KPMG Report To Those Charged With Corporate Governance

Appendix A
INFRASTRUCTURE, GOVERNMENT AND HEALTHCARE
Report to those charged with governance 2008/09 Kettering Borough Council

29 September 2009
AUDIT
Content
The contacts at KPMG in connection with this report are:
Page
Executive summary
Saverio Della Rocca Director KPMG LLP (UK) Tel: 0121 335 2367 saverio.dellarocca@kpmg.co.uk Deborah Stokes Manager KPMG LLP (UK) Tel: 0116 256 6270 deborah.stokes@kpmg.co.uk Claire Adams Assistant Manager KPMG LLP (UK) Tel: 0121 232 3219 claire.adams@kpmg.co.uk
Use of resources
Financial statements
Appendices
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.
Proposed use of resources conclusion Use of resources key findings Use of resources criteria and link to VFM conclusion Proposed audit report Audit differences Accounts risk areas Recommendations Follow up of previous recommendations Treasury management return Data quality spot checks Audit reports issued Declaration of independence and objectivity Draft management representations letter Audit fee
This report is addressed to the Authority and has been prepared for the sole use of the Authority. We take no responsibility to any member of staff acting in their individual capacities, or to third parties. The Audit Commission has issued a document entitled Statement of Responsibilities of Auditors and Audited Bodies. This summarises where the responsibilities of auditors begin and end and what is expected from the audited body. We draw your attention to this document. External auditors do not act as a substitute for the audited bodys own responsibility for putting in place proper arrangements to ensure that public business is conducted in accordance with the law and proper standards, and that public money is safeguarded and properly accounted for, and used economically, efficiently and effectively. If you have any concerns or are dissatisfied with any part of KPMGs work, in the first instance you should contact Saverio Della Rocca, who is the engagement director to the Authority, telephone 0121 335 2367, email saverio.dellarocca@kpmg.co.uk who will try to resolve your complaint. If you are dissatisfied with your response please contact Trevor Rees on 0161 236 4000, email trevor.rees@kpmg.co.uk, who is the national contact partner for all of KPMGs work with the Audit Commission After this, if you are still dissatisfied with how your complaint has been handled you can access the Audit Commissions complaints procedure. Put your complaint in writing to the Complaints Investigation Officer, Westward House, Lime Kiln Close, Stoke Gifford, Bristol, BS34 8SR or by e mail to: complaints@audit-commission.gov.uk. Their telephone number is 0844 798 3131, textphone (minicom) 020 7630 0421
2009 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.
Section one
Executive summary
Scope of this report The Audit Commissions Code of Audit Practice (the Code) requires us to summarise the work we have carried out to discharge our statutory audit responsibilities together with any governance issues identified and we report to those charged with governance (in this case the Monitoring and Audit Committee) at the time they are considering the financial statements. We are also required to comply with International Standard on Auditing (ISA) 260 which sets out our responsibilities for communicating with those charged with governance. This report meets both these requirements. It summarises the key issues identified during our audit of Kettering Borough Councils (the Authority's) financial statements for the year ended 31 March 2009. In addition, this report summarises our key findings from our assessment of how the Authority is managing and using its resources to deliver value for money and better and sustainable outcomes for local people. This report does not repeat matters we have previously communicated to you. In particular, we draw your attention to our Interim Audit Report 2008/09, which summarised our planning and interim audit work. A summary of all reports we have issued in the year is set out in Appendix 11. Once we have finalised our opinions and conclusions we will prepare our Annual Audit Letter and close our audit. Summary of findings Use of Resources The Authority is responsible for putting in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources and regularly reviewing their adequacy and effectiveness. We are required to conclude whether the Authority has adequate arrangements in place to ensure effective use of its resources. This assessment draws on the findings from the new use of resources assessment framework introduced by the Audit Commission for this year. The new assessment framework forms part of the Comprehensive Area Assessment (CAA). This assessment is a harder test than the previous assessment and is focused on outcomes for local people rather than processes. This means direct comparisons with the previous assessment are not possible. The assessment comprises three themes which focus on:
sound and strategic financial management; strategic commissioning and good governance; and the management of natural resources, assets and people.
We have assessed the Authority against the detailed guidance set out on the Audit Commission website which can be accessed by the following link http://www.auditcommission.gov.uk/useofresources/guidance/index.htm. Judgements have been made for each KLOE using the four point scale from 1 to 4, (1 meaning that the Authority does not meet minimum requirements and 4 being significantly exceeding minimum requirements). The Authority has been assessed overall as level 2 which equates to performing adequately. Based on this assessment, we have concluded that the Authority has made proper arrangements to secure economy, efficiency and effectiveness in its use of resources. Our findings are detailed in Section two of this report and our proposed conclusion is set out in Appendix 1. Financial statements The Authority is responsible for having in place effective systems of internal control which ensure the regularity and lawfulness of transactions, to maintain proper accounting records and to prepare financial statements that present fairly its financial position and its expenditure and income. It is also responsible for preparing and publishing an Annual Statement of Governance with its financial statements. During the course of our audit we have identified one material adjustment required to the financial statements in relation to the accounting treatment for the impairment of council dwellings. There are a number of areas where our work is continuing. Subject to all the outstanding queries being resolved to our satisfaction, we anticipate issuing an unqualified opinion by the 30th September 2009. We shall be holding a detailed debrief meeting with the finance team to obtain two way feedback on the audit process and the quality of the working papers and how we can continue to work together to improve the closedown process and financial statement audit. Our findings are detailed in section three and our proposed opinion on the accounts is presented in Appendix 4.
Section one
Executive summary (continued)

