocation of any additional resources. It is intended to continue the reduction of the revenue deficit until the adverse balance is cleared. The pace at which this is achieved will be dictated by financial circumstances.

Authority

Subject Register of Lands and Buildings

Kilkenny Overruns on County Council Capital Projects

Main Issues from Audit Manager’s Responses Reports In previous audits I reported that there was no overall register of lands available in the Council and that the individual departments managed their own property portfolios. The Council commenced work on a new system called property interest register (PIR) in 2008 and at time of audit the work was still in progress. The M9 motorway from Waterford to Knocktopher exceeded tender price by €31.7m. This represents an increase of 26% on the agreed tender contract price. The Kilkenny Ring Road exceeded tender price by €9.6m. This represents an increase of 65% on the original agreed tender price.

The contractor on the M9 Phase 2 submitted twenty nine claims for additional payments in the course of carrying out the contracted works. The main claim centred on what the contractor alleges were delays and serious cost consequences as a result of delays in consents from Iarnroid Eireann and delay in possession of the Knockmoylan rail crossing site. The claims were heard through a conciliation process in front of an agreed conciliator. The contractor did not accept his findings and as a result moved towards arbitration. This did not take place and ultimately the claim was settled through direct negotiation between the contractor and the National Roads Authority. The original contract (for the ring road) entered into in 2005 was under the old form of contract. This was awarded on the lowest price criteria. During the course of the works the contractor experienced significant delays and programme impediments culminating in a supplemental agreement


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Authority

Subject


Manager’s Responses in December 2006, which led to a revised, fixed price contract. Not withstanding this the contractor lodged more claims for additional costs incurred citing losses pre and post supplemental agreement. The claims were adjudicated in June 2010 before an agreed conciliator. An additional €3.8 million was awarded by the conciliator to settle the claim.


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Laois County Council

Pursuant to the EU Directive on procurement, it is incumbent on the Council to ensure that its expenditure on services, supplies and works comply with this directive. I note that procurement is now the responsibility of a Director of Service and that a team has been established to direct and coordinate the Council’s procurement activity.

Unfunded Capital Included in other balances Balances are a number of unfunded capital projects, the balances on which totalled €12.3m at the end of 2009. I have been advised that some of this will be funded by development contributions and in the case of the machinery yard, by depreciation, and some by transfer from Revenue at yearly budget time. A full review of all unfunded schemes should now be undertaken to determine the likely impact on the Council’s financial resources.


A full review of all unfunded schemes at the 31st December 2009 will be undertaken to determine the likely impact on the Council’s financial resources

Authority

Subject Financial Standing

Leitrim County Classification of Council expenditure


Main Issues from Audit Manager’s Responses Reports The bank investments have decreased from €8.4m to €2.5m and the bank overdraft has increased from €4.4m to €11.2m. This together with cash in transit makes an overall decrease in the cash position from 2008 as being €12.7m. A sum of €514k has been classified in the balance sheet as capital expenditure. An analysis of this indicates that it relates to revenue type expenditure that was wrongly charged as capital expenditure. This sum should be recharged to the revenue account.

Significant deviations from Procurement / Tendering Procedures were noted in several instances relating to the purchase of goods and services.

Historically technical and engineering salaries for Housing Schemes were charged to the capital jobs to which they relate in line with Department Guidelines. The changed economic circumstances has reduced funding, therefore, reducing the capacity to absorb these costs. Leitrim County Council is not currently in a position to charge these costs to the Revenue Account in a single year. The process of absorbing these costs over a 5 year period has commenced with 1/5th being charged in 2009. All but one salary cost is now being charged directly to the Revenue account in 2010 so this situation is unlikely to arise in the future. The issues raised have been reviewed and recommendations taken on board. Work on developing and improving procurement procedures is ongoing and a training programme will commence in the Autumn.


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Authority

Subject Bad Debt Provision

Main Issues from Audit Reports An emphasis of matter paragraph has been included in the accounts in respect of the level of bad debt provision relating to debtors as detailed in Appendix 7 of the AFS. The bad debt provision relating to development contribution debtors has been increased by €426k as a result of the 2009 audit, and the accounts have been adjusted accordingly.

Limerick Revenue County Council Collection Performance

The level of collection for rates has deteriorated. All revenue collections require close monitoring to ensure that substantial arrears are not accumulated.

Longford Revenue Account County Council Balance

The account recorded an adverse closing balance for the first time in many years. This was partly due to the economic downturn, which occasioned a shortfall in income from rates, water services and planning fees. In addition increased expenditure was incurred in respect of superannuation arising from early retirement of senior officials.

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Manager’s Responses Provision for vacant premises in Rates is included as a separate figure in the Revenue account and would therefore not appear as a bad debt provision. This figure relates to water and rents only.

In the current economic climate, monitoring and maximising revenue collected is a high priority.

2009 proved a difficult year for the reasons stated. A deficit of €0.5 million had been anticipated in the 2009 budget. The likely outturn for 2009 was advised to the Members during the preparation of the 2010 budget. In order to start clearing this deficit the Council budgeted for a surplus in 2010 of €225,000. Expenditure and Income returns are constantly under review in the current year with the overall objective of achieving a reduction in the accumulated deficit. There was a reduction in The Management Team is income from all revenue working to address this sources from the previous issue. It is planned to set year, with the return from up a new Income commercial water charges Generation Unit by being particularly redeploying staff with disappointing. The total appropriate skills to focus outstanding on the collection exclusively on income accounts at the year-end was collections. This new unit recorded at €2.6m and it is will incorporate the


Authority

Subject

Internal Audit Resources

Louth County Council

Land Purchase Loans


Main Issues from Audit Reports evident that sustained effort is required to affect and improvement in collection returns. The internal audit unit consisting of one staff member is, in my opinion, in need of strengthening as has been consistently pointed out in previous reports. A number of areas have been reviewed by internal audit and reliance has been placed on the work of the internal auditor when performing Risk assessment and audit planning in connection with the audit. The Council’s long term borrowing increased from €8.2 million at 31 December 2008 to €35.5 million at 31 December 2009, being an increase of €27.3 million.

