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REPORT

REPORT OF MEETING DATE ITEM NO

KPMG, THE COUNCIL’S EXTERNAL

AUDITORS/DIRECTOR OF GOVERNANCE AND

PARTNERSHIPS

AUDIT COMMITTEE 23 SEPT 2010 4

REPORT TO THOSE CHARGED WITH GOVERNANCE (ISA 260) 2009/10

Public Item This item is for consideration in the public part of the meeting.

Summary

The attached report, which has been prepared by the Council’s external auditors KPMG, summarises: i) The key issues identified during the audit of the Council’s financial statements for the year ended 31st March 2010, and ii) KPMG’s assessment of the Council’s arrangements to secure value for money in its use of resources. The report concludes, that having regard to the relevant criteria for principal authorities as published by the Audit Commission, the Council has secured economy, efficiency and effectiveness. It also provides an opinion to verify that the Council has complied with all legal and regulatory frameworks with respect to its accounting arrangements resulting in an unqualified opinion.

Recommendation Recommendations 1. That the report is noted and KPMG thanked for its report

2. That the Audit Committee welcomes the work undertaken by the Council over the course of the last year resulting in a number of improvements as identified by the Council’s external auditors. In particular improvements relating to arrangements for

Continued....

workforce planning, performance in commissioning and procurement together with an increased understanding of cost bases and performance.

Reasons for recommendation: It is part of the Government’s current regulatory framework that each Council must make proper arrangements to secure economy, efficiency and effectiveness and comply with accounts production practices and reporting.

Alternative options considered and rejected

No applicable alternative options as part of a regulatory framework

Cabinet Portfolio The item falls within the following Cabinet portfolio: Finance and Resources: Councillor Karen Buckley Report To receive the report of KPMG (attached) which will be reported on by the Council’s external auditors, KPMG. Risk Assessment There are some minor risks associated with the actions referred to in this report. Appropriate amendments have been made to the directorate operational risk register to accommodate these risks where necessary. Conclusion Since the issue of its ‘Report to those charged with governance 2008/09’, the Council has

made notable improvements across a number of areas. Only one area of note remains regarding the Council’s strategic approach to the Use of Natural Resources

as outlined within the report of KPMG. However, it is noted that the Council is taking operational measures with respect to the Use of Natural Resources.

Report Author Tel Date Doc ID

Tracy Scholes (01253) 658521 13 September 2010

List of Background Papers

Name of document Date Where available for inspection

Report to those charged with governance (ISA 260) 2009/10

10 Sept 2010 Attached

IMPLICATIONS

Finance The report gives an unqualified opinion on the Council’s statement of accounts and also details that the Council has secured economy, efficiency and effectiveness in terms of managing its finances

Legal The report is part of the Council’s formal regulatory framework

Community Safety No direct implications

Human Rights and Equalities

No direct implications

Sustainability and Environmental Impact

Some issues remain outstanding to be addressed around the Council’s use of natural resources

Health & Safety and Risk Management

No health and safety implications. The Council’s risk management framework has met Value for Money criteria as outlined with the report.

GOVERNMENT

AUDIT

Fylde Borough Council

13 September 2010

Report to those charged with governance (ISA 260) 2009/10

© 2010 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 Cooperative, a Swiss entity. 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 Cooperative, a Swiss entity. 1

Contents

The contacts at KPMG in connection with this report are:

Trevor Rees

Partner

KPMG LLP (UK)

Tel: 0161 246 4063Fax: 0161 838 [email protected]

Jillian Burrows

Senior Manager

KPMG LLP (UK)


Iain Leviston

Manager

KPMG LLP (UK)


Shan Prior

Audit In-Charge

KPMG LLP (UK)


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 body’s 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 KPMG’s work, in the first instance you should contact Trevor Rees, who is the engagement partner to the Authority, telephone 0161 246 4063, email [email protected] who will try to resolve your complaint. Trevor is also the national contact partner for all of

KPMG’s work with the Audit Commission. After this, if you are still dissatisfied with how your complaint has been handled you can access the Audit Commission’s complaints procedure. Put your complaint in writing to the Complaints Investigation Officer, Westward House, Lime Kiln Close, Stoke Gifford, Bristol, BS34 8SR or

by email to [email protected]. Their telephone number is 0844 798 3131, textphone (minicom) 020 7630 0421.