Status of the audit At the date of this report our audit of the financial statements is substantially complete, subject to the following: verifying the final amended set of accounts; and receipt of a signed management representation letter. We have provided a draft version at Appendix 13. This includes a request for a specific management representation over the adequacy of impairments in the accounts. Declaration of independence and objectivity In relation to the audit of Kettering Borough Council for the year ending 31 March 2009, we confirm that there were no relationships between KPMG LLP and Kettering Borough Council, its directors and senior management and its affiliates that may reasonably be thought to bear on the objectivity and independence of the audit engagement lead and audit staff. We also confirm that we have complied with Ethical Standards and the Audit Commissions requirements in relation to independence and objectivity. We have provided a detailed declaration in Appendix 12 in accordance with ISA 260. Exercise of other powers We have a duty under Section 8 of the Audit Commission Act 1998 to consider whether, in the public interest, to report on any matter that comes to our attention in order for it brought to the attention of the public. In addition we have a range of other powers under the 1988 Act. We did not exercise these powers or issue a report in the public interest in 2008/09. Certificate We are required to certify that we have completed the audit in accordance with the requirements of the Audit Commission Act 1998 and the Code of Audit Practice. If there are any circumstances under which we cannot issue a certificate, then we are required to report them to you and to issue a draft opinion on the financial statements. At present there are no issues that would cause us to delay the issue of our certificate of completion of the audit. Fees Our fee for the audit is 111,000 (excluding work on grant claims which is billed separately). This has been contained within the fee agreed with you in our audit plan. We have not performed any non-audit work. Looking forward The Authority needs to consider and address a number of financial challenges in the coming year. These include: revisiting its Medium Term Financial Strategy to mitigate any potential risks as a result of the current economic climate and also developing a strategy to increase the HRA balances to an acceptable level; and convergence of Local Government Accounting to International Financial Reporting Standards (IFRS) is likely to present a number of reporting and technical challenges. The Authority should ensure sufficient planning is undertaken to ensure an efficient transition to IFRS. We understand the Authority are currently seeking guidance on IFRS from a number of sources. Acknowledgements We would like to take this opportunity to thank officers and members for their continuing help and co-operation throughout our audit work.
Section two
Use of resources
We are required to conclude whether the Authority has adequate arrangements to ensure effective use of its resources. This assessment draws on the new use of resources assessment framework introduced by the Audit Commission. The new framework assesses local authorities against three themes: managing finances, governing the business and managing resources and the Authority has been assessed as performing adequately against these themes Based on this, we concluded that the Authority has made proper arrangements to secure economy, efficiency and effectiveness in its use of resources. Introduction In our Annual Audit and Inspection Plan 2008/09 we outlined the work streams which we complete to assess the adequacy of your arrangements which ensure that your resources are deployed effectively. Our conclusion is based on these work streams, our cumulative audit knowledge and any specific local risk work, as detailed below. The new use of resources assessment The Audit Commission introduced a new assessment this year. This assesses how well organisations are managing and using their resources to deliver value for money and better and sustainable outcomes for local people. This new assessment forms part of the Comprehensive Area Assessment (CAA) framework. It defines use of resources in a broader way than previously, embracing the use of natural, physical and human resources and it also places a new emphasis on commissioning services for local people. This assessment is a harder test than the previous assessment and is focused on outcomes for local people rather than processes. It is not sufficient for bodies to put in place well designed processes. They must be able to demonstrate the impact that those processes have made in relation to value for money and outcomes for local people. As a consequence it is not possible to make direct comparisons with the previous years assessment. The assessment is based on three Key Lines of Enquiry (KLOEs) themes which cover:
Managing finances - focusing on sound and strategic financial management; Governing the business - focusing on strategic commissioning and good governance; and Managing resources - focusing on the effective management of natural resources, assets and people.
The scores for each theme are based on the scores assessed for the underlying Key Lines of Enquiry (KLOE). The KLOEs are generic and applicable equally to all organisations. The Commission specifies each year which KLOEs are to be assessed and for District Councils those relevant for 2008/09 are set out in Appendix 2. We have assessed the Authority against the detailed guidance set out on the Audit Commission website which can be accessed by the following link http://www.auditcommission.gov.uk/useofresources/guidance/index.htm. Judgements have been made for each KLOE using the four point scale from 1 to 4, (1 meaning that the Authority does not meet minimum requirements and 4 being significantly exceeding minimum requirements). Findings We have assessed the Authority as an overall score of level 2 which means the Authority is performing adequately. This score reflects the fact that the Authority has some strong arrangements in place and areas where it performs well such as producing their financial statements on a timely basis, managing spend within budget and improving performance in areas such as leisure. However, there is some work required across all KLOEs to achieve a level 3. The table below shows our Use of Resources assessment across the three themes. KLOE 1 Managing finances 2 Governing the business 3 Managing resources Theme Score 2 2 2
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Section two
Use of resources (continued)

To move to level 3 the Authority will need to demonstrate that arrangements are performing well across all three themes and we have highlighted in Appendix 2 a number of areas the Authority should consider. The scores have been quality checked by KPMGs national quality control processes, through a local area based challenge process. The scores are subject to completion of Audit Commission national quality assurance and review processes, and may change. Final score will be published on 5 October 2009. We have made 2 recommendations as follows: Recommendation 1: Self assessment The Authority should build on the 2008/09 self assessment process and develop a more focused assessment which: contains an executive summary setting out a balanced assessment of the Authoritys progress against the KLOEs over the last year; is supported by evidence and is clearly signposted to the assessment; is accompanied by case studies to demonstrate outcomes; and is approved by the Corporate Management Team and has been subject to challenge by the Monitoring and Audit Committee. Recommendation 2: Action planning The Authority should develop an action plan in response to the findings of this report. The action plan should have named responsible officers and a timescale for implementation. The action plan should be approved by the Corporate Management Team and be subject to challenge by the Monitoring and Audit Committee during the year. Other work If we identify specific risks at the Authority which may impact on our value for money conclusion, we are required to perform additional work to meet our responsibilities under the Code. We highlighted three specific risks in the 2008/09 audit plan these were: Town Centre Regeneration/ Service convergence project; IT Partnership with the Borough Council of Wellingborough; and Equal pay/Single Status. We considered the Town Centre Regeneration capital spend, the IT Partnership arrangement and the Equal Pay/Single Status provision as part of the final accounts work and our conclusions are included in Appendix 6. Use of resources (value for money) conclusion We are required to give an annual conclusion on the adequacy of the Authoritys arrangements to ensure effective use of its resources. This is the use of resources or value for money (VFM) conclusion. For 2008/09, the KLOEs for the scored use of resources assessment directly map to the criteria for the VFM conclusion. The Audit Commission has specified which of the KLOEs will form the relevant criteria for the VFM conclusion and these are summarised in Appendix 3. Based on our use of resources assessment and relevant local risk work set out above, we conclude that the Authority has appropriate arrangements in place to ensure the effective use of its resources. Our proposed conclusion is set out in Appendix 1.
Section three
Financial statements
The Authority is responsible for having effective systems of internal control to ensure the regularity and lawfulness of transactions, to maintain proper accounting records and to prepare financial statements that present fairly its financial position and its expenditure and income. It is also responsible for preparing and publishing an Annual Statement of Governance with its financial statements. We have substantially completed our work on the 2008/09 financial statements. We have identified one material adjustment required to the financial statements in relation to the accounting treatment for the impairment of council dwellings. Subject to all the outstanding queries being resolved to our satisfaction, and receiving your management representations letter we anticipate issuing an unqualified audit opinion by 30 September 2009. We will also report that the wording of your Annual Statement of Governance accords with our understanding.
Introduction Our financial statements work can be split into four phases. We previously reported on our work on the first two stages in our Interim Audit Report 2008/09 issued 30 April 2009. Stage Tasks Updating our business understanding and risk assessment Planning Assessing the organisational control environment Issuing our accounts audit protocol Reviewing the accounts production process Control evaluation Evaluating and testing controls over key financial systems Review of internal audit Planning and performing substantive work Evaluating the accounts production and audit process Substantive testing Concluding on critical accounting matters Identifying audit adjustments Reviewing the Annual Governance Statement Declaring our independence and objectivity Completion Obtaining management representations Reporting matters of governance interest Forming our audit opinion This report focuses on the findings from the substantive testing and completion stages. The findings from our planning and control evaluation have been reported in our Interim Audit Report 2008/09. September 2009 In progress July to August 2009 Timing December 2008 to February 2009 Completed
February to March 2009
Section three
Financial statements (continued)

