2024_25_InternalAudit_NDRinc.ReliefstAppeals_FinalAuditReport
Argyll and Bute Council · 17 December 2024
Back to Audit and Scrutiny Committee — 17 December 2024 and its agenda
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Classification: OFFICIAL Argyll and Bute Council Internal Audit Report December 2024 FINAL High Medium Low VFM Number of Findings 0 3 0 0 Non-Domestic Rates (NDR) Audit Opinion: Substantial
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2 Argyll and Bute Council – Internal Audit Report – Non-Domestic Rates (NDR), December 2024 Classification: OFFICIAL Contents 1. Executive Summary ........................................................................................................................ 3 Introduction ............................................................................................................................................ 3 Background ............................................................................................................................................. 3 Scope ....................................................................................................................................................... 4 Key Dates ................................................................................................................................................ 4 Risks ........................................................................................................................................................ 5 Audit Opinion ......................................................................................................................................... 5 Recommendations ................................................................................................................................. 5 2. Objectives and Summary Assessment ........................................................................................... 5 3. Detailed Findings ............................................................................................................................ 7 Appendix 1 – Action Plan ..................................................................................................................... 10 Appendix 2 – Audit Opinion ................................................................................................................. 13 Contact Details Internal Auditor: Moira Weatherstone and Annemarie McLean Telephone: 01546 604146 e-mail: moira.weatherstone@argyll.bute.gov.uk www.argyll-bute.gov.uk
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3 Argyll and Bute Council – Internal Audit Report – Non-Domestic Rates (NDR), December 2024 Classification: OFFICIAL 1. Executive Summary Introduction 1. As part of the 2024/25 internal audit plan, approved by the Audit & Scrutiny Committee in March 2024, we have undertaken an audit of Argyll and Bute Council’s (the Council) system of internal control and governance in relation to Non-Domestic Rates (NDR). 2. The audit was conducted in accordance with the Public Sector Internal Audit Standards (PSIAS) with our conclusions based on discussions with council officers and the information available at the time the fieldwork was performed. The findings outlined in this report are only those which have come to our attention during the course of our normal audit work and are not necessarily all the issues which may exist. Appendix 1 to this report includes agreed actions to strengthen internal control however it is the responsibility of management to determine the extent of the internal control system appropriate to the Council. 3. The contents of this report have been agreed with the appropriate council officers to confirm factual accuracy and appreciation is due for the cooperation and assistance received from all officers over the course of the audit. Background 4. Non-domestic rates (NDR), often referred to as business rates, are levied on non-domestic properties, subject to statutory exemptions and reliefs. The NDR framework for Scotland is devolved to the Scottish Parliament and Scottish Government. 5. The administration of NDR, including billing, collection, enforcement and determination of rates relief, is undertaken by local authorities. A ratepayer may appeal their bill to the council on the grounds that they are being improperly charged. 6. Valuation of non-domestic properties is undertaken independently by the Scottish Assessors. Scottish Ministers annually set a national poundage, plus any supplements, which are applied to a property’s rateable value (RV). Charges are based on rateable values which are calculated by assessors, with each area having its own assessor. The Assessors are independent of the Council and also cover West Dunbartonshire and East Dunbartonshire Council’s. Local councils use ‘rateable value’ of a property to calculate business rates which are set by the Scottish Government on an annual basis. There are three different tax rates applied: The basic property rate or ‘poundage’ of 49.8p for properties with rateable values up to £51k; The intermediate property rate of 54.5p for properties with a rateable values from £51,001 to £100,000; The higher rate property rate of 55.9p for properties with rateable values more than £100,000. 7. Certain types of properties are statutorily exempt from NDR, either through exclusion from the valuation roll (e.g. agricultural land and buildings) or exemption from NDR (e.g. churches, lighthouses and fishing), the effect of these being that the property is not liable for rates.