Report Sections Page

Section One Executive summary 2

Section Two Financial statements 4

Section Three Use of resources 11

Appendices Page

Appendix A Proposed opinion on the financial statements 13

Appendix B Proposed value for money conclusion 15

Appendix C Follow-up of prior year recommendations 16

Appendix D Declaration of independence and objectivity 18

Appendix E Draft management representation letter 20

© 2010 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 Cooperative, a Swiss entity. 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 Cooperative, a Swiss entity.

Scope of this report

This report summarises:

the key issues identified during our audit of Fylde Borough Council’s (‘theAuthority‘s) financial statements for the year ended 31 March 2010; and

our assessment of the Authority’s arrangements to secure value for money inits use of resources.

Financial Statements

The table below summarises the key findings from our work in relation to thefinancial statements audit. Section two of this document provides further details.

Section oneExecutive summary

2

Critical accounting

matters

We have worked with officers throughout the year to discussspecific risk areas. The Authority addressed the issuesappropriately.

Audit differences

Our audit has not identified any audit adjustments. A smallnumber of presentational adjustments have been made.

Completion

At the date of this report our audit of the financial statementsis substantially complete.

Before we can issue our opinion we require a signedmanagement representation letter.

We confirm that we have complied with requirements onobjectivity and independence in relation to this year’s audit ofthe Authority’s financial statements.

Proposed opinion

We anticipate issuing an unqualified audit opinion by 30September 2010. We will also report that the wording of yourAnnual Governance Statement accords with ourunderstanding.

Accounts production and audit process

We have noted that the quality of the accounts and thesupporting working papers remains good. Officers dealtefficiently with the majority of audit queries and the auditprocess has been completed within the planned timescales.These timescales saw the majority of the audit completed inmid-July , one month earlier than in 2008/09.

The Authority has implemented all of the recommendations inour ISA 260 Report 2008/09 relating to the financialstatements.


Section oneExecutive summary (continued)

3

Use of Resources

The table below summarises the key findings from our assessment of theAuthority’s arrangements to secure value for money in its use of resources.

Our findings are detailed in section three of this report.

Exercise of other powers

We have a duty under section 8 of the Audit Commission Act 1998 to considerwhether, in the public interest, to report on any matter that comes to ourattention in order for it to be brought to the attention of the public. In addition wehave a range of other powers under the 1998 Act.

We have received a letter from an elector requesting a Public Interest Report.We are currently dealing with this request, and are keeping the Authority’s ChiefExecutive updated as a matter of course.

Certificate

We are required to certify that we have completed the audit in accordance withthe requirements of the Audit Commission Act 1998 and the Code of AuditPractice. If there are any circumstances under which we cannot issue acertificate, then we are required to report them to you and to issue a draft opinionon the financial statements.

At present we are unable to issue this certificate because of the Public Interestrequest we have received.

Acknowledgements

We would like to take this opportunity to thank officers and Members for theircontinuing help and co-operation throughout our audit work.

Proposed opinion

We have concluded that the Authority has made properarrangements to secure economy, efficiency andeffectiveness in its use of resources except in one area.

Use of resources

assessment

Following the change in government, the use of resourcesassessment at local authorities ceased with immediate effectin May 2010.

The Authority will therefore not receive scores in respect ofthe 2010 assessment although the interim submissionprocess did identify improvements from 2008/09 in a numberof areas.

The Authority’s arrangements for workforce planning,understanding costs and achieving efficiencies andcommissioning and procurement were improved from theprevious year. However there is one area where the exceptfor opinion has been issued, this is the use of naturalresources.

In this area there is a lack of evidence that operationaldecisions are informed by a strategic framework.

Given the Government’s plan to reduce spending it isexpected that the focus in future years will be around financialresilience. We have highlighted in section three some areasfor development.


Section two – financial statementsIntroduction

4

The Authority’s and our responsibilities

Fylde Borough Council is responsible for having effective systemsof internal control to ensure the regularity and lawfulness oftransactions, to maintain proper accounting records and toprepare financial statements that give a true and fair view of itsfinancial position and its expenditure and income. It is alsoresponsible for preparing and publishing an Annual Statement ofGovernance with its financial statements.

Our responsibility is to audit the financial statements inaccordance with relevant legal and regulatory requirements andInternational Standards on Auditing (UK and Ireland).

The Audit Commission’s Code of Audit Practice requires us tosummarise the work we have carried out to discharge ourstatutory audit responsibilities together with any governanceissues identified and we report to those charged with governance(in this case the Audit Committee) at the time they areconsidering the financial statements.

