Local Councils (Procedures) (Amendments) Regulations, 2006

L.N. 328 of 2006

LOCAL COUNCILS ACT

(CAP. 363)

Local Councils (Procedures) (Amendments) Regulations, 2006

IN exercise of the powers conferred by article 72(3) of the Local

Councils Act, the Deputy Prime Minister and Minister for Justice and

Home Affairs, after consulting with the Prime Minister and Minister of

Finance, has made the following regulations>–

The title of these regulations is the Local Councils (Procedures) Citation.

(Amendments) Regulations, 2006 and they shall be read and construed

as one with the Local Councils (Procedures) Regulations 1996, L.N. 180 of 1996.

hereinafter referred to as “the principal regulations”.

For the L.C.P. 2#96 – Local Councils (Audit) Procedures, 1996

there shall be substituted the following>–

L.C.P. 2/2006

LOCAL COUNCILS ACT

(CHAPTER 363)

Local Councils (Audit) Procedures, 2006

Audit Procedures

Local Councils Act (CAP 363)

Background Information

P2.01

65, 66

Local Councils Act (CAP 363)

The Role of the Auditor General

P2.02

Local Councils Act (CAP 363)

Appointment and Remuneration of Local

P2.03

Government Auditors

Local Councils Act (CAP 363)

Types of Audit and Reporting

P2.04

65, 66

Requirements

Local Councils (Audit)

Regulations 3, 4, 5, 7, 8, 9,10

Local Councils (Audit)

Finalisation of Annual Financial

P2.05

Regulations 3, 8

Statements

Local Councils Act (CAP 363)

The Local Government Auditors' Report on

P2.06

the Financial Statements

Local Councils (Audit)

Regulations 3, 8

Local Councils Act (CAP 363)

The Local Government Auditors' Report on

P2.07

Securing

Economy,

Efficiency

and

Effectiveness

Local Councils (Audit)

Regulations 9,10

Local Councils (Audit)

Special Reports

P2.08

Regulations 7

Local Councils Act (CAP 363)

Appointment of Experts to Assist Local

P2.09

65(4)

Government Auditors

Local Councils (Audit)

Guidance for Mayors and Local Councils’

P2.10

Regulations 6, 8

Executive Secretaries

Miscellaneous

P2.11

Appendices

Specimen Annual Audit Report on the

P2.I

Local Council's Financial Statements

Specimen Local Government Auditors'

P2.II

Report on the Local Council's Indicators to

Measure Performance

Specimen Local Government Auditors'

P2.III

Report on Value for Money

Audit Procedures

Background Information

These Procedures shall be read together with the Act and with the Local Councils

(Financial) Regulations, the Local Councils (Audit) Regulations and the Local

Councils (Financial) Procedures.

The Local Councils Act provides for the decentralisation of certain aspects of

Government which can be conducted and supervised more effectively at a local

level.

The Act provides for the audit of Local Councils, entrusted to Certified Public

Accountants with a certificate to practise as auditors. The Local Councils (Audit)

Regulations issued in terms of the Act prescribe the audit requirements in

accordance with the Act. These Procedures contain a specimen of the Financial

Statements which Local Councils should adhere to as found in Appendix P2.I. In the

case where such specimen is not in conformity with the International Financial

Reporting Standards (IFRS’s) which may come into force from time to time and

effecting Local Councils, the IFRS’s should prevail.

The Role of the Auditor General

The Auditor General has two main roles in terms of the Act. The first will be an

administrative role concerned with the appointment and remuneration of Local

Government Auditors. The second role will be a technical one which is intended to

lend support to Local Government Auditors and to ensure that their observations

and recommendations are given serious consideration.

The technical role of the Auditor General is in some aspects comparable to that

often attributed to Audit Committees in public companies. The following points

should be noted

Local Government Auditors should develop a client relationship both with the Local

Council and with the Auditor General. They are at liberty to discuss with the Auditor

General any aspect of their audit work, and to answer any queries he may make,

either directly or through his staff.

The Auditor General will receive copies of all audited Financial Statements, special

reports, etc. He may also commission Local Government Auditors to perform

interim audits dealing with topics of concern to him. Furthermore, a mid-term audit

is to be carried out whenever there is a change in the Executive Secretary.

At the same time, the Auditor General is not there to replace management. Local

Government Auditors should look at the Local Council and its management as the

primary client. Reports should always be discussed with the Local Council and the

Local Council's response should be noted in such letters.

Where the Regulations necessitate that the Local Government Auditors report

directly to the Auditor General, the Local Council should normally be informed of the

report being submitted, except in those rare circumstances, such as where

management fraud is suspected, where the Local Government Auditors may prefer

to report in confidence.

The Auditor General, too, will liaise with Local Government Auditors in a manner

which may not exclude the Department for Local Government as the regulatory

body responsible for Local Government. Department for Local Government officials

may be invited to attend any meetings between the Auditor General and Local

Government Auditors at which the affairs of Local Councils are being discussed.

Correspondence between Local Government Auditors and the Auditor General may

be copied to the Department for Local Government.

Local Councils (Audit) Procedures, 2006

L.C.P. 2/2006

Appointment and Remuneration of Local Government Auditors

The Auditor General shall be responsible for the appointment of Local Government

Auditors and for the renewal of such engagements on an annual basis.

It is intended that the Auditor General should attain a fair distribution of work among

Local Government Auditors, facilitate communications and understanding between

Local Government Auditors and himself, reduce overall audit costs and promote

audit consistency between Local Councils. The five year rotation of Local

Government Auditors will also serve to attain these ends. On their part, Local

Government Auditors will be expected to contribute to the process by having all

Local Councils’ audits handled by a specialist team, at least, at manager and

partner level, where audit firms are concerned.