The commercial water charges collection yield reduced from 40% to 34%, with arrears of €1.2 million outstanding at 31 December 2009.This situation needs to be addressed

Manager’s Responses existing Commercial Accounts Receivable Team.

A staff member is being redeployed to cover the additional duties previously performed by the Internal Auditor. This will free up capacity to implement a more comprehensive programme of work in the coming year. It is intended to expand the role of Internal Audit to encompass value for money issues. All borrowings were done in line with Department procedures and approved by Council. Up to 2009 the majority of works were being funded using our own resources. The voluntary housing loan repayments are recouped from the Department of the Environment, Heritage and Local Government on an annual basis. Collection yields in all areas were down on previous years and it is indicative of the economic trends in 2009. We are continuing to introduce better revenue collection procedures for all income streams. In particular the water charges has a low collection yield and this is due partly to the fact that the accounts are prepared on an accrual basis and therefore the last quarter billing for water invoices is accrued into 2009 accounts, but the invoices did not issue till early 2010. In 2010 we have consolidated the water


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Authority

Subject


Manager’s Responses billing and collection of debt for the three authorities in the County Council. We will continue to monitor and improve our debt collection procedures and collection yields over the coming years.

Mayo County Council

Revenue Account Balance

The overall position of Mayo County Council at the end of 2009 is that in addition to the cumulative deficit of €3m in the revenue account there is an additional deficit of approximately €9m in respect of old static balances in the capital account. This gives an overall deficit of approximately €12m that will have to be funded from internal resources.

The Council has reduced the deficit in Revenue Account by €875,000 over the past two year period, notwithstanding the difficult economic climate. The need to implement strict budgetary controls to reduce this deficit is acknowledged and this will remain a priority of the Council in the short to medium term.

The Council is also The Council will need to pursuing actions to secure continue to implement strict funding for deficits on the budgetary controls to ensure Capital Account. that budgeted expenditure and income targets are achieved in the more financially difficult times ahead.

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Unfunded Capital By the end of 2009 the total Balances of the old static balances to be funded internally amount to approximately €16m while reserves in the capital account only totalled €7m. The net shortfall of €9m will have to be financed from future internal resources of the Council. Revenue Collection Performance

The percentage collection of 49% (37% in 2008) for commercial water charges, while showing an increase on previous years remains problematic.

The Council is actively pursuing all outstanding amounts on the Capital Account, in order to reduce the outstanding deficit.

Whilst collection yield for commercial water charges has shown an improvement during 2009, actions are being pursued to reduce arrears further, particularly in relation to Every effort should be made Group Water Schemes. to reduce these arrears


Authority

Subject

Main Issues from Audit Reports including the withdrawal of the service and the use of legal remedies where appropriate.


Rental Accommodation Scheme

The terms of the RAS scheme are that any annual surplus should be treated as capital funds to cover any future deficits in RAS or as decided by the Department. The accumulated surplus to the end of 2009 on the RAS scheme in Mayo County Council of €290k has been taken to the revenue account. This matter should be taken up with the Department with a view to dealing with this surplus in 2010.

The appropriate cumulative surplus on the RAS account will be transferred to the Capital Account in 2010 as recommended.

Fraud

During 2009 following a review of expenditure, an issue came to light in relation to the level of travel expenses claimed by a member of staff. An internal investigation was carried out into these claims and the appropriate disciplinary procedures were initiated. This resulted in the termination of the staff member’s employment with Mayo County Council in February 2010. A further investigation was then carried out into all other payments involving that particular member of staff where other irregularities came to light.

This matter was highlighted by the Councils own internal controls system. The matter is being investigated by An Garda Síochána and their investigations are continuing. The relevant internal controls have been strengthened in this area.

Both matters identified by the internal investigations have been referred to An Garda Síochána whose own investigation is continuing. Internal controls in the areas in question have been reviewed and strengthened.


77

Authority

Subject Land Purchase Loans

Meath County Council

Revenue Account Balance

Main Issues from Audit Reports Mayo County Council has a number of loans taken out for the purchase of land for social housing. For some of these loans interest in excess of the seven years allowed has been rolled up rather than charged to the revenue account. The cumulative amount involved up to the end of 2009 is approximately €400k.

Manager’s Responses Appropriate provision for rolled up interest will be made in the 2010 Annual Financial Statements.

As there is still a significant accumulated deficit (€9.3m as at December 2009) it is imperative that the procedures now in place are maintained. The monthly monitoring of the Council’s finances must be retained so that this deficit can be further reduced and eventually eliminated over the coming years.

Meath County Council sustained significant losses for a number of years, peaking in 2003 with a loss of €2.7million. Over the past four years we have reduced the deficit by almost €1.5 million. The 2009 results, which were achieved in an extremely challenging economic climate, represented an improvement of 69% on the previous year. The programme for cost reduction through efficiency, rationalisation and value for money together with a policy of maximising income has been a significant contributor to these results. This programme together with continual monitoring of financial performance is an integral part of fiscal policies and this will continue.

Unfunded Capital The overall favourable Balances position on the capital account masks significant deficits (€21m at the end of 2009) carried on a number of schemes. The main schemes, on which balances were unfunded, included the associated works at Basketstown Landfill (€9.6m) and Trim Area One Stop Shop (€3.3m).

