City of Dublin Vocational Education Committee - Accounts for 1998,1999

8/14/2019 City of Dublin Vocational Education Committee - Accounts for 1998,1999

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City of Dub lin Vocational Education Com mittee - Accounts for 19 98,19 99 and 2000Report of the Comptroller and Auditor General under Section 7(4) of the Comptroller and Aud itorGeneral (Amendment) Act 1993In order to discharge its accountability a public body must have an accou nting system in place which is capab le of producing t imely and accurate a ccounts" operate a system of internal control and management which ensures that its transactions are processedin a safe, sec ure and timely w ay and its assets safeguarded produce accounts which are accurate and complete and suppor ted by substantiat ing docum entation have an appropriate internal audit or review in plac e supply information and explana tions requested on audit in a timely manne r.My audit of the accounts of the City of Dublin Vocational Education C omm ittee (CDVE C) revealed cer tainshortcomings in these areas. This report examines those shortcomings and incorporates, where appropriate,the observations of the Chief Executive Officer of the Com mittee (CEO ) and the Depar tment of Educationand Science (the Department) on the matters raised.In the per iod 1998 to 2000 CD VE C exper ienced the fo llowing d if ficulties which impacted on the t imelinessof production of some elements of the accounts .

CDVEC ACCOUNTING SYSTEMSIn Ma rch 1997, the Man ageme nt Services Depar tment of the CDVEC reviewed the Year 2000 compliancesituation in respect of the Comm ittee ' s ex is t ing f inancial systems.Aris ing out of th is rev iew, the Committee, meeting in Novem ber 1997, approved the appoin tment of aconsultant to evaluate the Com mitte e ' s central computer systems and to prepare a s trategic im plementationplan which met the requirements of Year 2000 com pliance and was capable of Euro processing .The consultants reported that the Com mi ttee's financial system s had significant de ficiencies

They could not meet the needs of accrual accounting They were not integrated with the Co mm ittee 's payroll and other systems It was difficult to extract man agem ent information They were not Yea r 2000 compliant and would not facilitate the Euro.As a result the Comm ittee had no choice but to imm ediately replac e its financial system.In July 1998, the Committee approved the acquisition of a new system. The cost of the system, itsinstallation and the training of staff was IR2 69,000 (341,560). In addition, recurring annual costs ofIR3 9,000 (49 ,520) would arise for licensing etc.The chan geove r to the new financial pa ckage did not go smoothly. M y audit noted that there did not appearto be a coherent and s tructured approach with in the VEC to the manag ement of the changeover pro ject . Prob lem s encoun tered included an inability to attribute paym ents to the correct period of account The modu les required to facilitate bank reconcilia tion were not fully operational until 2000 The Com mittee ' s bank d id not produce detai ls of banking transactions in a format compatib le w ith therequirements of the new sof tware unti l October 1999 Alth oug h training was carried out, its benefit did not accrue to the Com mitte e due to a rapid staffturnover rate Thes e factors, in turn, impacted on the timelines s of production of accounts for 1999.


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While the changeover to the new accounting system was initially viewed as a low risk undertaking itbecame necessary to review th is assessment with the emergence of the implementation d iff icu lt ies . As aresult, a Project Manager was appointed in early 2000 to assist in the finalisation of the implementation .The main negative impact of the imple men tation difficulties were the delays in accoun t produ ction.How ever, e xtra costs were also incurred in rectifying the problem s encountere d. The original bu dget fortrain ing costs and consultancy rose f rom IR28 ,]50 (35,743) to IR78,102 (99,169) by August 2001.Addit ional costs of IR24,334 (30,898) were paid to outside consultants to assist in resolving theaccounting problems which had ar isen .