Letters of engagement will be issued by the Auditor General. Annual audit fees

shall be agreed with the Auditor General and billed to his Office at the conclusion of

the relevant work. Any additional costs arising from specific interim audits

requested by the Auditor General (see paragraph e of section P2.04) would also be

negotiated with him and billed to his Office.

These arrangements do not preclude Local Government Auditors from providing

non-audit services to a Local Council. The cost of such services should however be

agreed with and billed to the Local Council. Executive Secretaries are to ensure that

Local Government Auditors have obtained prior approval from the Auditor General

to carry out any other non-audit services.

In the case of mid-term audits, the fee is negotiated between the Auditor General

and the Local Government Auditors and billed to the Local Council. In no case will

the fee be in excess of that charged for the financial year end audit.

Types of Audit and Reporting Requirements

The Local Councils (Audit) Regulations provide for four types of audit - the annual

audit on the Financial Statements of the Local Council, mid-term audit, interim audit,

and an audit on whether the Local Council has secured economy, efficiency and

effectiveness.

Annual audits represent the recurring normal audits required to issue an opinion on

the Financial Statements of a Local Council (which are to be drawn up in the format

as shown in Appendix 2.I), and to draw up a Management Letter thereon. Such

work may be carried out entirely after the end of the financial year, or if preferred

may include a visit before the year end to spread the work required. Such a visit is

entirely at the discretion of the Local Government Auditor.

Two reports will be produced at the conclusion of the annual audit, and these

should be completed by the end of June of each year. These reports are

The Local Government Auditors' report on the Financial Statements, which report

shall form part of the Annual Administrative Report presented by the Local Council.

A Management Letter which would deal with any weaknesses encountered by the

Local Government Auditors.

Both reports are amplified upon later on in these Procedures (vide para P2.06).

Types of Audit and Reporting Requirements

continued

The second type of audit is the mid-term audit. The objective of this audit is to serve

as an independent hand-over exercise whenever an Executive Secretary leaves the

employment of a Local Council and another is appointed. This will take the same

form as the financial year end audit up to the last day of employment of the outgoing

Executive Secretary. Local Government Auditors will be requested to confirm that

the minutes of the Local Council’s meetings have been drawn up, approved, signed,

available at the Local Council’s premises and appropriately filed. At the end of the

mid-term audit, the Local Government Auditors are to present to the Auditor

General the Financial Statements covering the period April 1 to the last day of the

employment of the outgoing Executive Secretary, and an Audit Report thereon. The

Local Government Auditors are also to draw up a Management Letter pointing out

any weaknesses encountered. The Local Government Auditors are to supervise any

adjustments and corrections that might be necessary.

The third type of audit is an interim audit which would be carried out at the specific

request of the Auditor General on a topic or topics designated by him.

Such interim audits are not expected to be frequent. They will be resorted to when

the Auditor General is made aware of circumstances, such as suspected fraud,

which are of a gravity which calls for an immediate investigation or when follow-up

audits are called for to ensure that agreed action plans are actually implemented.

Given the likely background to such interim audits Local Government Auditors

should submit their report immediately upon the conclusion of their work. A

maximum time limit of eight weeks is specified in the Local Councils (Audit)

Regulations.

In the fourth type of audit the Local Government Auditors shall conduct an annual

analysis and comparisons of the Local Council’s indicators to measure performance

on whether the Local Council has made proper arrangements for securing

economy, efficiency and effectiveness for the financial year under review. This audit

will be further amplified upon later on in these Procedures (vide para P2.07).

Finalisation of Annual Financial Statements

It is the responsibility of the Executive Secretary to draw up Financial Statements

which fairly present, in accordance with the accounting policies applicable to them,

the Local Council’s income and expenditure for the financial year just ended, and its

retained funds at the year end.

The Executive Secretary is to draw up and submit to the Auditor General the

Financial Statements signed by the Mayor and himself by not later than May 10, or if

this happens not to be a working day, the first following working day. A copy is also

to be submitted to the respective Local Government Auditor.

The Financial Statements are to consist of the Statement of the Local Council

Members’ and Executive Secretary’s responsibilities, Statement of Income and

Expenditure, the Statement of Affairs, the Statement of Changes in Equity, the Cash

Flow Statement, Notes to the Financial Statements and where applicable the

Schedule of Special Needs Funds.

Local Councils (Audit) Procedures, 2006

L.C.P. 2/2006

Finalisation of Annual Financial Statements

continued

After the audit work is completed, if there are no adjustments to be carried out, the

Local Government Auditors will append the Audit Report on the Financial

Statements and will submit this together with the Management Letter to the Auditor

General by not later than June 30 or if this happens not to be a working day, the first

following working day.

On the other hand, if there are any adjustments to be effected, the Local

Government Auditors are to bring these to the attention of the Local Council and

return the Financial Statements so that the necessary adjustments are carried out

and approved by the Local Council, and revised Financial Statements drawn up.

Local Government Auditors will be available to attend the Local Council’s meeting

when the adjustments on the Financial Statements are discussed in order to give

any clarifications that may be requested or reply to questions asked. The final

approved Financial Statements duly signed by the Executive Secretary and the

Mayor are to be returned by the Local Council to the Local Government Auditors

who will append the Audit Report on the Financial Statements and will submit this

together with the Management Letter to the Auditor General by not later than June

30 or if this happens not to be a working day, the first following working day.

The Local Government Auditors' Report on the Financial Statements

In their report, Local Government Auditors are required to give an opinion on

whether the Financial Statements comply with International Financial Reporting

Standards, the Act, the Local Councils (Financial) Regulations and Procedures and

the Local Councils (Audit) Regulations and Procedures.