We are also required to comply with International Standard onAuditing (ISA) 260 which sets out our responsibilities forcommunicating with those charged with governance.

This report meets both these requirements.

Introduction

Our audit of the financial statements can be split into four phases:

This report focuses on the final two stages: substantiveprocedures and completion.

Substantive Procedures

Our final accounts visit on site took place between 12 July and 20August 2010. During these six weeks, we carried out thefollowing work:

We have substantially completed our audit of the Authority’s2009/10 financial statements.

We have provided a copy of the letter of managementrepresentation , we understand that this will be signed by theChief Executive at the Audit Committee.

Completion

We are now in the final phase of the audit. Some aspects aredischarged through this report:

We anticipate issuing an unqualified audit opinion by 30September 2010.

We have substantially completed our work on the 2009/10 financial statements.

There is one area where we are awaiting information – this is the signed letter of management representation .

We anticipate issuing an unqualified audit opinion by 30 September 2010.

Control Evaluation

Substantive Procedures CompletionPlanning

Planning and performing substantive audit procedures

Concluding on critical accounting matters

Identifying audit adjustments

Reviewing the Annual Governance Statement Su

bst

anti

ve

Pro

ced

ure

s

Declaring our independence and objectivity

Obtaining management representations

Reporting matters of governance interest

Forming our audit opinion Co

mp

leti

on


Accounts production and audit process

ISA 260 requires us to communicate to you our views about thequalitative aspects of the Authority’s accounting practices andfinancial reporting.

We also assessed the Authority’s process for preparing theaccounts and its support for an efficient audit.

We considered the following criteria:

Prior year recommendations

The Authority has implemented all of the recommendations in ourISA 260 Report 2008/09 relating to the financial statements.

Appendix C provides further details of the recommendationsmade and how these have been addressed.

Annual Governance Statement

We have reviewed the Annual Governance Statement andconfirmed that

it complies with Delivering Good Governance in LocalGovernment: A Framework published by CIPFA/SOLACE inJune 2007; and

it is not misleading or inconsistent with other information weare aware of from our audit of the financial statements.

Section two – financial statementsAccounts production and audit process

5

We have noted that the quality of the accounts and the supporting working papers remains good.

Officers dealt efficiently with the majority of audit queries and the audit process could be completed within the planned timescales.

The Authority has implemented all of the recommendations in our ISA 260 Report 2008/09relating to the financial statements.

The wording of your Annual Governance Statement accords with our understanding.

Element Commentary

Accounting practices and financial reporting

The Authority has strengthened its financialreporting and completion process and thisenabled the audit to be conducted earlier thanin prior years.

We consider that accounting practices areappropriate.

Completeness of draft accounts

We received a complete set of draft accountson 22 June 2010. A small number ofpresentational adjustments have been made

Quality of supporting working papers

Our Accounts Audit Protocol, which weissued on 23 April 2010 and discussed withPaul O’Donoghue, set out our working paperrequirements for the audit.

The quality of working papers provided wasgood and met the standards specified in ourAccounts Audit Protocol.

Response to audit queries

The Authority responded promptly to themajority of the audit queries raised. Althoughthere were a number of staff on holidayduring the audit, these were notified to us inadvance of the audit and we were able to planour work accordingly.


Section two – financial statements Critical accounting matters

Work completed

In our Financial Statements Audit Plan 2009/10, presented toyou in March, we identified the key risks affecting theAuthority’s 2009/10 financial statements.

We have now completed our testing of these areas and setout our final evaluation following our substantive work.

Key findings

The table below sets out our detailed findings for each risk.We have worked with officers throughout the year to discuss specific risk areas. The Authority addressed the issues appropriately.

Key audit risk Issue Findings

Fixed asset revaluation

The Authority is required to revalue assets held atcurrent value at intervals of not more than five years.The Authority has complied with this requirementalthough a number of audit differences were recordedin 2008/09 in relation to the accounting treatment ofrevalued assets. These audit differences related todownward revaluations, depreciation of revaluedassets and the revaluation of community assets.

Our audit work covered accounting entries of assetsrevalued in year including the balance on therevaluation reserve, depreciation charges andbalances on the Capital Adjustment Account.

We also reviewed the assets that had been revaluedto ensure that SORP guidance has been followed.

No audit difference were recorded in this area in2009/10 illustrating the improvements made by theAuthority.

