Audit Commission Annual Audit Letter 1

Annual Audit LetterLondon Borough of Sutton

Audit 2010/11

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Audit Commission Annual Audit Letter 2

ContentsKey messages 3

Audit opinion and financial statements 3

Value for money 3

Current and future challenges 4

Financial statements and annual governance statement 6

Overall conclusion from the audit 6

Significant weaknesses in internal control 6

Value for money 7

Closing remarks 9

Appendix 1 - Fees 10

Appendix 2 - Glossary 11

Traffic light explanation Red Amber Green

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Audit Commission Annual Audit Letter 3

Key messages

This report summarises the findings from my 2010/11 audit. My audit comprises two elements:

the audit of your financial statements; and

my assessment of your arrangements to achieve value for money in your use of resources.

Key audit risk Our findings

Unqualified audit opinion

Proper arrangements to secure value for money

Audit opinion and financial statements I issued an unqualified opinion on the financial statements for the

year ended 31 March 2011 on 29 September. The statements gave

a true and fair view of the financial position of the Council and its

spending and income for the year. They had been prepared

properly, following the relevant accounting standards.

Value for money I assessed the Council's arrangements for securing value for money

against the criteria issued by the Audit Commission. I issued an

unqualified conclusion as I was satisfied that there were proper

arrangements in place for securing economy, efficiency and

effectiveness in the Council’s use of resources.

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Audit Commission Annual Audit Letter 4

Current and future challenges

Economic

downturn and

pressure on the

public sector

The economic downturn continues to exert pressure on Council income. However, the Council’s financial readiness for the pace and

scale of change appears sound as it has so far coped well with the impact of the economic downturn and the increased demand for

its services.

The 2011/12 budget included £13.8 million of savings (£5.1m from Expenditure Reduction Plans, £3.1 million by cutting grant funded

expenditure in response to loss of grants and £5.6 million from the Smarter Services Sutton programme). Following the elections and

the spending cuts pronouncements, the Council completed work to establish Smarter Services Sutton as the council’s strategic

transformation programme. Good progress has been made in identifying savings. The Council has carried out a series of reviews

with the fourth tranche of reviews almost complete. By June 2012, the Council will have reviewed spending in all major areas of

Council activity. This comprises 22 reviews across the Council’s service areas. An example is the strategic transformational change

of the service delivery model within the Adult Social Services and Housing group, which focuses on prevention. Early delivery of

savings from this service review has meant that savings totalling £1.5 million above what has already been factored into the budget

is forecast to be achieved this year. There is still a significant amount of work required to realise the savings identified across the

Council groups.

The quarter one performance monitoring report for 2011/12 gives a forecast outturn position for the year of an overspend of £864k.

The two services expected to overspend are Environment and Leisure (E&L) and Children, Young People and Learning Services

(CYPLS). For E&L, forecast off-street parking income is below budget as fees and charges from casual parking are down. On-street

parking income is also down due to forecast income shortfalls mainly on penalty charge notices. For CYPLS there is a forecast

overspend on Looked After Children’s placements due to an increased number of care weeks compared to budget assumptions and

a change in the assumed mix between foster care and residential placements. There are also shortfalls against budgeted savings

mainly because timescales for implementation of savings options have slipped.

The Council has agreed a three year budget forecast which plans for 2011/12 to 2014/15. The financial planning takes into account

the Council’s long term policy priorities focusing on the safer, fairer, greener and smarter themes. For 2012/13, the current forecast

is a £5.6 million funding gap after taking into account formula grant reductions and assumed levels of savings through the Smarter

Services Sutton programme. The Council believes that some of the savings can be brought forward by accelerating the

implementations of the phased reviews and this will help to bridge the gap. The Council is also looking to develop other savings’

proposals. The forecasts for 2013/14 and 2014/15 show a net surplus of £0.9 million in 2013/14 compared to 2012/13.

The cumulative position over the three years to 2014/15 is a gap of £4.7 million compared to the 2011/12 base position.

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Audit Commission Annual Audit Letter 5

Joint

arrangements/

shared services

The Council is part of the South London Partnership comprising six London Boroughs – Merton, Croydon, Wandsworth, Sutton,

Richmond upon Thames and Kingston upon Thames. The partnership seeks to identify potential for joint working and is at an early

stage of development with a signed memorandum of agreement and agreement of priority areas for further development.

