Public reports pack
Argyll and Bute Council · 22 November 2022
Back to Audit and Scrutiny Committee — 22 November 2022 and its agenda
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Argyll and Bute Council Comhairle Earra-Ghàidheal Agus Bhòid Executive Director: Douglas Hendry Kilmory, Lochgilphead, PA31 8RT Tel: 01546 602127 Fax: 01546 604435 DX 599700 LOCHGILPHEAD 15 November 2022 NOTICE OF MEETING A Special meeting of the AUDIT AND SCRUTINY COMMITTEE will be held BY MICROSOFT TEAMS on TUESDAY, 22 NOVEMBER 2022 at 3:00 PM, which you are requested to attend. Douglas Hendry Executive Director BUSINESS 1. APOLOGIES FOR ABSENCE 2. DECLARATIONS OF INTEREST 3. 2021-22 PROPOSED INDEPENDENT AUDITORS REPORT (Pages 3 - 54) Report by Audit Scotland 4. 2021-22 ARGYLL AND BUTE COUNCIL - ISA 580 LETTER OF REPRESENTATION (Pages 55 - 58) Section 95 Officer 5. 2021-22 ARGYLL AND BUTE COUNCIL TRUST FUNDS - ISA 580 LETTER OF REPRESENTATION (Pages 59 - 62) Section 95 Officer 6. 2021-22 AUDITED ANNUAL ACCOUNTS - TO FOLLOW Report by Section 95 Officer Audit and Scrutiny Committee Martin Caldwell (Chair) Councillor Daniel Hampsey Councillor Graham Hardie Councillor Mark Irvine Councillor Reeni Kennedy-Boyle Councillor Jim Lynch (Vice-Chair) Councillor Andrew Vennard Shona Barton, Committee Manager Contact: Lynsey Innis, Senior Committee Assistant, Tel: 01546 604338 Public Document Pack
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8 Nelson Mandela Place Glasgow G2 1BT T: 0131 625 1500 E: info@audit-scotland.gov.uk www.audit-scotland.gov.uk 22 November 2022 Argyll and Bute Council - Audit and Scrutiny Committee Audit of 2021/22 annual accounts Independent auditor's report 1. Our audit work on the 2021/22 annual report and accounts is now substantially complete. Subject to receipt of a revised set of annual accounts for final review, we anticipate being able to issue unqualified audit opinions in the independent auditor's report on 24 November 2022 (the proposed report is attached at Appendix A). Annual audit report 2. Under International Standards on Auditing in the UK we report specific matters arising from the audit of the financial statements to those charged with governance in sufficient time to enable appropriate action. We present for the Audit and Scrutiny Committee’s consideration our draft 2021/22 Annual Audit Report. The section headed "Significant findings from the audit in accordance with ISA 260" sets out the issues identified in respect of the annual accounts. The report also sets out conclusions from our consideration of the four audit dimensions that frame the wider scope of public audit as set out in the Code of Audit Practice. This report will be issued in final form after the annual report and accounts have been certified. Unadjusted misstatements 3. We also report to those charged with governance all unadjusted misstatements which we have identified during our audit, other than those of a trivial nature, and request that these misstatements be corrected. We have no unadjusted misstatements to bring to your attention. Fraud, subsequent events and compliance with laws and regulations 4. In presenting this report to the Audit and Scrutiny Committee we seek confirmation from those charged with governance of any instances of any actual, suspected or alleged fraud; any subsequent events that have occurred since the date of the financial statements; or material non-compliance with laws and regulations affecting the entity that should be brought to our attention. Representations from the Section 95 Officer 5. As part of the completion of our audit, we are seeking written representations from the Section 95 Officer on aspects of the annual report and accounts including the judgements and estimates made. A draft letter of representation is attached at Appendix B. This should be signed and returned to us by the Section 95 Officer with the signed annual report and accounts prior to the independent auditor’s report being certified. Page 3 Agenda Item 3
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Appendix A: Proposed Independent Auditor’s Report Independent auditor’s report to the members of Argyll and Bute Council and the Accounts Commission Reporting on the audit of the financial statements Opinion on financial statements I certify that I have audited the financial statements in the annual accounts of Argyll and Bute Council and its group for the year ended 31 March 2022 under Part VII of the Local Government (Scotland) Act 1973. The financial statements comprise the group and council-only Statements of Comprehensive Income and Expenditure, Balance Sheets, Statements of Movement in Reserves, and Cash Flow Statements, notes to the financial statements, including a summary of significant accounting policies and council-only Expenditure and Funding Analysis, Council Tax Income Account, and Non-Domestic Rate Income Account. The financial reporting framework that has been applied in their preparation is applicable law and UK adopted international accounting standards, as interpreted and adapted by the Code of Practice on Local Authority Accounting in the United Kingdom 2021/22 (the 2021/22 Code). In my opinion the accompanying financial statements: • give a true and fair view in accordance with applicable law and the 2021/22 Code of the state of affairs of the council and its group as at 31 March 2022 and of the income and expenditure of the council and its group for the year then ended; • have been properly prepared in accordance with UK adopted international accounting standards, as interpreted and adapted by the 2021/22 Code; and • have been prepared in accordance with the requirements of the Local Government (Scotland) Act 1973, The Local Authority Accounts (Scotland) Regulations 2014, and the Local Government in Scotland Act 2003. Basis for opinion I conducted my audit in accordance with applicable law and International Standards on Auditing (UK) (ISAs (UK)), as required by the Code of Audit Practice approved by the Accounts Commission for Scotland. My responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of my report. I was appointed by the Accounts Commission on 26 September 2022. The period of total uninterrupted appointment is one year. I am independent of the council and its group in accordance with the ethical requirements that are relevant to my audit of the financial statements in the UK including the Financial Reporting Council’s Ethical Standard, and I have fulfilled my other ethical responsibilities in accordance with these requirements. Non-audit services prohibited by the Ethical Standard were not provided to the council. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion. Page 4
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Conclusions relating to going concern basis of accounting I have concluded that the use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Based on the work I have performed, I have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the ability of the council and its group to continue to adopt the going concern basis of accounting for a period of at least twelve months from when the financial statements are authorised for issue. These conclusions are not intended to, nor do they, provide assurance on the current or future financial sustainability of the council and its group. However, I report on the council’s arrangements for financial sustainability in a separate Annual Audit Report available from the Audit Scotland website. Risks of material misstatement I report in my Annual Audit Report the most significant assessed risks of material misstatement that I identified and my judgements thereon. Responsibilities of the Section 95 Officer and Argyll and Bute Council’s Audit and Scrutiny Committee for the financial statements As explained more fully in the Statement of Responsibilities, the Section 95 Officer is responsible for the preparation of financial statements that give a true and fair view in accordance with the financial reporting framework, and for such internal control as the Section 95 Officer determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Section 95 Officer is responsible for assessing the ability of the council and its group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless there is an intention to discontinue the operations of the council and its group. The Audit and Scrutiny Committee is responsible for overseeing the financial reporting process. Auditor’s responsibilities for the audit of the financial statements My objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decisions of users taken on the basis of these financial statements. Irregularities, including fraud, are instances of non-compliance with laws and regulations. I design procedures in line with my responsibilities outlined above to detect material misstatements in respect of irregularities, including fraud. Procedures include: Page 5
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• obtaining an understanding of the applicable legal and regulatory framework and how the council and its group is complying with that framework; • identifying which laws and regulations are significant in the context of the council and its group; • assessing the susceptibility of the financial statements to material misstatement, including how fraud might occur; and • considering whether the audit team collectively has the appropriate competence and capabilities to identify or recognise non-compliance with laws and regulations. The extent to which my procedures are capable of detecting irregularities, including fraud, is affected by the inherent difficulty in detecting irregularities, the effectiveness of the council’s controls, and the nature, timing and extent of the audit procedures performed. Irregularities that result from fraud are inherently more difficult to detect than irregularities that result from error as fraud may involve collusion, intentional omissions, misrepresentations, or the override of internal control. The capability of the audit to detect fraud and other irregularities depends on factors such as the skilfulness of the perpetrator, the frequency and extent of manipulation, the degree of collusion involved, the relative size of individual amounts manipulated, and the seniority of those individuals involved. A further description of the auditor’s responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website www.frc.org.uk/auditorsresponsibilities. This description forms part of my auditor’s report. Reporting on other requirements Opinion prescribed by the Accounts Commission on the audited part of the Remuneration Report I have audited the part of the Remuneration Report described as audited. In my opinion, the audited part of the Remuneration Report has been properly prepared in accordance with The Local Authority Accounts (Scotland) Regulations 2014. Other information The Section 95 Officer is responsible for other information in the annual accounts. The other information comprises the Management Commentary, Annual Governance Statement, Statement of Responsibilities and the unaudited part of the Remuneration Report. My responsibility is to read all the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or my knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If I identify such material inconsistencies or apparent material misstatements, I am required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work I have performed, I conclude that there is a material misstatement of this other information, I am required to report that fact. I have nothing to report in this regard. My opinion on the financial statements does not cover the other information and I do not express any form of assurance conclusion thereon except on the Management Commentary Page 6
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and Annual Governance Statement to the extent explicitly stated in the following opinions prescribed by the Accounts Commission. Opinions prescribed by the Accounts Commission on the Management Commentary and Annual Governance Statement In my opinion, based on the work undertaken in the course of the audit: • the information given in the Management Commentary for the financial year for which the financial statements are prepared is consistent with the financial statements and that report has been prepared in accordance with statutory guidance issued under the Local Government in Scotland Act 2003; and • the information given in the Annual Governance Statement for the financial year for which the financial statements are prepared is consistent with the financial statements and that report has been prepared in accordance with the Delivering Good Governance in Local Government: Framework (2016). Matters on which I am required to report by exception I am required by the Accounts Commission to report to you if, in my opinion: • adequate accounting records have not been kept; or • the financial statements and the audited part of the Remuneration Report are not in agreement with the accounting records; or • I have not received all the information and explanations I require for my audit; or • there has been a failure to achieve a prescribed financial objective. I have nothing to report in respect of these matters. Conclusions on wider scope responsibilities In addition to my responsibilities for the annual accounts, my conclusions on the wider scope responsibilities specified in the Code of Audit Practice, including those in respect of Best Value, are set out in my Annual Audit Report. Page 7
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Use of my report This report is made solely to the parties to whom it is addressed in accordance with Part VII of the Local Government (Scotland) Act 1973 and for no other purpose. In accordance with paragraph 120 of the Code of Audit Practice, I do not undertake to have responsibilities to members or officers, in their individual capacities, or to third parties. Pauline Gillen CPFA Audit Director Audit Scotland 4th Floor, South Suite Athenaeum Building 8 Nelson Mandela Place Glasgow G2 1BT 24 November 2022 Page 8