Substantive testing accounts production and audit process As part of our use of resources assessment we assess the Authoritys process for preparing the accounts and its support for an efficient audit. We considered these against three criteria:
Element Completeness of draft accounts Quality of supporting working papers Commentary We received a set of draft accounts on 22 June 2009, prior to commencement of our final accounts audit which began on 29 June 2009. However, through completion of the Statement of Recommended Practice (SORP) Checklist it was identified that some disclosure notes had not been included. Our Accounts Audit Protocol, which we issued on 25 February 2009 and discussed with the Group Accountant, set out our working paper requirements for the audit. Working papers were provided in accordance with the agreed timetable and met the standards specified in our Accounts Audit Protocol. Our audit queries were dealt with quickly and efficiently. Response to audit queries We held regular meetings with the Authoritys Group Accountants during the accounts process to communicate progress with the audit and to co-ordinate the work of the Finance team to assist in the delivery of the audit within the agreed timetable.
Substantive testing critical accounting matters During our interim visit we identified a number of key audit risks for 2008/09 financial statements which we detailed in our interim report. We have now completed our testing of these areas and the outcome of our work is summarised in Appendix 6. The key findings arising are: an impairment review has been carried out at the financial year end, which has resulted in an impairment charge of 51,217k being recognised in the accounts; the Authority is in the process of assessing the financial impact of implementing equal pay. The Authority does not know with any certainty when or the amount it will need to pay out due to constant changes in case law. A contingent liability has been recognised in the financial statements and the Authority have set up a reserve of 200k in; and the level of provision for bad and doubtful Council Tax and NNDR debts recognised in the accounts appears reasonable. Substantive testing adjustments to the accounts In accordance with ISA 260 we are required to report uncorrected audit differences to you. We also report any material misstatements which have been corrected and which we believe should be communicated to you to help you meet your governance responsibilities. We have identified two issues that have been adjusted for by management, including one material misstatement relating to the impairment charge calculated by the Authority as detailed below. The impairment charge calculated by the Authority had been overstated by 4,968k. The overstatement occurred due to an error in the formulae contained within the electronic working papers used by the Authority to calculate the total impairment charge recognised in the financial statements. There is no impact on the General Fund as the entry is reversed out via the Statement of Movement on the General Fund Balance. Of the other audit adjustments we have identified, the most significant in monetary value are as follows: Credit balances amounting to 110k had been incorrectly included in the debtors balance; Both debtors and receipts in advance had been overstated by 54k as a number of invoices relating to the 2009/10 financial year had been incorrectly included in both balances. We have provided a summary of audit differences in Appendix 5. These have been adjusted for in the final version of the financial statements.
Section three
Financial statements (continued)

In addition, we identified a number of presentational adjustments required to ensure that the accounts are compliant with the Code of Practice on Local Authority Accounting the United Kingdom 2008: A Statement of Recommended Practice (SORP) for example, pension and financial instrument disclosures. We understand that the Authority will be addressing these where significant. We have provided a summary of both the corrected and uncorrected audit differences in Appendix 5. Substantive testing Annual Governance Statement We have reviewed the Annual Governance Statement and confirmed that it complies with Delivering Good Governance in Local Government: A Framework published by CIPFA/SOLACE in June 2007; and it is not misleading or inconsistent with other information we are aware of from our audit of the financial statements. Completion declaration of independence and objectivity As part of the finalisation process we are required to provide you with representations concerning our independence. In relation to the audit of the financial statements of Kettering Borough Council for the year ending 31 March 2009, we confirm that there were no relationships between KPMG LLP and Kettering Borough Council, its directors and senior management and its affiliates that we consider may reasonably be thought to bear on the objectivity and independence of the audit engagement lead and audit staff. We also confirm that we have complied with Ethical Standards and the Audit Commissions requirements in relation to independence and objectivity. We have provided a detailed declaration in Appendix 12 in accordance with ISA 260. Completion management representations You are required to provide us with representations on specific matters such as your financial standing and whether the transactions within the accounts are legal and unaffected by fraud. We have included a copy of a representation letter as Appendix 13. We require a signed copy of your management representations before we issue our audit opinion. For 2008/09 we are seeking specific assurance that sufficient and appropriate consideration has been given to potential impairments of the assets included in the accounts in light of the current macro economic climate and that, where any such impairment has been identified, it is reflected accordingly in the accounts. This includes compliance with the accounting policy for periodic revaluation of assets (under FRS 15), as well as the need for management to undertake a review of assets to determine whether there is any impairment to their value in accordance with FRS 11. Completion other matters ISA 260 requires us to communicate audit matters of governance interest that arise from the audit of the financial statements to you which includes:
material weaknesses in internal control identified during the audit; matters specifically required by other auditing standards to be communicated to those charged with governance
(e.g. issues relating to fraud, compliance with laws and regulations, subsequent events etc); and
other audit matters of governance interest.
There are no others matters which we wish to draw to your attention. Completion opinion We anticipate issuing an unqualified audit opinion by 30 September 2009. Our proposed opinion on the financial statements is presented in Appendix 4.
Appendices
Appendix 1: Proposed use of resources conclusion

Conclusion on arrangements for securing economy, efficiency and effectiveness in the use of resources Authoritys Responsibilities The Authority is responsible for putting in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources, to ensure proper stewardship and governance and regularly to review the adequacy and effectiveness of these arrangements. Auditors Responsibilities We are required by the Audit Commission Act 1998 to be satisfied that proper arrangements have been made by the Authority for securing economy, efficiency and effectiveness in its use of resources. The Code of Audit Practice issued by the Audit Commission requires us to report to you our conclusion in relation to proper arrangements, having regard to relevant criteria specified by the Audit Commission for principal local authorities. We report if significant matters have come to our attention which prevent us from concluding that the Authority has made such proper arrangements. We are not required to consider, nor have we considered, whether all aspects of the Authoritys arrangements for securing economy, efficiency and effectiveness in its use of resources are operating effectively. Conclusion We have undertaken our audit in accordance with the Code of Audit Practice. Having regard to the criteria for principal local authorities specified by the Audit Commission and published in May 2008 and updated in February 2009, we are satisfied that, in all significant respects, Kettering Borough Council made proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ending 31 March 2009. Saverio Della Rocca (Senior Statutory Auditor) for and on behalf of KPMG LLP Chartered Accountants Statutory Auditor 2 Cornwall Street Birmingham B3 2DL 30 September 2009
Appendices
Appendix 2: Use of resources key findings

This appendix summarises key messages from the use of resources assessment by theme. As the new use of resources framework requires us to apply rounded judgements, we remind the Authority that it is not a checklist approach. In our findings we highlight areas where the Authority can make improvements to its arrangements, but they are not exhaustive.
KLOE 1 How effectively does the organisation manage its finances to deliver value for money? Overall score is 2.
The Authority has adequate arrangements for financial planning, understanding its costs and performance and financial reporting. It will need to be able to demonstrate consistent outcomes across all KLOE focus areas to improve its scores. The scores by sub KLOE are summarised in the graph below:
4 3 2 1 0 KLOE 1.1 KLOE 1.2 KLOE 1.3
As the Authority has scored at least level 2 for all criteria, it has met the requirements for the VFM conclusion. KLOE 1.1 Does the organisation plan its finances effectively to deliver its strategic priorities and secure sound financial health?
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The Authority meets the basic requirements for financial planning and is considered to be performing adequately. 3 The key areas that the Authority should consider are: 1developing a medium term efficiency savings plan i.e. over a 3 5 year period and develop strategies to deliver these savings. These savings should then flow through to individual service plans and monitored and reported to 0 Members 2.1 Senior Management 2.3 and team on a regular basis; KLOE KLOE 2.2 KLOE KLOE 2.4 reassessing where it spends its budget in relation to its priorities as part of the budget setting process for 2010/11. While the Council has shifted resources into key areas such as recycling and more recently redeploying staff into housing benefits, in light of the current financial climate and outlook, it will again need to look at whether it can disinvest further in non-priority areas; develop the Medium Term Financial Strategy further to incorporate more modelling of different scenarios such as the impact of changes to planned and responsive repairs on spend within the HRA and the impact on the level of reserves and balances; ensuring the Medium Term Financial Strategy is more widely communicated and consulted on with stakeholders and demonstrate how the consultation has changed the way the Council have allocated resources; as part of its budget setting process, the Council will need to continue to challenge how services are delivered, in particular those services which are considered to be performing less well when compared to other authorities, and encourage service managers to consider all alternative options; and reviewing the Treasury Management Policy/Strategy to ensure it is in line with revised guidance. For more detail see Appendix 9.
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Appendices
Appendix 2: Use of resources key findings (continued)