The balance of unfunded items for completed capital projects was €13 million at the end of 2009. This represents a significant improvement from a peak of €20 million in 2006. The adverse balances referred to above are mainly historical in nature.

78


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Subject


Main Issues from Audit Reports The balance currently (as at date of report) on these schemes has been reduced to €18m. Management focus is now required to source additional funding streams as some of the balances have been carried for some time particularly in respect of the accumulated costs at the Landfill.

Manager’s Responses The Basketstown landfill was the first landfill in the country to be remediated and the cost of this was fully borne by Meath County Council. A number of requests have been made to the department to fund this as it is impossible to sustain a loan of €10 million through the revenue account. Unless some funding is made available through the environment fund, this balance will remain unfunded. All new Capital projects go through a Capital Appraisal process. This process identifies the funding available in advance of the commencement of the project.

Arrears in the four main collection categories have increased in 2009. Commercial Water Charges The Four Counties metering project suffered from a number of difficulties including the failure of the principal contractor to observe the terms of the metering contract itself and also the liquidation of the metering subcontractor. A Water Liaison officer was appointed to head up a dedicated team to complete a survey of all The installation of meters to meters in each of the water all relevant businesses is now caretakers Areas. substantially complete with approximately 100 meters The survey involved the still to be tagged. Some tagging of meters, difficulties remain confirming customer data, particularly in locations installing meters where

Commercial Water Charges The returns in this category, over the past few years, have been low due primarily to the difficulties encountered in completing the watermetering project. I previously reported that contractual issues had prevented the timely completion of metering all businesses and that this consequently affected the collection performances, particularly in 2008 and 2009.


79

Authority

Subject

Main Issues from Audit Reports where there are multiple users of the one connection. The work done to date has identified new customers and has enabled all charges to be calculated on the basis of usage rather than by standing charge, as was previously the situation and has also resulted in improved collection returns for 2009 although this was still low at just 30% of the debt book. The water collection arrears currently stand at €6m (December 2009 €5m) and have increased significantly over the past three years, despite the increased collections in 2009, due in part to the revised charge calculations and the identification of new customers.

80

While acknowledging that actual receipts have also increased over this period (for example receipts in the period January-July 2009 were €1.1m while in the period January-July 2010 receipts had improved to €1.7m) it is imperative that every effort is made to ensure that receipts are maximised. I previously recommended that there should be a coordinated approach established between the finance and infrastructure departments to enable issues arising such as meter identifications and subsequent installations / charges / collections be dealt with expediently. I note that a draft document identifying new procedures and incorporating this suggested


Manager’s Responses possible and the taking of meter readings. This project will continue to ensure that we identify all potential commercial water users. Revenue Collectors are continuing to place great emphasis on collection of water charges. Regular progress meetings are held between the Revenue Collectors and the AO Finance to discuss progress and agree action plan for the recovery of monies due. We have used section 52 of the Water Services Act 2007 to automatically offset amounts due with customers who are also creditors. We also identify potential disconnections for nonpayment of amounts. To date 32 disconnection notices have been issued and 4 disconnections carried out. This has allowed us reestablish the effectiveness of the collection of commercial water charges following the interruptions caused by the problems with the metering project. To September 2010 €2.4 million has been collected compared to €1.4 million in 2008.

Authority

Subject

Main Issues from Audit Manager’s Responses Reports co-ordinated approach while circulated to the various stakeholders has not yet been formally adopted. This document should be agreed and implemented without further delay. The current level of arrears is unsustainable. Rates Arrears of rates have doubled year on year from €1m at the end of 2008 to €2m at the end of 2009. I have been advised that rates arrears have further increased during 2010.

Rates We have enhanced our collection procedures in this area also to ensure we maximise our collections in a difficult economic climate. As with water charges we now use section 58 of the 1941 Local government act to offset amounts due by debtors who are also creditors.

Swimming Pool Licence Agreement

During 2010 we have entered into payment agreements with our principal Rates debtors. Although collection levels for Rent and Rates have declined in 2009, the total collected remains at a high level. A private sports management The Council is working to company has been operating resolve the dispute with the Navan swimming pool the management company since 2003. I note that while a in relation to the licence licence agreement between agreement and the licence the Council and the company fee amount. was drawn up, it was never formally executed. Significant progress has been made in the past year I reported this matter in my and we are in the final 2008 report and while stages of agreeing all management have terms. endeavoured to regularise the situation it is still not resolved.


81

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Subject

Main Issues from Audit Manager’s Responses Reports The company currently owes the Council €140k in outstanding fees. It is imperative that the licence agreement be regularised without further delay.

Monaghan Unfunded Capital At the end of 2009 there were County Council Balances unfunded debit balances relating to 20 capital projects, totalling €1.470m. Furthermore, there were 99 projects classified as ‘funded’ carrying debit balances totalling €6.852m. As highlighted at previous audits, plans should be formulated to fund these debit balances. Waste Disposal Contract

82

Monaghan County Council charges a standard rate per tonne for refuse delivered to the landfill site. However, it came to notice during the audit that in August 2009 an agreement was drawn up between the Council and one particular waste disposal contractor which provided for a discount in the price charged per tonne of refuse delivered to the landfill site. The rate of discount applied was dependent on the number of tonnes of refuse delivered.

Unfunded debit balances are reviewed on an ongoing basis and when possible provision is made in the annual budget to provide for the phased reduction of these balances. Balances relating to water and waste water will be funded from current and future development contributions.

