Memorandum by Mr Peter W Lacey, Somerset
Association of Local Councils (AC 06)
INTRODUCTION
1. This Association comprises the City,
Town and Parish Councils in the administrative County of Somerset.
Our member councils are, by virtue of their membership of the
county association, also members of the National Association of
Local Councils.
2. I am Peter W Lacey FCA, the County Secretary
of the Association and have been involved with Parish Councils
as member and Chairman of my local council, as Chairman of the
Somerset Association and since 1990 as County Secretary. For 25
years prior to my current appointment I was employed in a local
Chartered Accountants professional office which was eventually
merged with one of the Audit Commission's list of private contractors.
I did not however take part in any public sector audits at that
time.
3. On behalf of the National Association,
and based on my professional knowledge, I have undertaken a review
of the quality of audit service provided to parish councils and
have taken part in helpful discussions with a Director of the
Commission.
PARISH COUNCILS,
STATUTORY REQUIREMENTS
AND THE
ROLE OF
THE AUDIT
COMMISSION
4. Parish Councils are the local government
closest to the electorate which were (in the vast majority) established
in December 1894. They range from the suburban settlements near
London such as Swanley (Kent) through the market Cities and Towns
such as Wells, Chippenham and recently Weston-super-Mare to the
deep rural, sparsely populated countryside of the National Parks.
That diversity is one of the problems that face the Association
and Government in dealing with this grouping. There is a danger
of making exceptions to every statement due to the effect of the
extreme examples, be they large or small. Parish Councils now
exist in sub-urban parts of some large urban areas but do not
exist in London. Parish Councils are individual Local Authorities
subject to the same basic rules of procedure, administration and
standards as the Principal Authorities (Unitary, County or District).
Their role is two-fold in providing local services and in representing
their community to the other parts of government at County Hall
or elsewhere.
5. The Audit Commission Act 1998 and The
Accounts and Audit Regulations 1996 apply to Parish Councils.
The selection of auditor is made by the Commission, after consultation.
Historically, the auditor selected for the District council is
also used for the audit of Parishes within that District.
Most audits are carried out by the District
Audit Service, some by the few private firms involved in public
sector audit for the Commission. The Audit Fees are set at an
hourly rate by the Commission, after consultation. The work performed
is at the professional discretion of the individual auditor who
is managing the assignment.
6. The accounting requirements are set out
in the Regulations and in the Guidance published by CIPFA. Parishes
are divided into three groups and a differing standard of reporting
is designed for each group. Small councils are those with a Gross
Budgeted Income (GBI), as defined by the Guidance, of less than
£5,000 each year for the last three years. Medium sized councils
are those with a GBI over £5,000 and less than £500,000
per annum. A large council is one with a GBI in excess of £500,000
each year for the three year period.
7. The small councils are required to produce
summaries of Receipts and Payments following a set format, medium
sized councils have to produce an Income and Expenditure Account
and simple form of Balance Sheet again following a set format
similar to the small councils category. Large councils have to
produce Accounts in the same format as a District or County Council.
The auditor is required to issue a report which forms part of
the published statement of accounts certifying the completion
of the audit and giving his opinion on the statement (dealing
with whether the accounts present fairly the information required).
8. At the same time that the Accounts and
Audit Regulations were issued for local government, the Regulations
required under the Charities Act for the new accounting regime
for all charities were also being drawn up. As part of the consultation
on the draft Order under the Charities Act a cost of compliance
statement was produced. This meant that the Home Office were aware
of the costs imposed on the voluntary sector of the changes. Those
changes were seen as necessary and seen to be produced at an acceptable
cost. No such exercise was carried out by the Department in 1996
for the parish councils' accounting changes. The Cabinet Office
website indicates that the work is now called Regulatory Impact
Assessment and is required for any legislation that affects businesses,
charities and the voluntary sector. The "un-subsidised"
parts of local government are excluded form the requirement. I
urge the Committee to make a recommendation to Government on this
matter.
EXPERIENCES POST
1996—QUALITY
9. After the introduction of the Accounts
and Audit Regulations in 1996 a substantial training programme
was undertaken nationally, and in every County, to help Clerks
to the parishes understand and implement the new requirements.
These training events often included the welcome attendance by
the staff of the District Audit Service.
10. After completion of the first round
of audits under the new Regulations it became apparent that there
was substantial unease with the auditors and with the fees being
charged. A number of Parish Councils contacted their County Associations
for advice, others wrote to complain direct to the Commission
or the relevant Auditor. Some wrote complaining of the level of
fees to their Member of Parliament. It became apparent that there
was a significant problem that needed to be addressed in a professional
manner and that to start with a review of some Parish Council
accounts and the fees charged should be undertaken.
11. In view of my professional experience
I undertook this duty and presented a report, based on a limited
sample, to the National Association officers. This report was
then supplied to the Audit Commission and was discussed with a
Director. A number of issues arose.
Customer care:
— different staff each visit;
— the audit certificate was signed
with an illegible signature and showed no name or address of the
individual or organisation supposedly signing;
— not attending when appointment arranged.
Quality of audit produced:
— sending out the letter stating the
dates of audit and rights of public inspection so that it arrives
(Royal Mail permitting) on the day that the Public Notices required
under the Act have to be published;
— supposedly a test-check but evidence
that each transaction has been scrutinised;
— letters sent by the Clerk highlighting
particular transactions not read;
— asking questions where the answers
are self-evident from an inspection of Council Minutes.