KLOE 1.2 Does the organisation have a sound understanding of its costs and performance and The Authority understands its own costs and compares its performance level year on year but it has performed Authority should consider are: using comparative data more systematically to consider the costs and ensure they are commensurate with the areas where efficiencies or service changes can be made; demonstrating the effective use of the newly introduced capital bidding process; developing benchmarking information for key areas of spend i.e. priority areas or high spend and then use it performance. In particular it should use the Audit Commission profiles to challenge services and back office demonstrating increased delivery of savings from partnerships eg with NAPS on procurement. KLOE 1.3 Is the organisations financial reporting timely, reliable and does it meet the needs of internal The Authority meets the basic requirements for financial reporting and is considered to be performing
developing external reporting which includes environmental and social information with an analysis of the
consistently reviewing the financial performance of the Councils significant partners; continuing to effectively project manage the implementation of IFRS and keep the Monitoring and Audit making progress towards Equality Standard level 3 and ensuring diversity issues are reported in financial
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Appendices

KLOE 2 How well does the organisation govern itself and commission services that provide value for money and deliver better outcomes for local people? Overall score is 2
The Authority has adequate arrangements for commissioning and procurement, data quality, good governance and internal control. It will need to be able to demonstrate consistent outcomes across all KLOE focus areas to be able to improve its scores. The scores by sub KLOE are summarised in the graph below:
4 3 2 1 0 KLOE 2.1 KLOE 2.2 KLOE 2.3 KLOE 2.4
As the Authority has scored above level 2 for all criteria, it has met the requirements for the VFM conclusion. KLOE 2.1 Does the organisation commission and procure quality services and supplies, tailored to 4 local needs, to deliver sustainable outcomes and value for money? The Authority meets the basic requirements for commissioning and procurement and is considered to be 2 performing adequately. The Council has been and continues to be creative in the way it delivers and designs services for its people and wins a number of awards for its work. However, its overall value for money 1 performance, as measured by the Audit Commission profiles, shows mixed performance with some services 0 KLOE 2.1 KLOE 2.2 KLOE improving, still below average. KLOE 2.4 such as housing benefits, although2.3 The key areas that the Authority should consider are: demonstrating that the Councils approach to procurement and service delivery is improving performance (as measured by KPIs) and achieving value for money; updating and developing the Councils Procurement Strategy document; developing a strategic focus on commissioning and procurement which ensures that it considers the best way to commission and procure services in the future and ensures delivery of value for money; and demonstrating the benefits for local people from changing service arrangements thorough partnership working or outsourcing e.g. from the procurement shared service with Northamptonshire Area Procurement Service (NAPS). KLOE 2.2 Does the organisation produce relevant and reliable data and information to support decision making and manage performance? The Authority meets the basic requirements for data quality and is considered to be performing adequately. The key areas that the Authority should consider are:
developing its performance reports further which summarise and pull together information from all sources to give an overall judgement on how well the Council is achieving its priorities. The reports should also highlight how well individual services are achieving their service objectives. Reports could be enhanced further by using comparative/benchmarking data; demonstrating that the Council uses performance information consistently across the Council to drive improvement there are areas such as Housing Benefits where improvement has been slow; developing local PIs which clearly link to individual service plans; and formally report on the accuracy of data as well as the appropriateness of the procedures in place;
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Appendices

demonstrating how it gains its assurances that data from partners is reliable and fit for purpose, arrangements may include shared internal audit reviews or joint site or desk-top reviews; and update and formalise the Councils IT policies and procedures and demonstrate their compliance across the Council. KLOE 2.3 Does the organisation promote and demonstrate the principles and values of good governance? The Authority meets the basic requirements for good governance and is considered to be performing adequately. The key areas that the Authority should consider are:
developing a consistent and appropriate form of governance which is formally documented in the form of a Service Level Agreement for all its significant partners e.g. Connect Law, Consortium Audit and IT partnership arrangements with Wellingborough. The documentation should include legal status, accountabilities, decision making process, roles and responsibilities; ensuring follow-up issues raised by internal audit on partnerships have been addressed; ensuring recommendations made by external audit and the Audit Commission in the Annual External Audit Report are implemented on a timely basis; expanding consultation methods to include all hard to reach groups and demonstrating the local assessment of needs has been considered and been addressed; and demonstrating the Council is pro-active in raising standards of ethical conduct for example by providing regular updates/reminders to employees and Members on the Councils whistle blowing policy and regularly updating the Councils anti-fraud and corruption policy. KLOE 2.4 Does the organisation manage its risks and maintain a sound system of internal control? The Authority meets the basic requirements for internal control and is considered to be performing adequately. The key areas that the Authority should consider are: developing its risk managements arrangements further to ensure risk management is working consistently at all levels of the Council. This needs to include ownership of risks and a clear understanding of the controls that mitigate the risks; ensuring recommendations made by internal audit in September 2008 regarding anti-fraud and corruption arrangements are implemented; developing proactive anti-fraud and corruption arrangements such as introducing fraud risk registers or assisting internal audit to carry out proactive fraud work; putting in place arrangements to finalise the Councils Business Continuity plan and ensure staff and members are notified of the processes and procedures and ensuring the Council schedules a programme of tests; and demonstrating success stories of how the Monitoring and Audit Committee has helped improved internal control.
Audit Commission Return Data Quality Spot Checks

As part of our assessment of KLOE 2.2, we are required to undertake spot checks on a sample of Performance Indicators (PIs). During our review one minor error was identified. These were discussed with the relevant Manager who agreed to take these forward. There are no matters which we need to bring to the attention of Members. For further detail please refer to Appendix 10.
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Appendices

KLOE 3 How well does the organisation manage its natural resources, physical assets, and people to meet current and future needs and deliver value for money? Overall score is 2.
As there is only one KLOE within this theme for 2008/09 (workforce planning), the score for KLOE 3.3 is also a level 2. KLOE 3.3 Does the organisation plan and develop its workforce effectively to support the achievement of its strategic priorities? The Authority meets the basic requirements for workforce and is considered to be performing adequately. The key areas that the Authority should consider are: developing benchmarking tools to allow comparison of its staff costs with other organisations and demonstrate the Council has used business process improvement approaches to identify potential areas for efficiency savings and increased productivity; developing a workforce plan which identifies the needs of the Council over the next three to five years and how it intends to get there. It should be clearly aligned with the priorities and strategic objectives and demonstrate how it will deliver improvements in productivity and VFM; developing post-implementation reviews following Next Steps reviews of services to evaluate the impact on staff; carrying out a staff survey and morale survey as the one completed was undertaken a number of years ago and demonstrating how it has communicated the findings to staff and actioned the areas for improvement; and working towards achieving a level 3 or above on the current Equality Standard for local government.
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Appendices
Appendix 3: Use of resources criteria and link to VFM conclusion

The Audit Commission has specified which of the use of resources KLOEs form the criteria for the VFM conclusion. These criteria are summarised below. Use of resources KLOE Managing finances 1.1 Financial planning 1.2 Understanding costs and achieving efficiencies 1.3 Financial reporting Governing the business 2.1 Commissioning and procurement 2.2 Data quality and use of information 2.3 Good governance 2.4 Risk management and internal control Managing resources 3.3 Workforce planning Relevance to the Authority
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Appendices
Appendix 4: Proposed audit report