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Appendix B: Letter of Representation (ISA 580) Pauline Gillen, Audit Director Audit Scotland 4th Floor, South Suite Athenaeum Building 8 Nelson Mandela Place Glasgow G2 1BT 24 November 2022 Dear Pauline Argyll and Bute Council Annual Accounts 2021/22 1. This representation letter is provided about your audit of the annual accounts of Argyll and Bute Council for the year ended 31 March 2022 for the purpose of expressing an opinion as to whether the financial statements give a true and fair view in accordance with the financial reporting framework, and for expressing other opinions on the remuneration report, management commentary and annual governance statement. 2. I confirm to the best of my knowledge and belief and having made appropriate enquiries of the Chief Executive and Strategic Management Team, the following representations given to you in connection with your audit of Argyll and Bute Council’s annual accounts for the year ended 31 March 2022. General 3. Argyll and Bute Council and I have fulfilled our statutory responsibilities for the preparation of the 2021/22 annual accounts. All the accounting records, documentation and other matters which I am aware are relevant to the preparation of the annual accounts have been made available to you for the purposes of your audit. All transactions undertaken by Argyll and Bute Council have been recorded in the accounting records and are properly reflected in the financial statements. 4. I confirm that the effects of uncorrected misstatements are immaterial, individually and in aggregate, to the financial statements as a whole. I am not aware of any uncorrected misstatements other than those reported by you. Financial Reporting Framework 5. The annual accounts have been prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom 2021/22 (2021/22 accounting code), and in accordance with the requirements of the Local Government (Scotland) Act 1973, the Local Government in Scotland Act 2003 and The Local Authority Accounts (Scotland) Regulations 2014. 6. In accordance with the 2014 regulations, I have ensured that the financial statements give a true and fair view of the financial position of the Argyll and Bute Council and its Group at 31 March 2022 and the transactions for 2021/22. Page 9
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Accounting Policies & Estimates 7. All significant accounting policies applied are as shown in the notes to the financial statements. The accounting policies are determined by the 2021/22 accounting code where applicable. Where the code does not specifically apply I have used judgement in developing and applying an accounting policy that results in information that is relevant and reliable. All accounting policies applied are appropriate to Argyll and Bute Council circumstances and have been consistently applied. 8. The significant assumptions used in making accounting estimates are reasonable and properly reflected in the financial statements. Judgements used in making estimates have been based on the latest available, reliable information. Estimates have been revised where there are changes in the circumstances on which the original estimate was based or as a result of new information or experience. Going Concern Basis of Accounting 9. I have assessed Argyll and Bute Council’s ability to continue to use the going concern basis of accounting and have concluded that it is appropriate. I am not aware of any material uncertainties that may cast significant doubt on Argyll and Bute Council’s ability to continue as a going concern. Assets 10. Where a rolling programme of asset valuations has been used, I have satisfied myself that the carrying amount of assets at 31 March 2022 does not differ materially from that which would be determined if a revaluation had been carried out at that date. 11. I carried out an assessment at 31 March 2022 as to whether there is any indication that an asset may be impaired and have recognised any impairment losses identified. 12. I have provided you with all information of which I am aware regarding any valuation exercises carried out after 31 March 2022. 13. There are no plans or intentions that are likely to affect the carrying value or classification of the assets recognised within the financial statements. 14. Owned assets are free from any lien, encumbrance or charge except as disclosed in the financial statements. Liabilities 15. All liabilities at 31 March 2022 of which I am aware have been recognised in the annual accounts. 16. Provisions have been recognised in the financial statements for all liabilities of uncertain timing or amount at 31 March 2022 of which I am aware where the conditions specified in the 2021/22 accounting code have been met. The amount recognised as a provision is the best estimate of the expenditure likely to be required to settle the obligation at 31 March 2022. Where the effect of the time value of money is material, the amount of the provision has been discounted to the present value of the expected payments. 17. Provisions recognised in previous years have been reviewed and adjusted, where appropriate, to reflect the best estimate at 31 March 2022 or to reflect material changes in the assumptions underlying the calculations of the cash flows. Page 10
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18. The accrual recognised in the financial statements for holiday untaken by 31 March 2022 has been estimated on a reasonable basis. 19. The pension assumptions made by the actuary in the IAS 19 report for Argyll and Bute Council have been considered and I confirm that they are consistent with management's own view. 20. There are no plans or intentions that are likely to affect the carrying value or classification of the liabilities recognised in the financial statements. Contingent liabilities 21. There are no significant contingent liabilities, other than those disclosed in Note 34 to the financial statements, arising either under formal agreement or through formal undertakings requiring disclosure in the accounts. All known contingent liabilities have been fully and properly disclosed, including any outstanding legal claims which have not been provided under the Code of Practice on Local Authority Accounting in the United Kingdom 2021/22 and IAS 37. Fraud 22. I have provided you with all information in relation to: − my assessment of the risk that the financial statements may be materially misstated because of fraud − any allegations of fraud or suspected fraud affecting the financial statements − fraud or suspected fraud that I am aware of involving management, employees who have a significant role in internal control, or others that could have a material effect on the financial statements. Laws and Regulations 23. I have disclosed to you all known instances of non-compliance or suspected non- compliance with laws and regulations whose effects should be considered when preparing financial statements. Related Party Transactions 24. All material transactions with related parties have been appropriately accounted for and disclosed in the financial statements in accordance with the 2021/22 accounting code. I have made available to you the identity of all the Argyll and Bute Council’s related parties and all the related party relationships and transactions of which I am aware. Remuneration Report 25. The Remuneration Report has been prepared in accordance with the Local Authority Accounts (Scotland) Amendment Regulations 2014, and all required information of which I am aware has been provided to you. Management Commentary 26. I confirm that the Management Commentary has been prepared in accordance with the statutory guidance and the information is consistent with the financial statements. Corporate Governance 27. I confirm that the Argyll and Bute Council has undertaken a review of the system of internal control during 2021/22 to establish the extent to which it complies with proper practices set out Page 11
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in the Delivering Good Governance in Local Government: Framework 2016. I have disclosed to you all deficiencies in internal control identified from this review or of which I am otherwise aware. 28. I confirm that the Annual Governance Statement has been prepared in accordance with the Delivering Good Governance in Local Government: Framework 2016 and the information is consistent with the financial statements. There have been no changes in the corporate governance arrangements or issues identified, since 31 March 2022, which require to be reflected. Group Accounts 29. I have identified all the other entities in which Argyll and Bute Council has a material interest and have classified and accounted for them in accordance with the 2021/22 accounting code. Any significant issues with the financial statements of group entities, including any qualified audit opinions, have been advised to you. Events Subsequent to the Date of the Balance Sheet 30. All events subsequent to 31 March 2022 for which the 2021/22 accounting code requires adjustment or disclosure have been adjusted or disclosed. Common Good Fund 31. I can confirm, to the best of my ability, that all material common good assets have been identified and correctly accounted for within the common good financial statements and where appropriate, common good assets in use by the Council have been assessed and accounted for in line with IAS 17. This letter was presented to and agreed by the Audit and Scrutiny Committee on 22 November 2022. Yours sincerely Kirsty Flanagan Section 95 Officer 24 November 2022 Page 12
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Prepared for the Members of Argyll & Bute Council and the Controller of Audit November 2022 Argyll & Bute Council 2021/22 Annual Audit Report Page 13
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Argyll & Bute Council 2021/22 Annual Audit Report | 2 Contents Key messages 3 Introduction 5 1. Audit of 2021/22 annual accounts 8 2. Financial management 17 3. Financial sustainability 25 4. Governance and transparency 29 5. Best Value 31 Appendix 1. Action plan 2021/22 34 Appendix 2. Significant audit risks identified during planning 36 Appendix 3. BVAR Recommendations (May 2020) 39 Appendix 4. Summary of 2021/22 national performance reports and briefings 40 Page 14
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Key messages | 3 Key messages 2021/22 annual accounts 1 The Covid-19 pandemic has continued to create additional challenges for Council and audit staff alike. As a result of this, the statutory deadline to publish the audited 2021/22 annual accounts was revised to 30 November 2022. 2 The Council prepared its annual accounts for the year within agreed timescales and the accounts and associated working papers have been prepared to a high standard. 3 We requested that management carried out an additional assessment of the high value assets that were not due to be valued in the current financial year as part of the 5-year rolling programme of revaluations. As a result of this work, the estimated value of non-current assets increased by £29.9 million. There was no impact on the Council’s general fund. 4 Following the adjustment to the value of non-current assets, our audit opinions on the annual accounts of the Council and its group are unmodified and confirm that the 2021/22 Financial Statements present a true and fair view of the financial activities of the Council and its group. Similarly, our audit opinion on the eight section 106 charities administered by the Council are unmodified. Financial management 5 The Council reported a surplus of £1.6 million after adjusting for transfers to earmarked reserves. This was as a result of underspends at departmental level, in addition to an overall favourable recovery of Council Tax. 6 There has been a significant increase in the level of General Fund reserves. Overall, earmarked reserves increased by £17.8 million. The majority of this increase largely related to the timing of Scottish Government funding that was unspent at the year-end. 7 The Council has appropriate and effective financial management in place that allow members to scrutinise financial performance effectively. Financial sustainability 8 Medium-term financial plans have been developed for the period 2023/24 to 2027/28 and the Council has identified a cumulative budget deficit of £33.0 Page 15
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Key messages | 4 million over this period. As part of its financial planning, the Council continues to explore savings proposals and service redesign options. 9 The Council should continue to review and update its medium-term financial plan as the financial consequences of Covid-19 and the cost-of-living pressures become fully determined. Governance and transparency 10 The Council has appropriate governance arrangements in place. We recognise that in responding to the Covid-19 pandemic, the Council has continued to revise its governance arrangements. The new arrangements are appropriate and support good governance and accountability. 11 There is effective scrutiny, challenge and informed decision making. Best Value 12 The Council has an appropriate and effective best value framework in place. 13 The Council continues to make positive progress addressing the recommendations contained in our May 2020 Best Value Assurance Report. Page 16
