LOCAL GOVERNMENT AUDIT SERVICE

Statutory Audit Report

to the

Members of County Council

for the

Year Ended 31 December 2014

CONTENTS

Paragraph

Introduction 1

Changes in Local Government Structures 2

Financial Standing 3

Income Collection 4

Capital Account 5

Amalgamation costs /specific revenue reserve 6

Transfer of Water and Waste Water Functions to Irish Water 6

Interest of Local Authority in Companies 7

Corporate Governance 8

AUDITOR’S REPORT TO THE MEMBERS OF

Introduction

1.1 I have audited the annual financial statement of Tipperary County Council for the year ended 31 December 2014, which comprise the Statement of Accounting Policies, Statement of Comprehensive Income ,Statement of Financial Position, Statement of Funds Flow and Notes on forming part of the Accounts. The financial reporting framework that has been applied in their preparation is the Code of Practice and Accounting Regulations for local authorities, as prescribed by the Minister for the Environment, Community and Local Government.

My main statutory responsibility is to express an independent audit opinion on AFS of the Council, as to whether it presents fairly the financial position at 31 st December 2014 and its income and expenditure. My audit opinion, which is unmodified, is stated on page 6 of the AFS.

The Council is by law, responsible for the maintenance of all accounting records including the preparation of the AFS. It is my responsibility, based on my audit, to form an independent opinion on this statement and to report my opinion. I conducted my audit in accordance with the Code of Audit Practice. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the AFS. It also includes an assessment of the significant estimates and judgements made by the Council’s management in the preparation of the AFS, and of whether the accounting policies are appropriate to the Council's circumstances, consistently applied and adequately disclosed.

I planned and performed my audit so as to obtain all the information and explanations, which I considered necessary to provide sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or or error.

1.2 This report is issued in accordance with Section 120 of the Local Government Act, 2001 and should be read in conjunction with the audited AFS.

2 Changes in Local Government Structures

The Local Government Reform Act 2014 made legal provision for the reforms set out in the Government’s Action Programme for effective Local Government; Putting People First.The principal impact here is the unified administration of North and South Tipperary County Councils, Borough Council, six town councils and the Tipperary Joint Library Committee, all of which are reflected in the AFS for 2014.

3 Financial Standing

3.1 Income and Expenditure Account The Council recorded a surplus of €33k for the year after the transfer to reserves of €6.1m.The cumulative credit balance on the general revenue account at the 31 December 2014 was €5.5m.

1 The Council’s revenue account is in a healthy position with a closing credit balance of €5.5m.This is a reflection of good financial management practices exercised by North and South Tipperary County Councils,Clonmel Borough and the town councils over the years .

The members at their meeting held in December 2015 approved (by resolution in accordance with section 104(2) of the Local Government Act 2001) the expenditure incurred in 2014 that was in excess of the adopted budget for the year.

Chief Executive’s Response

The Management Team continues to monitor income and expenditure on an ongoing basis throughout the year in order to stay within budgets and adjust expenditure accordingly to adhere to balanced budgets .

4 Income Collection

4.1 Summary of Revenue Collections

2014 2013 Rates 72% 77% Rents and Annuities 92% 93% Housing Loans 76% 77%

4.2 Rates: The collection performance for rates continues to disimprove and the arrears at year end amounted to €9.6m of which €5.3m was in arrears of between one and two years at November 2015.

The bad debts provision needs to be regularly monitored .

4.3 Housing Rents: The housing rent arrears at the 31 st December 2014 were €1.06m.

The bad debts provision needs to be regularly monitored

4.4 Housing Loans: The housing loans arrears at 31 December 2014, were €522k which includes credits of €113k The percentage of customers in arrears at November 2015 greater than12 months was 35% which accounted for 69% of the arrears .

The bad debts provision needs to be regularly monitored

2 Chief Executive’s Response

The Council is actively engaging with customers and continues to put in place payment plans where possible. An Income Collection/Debt Management Committee has been established under the chairmanship of the Chief Executive and regular meeting are held throughout the year with staff engaged in collection of the major income streams and target collection levels are set.The provisions for bad debts are reviewed at each year end.

5 Capital Account

The capital account recorded a net credit balance of €84m at 31 December 2014.The balance on project and non project balances classified as unfunded amounted to €13.9m. The main unfunded balances were : • Land purchases €11m • Design and Engineering Costs Glenconnor €1.7m

Chief Executive’s Response

The Council is carrying substantial balances in respect of housing lands and property stocks and I am satisfied that the Council has sufficient reserves built up over many years to carry these balances. However, this matter will be kept under review as the market value of land changes. The matter of loan balances on housing lands is under review at national level for all local authorities. We continue to follow up on the adverse balances on the capital account and have made provision in the revenue account where alternative funding is not identified.

6 Amalgamation costs / Specific revenue reserve

The Council transferred €650k from the specific revenue reserve to cover costs associated with the amalgamation. The balance remaining in the specific revenue reserve is € 810k.

Chief Executive’s Response

An amount of €650k of the specific revenue reserve was used in 2014 to offset some of the costs associated with the merger.