Independent auditors report to the Members of Kettering Borough Council Opinion on the accounting statements We have audited the accounting statements and related notes of Kettering Borough Council for the year ended 31 March 2009 under the Audit Commission Act 1998. The accounting statements comprise the Income and Expenditure Account, the Statement of Movement on the General Fund Balance, the Balance Sheet, the Statement of Total Recognised Gains and Losses, the Cash Flow Statement, the Housing Revenue Account Income and Expenditure Account, the Statement of Movement on the Housing Revenue Account and the Collection Fund. The accounting statements have been prepared under the accounting policies set out in the Statement of Accounting Policies. This report is made solely to Kettering Borough Council, as a body, in accordance with Part II of the Audit Commission Act 1998. Our audit work has been undertaken so that we might state to Kettering Borough Council, as a body, those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than Kettering Borough Council, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the Head of Finance and auditors The Head of Finances responsibilities for preparing the financial statements in accordance with relevant legal and regulatory requirements and the Code of Practice on Local Authority Accounting in the United Kingdom 2008 are set out in the Statement of Responsibilities for the Statement of Accounts. Our responsibility is to audit the accounting statements and related notes in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the accounting statements and related notes present fairly, in accordance with relevant legal and regulatory requirements and the Code of Practice on Local Authority Accounting in the United Kingdom 2008 the financial position of the Authority and its income and expenditure for the year. We review whether the governance statement reflects compliance with Delivering Good Governance in Local Government: A Framework published by CIPFA/SOLACE in June 2007. We report if it does not comply with proper practices specified by CIPFA/SOLACE or if the statement is misleading or inconsistent with other information we are aware of from our audit of the financial statements. We are not required to consider, nor have we considered, whether the governance statement covers all risks and controls. Neither are we required to form an opinion on the effectiveness of the Authoritys corporate governance procedures or its risk and control procedures. We read other information published with the accounting statements and related notes and consider whether it is consistent with the audited accounting statements and related notes. This other information comprises only the Explanatory Foreword. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the accounting statements and related notes. Our responsibilities do not extend to any other information.
16
Appendices
Appendix 4: Proposed audit report (continued)

Basis of audit opinion We conducted our audit in accordance with the Audit Commission Act 1998, the Code of Audit Practice issued by the Audit Commission and International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the accounting statements and related notes. It also includes an assessment of the significant estimates and judgments made by the Authority in the preparation of the accounting statements and related notes, and of whether the accounting policies are appropriate to the Authoritys circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the accounting statements and related notes are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the accounting statements and related notes. Opinion In our opinion the accounting statements and related notes present fairly, in accordance with relevant legal and regulatory requirements and the Code of Practice on Local Authority Accounting in the United Kingdom 2008, the financial position of the Authority as at 31 March 2009 and its income and expenditure for the year then ended. Certificate I certify that I have completed the audit of the accounts in accordance with the requirements of the Audit Commission Act 1998 and the Code of Audit Practice issued by the Audit Commission.
Saverio Della Rocca (Senior Statutory Auditor) for and on behalf of KPMG LLP Chartered Accountants Statutory Auditor 2 Cornwall Street Birmingham B3 2DL 30 September 2009
17
Appendices
Appendix 5: Audit differences

We are required by ISA 260 to report all uncorrected misstatements, other than those that we believe are clearly trivial, to the Audit Committee. We are also required to report all material misstatements that have been corrected but that we believe should be communicated to you to assist you in fulfilling your governance responsibilities. Corrected audit differences The following table sets out the significant audit differences identified by our audit of Kettering Borough Councils financial statements for the year ended 31 March 2009. It is our understanding that these will be adjusted. However, we have not yet received a revised set of financial statements to confirm this. There were no uncorrected audit differences.
Impact Income and expenditure Statement of Movement on GF Balance Basis of audit difference Assets Liabilities Reserves
Cr 4.9m
Dr 4.9m
Dr Fixed Assets 4.9m
Cr Capital Adjustment Account 4.9m
The impairment charge recognised in the accounts had been overstated. This was due to a formula error within the Authoritys electronic working papers. A number of credit balances had been incorrectly included within the debtors account. A number of debit balances had been incorrectly included within creditors.
Dr Debtors 110k
Cr Creditors 110k
Dr Debtors 30k Dr Receipts in Advance 54k Dr Local Authority Debtors 63k
Cr Creditors 30k
Cr Debtors 54k
Three invoices relating to 2009/10 had been incorrectly included in both debtors and receipts in advance.
Cr Sundry Debtors 63k
A number of invoices relating to Local Authority debtors had been incorrectly included within sundry debtors.
18
Appendices
Appendix 6: Accounts risk areas

This appendix summarises the key accounting issues for the 2008/09 financial statements and our final findings following our substantive work.
Issue Statement of (SORP) 2008 Recommended Practice The Statement of Accounts may not be presented in accordance with SORP requirements. During the course of testing we identified that additional disclosure was required for a number of areas. See recommendation 5 in Appendix 7 below. Risk and implications Findings during final audit
The 2008 SORP includes a number of changes, including prohibiting the revaluation of fixed assets and introducing the concept of revenue expenditure funded from capital under statute. Equal Pay/Single Status The Authority is examining whether it has any potential liability for Equal Pay/Single Status claims which could impact on the financial statements. At the time of our interim review, the Authority estimated this to be in the region of 200k.
The Authority may not have recognised adequate provision in the financial statements.
The Councils work on this area is still ongoing. For the moment the Council have assumed that implementation of equal pay would result in an ongoing inflationary increase in pay of between 3-5%. This doesn't take account of the costs associated with making payments to employees as part of the introduction of a new pay and grading structure. The Council does not know with any certainty when or the amount it will need to pay out, due to constant changes in case law. We have recommended that the Council include a contingent liability note in the financial statements.
Town Centre Regeneration The Authority has commenced a project to regenerate Kettering town centre. This project involves complex large value financial and land transactions which could impact on the financial statements. Construction work on the Market Place phase of the Town Centre regeneration project commenced in February 2009. However during March 2009, the contractor engaged by the Authority to undertake this work, Wrekin Construction, went into Administration. The Authority has appointed a new contractor, Weldon Plant Ltd. IT Partnership The Authority has entered into an IT partnership with the Borough Council of Wellingborough, whereby the Authority is hosting the financial ledger. There may be inadequate governance arrangements in place surrounding the arrangement. It has been confirmed that there is no Service Level Agreement in place between the two Authorities which outlines the roles and responsibilities of both parties in relation to this arrangement. It is recommended that a SLA is put in place which clearly details roles, responsibilities and monitoring arrrangements. The Authority may not account for the transactions correctly in the financial statements. The Authority may not have complied with the conditions attached to grant funding received during the financial year. During the course of testing we reviewed the accounting treatment of additions and grant funding relating to the Town Centre regeneration project and confirmed that they had been accounted for correctly in the financial statements.
19
Appendices
Appendix 6: Accounts risk areas (continued)