Local taxes

Arrears levels for local taxes did not increase overallfrom 2007/08 to 2008/09. However, due to the currenteconomic climate we will be performing more detailedtesting in this area.

During the interim phase of our audit, we reviewedthe Authority’s processes for collecting and recoveringoutstanding balances in relation to Council Tax andNational Non-Domestic Rates (NNDR). The controls inplace were found to be operating effectively.

During our final audit phase, we also criticallyreviewed the level of bad debt write offs and bad debtprovisioning at the year end. No issues wereidentified.

Fixed asset revaluation

Local taxes


Section two – financial statements Critical accounting matters (continued)

Key audit risk Issue Findings

Implementation of IFRS

Authorities are required to report under IFRS for thefirst time in 2010/11. The 2009/10 financialstatements will need to be converted to IFRS to formthe comparative period. Therefore, the opening IFRSbalance sheet date was 1 April 2009. It is importantthat the Authority continues to work towards deliveryof its IFRS project plan in order to ensure futurecompliance with IFRS.

We have held regular discussions with officersthroughout the year to discuss the Authority’sprogress on implementing IFRS, and we are satisfiedthat the Authority is preparing itself as best as possiblewhilst waiting for further guidance.

The Authority has provided the details of one of itslease agreements and a suggested treatment, we areworking together to review the treatment of the leaseto ensure that it is correct.

The Authority has restated the opening balance sheetfor 1 April 2010. We hope to audit this in late 2010.We are satisfied that the Authority is fully on track toimplement IFRS for the 2010/11 financial statements.

Impleme-ntation of

IFRS


There were movements in the Authority’s pension liabilities. This was largely due to a change in assumptions used by the actuary to estimate the liabilities and also the performance of the capital markets affecting the pension assets.

In addition, following the balance sheet date the Government announced a change to pensions, required authorities to disclose a post balance sheet event disclosure.

Section two – financial statements Audit commentary – pension liabilities

Members will have noticed that there has been an increase in thepension liabilities disclosed in the Authority’s balance sheet from2008/09 to 2009/10. This is consistent with other pension fundsaround the country.

Below we have provided an analysis of the pension liabilitymovement to aid Members’ understanding of the reasons for this:

From this analysis it can be seen that the largest change in thepension liability is due to the actuarial losses on the pensionscheme. There was an actuarial loss on the liabilities of £15.0million, which was partially offset by a gain of £8.5 million on thepension assets. The main reason for the change in the pensionliability is because the actuary changed the assumptions it uses toestimate the pension fund liabilities. For example, people livinglonger, a lower discount rate and increased inflation rates.

Government announcement on pension increases

The Government has, however, recently announced that the basisupon which pensions increase will, in the future, be based on theConsumer Price Index (CPI) as opposed to the Retail Price Index(RPI). As CPI is typically lower than RPI, this is expected to havea positive impact upon pension scheme liabilities

As a result of this announcement, the Authority has disclosed apost balance sheet event in its notes to the financial statements.This is considered to be a ‘non-adjusting event’ under the relevantfinancial reporting standard (FRS 21). This means that the balancesheet for 2009/10 has not been changed to reflect thisannouncement as the announcement was made after the balancesheet date. This approach is consistent with that adopted acrossthe rest of the sector.

Increases the pension liability Decreases the pension liability

(17.5)(24.9)1.5

2.0

8.5

(3.5) (1.2)

(15.0)

(40.0)

(30.0)

(20.0)

(10.0)

0.0

2008-2009 Pension Liabilities

Interest on pension liabilities

Service costs and

curtailments

Actuarial losses on scheme liabilities

Contributions Expected return on plan

assets

Actuarial gain on scheme

assets

2009-2010 Pension liabilities

£m


We have identified no issues in the course of the audit that are considered to be material.

Section two – financial statements Audit differences

Work completed

In accordance with ISA 260 we are required to report uncorrectedaudit differences to you. We also report any materialmisstatements which have been corrected and which we believeshould be communicated to you to help you meet yourgovernance responsibilities.

Key findings

We did not identify any material misstatements.

We identified a small number of presentational adjustmentsrequired to ensure that the accounts are compliant with the Codeof Practice on Local Authority Accounting the United Kingdom2009: A Statement of Recommended Practice (‘SORP’). Weunderstand that the Authority has made all of the requiredchanges.


Section two – financial statements Completion

10

Declaration of independence and objectivity

As part of the finalisation process we are required to provide youwith representations concerning our independence.