I asked the CE O for h is observations on the problems encountered in the implementation of the new systemand the action taken to address these deficiencies. I also sought reassurance tha t the Com mi tte e's system shad achiev ed full functionality.The C EO informed me that fo llowing the Year 2000 Assessment repor t, CDV EC bega n p lanning thereplacement of the existing financial system s. In July 1998 the Com mitte e approved the acquisition of anew accou nting system and preparations began for the im plementation s tage of the pro ject. Implementationwas to begin with the receipts module followed by Creditors, Ban k Reconciliation etc. Trainin g of relevants taff comm enced in Novem ber 1998. C DV EC was aware that dur ing the implementation s tage of aproject suc h as this there are certain risks and planned acco rdingly. Ty pically, a drop in performance isof ten exper ienced in such changeovers . How ever , w hile the anticipated drop in performance was factoredinto the planning, staffing changes bey ond the level anticipated cause d problems that were comp oun ded bythe Year 2000 deadline.The implementation of receipts and creditors modules ran smoothl y and they were both functioning by July1999. How ever , h igh s taff turnover in 1998 and 1999, par t icu lar ly in the Comm ittee ' s ba nking function ,resulted in the need for repeat training. The problem was, at this stage, com pound ed b y the fact that the newstaff, being trained on the new system , were unfamiliar w ith the old accounts system . In addition, the headof the banking function res igned in the summer o f 1999 and was replaced in Septem ber 1999. However , thereplacement resigned in January 2000 and was replaced in March 2000. In the same period, all of the otherstaff members in the banking section also departed. This had a negative impact on the implementation ofthe bank reconcil iat ion m odule. Consequently , in ear ly 2000 approval of the Depar tme nt was sought to usean exis t ing member of staff with broad exper ience of CDV EC f inancial systems, par t icular ly banking , to actas Project Manager to progress the implem entation of the new accounting system.In itial ly , there was a problem m atching payments to the correct per iod of accounts . This problem wasresolved through the in troduction of a new cash m atching mo dule which had the capacity to m atchpayments to the correct period of accoun t and facilitated the production of receipts and payments reports forthe Committee.He informed me that the implem entation phase was complete and that the core system w as fu lly functional.The development of interfaces with in-house payrolls will be operational in Marc h 2003 and otherdevelopment work is continuing in the context of limited resources.

Internal Control and ManagementManagement of Cash ResourcesWhile the Committee began processing payments on its new computer system in July 1999, certainelements of the system including cash accounting and bank reconcil iat ion modules w ere not commissioneduntil early 2000. In the meantime, monthly bank reconciliations reported to the Committee during thisperiod were based on global cash movements due to the inability of the system to generate lists of uncashedcheques. While complete and accurate bank reconcil iat ions were retrospectively performed, their absencefor a period militated aga inst the control of the Comm ittee ' s cash resources in that period .In respon se to my enquires the CEO ac know ledged that difficulties had been encou ntered in produc ing fullbank reconcil iat ions b etween June and Nove mber 1999 mainly due to the h igh turnover of staff whichimpacted on the implementation of the new accounting system. In the meantime, the g lobal monthly manualreconciliations produced and presented to Committee were adequate to ensure that bank accounts were


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being controlled. Since then, complete bank reconciliations are produced on time and presented to the CEOand the Committee.Control of Cash FloatsThe C DV EC advances cash on an imprest basis to petty cashiers in schools and centres under the CD VE C'scontro l . The CDVEC Finance Office records these advances and associated payments .At 31 December 2000 the cumulative balances held by the petty cashiers, according to records maintainedin the CDVE C, am ounted to IR51,600 (65,518) .How ever, wh en the CDV EC so ught to verify these balances, certificates of balances submitted by the pettycashiers amounted to only IR22,500 (28,569).As no ad justment has been m ade to the accounts , I asked the CEO the reasons for the d ifferences andwhe ther he is satisfied that adequate co ntrol is being exercised in this area.The C EO has informed me that work to date indicates that the reconciliation difficulty appears to be main lydue to the d ifferent treatment of advances for once-off activities. The petty cashiers, who have receivedsuch advances , appear to have regarded them as separate f rom petty cash and d id not account for them aspar t of their petty cash account returns . Consequently , these advances we re excluded f rom cer tif icates ofverification of petty cash balances from a ccoun t holders. A process of agreeing petty cash balances( including these once-off advances) is ongoing and is expected to be completed by March 2003.Control of Self-financing ProjectsThe CDVEC adminis ters over IR3m(3.8m) annually on a range of self-financing projects includingCom munity E mploym ent Schemes. In al l these cases , the CDVE C recoups expenditure f rom a fundingbody or from project participants. A full list of these projects is set out at Page 14 of each annual financials tatement.In February 200 2,1 quer ied cer tain balances on self- f inancing pro jects . Following a review, the C omm itteeidentified adjustments w hich had to be made to the accounts .As a result of the review debit balances of IR 191,000 (242,520 ) fell to be ad justed in the case o fCommunity Employment Schemes and balances of IR47,000 (59,678) written off in respect ofirrecoverable expenditure on 18 other projects.In addition, the CDV EC review also identified 3 3 projects with surplus balances totalling IR2 54,000(322,513) which i t absorbed in to the Com mittee ' s accum ulated surplus .I enquired of the CEO how the apparent deficits of IR238,000 (302,198) had accrued on the Com munity Em ploym ent