Issue Impairment The reduction in property prices nationally may have an impact on the value of the Authoritys land and buildings, and the value of its fixed assets may be impaired. The Authority is currently undertaking an impairment review to ascertain the impact of this issue on its asset base. Council Tax and NNDR Arrears Council Tax and NNDR payers may also be finding it more difficult to pay, which could impact on account balances such as the Authoritys income and its assessment of the recoverability of debt. The provision for bad and doubtful debts may not be sufficient based on the level of arrears at the year-end. During testing, we identified that at the yearend Council Tax arrears amounted to 1,735k and NNDR arrears amounted to 662k. The Authority has recognised provisions for bad and doubtful debts of 918k and 201k against Council Tax and NNDR arrears respectively. As such the Authority has provided for 53% of the Council Tax arrears at the year-end and 43% of the NNDR arrears at the year-end. The level of provision recognised in the accounts appears reasonable. The Authoritys fixed assets may be overstated as the reduction in property prices have not been taken into account when valuing their assets at the year-end. Our testing confirmed that an impairment review was undertaken at the year-end. This resulted in an impairment charge of 51,217k being recognised in the statement of accounts. Risk and implications Findings during final audit
20
Appendices
Appendix 7: Recommendations
We have given each recommendation a risk rating (as explained below) and agreed what action management will need to take. We will follow up these recommendations next year.
Priority rating for recommendation Priority one: issues that are fundamental and material to your system of internal control. We believe that these issues might mean that you do not meet a system objective or reduce (mitigate) a risk. Priority two: issues that have an important effect on internal controls but do not need immediate action. You may still meet a system objective in full or in part or reduce (mitigate) a risk adequately but the weakness remains in the system. Priority three: issues that would, if corrected, improve the internal control in general but are not vital to the overall system. These are generally issues of best practice that we feel would benefit you if you introduced them.
No. Risk
Issue and recommendation Use of Resources self assessment
Management response
Officer and date
The Authority should build on the 2008/09 self assessment Agreed assessment which: contains an executive summary setting out a balanced against the KLOEs over the last year; (two) is supported by evidence and is clearly signposted to the is accompanied by case studies to demonstrate outcomes; and is approved by the Corporate Management Team and has been Monitoring and Audit Committee. Action planning The Authority should develop an action plan in response to the Agreed plan should have named responsible officers and a timescale for
SMT / CMT
SMT / CMT
(two) The action plan should be discussed and challenged by the progress reports should be submitted to the Monitoring and Audit
Rent Assistance Scheme During 2007/08 the Authority introduced the Rent Assistance The Council is already in the homeless households to secure accommodation in the private reviewing the recovery given under the Rent Our testing identified the following issues relating to this scheme: records maintained by the Authority of all the households significant number of accounts which are in credit. Detailed these accounts are not in fact in credit, rather the debtor has repayment schedule. 3 records also identified 13 cancelled cheques amounting to (two) specific debtor accounts as the Authority is unable to identify to working papers prepared by the Authority also identified that loan for 19 debtor accounts. It is recommended that the Authority carry out a detailed review of arrangements in place for the Rent Assistance Scheme to ensure and that adequate arrangements are in place to recover the debts. Head of November
21
Appendices
Appendix 7: Recommendations (continued)

No. Risk Issue and recommendation Building Control Disclosure The statement is produced in accordance with the Building (Local Authority Charges) regulations 1998. There is a statutory requirement to break-even over a three-year rolling period. The general principles of setting charges mean that authorities should not set charges with the intention of generating a surplus. If a surplus or deficit arises, then the authority will need to consider whether it needs to introduce a new scheme that will bring income into closer alignment with expenditure. The deficit is largely caused by capital charges and depreciation, which are accounting adjustments and not real expenditure. These occur because of Capital investment in The account has been in deficit for the past three years, and is building control system. The Council did not increase showing a deficit of 107,000 for the current year. charges as a result because It is recommended that the Authority continues to explore the the costs are notional. options available to meet the break even requirement for 2009/10. Statement of Recommended Practice (SORP) Disclosure Agreed Checklist The draft Statement of Accounts omitted a number of disclosures required by the SORP. Additional disclosures were required for example on: financial instruments; 5 (two) retirement benefits; leases, specifically where the Authority is the lessor; and non-operational assets. By completing the SORP checklist the Authority can identify the disclosures required when preparing the Statement of Accounts. It is recommended that the Authority completes the SORP checklist once the Financial Statements have been drafted in 2009/10. Management response Officer and due date
(two)
N/A
Group Accountant June 2009
22
Appendices
Appendix 8: Follow up of previous recommendations

This appendix summarises the progress made to implement the recommendations identified in our previous reports. We have detailed the outstanding recommendations and would re-iterate the importance of actioning the outstanding recommendations as soon as possible.
Number of recommendations that were: Report ISA 260 Report 2007/08 Annual External Audit Report 2007/08 Total Included in original report 14 6 28 Implemented in year or superseded 9 4 21 Remain outstanding (reiterated below) 5 2 7
23
Appendices
Appendix 8: Follow up of previous recommendations (continued)

No. Risk Issue and recommendation Management response Officer and due date Management response at September 2009
ISA 260 Report 2007/08 Capital Accounting 1 The Authority does not perform a full physical Agreed. verification exercise of plant and equipment. Failure to (two) do this may result in the Authority not recognising disposal or obsolescence of fixed assets. Back-ups The integrity of data backups is not subject to regular This will be IT Manager This forms part of testing. reviewed during the Councils review of its Business There has been no full restoration of the back-up tapes 2009/10. Continuity for the network to confirm that a full restoration would arrangements The be successful. Council regularly A full restoration of the back-up tapes or key data completes successful should be undertaken periodically. data backups in a live (two) environment, which gives confidence of resilience. In addition, undertaking full system restoration and regular testing would be expensive and resource intensive. User Access There is no corporate-wide policy in place regarding the This will be IT Manager A review process need to undertake regular reviews of user access rights reviewed during will be implemented to business critical IT applications. The aim of which, 2009/10. as part of being to identify users who no longer require access or Government staff who have left the Authority whose access has not Connect compliance been deleted. it is important to note that there is a The structure of the system access restrictions and process to ensure system capabilities should be subject to periodic review leavers are removed and amendment. As part of this process, as a from the network and minimum, management should conduct a formal individual systems. process at regular intervals to review users access rights so that: users access rights are reviewed at regular intervals (a period of 12 months is recommended) and after any changes; authorisations for special privileged access rights should be reviewed at more frequent intervals; a period of 3 months is recommended; and privilege allocations are checked at regular intervals to ensure that unauthorised privileges have not been obtained. Group See Page 25 Asset Accountant Management Plan December 2008
(two)
24
Appendices
Appendix 8: Follow up of previous recommendations (continued)