During the course of 2009 it became evident that the estimated tonnage would not be achieved because competition from other landfill sites. A decision was taken to reduce the price per tonne to the largest contractor based on that contractor achieving an agreed tonnage for the remainder of the year. The contractor pre paid for use of the landfill at the standard rate and was given refunds as certain agreed tonnages were achieved. This agreement As a result of the was necessary to ensure implementation of this the landfill did not make a agreement a total of €617,465 loss for the year. was refunded to the relevant contractor, this being the difference in the standard rate charged per tonne and the rate negotiated in accordance with the agreement in respect of the total tonnage delivered to the landfill site.


Authority

Subject Procurement / Tendering Procedures

Main Issues from Audit Reports During the audit it came to notice that that proper procurement procedures were not adhered to with regard to the engagement of a contractor to provide environmental services to the Council. Payments totalling €2.548m were made to this contractor over a 4 year period to the end of 2009. The payments made in 2009 totalled €434,865.


This contractor was hired when the EPA informed the Council that sludge could no longer be disposed at the Council’s landfill site. Following this instruction from the EPA an urgent alternative for sludge disposal had to be used. While proper procurement procedures were not adhered to in this case, during the term of engagement price It was noted at audit that reductions were negotiated there was no evidence on file with this contractor. A that legal services were ever formal tender process for tendered for in accordance sludge disposal was with proper public commenced in May 2009, procurement practice. in compliance with Public Procurement requirements, and a contract awarded in December 2009. The procurement of legal services will be reviewed. 83

Revenue Expenditure in Capital Account

The Council have in place Procurement Procedures which are updated every year and circulated to all staff involved in procurement. Staff are instructed to follow these procedures while procuring goods or services on behalf of the Council. It came to notice at audit that The €47,810 in respect of a total of €94,959 of revenue member’s retirement expenditure was charged to gratuities relates to a the capital account. This balance in capital for expenditure included payments made to retiring €47,810 in respect of members in 2009. It was members’ retirement the Councils intention that gratuities and €43,534 in this amount would be respect of charges on nonprovided for over a mortgage loans. No number of years by means adjustments were made to of a provision in the the accounts to correct these annual budget. However transactions. as pointed out provisions should not be made retrospectively and this _____________________________________________________________________ Local Government Audit Service

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Subject


Manager’s Responses amount will be accounted for in 2010. In future, budget provisions will be made in advance in order to build up a reserve to provide for future retirement gratuities. The €43,534 relates to the balance on loan charges for the landfill site. The €43,534 relates to the excess of loan charges over the amount provided for in the 2009 budget which was €800,000. The council has two loans outstanding one for a five year period and one for a ten year period. The council’s intention was to spread the burden of these loans evenly over the useful life of the landfill and provide for a sinking fund at the same time. However as the cost of borrowing should be met fully in the year it occurs (when being funded from the income and expenditure account) the €43,534 will be charged in full to the 2010 income and expenditure account.

84

North Revenue Tipperary Collection County Council Performance

The level of collections in all areas have deteriorated, particularly so for water charges. All revenue collections require close monitoring to ensure that substantial arrears are not accumulated.


I note and concur with your comment on the need for monitoring collection levels. The deterioration in collections reflects the current economic climate. North Tipperary County Council monitors all collection levels on a regular basis throughout the year with a focus on continual improvement in collection levels year on year.

Authority

Subject Affordable Housing

Offaly County Council


Main Issues from Audit Reports A voluntary housing scheme of 55 Houses was completed by Respond in 2009, with 42 occupied as social housing. The balance (13) were built as affordable units on behalf of the Council at a cost of €1.8m and remain unsold.

Manager’s Responses North Tipperary County Council is currently in discussion with Respond and the Department with a view to purchasing / leasing of houses by Respond for social housing with a possible option of purchase by tenants under the incremental purchase scheme.

The yield for commercial water charges is very unsatisfactory.

We have experienced difficulties in this area due to residual customer database and installation The increase in the accrued issues at the end of our charges in 2008 is mainly meter installation project. attributable to the takeover This has necessitated of the water services of the additional time and two town Councils in that resources to resolve, in year. order to accurately invoice our customers. In addition The 2009 accrued figure of we have experienced €2,336k is up substantially customer on the 2008 figure and resistance/queries to includes an accrual in respect commercial water charges, of 2009 invoices of €775k not in some instances because issued until 2010. of the new additional sewerage charge, and in It is essential that the Council other instances because we ensure that invoices are have identified customers issued on a timely basis and who have previously not that resources are dedicated been invoiced. The to the prompt collection of current economic climate amounts due. and the general difficulties that businesses are experiencing are also making collection difficult. We are currently concluding a migration to a new water billing system for all customers which, will facilitate more efficient billing, cash collection and resolution of customer queries. We have committed significant resources to bring this process to a conclusion and have made significant progress in 2010.


85

Authority

Subject Internal Audit Resources

Roscommon Overdraft Level County Council 86

Main Issues from Audit Reports As mentioned in my previous audit report, no internal audit work was carried out between December 2008 and October 2009. This is a serious internal control matter. Internal Audit should be adequately resourced at all times in order to support the work of the Council’s Audit Committee.

Manager’s Responses It was not possible to provide cover for this post during maternity leave, due to current payroll saving measures and public service staffing moratorium. We have endeavoured to mitigate this by utilising our acting County Checker to undertake limited cover. This matter exemplifies the negative impact of the staffing moratorium on management control/mitigation measures in general. We are reviewing our strategy in the context of the situation arising again to insure that we achieve our objective.

The Council’s overdraft increased by €0.85 million to €2.65 million by the end of 2009.

Members of the County Council were made aware of the financial pressures facing the local authority throughout the year, as part of new monitoring arrangements introduced. The quarterly reports provided members with information that fed into the 2010 budget process, leading to a provision being allocated to meet the deficit.