The arrangement has already resulted in a number of shared services initiatives as the Council continues to look at ways to

maximise efficiencies whilst maintaining services. For example, Sutton and Merton councils formally merged their human resources

functions into an HR Shared Service in October 2009. Merton’s staff TUPE transferred to Sutton’s employment, including their in-

house payroll team. Sutton Council is now working on the joint procurement of a Human Resources/Payroll system and service with

the London Borough of Merton and the Royal Borough of Kingston. The procurement of a shared Payroll service, which introduces

further manager and employee self-service online access, is expected to bring greater efficiencies through resource savings. This is

expected to be implemented by April 2012.

The South London Waste Partnership has been established to secure waste treatment and disposal services. The London Borough

of Sutton is one of four boroughs engaged in the partnership. The other partners are the London Borough of Croydon, the London

Borough of Merton and the Royal Borough of Kingston Upon Thames. The Partnership is governed by a Joint Committee,

established under section 101 of the Local Government Act 1972. The aim is to facilitate savings through economies of scale and

reduced transaction costs. Waste is cited as one of the top pressures on council tax and, therefore, realising efficiencies in this area

is a priority for Sutton and the other partners.

Sutton Council is also in the process of implementing a shared ICT service with the Royal Borough of Kingston Upon Thames.

The challenge in the future will be to maintain a balance of innovative joint working practices while delivering high quality local

services.

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Audit Commission Annual Audit Letter 6

Financial statements and annual governance statement The Council's financial statements and annual governance statement are an important means by

which the Council accounts for its stewardship of public funds.

Overall conclusion from the audit

I issued an unqualified opinion on the financial statements on 29 September following approval of the accounts by the Audit Committee. The Council

provided a complete set of financial statements for audit together with good working papers in line with our agreed timetable.

The draft financial statements provided for audit were complete and no material errors were identified as a result of audit work. The statements

contained a number of presentational errors, including casting and disclosure errors and a small number of non trivial errors. The Council amended for

all presentational errors and all but one of the non trivial errors. The implementation of International Financial Reporting Standards (IFRS) for the first

time impacted on both the accounts preparation and audit process. The application of IFRS, requiring restatement of prior year comparators, increased

the workload of officers. The Council prepared and followed a work plan to aid the transition to IFRS, discussing any audit issues with my team on a

timely basis.

Significant weaknesses in internal control

I did not identify any significant weaknesses in internal control arrangements.

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Audit Commission Annual Audit Letter 7

Value for money

I considered whether the Council is managing and using its money, time and people to deliver

value for money. I assessed performance against the criteria specified by the Audit Commission

and have reported the outcome as the value for money (VFM) conclusion.

I assess arrangements to secure economy, efficiency and effectiveness in the Council’s use of resources against two criteria specified by the

Audit Commission. My overall conclusion is that the Council has adequate arrangements to secure, economy, efficiency and effectiveness in its use of

resources.

My conclusion on each of the two areas is set out below.

Value for money criteria and key messages

Criterion Key messages

1. Financial resilience

The organisation has proper arrangements in

place to secure financial resilience.

Focus for 2010/11:

The organisation has robust systems and

processes to manage effectively financial risks

and opportunities, and to secure a stable

financial position that enables it to continue to

operate for the foreseeable future.

There are robust systems and processes in place to manage risk and opportunities and secure a

stable financial position.

The Council continues to focus on achieving value for money through sound financial

management. The Council has a four year plan in place that sets out its key priorities and the

outcomes that it aims to achieve over the period from 2011/12 to 2014/15. The plan supports the

Council’s aim to provide value for money, reduce costs and strip out waste and inefficiencies

whilst maintaining service provision. There are targets in place to achieve the longer term

outcomes set out in the Corporate Plan. The Corporate Plan is supported by the Council’s

2011/12 budget and medium term financial plan.

The financial outturn for the 2010/11 year resulted in an overall under spend of £2,506k. This was

after taking into account an overspend of £1,038k and an unallocated contingency provision of

£3,544k. The contingency has been taken out of future financial planning.

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Audit Commission Annual Audit Letter 8

Criterion Key messages

Early indications for 2011/12 indicate an over spend of £864k on revenue with capital in line with

budget.