Schemes and o ther pro jects wha t steps had been taken by him to ensure that the sums of IR254,000 (322,513) absorbed into theCom mitte e ' s accumulated surplus were not , in fact, refundable to outs ide bodies .

The CE O assured me that the adjustments to Com munity Emp loyment Projects arose due to incorrectopening balances being entered into the records when a comprehensive basis of accou nting for all activitiesof VE Cs was introduc ed, for the first time , in 1995. In the course of a subsequent review of these balancesthe incorrect opening take-ons were identified. The incorrect openin g positions were corrected in 1998.Consequently, no irrecoverable expenditure arises in these cases.With regard to the surp lus balances , IR150,000 (190,461) of the surplus had arisen over a number ofyears f rom the accumulation of nominal charges for provis ion of resources and facil i ties in respect ofserv ices outs ide the Com mitte e ' s second level act iv it ies .With regard to the remaining pro jects , the CE O informed me that when self -f inancing pro jects reachcom pletion th ere can typically be small deficits o r surpluses. In the case of all surpluses, projects are


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examined carefu lly to ensure that balances are not refundable to outs ide bodies . In 2000, for exa mple, therewere 10 projects, with surplus balances, which had reached completion but were not written off as it had notbeen established that the funds are not refundable to the funding agencie s.INTERNAL AUDIT FUNCTIONThe C DV EC is the largest VE C in the country . Total expenditure by the Comm ittee was of the order ofIR70m (88.9m) in 2000.As there was no internal audit function in the CDV EC , I was concerned about how the goo d governa nce of,and the operation of internal financial c ontrol in, the CDV EC could be assured in the absence of thisfunction.I noted that a VEC Support Services Unit (VSSU) which had been established to provide audit services to an u mb er of other Comm ittees was seen by the Depar tment as an effective way of provid ing an independentaudit function to Committees . The C DV EC, how ever , d id not come with in the ambit of responsibility of th eVSSU although it had access to all discussion documents and papers generated by the unit.I inquired of the CEO as to wheth er any decision had been mad e on the provision of an internal auditfunction and, if so, the likely form of such a function . I also enquired why the V SS U's remit had not beenextended to the CDV EC. I also sought the v iews of the Depar tment.In its response on 11 February 2002, the Department acknowledged that VECs must be given auditing andmanage ment suppor t to develop in ternal accounting and f inancial managem ent systems. Taking ac count ofits size, complexity of activity and progress made in putting new com puterised networked system s in place,i t had considered a numbe r of options in relation to the provision of audit ing suppor t to CDV EC . O ptionsconsidered by the Depar tment were The 'buying in ' of accountancy services on a contract basis. The es tablishment of a dedicated audit unit in the CD VEC . The provis ion of a shared service with other VECs in the Dublin area.

The De par tment considered that the matter should be examined as par t of a general review of adminis trat ivestaff ing levels and s tructures in VEC s which was being conducted ( the Rochford review)The C EO informed me that the CDV EC had long recognised the impor tance of in ternal contro ls and theneed for an internal audit function and that discussions with the Departm ent on the subject had beenongoing for some t ime. More recently , in February 2002, the Committee had received the approval of theDepar tme nt to engage consultants , par t of whose terms of reference was to review the Com mittee ' s financial and mana gement systems having regard to the mult i-facetedoperations with in CD VEC and the need to provide management with accurate and t imely m anagementinformation assess the need for putting in place a risk ma nage me nt strategy and an indepen dent internal audit

function provide an examination and evaluation of the adequacy, application and effectiveness of the systems of