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4 Argyll and Bute Council – Internal Audit Report – Non-Domestic Rates (NDR), December 2024 Classification: OFFICIAL 8. There are numerous reliefs available, some reliefs are mandatory (i.e. they must be applied) and some are discretionary (i.e. local authorities have discretion as to their application). Determination of each relief by the council is generally based on an application from the rateable occupier (for some reliefs an application is statutorily required). A completed application form signed and dated by the rateable occupier is necessary for the local authority to begin its consideration. Examples of Relief’s available include if the property: Has a small rateable value (Small Business Bonus Scheme - SBBS) Is in a rural area; Is used for charitable or religious purposes; Has a new occupant, but was empty for more than 6 months before. 9. Changes to the business rates system, following an independent review commissioned by the Scottish Government are being implemented. In 2024 to 2025 the Scottish Governments announced: the introduction of 100% relief (effective 1st April 2024), capped at £110,000 per ratepayer, for hospitality properties on islands as defined by the Islands (Scotland) Act 2018; an extension of 90% renewables District Heating relief until 31 March 2027 and an expansion to include all district heating networks where at least 80% of the thermal energy generated derives from renewables; an extension of telecommunications mobile mast relief to 31 March 2031; phasing out of Enterprise Areas relief over 2024/25 and 2025/26; the unit of measurement for the letting requirements changed to nights; the introduction of a deadline for responding to requests from Assessors for evidence of letting. Scope 10. The scope of the audit was to review and assess the application and administration of NDR relief types. In addition, to include consideration of the current appeals process and whether it is sufficient in terms of the legislation as outlined in the Terms of Reference agreed with the Revenues and Benefits Manager on 12 July 2024. Key Dates 11. The Terms of Reference provided provisional timescales for the review to take place, the actual dates are noted below. Exhibit 1 – Key Dates Stage Actual Date Terms of Reference agreed 12 July 2024 Fieldwork Commencement 22 July 2024 Draft Report issued 12 September 2024 Management Comments received 27 November 2024 Final Report issued 05 December 2024 Audit and Scrutiny Committee 17 December 2024
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5 Argyll and Bute Council – Internal Audit Report – Non-Domestic Rates (NDR), December 2024 Classification: OFFICIAL Risks 12. The risks considered throughout the audit were: Audit Risk 1 - failure to have policies and procedures in place for the administration of NDR Reliefs Audit Risk 2: failure to implement and follow policies and procedures for the administration of NDR Reliefs Audit Risk 3: failure to have an effective appeals process in place which reflects our legislative requirements Audit Opinion 13. We provide an overall audit opinion for all the audits we conduct. This is based on our judgement on the level of assurance which we can take over the established internal controls, governance and management of risk as evidenced by our audit work. Full details of the five possible categories of audit opinion is provided in Appendix 2 to this report. 14. Our overall audit opinion for this audit is that we can take a substantial level of assurance. This means that internal control, governance and the management of risk is sound. However, there are minor areas of weakness which put some system objectives at risk and specific elements of residual risk that are slightly above an acceptable level and need to be addressed within a reasonable timescale. Recommendations 15. We have highlighted, 3 medium priority recommendations where we believe there is scope to strengthen the control and governance environment. These are summarised below: Processes should be put in place to ensure that those claiming SBBS reliefs are entitled to the relief they have been awarded and are still trading There would be benefit to updating application forms, web forms and declarations to highlight the joint and several liability of NDR Reliefs, with consideration given to collecting the details of all liable parties. Additionally, it should be mandatory to provide an email address and mobile phone number Procedures should be put in place for the management of the appeals process that provides independence from the Revenues & Benefits for example, an independent panel set up and trained to hear NDR appeals 16. Full details of the audit findings, recommendations and management responses can be found in Section 3 of this report and in the action plan at Appendix 1. 2. Objectives and Summary Assessment 17. Exhibit 1 sets out the control objectives identified during the planning phase of the audit and our assessment against each objective.