7 Transfer of Water and Sewerage Functions to Irish Water

From the 1 January 2014, Irish Water(IW) has been allocated full responsibility, by statute, for all aspects of water services planning and delivery at national, regional, and local level.This has had a significant impact on the 2014 accounts of Tipperary County Council.

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7.1 Fixed Assets-Water Property, Plant and Equipment

The net book value of fixed assets removed from the accounts relating to IW amounted to € 411m at the 31 December 2014. In accordance with Circular Fin 02/2015 issued by the Department of the Environment,Community and Local Government (the Department) on 13 February 2015, all water related infrastructure assets and other assets identified by the local authority must be removed from the Statement of Financial Position (Balance Sheet) in the 2014 AFS. The basis for the removal of water infrastructure from the local authority accounts as directed in the circular is:

• section 7 of the Water Services (No. 2 Act) 2013 provided for the transfer of water services functions from local authorities to IW

• Section 21 provides IW with power to charge for water services

• a mutual licence between IW and each local authority exists, which allows for IW to use the water infrastructure assets (included in Service Level Agreement) pending the ultimate statutory transfer

• the revised accounting Code of Practice, published in December 2014, stipulates that “Assets are resources controlled by the authority as a result of past events and from which future economic or service potential is expected to flow to the authority. An authority shall recognise an asset in the Statement of Financial Position when it is probable that future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably”

Given that the future economic benefits no longer flow to local authorities, nor do the risks and rewards associated with the assets reside with the local authorities, an assessment of substance over form and generally accepted accounting principles require that the water infrastructure assets be remove from the books of the local authorities as at the 31 December 2014. The transfer of water services assets from the local authorities is being advanced in a number of phases. The financial transfer is reflected in the local authorities accounts’ for 2014 with an adjustment on their balance sheets. The statutory transfer of the assets, which is given effect by Ministerial Orders, is being advanced by the Department in consultation with the local authorities and IW. Since January 2015, a number of Ministerial Orders have been made providing for the transfer of various different categories of assets to Irish Water. Considerable work is involved in preparing supporting material for the transfer of over-ground assets, to ensure that the orders reflect the precise nature and boundary of the asset to be transferred. Further Orders required will be completed in 2015, subject to taking the time necessary to ensure the assets are accurately set out. These matters will be kept under audit review.

7.2 Transfer of account balances to Irish Water

Agreement has not been finalised between IW and Tipperary County Council in relation to transfer of account balances .The balance showing as due to IW at 31 December 2014 was €5.3m.

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7.3 Transfer of Loans to Irish Water

IW related loans amounting to €6.5m are included in the accounts of Tipperary County Council. All interest and principal repayments in relation to these loans are being serviced by the Department since 1January 2014,and €5.3m has been redeemed in 2015.

8 Interest in Other Companies

The Council has recorded its interest in 7 companies in Appendix 8 of its AFS

One of these companies, Nenagh Arts Centre Ltd, promotes arts and culture in the region.There is a claim of €1m approximately against the company in respect of a building contract. A conciliator has recommended a payment of €191,855 in respect of a number of items in the claim.The external auditor to the company has stated that the amount of the award and the remaining claim creates a fundamental material uncertainty in respect of the company’s ability to continue as a going concern.

Chief Executive’s Response

Nenagh Arts Centre Ltd, a company limited by guarantee, is currently involved in a claims / arbitration process to resolve this matter. Ultimately this is a matter for Nenagh Arts Centre Ltd to resolve with the claimant .

8 Corporate Governance

8.1 General

Corporate governance comprises the systems and procedures by which enterprises are directed and controlled. It is the responsibility of the Chief Executive and the elected members to ensure that sound systems of financial management and internal controls are in place.

Chief Executive’s Response

The Council has put in place controls and procedures augmented by a dedicated Internal Audit function reporting directly to the Chief Executive. The audit committee receives regular updates and reports and will continue to operate in a similar fashion.

8.2 Procedure Manuals

The Council should ensure that detailed written procedure manuals are put in place for all sections of the new merged Council.

Chief Executive’s Response

All sections are working on ensuring that written procedure manuals are in place for the merged local authority.

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8.3 Internal Audit

The Council’s internal audit function consisted of 2.5 whole time equivalent personnel, of which the Head of the Unit is a qualified accountant.The head of Internal Audit reports directly to the chief executive and the audit committee. The annual work plan was approved by the chief executive and the audit committee.The unit produced a number of reports during the year which were reviewed by the audit committee. Internal audit formally tracks the implementation of its recommendations

I have taken account of the work of internal audit in carrying out my audit

8.4 Timeliness of Annual Financial Statements

The draft AFS was not produced until the first of December 2015 .It is imperative that the 2015 AFS be completed in a timely manner.

Chief Executive’s Response

The Council has undergone significant reform with the establishment of a new single local authority. The merger of financial systems generally has been complex and the preparation of the AFS necessitated incorporating the accounts of ten previous local authorities and was more time consuming than originally anticipated. Following the preparation of the AFS, I will be reviewing procedures to ensure that the 2015 AFS is finalised within an acceptable timeframe .

Acknowledgement

I wish to record my appreciation for the courtesy and co-operation extended to me by the management and staff of the Council.

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Local Government Auditor 17 December 2015

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