LOCAL GOVERNMENT AUDIT SERVICE
Statutory Audit Report
to the
Members of Mayo County Council
for the
Year Ended 31 December 2012
CONTENTS
Paragraph
Introduction
1
Main Issues
2
Financial Performance
3
Financial Standing
4
Capital Account
5
Major Revenue Collections
6
Specific Matters
7
Governance
8
Subsidiary Enterprises
9
Acknowledgement
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AUDITOR’S REPORT TO THE MEMBERS OF MAYO COUNTY COUNCIL
1.
Introduction
1.1
I have completed the statutory audit of the accounts of Mayo County Council for
the year ended 31 December 2012. My audit opinion on the Annual Financial
Statement (AFS) of the Council, which is unqualified, is stated on page 4 of the
AFS.
1.2
This report is issued in accordance with Section 120 of the Local Government
Act, 2001.
2.
Main Issues
Attention is drawn to the following main issues in this report:
•
•
•
•
The financial situation of the Council (paragraph 3.2)
The collection yields on major revenue income areas (paragraph 6.1)
Bad debts provision needs to be increased (paragraph 6.2)
The absence of an internal audit function in the Council (paragraph 8.2)
Manager’s Response
The Council welcomes the Audit Report of the Local Government Auditor, and
we continue to address the issues highlighted, in the context of available
finances.
3.
Financial Performance
3.1 The Income and Expenditure Account with comparative figures for the previous year
may be summarised as follows:
2012
€000
Expenditure
Income
Surplus / (Deficit) for the Year before Transfers
Transfers from / (to) Reserves
Overall Surplus / (Deficit) for the year
Opening Balance at 1st January
Closing Balance at 31st December
(123,737)
125,863
-------------2,126
(2,751)
-------------(625)
(2,508)
-------------(3,133)
========
2011
€000
(136,470)
139,973
---------------3,503
(3,263)
--------------240
(2,748)
--------------(2,508)
=========
3.2
The cumulative deficit at the end of 2012 of €3.1m is a cause for
concern. No provision was made in the budgets for 2012 or 2013 to take
account of the accumulated deficit coming forward. Surpluses had been
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recorded in the years 2008 to 2011, which reduced the deficit by €1.4m, but in
2012 a deficit of €625k has been incurred resulting in the overall deficit
increasing again to €3.1m. It should also be borne in mind that the Council
has loans of approximately €82m, which have to be serviced from the
revenue account. Strict budgetary controls will need to be implemented to
ensure this deficit is eliminated over the coming years.
The Council has approved expenditure in excess of the budget on the various
service divisions as set out in note 17 on page 22 of the AFS.
Manager’s Response
The Council, has recorded a deficit of €625k on its revenue account in 2012
The increase in the accumulated debit balance is disappointing in light of the
fact that the Council had made significant progress in reducing this
accumulated debit balance, with a reduction of €1.4 million in the previous
four years. We will be taking all reasonable steps to ensure that the
accumulated deficit on the revenue account is reduced in the short to medium
term.
4.
Financial Standing
4.1
The balance sheet shows net assets of €3.73 billion at 31 December 2012
consisting of the following:2012
2011
€000
€000
Fixed Assets
3,778,979
Work In Progress and Preliminary Expenses
26,164
Long Term Debtors
65,889
Net Current Liabilities
(4,092)
Long Term Creditors
(138,834)
-------------------Net Assets
3,728,106
===========
Represented by:
Capitalisation Account
3,778,979
Income WIP
25,404
Specific Revenue Balance
30
General Revenue Balance
(3,133)
Other Balances
(73,174)
------------------(3,728,106)
===========
4.2
3,628,050
364,202
67,817
(15,950)
(121,717)
---------------3,922,402
==========
3,628,050
355,585
30
(2,508)
(58,755)
-------------3,922,402
=========
Fixed Assets
The value of fixed assets after accounting for depreciation increased by €151m
in the year. This increase is explained by fixed asset additions of €171m offset
by additional deprecation of €15m in the year and disposals and historical cost
adjustments of €5m.