The second requirement of the annual audit is the Management Letter mentioned in

paragraph c.02 of section P2.04)

The Local Government Auditors are to forward to the Auditor General, six bound

copies of their report and the Local Council's Financial Statements drawn up as

per specimen at Appendix P2.I as well as three copies of the Management Letter

addressed to the Council.

These copies will be distributed as follows

One copy of the Audit Report and Financial Statements together with the

Management Letter to remain with the Auditor General;

One copy of above to the Local Council;

Two copies of the Audit Report and Financial Statements together with one copy of

the Management Letter to the Director (Local Government), one copy of which is to

be forwarded to the Director General (National Statistics Office);

Two copies of the Audit Report and Financial Statements to the Minister responsible

for Local Government a copy of which is to be laid on the Table of the House of

Representatives and the other copy is to be archived by the Clerk of the House of

Representatives;

The Local Government Auditors' Report on the Financial Statements

continued

The Mayor and the Executive Secretary in return are to submit the Local Council’s

response to the Director (Local Government), the Auditor General and the Local

Government Auditors by not later than August 14 or six weeks after receipt of the

Management Letter from the Auditor General, after seeking the Local Council’s

approval.

The Local Government Auditors' Report on Securing Economy, Efficiency and

Effectiveness

This section deals with the Local Government Auditors' report containing their

analysis, comments and recommendations, made as required by the Act, on

whether the Local Council has made proper arrangements for securing economy,

efficiency and effectiveness.

In the case of Local Council audits, irrespective of the approach adopted to report

on the Financial Statements themselves, Local Government Auditors are required

to make additional enquiries and tests aimed specifically at economy, efficiency and

effectiveness. This will necessitate a programme of work, to be performed on this

topic. It will also necessitate a report which should describe the work performed

and the results thereof.

The task of determining whether a Local Council has made proper arrangements to

secure economy, efficiency and effectiveness has been split into two as follows

The annual analysis and comparison of the Local Councils' indicators to measure

performance, which is described later on in this section. This is to be submitted by

the end of June of each year together with the Audit Report, Financial Statements

and Management Letter.

A full audit on the topic, covering the subject dealt with in the following paragraphs,

which will be conducted every three years as directed by the Auditor General. The

Local Government Auditors are to submit to the Auditor General a report on such an

audit within six months from the date the audit is commissioned by the Auditor

General.

Paragraphs e through n of this section deal with the Local Government Auditor’s

duties vis-à-vis the making of proper arrangements for securing economy, efficiency

and effectiveness in Local Councils.

The Local Councils Regulations and the Procedures are intended to assist Local

Councils in securing economy, efficiency and effectiveness in the management of

their affairs and to ensure that Local Councils operate within their means.

The Regulations and Procedures serve as reference documents for value for

money audits. Local Government Auditors are not required to pass judgement on

whether a Local Council has secured economy, efficiency and effectiveness but are

to give their opinion to the Auditor General in a manner that the latter may decide

whether economy, efficiency and effectiveness has been achieved. To this end,

Local Government Auditors, are expected to make enquiries and tests on whether

a Local Council has made proper arrangements for securing economy, efficiency

and effectiveness. The emphasis is therefore the achievement of value for money

which depends on the existence of sound arrangements for the planning, appraisal,

authorisation and control of the use of resources. Value for money advocates which

is called "good management practice" includes

Proper organisational structure with adequate classification of responsibilities,

authority and accountability.

Local Councils (Audit) Procedures, 2006

L.C.P. 2/2006

The Local Government Auditors' Report on Securing Economy, Efficiency and

Effectiveness

continued

Human resources management including arrangements for review of staff

requirements, recruitment, training and direction of employees.

The existence of well defined policies and practices.

Arrangements designed to the advantage of economies of scale, particularly in

procurement of goods, works and services.

Arrangements for the proper management of all the resources of the Local Council.

Systems of planning, budgeting and controlling income and expenditure and capital

expenditure and for the allocation of resources.

Regular monitoring of results against predetermined and quantified performance

objectives and standards.

The Local Government Auditors have no power to question Local Council policy as

such but, only the way in which decisions are taken. As a result, they prescribe a

rational model of decision-making, and will consider

Whether policy objectives have been determined and whether policy decisions have

been taken with appropriate authority.

Whether established policy aims and objectives have been clearly set out.

The extent to which policy objectives are set and decisions based on sufficient

relevant and reliable financial and other data, and with the critical underlying

assumptions made explicit.

Whether there are satisfactory arrangements for considering alternative options,

including the identifications, selection and evaluation of such options.

Whether subsequent decisions on implementation are consistent with the approved

aims and objectives, and have been taken with the proper authority at the

appropriate (or required) level; and whether the resultant instructions to employees

accord with approved policy aims and decisions and are clearly understood by

those concerned.

Whether the costs of alternative levels of service or options have been considered

and are reviewed as demands and costs change.

The Act, Regulations and Procedures provide the first benchmark against which to

gauge Local Council performance. This is because these documents specify

standard policies, systems, practices, procedures, decision making structures,

authority levels and relationships etc. which Local Councils must follow and respect.

In addition each Local Council may define its own policies, systems, methods and

timescales to supplement the standard requirements but not inconsistent with the

said requirements.

A full value for money audit will entail an examination of whether the Act,

Regulations and Procedures have been complied with. The Local Government

Auditor’s report should include their opinion on such compliance, subject, of course,

to any exceptions they may report. Local Government Auditors are encouraged as

well to point out any shortcomings in the established Procedures which may come

to their attention.

The Local Government Auditors' Report on Securing Economy, Efficiency and

Effectiveness

continued

In the interests of audit efficiency, Local Government Auditors are encouraged to

apply their professional judgement on materiality (Information is material if its

omission or misstatement could influence the economic decision of users taken on

the basis of the financial statements).

