CONFIDENTIAL
OWML Board Paper – Apr 14
Financial Control
This paper summarises Open Water Market Limited
financial controls and seeks approval for agreeing the year
end date, a financial system, outsourced payroll and VAT
registration.
Introduction
1. Open Water Market Limited (OWML) is a company limited by guarantee. The
accounting, tax treatment and filing deadline rules are principally the same as for a
company limited by shares. It is the directors’ responsibility to ensure the company
accounts comply with the Companies Act 2006
2. Overall, the accounts must always give a true and fair view. The directors must select
suitable accounting policies and apply them consistently to make the accounts easy
to read and comparable from year to year.
3. The accounts must be prepared on the assumption that the business will continue to
trade in the future and is therefore a going concern
4. This paper summarises the financial control framework and recommends approval of
a structure and means of recording financial transactions and maintaining the primary
accounting statements.
Key Financial Controls
5. The board of OWML has approved Alan Sutherland, Shona Coan and John
Parsonage to be authorised to make payments from the RBS bank account.
6. A draft Finance Procedures and Control Manual sets out all of the financial controls
which are to be agreed and implemented. It is envisaged that a separate paper to
the OWML board will seek approval of this document which includes sections on:
a. Purchasing and procurement
b. Cash management
c. Payroll
d. Asset management
e. Budgeting
f. Management accounts
g. Fraud policy
h. Document retention
Payroll
CONFIDENTIAL
OWML Board Paper – Apr 14
7. Costs for any directly employed staff of OWML will need to correctly recorded, and all
HMRC requirements met. An outsourced payroll services provider will ensure staff
are paid accurately, on time and comply with all HMRC requirements, including auto
enrolment pension requirements.
Considerations
8. HM Treasury have suggested that OWML should be a public body. The Office for
National Statistics are the body which classifies public sector bodies and Ofwat are
working to make this happen as soon as possible. Public designation makes it very
likely that OWML will be consolidated into Ofwat’s accounts and included in Ofwat’s
expenditure limits.
9. Prior to formal designation the recommendation is for OWML to follow the spirit of
Managing Public Money guidelines. Procurement controls will be implemented with
reference to these guidelines.
10. The requirement for audit capability of the primary accounting statements, and
controls around entries (including journals) to them, needs to be adequately
incorporated in a review of accounting system providers.
11. As a public body OWML will not be able to recover VAT on purchases, and following
royal assent any licence fees will be classified as non business income. As part of
the clarification with HM Treasury regarding public designation Ofwat will include the
VAT classification.
12. As OWML was incorporated in November 2013 the default year end will be
November 2014. As the accounts are to be consolidated with Ofwat’s, and to align
financial reporting, the first year end should be extended until 31 March 2015.
Accounting Record Keeping Options
13. As a separate legal entity, and as directors have a requirement to comply with the
Companies Act 2006, all financial transactions need to be recorded and primary
accounting statements (balance sheet and profit and loss account) need to be
maintained. Four options are set out below:
14. OPTION 1. Sole traders and very small businesses will typically use manual systems
for recording transactions, such as Microsoft Excel. Despite the low cost, this is not
suitable for OWML due to the high value of transactions, consolidation requirements
with Ofwat accounts and the need to have an auditable record of control.
15. OPTION 2. Accounting software packages automate the required financial record
keeping, simplify invoicing and enable reporting of costs against budgets to
strengthen financial control. Purchased software is available in many forms, with
complexity and cost dependant on the size of the organisation.
16. OPTION 3. On line accounting systems offer accessibility, flexibility, scalability and
fast implementation times. As a young organisation, with uncertain future accounting
requirements, an on line solution would be cost effective for OWML and allow access
from various physical locations using only a secure internet connection. The key
risks relate to information security and privacy.
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OWML Board Paper – Apr 14
17. OPTION 4. Although accounts are to be consolidated with Ofwat there is a
requirement to maintain formal separation and therefore the accounting system
needs to remain separate from that used by Ofwat.
Recommendations
18. It is recommended that OWML adopts a year end of 31 March, with the first being
31 March 2015.
19. It is recommended that OWML follows a prudent procurement approach to set up an
on line accounting system (OPTION 3).
20. It is recommended that OWML waits for the pronouncement by ONS regarding
public designation before further reviewing VAT registration.
21. It is recommended that OWML follows a prudent procurement approach to set up a
payroll service provider.