With the imminent transfer of all water and waste water assets to Irish Water
from January 2014, the Council capitalised €170m of water assets in its
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accounts, some of which refers to expenditure incurred over the last ten years.
The Council had been waiting until all costs including retention sums were paid
on these projects before transferring them to fixed assets, but have now decided
to capitalise them in 2012 to more adequately reflect the value of the assets that
will be transferred to Irish Water. In addition the Council intends to revalue all
water and waste water assets in the 2013 AFS using the Atkins Model
previously used in 2002, when these assets were first capitalised in the AFS.
Approval from the Department of the Environment, Community and Local
Government (the Department) must be sought on this.
A review of the Council’s fixed assets in respect of land and buildings shows
that not all of the land and buildings in the balance sheet have been registered
with the Property Registration Authority. Work has been on-going over the last
two years to identify and register all land owned by the Council. It is important to
ensure that resources are put into this exercise so that all land owned by the
County Council is registered as soon as possible.
5.
Capital Account
5.1
The capital account records income and expenditure in respect of the
acquisition and provision of assets related to services provided by the
Council. It has been de-aggregated with the various accounts included under
relevant account headings in the balance sheet.
5.2
A summary of the transactions on the capital account, with comparative figures
for 2011 is as follows:
2012
€000
Expenditure (including transfers)
Income (including transfers)
Outturn for the year
Opening Balance (Adverse)
Closing Balance (Adverse)
5.3
2011
€000
(58,603)
(67,077)
75,340
----------------16,737
(24,838)
----------------(8,101)
==========
66,752
---------------(325)
(24,513)
----------------(24,838)
==========
Old Static Balances in the Capital Account
At the end of 2012 the total of the old static balances amounted to
approximately €18.4m (€39m in 2011) while reserves in the capital account
totalled €14m (€15.4m in 2011). During 2012 the Council had taken out a loan
of €30m to fund these balances. The net shortfall of €4.4m (€23.6m in 2011)
will have to be financed from future internal resources of the Council.
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Manager’s Response
Capital account balances continue to be problematic and the Council is
actively pursuing outstanding amounts. Included in the balances are amounts
which relate to monies owing for water services capital projects, which the
Council anticipates will be funded by Irish Water.
6.
Summary of Major Revenue Collections
6.1
The percentage yields from the main revenue collection accounts were as
follows.
2012
80%
80%
61%
50%
Rates
Housing Rents and Annuities
Housing Loans
Commercial Water Charges
2011
84%
81%
66%
55%
Collection yields in respect of all the revenue collection accounts remain
weak. Arrears overall at the end of 2012 were €10.6m (€10m in 2011) despite
write offs of €3.5m in the year.
The percentage collection of 50% (55% in 2011) for commercial water
charges, remains problematic.
Every effort should be made to reduce arrears including the withdrawal of the
service and the use of legal remedies where appropriate. Bad debts
provisions also need to be reviewed on an annual basis.
6.2
Bad Debts Provision
The bad debts provision had been reduced slightly in the 2012 accounts to
€7.5m. Due to the continuing drop in collection percentages a substantial
increase in the overall provision is required in 2013.
Manager’s Response
It is acknowledged that 2012 was an exceptionally challenging year, not only
for the Council but also for many of our customers and we continue to work
with them in a manner commensurate with their particular financial capacity at
any given time. The increases in arrears are a reflection of the difficulties
facing both businesses and individuals in the current economic climate. We
will continue with the policy of engaging proactively with all of our customers,
with a view to, over time reducing the level of arrears. In limited instances,
where no reasonable steps are being taken to pay outstanding debts, we will
continue to take appropriate court action to pursue these debts.
The Council will review its bad debts provisions for 2013.
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7.