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Introduction | 5 Introduction 1. This report summarises the findings arising from the 2021/22 audit of Argyll & Bute Council (the Council) and its group. 2. The scope of the audit was set out in our 2021/22 Annual Audit Plan presented to the March 2022 meeting of the Audit and Scrutiny Committee. This report comprises the findings from: • an audit of the annual accounts • consideration of the four audit dimensions that frame the wider scope of public audit set out in the Code of Audit Practice 2016 namely, financial management, financial sustainability, governance and transparency and best value. 3. The main elements of our audit work in 2021/22 have been: • an audit of the annual accounts of the Council and its group including the statement of accounts of the eight Section 106 charities administered by the council and the issue of independent auditor's reports setting out our opinions • a review of the Council's key financial systems • audit work covering the Council's arrangements for securing best value • consideration of the four audit dimensions. 4. The global coronavirus pandemic has had a considerable impact on the Council during 2021/22. This has had significant implications for the services it delivers. We have continued to adapt the way we deliver our audit work to maintain quality and address any additional risks. Adding value through the audit 5. We add value to the Council through the audit by: • identifying and providing insight on significant risks, and making clear and relevant recommendations • providing clear and focused conclusions on the appropriateness, effectiveness and impact of corporate governance, performance management arrangements and financial sustainability • sharing intelligence and good practice through our national reports (Appendix 4) and good practice guides. Page 17
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Introduction | 6 Responsibilities and reporting 6. The Council has primary responsibility for ensuring the proper financial stewardship of public funds. This includes preparing annual accounts that are in accordance with proper accounting practices. 7. The Council is also responsible for compliance with legislation and putting arrangements in place for governance and propriety that enable it to successfully deliver its objectives. 8. Our responsibilities as independent auditor appointed by the Accounts Commission are established by the Local Government in Scotland Act 1973, the Code of Audit Practice 2016 and supplementary guidance, and International Standards on Auditing in the UK. 9. As public sector auditors we give independent opinions on the annual accounts. Additionally, we conclude on: • the effectiveness of the council’s performance management arrangements • the suitability and effectiveness of corporate governance arrangements, and financial position • the arrangements for securing financial sustainability and, • Best Value arrangements. 10. Further details of the respective responsibilities of management and the auditor can be found in the Code of Audit Practice 2016 and supplementary guidance. 11. This report raises matters from our audit. Weaknesses or risks identified are only those which have come to our attention during our normal audit work and may not be all that exist. Communicating these does not absolve management from its responsibility to address the issues we raise and to maintain adequate systems of control. 12. Our annual audit report contains an agreed action plan at Appendix 1 setting out specific recommendations, responsible officers and dates for implementation. It also includes outstanding actions from last year and the steps being taken to implement them. Auditor Independence 13. Auditors appointed by the Accounts Commission or Auditor General must comply with the Code of Audit Practice and relevant supporting guidance. When auditing the financial statements auditors must comply with professional standards issued by the Financial Reporting Council and those of the professional accountancy bodies. 14. We can confirm that we comply with the Financial Reporting Council’s Ethical Standard. We can also confirm that we have not undertaken any non- Page 18
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Introduction | 7 audit related services and therefore the 2021/22 audit fee of £272,110 as set out in our Annual Audit Plan remains unchanged. We are not aware of any relationships that could compromise our objectivity and independence. 15. This report is addressed to both the Council and the Controller of Audit and will be published on Audit Scotland's website www.audit-scotland.gov.uk in due course. Audit appointment from 2022/23 16. The Auditor General for Scotland is responsible for the appointment of external auditors to central government bodies. External auditors are usually appointed for a five-year term either from Audit Scotland’s Audit Services Group or a private firm of accountants. The current appointment round was due to end in 2020/21 but this was extended for a year so that 2021/22 is the last year of the current appointment round. 17. The procurement process for the new round of audit appointments was completed in May 2022. From financial year 2022/23, Mazars will be the appointed auditor for Argyll & Bute Council. We are working closely with the new auditors to ensure a well-managed transition. 18. A new Code of Audit Practice applies to public sector audits for financial years starting on or after 1 April 2022. It replaces the Code issued in May 2016. 19. We would like to thank Board members, Audit and Scrutiny Committee members, Executive Directors, and other staff, particularly those in finance for their co-operation and assistance over the last six years. Page 19
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1. Audit of 2021/22 annual accounts | 8 1. Audit of 2021/22 annual accounts The principal means of accounting for the stewardship of resources and performance Main judgements The Covid-19 pandemic has continued to create additional challenges for Council and audit staff alike. As a result of this, the statutory deadline to publish the audited 2021/22 annual accounts was revised to 30 November 2022. The Council prepared its annual accounts for the year within agreed timescales and the accounts and associated working papers have been prepared to a high standard. We requested that management carried out an additional assessment of the high value assets that were not due to be valued in the current financial year as part of the 5-year rolling programme of revaluations. As a result of this work, the estimated value of non-current assets increased by £29.9 million. There was no impact on the Council’s general fund. Following the adjustment to the value of non-current assets, our audit opinions on the annual accounts of the Council and its group are unmodified and confirm that the 2021/22 Financial Statements present a true and fair view of the financial activities of the Council and its group. Similarly, our audit opinion on the eight section 106 charities administered by the Council are also unmodified. Our audit opinions on the annual accounts are unmodified 20. The accounts for the Council and its group for the year ended 31 March 2022 were approved by the Council on 24 November 2022. As reported in the independent auditor’s report: • give a true and fair view in accordance with applicable law and the 2021/22 Code of the state of affairs of the Council and its group as at 31 March 2022 and of the income and expenditure of the Council and its group for the year then ended; • have been properly prepared in accordance with UK adopted international accounting standards, as interpreted and adapted by the 2021/22 Code; and Page 20
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1. Audit of 2021/22 annual accounts | 9 • have been prepared in accordance with the requirements of the Local Government (Scotland) Act 1973, The Local Authority Accounts (Scotland) Regulations 2014, and the Local Government in Scotland Act 2003. The Covid-19 pandemic had a limited impact on audit evidence 21. Covid-19 presented challenges for the audit of the annual accounts, both for the Council’s finance team and our audit team. However, the working papers provided by management to support the accounts were comprehensive and the finance staff continued to deliver their high standards of professionalism and support to the audit team which helped ensure a smooth audit process. The annual audit accounts were submitted in line with our agreed audit timetable 22. Submission dates for the audited annual accounts for 2019/20 and 2020/21 were deferred in line with the later dates for producing the annual accounts because of the impact of Covid-19. Audit Scotland has set target dates for 2021/22 which transition to more regular timescales. For 2021/22, the submission deadline for the audited annual accounts is 30 November 2022. 23. The unaudited annual accounts were received in line with our agreed audit timetable on 4 July 2022. The annual accounts were signed off in line with the revised timetable permitted to reflect the impact of Covid-19. Our audit opinions on the eight Section 106 charities were unmodified 24. Due to the interaction of section 106 of the Local Government in Scotland Act 1973 with the charities’ legislation, a separate independent auditor's report is required for the statement of accounts of each registered charity where members of Argyll & Bute Council are sole trustees, irrespective of the size of the charity. 25. We received the charities’ accounts in line with the agreed timetable and after completing our audit we reported in the independent auditor’s reports that the: • financial statements give a true and fair view of the section 106 charity’s financial position and are properly prepared in accordance with charities legislation; and • trustees' annual report is consistent with the financial statements and prepared in accordance with proper accounting practices. 26. These were approved by the Council on 24 November 2022 and signed by the statutory deadline of 30 November. Our audit opinions on the eight Section 106 charities are unmodified. Page 21
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1. Audit of 2021/22 annual accounts | 10 Section 106 charities administered by Argyll and Bute Council 27. Argyll and Bute Council administers eight Section 106 charities and prepares a separate set of annual accounts for each charity. The Charities Accounts (Scotland) Amendment Regulations 2010 permits a single set of accounts for connected charities. These are defined as charities that have ‘common or related purposes, or charities which have common control or unity of administration’. 28. The eight Section 106 charities administered by the Council are considered to meet the connected charities definition. Recommendation 1 The Council should apply the connected charities provision to reduce the number of annual accounts prepared for its Section 106 charities. There were no objections raised to the annual accounts 29. The Local Authority Accounts (Scotland) Regulations 2014 require local government bodies to publish a public notice on its website that includes details of the period for inspecting and objecting to the accounts. This must remain on the website throughout the inspection period. The date specified in the notice must be at least 14 days after the date that notice is published but cannot be later than 1 July in the year in which the notice is published. 30. The annual accounts were not made available for inspection until 4 July 2022 under the regulations. However, the unaudited annual accounts were reported to Council at its meeting on 30 June 2022 and the committee reports were publicly available. Therefore, the Council were considered to comply with the Local Authority Accounts (Scotland) Regulations 2014. 31. There were no objections to the 2021/22 annual accounts. Work on assurance statements for the 2020/21 and 2021/22 Whole of Government Accounts has been delayed 32. Whole of Government Accounts (WGA) is the consolidated financial statements for all components of government in the UK. Most public bodies are required to submit returns for the preparation of WGA. The returns are consolidated into WGA by HM Treasury. WGA is audited at a UK level by the National Audit Office (NAO), who issue Group Audit Instructions. 33. Appointed auditors in Audit Scotland are required by the Code of Audit Practice, as part of their audit appointment, to examine and report on WGA returns prepared by Scottish audited bodies. Auditors are required to report the results of their examination in an Assurance Statement. The examination and reporting process performed by auditors is therefore described as auditor assurance. Page 22
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1. Audit of 2021/22 annual accounts | 11 34. Work on the 2020/21 and 2021/22 WGA was delayed at a national level. HM Treasury issued its guidance for preparers on 27 April 2022 and the NAO issued its Group Audit Instructions on 14 July 2022. The OSCAR II system has been open for 2020/21 submissions since April 2022. 35. HM Treasury and the NAO set a date for certified returns of 31 August 2022 which the Scottish Government agreed to for Scottish bodies. The deadline was then subsequently moved to 30 September 2022. Management have completed the submission for the Council and we completed our return on 8 November 2022. Overall materiality 36. We apply the concept of materiality in both planning and performing the audit and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion in the auditor’s report. We identify a benchmark on which to base overall materiality, such as gross expenditure, and apply what we judge to be the most appropriate percentage level for calculating materiality values. 37. The determination of materiality is based on professional judgement and is informed by our understanding of the entity and what users are likely to be most concerned about in the annual accounts. In assessing performance materiality, we have considered factors such as our findings from previous audits, any changes in business processes and the entity’s control environment including fraud risks. 38. Our initial assessment of materiality for the annual accounts was carried out during the planning phase of the audit. This was reviewed and revised on receipt of the unaudited annual accounts and is summarised in Exhibit 1. Exhibit 1 Materiality values Materiality level Council revised materiality (£) Group revised materiality (£) Overall materiality 6.6 million 6.7 million Performance materiality 4.6 million 4.7 million Reporting threshold 250,000 250,000 Source: Audit Scotland Page 23