Unfunded Capital The Council needs to identify Balances a funding source for €2,867,926 balance for capital projects

Over €2.5m of the unfunded balances relate to housing land, which was purchased over the last 20 years, in line with Government policy to meet future housing needs. It is not possible to use Development Contributions to meet the costs, as would be the case with other purchases of land. It was therefore hoped that the County Council would receive


Authority

Subject


Manager’s Responses grant funding from the Department once construction started. Please note that no loans were drawn down to meet the costs. Due to the economic crisis Government policy switched from the construction of housing to the new leasing scheme. This means the County Council has a land bank, which in the current climate it does not intend to sell as it is hoped the value of the assets will increase in the years to come. This means that the balances will remain on the account until such time that the costs can be recouped or Government policy changes.

Sligo County Council


The Council needs to ensure that Internal Audit work is maintained.

Financial Standing

The Council’s financial standing has deteriorated significantly during the course of 2009. It has an accumulated revenue deficit of €7.518m, unfunded capital balances of €7.118m, and its current liabilities exceed its current assets by €7.849m. Its long term debt has increased from €57.1m to €62.8m.

The County Council realises the importance of the Internal Audit function and will be looking to increase its role within the organisation, as recommended in the Value For Money Report no. 23 and the recently published Local Government Efficiency Report.

The budget process is determined by the income sources of the Council, over 65% of which is from state grants and subsidies, almost 8% from rates and 27% from charges for goods and services including rent, water, planning fees, fire charges and the county demand to Sligo Borough Council. With the reduction in The Council needs to prepare grants and deterioration in realistic achievable budgets the income receivable from _____________________________________________________________________ Local Government Audit Service

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Authority

Subject

Main Issues from Audit Reports and these budgets need to be carefully monitored. It should develop projected cash-flow statements to assist management in operating under reduced income levels.

88

Management of Capital Projects

Manager’s Responses goods and services, and by reducing any discretionary expenditure where possible, the demands on the Council in any year outweigh the sources of income available to operate the services satisfactorily. As a local authority we have statutory requirements and obligations to meet in terms of service delivery, health and public safety and these cannot be set aside irrespective of budget issues or constraints in funding. Most recently the imposition of the Croke Park Agreement has put a significant further constraint on our ability to manage our finances and reduce payroll costs, and it is the single largest constraint facing the local authority going forward. Cash flow is managed on a daily basis with projections for income and payments taken into consideration when figures are realistically achievable. It is not always possible to project income collections but all potential debtors and claims in relation to road grants, VEC and HEG recoupments are monitored on a monthly basis.

Issues were noted in relation • Substantial files on all to the management and Department approvals, control of capital projects and grant applications are balances. It was noted held on all capital jobs. specifically that: Some old balances remain where final • There was an insufficient accounts need to be audit trail in relation to followed up and


Authority

Subject

Main Issues from Audit Manager’s Responses Reports significant number of final reconciliations capital balances. This prepared. Significant issue has been raised in work has started on previous audit reports these jobs and will be and letters to resolved in the 2010 management. accounts. • Unfunded balances are • Schemes identified to a understated by at least value of €266k are not €266k in the accounts. unfunded. A total of Management need to €234k relates to water conduct a complete services capital review of all capital projects that will be the balances to ensure all subject of claims to the funding arrangements Department. These are identified. schemes are at a • Holding code set up for planning or €1.148m - This holding preliminary report code was set up in 2007. I stage. The remaining issued a letter to €32k relates to a road management during the safety issue and again 2007 audit stating that it is expected that the this was inappropriate, costs incurred will be and stated this again in recouped. the 2008 audit report. • The holding code that Work has been was set-up in 2007 was performed on this the transfer from many holding code, but it still old jobs where has not been reversed. It balances remained appears that €743k of unresolved going back this balance may relate to prior to 1999. In some internal capital receipts, of these projects, in additional work is 2004 and 2005 transfers required on the from internal capital remaining items here. receipts (ICRs) were • Over expenditure of made to jobs and €108k and €428k were remained as such and noted in relation to two will now be returned capital projects. to ICRs in 2010 to clear any old balances. • The €108,000 relates to a housing construction project, where some expenditure was disallowed by the Department as ineligible, provision will be made for the funding of this balance through ICRs in future years. The €428,000 on a water capital project was subject of a final


89

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Subject


Manager’s Responses account claim to the Department on the 4 June 2010 and it is expected that this matter will be satisfactorily resolved before the end of 2010.


90

Deviations from Procurement • Offers of additional / T endering Procedures funding above that were noted during the course approved at the time of the audit. The issue of of original tenders deficiencies in Procurement / were made to Sligo Tendering Procedures was County Council in raised in previous audit respect of a number of correspondence and need to Urban and Village be addressed as a matter of Enhancement projects urgency. Specifically the to facilitate enhanced following issues were noted: works on the schemes approved and in all of • The Border Midland and these instances the Western Regional contracts were Assembly (BMW) issued extended via a an irregularity report to negotiated process OLAF (The European with the contractor Anti Fraud Office) as a based on comparable result of an audit rates as per the conducted by them in original tenders. All Sligo County Council. sums paid to the This arose as they contractors were identified four schemes recouped to Sligo where the amounts paid County Council under to the contractor were the BMW scheme. An between 65% and 127% alternative option for greater than the amount the Council would tendered for. have been to refuse the • In general the LA Quotes offer of this additional system appears to be funding thereby operating effectively in reducing investment in Sligo County Council. tourism projects in the Instances were noted villages included when the lowest tender under this Urban and was not used from the Village Renewal LA Quotes system, and Scheme, being no documentation was Tubbercurry, shown on file as to why Strandhill, Aclare and this was the case. This Buninadden. situation needs to be • The lowest tender on addressed, LA Quotes is not • There was no evidence of feasible to engage for legal services ever having the hire of machinery, been tendered for. as in many cases these suppliers maybe based


Authority

Subject


Main Issues from Audit Reports • The purchase ordering and approval system was found to be operating appropriately, with the exception of two departments where unacceptable practices were identified. It was noted in one department that a grade three officer raised in excess of 880 purchase orders without any checking or control facility been in place. It was noted that a member of the technical staff could raise in excess of 150 purchase orders without any checking or control facility been in place. This practice should cease immediately. Collection yields have decreased substantially in rates, rents and annuities and housing loans. Commercial water charges collection yields are only 47%, but the Council has recently adopted a more aggressive approach in attempting to collect outstanding water charges.