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6 Argyll and Bute Council – Internal Audit Report – Non-Domestic Rates (NDR), December 2024 Classification: OFFICIAL Exhibit 1 – Summary Assessment of Control Objectives Control Objective Link to Risk Assessment Summary Conclusion 1 Policies and procedures are in place for the application and administration of NDR reliefs Audit Risk 1 Substantial Policies and procedures are largely driven by legislation, with regular annual updates provided by the Scottish Government. Standard procedures, dated October 2023 are in place, this document covers Business Rates - liability, changes and business rates relief. The document also provides flow charts to a standard approach to gathering information /evidence. Process maps are detailed on the NDR database to assist staff in the processing of data. In addition, on an annual basis the Scottish Government provide regular bulletins as updates, however, this document is not statutory. The document aims to inform a mutual understanding amongst local authority practitioners. It includes general information relating across the different reliefs, and specific information relating to each relief. Detailed information about the reliefs available are found on the Council website including standard application forms to be completed for each category of relief. Application for relief can be made online. A completed application form signed/submitted and dated by the rateable occupier is necessary for the local authority to begin its consideration. 2 Policies and procedures for the administration of NDR Reliefs are being followed Audit Risk 2 Reasonable A considerable amount of what staff do within the NDR relief section involves gathering information from customers and inputting it on the IT System. By law we need to take reasonable steps to verify some of this information but often the Council have discretion in how that is done. In addition, the Council have discretion on how and why we require other information to be verified more generally. Whilst the document states that “gathering supporting information or evidence is a critical element in setting up and amending Business Rates Liabilities and administering Business Rates Reliefs. A consistent
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7 Argyll and Bute Council – Internal Audit Report – Non-Domestic Rates (NDR), December 2024 Classification: OFFICIAL and standard approach to verification is critical in enabling accurate and efficient service delivery”, during the testing process of records it was found that there was very little in the way of supporting documentation to substantiate claims for reliefs, in particular for SBBS relief. Where businesses are jointly owed, liability for NDR is joint and several, however, at present, only one party is required to complete the application/ declaration. In addition, it is not mandatory to include an email address and phone number. Thirty properties were selected testing, across a mix of available reliefs noted below. All records tested were found to comply with Council procedures and published guidelines. 3 An appeals process is in place which meets legislative requirements Audit Risk 3 Limited There is very little guidance available to the Council to support how NDR relief appeals should be managed, therefore the Council have adopted their own system and processes. Within the Council, there is no written protocol for appealing a decision for the awarding of NDR reliefs. Ratepayers can contact the Revenues & Benefits Manager regarding a decision they do not agree with, however this lacks independence from the section. In addition, there is no appeals process or an independent panel set up and trained to hear NDR appeals. 18. Further details of our conclusions against each control objective can be found in Section 3 of this report. 3. Detailed Findings Policies and procedures are in place for the application and administration of NDR reliefs 19. Policies and procedures are in place for the application and administration of NDR reliefs, including detailed process maps. Valuation of non-domestic properties is undertaken independently by the Scottish Assessors, subject to statutory appeal processes. Scottish Ministers annually set a national poundage, which is applied to a property’s rateable value (RV). Rating, including billing, collection, enforcement and determination of rates relief, is undertaken by local authorities. The independent assessors are responsible for imputing customers on the
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8 Argyll and Bute Council – Internal Audit Report – Non-Domestic Rates (NDR), December 2024 Classification: OFFICIAL NDR shared database. The administration of NDR, including billing, collection, enforcement and determination of rates relief, is undertaken by local authorities. 20. Policies and procedures are largely driven by legislation, with regular annual updates provided by the Scottish Government. Standard procedures, dated October 2023 are in place, this document covers Business Rates - Liability, Changes & Business Rates Relief. The document also provides flow charts to a standard approach to gathering information/evidence. 21. On an annual basis the Scottish Government provide regular bulletins as updates, however, this document is not statutory in application. The document aims to inform a mutual understanding amongst local authority practitioners. It includes general information relating across the different reliefs, and specific information relating to each relief. It also outlines that “Given their responsibilities for managing public funds, it is up to local authorities to ensure that procedures for administering relief, including reviewing and re-application processes, are suitably robust, including for audit purposes”. 