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1. Audit of 2021/22 annual accounts | 12 Our work has addressed the risks of material misstatement identified in our Annual Audit Plan 39. Appendix 2 provides a summary of the risks of material misstatement in the annual accounts and any wider audit dimension risks identified in our Annual Audit Plan presented to the Audit and Scrutiny Committee in March 2022. These risks influence our overall audit strategy, the allocation of staff resources to the audit and indicate how the efforts of the team were directed. The appendix identifies the work we undertook to address these risks and our conclusions from this work. We have significant findings to report on the audited annual accounts 40. International Standard on Auditing (UK) 260 requires us to communicate significant findings from the audit to those charged with governance, including our view about the qualitative aspects of the body’s accounting practices. 41. The significant findings are summarised in Exhibit 2. Exhibit 2 Significant findings from the audit of financial statements Issue Resolution 1. Property, plant and equipment valuations The Code of Practice on Local Authority Accounting requires authorities to revalue property, plant and equipment with sufficient regularity to ensure the carrying amount does not differ materially from current value, being the value that would have been obtained if revalued. Property, plant and equipment valuations within the annual accounts are supported by workings from a professional valuer, using a five-year rolling programme of revaluations. In part due to wider external factors (e.g. inflation), the likelihood of a material movement was higher in 2021/22 than in previous years. This was an issue which affected all Local Authorities in Scotland. We requested that management, in consultation with a qualified valuer, carried out an additional assessment of the value of assets that had not been valued in 2021/22. As a result, the estimated value of non-current assets increased by £29.9 million. This was adjusted in the audited annual account and a disclosure included under the “Assumptions made about the future and other major sources of estimation uncertainty” note to the annual accounts. We recommend that management put in place a process to ensure that an assessment of the value of assets not revalued in year is carried out on an annual basis. Recommendation 2 (Refer Appendix 1, action plan) Page 24
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1. Audit of 2021/22 annual accounts | 13 Issue Resolution The impact of this is to increase property, plant and equipment and unusable reserves on the Balance Sheet by £29.9 million. This adjustment also impacted on the notes to the financial statements associated with these areas. There was no impact on the Council’s general fund. 2. Statutory adjustment for the difference between fair value and historic cost depreciation Statutory adjustments are processed in the annual accounts due to differences between accounting requirements and funding requirements. The Statutory Basis for Accounting for and Disclosing Reserves in Scottish Local Government Bodies is mandatory guidance that was issued by LASAAC in May 2021. This guidance made a change to the way the statutory adjustment for the difference between fair value and historic cost depreciation is processed, and from 2020/21 this was to be processed from the revaluation reserve to the general fund instead of the capital adjustment account. The revised approach was not reflected in the Council’s annual accounts for 2021/22 which resulted in a misstatement of £3.7 million. The impact of this is to decrease statutory adjustments by £3.7 million with a corresponding increase in adjustments permitted by accounting standards in the Movement in Reserves Statement. This has no impact on the outturn position. This was adjusted in the audited annual accounts. 3. PPE and Testing Kits National Services Scotland (NSS) has been supplying PPE to Councils and Integration Joint Boards (IJBs) free of charge. For Argyll & Bute Council and Argyll & Bute Integration Joint Board, the total PPE and Testing Kits issued by NSS for 2021/22 equate to £2.1 million. This was accounted for in the 2021/22 unaudited annual accounts as £2.6 million, however this related to the prior year figure. The impact of this is to decrease both other non- departmental costs gross income and gross expenditure on the Comprehensive Income and Expenditure Statement (CIES) by £2.6 million as This was adjusted in the audited annual accounts. Page 25
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1. Audit of 2021/22 annual accounts | 14 Issue Resolution well as increase both social work gross income and gross expenditure on the CIES by £2.1 million. This has no impact on the outturn position. 4. IJB Monies The Council accounted for £1.7 million of IJB monies as a creditor on its Balance Sheet relating to the transfer of reserves for unspent funding at the year-end. The initial accounting treatment was to debit gross expenditure and credit trade payables; however, this should have been a debit to gross income with a credit to trade payables. The impact of this is to decrease both gross income and gross expenditure on the CIES by £1.7 million. This has no impact on the outturn position. This was adjusted in the audited annual accounts. 5. Accrued income Income of £0.4 million relating to Discretionary Housing Payment (DHP) was incorrectly accrued at the year-end. The impact is to decrease both short-term debtors on the Balance Sheet and gross income on the CIES by £0.4 million. This was adjusted in the audited annual accounts. 6.Charitable Trusts – Oban Common Good Fund – Classification of property, plant and equipment The Oban Swimming Pool was transferred to the Oban Common Good Fund in 1995 but only recognised in the 2013 accounts with an effective transfer date of 1 April 2012. This was last revalued by Argyll and Bute Council on 31 March 2019 on a Depreciation Replacement Costs basis. The original transfer and the revaluation was accounted for as a restricted fund in both 2020/21 and 2021/22. However, following review of the Charities Statement of Recommend Practice (SORP) Financial Reporting Standard (FRS) 102 and the original transfer documentation, there was insufficient evidence to support the classification of a restricted fund. In addition, the revalued amount should have been held separately within a revaluation reserve. This was adjusted in the audited annual accounts. Page 26
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1. Audit of 2021/22 annual accounts | 15 Issue Resolution The impact of this is to increase unrestricted funds and decrease restricted funds by £4.5 million for 2021/22 and £4.6 million for 2020/21. This has no impact on the total charity funds for the Oban Common Good Fund. 7. Charitable Trusts – Oban Common Good Fund – Property, plant and equipment valuations The Charities SORP FRS 102 requires charities to revalue property, plant and equipment with sufficient regularity to ensure the carrying amount does not differ materially from current value, being the value that would have been obtained if revalued. Property, plant and equipment valuations within the annual accounts are supported by workings from a professional valuer, using a five- year rolling programme of revaluations. In part due to wider external factors (e.g. inflation), the likelihood of a material movement was higher in 2021/22 than in previous years. We requested that management, in consultation with a qualified valuer, carried out an additional assessment of the value of assets that had not been valued in 2021/22. As a result, the estimated value of non-current assets increased by £1.4 million. The impact of this is to increase property, plant and equipment and unrestricted funds on the Balance Sheet by £1.4 million and increase other gains and losses on the Statement of Financial Activities (SoFA) by £1.4 million. This adjustment also impacted on the notes to the financial statements associated with these areas. This was adjusted in the audited annual accounts. Source: Audit Scotland Identified misstatements of £40.4 million were adjusted in the annual audited accounts 42. Total misstatements identified were £40.4 million. We have reviewed the nature and causes of these misstatements and have concluded that they arose from issues that have been isolated and identified in their entirety and do not indicate further systemic error or refer to the completion of further audit procedures where misstatements were not isolated. Page 27
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1. Audit of 2021/22 annual accounts | 16 43. Adjustments made in the audited annual accounts increased total comprehensive income in the CIES by £29.5 million and increased net assets in the Balance Sheet by 29.5 million. Other findings 44. Our audit identified several presentational and disclosure issues which were discussed with management. These were adjusted and reflected in the audited annual accounts. This is normal audit practice and none of the presentational changes have any impact on the Council’s outturn for the year. A statutory override allowing for simplified presentation of infrastructure assets has been applied 45. Across the UK, a technical accounting issue has been identified covering infrastructure assets, which we have considered as part of our audit this year. Infrastructure assets typically include highways, footpaths, bridges and culverts and are included at historical cost in the accounts. These have a net book value of £230.5 million for the Council. A replaced component of an asset has to be derecognised and at some councils the records of additions were not detailed enough to comply with accounting code requirements. A failure to derecognise assets correctly would have resulted in double-counting and an overstatement of the gross book value, accumulated depreciation and potentially the net book value of the assets. 46. CIPFA/LASAAC considered the matter and proposed amendments to the 2021/22 accounting code to allow a reasonable assumption that the net book value of replaced parts of infrastructure assets are nil and a temporary adaptation to remove the requirement to disclose gross book value and accumulated depreciation in the financial statements. The Scottish Government has issued Finance Circular 9/2022 to implement these changes. 47. Management considered the detailed records available to support infrastructure additions since 2010 and concluded that the above statutory overrides were appropriate and have amended the infrastructure disclosures in the audited accounts, this is explained at Note 14 of the annual accounts. Good progress was made on prior year recommendations 48. The Council has made good progress in implementing our prior year audit recommendations. For actions not yet implemented, revised responses and timescales have been agreed with management, and are set out in Appendix 1. Page 28
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2. Financial management | 17 2. Financial management Financial management is about financial capacity, sound budgetary processes and whether the control environment and internal controls are operating effectively Main judgements The Council reported a surplus of £1.6 million after adjusting for transfers to earmarked reserves. This was as a result of underspends at departmental level, in addition to an overall favourable recovery of Council Tax. There has been a significant increase in the level of General Fund reserves. Overall, earmarked reserves increased by £17.8 million. The majority of this increase related to the timing of Scottish Government funding that was unspent at the year-end. The Council has appropriate and effective financial management in place that allow members to scrutinise financial performance effectively. Budget processes were appropriate and effective 49. Senior management and members receive regular and accurate financial information on the Council’s performance against budgets. These reports allow officers and members to scrutinise financial performance effectively throughout the year. The Council reported an in-year surplus of £1.6 million 50. The performance against budget for the financial year 2021/22, after adjusting for transfers to earmarked reserves was an overall underspend of £1.6 million. 51. The final revenue outturn against budget is summarised in Exhibit 3: Page 29
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2. Financial management | 18 Exhibit 3 2021/22 – Final Revenue Budget Outturn Area Actual £ million Budget Adjusted for Earmarking £ million Variance (Overspend) Underspend £ million Chief Executive’s Unit 5.7 5.7 - Executive Director (Douglas Hendry) 115.2 115.4 0.2 Executive Director (Kirsty Flanagan) 49.1 49.7 0.6 Total Departmental Expenditure 170.0 170.8 0.8 Joint Boards 1.5 1.5 - Loans Charges 9.4 9.4 - Pension Costs 1.8 1.7 (0.1) Other 9.6 9.3 (0.3) Total Central Expenditure 22.3 21.9 (0.4) Social Work 62.9 62.9 - Total Social Work Expenditure 62.9 62.9 - Total Expenditure 255.2 255.6 0.4 Total Funding 278.7 277.5 1.2 Underspend 1.6 Source: Argyll and Bute Council 2021/22 Annual Accounts 52. There was an underspend of £0.2 million within the remit of Douglas Hendry (Executive Director – Education, Legal and Regulatory Support and Commercial Services). The main underspends were due to an over recovery of vacancy savings, reduced catering in schools due to less demand as a result of Covid-19 and reduced running costs within Early Learning and Childcare. There was also an underspend in NPDO (Non-Profit Distributing Organisation) and Hub DBFM Page 30