No. Risk Issue and recommendation Payroll Application Controls The password parameters in place are not in line with The Authority is in best practice (complexity, alphanumeric, forced the process of password change). undertaking a review of the In line with Information Security best practice, Officers function should liaise with the supplier to ensure that password Payroll as a result of this controls, as a minimum, include the following: service forced password change after 90 days or number of transferring to (one) log-ins; Finance. This will the forced password change after 30 days for System address points raised at Administrators / Super Users; 11, 12 and 13 and the system should prevent the same password being should be reused within 12 months; and concluded by temporary passwords are forcibly changed at the first December 2008. log-on. Head of Finance Upgrades Application patches / upgrades are not always subject Agreed to testing in test environments prior to being uploaded on to the live system. 5 The Authority should ensure that all system upgrades (two) are tested in test environments before being uploaded on to the live system. IT Manager Under review If a system has a test environment an upgrade is tested prior to live upload. If not, e.g. for network patches, localised testing within IT is undertaken before rolling out to all staff. Head of Finance Partially implemented The Council is still awaiting a system upgrade to address all of the the outstanding issues. Management response Officer and due date Management response at September 2009
Annual External Audit Report 2007/08 Asset Management Plan The Asset Management Plan should be further developed to show how the Authoritys land and buildings will be used and developed to help deliver corporate priorities and service delivery needs, now and in the future. The plan should also show how property assets will be maintained, modernised and (two) rationalised to ensure that they are fit for purpose. The Plan should highlight any backlog maintenance and be regularly reported to Members. In addition, the Authority should obtain accurate data on the efficiency, effectiveness, asset value and running costs for each of its buildings which can be used to support decision making on investment and disinvestment property. Risk Management The Authority should develop its risk management Arrangements are arrangements further, in particular it should ensure: in place with our risks associated with specific partnerships are risk management Zurich considered, monitored and appropriate action is taken partner Municipal to to mitigate any identified risks; address all of the (two) formal risk training is provided to both Members and recommendations staff who have responsibility for risk management; and raised. regular reports are produced for Members to allow them to take appropriate action to ensure corporate risks are being identified and effectively managed. Head of Finance April 2009 Risk Management procedures, which address the recommendations raised, will be submitted to Monitoring & Audit Committee in September 2009. Staff & Member training sessions will follow. 25 The points made will be discussed in detail and a further review of the Asset Management Plan undertaken. This will need to be considered along with the requirements of IFRS. Head of Finance July 2009 In Progress -
Appendices
Appendix 9: Treasury management return

We have completed a questionnaire on behalf of the Audit Commission around the Authoritys Treasury Management arrangements. Through completion of the questionnaire we have identified the following areas which are considered best practice which the Authority should consider implementing.
No. Issue and Recommendation CIPFA Treasury Management Panel Bulletin A Treasury Management Panel Bulletin was issued by CIPFA in March 2009 with interim guidance surrounding investments in Icelandic Banks. Due to the Authoritys timetable for the approval of the Treasury Management Strategy, the 2009/10 Strategy document had already been approved before this guidance was issued. The Authority should consider reviewing the 2009/10 Treasury Management Strategy against this guidance and making any necessary revisions. When preparing the 2010/11 Strategy document, the Authority should make reference to all available guidance issued by CIPFA. Treasury Management Policy / Strategy are responsible for setting the risk-reward advice from appropriate officers, e.g. s151 Officer). Review of the Treasury Management Policy / Strategy document confirmed that it does not clearly identify: The Authoritys risk-reward appetite should be condensed Treasury Management policy, with clear consequential the Authoritys risk-reward appetite; the balance the Authority wants to achieve between The Authority manages their investment portfolio based placed. security, liquidity and the yield to be achieved; The Authority maintains a concern for risk despite high the maximum period for which funds can be invested; asking questions like: the criteria for choosing investment counterparties with - what actions can be taken to reduce credit risk? adequate security; or - given our perception of the current market conditions, do the level of country risk. more risk averse manner than the policy currently allows? Best Practice
Members
Monthly reporting to the Corporate Management Team (or Through discussion with Authority officers it was confirmed details of: activities are currently only formally reported to the - the investment portfolio (detailed list of all funds placed the annual Treasury Management Policy/Strategy is date and interest rate); Treasury Management Reporting 3 In light of the current economic climate, the Authority - market commentary highlighting developments in frequency of reporting Treasury Management activities. which the Authority is investing; and - forthcoming cash flows and plans for the funds.
Member Training Discussion with Authority officers identified that Members Treasury Management prior to reports being presented to Hence this is only on an annual basis. A formal Member training programme should be introduced responsible for overseeing the Treasury Management
26
Appendices
Appendix 10: Data quality spot checks

Purpose of spot checks The purpose of spot checking selected data is to confirm whether the Authoritys arrangements for securing data quality are working in practice, are consistently applied, and comply with relevant national and local requirements. Sample selection In addition to our work specified by the Audit Commission on housing and council tax benefits data quality, an additional sample of Performance Indicators (PIs) was selected for spot check testing based on local priorities and risks. The results of our testing are below. Results of data testing
Indicator reference NI157a Indicator description Management arrangements Adequate Audit trail Pass / Fail Fail Out-turn 72.73% Revised out-turn 72.09%
Percentage of planning applications determined in line with the Government target (i) major commercial applications within 13 weeks Days sick per member of staff
LPI12
Adequate
Pass
7.61
27
Appendices
Appendix 11: Audit reports issued

A summary of the reports issued in the year to date is set out below.
Report Audit and Inspection Plan 2008/09 Interim Audit Report 2008/09 Date issued 30 September 2008 30 April 2009
28
Appendices
Appendix 12: Declaration of independence and objectivity

Declaration of Independence and Objectivity 2008/09 Auditors appointed by the Audit Commission must comply with the Code of Audit Practice (the Code) which states that: Auditors and their staff should exercise their professional judgement and act independently of both the Audit Commission and the audited body. Auditors, or any firm with which an auditor is associated, should not carry out work for an audited body, which does not relate directly to the discharge of auditors functions, if it would impair the auditors independence or might give rise to a reasonable perception that their independence could be impaired In considering issues of independence and objectivity we consider relevant professional, regulatory and legal requirements and guidance, including the provisions of the Code, the detailed provisions of the Statement of Independence included within the Audit Commissions Annual Letter of Guidance and Standing Guidance (Audit Commission Guidance) and the requirements of APB Ethical Standard 1 Integrity, Objectivity and Independence (Ethical Standards). The Code states that, in carrying out their audit of the financial statements, auditors should comply with auditing standards currently in force, and as may be amended from time to time. Audit Commission Guidance requires appointed auditors to follow the provisions of ISA (UK &I) 260 Communication of Audit Matters with Those Charged with Governance that are applicable to the audit of listed companies. This means that the appointed auditor must disclose in writing:
Details of all relationships between the auditor and the client, its directors and senior management and its
affiliates, including all services provided by the audit firm and its network to the client, its directors and senior management and its affiliates, that the auditor considers may reasonably be thought to bear on the auditors objectivity and independence.
The related safeguards that are in place. The total amount of fees that the auditor and the auditors network firms have charged to the client and its
affiliates for the provision of services during the reporting period, analysed into appropriate categories, for example, statutory audit services, further audit services, tax advisory services and other non-audit services. For each category, the amounts of any future services which have been contracted or where a written proposal has been submitted are separately disclosed. Appointed auditors are also required to confirm in writing that they have complied with Ethical Standards and that, in the auditors professional judgement, the auditor is independent and the auditors objectivity is not compromised, or otherwise declare that the auditor has concerns that the auditors objectivity and independence may be compromised and explaining the actions which necessarily follow from his. These matters should be discussed with the Monitoring and Audit Committee. Ethical Standards require us to communicate to those charged with governance in writing at least annually all significant facts and matters, including those related to the provision of non-audit services and the safeguards put in place that, in our professional judgement, may reasonably be thought to bear on our independence and the objectivity of the Audit Partner and the audit team. General procedures to safeguard independence and objectivity KPMG's reputation is built, in great part, upon the conduct of our professionals and their ability to deliver objective and independent advice and opinions. That integrity and objectivity underpins the work that KPMG performs and is important to the regulatory environments in which we operate. All partners and staff have an obligation to maintain the relevant level of required independence and to identify and evaluate circumstances and relationships that may impair that independence. Acting as an auditor places specific obligations on the firm, partners and staff in order to demonstrate the firm's required independence. KPMG's policies and procedures regarding independence matters are detailed in the Ethics and Independence Manual (the Manual). The Manual sets out the overriding principles and summarises the policies and regulations which all partners and staff must adhere to in the area of professional conduct and in dealings with clients and others.
29
Appendices
Appendix 12: Declaration of independence and objectivity (contd)