To assist them in monitoring economy, efficiency and effectiveness, Local Councils

will be provided with a set of standard indicators to measure performance (e.g.

typical refuse disposal costs per household) against which they could measure

actual performance. Executive Secretaries are required to examine the

performance indicators of their locality, compared to its indicators in previous years,

to the predetermined standard for the locality and to the typical or average figures

for all Local Councils taken together.

There will in practice be many valid reasons why performance indicators would vary

between localities. It is the responsibility of Executive Secretaries ascertain these

reasons and to ensure that any adverse variance is not the result of inefficiency on

their part.

Local Government Auditors should each year discuss Local Council's performance

indicators with the Executive Secretary to determine the causes of any material

variances from year to year, etc. Their report should contain the comparison of

performance indicators which is specified in the Local Councils (Audit) Regulations.

It should also record the Local Council's explanations on such indicators together

with any additional comments thereon which the Local Government Auditors may

wish to make.

Finally, Local Government Auditors are bound to look for evidence that Local

Councils are monitoring the quality of the services they are providing, many of which

will be delivered by contractors. Such evidence should take the form of

Local Council minutes recording this monitoring;

The settlement of complaints made to the Local Council, in accordance with the

Local Councils (Complaints) Regulations; and

The appointment of persons to verify the quality of services delivered by

contractors.

The specimen format for the reports discussed in this section may be found in

Appendices P2.II and P2.III.

Special Reports

The Local Councils (Audit) Regulations provide for special reports which would be

made by Local Government Auditors if they encounter

Serious control weaknesses which, if left unattended, could result in a breakdown in

accounting and control procedures; or

Suspected fraud, embezzlement irregularities or abuse of power on the part of

Local Council officials and/or Local Council members; or

Matters which may lead to a qualification in their Audit Report on the Financial

Statements; or

Any such other matter, as in the opinion of the Auditor General requires further

review.

Local Councils (Audit) Procedures, 2006

L.C.P. 2/2006

Special Reports

continued

The issue of a special report denotes a matter of some gravity which calls for action

on the part of the Auditor General and the Minister. Special reports should,

therefore, be considered as a measure to be taken as a last resort. Particularly on

items described in paragraphs a.01 and a.02 of this section, Local Government

Auditors should discuss the problem with the Local Council with a view to resolving

the matter without having to resort to a special report.

A special report on a case of suspected fraud, embezzlement, irregularity or abuse

of power is likely to lead to a request by the Auditor General for an interim audit to

investigate the matter or for an investigation by a board appointed under the

Inquires Act.

Appointment of Experts to Assist Local Government Auditors

The Act provides for the appointment of experts by the Auditor General to assist

Local Government Auditors in the performance of their duties.

The use of such experts would primarily arise by agreement between Local

Government Auditors and the Auditor General. Examples of such uses could

include

Auditor General officials assisting Local Government Auditors in a fraud

investigation; and

A civil engineer being appointed to look into the quality and costs of road

maintenance works performed, as part of the audit.

In all cases such experts would be remunerated by the Auditor General.

Guidance for Mayors and Local Councils’ Executive Secretaries

In the course of their duties, Local Government Auditors would be working mainly

with the Local Council officials and/or Local Council members. In liaising with their

Local Government Auditors, Local Council officials should be guided by the

following principles

In all cases, the responsibility for the institution of sound internal controls, for the

maintenance of adequate financial records and for securing economy, efficiency

and effectiveness rests with the Local Council and its employees. The audit

process assists in the attainment of these objectives, but in no way reduces the

responsibility of management;

It is the Local Government Auditors' role to make enquiries and tests, for the

objectives already discussed, but it is also their role to assist through their advice;

The maintenance of a sound system of internal control entails continual

management judgement. Controls are justified when their cost is less than the

benefit they yield and the assessment of their benefit entails a judgement on the

likelihood and cost of losses which may arise if the control was omitted. Local

Government Auditors can offer advice to management on such matters, but cannot

make decisions on their behalf;

The reports submitted by Local Government Auditors will contain the shortcomings

noted in their work and their suggestions for improvement. Local Government

Auditors will often legitimately seek to report all their findings, except for obviously

petty ones, in order that their report contains an agenda of all matters that are worth

discussing. Local Council official and/or Local Council members should take such

reports seriously and discuss them thoroughly with the Local Government Auditors,

who will note the replies received in the final document sent to the Auditor General;

Guidance for Mayors and Local Councils’ Executive Secretaries

continued

There will be cases where Local Government Auditors and Local Council officials

and/or Local Council members disagree on the practicability of correcting a

particular control weakness. The responsibility for securing economy, efficiency and

effectiveness falls upon the Council.

The Local Councils (Audit) Regulations empower the Auditor General to

recommend to the Minister on any action that is deemed appropriate in the

circumstances.

Management Letters, and the Local Government Auditors' reports on the

arrangements made by Local Council for securing economy, efficiency and

effectiveness will contain a confidential discussion of various control and

management issues, e.g., on the monitoring of work performed by employees and

contractors. Such correspondence would not be made public, as to do so could

clearly undermine the attainment of the control objectives being discussed therein,

and would be commercially disadvantageous. Indeed it would also necessitate the

remedying of any control weakness discussed, regardless of cost and benefits,

given that the weakness concerned would have been made public.

Finally, Local Council officials and/or Council members should monitor the quality of

service received from their Local Government Auditors and should communicate

any misgivings to the Auditor General. This feedback would be useful to the

Auditor General when considering audit appointments and renewals and the terms

thereof.

Miscellaneous

The Minister or the Auditor General, may request an ad hoc audit of any Local

Council’s operations, from any other entity empowered to do so by any legislation in

force.