22. A completed application form signed/submitted and dated by the rateable occupier is necessary for the local authority to begin its consideration for reliefs. Local authorities may accept applications by email. Applications for NDR relief are available on the Councils website where rateable occupiers can choose to either complete this online or print and return via post. 23. On 31 January 2019 the Scottish Government committed to devolving Empty Property Relief (EPR) to councils in time for the next revaluation. However, both the revaluation and the devolution of EPR were delayed because of the pandemic and the go-live date for the devolved EPR became 1 April 2023. In January 2023 the Scottish Government announced funding of £0.608m per annum for Argyll and Bute for each of the three financial years from 2023/2024 to 2025/2026 as a contribution towards the cost of EPR. Policies and procedures for the administration of NDR Reliefs are being followed 24. A considerable amount of what staff do within the NDR relief section involves gathering information from customers and inputting on the IT System. By law we need to take reasonable steps to verify some of this information but often the Council have discretion in how that is done. In addition, the Council have discretion on how and why we require other information to be verified more generally. 25. Whilst the procedure document states that “gathering supporting information or evidence is a critical element in setting up and amending Business Rates Liabilities and administering Business Rates Reliefs. A consistent and standard approach to verification is critical in enabling accurate and efficient service delivery”, during the testing process of records it was found that there was very little in the way of supporting documentation to substantiate claims for reliefs, in particular for SBBS relief. There are no further checks undertaken to ensure that where relief is applied that the business is still trading and entitled to the relief. Action Plan 1 26. Where businesses are jointly owned, liability for NDR is joint and several, however, at present, only one party is required to complete the application form and declaration. In addition, it is not mandatory to include an email address and mobile phone number as part of the contact details.
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9 Argyll and Bute Council – Internal Audit Report – Non-Domestic Rates (NDR), December 2024 Classification: OFFICIAL Action Point 2 27. Thirty properties were selected testing, across a mix of available reliefs noted below. All records tested were found to comply with Council procedures and published guidelines. 28. As noted in paragraph 23 above, setting EPR relief rates has been devolved to the Council. In 2023/24 being the first year, the Council, like most other Local Authorities, adopted the Scottish Government rates to provide time to carry out a consultation prior to deciding what the Councils EPR rates would be. This current year 2024/2025 has seen the introduction of the reduced reliefs, so there is no comparable historic data. The service is monitoring the launch and is gathering the information from this year in relation to income and the impact on collection rates and staff workload. Due to no baseline data, we cannot comment on EPR at this time but this will be reviewed in the future when comparable information is available and the effects of the new policy are known. An appeals process is in place which meets legislative requirements 29. There is very little guidance available to the Council to support how NDR relief appeals should be managed, therefore the Council have adopted their own system and processes. 30. Within the Council, there is no written process for appealing a decision for the awarding of NDR reliefs. Ratepayers can contact the Revenues & Benefits Manager regarding a decision they do not agree with, however, this lacks independence from the section. In addition, there is no appeals process or an independent panel set up and trained to hear NDR appeals. Action Point 3 Category of relief Records tested Discretionary Charities 1 Empty Property Exemptions (other)/ Empty Local Relief 5 General Revaluation Transitional Relief 2 Islands and Remote Areas Hospitality Relief 4 Mandatory Charity Relief 1 Small Business Bonus Scheme 11 Small Business Bonus Scheme (Charitable org) 1 Unoccupied/Partly Occupied Property Relief 5 Grand Total 30
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Classification: OFFICIAL Appendix 1 – Action Plan No Finding Risk Agreed Action Responsibility / Due Date Medium 1 Entitlement to SBBS Relief During the testing process of records it was found that there was very little in the way of supporting documentation to substantiate claims for reliefs, in particular for SBBS relief. There are no further checks undertaken to ensure that where relief is applied that the business is still trading and entitled to this relief. Increased risk of wrong NDR Reliefs being applied SBBS is reviewed a minimum of every two years by the NDR team. Over and above that review the team will produce an annual schedule to check and verify that the properties in receipt of SBBS are still in active use. Some of this review will be desk based however a list of higher risk properties will be