Manager’s Responses • in counties some distance away. • We are examining the tender process for legal services. • Appropriate control procedures for the two specific work areas concerned are now in place.

The downturn in the economy has greatly affected the collection percentages in 2009 and the increase in the arrears carried over at the end of the year. Every effort is made to follow up on these amounts outstanding and in 2010 a dedicated debt collection team has been established to work on these accounts and monitor all payment arrangements that are in place. However at national level initiatives should be considered that would clearly lead to significant efficiencies and improved collection rates for local authorities. Different branches of Government deal with many of our customers either directly through various Departments or other Agencies. Customers are in receipt of payments


91

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Subject


Manager’s Responses from Government and other Agencies on the one hand and local authorities are seeking payment of various categories of income from the same customers. A centralised system of processing such transactions would lead to better collection rates in the areas above and significant savings and efficiencies for local authorities through reduced administration costs.

Fixed Asset Register

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South Dublin Affordable County Council Housing

Sligo County Council needs to review its overall register of fixed assets. Appropriate supporting documentation was not available in relation to a significant number of fixed assets that I examined during the course of the audit. This issue was raised with management during the 2008 audit, and whereas work has commenced on this project, significant additional work needs to be performed here as a matter of urgency.

A dedicated land asset management team was established towards the end of 2009 and work commenced in 2010 on resolving these historic records which involves retrieving a huge number of old records that have moved from storage in Sligo to Dublin from the old Hibernian Bank system. All fixed assets purchased in recent years are fully recorded and in some cases still in the process of registration with solicitors and the Land Registry. Significant progress has been made in this area and it will continue to be a priority.

Under the provisions of Part V of the Planning and Development Acts 2000-2007, the Council acquired affordable housing units for sale to qualifying purchasers. The cost of the Council’s stock of affordable housing units at 31 December, 2009 was €29.5m and is included in agents’ works recoupable under trade debtors and prepayments in the balance sheet. The cost of these units has been funded by bridging

The Council has operated this scheme in accordance with the guidance from the Department of the Environment, Heritage and Local Government. 108 housing units from this scheme have been transferred to a new leasing scheme during 2009 and 2010. These will return to affordable housing stock after five years but in the meantime the income from the


Authority

Subject


Main Issues from Audit Reports loans from the Housing Finance Agency. Due to the current depressed housing market the demand for affordable housing units remains low and these units have mainly been leased for a five year period under the terms of the Department of the Environment, Heritage and Local Government’s Affordable Leasing Scheme. Any shortfall in the carrying value of these units will have to be funded by the Council. The Council is also committed to purchasing additional affordable housing units that may require additional funding. The commercial water charges collection percentage decreased to 43% in 2009 from 51% in the previous year. The regional project to install and/or replace meters for non domestic water consumers commenced in late 2006 and was rolled out during 2007/8. While work on this project had a certain disruptive effect on billing, the collection percentage continues to remain low and this is mainly due to the late reading of water meters and the resulting late issue of bills.

Manager’s Responses leasing scheme is funding the interest on the loans for the properties.

The billing cycle for metered water charges was adversely affected by the regional project in 2007/8 to install and/or replace meters for nondomestic water consumers. The timely provision of meter reading was outside the control of the council during 2009 and resulting delays in billing customers affected the collection of income from this source. The council is now in a position to obtain meter readings on a timely basis and this has improved billing and debt management in 2010. Significant efforts have been made since 2009 to collect arrears. This has included disconnection from the water network for non-payment of debt. The concentration on debt management continued in 2010 and this has improved the collection in 2010.


93

Authority

Subject Rate Collection Performance

South Register of Lands Tipperary and Buildings County Council

94

Main Issues from Audit Reports There has been a significant decrease in the collection percentage for rates to 86% in 2009 from 92% in 2008 and this resulted in an increase in the arrears to €18.1m at 31 December 2009 (2008 €9.3m). Commercial rates income is the major source of income to the Council and accounted for 48% of the Council’s total revenue income in 2009.

In order to improve accountability in relation to the Council’s fixed assets I requested at the previous audit that the Council’s schedule of fixed assets be signed off by the Directors of Services with responsibility for same at the end of each year. I also stated that the Council needs to ensure that its title in relation to land and buildings are updated in its register of land and buildings. This work had not been completed prior to audit, however significant progress has been made.


The position of Internal Auditor remained vacant for the period January to October 2009. This was a very unsatisfactory situation. The person appointed to the post is also involved in other administrative duties. I would recommend that the Internal Auditor be involved exclusively in internal audit work.

Roads Expenditure Claims

The Council needs to ensure that it complies with the memorandum covering eligible expenditure chargeable to roads grant funded projects. I expressed my concern to management


Manager’s Responses The deterioration in the collection of commercial rates reflected the continuing downturn in the economic climate during 2009. Commercial rates debts are pursued vigorously and legal processes are initiated as early in the collection process once it becomes clear that other methods of debt collection are not succeeding.