KPMG is committed to ensuring that all partners and staff are aware of these principles. To facilitate this, a hard copy of the Manual is provided to everyone annually. The Manual is divided into two parts. Part 1 sets out KPMG's ethics and independence policies which partners and staff must observe both in relation to their personal dealings and in relation to the professional services they provide. Part 2 of the Manual summarises the key risk management policies which partners and staff are required to follow when providing such services. All partners and staff must understand the personal responsibilities they have towards complying with the policies outlined in the Manual and follow them at all times. To acknowledge understanding of and adherence to the policies set out in the Manual, all partners and staff are required to submit an annual Ethics and Independence Confirmation. Failure to follow these policies can result in disciplinary action. Auditor Declaration In relation to the audit of the financial statements of Kettering Borough Council for the financial year ending 31 March 2009, we confirm that there were no relationships between KPMG LLP and Kettering Borough Council, its directors and senior management and its affiliates that we consider may reasonably be thought to bear on the objectivity and independence of the audit engagement lead and audit staff. We also confirm that we have complied with Ethical Standards and the Audit Commissions requirements in relation to independence and objectivity.
30
Appendices
Appendix 13: Draft management representation letter

Dear KPMG LLP, We understand that auditing standards require you to obtain representations from management on certain matters material to your opinion. Accordingly we confirm to the best of our knowledge and belief, having made appropriate enquiries of other members of the Authority, the following representations given to you in connection with your audit of the financial statements for Kettering Borough Council for the year ended 31 March 2009. All the accounting records have been made available to you for the purpose of your audit and the full effect of all the transactions undertaken by Kettering Borough Council has been properly reflected and recorded in the accounting records in accordance with agreements, including side agreements, amendments and oral agreements. All other records and related information, including minutes of all management and Board meetings, have been made available to you. We confirm that we have disclosed all material related party transactions relevant to the Authority and that we are not aware of any other such matters required to be disclosed in the financial statements, whether under FRS 8 or other requirements. We confirm that we are not aware of any actual or potential non-compliance with laws and regulations that would have had a material effect on the ability of the Authority to conduct its business and therefore on the results and financial position to be disclosed in the financial statements for the year ended 31 March 2009. We acknowledge that we are responsible for the fair presentation of the financial statements in accordance with the Local Government Statement of Recommended Practice (SORP) and wider UK accounting standards. We have considered and approved the financial statements. We confirm that we:
understand that the term fraud includes misstatements resulting from fraudulent financial reporting and
misstatements resulting from misappropriation of assets. Misstatements resulting from fraudulent financial reporting involve intentional misstatements or omissions of amount or disclosures in financial statements to deceive financial statement users. Misstatements resulting from misappropriation of assets involve the theft of an entitys assets, often accompanied by false or misleading records or documents in order to conceal the fact that the assets are missing or have been pledged without proper authorisation;
are responsible for the design and implementation of internal control to prevent and detect fraud and error; have disclosed to you our knowledge of fraud or suspected fraud affecting the Authority involving:
management; employees who have significant roles in internal control; or others where the fraud could have a material effect on the financial statements.
have disclosed to you our knowledge of any allegations of fraud, or suspected fraud, affecting the Authoritys
financial statements communicated by employees, former employees, analysts, regulators or others; and
have disclosed to you the results of our assessment of the risk that the financial statements may be materially
misstated as a result of fraud. We confirm that the presentation and disclosure of the fair value measurements of material assets, liabilities and components of equity are in accordance with applicable reporting standards. The amounts disclosed represent our best estimate of fair value of assets and liabilities required to be disclosed by these standards. The measurement methods and significant assumptions used in determining fair value have been applied on a consistent basis, are reasonable and they appropriately reflect our intent and ability to carry out specific courses of action on behalf of the Authority where relevant to the fair value measurements or disclosures. We confirm that there are no other contingent liabilities, other than those that have been properly recorded and disclosed in the financial statements. In particular:
there is no significant pending or threatened litigation, other than that already disclosed in the financial
statements; and
there are no material commitments or contractual issues, other than those already disclosed in the financial
statements.
31
Appendices
Appendix 13: Draft management representation letter (continued)

With reference to the specific issues on which you have requested assurances, we confirm that:
For 2008/09 we consider that sufficient and appropriate consideration has been given to potential impairments of
the assets included in the accounts in light of the current macro economic climate and that, where any such impairment has been identified, it is reflected accordingly in the accounts. This includes compliance with the accounting policy for periodic revaluation of assets (under FRS 15), as well as the need for management to undertake a review of assets to determine whether there is any impairment to their value in accordance with FRS 11. Finally, no additional significant post balance sheet events have occurred that would require additional adjustment or disclosure in the financial statements, over and above those events already disclosed. This letter was tabled at the meeting of the Monitoring and Audit Committee on 29 September 2009. Yours faithfully
Paul Sutton (Head of Finance) On behalf of Kettering Borough Council
32
Appendices Appendix 14: Audit Fee

To make sure that there is openness between us and your Audit Committee about the extent of our fee relationship with you, we have summarised below the out-turn against the 2008/09 agreed external audit fee:
External audit fee for 2008 / 09
100
(thousands)
80 60 40 20 0 Use of resources Financial statem ents audit Grants Other work
Budget Actual
The actual fee for grants is an estimate, based on the amount billed for 2007/08, as at the date of this report some work in this area remains outstanding.
33

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KPMG Report To Those Charged With Corporate Governance

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Appendix A

INFRASTRUCTURE, GOVERNMENT AND HEALTHCARE

Report to those charged with governance 2008/09 Kettering Borough Council

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

Executive summary (continued)

Use of resources (continued)

February to March 2009

Financial statements (continued)

Financial statements (continued)

Appendix 1: Proposed use of resources conclusion

Appendix 2: Use of resources key findings

Appendix 2: Use of resources key findings (continued)

Appendix 2: Use of resources key findings (continued)

Appendix 2: Use of resources key findings (continued)

Audit Commission Return Data Quality Spot Checks

Appendix 2: Use of resources key findings (continued)

Appendix 3: Use of resources criteria and link to VFM conclusion

Appendix 4: Proposed audit report

Appendix 4: Proposed audit report (continued)

Appendix 5: Audit differences

Dr Fixed Assets 4.9m

Cr Capital Adjustment Account 4.9m

Dr Debtors 30k Dr Receipts in Advance 54k Dr Local Authority Debtors 63k

Cr Sundry Debtors 63k

Appendix 6: Accounts risk areas

Appendix 6: Accounts risk areas (continued)

Issue and recommendation Use of Resources self assessment

Officer and date

Appendix 7: Recommendations (continued)

Group Accountant June 2009

Appendix 8: Follow up of previous recommendations

Appendix 8: Follow up of previous recommendations (continued)

Appendix 8: Follow up of previous recommendations (continued)

Appendix 9: Treasury management return

Appendix 10: Data quality spot checks

Appendix 11: Audit reports issued

Appendix 12: Declaration of independence and objectivity

Appendix 12: Declaration of independence and objectivity (contd)

Appendix 13: Draft management representation letter

Appendix 13: Draft management representation letter (continued)

Paul Sutton (Head of Finance) On behalf of Kettering Borough Council

Appendices Appendix 14: Audit Fee

80 60 40 20 0 Use of resources Financial statem ents audit Grants Other work

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