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2. Financial management | 19 (Design, Build, Finance and Maintain) Schools arising from insurance savings and the settlement of historic disputed cost reductions. 53. There was an underspend of £0.6 million within the remit of Kirsty Flanagan (Executive Director – Roads and Infrastructure, Development and Economic Growth and Customer Support Services). The main underspends were due to the over recovery of vacancy savings, additional income within Environmental Health and additional income in housing and planning fee income. 54. There was an overspend of £0.4 million in Central Costs, this was mainly due to insurance costs being higher than budget. 55. There was also a year-end favourable position in relation to Council Tax Income of £1.2 million. Recovery was assisted by £0.5 million of Low Income Pandemic Payments (LIPP) credited directly to Council Tax accounts and therefore improving collection rates. 56. The Social Work budget, managed by the Health and Social Care Partnership (HSCP) was underspent by £1.7 million. This was after accounting for repayment of outstanding debt to the Council of £2.8 million. Therefore, the HSCP cleared the balance of debt owed to the Council to zero in year. The £1.7 million underspend relating to the Social Work budget has been recognised as a creditor on the Council’s balance sheet. This has no impact on the Council’s outturn position. Covid-19 continues to have an impact on Council finances 57. The impact on public finances as a result of the Covid-19 pandemic has been unprecedented, which has necessitated both the Scottish and UK governments providing substantial additional funding for public services as well as support for individuals, businesses and the economy. It is likely that further financial measures will be needed and that the effects will be felt well into the future. 58. As at 31 March 2022, earmarked reserves of £9.0 million relating to Covid- 19 funding remained unutilised. This has reduced from £13.5 million since the prior year. The movement in earmarked Covid-19 funding is summarised in Exhibit 4. Page 31
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2. Financial management | 20 Exhibit 4 Covid-19 – Earmarked Reserves at 31 March 2022 £ million Earmarked balance at 31 March 2021 13.5 Spend in year (5.0) Allocations from funding to capital contract pressures resulting from Covid-19 (9.4) New General Covid Funding 7.5 New Specific Covid Funding 2.4 Balance on General Fund 31 March 2022 9.0 Source: Argyll and Bute Council 2021/22 Annual Accounts The general fund balance held by the Council increased from £78.2 million in 2020/21 to £96.1 million in 2021/22 59. One of the key measures of the financial health of a body is the level of reserves held. The general fund balance held by the Council increased from £78.2 million in 2020/21 to £96.1 million in 2021/22. The majority of this increase largely related to the timing of Scottish Government funding that was unspent at the year-end, such as Covid-19 funding and other unspent grants including Local Authority Covid Economic Recovery Fund (LACER), Early Learning and Childcare (ELC) 1,140 hours. 60. The Council reviews the level of its uncommitted general fund balance when setting the budget each year. The Council has agreed to hold a contingency balance equivalent to 2% of the Council budget and this amounts to £5.3 million. In addition to this, a further £1.8 million of the general fund balance is unallocated. 61. The remaining £88.9 million of the general fund balance was earmarked for specific purposes approved by the Council. 62. Exhibit 5 shows an analysis of the movement on the general fund balance in 2021/22. Page 32
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2. Financial management | 21 Exhibit 5 Analysis of movement in general fund balance in 2021/22 £ million Balance on General Fund at 31 March 2021 78.2 Social Work Repayment of Debt 2.8 Revenue Budget 2021/22 - investment in Capital (held in reserves) 3.0 Revenue Budget 2021/22 – Covid Allocation to reserves 7.5 Released sums earmarked to service budgets 2021/22 (18.9) Contributions to earmarked reserves 2021/22 21.8 Overall budget underspend as noted above 1.6 Balance on General Fund at 31 March 2022 96.1 Source: Argyll and Bute Council 2021/22 Annual Accounts 63. As at 31 March 2022, the largest earmarked balances related to Capital Projects (£24.7 million), Unspent Committed Grants (£12.4 million), Unspent budget carried forward (£10.4 million) and Covid-19 (£9.0 million). 64. Exhibit 6 provides an analysis of the general fund over the last five years split between committed and uncommitted reserves. Page 33
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2. Financial management | 22 Exhibit 6 Analysis of general fund balance Source: Argyll and Bute Council Annual Accounts 65. The increased level of the general fund balance in 2020/21 and 2021/22 is largely due to the timing of Scottish Government funding that was unspent at the year-end, such as Covid-19 funding and other unspent grants. 66. The increase in the reserves position in 2021/22 is likely to be temporary due to expected future expenditure on pandemic recovery and other planned expenditure. It is essential that the Council recognises the non-recurring nature of such reserves and takes steps to ensure they are used effectively and in line with Council strategy and strategic objectives. Planned budget savings were largely achieved 67. The 2021/22 budget included planned savings split across a large number of policies and services. The Council has a history of meeting its savings targets and continued this in 2021/22. Budget savings of £2.7 million were agreed for 2021/22. There were further savings agreed in prior years which had to be delivered in 2021/22 totalling £0.1 million. In total, £2.7 million (96 per cent) of the overall target of £2.8 million was delivered in 2021/22. 68. The remaining shortfall of £0.1 million was met from other service level underspends to contribute to an overall outturn surplus of £1.6 million. Page 34
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2. Financial management | 23 The Council delivered the majority of its capital programme in 2021/22 69. Total capital expenditure in 2021/22 was £24.8 million compared to the annual adjusted budget of £31.0 million. There was slippage of £6.2 million including a number of under and overspends within the outturn position. The largest underspend was £2.5 million relating to the Harbour Investment Programme. There was also an underspend of £0.9 million relating to the Education Asset Sustainability Programme. 70. In total there are 155 projects within the overall Capital Plan. As at 31 March 2022, 94 (61 per cent) of these projects were complete or on track. This position contrasts to 2020/21 where 126 (81%) of 155 projects were complete or on track. 71. In recent years slippage has occurred on a number of projects partly due to the impact of the Covid-19 pandemic. The pandemic has contributed to a number of issues such as supply chain delays, changes to project scope and labour issues. 72. The Council continues to assess and anticipate the impact of the Covid-19 pandemic when monitoring its overall Capital Plan. Project Managers were asked to identify specific Covid-19 impacts on the capital programme. At the budget meeting on 25 February 2021, the Council agreed to provide £2.5 million of funding in respect of this. This was increased by a further £0.1 million following agreement at the Policy and Resources Committee in October 2021. 73. A further £3.9 million was set aside for future capital contract increases as part of the budget which was approved at the meeting of the Council in February 2022. Financial systems of internal control operated effectively 74. We obtained an understanding of the Council’s key financial systems to identify the key financial controls and assess their design and implementation. 75. The majority of Council finance staff switched to remote working during 2020/21 in response to the pandemic and many continued to do so in 2021/22. We noted that, despite the change to the working environment, the underlying processes could be delivered in largely the same way as previously. This is a testament to the dedication of Council staff and the robustness of the processes in place. 76. On the whole, we concluded that financial systems of internal control operated effectively. Standards of conduct and arrangements for the prevention and detection of fraud and error were appropriate 77. The Council is responsible for establishing arrangements for the prevention and detection of fraud, error and irregularities, bribery and corruption. Furthermore, it is responsible for ensuring that its affairs are managed in Page 35
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2. Financial management | 24 accordance with proper standards of conduct by putting effective arrangements in place. We assessed these to ensure that they were appropriate, readily available to staff and are regularly reviewed to ensure they remain relevant and current. 78. In addition, we have reviewed the arrangements in place to maintain standards of conduct including the Counter Fraud Strategy and Whistleblowing policy. There are established procedures for preventing and detecting breaches of these standards including instances of corruption. Page 36
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3. Financial sustainability | 25 3. Financial sustainability Financial sustainability looks forward to the medium and long term to consider whether the council is planning effectively to continue to deliver its services or the way in which they should be delivered Main judgements Medium-term financial plans have been developed for the period 2023/24 to 2027/28 and the Council has identified a cumulative budget deficit of £33.0 million over this period. As part of its financial planning, the Council continues to explore savings proposals and service redesign options. The Council should continue to review and update its medium-term financial plan as the financial consequences of Covid-19 and the cost-of-living pressures become fully determined. The Council agreed a balanced budget for 2022/23 79. The Council agreed a balanced 2022/23 budget in February 2022. Measures approved by the Council to achieve a balanced budget with a surplus of £2.8 million included: • 3% increase to Council Tax amounting to £1.6m. • General inflationary increase to fees and charges resulting in £0.4 million of additional income • New management/operational savings of £2.4 million • New policy savings options of £0.3 million The Council are forecasting a small overspend of £0.1 million on their revenue budget for 2022/23 80. The most recent financial monitoring reports as at 31 August 2022 were presented to the Policy and Resources Committee in October 2022. As at 31 August 2022, there was a year-to-date underspend of £3.0 million and a forecast year-end overspend of £0.1 million. The forecast overspend does not include the potential overspend in relation to the 2022-23 pay award where negotiations are ongoing. 81. The year-to-date variances mainly relate to the timing of income and expenditure and the recharging of costs to capital. The forecast overspend is Page 37
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3. Financial sustainability | 26 due to the elected members pay award, an under recovery of income within parks and pest control and a high demand for services within social work. The Council has continued to monitor the impact of Covid-19 on its financial position 82. The Council monitored the impact of Covid-19 on its financial position throughout 2021/22. This included forecasting the impact the pandemic would have in the future based on a range of assumptions and the information available at the time. Assumptions were regularly reviewed as national restrictions changed and impact on costs and lost income became clearer. 83. Detailed reports were presented to the Policy and Resources Committee at its meetings in October 2021 and December 2021. A further update was presented to the Policy and Resources Committee in February 2022. Officers continue to review their revenue budget estimates for 2022/23 pressures resulting from Covid-19 to reflect the most up to date outturn. 84. The Council are experiencing increases in prices for capital works. This is due to issues such as supply chain disruption for both labour and materials. The Council have estimated that pressures will continue for the projects within the capital programme in 2022/23 and beyond. As part of the 2022/23 budget, £3.9 million of the available Covid-19 funding was allocated for capital contract increases. Addressing the £33.0 million funding gap identified by the Council over the medium-term presents a significant challenge 85. The Council produces a five-year rolling financial plan (Budget Outlook 2023/24 to 2027/28). This plan is a ‘live’ document and is revised each year following the agreement of the budget and is then further updated throughout the year as new information becomes available. The most up to date version of this plan was presented to the Policy and Resources Committee in October 2022. 86. The budget outlook is prepared using three different scenarios, best case, worst case, and mid-range. The budget gap in the mid-range scenario after measures to balance the budget is an estimated £7.3 million in 2023/24 rising to £33.0 million over the five-year period (2023/24 to 2027/28). This has been summarised in Exhibit 7. Page 38
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3. Financial sustainability | 27 Exhibit 7 Cumulative Estimated Budget Gap 2023/24 – 2027/28 Mid-range scenario Source: Argyll and Bute Council 87. The Council face a very challenging budget outlook position over the five- year period 2023/24 to 2027/28. The level of Scottish Government grant, the pay award and the cost of inflation are assumptions that could alter the figures in the budget outlook significantly. The Council continue to monitor these assumptions closely and update the budget outlook throughout the year. 88. Council officers continue to develop further savings options throughout 2022/23. These saving options will be presented to members at a future Committee in order to help to provide a balanced budget in future years. The Council should continue to review and update its medium-term financial plan as the financial consequences of Covid-19 and the cost-of-living pressures become fully determined. Recommendation 3 The Council should continue review and update its medium-term financial plan as the financial consequences of Covid-19 and the cost-of-living pressures become fully determined. Page 39