Authority

Subject


Waterford Register of Lands County Council and Buildings

Main Issues from Audit Manager’s Responses Reports at the previous audit in relation to the basis used for applying overheads. I note that the National Roads Authority is seeking a refund due to the incorrect application of overheads to grant jobs. I noted a number of minor infringements of both Department of Finance and the Council’s own purchasing procedures in the sample of invoices I reviewed at audit. The area of procurement has become very complex, with EU Regulations, Department of Finance Regulations and the Council’s own procurement procedures. Consideration should be given to the appointment of a Procurement Officer to ensure that these regulations are being properly applied and to achieve maximum value for money in the Council’s procurement practices. I would recommend that Internal Audit review this area. I am not satisfied that the Council’s registers of lands and buildings have being properly maintained and I have brought this to the attention of management over a number of years. The updating of these important registers needs to be prioritised.

I agree the area of procurement has become very complex but does offer scope for increased efficiencies. The matter is being looked at by the Managers in the South East Region and there is a view, with which I would agree, that the regional approach does offer the most potential for achieving efficiencies.

95

In December 2009, Waterford County Council produced a Property Portfolio Procedure, which was adopted by Management Team.This document proposes a procedure for land acquisition, disposal and recording that is designed to streamline the process, introduce efficiency, facilitate authentication of the property portfolio and assist in decisions to acquire and dispose of sites. The overall objective of implementation of this procedure is to efficiently


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Subject


Manager’s Responses manage Waterford County Council’s extensive property portfolio. To date over 400 properties have been mapped using AutoCad and briefly described on Excel. This provides a comprehensive singlepoint database of the property portfolio of Waterford County Council. The database was set up in accordance with the guidelines set out in ‘Local Government Value for Money Study No 9 – Property Management’. Currently a labelling system is being developed in conjunction with GIS dept. This will allow all property from within each directorate to have a unique identification number, allow for subdivision recording if necessary and also link directly to GIS mapping of each property.

96

Management of Capital Projects

In my review of capital projects and balances I noted a number of projects where final accounts are long overdue and where their funding arrangements had not yet been finalised. I also noted a number of instances where expenditure was charged incorrectly to particular projects and instances where revenue expenditure was incorrectly charged to capital. I would recommend that management improve its monitoring and control on capital projects. The reporting protocols to the management team needs to be improved in respect of all capital projects.


As part of the review of the management accounts during the year all council departments have to review their capital balances and ensure adequate funding is in place for completion of same. It is the responsibility of each section to ensure that it records correctly its income and expenditure for the year.

Authority


Main Issues from Audit Manager’s Responses Reports The levels of collection In 2009, the Revenue achieved on rents and section saw the retirement housing loans has of the Administrative deteriorated during 2009. Officer in charge, in The Council need to ensure addition to four of its that the collection section Revenue Collectors. This responsible for the has placed a considerable monitoring and the followstrain on the resources of up of arrears is properly the Finance Department. staffed and that it is working As a result of the efficiently. restructuring process it was agreed that the The collections on water and remaining Revenue rates showed a significant Collectors would be office decline in their collection based. This is in line with levels. I am concerned in similar agreements in relation to the restructuring other local authorities. that has taken place in the collection systems. The Due to the diverse nature Revenue Collectors who of the Council’s activities were area based have had there are different systems their numbers significantly in house which collate the reduced during the year and necessary information for the two remaining collectors each section and in some are now based in head cases data protection quarters. The local issues mean that certain knowledge relating to information may not be Council’s customers may be readily available to share lost as a result of these with other users. changes. It is now more important than ever that the Council has proper information systems in place to enable all sections of the Council share information on customers. It should be noted that the Council has many stand alone systems where information is recorded on local databases within sections, which is not accessible to other sections of the organisation. I have requested at previous audits that the lines of communication within the organisation be reviewed and improved.


97

Authority

Subject Procurement / Tendering Procedures

Westmeath Revenue Account County Council Balance

98

Loans Payable

Main Issues from Audit Reports In previous audits I have expressed my concern in relation to the Council’s tendering and ordering procedures. The Council has not properly addressed these deficiencies. These deficiencies included breaches of Department of Finance regulations in relation to the employment of contractors and service providers. The Council’s Procurement Policy Document has yet to be implemented. There is an absence of compliance checking in relation to EU Regulations, Department of Finance Regulations and the Council’s own procedures. The Council has reported a surplus for the year of €114,952 leaving an accumulated deficit of €2.8m on the revenue account as at 31 December 2009.

Loans Payable increased by 18% during the year to €108m. The servicing of these loans will continue to put pressure on the finances of the Council over the coming years.


Manager’s Responses Waterford County Council endeavours to comply at all times with appropriate local, national and EU guidelines and regulations in relation to the procurement of works, supplies and services, unless emergency works dictate otherwise. Work has commenced on the preparation of a Procurement Policy Document and this will be completed by 31st May 2010.

In recent years, substantial progress has been made in reducing the current budget deficit from €6.3m to its current level of €2.8m. The surplus for 2009 was achieved in a year where two budgets resulted in abrupt changes to government financing making it difficult to operate in a planned manner. Notwithstanding the current difficult financial environment we are absolutely committed to making further inroads towards the elimination of the current deficit as circumstances allow. The borrowings have been planned, approved, and utilised in a prudent fashion to achieve the stated objectives of the Council.

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Manager’s Responses Included in the borrowings in 2009 is €10m to fund the Council’s share of the Mullingar Sewerage Improvement Scheme, a project representative of the investment necessary for the development of Mullingar as a Gateway Town consistent with national policy. The total local funding required for this project alone is estimated at €16m. Our Budget for 2010 includes a provision of €971,437 in respect of the principal and interest repayments on the loan to fund our new headquarters.