split by area and issued to Council Officers operating in that area for inspection and manual verification. Any other reliefs that are deemed higher risk can be added to the inspection/verification list. The first schedule will be drafted by 31 March 2025 for the 2025/2026 year. Revenues and Benefits Manager Prepare Schedule 31 March 2025 Revenues and Benefits Operations Manager, ensure schedule is followed and NDR system updated with any changes. All of SBBS recipients in main settlements in Argyll and Bute to be reviewed by 31 March 2026 Medium 2 Relevant Information Where businesses are jointly owned, liability for NDR is joint and several, however, at present, only one party is required to complete the application/declaration. In addition, it is not mandatory to provide an email or mobile phone number. Inability to contact rate payer All online application forms for NDR relief require an email address to complete. We will liaise with the Council’s web team to update online forms to make mobile phone numbers also mandatory. Any forms that are printed out by the applicant and posted to the Council will be checked by an NDR Assessor and any missing contact details will be followed up by the team. No relief will be granted NDR and Debtors Team Leader 30 June 2025
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11 Argyll and Bute Council – Internal Audit Report – Non-Domestic Rates (NDR), December 2024 Classification: OFFICIAL No Finding Risk Agreed Action Responsibility / Due Date without contact details being confirmed. It will be clear that mobile phone number and email address are mandatory fields to complete for the applicant for every channel of contact. Medium 3 Appeals Process At present there is no written appeals process, however, rate payers can appeal a decision by contacting the Revenues & Benefits Manager. In addition, there is no appeals process or an independent panel set up and trained to hear NDR appeals. Lack of independence in the appeals process Service to write a paper for Departmental Management Teams seeking Senior Officers to be on a panel to hear any NDR appeals. A new two tier procedure will be drawn up to include an internal review by Senior Revenues and Benefits Management before a tier 2 review by an independent panel of two Officers one of which should be legally trained. Panel members will be given formal training on NDR and reliefs in advance of hearing any appeals. Revenues and Benefits Manager 31 March 2026
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12 Argyll and Bute Council – Internal Audit Report – Non-Domestic Rates (NDR), December 2024 Classification: OFFICIAL In order to assist management in using our reports a system of grading audit findings has been adopted to allow the significance of findings to be ascertained. The definitions of each classification are as follows: Grading Definition High A major observation on high level controls and other important internal controls or a significant matter relating to the critical success of the objectives of the system. The weakness may therefore give rise to loss or error. Medium Observations on less significant internal controls and/or improvements to the efficiency and effectiveness of controls which will assist in meeting the objectives of the system. The weakness is not necessarily substantial however the risk of error would be significantly reduced if corrective action was taken. Low Minor recommendations to improve the efficiency and effectiveness of controls or an isolated issue subsequently corrected. The weakness does not appear to significantly affect the ability of the system to meet its objectives. VFM An observation which does not highlight an issue relating to internal controls but represents a possible opportunity for the council to achieve better value for money (VFM).
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13 Argyll and Bute Council – Internal Audit Report – Non-Domestic Rates (NDR), December 2024 Classification: OFFICIAL Appendix 2 – Audit Opinion Level of Assurance Definition High Internal control, governance and the management of risk are at a high standard. Only marginal elements of residual risk have been identified with these either being accepted or dealt with. A sound system of control designed to achieve the system objectives is in place and being applied consistently. Substantial Internal control, governance and the management of risk is sound. However, there are minor areas of weakness which put some system objectives at risk and specific elements of residual risk that are slightly above an acceptable level and need to be addressed within a reasonable timescale. Reasonable Internal control, governance and the management of risk are broadly reliable. However, whilst not displaying a general trend, there are areas of concern which have been identified where elements of residual risk or weakness may put some of the system objectives at risk. Limited Internal control, governance and the management of risk are displaying a general trend of unacceptable residual risk above an acceptable level and placing system objectives are at risk. Weakness must be addressed with a reasonable timescale with management allocating appropriate resources to the issues raised. No Assurance Internal control, governance and the management of risk is poor. Significant residual risk and/or significant non-compliance with basic controls exists leaving the system open to error, loss or abuse. Residual risk must be addressed immediately with management allocating appropriate resources to the issues.