Fixed asset omissions and valuation Fixed asset additions ...

Addendum to the Annual Governance Report dated September 20101 I have now undertaken further work to bring my audit to a conclusion. Inaddition to the items I reported in my Annual Governance Report,presented to the Audit and Governance Committee on 23 September, Iwould like to bring the following issues to the Committee’s attention.Accounting practice and financial reporting and un-adjusted errors inthe financial statements2 I have identified the following adjustments during the completion of myaudit.Fixed asset omissions and valuation3 My testing identified that the Council had understated four fixed assets by£9.8 million which the Council has agreed to amend. The reasons for theamendment are:• omission of one asset, valued at £3 million;• revaluation of one asset which was included in the fixed asset registerat an inappropriate nominal value, resulting in an increase of £2.8million; and• revised valuations for two assets resulting in an increase of £4 millionin the value of these assets. The need to revalue these assets wasidentified following further review prompted by the above issues.Fixed asset additions revaluation4 I identified that the Council had not valued all relevant assets for the effectof capital expenditure in the year. The value of HRA fixed assets isunderstated by £3.38 million. The correction of this error has resulted in areduction in the HRA income and expenditure account from the increasein the value of fixed assets. There is no effect on the Council's resourcesas the transactions are reversed out to the Capital Adjustment AccountCapital commitments5 The Council disclosed capital commitments of £43 million in its draftfinancial statements. My audit identified that the capital commitments noteshould disclose £171 million. The Council has amended its accounts forthis adjustment.Grants deferred account6 Amortisation of assets in the grants deferred account was understated byapproximately £14.7 million. This was due to discrepancies in the listing ofdata to support the entry in the accounts. Following a comprehensivereview of the underlying information, the amount of amortisation hasincreased by £14.7 million.1

Gain on disposal7 The Council has included a gain on disposal of fixed assets of £15.7million. However it had not taken account of the carrying value of theasset when calculating the gain. This led to an overstatement of the gainon disposal of £15.7 million. The Council has agreed to amend for thiserror and the gain on disposal is now nil. The net impact on the GeneralFund balance is nil as the entry is reversed out through the Statement ofMovement on the General Fund Balance.RecommendationR7 Strengthen the relationship between the Borough Valuer and the capitalteam, by specific reference in the Terms of Engagement, to ensure all capitalexpenditure is reviewed by the Borough Valuer in accordance with theCouncil’s accounting policies.Next steps8 I ask the Audit and Governance Committee to:• consider the matters raised in the report;• agree your response to the proposed action plan; and• talk note of the adjustments to the financial statements which are setout in this report.2

Note 19.1 -Tangible fixedassetsNote 19.10 -CapitalCommitments.Grants Deferred.Cr I&EThe Council hasincluded a gain ondisposal of £15.7million. However ithad not takenaccount of thecarrying value ofthe asset whencalculating thegain. This lead toan overstatementof the gain ondisposal of £15.7million.Dr I&E - Profit/losson disposalCr Fixed assetsThe Council hasdisclosed capitalcommitments of£34.7 million. TheCapitalcommitments noteshould reflect £171million.Income andExpenditure Account15,67014,754Balance sheet15,670Disclosure Disclosure Disclosure Disclosure4

Appendix 2 – Action planPageno.Recommendation2 R7 Strengthen the relationship between theBorough Valuer and the capital team,by specific reference in the Terms ofEngagement, to ensure all capitalexpenditure is reviewed by the BoroughValuer in accordance with the Council’saccounting policies.Priority1 = Low2 = Med3 = HighResponsibility Agreed Comments Date2 Borough Valuer andChief AccountantAgreedThe Terms of Engagement for theBorough Valuer from 2010/11onwards will include a specific dutyfor the Borough Valuer to considerthe impact of capital expenditurewithin a year in arriving at hisvaluation of assets for thepurposes of the AccountsOctober20105