Appendix P2.I

P2.I

Specimen Annual Audit Report on the Local Council's Financial Statements

________ Local Council

Annual Audit Report

Prepared by

ABC & Co

Certified Public Accountants

Appendix P2.I (continued)

_______________Local Council

Annual Audit Report

Table of Contents

Section

Statement of Local Council Members’ and Executive Secretary’s Responsibilities

Report of the Local Government Auditor to the Auditor General

Statement of Income and Expenditure

Statement of Affairs

Statement of Changes in Equity

Cash flow statement

Schedule of Special Needs Funds

Notes to the Financial Statements

Appendix P2.I (continued)

_______________Local Council

Annual Audit Report

Financial Statements for the year ended 31 March 2006

Statement of Local Council Members’ and Executive Secretary’s Responsibilities

The Local Councils (Financial) Regulations require the Executive Secretary to prepare a

detailed annual administrative report which includes a statement of the Local Council’s income

and expenditure for the year and of the Council’s retained funds at the end of year. By virtue of

the same regulations it is the duty of the Local Council and the Executive Secretary to ensure

that the financial statements forming part of the report present fairly, in accordance with the

accounting policies applicable to Local Councils, the income and expenditure of the Local

Council for the year and its retained funds as at the year end, and that they comply with the Act,

the Local Council (Financial) Regulations, and the Local Council (Financial) Procedures issued

in terms of the said Act.

The Executive Secretary is responsible to maintain a continuous internal control to ascertain

that the accounting, recording and other financial operations are properly conducted in

accordance with the Local Councils Act, Local Council (Financial) Regulations, and the Local

Councils (Financial) Procedures. The Executive Secretary is also responsible for safeguarding

the assets of the company and hence for taking reasonable steps for the prevention and

detection of fraud and other irregularities.

Local Councils (Audit) Procedures, 2006

Appendix P2.I (continued)

_______________Local Council

Financial Statements for the year ended 31 March 2006

Report of the Local Government Auditor to the Auditor General

Appendix P2.I (continued)

_______________Local Council

Annual Audit Report

Statement of Income and Expenditure for the year ended 31 March 2006

Notes

2005/2006

2004/2005

Lm

Lm

Lm

Income

Funds received from central government

76,963

70,183

Income raised under Local Council Bye-Laws

-

Income raised under Local Enforcement System

6,766

6,085

Investment Income

2,148

1,596

General Income

4,786

90,818

78,463

Expenditure

Personal emoluments

14,512

14,343

Operations and maintenance

29,446

31,744

Administration and other expenditure

21,823

21,931

Finance Cost

1,210

-

(66,991)

(68,018)

Surplus for the year

23,827

10,445

Appendix P2.I (continued)

_______________Local Council

Annual Audit Report

Statement of Affairs as at 31 March 2006

Notes

2005/2006

2004/2005

Lm

Lm

Lm

Assets

Non-current Assets

Property, plant and equipment

56,495

44,452

Current Assets

Inventories

Receivables

3,000

3,200

Cash and cash equivalents

100,231

42,917

103,356

46,537

Total assets

159,851

90,989

Reserves and Liabilities

Reserves

Retained funds

73,268

49,441

Non-current liabilities

Long term borrowings

18,673

-

Current Liabilities

Payables

64,346

41,548

Current portion of long-term borrowings

3,564

-

67,910

41,548

Total equity and liabilities

159,851

90,989

These financial statements were approved by the Local Council on ___________ and signed on

its behalf by

Mayor

Executive Secretary

Appendix P2.I (continued)

_______________Local Council

Annual Audit Report

Statement of Changes in Equity for the year ended 31 March 2006

Revaluation

Reserve

Retained Funds

Total

Lm

Lm

Lm

Balance at 31 March 2004

-

38,996

38,996

Changes in accounting policy

-

-

Restated balance

-

38,996

38,996

Changes in equity

Gain/(Loss) on property revaluation

-

-

Net income recognised directly in equity

-

-

Surplus for the period

10,445

10,445

Balance at 31 March 2005

-

49,441

49,441

Changes in equity

Gain/(Loss) on property revaluation

-

-

Net income recognised directly in equity

-

-

Surplus for the year

23,827

23,827

Balance at 31 March 2006

-

73,268

73,268

Local Councils (Audit) Procedures, 2006

_______________Local Council

Cash flow statement for the year ended 31 March 2006

Note

Cash flow from operating activities

Surplus for the year

Adjustments for

Depreciation

Increase / (Decrease) in Provision for Bad Debts

Interest receivable

Interest payable

(Profit) / Loss on disposal of asset

Increase / (Decrease) in payables

Decrease / (Increase) in receivables

Decrease / (Increase) in inventories

Cash generated from operations

Interest paid

Net cash from operating activities

Cash flows from investing activities

Purchase of property, plant and equipment

Proceeds from sale of equipment

Interest received

Net cash used in investing activities

Cash flows from financing activities

Proceeds from long-term borrowings

Loan Repayments

Net cash from financing activities

Net increase/(decrease) in cash and cash equivalents

(838)

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Appendix P2.I (continued)

_______________Local Council

Annual Audit Report

Schedule of Special Needs Funds at 31 March 2006

Funds Received and Expended

Brought

Carried

Forward

Received

Expended

Forward

Lm

Lm

Lm

Lm

Special Program 1

6,200

-

-

6,200

Special Program 2

12,000

-

-

12,000

Special Program 3

17,260

-

-

17,260

Total

35,460

-

-

35,460

Capital Creditors

Brought

Contracted

Invoices

Carried

Forward

this year

received

Forward

Lm

Lm

Lm

Lm

Special Program 1

-

-

-

-

Special Program 2

-

-

-

-

Special Program 3

-

-

-

-

Total

-

-

-

-

Commitments

Brought

Contracted

Invoices

Carried

Forward

this year

received

Forward

Lm

Lm

Lm

Lm

Special Program 1

6,200

-

-

6,200

Special Program 2

12,000

-

-

12,000

Special Program 3

17,260

-

-

17,260

Total

35,460

-

-

35,460

Appendix P2.I (continued)

