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. CONFIDENTIAL 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.