internal control in financial an d related areas.The consultants concluded that the size and complexity of the CD VE C's operation requires an in ternal auditfunction and that continuo us review ing is required to ensure that systems procedures and controls are up todate and functioning effectively.As a forerunner to the introduction of an internal audit function the consultants also recom me nded tha t anin ternal audit p lan and t imetable for the whole organisation be developed. Conseque ntly the CD VE C hasinstructed the consultants to prepare a plan and timetable.In the meantime, pending the introduction of an internal audit function, he assured me that CDV EC seeks toensure proper f inancial contro l through com pliance with the Vocational Education (Accounts , A udit andProcedure) Regulations, 1931 and the Vocational Education Act, 1930 and its amendments. Since theimpleme ntation of the new accounts system the availab il i ty of managem ent information has im proved


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s ignif icantly and a number of reports are being generated which improve the control of th e Co mmit tee ' sfinances. All allocations, financial and staffing are controlled and reconciled. In particular, the teach ingstaff allocation, as the biggest element of expenditure, is reconcile d both in ma npo wer and financial termsand detai led reports are submitted to the Depar tment and the Com mittee on a monthly basis .Regarding the remit of VSSU, he unders tood that due to the size and complexity of the schem e i t was nowconsidered that a dedicated Internal Audit service, rather than participation in VSSU, would be moreappropriate.DELAYS IN RECEIPT OF AUDIT INFORMATION1998 AccountsI contracted with a firm of accountants to carry out the audit of the Com mittee ' s f inancial s tatements for1998. Th e firm was, ultimately, una ble to com plete the work becau se they did not receive adequateresponse s to requests for audit information.On 13 August 1999 the firm had presented a numbe r of quer ies to the CDVEC.The outs tanding information and explanations related to the reconcil iat ion of the Comm ittee ' s bankaccounts and the substantiation of receipts, payments and balances as presented in the accounts.A series of telephone conversations and meetings took p lace between the f irm and the CDV EC in the per iodto Decembe r 1999. Scheduled meetings were postponed on a number of occasions at the request of th eC D V E C .Wh en the C DV EC replied on 20 January 2000, the f irm deemed the response to be insufficient because i tfailed to deal with several queries while no back-up information was provided for othe rs.Ult imately , because of the extent of the delays encountered, I agreed with the firm that the aud it of the 1998accounts would be completed by my Office. The audit fieldwork was f inally completed by m y staff in 2002.

1999 AccountsBecau se of the difficulties experienc ed on the audit of the 1998 accounts, I decided that the audit of th e1999 accounts should be carried out by my Office. Despite the fact that the audit comme nceme nt had beendelayed until some 17 mon ths after the year-end, similar difficulties were experienced .Essential documentation to complete the audit was not availab le. Follow ing a meeting w ith the FinanceOfficer on 29 June 2001 the audit was suspended.The fo llowing missing information was identif ied and formally notified to the CDV EC a numbe r of queries in relation to the 1998 accounts were still outstanding the CD VE C had supplied incomplete documentation on bank reconcil iations including unresolved

problems with opening balances for 1999 No reconciliation of the movem ent on the s tatement of assets and liabilities attached to the accountshad been prepared by the CDVEC.In addition, it had not proved possible to readily reconcile details of grant receipts notified by theDepartment with those reported in the 1999 accounts.

The CEO reported the progress which had been made to date on 19 July 2001.The audit of the 1999 accounts was recommenc ed in October 2001. In February 2002, my Off ice found i tnecessa ry to again write to the CE O stating that significant problem s still remained and that the Officewould have to withdraw from the audit once m ore.


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Matters outs tanding included an explana tion of differences in the grant receipts notified by the Departm ent and those recorded byth e CDVEC an unadjusted unders tatement of the order of IRf528,000 (670,422) for both receip ts and paym ents a large d if ference between pay costs recorded in the draf t CD VEC accounts and the pay costs recordedin the Comm ittee ' s payroll records .