_______________Local Council

Annual Audit Report

Notes to the Financial Statements for the year ended 31 March 2006

1. General Information

_______________ Local Council is the local authority of _______________ setup in

accordance with the Local Councils Act. The office of the Local Council is situated at

2. Accounting Policies and Reporting Procedures

These financial statements have been drawn up in accordance with the accounting policies and

reporting procedures prescribed for Local Councils in the Financial Regulations issued by the

Minister of Finance in conjunction with the Minister responsible for Local Government in terms

of section 67 of the Local Councils Act (Cap 363). The financial statements are prepared under

the historical cost convention as modified to include fair values stated in the accounting policies

below. These Financial Statements are prepared in accordance to the requirements of

International Financial Reporting Standards and comply with the Local Councils Act Cap 363,

the Financial Regulations issued in terms of this Act and the Local Councils (Financial)

Procedures 1996.

The principal accounting policies and reporting procedures used by the Local Councils are as

follows

a. Revenue recognition

Revenue is recognised when there are no significant uncertainties concerning the derivation of

consideration or associated costs. Interest income is recognised in the income statement as it

accrues.

b. Local Enforcement System

_________ Local Council forms part of __________ Joint Committee. The amount disclosed in

the financial statements under Local Enforcement Income represents the share of profit derived

from the Joint Committee after deducting the related expenses.

Appendix P2.I (continued)

_______________Local Council

Annual Audit Report

Notes to the Financial Statements for the year ended 31 March 2006_(cont….)

c. Property, Plant and Equipment

Property, plant and equipment is stated at cost less accumulated depreciation and impairment

loss to date. Depreciation is calculated on a monthly basis using the reducing balance method

at rates calculated to write off the cost less residual value of each asset over its expected useful

life as follows

%

Land

Trees

Buildings

Office Furniture and Fittings

5

Construction Works

Urban Improvements (Street Furniture)

Special Projects

Office Equipment

Motor Vehicles

Plant and Machinery

Computer Equipment

Plants

Litter Bins

Playground furniture

Traffic Signs

Road Signs

Street Mirrors

Street Lights

d. Government Grants

Government grants are accounted for on a systematic basis in the Income and Expenditure

Account over the periods necessary to match them with the related costs which they are

intended to compensate. If such costs have already been incurred when the grant is made, or if

there are no related cost, then the grant is accounted for when it becomes receivable.

e. Impairment of Assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually

for impairment. Assets that are subject to amortisation or depreciation are reviewed for

impairment whenever events or changes in circumstances indicate that the carrying amount

may not be recoverable. An impairment loss is recognised for the amount by which the carrying

amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of

the fair value of the asset less cost to sell and the value in use. Impairment losses are

immediately recognised as an expense in the Statement of Income and Expenditure.

Appendix P2.I (continued)

_______________Local Council

Annual Audit Report

f. Amounts Receivable

Amounts receivable are recognised initially at fair value and subsequently measured at

amortised cost using the effective interest rate method, less provision for impairment. A

provision for impairment of amounts receivable is established when there is objective evidence

that the Council will not be able to collect all amounts due according to the original terms of the

receivables. The amount of the provision is the difference between the carrying amount of the

asset in the present value of the estimated future cash flows, discounted at the effective interest

rate. The amount of the provision is recognised in the Statement of Income and Expenditure.

g. Foreign Currencies

Items included in the Financial Statements are measured using the currency of the primary

economic environment in which the Local Council operates. These Financial Statements are

presented in Lm, which is the Council’s functional and present currency.

Transaction denominated in foreign currencies are translated into Lm at rates of exchange in

operation on the dates of transactions. Monetary assets and liabilities expressed in foreign

currencies are translated into Lm at the rates of exchange prevailing at the date of the

Statement of Affairs.

h. Profit and Losses

Only profits that were realised at the date of the Statement of Affairs are recognised in these

Financial Statements. All foreseeable liabilities and potential losses arising up to the said date

are accounted for even if they become apparent between the said date and the date on which

the Financial Statements are approved.

i. Cash and Equivalents

Cash and Cash Equivalents are carried in the Statement of Affairs at face value. For the

purposes of the Cash Flow Statement, cash and cash equivalents comprise cash in hand and

balances held with banks.

2005/2006

2004/2005

Lm

Lm

3. Funds received from central government

In terms of section 55 of the Local Councils Act (Cap 363)

76,963

70,183

In terms of section 58 of the Local Councils Act (Cap 363)

-

-

Other Government Income (Specify)

-

-

76,963

70,183

2005/2006

2004/2005

Lm

Lm

4. Income raised from Bye-Laws

Income raised under Local Council Bye-Laws

-

Appendix P2.I (continued)

_______________Local Council

Annual Audit Report

Notes to the Financial Statements for the year ended 31 March 2006_(cont….)

2005/2006

2004/2005

Lm

5. Local Enforcement Income

Share of Profit from Joint Committee/

Fines and Penalties*

6,766

2005/2006

2004/2005

Lm

6. Investment Income

Income received from Government Securities

Bank interest

1,816

2,148

2005/2006

2004/2005

Lm

7. General Income

Income from tender documents

1,000

Income from permits

Sponsorships

Contributions and donations

2,309

4,786

2005/2006

2004/2005

Lm

Personal Emoluments

Mayor's allowance

2,068

Executive Secretary salary and allowances

7,575

Employees' salaries

3,624

Social Security Contributions

1,245

14,512

*Applicable only when Local Council does not form part of a Joint Committee.

