LOCAL GOVERNMENT AUDIT SERVICE Statutory Audit Report To
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LOCAL GOVERNMENT AUDIT SERVICE Statutory Audit Report to the Members of Waterford 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 1 AUDITOR’S REPORT TO THE MEMBERS OF WATERFORD COUNTY COUNCIL 1. Introduction 1.1 I have completed the statutory audit of the accounts of Waterford 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 7 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 Council’s revenue deficit of €6.9m (paragraph 3.2) • Unfunded Capital Balances (paragraph 5.3) • Income collection (paragraph 6.2) • County Charge Arrears (paragraph 7.1) • Unfinished Estates (paragraph 7.2) 3. Financial Performance 3.1 The Income and Expenditure Account with comparative figures for the previous year may be summarised as follows: 2012 2011 €000 €000 Expenditure 65,639 69,564 Income 66,743 71,386 Surplus /(Deficit) for Year before Transfers 1,104 1,822 Transfers from / (to) Reserves (1,098 ) (1,812) Overall Surplus /(Deficit) for Year 6 10 Opening Balance at 1 st January (6,907) (6,917) Closing Balance at 31 st December (6,901) (6,907) 3.2 The Council has a significant revenue deficit of €6.9m at the 31 December 2012, which needs to be financed. Provision has not been made to finance this deficit through the Council’s annual budgets. This is a serious financial matter for the council to address. 2 Manager’s Response The Council achieved a small surplus in 2012 and has reduced its revenue deficit by over €0.5m since 2006. The Council remains committed to reducing the revenue deficit until the adverse balance is cleared. The pace at which this is achieved will be dictated by budgetary and economic circumstances and also the implications of the pending amalgamation of Waterford Local Authorities. 4. Financial Standing 4.1 The Balance Sheet shows net assets of €1,384m at 31 December 2012, consisting of the following: 2012 2011 €000 €000 Fixed Assets 1,391,640 1,398,346 Work In Progress and Preliminary Expenses 20,736 17,592 Long Term Debtors 24,489 24,696 Net Current Assets/(Liabilities) 4,385 (5,639) Long Term Creditors _(56,436) _(48,776) Net Assets 1,384,814 1,386,219 Represented by: Capitalisation Account 1,391,640 1,398,346 Income WIP 20,994 15,537 Specific Revenue Balance 1,005 1,005 General Revenue Balance (6,901) (6,907) Other Balances _(21,924 ) _(21,762) 1,384,814 1,386,219 4.2 Fixed Assets The net value of the Council’s fixed assets, are stated in the AFS as €1,391m. It is noted that the Council’s exercise in updating its centralised property register has not yet been finalised. The work of reconciling the land property register with the Property Registration Authority is incomplete. The lack of a completed property register places the Council’s assets at risk. The Council needs to allocate adequate resources to address this issue. Manager’s Response In 2012 significant progress was made in relation to the property register. Waterford County Council liaised closely with the Property Registration Authority of Ireland. A database of 1,770 properties was provided to Waterford County Council and work commenced on reconciling the 440 properties on the property database of Waterford 3 County Council and that of the Property Registration Authority. In addition, several folios were regularised. An assessment of the data at the Property Registration Authority also found that property under the ownership of Waterford County Council was registered under a number of different names, due to historic legacies. This anomaly was rectified. Priority was given to mapping the property and wayleaves used by water services. To date 49 maps have been forwarded to the solicitors for regularisation. An additional 100 sites are currently being mapped by water services. As part of the amalgamation between Waterford County Council and Waterford City Council, a dedicated property management office will be established. This will reconcile the recording of property in the County and City. 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 2011 €000 €000 Expenditure (Including Transfers) 16,351 16,688 Income (Incl uding Transfers) 24,155 16,583 Outturn for the year 7,804 (105) Opening Balance Favourable /(Adverse) 4,051 4,156 Closing Balance Favourable /(Adverse) _11,855 _4,051 5.3 Unfunded Capital Balances Debit balances in the capital account, where funding has not yet been sourced, amounted to approximately €6.36m. An exercise needs to be undertaken to reflect unfunded balances correctly in Note 11 to the AFS and ensure that the funding is provided for. Manager’s Response Unfunded capital balances have been reduced from €11m approx in 2011 to €6.36m in 2012. In addition development contributions are to be applied to some projects thus further reducing the unfunded balances. The auditor’s comments in relation to Note 11 and future funding provisions are noted. 4 6. Summary of Major Revenue Collections 6.1 The percentage yields from the main revenue collection accounts were as follows: Arrears 2012 Arrears 2011 2012 Collection 2011 € Rate € Rates 3,003,844 66% 2,888,518 67% Housing Rents and Annuities 620,199 82% 548,873 83% Commercial Water Charges 1,366,827 52% 1,531,602 50% Housing Loans 518,747 64% 345,729 76% 6.2 Collections The collection yields have deteriorated further this year. There are a significant number of accounts in arrears across all collection areas. Procedures need to be formalised to collect these arrears. Policies concerning write-offs need to be clarified. The Council needs to set fixed time intervals for taking certain actions and this needs to be monitored very closely for all debtors. This area needs to be adequately resourced. It is recommended that in light of the amalgamation of Waterford County Council and Waterford City Council, a project team representing both local authorities should be established, to formulate a strategy to address this area. The last quarter’s consumption for commercial water charges billed in March 2013 amounting to approximately €458k, is not included in the above table, however, the amount is included in other debtors in Note 5 of the AFS. Manager’s Response The Council is fully committed to the follow up and collection of arrears. The Council plans as part of the amalgamation with Waterford City and Dungarvan Town Council to set up a dedicated unit in 2014 to focus on arrears and collection issues. In the interim, the Council is setting up cross- functional steering groups to address the collection issues and it is expected that there will be a marked improvement in collection levels next year. Policies and procedures in debt collection and credit management are being reviewed and unified as part of the amalgamation project and it is hoped that this work will be completed by mid 2014. 5 7. Specific Matters 7.1 The County Charge Arrears At year end 2012, the balance due on the county charge to Waterford County Council from Dungarvan Town Council was approximately €3.97m. The non payment of this amount could have a further serious impact on the Council’s revenue deficit of €6.9m. Manager’s Response The balance due on the county charge at December 31, 2012 is payable in full and it is hoped that there will be a considerable reduction in this balance by the end of 2013. 7.2 Unfinished Estates It is noted that there were nine developments where the developers bonds have expired or were never in place. The estimated cost of remedial works to these nine developments is €156k. Provision needs to be made for this from the revenue account. Manager’s Response The Council has established an Estates Unit within the Planning Department whose role includes working closely with resident groups, developers, NAMA, receivers, security providers and banks to try to bring all unfinished estates to a satisfactory standard. Regarding the 9 estates listed, the Estates Unit has conducted inspections on all of these estates and initiated stakeholder negotiations and will continue to progress same until a satisfactory solution is delivered - one which enhances the quality of the development for the residents and reduces any financial exposure to the Council. Each of the relevant estates will be kept under review in 2014. Subject to the Council’s overall financial position, pre and post merger, revenue funding will be provided where necessary, for works required to bring such estates to taking in charge standards in the medium term. Other potential funding mechanisms including funding from future housing capital programme may be used. 6 7.3 Internal Audit The internal auditor issued a number of reports in 2012. These reports were considered and relied upon in the course of my audit. 8. Acknowledgement I wish to record my appreciation for the courtesy and co-operation extended to the audit team by the management and staff of the Council.