Revenue collection accounts have under performed during the year. Total arrears increased from €5m to €8m at year-end.

Our collection percentage for Rates decreased from 93% in 2008 to 82% in 2009. The current economic environment and in particular the tightening of the availability of credit are impacting on our collection percentage. Our collection % for Rents remained static at 82%. The main reason for the increase in debtors was increased rents due to an increase in rents charged and increase in housing stock. The increase in Commercial Refuse debtors is due to increased credit terms introduced in 2009. We are focusing resources in this area, in terms of staff and systems


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Manager’s Responses development, to improve our performance in 2010 and are making some progress:

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Housing Loans Housing Loan arrears increased by 91%, from €944,505 at 1 January 2008 to €1,808,158 at 31 December 2009. It should be noted that housing loans were issued to applicants who did not always meet the strict income criteria. The collection of these loan arrears is a matter of serious concern for the Council.

Housing Loans We are particularly concerned about loan arrears and are focusing resources in this area, in terms of staff and systems development, to better manage this issue.

Commercial Water Charges The water charges collection yield increased by 11% in 2009 to 42%. This is still a poor collection. The Council did however issue invoices of €3m and received receipts of €1.8m during the year. A further effort is required to ensure that all billing is up-to date and that credit control procedures be substantially improved.

Commercial Water Charges Collection of income in this area continues to be particularly difficult. Cash Received: Jan-Sep Water & Waste Water Charges 2010 2009 2008

€1,446,912 €1,313,922 €163,806

We are currently documenting our credit control procedures. Updating Land Register

Wexford Revenue Account County Council Balance

Lands to the value of €19.9m were incorporated into the balance sheet as a result of work bringing the land register up-to date.

Work remains on incorporating some surplus lands arising from Housing and Roads projects into the Fixed Asset Register. We will address this matter in 2010.

The Council reported a surplus for the year before transfers of €5.3m and a surplus for the year after transfers of €410k. This resulted in an accumulated deficit of €6.4m on the revenue account at the 31 December 2009.

The Council is very conscious of the need for financial constraint in order to address the accumulated reported deficit. 2009 saw a significant reduction in the deficit despite the difficult financial environment


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Land Purchase Loans



experienced during the year. The Council will, in as far as possible, continue to promote efficient spending to facilitate reduction of the reported deficit. The commercial water Wexford County Council charges collection yield acknowledges the position increased from 23% to 27%. in relation to water There was €11.3m charges and the outstanding in respect of continuing anomalies in commercial water charges at consumption patterns 31 December 2009. While it is generated during the acknowledged that there water metering were some difficulties with programme mainly the initial water meter attributed to water readings the Council needs leakages in the network to increase the collection uncovered by the meter yield. Recommendations as readings. to how to achieve include: A programme of • Prioritise larger accounts prioritising larger with any issues such as accounts is already leaks, queries etc. being underway with significant dealt with in a timely progress being made and manner it is anticipated that the • Possibly look at reading results of this campaign large consumers will be evident in the 2010 quarterly or even accounts. bimonthly so as to identify any big leakages Concentrated efforts will earlier continue in the various • Possibly look at only sections of the Council to reading smaller accounts address the leakage and annually as currently debt level issues until all there are only 2 staff matters are resolved. assigned to this. However, due to the physical and mechanical nature of this work this may take some time to complete. Long-term loans raised for the purchase of land, including accumulated interest, amounted to approximately €19 million at 31 December 2009. €18 million of these loans were overdue for repayment at that date, and this amount

Wexford County Council, like all other local authorities, are now engaged with the Department of the Environment, Heritage and Local Government (the Department) in discussions under the


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Wicklow Revenue Account County Council Balance

Main Issues from Audit Reports included €4 million due in respect of land disposed of in 2008. The interest on these loans (2009: €404k) has not been charged to revenue but continues to increase the capital balance outstanding on the loans. The Council is addressing this through engagement with the land aggregation scheme.

Land Aggregation Scheme with a land audit being completed and submitted to the Department in mid 2010. A response and departmental decision is awaited in this regard.

As shown in the Income and Expenditure Account, a small deficit of €264,385 has been recorded for the year and this increased the closing deficit to €1.9m at the year end. The Council will need to continue to implement strict budgetary controls to ensure that this deficit is reduced over the coming years.

The Council has and will continue to implement strict budgetary controls in order to control this deficit over the coming years. In the six years from 2002 to 2008 Wicklow County Council reduced the Revenue Account deficit by 42% (€1.24m). However our ability to reduce the deficit will be subject to expenditure and income trends arising from changes in the economic conditions of the country.

The commercial water charges collection percentage remained low in 2009 at 37% despite an increase from 23% in 2008.The amount accrued for commercial water charges in 2009 was €1.6m (2008 €2.9m) and the amount collected in the year was €1.6m (2008 €0.87m). The project to meter all nondomestic water customers was rolled out in early 2007, however billing under the new water metering system was only commenced in August 2008, when the customer database was received. The amount accrued in 2008 was therefore for a period in excess of twelve months. In 2009 customer billing improved.

While the percentage collection rate for nondomestic water charges remained low at 37% for 2009 it should be noted the amount collected in 2009 was almost double that collected in 2008. In addition the amount collected was in excess of the amount billed for the year and the arrears marginally reduced from €2.9m at January 1st. The significant work undertaken by the water metering office in 2009 to address the arrears and issues continues with the result that at September 2010 €1.365m had been collected and the arrears now stand at €2.1m.

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Main Issues from Audit Reports The arrears at 31st December, 2009 were €2.8m and need to be reduced.

Manager’s Responses Substantial work remains to be done to further reduce the arrears figure and this will be undertaken where resources allow using a range of methods that will include restriction and disconnection of supply.

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