On 21 February 2002 the CDVEC provided reasons for many of the differences arising on the grantreconciliation, addressed the problems of the unders tatement of receip ts and payments and identif ied (andcorrected) the m ajor elem ents in the difference betwe en the reported payroll costs and the figures in theunderlying records.A meeting was held between the CDVEC and my Office on 12 March 2002 which reviewed the problem sencountered in the various audits.The CDVEC supplied a revised set of accounts and the audit recomm enced in June 2002.2000 AccountsThe audit of the 2000 accounts comm enced at the s tar t of Ju ly 2002 and the fieldwork was com pleted byOctober 2002. The audit team noted a s ignificant improvement in the accounts and suppor tingdocumentation presented for audit.General Views of the Comm ittee and the DepartmentViews of th e Ch ie f Executive OfficerThe C EO informed m e that the problems which had ar isen in the production of the 1998 and 1999 accountswere pr imar ily due to d iff icu lt ies associated with the implementation of a new accounting system and h ighstaff turnover.

He poin ted out that during th is per iod in which these accounts were being produced the Comm ittee wasfunctioning in a constrained staff resourcing situation. He noted that, in common with other public sectororganisations , CDVE C had exper ienced h igh s taf f turnover due to the buoyancy of the employment marketand the availability of more at tractive employment.In th e p er io d 1 9 9 8 - 2 0 0 0 , 2 4 memb er s of staff ou t of a core allocation of 41 at Head Office res igned orretired. In the process of filling these vacancies 31 offers of employment were rejected. The effect of such ahigh turnover of staff was to create an experience deficit.A review of adminis trat ive s taff ing and organisational s tructures in the VEC sector f inalised in March 2002(the Rochford review) reported that there was a well founded c ase for the allocation of an enhanced staffingcomple ment together with an improved s tructure of special ist supervisory/management posts to suppor t theeffective delivery of the workload . The report recomm ended that an addit ional 36 core adminis trat ion postsbe appointed and an enhanced grading structure put in place which would increase the total number of staff(core and non-core) employed above recru itment grade to 79 .Wh ile at February 2003 the h igh s taff turnover has s tab ilised , the Rochford review remained the subject ofnegotiat ion between the Depar tment and the staff unions and, consequently, it has not yet beenimplemented .Views of the DepartmentTh e Acco u n t in g Officer of the Depar tment informed m e that, while responsib il i ty for the managem ent andadminis trat ion of a VE C's affairs , including financial managem ent and in ternal contro l procedures , res tswith the CEO and Committee, the Depar tment had consulted with the CE O in the l ight of the matters raisedby the audits.


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Following this consultation, the Department agreed to the proposal of CDVEC to commission a consultancyreview of the Comm ittee ' s managem ent repor ting and in ternal contro ls . CD VE C has confirmed to theDepar tm ent that a fu ll exam ination and evaluation has been completed and recomm endations made.CD VE C has confirmed tha t, in conju nction with the consultants, it is developing plans for th eimplementation of the recommendations made. The recommenda tions relate mainly to the ass imilat ion ofinformation necessary to prepare f inal accounts and the need to build improved m echanism s for continuousreview and monitoring into CDVEC systems in order to ensure effectiveness of the accounting system.The D epar tment has agreed with the Comm ittee that pr ior to the in troduction of an internal au dit function,the consultants, as recom mend ed, prepare an internal audit plan and timetab le for imple menta tion. T heDep artm ent has also agreed with the Com mitte e that, whe n this plan has been finalised, it is prepared to putin p lace the necessary ar rangements for the es tablishment of the appropriate internal audit service.The Accounting Officer noted that the Rochford report sets out a com prehe nsive blue print for structural andadminis trat ive change designed to g ive VE Cs the capabil i ty of responding to increased demands, to meeth igher s tandards of accountability and to provide value for mon ey.He indicated that discussions with representatives of staff and employ ers in the sector are at a final stageregarding the organisational s tructure and s taff ing levels for each VEC based on the f ramework set out inthe repor t . The Depar tment has indicated i ts comm itment to implementation of the agreement, resourcespermitting, in consultation wi th all concerned.

ANNUAL FINANCIAL STATEMENTS 1998 to 2000The accounts of CDVE C fo r each of the years 19 98,19 99 and 2000 were adopted by the CEO on 19Dece mber 2002 and my audit cert ificates were issued on 27 March 2003.

John PurcellComptroller and Auditor General27 March 2003

Documents

City of Dublin Vocational Education Committee - Accounts for 1998,1999