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3. Financial sustainability | 28 A Budget Working Group has been established to provide scrutiny on the identification of savings options as they are developed 89. As part of the 2021/22 and 2022/23 budget processes, a cross party Budget Working Group (BWG) was established. This comprised of six members from the administration, three members from the opposition and two trade union representatives. The primary purpose of the BWG was to engage with officers and provide scrutiny on the identification of savings options as they are developed. 90. It was agreed at the Policy and Resources Committee in June 2022 that a similar group will be established to support the 2023/24 budget approach and the group began discussions in August 2022 in order to address the financial challenges ahead. The Council have commenced work on a budget approach for 2023/24 91. A paper was taken to the Policy and Resources Committee in October 2022, updating on the budget approach for 2023/24. The two main aspects of this work are: • A review of services considering whether it’s a duty, power or non- statutory service. • A service redesign exercise assuming 75% of existing budget. 92. Officers continue to monitor the budget outlook position regularly and report any changes to the Policy and Resources Committee. The ‘Budget Approach’ exercise has been developed by Executive Leadership Team. 93. The Council continues to face a significant and challenging budget gap over the next five years. As part of its financial planning, the Council continues to explore savings proposals, service redesign options and opportunities for additional income. Page 40
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4. Governance and transparency | 29 4. Governance and transparency The effectiveness of scrutiny and oversight and transparent reporting of information Main Judgements The Council has appropriate governance arrangements in place. We recognise that in responding to the Covid-19 pandemic, the Council has continued to revise its governance arrangements. The new arrangements are appropriate and support good governance and accountability. There is effective scrutiny, challenge and informed decision making. Governance arrangements operating throughout the Covid-19 pandemic have been appropriate and operated effectively 94. The Council made changes to its governance arrangements at the outset of the pandemic in March 2020. These have been set out in the Annual Governance Statement contained in the annual accounts and included: • Council and committee meetings continued to operate on a virtual basis throughout the Covid-19 pandemic • Recording meetings of the Council and hosting these for the public on the Council’s website. This has now progressed to webcasting for strategic committees with the first webcast meeting being the Policy and Resources Committee broadcast in December 2021. 95. We concluded that overall, the Council has appropriate governance arrangements in place which support effective scrutiny, challenge and decision making. Internal Audit 96. A revision to the 2021/22 Internal Audit Plan was approved by the Audit and Scrutiny Committee in March 2022. The revision was due to the need to redeploy audit staff to priority tasks to support the Council’s response to the pandemic and support Financial Services. This resulted in three audits being removed from the plan. The revision of the plan did not affect the Chief Internal Auditor’s ability to provide an opinion on the Council’s systems of governance and internal control. Page 41
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4. Governance and transparency | 30 97. During 2021/22, one of the seventeen audit reports presented to the Audit and Scrutiny Committee had an overall audit opinion of ‘limited’ assurance. This related to Contract Management in Roads and Amenity Services. 98. For this report, an action plan has been agreed with management and progress against their delivery is monitored by Internal Audit. More generally, a formal system is in place within the Council to follow-up audit recommendations and report progress to Senior Management and the Audit and Scrutiny Committee on a regular basis. Performance reporting in the management commentary of the Annual Accounts was of a good standard 99. Management commentaries included in the annual accounts should provide information on a body, its main objectives and the principal risks faced. It should provide a fair, balanced and understandable analysis of a body’s performance as well as helping stakeholders understand the financial statements. 100. The management commentary is of a good standard and clearly explains the Council’s strategy, finances and links to the financial statements. The statutory requirements relating to non-financial performance have been met. The management commentary also details the impact of Covid-19 on the Council’s business and financial position. Openness and transparency 101. There continues to be an increasing focus on demonstrating the best use of public money. Openness and transparency in how a body operates and makes decisions and is key to supporting understanding and scrutiny. Transparency means that the public has access to understandable, relevant and timely information about how the body is taking decisions and using resources. 102. Prior to March 2020, members of the public were able to attend Council and other committee meetings as well as accessing agendas, papers and minutes on the Council’s website. The move to remote committee meetings has restricted direct attendance, however meetings are now webcast and recorded for public viewing. The relevant papers are still available on the website to support transparency. 103. The Council’s website allows the public to access a wide range of information including the register of members’ interests, current consultations and surveys and how to make a complaint. Page 42
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5. Best Value | 31 5. Best Value Using resources effectively and continually improving services Main judgements The Council has an appropriate and effective best value framework in place. The Council continues to make good progress addressing the recommendations contained in our May 2020 Best Value Assurance Report. The Council is making good progress in securing Best Value 104. Best value is assessed over the audit appointment, as part of the annual audit work. In addition, a Best Value Assurance Report (BVAR) for each council has been considered by the Accounts Commission at least once in this period. The BVAR report for the council was published in May 2020. 105. In the BVAR, we highlighted key areas where the Council should focus its improvement activities going forward. The report made seven recommendations relating to areas for further development. These are detailed at Appendix 3. 106. We followed up the BVAR recommendations as part our 2021/22 audit work. The timing of the Council’s BVAR review and the publishing of the report came at a time where the Council were focussed on their response to the Covid-19 pandemic. Subsequently, we recognise that progress made in implementing of agreed actions have been delayed as the Council focussed on responding to the pandemic. 107. Actions where progress has been delayed or limited as a result of Covid- 19 include: • Increase the pace of change through transformation to deliver the business outcomes and this should be monitored and reported on a regular basis. • Assess the extent to which regeneration and economic development initiatives are delivering the vision and corporate outcomes. Put in place robust options appraisal processes and a benefits monitoring framework, proportional to the size of initiatives, to evaluate the benefits and costs of future projects. • Work with communities and community groups to understand and address their concerns and establish priorities in how it can better support them. This should include engaging with communities to understand and improve levels of satisfaction with council services. Page 43
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5. Best Value | 32 108. Overall, we concluded that the Council has made good progress in implementing the BVAR recommendations, although work is still on-going and the impact on outcomes is not yet clear. Best value The best value audit work carried out this year focussed on the council's arrangements for demonstrating best value in Efficient Use of Resources and Performance, Outcomes and Improvement. Our conclusions on Efficient Use Resources are largely set out in the earlier sections of this report. The findings of Performance, Outcomes and Improvement are reported below. The Council were able to maintain service performance levels despite the pandemic 109. The pandemic has had an impact on performance measures, particularly for services which have been temporarily suspended, operating at reduced levels or have had to adapt to new ways of working. The Council have continued to monitor key performance targets throughout the year with performance being regularly reported to the Audit and Scrutiny Committee. These reports monitor progress against the Council’s key priorities. 110. Of the Council’s 85 success measures, 67 per cent were classified as on track. The remaining 33 per cent are off-track, either in terms of performance itself or the availability and collection of timely data to evidence performance. All off-track measures have been impacted by Covid-19. 111. From 2022/23, the Council will no longer align success measures through the Business Outcomes. To monitor the delivery of the Council’s Corporate Outcomes, a suite of 47 Indicators has been identified. These are known as Corporate Outcome Indicators (COIs) and will all align directly to the Council’s Corporate Outcomes. There are appropriate arrangements in place to collate statutory performance indicator (SPI) data 112. The Accounts Commission has a statutory responsibility to define the performance information that councils must publish. In turn, councils have their own responsibility, under their Best Value duty, to report performance to the public. The commission does not prescribe how councils should report this information but expects them to provide the public with fair, balanced and engaging performance information. 113. The Accounts Commission issued a revised 2018 Statutory Performance Information Direction in December 2018 which requires a council to report: • its performance in improving local public services provided by the council (on its own and with its partners and communities), and progress against agreed desired outcomes Page 44
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5. Best Value | 33 • its own assessment and independent audit assessments of how it is performing against its duty of Best Value, and how it plans to improve these assessments and how it (with its partners where appropriate) has engaged with and responded to its diverse communities 114. We have evaluated the Council’s arrangements for fulfilling the above requirements and concluded that these are appropriate. National performance audit reports 115. Audit Scotland carries out a national performance audit programme on behalf of the Accounts Commission and the Auditor General for Scotland. During 2021/22, Audit Scotland published a number of reports were issued which may be of interest to the body. These are outlined in Appendix 4. 116. The Council has a process in place to ensure that findings from national reports are reviewed, and where relevant, presented to the Audit and Scrutiny Committee. This reporting includes an assessment of current arrangements and the identification of actions to be taken to apply good practice examples highlighted in the reports. Page 45
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Appendix 1. Action plan 2021/22 | 34 Appendix 1. Action plan 2021/22 2021/22 recommendations Issue/risk Recommendation Agreed management action/timing 1. Section 106 charities administered by Argyll and Bute Council The Charities Accounts (Scotland) Amendment Regulations 2010 permits a single set of accounts for connected charities. However, Argyll and Bute Council does not apply the connected charities provision and currently prepares a separate set of annual accounts for each Section 106 charity. The Council should apply the connected charities provision to reduce the number of annual accounts prepared for its Section 106 charities. Paragraph 27-28 Management response: While this is not a requirement it will be reviewed and actioned as part of the 2022-23 annual accounts process. Responsible officer: Head of Financial Services Agreed date: 2022-23 Annual Accounts 2. Property, plant and equipment valuations We requested that management, in consultation with a qualified valuer, carried out an additional assessment of the value of assets that had not been valued in 2021/22. As a result of this work, the estimated value of non-current assets increased by £29.9 million. There was no impact on the Council’s general fund. Management should put in place a process to ensure that an assessment of the value of assets not revalued in year is carried out on an annual basis. Exhibit 2 Management response: A process will be put in place, but as discussed with the External Auditors it would be helpful for Audit Scotland to issue guidance to Local Authorities to ensure a consistent approach. Responsible officer: Estates and Property Development Manager. Agreed date: 31 March 2023. 3. Financial Sustainability The Covid-19 pandemic has introduced further financial The Council should continue review and update its medium-term financial plan Management response: The medium-term financial plan will be regularly reviewed, Page 46