In relation to the audit of the financial statements of FyldeBorough Council for the year ending 31 March 2010, we confirmthat there were no relationships between KPMG LLP and FyldeBorough Council, its directors and senior management and itsaffiliates that we consider may reasonably be thought to bear onthe objectivity and independence of the audit engagement leadand audit staff. We also confirm that we have complied withEthical Standards and the Audit Commission’s requirements inrelation to independence and objectivity.

We have provided a detailed declaration in Appendix F inaccordance with ISA 260.

Management representations

You are required to provide us with representations on specificmatters such as your financial standing and whether thetransactions within the accounts are legal and unaffected by fraud.We have included a copy of a representation letter as Appendix E.We have provided a draft to the Section 151 Officer. Weunderstand that this will be signed by the Chief Executive at theAudit Committee on 23 September 2010.

Other matters

ISA 260 requires us to communicate “audit matters ofgovernance interest that arise from the audit of the financialstatements” to you which includes:

material weaknesses in internal control identified during theaudit;

matters specifically required by other auditing standards to becommunicated 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 yourattention.

Opinion

Subject to all outstanding queries being resolved to oursatisfaction, we anticipate issuing an unqualified audit opinion by30 September 2010.

Our proposed opinion on the financial statements is presented inAppendix A.

We confirm that we have complied with requirements on objectivity and independence in relation to this year’s audit of the Authority’s financial statements.

Before we can issue our opinion we require a signed management representation letter, and have provided a draft version at Appendix E.

Once we have finalised our opinions and conclusions we will prepare our Annual Audit Letter and close our audit.


Section three – use of resourcesSummary

11

The Authority’s and our responsibilities

The Authority is responsible for putting in place properarrangements to secure economy, efficiency and effectiveness inits use of resources and regularly reviewing their adequacy andeffectiveness.

We are required to conclude whether the Authority has adequatearrangements in place to ensure effective use of its resources. Werefer to this as the ‘value for money (VFM) conclusion’.

Introduction

Our assessment previously drew mainly on the findings from theuse of resources assessment (UoR) framework, as the specifiedcriteria for the VFM conclusion were the same as the UoR KeyLines of Enquiry (KLoE).

In May 2010 the new government announced that theComprehensive Area Assessment (CAA) would be abolished. TheAudit Commission subsequently confirmed that work related toCAA should cease with immediate effect. This includes work forUoR assessments at local authorities.

However, there is no change to the requirement in the statutoryCode of Audit Practice for auditors to issue a VFM conclusion.

Findings from VFM work

At the time of the announcement, the vast majority of UoR workfor 2010 had already been completed and this therefore informedour 2009/10 VFM conclusion.

We have provided detailed feedback on the work undertaken tothe Chief Executive, Director of Governance & Partnerships andthe Section 151 officer. The key message is that the Authority hasmet each of the VFM criteria, as can be seen from the table on thenext page, except for the use of natural resources. Whilst theAuthority is taking operational measures to address some of the

requirements of the KLoE, there is currently a lack of evidence todemonstrate that these decisions are being made within a clearstrategic framework.

In particular the Authority has made improvements to its approachtowards workforce planning as a result of the shared servicehuman resources function established with Blackpool Council.There has also been an improvement in the performance of thecommissioning and procurement KLoE with the linkages that havebeen established between the Authority’s strategic objectives andthe operational activities of service managers.

Targeted Value for Money reviews have also allowed the Authorityto better understand its cost base and current performance levels,and use these as the basis of its efficiency savings.

Going forward we expect that the focus of our work will be onfinancial resilience, given the anticipated cuts in Governmentspending.

We reported on the MTFS and financial planning as part of our2008/09 use of resources work. An action plan was developed,and management have been working to address therecommendations made.

Conclusion

We have concluded that the Authority has made properarrangements to secure economy, efficiency and effectiveness inits use of resources. Our proposed conclusion is set out inAppendix B.

We have concluded that the Authority has made proper arrangements to secure economy, efficiency and effectiveness in its use of resources except for its arrangements in relation to the effective use of natural resources.