Appendix P2.I (continued)

_______________Local Council

Annual Audit Report

Notes to the Financial Statements for the year ended 31 March 2006_(cont….)

2005/2006

Lm

Operations and Maintenance

Repairs and upkeep

Road and street pavements (Patching works)

3,004

Walkways

1,342

Street signs

Road markings

5,305

Contractual Services

Refuse collection (including bins on wheels)

7,022

Bulky refuse collection (including open skips)

1,656

Road and Street Cleaning (mechanical and manual)

5,144

Cleaning and Maintenance of Non-Urban Roads

Cleaning and Maintenance of Public Conveniences

Cleaning and Maintenance of Parks and Gardens

Cleaning and Maintenance of

Verges

2,649

Cleaning and Maintenance of Beaches and Coastal Areas

3,949

Cleaning and Maintenance of country non-urban Areas

2,321

Local Enforcement Expenses**

-

24,141

29,446

**Applicable only when Local Council does not form part of a Joint Committee.

Appendix P2.I (continued)

_______________Local Council

Annual Audit Report

Notes to the Financial Statements for the year ended 31 March 2006_(cont….)

2005/2006

2004/2005

Lm

Lm

Administration and other expenditure

Utilities

1,518

2,310

Other repairs and upkeep

Rent

3,222

National and International Memberships

-

Office Services

1,587

2,014

Travel

-

Transport

Information Services

1,936

1,180

Other contractual services

Professional services

2,864

2,478

Training

-

Community and hospitality

2,595

3,519

Social events

-

Cultural events

2,100

-

Donations

-

Loss on disposal of asset

-

Increase in provision for bad debts

-

-

Depreciation

6,249

5,929

21,823

21,931

2005/2006

2004/2005

Lm

Lm

Finance Costs

Interest on Bank Loan

1,210

-

Interest charged by creditors

-

-

1,210

-

3,000

3,000

32,979

6,249

(772)

38,456

80,431

18,470

97,951

-

(950)

56,495

Lm

Total

Appendix P2.I (continued)

3,000

3,000

-

-

-

-

-

3,000

3,000

-

-

-

Programmes

Lm

Special

15,453

8,218

5,151

(772)

12,597

29,000

28,050

-

-

-

-

(950)

Equipment

Computer

Lm

6,525

6,865

2,697

7,367

2,195

9,562

-

-

-

-

-

Vehicles

Motor

Lm

L.C.P. 2/2006

Annual Audit Report

-

-

-

-

-

-

Equipment

Notes to the Financial Statements for the year ended 31 March 2006_(cont….)

Lm

Office

6,618

6,651

6,618

6,651

-

-

-

-

-

-

Lm

Street

Signs

New

5,221

7,898

8,171

-

-

-

2,533

-

2,950

-

furniture &

fittings

Lm

Office

33,068

26,402

9,009

9,303

15,969

-

42,371

-

-

-

-

Property

Local Councils (Audit) Procedures, 2006

Lm

12a. Property, Plant and Equipment

Accumulated Depreciation

_______________Local Council

Released on disposal

As at 31 March 2006

As at 31 March 2006

As at 31 March 2006

As at 31 March 2006

Charge for the year

As at 01 April 2005

Grants and other

As at 1 April 2005

As at 1 April 2005

reimbursements

Net Book Value

Disposals

Additions

Additions

Asset

Cost

27,050

5,929

32,979

44,452

3,000

3,000

-

69,270

11,161

-

80,431

-

Lm

Total

Appendix P2.I (continued)

-

3,000

3,000

-

-

-

-

3,000

-

-

3,000

-

Programmes

Lm

Special

20,782

3,228

4,990

-

8,218

17,939

11,061

-

29,000

-

-

-

Equipment

Computer

Lm

6,315

-

6,525

7,367

-

-

7,367

-

-

-

Vehicles

Motor

Lm

L.C.P. 2/2006

Annual Audit Report

-

-

-

-

-

-

Equipment

Lm

Office

Notes to the Financial Statements for the year ended 31 March 2006_(cont….)

6,518

6,618

6,518

6,618

-

-

-

-

-

-

Lm

Street

Signs

New

2,098

2,533

5,365

7,898

7,898

-

-

-

-

-

-

furniture &

fittings

Lm

Office

Local Councils (Audit) Procedures, 2006

17,393

26,402

26,402

8,833

-

9,009

-

-

-

-

-

Property

12b. Property, Plant and Equipment

Lm

_______________Local Council

Accumulated Depreciation

Released on disposal

As at 31 March 2005

As at 31 March 2005

As at 31 March 2005

As at 31 March 2005

Charge for the year

As at 01 April 2004

Grants and other

As at 1 April 2004

As at 1 April 2004

reimbursements

Net Book Value

Disposals

Additions

Additions

Asset

Cost

Appendix P2.I (continued)

_______________Local Council

Annual Audit Report

Notes to the Financial Statements for the year ended 31 March 2006_(cont….)

2005/2006

2004/2005

Lm

Lm

Inventories

Stationery

Consumables

Books for resale

2005/2006

2004/2005

Lm

Lm

Receivables

Receivables

LES debtors

2,590

2,260

Prepayments and accrued income

Other receivables

3,000

3,200

Cash and Equivalents

Cash and cash equivalents included in the cash flow statement comprise the following amounts

in the Local Council Statement of Affairs

2005/2006

2004/2005

Lm

Lm

Bank balances

ordinary funds

64,757

7,443

special needs funds

35,460

35,460

Cash in Hand

100,231

42,917

Long Term Borrowings

(i)

Long term borrowings consist of a loan borrowed by the council with the approval of

the Minister responsible from Local Government. This amount is to be repaid by

30 June 2014. Interest is being charged at 7% per annum.

(ii)

The loan repayment for the current year amounts to Lm3,564. This consists of 12

monthly instalments of Lm297.