Specific Matters
7.1
Development Contributions
Development contributions have been included in the accounts on a receipts
basis for amounts levied prior to 2004. From 2004 onwards amounts levied
are included on an accruals basis.
The amount due for planning contributions in current debtors at the end of
2012 was €10.5m (€10.8m for 2011). A substantial bad debt provision in
respect of development levies has been provided for over the years but a
thorough review of all planning debtors should be carried out to establish the
adequacy of this provision.
Development contributions are accounted for in the capital account and do
not affect the revenue deficit or surplus for the year.
7.2
Rolled up Loan Interest on Land Purchased for Social Housing
Where the Council borrows to fund land for social housing, the Department
permits interest on these loans to be rolled up for seven years and not charged
to the revenue account. This is on the basis that this rolled up interest will be
funded when the land is eventually used for social housing. Any interest incurred
after seven years should be provided for in the revenue account.
Mayo County Council had three loans relating to the purchase of land for social
housing up to 2011. Interest on these loans in excess of the seven years
allowed amounting to €350k had been rolled up rather than provided for in the
revenue account up to 2011. In 2012 the land loans plus the cumulative interest
on them were converted to annuity loans. These loans are now being written off
to the revenue account over 20 years.
7.3
Draft Annual Financial Statement (AFS)
The draft AFS was signed by the Head of Finance and the County Manager on
26 April 2013. It was noted by the members at their meeting in May 2013.
7.4
Unfinished Housing Estates
During 2012, the Council had 342 housing developments that had not been
taken in charge, of which 75 were listed on the Department’s Unfinished
Housing Development Survey 2012.
The Council is unable to quantify the potential cost of remedial works that may
be required in respect of these estates until they are completed or taken in
charge by the Council.
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Manager’s Response
The situation regarding the take over of unfinished housing estates will be
reviewed in 2014.
7.5
Community Gain Investment Fund
An Bord Pleanála, in its decision on the Corrib Onshore Gas Pipeline
development in 2011, required that a community gain investment fund be
established which would benefit the community in the area of the
development. It was further stipulated that this fund would be administered by
Mayo County Council. The investment fund is to be €1.7m per annum for five
years, a total of €8.5m in all.
In line with An Bord Pleanála’s conditions, the County Development Board
was charged with agreeing on a community development plan for the area,
which was adopted by Mayo County Council at its meeting of 9 January 2012.
The first tranche of money was received in December 2011 and the first
allocations and payments made out of the fund were in 2012.
I have audited the monies allocated and paid out of this fund in 2012. Payments
and allocations are in agreement with the conditions laid down by the community
development plan. I have requested in the interests of transparency and
accountability that procedures would be recorded in writing and formalised for all
aspects of the allocations and the payments.
Manager’s Response
The Council has procedures in place for the administration of the Community
Gain Investment Fund and these procedures will be formally reviewed,
documented and recorded in writing in 2014.
7.6
Water Projects
Mayo County Council’s responsibility for the production, distribution and
monitoring of water for the County, will transfer to Irish Water from the start of
2014. Before finalisation of this transfer the Council needs to agree funding
for all outstanding final accounts.
7.7
Travel and Hospitality Expenses
Hospitality and other expenses for senior staff in the County Council are paid by
way of credit cards. The expenditure is paid at the end of each month to the
credit card company and these amounts are then coded and posted to the
accounts of the County Council. The total amount of the hospitality expenses is
approximately €10k.
In the course of the 2012 audit I reviewed a number of these credit cards. I am
unable to offer an opinion of the appropriateness or otherwise of a large number
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of the payments. Probity and public accountability, would dictate that information
regarding the purpose of these payments would be on hand. All entries on the
2012 credit cards should be reviewed and explanations recorded setting out why
the County Council paid for these expenses. I will review this matter at the 2013
audit.