Section three – use of resourcesSummary (continued)

12

VFM criterion Met

Managing finances

Financial planning

Understanding costs and achieving efficiencies

Financial reporting

Governing the business

Commissioning and procurement

Data quality and use of information

Governance

Risk management and internal control

Managing resources

Use of natural resources X

Strategic asset management N/A

Workforce planning


AppendicesAppendix A: Proposed Opinion on the Financial Statements

Independent auditors’ report to the Members of Fylde Borough Council

Opinion on the accounting statements

We have audited the accounting statements and related notes of Fylde Borough Council for the year ended 31 March 2010 under theAudit Commission Act 1998. The accounting statements comprise the Fylde Borough Council Income and Expenditure Account, theStatement of Movement on the General Fund Balance, the Balance Sheet, the Statement of Total Recognised Gains and Losses, theCash Flow Statement and the Collection Fund. The accounting statements have been prepared under the accounting policies set out inthe Statement of Accounting Policies.

This report is made solely to Fylde Borough Council, as a body, in accordance with Part II of the Audit Commission Act 1998. Our auditwork has been undertaken so that we might state to Fylde Borough Council, as a body, those matters we are required to state to themin an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility toanyone other than Fylde Borough Council, as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of the Section 151 Officer and auditors

The Section 151 Officer responsibilities for preparing the financial statements in accordance with relevant legal and regulatoryrequirements and the Code of Practice on Local Authority Accounting in the United Kingdom 2009 are set out in the Statement ofResponsibilities for the Statement of Accounts.

Our responsibility is to audit the accounting statements and related notes in accordance with relevant legal and regulatory requirementsand International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the accounting statements and related notes give a true and fair view, in accordance withrelevant legal and regulatory requirements and the Code of Practice on Local Authority Accounting in the United Kingdom 2009, of:

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: AFramework’ published by CIPFA/SOLACE in June 2007. We report if it does not comply with proper practices specified byCIPFA/SOLACE or if the statement is misleading or inconsistent with other information we are aware of from our audit of the financialstatements. 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 Authority’s corporate governance procedures or its risk andcontrol procedures.

13

Our opinion states whether the accounting statements and related notes give a true and fair view of the financial position of the Authority and its income and expenditure for the year.

We define what we mean by ‘accounting statements’.


AppendicesAppendix A: Proposed Opinion on the Financial Statements (continued)

We read other information published with the accounting statements and related notes and consider whether it is consistent with theaudited accounting statements and related notes. This other information comprises only the Explanatory Foreword. We consider theimplications for our report if we become aware of any apparent misstatements or material inconsistencies with the accountingstatements and related notes. Our responsibilities do not extend to any other information.

Basis of audit opinion

We conducted our audit in accordance with the Audit Commission Act 1998, the Code of Audit Practice issued by the AuditCommission and International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts and disclosures in the accounting statements and related notes. Italso includes an assessment of the significant estimates and judgments made by the Authority in the preparation of the accountingstatements and related notes, and of whether the accounting policies are appropriate to the Authority’s circumstances, consistentlyapplied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order toprovide us with sufficient evidence to give reasonable assurance that the accounting statements and related notes are free frommaterial misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overalladequacy of the presentation of information in the accounting statements and related notes.

Opinion

In our opinion the accounting statements and related notes give a true and fair view, in accordance with relevant legal and regulatoryrequirements and the Code of Practice on Local Authority Accounting in the United Kingdom 2009, of the financial position of theAuthority as at 31 March 2010 and its income and expenditure for the year then ended.

Trevor Rees (Senior Statutory Auditor)for and on behalf of KPMG LLP, Statutory AuditorChartered AccountantsSt James’ SquareManchesterM2 6DS

14

Our proposed opinion is unqualified.

There are no expected modifications to the auditors’ report.


AppendicesAppendix B: Proposed value for money conclusion

Conclusion on arrangements for securing economy, efficiency and effectiveness in the use of resources

Authority’s Responsibilities

The Authority is responsible for putting in place proper arrangements to secure economy, efficiency and effectiveness in its use ofresources, 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 forsecuring economy, efficiency and effectiveness in its use of resources. The Code of Audit Practice issued by the Audit Commissionrequires us to report to you our conclusion in relation to proper arrangements, having regard to relevant criteria specified by the AuditCommission for principal local authorities. We report if significant matters have come to our attention which prevent us from concludingthat the Authority has made such proper arrangements. We are not required to consider, nor have we considered, whether all aspects ofthe Authority’s 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 authoritiesspecified by the Audit Commission and published in May 2008 and updated in February 2009, we are satisfied that, in all significantrespects, Fylde Borough Council made proper arrangements to secure economy, efficiency and effectiveness in its use of resources forthe year ending 31 March 2010 except for arrangements to make effective use of natural resources.

