UNDERSTANDING THE COMPANY AND ITS ENVIRONMENT, INCLUDING
ITS INTERNAL CONTROL
Industry, regulatory and other external factors
The company was incorporated in 2006 as a company limited by guarantee of its members. The
objective of establishing the company was to operate a community employment scheme in
Blackstone, Co. Louth.
The Community Employment (CE) programme is designed to help people who are long-term
unemployed and other disadvantaged people to get back to work by offering part-time and
temporary placements in jobs based within local communities. It is possible for participants to seek
other part-time work during their placement. After the placement, participants are encouraged to
seek permanent part-time and full-time jobs elsewhere based on the experience and new skills
they have gained while in a Community Employment scheme. The CE programme is Sponsored by
groups wishing to benefit the local community, namely voluntary organisations and public bodies
involved in not-for-profit activities.
There are 2 different categories of Community Employment (CE), each with its own set of eligibility
requirements. These are the Part-time Integration Option and the Part-time Job Option.
Participants participate in either of these options but not in both at the same time.
The average number of working hours for placements is 39 hours per fortnight. Participants are
paid weekly by the sponsor and have certain statutory employment rights including annual leave,
public holidays, maternity leave and a written statement of terms and conditions of employment.
Tax is deducted from the participants pay if applicable but the community employment pay is
exempt from the Universal Social Charge. Participants pay PRSI at Class A8/A9 which counts as a
full Class A contribution. If the Community Employment payment is less than €352 a week, the
participants do not pay any employee contribution. If the payment is over €352 a week, the
participant pays an employee PRSI contribution of 4%.
Nature of client including selection and application of accounting policies
This company is a sponsor of the scheme in the aforementioned area. The Community
Employment programme is administered by the Department of Social Protection. In the current
year participants worked on a village enhancement scheme. The activities undertaken included:
 Litter control.
 Creating and maintaining flower beds and lawn areas within the village.
 Hedge cutting.
 Painting and maintaining community facilities within the village.
The company is limited by guarantee of its members and is registered in the Republic of Ireland.
The registration number is XXXX. The company is registered with the Revenue Commissioners as
a charity.
The current directors of the company are:
 Tom Duffy (Chairman),
 Mary Walsh,
 Tom Brennan,
 Valerie Byrne,
 Ted Ford (Company secretary).
The board is very active and maintains very good control over all aspects of the company’s affairs.
The accounting procedures and policies adopted are simple and reflect the fact that each scheme
is a standalone scheme where income and expenditure for the scheme is matched.
UNDERSTANDING THE COMPANY AND ITS ENVIRONMENT, INCLUDING
ITS INTERNAL CONTROL
Parties identified as related parties of the company.
The Department of Social Protection,
The Directors.
The financial framework adopted by the company in preparing the financial statements.
The client is preparing their financial statements in accordance with UK and Irish Financial Reporting
Standards.
The overall objectives and strategies pursued by the company and the related business risks
flowing from these objectives and strategies.
The objective of the company is to sponsor a community employment scheme which will allow the
participants to undertake work of benefit to the local community while providing valuable work
experience to the participants. The company believes that this strategy creates a positive outcome for
both the community and participants. This strategy does result in an increased audit risk.
Procedures used to measure and review the financial performance of the company and
possible financial pressures on directors/management arising from the above procedures.
The main measure used by the directors to judge the company's financial performance is the level of
expenditure incurred each month and the work done under the scheme in the month. A separate bank
account is operated for the scheme and all grant receipts from the funder are lodged to this account
and payments are made from the account. This approach facilitates easy management of the scheme
and helps to ensure that expenditure on each individual scheme is matched to the scheme income.
The company is also subject to oversight by the Department of Social Protection. This measure of
performance does not create any performance pressures on the directors to manipulate the results of
the company.
UNDERSTANDING THE COMPANY AND ITS ENVIRONMENT, INCLUDING
ITS INTERNAL CONTROL
Internal control
Auditor’s assessment of the control environment in which the company operates and the
implications of this for the risk of material misstatement in the financial statements.
We have assessed the environment in which the internal controls operate as good. This assessment is
based on:
 The tight control operated by the Board of Directors.
 The good accounting records maintained.
 The oversight exercised by the Department of Social Protection.
In planning the audit strategy we will have regard to this positive assessment of the control environment.
The manner in which the company assesses and manages risk and possible implications of
this for the risk of material misstatement in the financial statements
As would be expected in a small company, the company does not have a formal risk assessment
process. The company identifies the risk that the company is exposed to through the regular review of
the company's activities by the directors. A review of the minutes of the directors meetings and
meeting with the directors will provide audit staff with an overview of the risks that the company is
exposed to and the possible impact of these risks on the results of the company for the year. Any risks
identified will be addressed in the audit plan.
The company’s accounting and information system (including controls over accuracy and
completeness of the processing of transactions from the initiation of the transaction through
to settlement of the transaction).
Income / debtors / receipts accounting cycle including controls in the cycle.
The company receives an initial payment (one month of scheme payments) in advance of the
commencement of the scheme from the Department of Social Protection. At the end of each month
the company submits a detailed claim to the Department for the costs incurred. This claim is prepared
by Mary Walsh from the company’s accounting records. It is a company requirement that the
Chairman of the Board of Directors approves and signs the claim. The claim is paid directly into the
company bank account. The last claim (claim 12) is not paid by the Department until the audited
financial statements for the scheme year are submitted to the Department.
Purchases/ creditors / payments cycle including controls in the cycle.
The purchases are minimal and are made up of materials (plants, compost, paint), tools and office
supplies. The scheme budget allows a budget for such costs. When a request for a purchase is made
it is recorded in a duplicate book. The request is passed to Tom Duffy and he will order the goods.
Mary Walsh arranges for the payment for the goods and the cheque is co-signed by Mary and another
director.
A petty cash system is also operated with a typical weekly expenditure of €50.
Wages cycle including controls in the cycle.
The wages are paid weekly. The payroll is prepared by a local bookkeeper (Joan Tobin) using a
computerised software package. Mary Walsh provides Joan with a list of participants to be paid and
the amounts due. The final payroll is approved by Tom Duffy and Mary Walsh before payment is
made.
UNDERSTANDING THE COMPANY AND ITS ENVIRONMENT, INCLUDING
ITS INTERNAL CONTROL
Preparation of the financial statements.
Mary Walsh maintains the books and records of the company on the Quickbooks computerised
accounts package. Joan Tobin provides Mary with full payroll records and these are used to post the
payroll figures to Quickbooks. The posting of the wage payments to Quickbooks allows for a wages
control account to be prepared and provides a check to ensure that the actual payroll payments are in
agreement with the payroll records. We as auditors are provided with a nominal ledger from the
Quickbooks system. We also have access to the numerous other reports the system can produce. We
will provide a non audit accounting service that will involve some adjustments / journals of a minor
nature to the nominal ledger provided by the company. These adjustments will include final accruals
and prepayments, depreciation and some sundry matters. The final accounts will be produced on our
accounts preparation software package.
Manner in which the company monitors the above controls
Monitoring of controls.
As is common in many small companies, a formal system of monitoring of controls does not exist and
monitoring of controls relies solely on the overview exercised by the directors. The directors would
appear to exercise the monitoring function in a diligent manner.
The company is also subject to review by the Department of Social Protection.