The Council has a strategy in place for its reserves balance with a minimum level at 5 per cent of

general fund net expenditure. The level of balances for 2010/11 met the minimum level.

Expectations for 2011/12 are that the minimum levels will also be met.

2. Securing economy efficiency and

effectiveness

The organisation has proper arrangements

for challenging how it secures economy,

efficiency and effectiveness.

Focus for 2010/11:

The organisation is prioritising its resources

within tighter budgets, for example by achieving

cost reductions and by improving efficiency and

productivity.

The Council is prioritising its resources within tighter budgets.

The Council has a robust savings plan in place which is supported by strong leadership. There is

a long term approach in place to manage the financial position. This is evident from the Smarter

Services Sutton programme which was put in place before the new Government came into

power. The savings in the programme have been brought forward into the 2011/12 budget setting

process to deal with reductions in funding. The programme aims to transform services to provide

value for money by delivering services at reduced costs while maintaining resident satisfaction.

The Council continues to make good progress in achieving the targets set and monitors the

delivery of savings closely.

Following a number of concerns raised by members of the public and other stakeholders,

Members requested that Internal Audit carry out a review of the project governance around the

Sutton Town Centre Renewal Project. The review was to consider all aspects of the project from

its approval and planning through to implementation and completion. I carried out work to

consider whether weaknesses identified in the Internal Audit review of the Town Centre capital

project were widespread and could affect my VfM conclusion. I selected the Stanley Park High

School capital project for review. The work I have undertaken focused on the overall governance

arrangements. The project is ongoing, but based on my review to date I concluded that the

arrangements in place were satisfactory and I did not identify any risks which impacted on my

overall value for money conclusion.

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Audit Commission Annual Audit Letter 9

Closing remarks I have discussed and agreed this letter with the Chief Executive and the Strategic Director - Resources. I will present this letter at the Audit Committee

on 19 December 2011 and will provide copies to all Council members.

Further detailed findings, conclusions and recommendations in the areas covered by our audit are included in the reports issued to the Council during

the year.

Report Date issued

Fee Letter June 2010

Audit Plan April 2011

Annual Governance Report September 2011

The Council has taken a positive and constructive approach to our audit. I wish to thank the Council staff for their support and co-operation during the audit.

Lindsey Mallors

District Auditor

October 2011

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Audit Commission Annual Audit Letter 10

Appendix 1 - Fees

Actual Proposed Variance

Scale fee 228,000 228,000 -

Non-audit work - - -

Total 228,000 228,000 -

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Audit Commission Annual Audit Letter 11

Appendix 2 - Glossary Annual governance statement

Governance is about how local government bodies ensure that they are doing the right things, in the right way, for the right people, in a timely,

inclusive, open, honest and accountable manner.

It comprises the systems and processes, cultures and values, by which local government bodies are directed and controlled and through which they

account to, engage with and where appropriate, lead their communities.

The annual governance statement is a public report by the Council on the extent to which it complies with its own local governance code, including how

it has monitored the effectiveness of its governance arrangements in the year, and on any planned changes in the coming period.

Audit opinion

On completion of the audit of the financial statements, I must give my opinion on the financial statements, including:

whether they give a true and fair view of the financial position of the audited body and its spending and income for the year in question; and

whether they have been prepared properly, following the relevant accounting rules.

Opinion

If I agree that the financial statements give a true and fair view, I issue an unqualified opinion. I issue a qualified opinion if:

I find the statements do not give a true and fair view; or

I cannot confirm that the statements give a true and fair view.

Value for money conclusion

The auditor’s conclusion on whether the audited body has put in place proper arrangements for securing economy, efficiency and effectiveness in its

use of resources based on criteria specified by the Audit Commission.

If I find that the audited body had adequate arrangements, I issue an unqualified conclusion. If I find that it did not, I issue a qualified conclusion.

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© Audit Commission 2011.

Design and production by the Audit Commission Publishing Team.

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and of the audited body. Reports prepared by appointed auditors are addressed to non-executive directors, members or officers. They are prepared for

the sole use of the audited body. Auditors accept no responsibility to:

any director/member or officer in their individual capacity; or

any third party.

www.audit-commission.gov.uk November 2011

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