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Appendix 1. Action plan 2021/22 | 35 Issue/risk Recommendation Agreed management action/timing challenges with a projected funding gap of up to £33.0 million over the period 2023/24 to 2027/28 as a result of anticipated funding reductions, estimated future pay awards and inflation levels. Risk The Council is unable implement a sustainable model for service delivery. as the financial consequences of Covid-19 and the cost-of-living pressures become fully determined. Paragraph 87-90 updated and reported to Council. Responsible officer: Head of Financial Services Agreed date: Ongoing – reported to every Policy and Resources Follow-up of prior year recommendations Issue/risk Recommendation Agreed management action/timing 4. Financial Sustainability The Covid-19 pandemic has introduced further financial challenges with a projected funding gap of up to £23.3 million over the period 2022/23 to 2026/27. Risk – The Council is unable implement a sustainable model for service delivery. The Council should continue to update its financial plans as soon as they have more clarity on the financial impacts of Covid-19. Superseded – see Appendix 1, Action Plan Point 3. 5. BVAR recommendations Despite making good progress in addressing the recommendations outlined in the BVAR (Published in May 2020), overall progress has been impacted by the Covid- 19 pandemic and the challenging operating environment. Risk – There is a risk that the Council may not implement BVAR recommendations in the required timescale. The Council should review the BVAR action plan, revising actions and key dates as appropriate to inject pace and momentum into the work to address the recommendations that have been delayed due to the Covid-19 pandemic. Ongoing. Responsible officer: Head of Customer Support Services Agreed date: Update to be provided January 2023 Page 47
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Appendix 2. Significant audit risks identified during planning | 36 Appendix 2. Significant audit risks identified during planning The table below sets out the audit risks we identified during our planning of the audit and how we addressed each risk in arriving at our conclusion. The risks are categorised between those where there is a risk of material misstatement in the annual report and accounts and those relating our wider responsibility under the Code of Audit Practice. Risks of material misstatement in the financial statements Audit risk Assurance procedure Results and conclusion 1. Risk of material misstatement due to fraud caused by the management override of controls As stated in International Standard on Auditing (UK) 240, management is in a unique position to perpetrate fraud because of management’s ability to override controls that otherwise appear to be operating effectively. Assess the design and implementation of controls over journal entry processing. Make inquiries of individuals involved in the financial reporting process about inappropriate or unusual activity relating to the processing of journal entries and other adjustments. Test journals at the year-end and post-closing entries and focus on significant risk areas. Evaluate significant transactions outside the normal course of business. We will assess any changes to the methods and underlying assumptions used to prepare accounting estimates compared to the prior year. Focused testing of accounting accruals and prepayments. Results: No issues were identified in relation to the design and implementation of controls over journal entry processing. No unusual or inappropriate transactions were identified as part of our detailed journal testing. Within substantive testing we considered whether transactions were within the normal course of business. When selecting samples, we reviewed ledger or transaction listings that were outside the normal course of business. Substantive testing of transactions around the year end did not identify any issues. A review of accounting estimates did not show any evidence of bias. Focussed testing on accruals and prepayments did not identify any instances of Page 48
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Appendix 2. Significant audit risks identified during planning | 37 Audit risk Assurance procedure Results and conclusion management override of controls. Conclusion: we did not identify any incidents of management override of controls. 2. Valuation and measurement of Non- Current Assets As at 31 March 2021, the Council held non-current assets with a value of £671.3 million. This included Land and Buildings with a net book value of £376.1 million. There is a significant degree of subjectivity in the valuation of land and buildings. Valuations are based on specialist and management assumptions and estimates, and changes in these can result in material changes to valuations. Completion of ‘review of the work of management’s expert’ for the internal professional valuer. Review of land and buildings revaluations carried out, assessing whether they have been performed using an appropriate and relevant valuation basis/methodology by suitably qualified individuals. Confirm land and buildings asset revaluations in valuer’s report are correctly reflected within the 2021/22 financial statements. Work to assess the reasonableness of the valuations in the valuer’s report. Results: As outlined in Exhibit 2, we requested that management, in consultation with a qualified valuer, carried out an additional assessment of the value of assets that had not been valued in 2021/22. As a result, the estimated value of non- current assets increased by £29.9 million and an adjustment was processed by management to correct this misstatement. Conclusion: Satisfactory following the adjustment processed. (Refer to Appendix 1, Action Plan Point 2 and Exhibit 2) 3. Measurement and judgements applied to the valuation of pension liabilities As at 31 March 2021, the Council recognised a net liability of £82.3 million relating to its share of the Strathclyde Pension Fund liability. There is a significant degree of subjectivity in the measurement and valuation of the pension fund liability. The valuation is based on specialist assumptions and estimates. Completion of ‘review of the work of management’s expert’ for actuary. Confirm pension valuations in actuarial report are correctly reflected within the 2021/22 financial statements. Assess the completeness and accuracy of information provided to actuary to support the triennial revaluation process. Review and assess the reasonableness of actuary’s valuations and assumptions. Results: We noted no issues with: -the reliability of the actuary or the reasonableness of estimates they provided. -the controls management put in place or the accuracy of the information provided for the valuation. Conclusion: We did not identify any issues with the pension valuation. Page 49
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Appendix 2. Significant audit risks identified during planning | 38 Risks identified from the auditor's wider responsibility under the Code of Audit Practice Audit risk Assurance procedure Results and conclusion 4. Financial Sustainability Councils continue to face significant financial challenges with pressures on funding and increasing demand for services. As per the Budget Outlook report presented to the Policy and Resources Committee in December 2021, the Council’s budget estimates are for a mid-range budget gap of £3.7 million for 2022/23, rising to an in-year gap of £26.7million by end of 2026/27. The 2022/23 budget will be set in February 2022 with an anticipated balanced position. This will still leave significant gaps in future years that will require to be addressed. At the end of January 2022, the Council are reporting a small underspend in 2021/22. As a result, there is a risk to financial sustainability and the sustainability and quality of services in future. Review of the Council’s annual budget setting arrangements. Assessment of the council’s medium to long term financial strategy. Review and assessment of budget monitoring arrangements with a focus on reports to senior officers and members on financial position. On-going review of the Council’s financial position and delivery of planned savings. Results: The audit team reviewed the council’s annual budget setting arrangements. The audit team reviewed financial updates to council and other committees throughout the year, this included reviewing the financial position and delivery of planned savings. Conclusion: The Council achieved a year-end surplus of £1.6 million for 2021/22. Significant financial challenges will continue in the short to medium-term and this has been highlighted at Appendix 1, Action Plan Point 3. Page 50
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Appendix 3. BVAR Recommendations (May 2020) | 39 Appendix 3. BVAR Recommendations (May 2020) • Develop the transformation agenda supported by a medium-term savings plan which is affordable and achievable. • Improve performance management reporting to provide a balanced picture of long-term trends in performance against its targets. Use benchmarking information to drive continuous improvement. • Increase the pace of change through transformation to deliver the business outcomes and this should be monitored and reported on a regular basis. • Assess the extent to which regeneration and economic development initiatives are delivering the vision and corporate outcomes. Put in place robust options appraisal processes and a benefits monitoring framework, proportional to the size of initiatives, to evaluate the benefits and costs of future projects. • Work with communities and community groups to understand and address their concerns and establish priorities in how it can better support them. This should include engaging with communities to understand and improve levels of satisfaction with council services. • Work with elected members to improve the uptake of training provided. In particular, elected members’ knowledge of and involvement in the performance management process needs to be improved to develop wider scrutiny to support improvement. • Improve engagement to ensure staff are bought into the Council’s vision. Review the support and resources it provides to staff in rural areas to ensure that all employees have appropriate access to training to support them in their role. Page 51
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Appendix 4. Summary of 2021/22 national performance reports and briefings | 40 Appendix 4. Summary of 2021/22 national performance reports and briefings May Local government in Scotland Overview 2021 June Covid 19: Personal protective equipment July Community justice: Sustainable alternatives to custody September Covid 19: Vaccination programme January Planning for skills Social care briefing February NHS in Scotland 2021 March Local government in Scotland: Financial Overview 20/21 Drug and alcohol: An update Scotland’s economy: Supporting businesses through the Covid 19 pandemic Page 52
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Appendix 4. Summary of 2021/22 national performance reports and briefings | 41 Argyll & Bute Council 2021/22 Annual Audit Report Audit Scotland’s published material is available for download on the website in a number of formats. For information on our accessibility principles, please visit: www.audit-scotland.gov.uk/accessibility For the latest news follow us on social media or subscribe to our email alerts. Audit Scotland, 4th Floor, 102 West Port, Edinburgh EH3 9DN Phone: 0131 625 1500 Email: info@audit-scotland.gov.uk www.audit-scotland.gov.uk AS.4.0 Page 53
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Argyll and Bute Council Comhairle Earra Ghàidheal agus Bhòid Chief Executives Unit – Financial Services Financial Services www.argyll-bute.gov.uk Pauline Gillen, Audit Director Email: kirsty.flanagan@argyll-bute.gov.uk Audit Scotland Telephone 01546 604268 4th Floor, South Suite Date: 24 November 2022 Athenaeum Building 8 Nelson Mandela Place Glasgow G2 1BT Dear Pauline Argyll and Bute Council - Annual Accounts 2021/22 1. This representation letter is provided about your audit of the annual accounts of Argyll and Bute Council for the year ended 31 March 2022 for the purpose of expressing an opinion as to whether the financial statements give a true and fair view in accordance with the financial reporting framework, and for expressing other opinions on the remuneration report, management commentary and annual governance statement. 2. I confirm to the best of my knowledge and belief and having made appropriate enquiries of the Chief Executive and Strategic Management Team, the following representations given to you in connection with your audit of Argyll and Bute Council’s annual accounts for the year ended 31 March 2022. General 3. Argyll and Bute Council and I have fulfilled our statutory responsibilities for the preparation of the 2021/22 annual accounts. All the accounting records, documentation and other matters which I am aware are relevant to the preparation of the annual accounts have been made available to you for the purposes of your audit. All transactions undertaken by Argyll and Bute Council have been recorded in the accounting records and are properly reflected in the financial statements. 4. I confirm that the effects of uncorrected misstatements are immaterial, individually and in aggregate, to the financial statements as a whole. I am not aware of any uncorrected misstatements other than those reported by you. Financial Reporting Framework 5. The annual accounts have been prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom 2021/22 (2021/22 accounting code), and in accordance with the requirements of the Local Government (Scotland) Act 1973, the Local Government in Scotland Act 2003 and The Local Authority Accounts (Scotland) Regulations 2014. Page 55 Agenda Item 4