Manager’s Response
Council credit cards are used mainly to disburse expenses and costs
associated with travel and with meeting with visiting delegations and potential
investors and employers. I will arrange for the information requested to be
maintained and made available for 2013.
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Governance
Corporate governance comprises the systems and procedures by which
enterprises are directed and controlled. It is the responsibility of the Manager
and the elected members to ensure that sound systems of financial
management and internal control are in place.
8.1
Procurement and Tendering
A number of breaches of procurement guidelines were noted in the course of
the audit. While the level of compliance of tenders being advertised in
accordance with guidelines has improved substantially with 95% of the tenders
examined at audit being compliant, some instances were noted where tenders
had not been advertised correctly.
A review carried out by the procurement section of Mayo County Council found
that in a small number of instances the company that had been awarded the
tender for supply of goods and services did not receive all of the business in
those areas from the Council.
The reviews carried out by the procurement section of the Council have to date
been limited to certain aspects of revenue expenditure only. All aspects of the
Council’s spend, both revenue and capital needs to be subject to periodic
review. A monitoring mechanism needs to be put in place to ensure that overall
contract prices are not materially contravened. A material contravention is
defined by the EU directive 2004 / 18 Article 31(4) as over 50% of the tendered
amounts.
I recommend that the procurement section should take over the management
and control of all RFT (requests for tenders) and RFQ (requests for quotations)
on the LA quotes system. This centralised approach would ensure common
standards in the application of all quotes and tenders. I also recommend that all
tenders are routed through the procurement section before they are issued.
Again this is to ensure that certain common standards are maintained in relation
to tendering documentation.
A central register should be maintained that permits the tracking of all items of
plant and machinery which the Council has on hire.
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Manager’s Response
The Council continues to operate an effective and efficient Procurement
Office, which has resulted in substantial net savings for the Council. The
operations of this section will be reviewed during the course of 2014.
8.2
Internal Audit
The internal audit unit was effectively disbanded in June of 2011.
In addition the internal checker retired in February 2012 and while one staff
member continued to carry out some checking duties in 2012, the function was
greatly diminished.
Internal audit and internal check are critical management controls in ensuring
that the activities of the Council are properly carried out. Given the size and
complexity of the business of a local authority it is difficult to understand how
these positions remained unfilled for all of 2012. This has impacted adversely on
my work as the external auditor of the Council. This weakening of the control
environment and governance procedures of the Council is a cause for concern
and needs to be addressed. The Council’s Audit Committee cannot function
effectively without the support of internal audit.
Manager’s Response
The Council tendered for the provision of internal audit services and have
appointed a firm of auditors to carry out this function. A work programme,
which was also approved by the Audit Committee, has been agreed with this
firm and they commenced work on a number of reports in 2013.
9.
Subsidiary Entities
In 2012 Mayo County Council had investments in two subsidiary entities:
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Lough Lannagh Holiday Village, which is a partnership with Castlebar
Town Council. Mayo County Council hold approximately 66% of the
partnership ,with Castlebar Town Council holding the other 34%
Claremorris Leisure Centre Ltd, is 100% owned by Mayo County Council
I am informed that audits have been carried out on these entities on behalf of
Mayo County Council in 2012 but the audit reports have not yet been issued.
Senior management in Mayo County Council have given me assurances that
there are no material issues arising on either of these audits.
I would ask that Mayo County Council would ensure that the audits of these
subsidiaries would be completed at an earlier date so that the audit reports are
available on a timely basis.
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10.
Acknowledgement
I wish to record our appreciation of the co-operation and assistance received
from the County Council’s staff during the course of the audit.
Manager’s Response
The Council welcomes the Report of the Local Government Auditor. Progress
of the issues raised will continue to be the focus of the Council, in the light of
available finances and resources.
I wish to thank the Local Government Auditor and his team for their
assistance and the courtesy they have shown to myself and the staff of Mayo
County Council in the carrying out of their work.
______________________________
H. Neville
Local Government Auditor
29 November 2013
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