Trevor Rees (Senior Statutory Auditor)for and on behalf of KPMG LLP, Statutory AuditorChartered AccountantsSt James’ SquareManchesterM2 6DS

15

Our proposed value for money conclusion is unqualified except the use of natural resources.


The Authority has implemented all of the recommendations in our ISA 260 Report 2008/09.

AppendicesAppendix C: Follow-up of prior year recommendations

No. Priority RecommendationOfficerResponsibleand Due Date

Status as at August 2010

1

Fixed asset accounting

Reviewing the fixed asset register identified anumber of areas that require furtherinvestigation by the Authority.

Assets have been revalued that have notbeen depreciated in the year of revaluation.The SORP requires assets to be depreciatedannually unless immaterial.

Some community assets have been revaluedalthough the SORP recommends holding athistoric cost. It is not clear from the fixedasset register whether these assets shouldbe classified as community assets, andtherefore should not be revalued, or whetherthey have been mis-classified which wouldmake revaluation appropriate.

Management should review the fixed assetregister during 2009/10 to ensure that theassets held by the Authority are correctlycategorised and the necessary depreciationaccounting undertaken.

Principal Estates Surveyor / Head of Finance

March 2010

The fixed asset register was reviewed during2009/10 as part of the project plan for theimplementation of IFRS. As part of thisprocess, the internal policies and proceduresregarding the valuation, re-valuation,classification, and depreciation of fixedassets were also reviewed so as to fullyreflect the requirements of the SORP.

As a result, the Authority has nowappropriately reclassified some of its fixedassets, and these assets are revalued anddepreciated appropriately.

Number of recommendations that were:

Included in original report Implemented in year or superseded Remain outstanding (re-iterated below)

2 2 0

This appendix summarises the progress made to implement the recommendations identified in our ISA 260 Report 2008/09 and re-iterates any recommendations that are still outstanding.


AppendicesAppendix C: Follow-up of prior year recommendations (continued)

No. Priority RecommendationOfficer

Responsible and Due Date

Status as at August 2010

2

Management reporting

A review of fixed asset additions identifiedthat £2,186k was spent in the year. Thiscompares to a forecast reported at 3 March2009 of £2,263k and a later forecast reportedat 29 June 2009 of £2,350k. This differencewas due to slippage of schemes into2009/10, rather than reclassification ofexpenditure from capital to revenue.

Management should review the reportingarrangements for capital programmes toensure to ensure that the figures reported toMembers is accurate.

Head of Finance

March 2010

Capital expenditure in 2009/10 was comparedwith the budgeted figures and none of thevariances observed were materiallysignificant.


AppendicesAppendix D: Declaration of independence and objectivity

Requirements

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 Commission and the auditedbody. Auditors, or any firm with which an auditor is associated, should not carry out work for an audited body that does not relatedirectly to the discharge of auditors’ functions, if it would impair the auditors’ independence or might give rise to a reasonableperception that their independence could be impaired.”

In considering issues of independence and objectivity we consider relevant professional, regulatory and legal requirements andguidance, including the provisions of the Code, the detailed provisions of the Statement of Independence included within the AuditCommission’s Standing guidance for local government auditors (‘Audit Commission Guidance’) and the requirements of APB EthicalStandard 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 inforce, and as may be amended from time to time. Audit Commission Guidance requires appointed auditors to follow the provisions ofISA (UK & I) 260 Communication of Audit Matters with Those Charged with Governance that are applicable to the audit of listedcompanies. 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 allservices provided by the audit firm and its network to the client, its directors and senior management and its affiliates, that theauditor considers may reasonably be thought to bear on the auditor’s objectivity and independence.

The related safeguards that are in place.

The total amount of fees that the auditor and the auditor’s network firms have charged to the client and its affiliates for the provisionof services during the reporting period, analysed into appropriate categories, for example, statutory audit services, further auditservices, tax advisory services and other non-audit services. For each category, the amounts of any future services which have beencontracted 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 auditor’sprofessional judgement, the auditor is independent and the auditor’s objectivity is not compromised, or otherwise declare that theauditor has concerns that the auditor’s objectivity and independence may be compromised and explaining the actions which necessarilyfollow from his. These matters should be discussed with the Audit Committee.

Ethical Standards require us to communicate to those charged with governance in writing at least annually all significant facts andmatters, including those related to the provision of non-audit services and the safeguards put in place that, in our professionaljudgement, may reasonably be thought to bear on our independence and the objectivity of the Audit Partner and the audit team.