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6. In accordance with the 2014 regulations, I have ensured that the financial statements give a true and fair view of the financial position of the Argyll and Bute Council and its Group at 31 March 2022 and the transactions for 2021/22. Accounting Policies & Estimates 7. All significant accounting policies applied are as shown in the notes to the financial statements. The accounting policies are determined by the 2021/22 accounting code where applicable. Where the code does not specifically apply I have used judgement in developing and applying an accounting policy that results in information that is relevant and reliable. All accounting policies applied are appropriate to Argyll and Bute Council circumstances and have been consistently applied. 8. The significant assumptions used in making accounting estimates are reasonable and properly reflected in the financial statements. Judgements used in making estimates have been based on the latest available, reliable information. Estimates have been revised where there are changes in the circumstances on which the original estimate was based or as a result of new information or experience. Going Concern Basis of Accounting 9. I have assessed Argyll and Bute Council’s ability to continue to use the going concern basis of accounting and have concluded that it is appropriate. I am not aware of any material uncertainties that may cast significant doubt on Argyll and Bute Council’s ability to continue as a going concern. Assets 10. Where a rolling programme of asset valuations has been used, I have satisfied myself that the carrying amount of assets at 31 March 2022 does not differ materially from that which would be determined if a revaluation had been carried out at that date. 11. I carried out an assessment at 31 March 2022 as to whether there is any indication that an asset may be impaired and have recognised any impairment losses identified. 12. I have provided you with all information of which I am aware regarding any valuation exercises carried out after 31 March 2022. 13. There are no plans or intentions that are likely to affect the carrying value or classification of the assets recognised within the financial statements. 14. Owned assets are free from any lien, encumbrance or charge except as disclosed in the financial statements. Liabilities 15. All liabilities at 31 March 2022 of which I am aware have been recognised in the annual accounts. 16. Provisions have been recognised in the financial statements for all liabilities of uncertain timing or amount at 31 March 2022 of which I am aware where the conditions specified in the 2021/22 accounting code have been met. The amount recognised as a provision is the best estimate of the expenditure likely to be required to settle the obligation at 31 March 2022. Where the effect of the time value of money is material, the amount of the provision has been discounted to the present value of the expected payments. Page 56
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17. Provisions recognised in previous years have been reviewed and adjusted, where appropriate, to reflect the best estimate at 31 March 2022 or to reflect material changes in the assumptions underlying the calculations of the cash flows. 18. The accrual recognised in the financial statements for holiday untaken by 31 March 2022 has been estimated on a reasonable basis. 19. The pension assumptions made by the actuary in the IAS 19 report for Argyll and Bute Council have been considered and I confirm that they are consistent with management's own view. 20. There are no plans or intentions that are likely to affect the carrying value or classification of the liabilities recognised in the financial statements. Contingent liabilities 21. There are no significant contingent liabilities, other than those disclosed in Note 34 to the financial statements, arising either under formal agreement or through formal undertakings requiring disclosure in the accounts. All known contingent liabilities have been fully and properly disclosed, including any outstanding legal claims which have not been provided under the Code of Practice on Local Authority Accounting in the United Kingdom 2021/22 and IAS 37. Fraud 22. I have provided you with all information in relation to: • my assessment of the risk that the financial statements may be materially misstated because of fraud • any allegations of fraud or suspected fraud affecting the financial statements • fraud or suspected fraud that I am aware of involving management, employees who have a significant role in internal control, or others that could have a material effect on the financial statements. Laws and Regulations 23. I have disclosed to you all known instances of non-compliance or suspected non- compliance with laws and regulations whose effects should be considered when preparing financial statements. Related Party Transactions 24. All material transactions with related parties have been appropriately accounted for and disclosed in the financial statements in accordance with the 2021/22 accounting code. I have made available to you the identity of all the Argyll and Bute Council’s related parties and all the related party relationships and transactions of which I am aware. Remuneration Report 25. The Remuneration Report has been prepared in accordance with the Local Authority Accounts (Scotland) Amendment Regulations 2014, and all required information of which I am aware has been provided to you. Page 57
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Management Commentary 26. I confirm that the Management Commentary has been prepared in accordance with the statutory guidance and the information is consistent with the financial statements. Corporate Governance 27. I confirm that the Argyll and Bute Council has undertaken a review of the system of internal control during 2021/22 to establish the extent to which it complies with proper practices set out in the Delivering Good Governance in Local Government: Framework 2016. I have disclosed to you all deficiencies in internal control identified from this review or of which I am otherwise aware. 28. I confirm that the Annual Governance Statement has been prepared in accordance with the Delivering Good Governance in Local Government: Framework 2016 and the information is consistent with the financial statements. There have been no changes in the corporate governance arrangements or issues identified, since 31 March 2022, which require to be reflected. Group Accounts 29. I have identified all the other entities in which Argyll and Bute Council has a material interest and have classified and accounted for them in accordance with the 2021/22 accounting code. Any significant issues with the financial statements of group entities, including any qualified audit opinions, have been advised to you. Events Subsequent to the Date of the Balance Sheet 30. All events subsequent to 31 March 2022 for which the 2021/22 accounting code requires adjustment or disclosure have been adjusted or disclosed. Common Good Fund 31. I can confirm, to the best of my ability, that all material common good assets have been identified and correctly accounted for within the common good financial statements and where appropriate, common good assets in use by the Council have been assessed and accounted for in line with IAS 17. This letter was presented to and agreed by the Audit and Scrutiny Committee on 22 November 2022. Yours sincerely Kirsty Flanagan Section 95 Officer 24 November 2022 Page 58
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Argyll and Bute Council Comhairle Earra Ghàidheal agus Bhòid Chief Executives Unit – Financial Services Financial Services www.argyll-bute.gov.uk Kyle McAulay Email: kirsty.flanagan@argyll-bute.gov.uk Senior Audit Manager Telephone 01546 604268 Audit Scotland Date: 24 November 2022 4th Floor, South Suite Athenaeum Building 8 Nelson Mandela Place Glasgow G2 1BT Dear Kyle Charitable Trusts administered by Argyll and Bute Council Annual Accounts 2021/22 • McCaig Trust (Registered Charity SC019599) • Marquess of Bute Silver Wedding Dowry (Registered Charity SC019607) • Baillie Gillies Bequest (Registered Charity SC013578) • Kidston Park Trust (Registered Charity SC013600) • Miss Annie Dickson Bequest (Registered Charity SC018697) • Logie Baird Prize Fund (Registered Charity SC018698) • County of Argyll Educational Trust Scheme 1960 (Registered Charity SC020382) • Oban Common Good Fund (Registered Charity SC021328) 1. This letter of representation is provided in respect of the annual accounts of the registered charitable trusts named above for the year ended 31 March 2022. It is for the purpose of expressing an opinion as to whether the financial statements give a true and fair view in accordance with the financial reporting framework, and for expressing an opinion on the Trustees’ Annual Report. 2. I confirm to the best of my knowledge and belief, and having made appropriate enquiries of the trustees of the registered charitable trusts where Argyll and Bute Council is the sole trustee, the following representations given to you in connection with your audit for the year ended 31 March 2022. General 3. I acknowledge my responsibility and that of Argyll and Bute Council (as the administering authority of the Charitable Trusts) for the financial statements. All the accounting records, documentation and other matters which I am aware are relevant to the preparation of the annual accounts have been made available to you for the purposes of your audit. All transactions undertaken by the Charitable Trusts have been recorded in the accounting records and are properly reflected in the financial statements. 4. I confirm that the eight trusts presented for audit are all the trusts that require an audit, where the sole trustee is Argyll and Bute Council. Page 59 Agenda Item 5
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5. The information given in the Trustees Reports to the financial statements presents a balanced picture of the Charitable Trusts and are consistent with the financial statements. 6. I confirm that the effects of uncorrected misstatements are immaterial, individually and in aggregate, to the financial statements as a whole. I am not aware of any uncorrected misstatements other than those reported by you. Financial Reporting Framework 7. The financial statements of Marquess of Bute Silver Wedding Dowry, Baillie Gillies Bequest, Kidston Park Trust, Miss Annie Dickson Bequest and Logie Baird Prize Fund have been prepared in accordance with the requirements of the Charities and Trustee Investment (Scotland) Act 2005, the Charities Accounts (Scotland) Regulations 2006 and directions made thereunder by the Scottish Ministers including all relevant presentation and disclosure requirements. 8. The financial statements of the McCaig Trust, County of Argyll Educational Trust Scheme 1960 and Oban Common Good Fund have been prepared in accordance with the requirements of the Charities Statement of Recommended Practice (SORP): Financial Reporting Standard 102 (FRS 102) and directions made thereunder by the Scottish Ministers including all relevant presentation and disclosure requirements. 9. In accordance with the 2014 regulations, I have ensured that the financial statements give a true and fair view of the financial position of the Charitable Trusts at 31 March 2022 and the transactions for 2021/22. Accounting Policies & Estimates 10. The Annual Report and Financial Statements of the Marquess of Bute Silver Wedding Dowry Baillie Gillies Bequest, Kidston Park Trust, Miss Annie Dickson Bequest and Logie Baird Prize Fund have been prepared on a receipts and payments basis as per applicable regulations and the founding documents of each Trust. 11. The Annual Report of the Trustees and Financial Statements of the McCaig Trust, County of Argyll Educational Trust Scheme 1960 and Oban Common Good Fund have been prepared on an accruals basis as per applicable regulations and the founding documents of each Trust. 12. The significant assumptions used in making accounting estimates are reasonable and properly reflected in the financial statements. Judgements used in making estimates have been based on the latest available, reliable information. Estimates have been revised where there are changes in the circumstances on which the original estimate was based or as a result of new information or experience. Going Concern Basis of Accounting 13. Several of the trusts have been dormant in recent years. The Trustees have assessed the ability of the registered charitable trust to carry on as a going concern, and have disclosed in the financial statements any material uncertainties that have arisen as a result. Assets 14. The assets shown in the Statement of Balances/Balance Sheet as at 31 March 2022 were owned by Charitable Trusts, other than assets which have been purchased under finance leases. Assets are free from any lien, encumbrance or charge except as disclosed in the financial statements. Page 60
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Liabilities 15. All liabilities have been provided for in the financial records, including the liabilities for all purchases to which title has passed prior to 31 March 2022. Fraud 16. I have provided you with all information in relation to: • my assessment of the risk that the financial statements may be materially misstated because of fraud • any allegations of fraud or suspected fraud affecting the financial statements • fraud or suspected fraud that I am aware of involving management, employees who have a significant role in internal control, or others that could have a material effect on the financial statements. Laws and Regulations 17. I have disclosed to you all known instances of non-compliance or suspected non-compliance with laws and regulations whose effects should be considered when preparing financial statements. Related Party Transactions 18. All material transactions with related parties have been disclosed in the financial statements in accordance with the 2021/22 accounting code. I have made available to you the identity of all the Charitable Trusts’ related parties and all the related party relationships and transactions of which I am aware. Corporate Governance 19. I confirm that there are no issues or deficiencies in internal control that require to be disclosed. Events Subsequent to the Date of the Balance Sheet/Statement of Balances 20. There have been no material events since the date of the Balance Sheet/Statement of Balances which necessitate revision of the figures in the financial statements or notes thereto including contingent assets and liabilities. 21. Since the date of the Balance Sheet/Statement of Balances no events or transactions have occurred which, though properly excluded from the financial statements, are of such importance that they should be brought to your notice. Yours sincerely Kirsty Flanagan Section 95 Officer 24 November 2022 Page 61
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