Interpretation of the guidance and regulations:
— audit completed despite the lack
of certificate from the Responsible Financial Officer required
under Reg 8;
— after the third year of operation,
March 1999, a request to alter the format of the accounts as published
because the auditor has a different interpretation of the guidance
from the auditor last year (from the same firm/region of District
Audit);
— category of council determined by
the Total Income rather than the Gross Budgeted Income;
— if the Guidance proposed a note to
the accounts on a topic (such as pension fund liabilities) then
a statement was required that it was "not applicable"
on the face of the accounts (unlike all other entities where no
report indicates nothing to report), in reality a slavish requirement
to treat the Guidance as a Statutory Requirement, leaving no discretion
locally;
— requiring a change of the text accompanying
the accounts so that the list of Councillors was "left justified"
rather than "centred" on the page.
12. In a number of instances it was suggested
that the staff undertaking the Parish Audits were contracted in
from elsewhere and were not trained in local authority auditing.
They just did not understand the way a Parish Council had to work
nor the rules of ultra vires (acting beyond statutory powers).
One set of accounts disclosed payments in excess of statutory
limits yet there was no evidence of any comment on the issue.
It was reported that one auditor had recently retired from the
Inland Revenue and spent most of the audit time checking the proper
calculation of PAYE liabilities.
EXPERIENCES POST
1996—FEES
13. These quality of audit complaints were
more than matched in number by complaints about the time taken
to carry out the audit function. Instances of five hours being
charged for the audit of five items of receipt and 15 items of
payment were quoted. It was apparent to some Councils that the
fees were not based on accurate time sheets to the detail of each
parish. However simple or complex the audit, the fee seemed to
be related to the precept of the council rather than the time
one might expect to be taken for the audit. I am aware that the
auditors will have some costs common to all parishes in a District,
such as travel to the district, administration costs and the making
of arrangements for the audits but members clearly expected some
variation in fees dependent on the complexity of the records presented.
14. These complaints have certainly led
to a rise in the number of letters to the Auditors and to the
Commission from individual Parish Councils. In a significant number
of cases the payment of the account for the audit has been deliberately
withheld until the Councillors are satisfied with the reasons
for the increase in charges levied. The problem for the Commission
is that the audit of Parish Councils is a small part of their
work but involves the largest number of "clients", and
those clients are the ones more likely to involve a Member of
Parliament in their dispute over fees.
15. Following my meeting with Martin Evans,
then Director of Quality and Purchasing at The Audit Commission,
I hope there is a better understanding of the issues and the steps
that the Parishes feel ought to be taken by the auditors to improve
the standard and to contain the cost of the service which is required
of them by statute. I am convinced that a series of regular meetings
to address the particular problems of the smaller authorities
will be of benefit to the Associations and to the Commission.
I understand that the Commission share this view. I am pleased
to welcome the experimental steps being taken that might address
the fees issue. I am aware that the concerns are expressed by
the Auditors as well as the client local councils.
AREAS OF
FUTURE CONCERN
16. Areas of concern for the future include
the audit consequences of the new duty of "Best Value"
which is given to all Parish Councils in the spirit, and in the
detail to those with Gross Budgeted Incomes in excess of £500,000
each year. The subordinate legislation for Best Value is not yet
available. The detailed requirements on the large or the small
and medium sized councils are not clear. It appears that the larger
councils will be subject to audit on their Best Value Performance
Plans and that grade-related fees will be charged by the auditors.
Early estimates of the new annual cost of this audit alone range
from some £3,000 to £10,000 per council per annum.
17. It is understood that the inspection
regime will not apply to each service but will be imposed every
five years (at no direct cost to the individual Parish).
18. There is, to date, no indication from
DETR just what the "spirit of Best Value" will entail
for the small and medium sized councils. There is a perception
that the regular audit staff, who will have become aware of Best
Value, will be looking for evidence of its adherence in the de
minimis authorities. There is a danger that such staff will
be raising the standard of best value compliance where the Government
did not intend such detailed compliance. I hope that the lessons
from the introduction of the Accounts and Audit Regulations will
have been learnt and that the standards of Best Value Audit for
all Parish Councils can be agreed between practitioners before
the round of audits for the year ending 31 March 2000 start.
CONCLUSIONS
19. I would not want the Committee to think
that I am arguing for a lower standard of regulation to apply
to Parish Councils just because they are smaller and more numerous.
I hope that I have been seen to argue in favour of an equal standard
of regulation for Parishes and Principal Authorities. Proper standards
must be applied but there is a need for consistency of approach
and a professionalism that has on occasion been lacking. The suggestion
is often made that the Parishes don't really matter and can be
patronised by providing them with the unsupervised trainees and
then a standard form of letter every time they complain. Central
Government does not contribute to the costs incurred by Parish
Councils yet they are required to adopt the same high standards
expected of the Principal Authorities. That independence is willingly
accepted by most Parish Councils and it is recognised that there
is a cost to independence and democracy. The direct accountability
of Parish Councillors in terms of the member : electorate ratio
is unsurpassed. Size however does not mean that a second class
service should be given.
20. There is no requirement for a Regulatory
Impact Assessment on the rules for Best Value, nor was there a
Cost of Compliance Statement for the Accounts and Audit Regulations,
I would strongly suggest that recommendations to the Department
should include amendment of the current requirements for Regulatory
Impact Assessment so that the true costs falling on the "un-subsidised"
local authorities have to be taken into account.
21. The Auditors, The Audit Commission and
constituency MPs, and through them Ministers, have been in receipt
of many complaints about the audit quality and fee levels for
Parish Councils since 1996. On balance, there has been fault in
the Regulations and Guidance, fault in the delivery of the accounts
by some clerks to the Parish Councils, fault in the delivery of
an audit service of quality and fault in the time budgets for
such audits. Not all can be blamed on the Commission, but some
of the problems of the past three years might have been avoided
by better communication and understanding between all parties.
Peter W Lacey
December 1999
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