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The Code of Audit Practice requires us to exercise our professional judgement and act independently of both the Commission and the Authority.


AppendicesAppendix D: Declaration of independence and objectivity (continued)

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 independentadvice and opinions. That integrity and objectivity underpins the work that KPMG performs and is important to the regulatoryenvironments in which we operate. All partners and staff have an obligation to maintain the relevant level of required independence andto 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 toin the area of professional conduct and in dealings with clients and others.

KPMG is committed to ensuring that all partners and staff are aware of these principles. To facilitate this, a hard copy of the Manual isprovided to everyone annually. The Manual is divided into two parts. Part 1 sets out KPMG's ethics and independence policies whichpartners and staff must observe both in relation to their personal dealings and in relation to the professional services they provide. Part2 of the Manual summarises the key risk management policies which partners and staff are required to follow when providing suchservices.

All partners and staff must understand the personal responsibilities they have towards complying with the policies outlined in theManual and follow them at all times. To acknowledge understanding of and adherence to the policies set out in the Manual, all partnersand staff are required to submit an annual Ethics and Independence Confirmation. Failure to follow these policies can result indisciplinary action.

Auditor Declaration

In relation to the audit of the financial statements of Fylde Borough Council for the financial year ending 31 March 2010, we confirmthat there were no relationships between KPMG LLP and the Fylde Borough Council, its directors and senior management and itsaffiliates that we consider may reasonably be thought to bear on the objectivity and independence of the audit engagement lead andaudit staff. We also confirm that we have complied with Ethical Standards and the Audit Commission’s requirements in relation toindependence and objectivity.

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We confirm that we have complied with requirements on objectivity and independence in relation to this year’s audit of the Authority’s financial statements.


AppendicesAppendix E: Draft management representation letter

Dear KPMG LLP,

We understand that auditing standards require you to obtain representations from management on certain matters material to youropinion. Accordingly we confirm to the best of our knowledge and belief, having made appropriate enquiries of other members of theAuthority, the following representations given to you in connection with your audit of the financial statements for Fylde Borough Councilfor the year ended 31 March 2010.

All the accounting records have been made available to you for the purpose of your audit and the full effect of all the transactionsundertaken by Fylde Borough Council has been properly reflected and recorded in the accounting records in accordance withagreements, including side agreements, amendments and oral agreements. All other records and related information, including minutesof all management and Member 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 anyother 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 materialeffect on the ability of the Authority to conduct its business and therefore on the results and financial position to be disclosed in thefinancial statements for the year ended 31 March 2010.

We acknowledge that we are responsible for the fair presentation of the financial statements in accordance with the Local GovernmentStatement of Recommended Practice (“SORP”) and wider UK accounting standards. We have considered and approved the financialstatements.

We confirm that we:

understand that the term “fraud” includes misstatements resulting from fraudulent financial reporting and misstatements resultingfrom misappropriation of assets. Misstatements resulting from fraudulent financial reporting involve intentional misstatements oromissions of amount or disclosures in financial statements to deceive financial statement users. Misstatements resulting frommisappropriation of assets involve the theft of an entity’s assets, often accompanied by false or misleading records or documents inorder 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 Authority’s financial statementscommunicated 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 resultof fraud.

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We ask you 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.

The wording for these representations is standard and prescribed by auditing standards.

We require a signed copy of your management representations before we issue our audit opinion.


AppendicesAppendix E: Draft management representation letter (continued)

We confirm that the presentation and disclosure of the fair value measurements of material assets, liabilities and components of equityare in accordance with applicable reporting standards. The amounts disclosed represent our best estimate of fair value of assets andliabilities required to be disclosed by these standards. The measurement methods and significant assumptions used in determining fairvalue have been applied on a consistent basis, are reasonable and they appropriately reflect our intent and ability to carry out specificcourses 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 thefinancial 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.

Finally, no additional significant post balance sheet events have occurred that would require additional adjustment or disclosure in thefinancial statements, over and above those events already disclosed.

This letter was tabled at the meeting of the Audit Committee on 23 September 2010.

Yours faithfully

Mr Philip Woodward

On behalf of Fylde Borough Council

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Documents

KPMG Landscape Report Template - Fylde · KPMG, THE COUNCIL’S EXTERNAL AUDITORS/DIRECTOR ... complaints procedure. Put your complaint in writing to the Complaints Investigation