Appendix P2.I (continued)

_______________Local Council

Annual Audit Report

Notes to the Financial Statements for the year ended 31 March 2006_(cont….)

2005/2006

2004/2005

Lm

Lm

Payables

Payables

21,228

2,653

Accruals

7,565

3,332

Special needs funds-unutilised

35,460

35,460

Other payables

64,346

41,548

Capital Commitments

2005/2006

2004/2005

Lm

Lm

(i) Details of capital commitments are as follows

Approved but not yet contracted for (ii)

6,250

2,000

Contracted for but not provided in Financial Statements (iii)

5,000

1,000

11,250

3,000

These could be analysed as follows

(ii) Approved but not yet contracted for

New Street Signs

1,000

-

Office Furniture and Fittings

1,250

-

Motor Vehicles

4,000

2,000

6,250

2,000

(iii) Contracted for but not provided in Financial Statements

Walkways

5,000

1,000

Contingent Liabilities

The Council has been drawn into a court case. The outcome and liability of the Council is

estimated to be Lm20,000.

Appendix P2.II

Specimen of the Local Government Auditors' Report on the Local Council's Indicators to

Measure Performance

_____________ Local Council

Indicators to Measure Performance Audit Report - Year

Prepared by

ABC & Co

Certified Public Accountants

Appendix P2.II (Continued)

_______ Local Council

Indicators to Measure Performance Audit Report - Year

Table of Contents

Section

Page

Executive Summary

1.0

Introduction

2.0

Scope

3.0

Methodology

4.0

Findings and Recommendations

4.1

General Observations

4.2

Repair and Upkeep (Works) Functions

4.2.1

Road / Street Pavements

4.2.2

Walkways

4.2.3

Signs

4.2.4

Road Markings

4.2.5

4.3

Contractual Services Functions

4.3.1

Street Sweeping

4.3.2

Refuse Collection

4.3.3

Bulky Refuse Collection

4.3.4

Cleaning and Maintenance of Public Conveniences

4.3.5

Cleaning and Maintenance of Gardens and Verges

4.3.6

5.0

Conclusion

Appendices

Appendix P2.II (Continued)

_______ Local Council

Indicators to Measure Performance Audit Report - Year

Executive Summary

Executive Summary

Appendix P2.II (Continued)

_______ Local Council

Indicators to Measure Performance Audit Report - Year

1.0

Introduction

2.0

Scope

3.0

Methodology

Appendix P2.II (Continued)

_______ Local Council

Indicators to Measure Performance Audit Report - Year

4.0

Findings and Recommendations

4.1

General Observations

Appendix P2.II (Continued)

_______ Local Council

Indicators to Measure Performance Audit Report - Year

4.2

Repair and Upkeep (Works) Functions

4.2.x

(Function)

a.

Findings

Comparative

Graphs / Charts of Indicators to Measure

Performance

b.

Recommendations

c.

Local Council Response

d.

Action Plan

e.

Signatures

Local Government Auditors

Mayor

Executive Secretary

Appendix P2.II (Continued)

_______ Local Council

Indicators to Measure Performance Audit Report - Year

4.3

Contractual Services Functions

4.3.x

(Function)

a.

Findings

Comparative

Graphs / Charts of Indicators to Measure

Performance

b.

Recommendations

c.

Local Council Response

d.

Action Plan

e.

Signatures

Local Government Auditors

Mayor

Executive Secretary

Appendix P2.II (Continued)

_______ Local Council

Indicators to Measure Performance Audit Report - Year

5.0

Conclusion

Appendix P2.II (Continued)

_______ Local Council

Indicators to Measure Performance Audit Report - Year

Appendices

Appendix P2.III

Specimen Local Government Auditors' Report on Value for Money

_______ Local Council

Value for Money Audit Report - Year 1 to Year 3

Prepared by

ABC & Co

Certified Public Accountants

Appendix P2.III (Cont.)

_______ Local Council

Value for Money Audit Report - Year 1 to Year 3

Table of Contents

Section

Page

Executive Summary

1.0

Introduction

2.0

Scope

3.0

Methodology

4.0

Findings and Recommendations

4.01

Organisational Structure

4.02

Policies and Practices

4.03

Planning and Budgeting

4.04

Monitoring and Control

4.05

Decision Making

4.06

Documentation Control

4.07

Human Resources Management

4.08

Operation Management

4.09

Quality

4.10

Financial Management

4.11

Procurement and Tendering

4.12

Office Practices

4.13

Laws and Prosecution

4.14

Cost Control and Economics of Scale

4.15

Complaints Handling and Customer Service

4.16

Indicators to Measure Performance

5.0

Conclusion

Appendices

Appendix P2.III (Cont.)

_______ Local Council

Value for Money Audit Report - Year 1 to Year 3

Executive Summary

Executive Summary

Appendix P2.III (Cont.)

_______ Local Council

Value for Money Audit Report - Year 1 to Year 3

1.0

Introduction

2.0

Scope

3.0

Methodology

Appendix P2.III (Cont.)

_______ Local Council

Value for Money Audit Report - Year 1 to Year 3

4.0

Findings and Recommendations

4.x

Subject etc.

4.x1

Findings

4.x2

Recommendations

a.

a.

b.

b.

c.

c.

4.x3

Local Council Response

4.x4

Action Plan

Signatures

Local Government Auditor

Mayor

Executive Secretary

Appendix P2.III (Cont.)

_______ Local Council

Value for Money Audit Report - Year 1 to Year 3

5.0

Conclusion

Appendix P2.III (Cont.)

_______ Local Council

Value for Money Audit Report - Year 1 to Year 3

Appendices

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