Policy paper

River Arun: annual governance and accountability return 2022 to 2023 – form 3

Updated 17 October 2023

Applies to England

To be completed by local councils, internal drainage boards (IDB) and other smaller authorities:

• where the higher of gross income or gross expenditure exceeded £25,000 but did not exceed £6.5 million
• where the higher of gross income or gross expenditure was £25,000 or less, but that:
  • are unable to certify themselves as exempt (fee payable)
  • have requested a limited assurance review (fee payable)

For a complete list of bodies that may be smaller authorities refer to schedule 2 to the Local Audit and Accountability Act 2014.

1. Guidance notes on completing form 3 of the annual governance and accountability return 2022 to 2023

Every smaller authority in England that either received gross income or incurred gross expenditure exceeding £25,000 must complete form 3 of the annual governance and accountability return (AGAR). This must be done at the end of each financial year in accordance with proper practices (see page 11 on practitioners’ guide).

The annual governance and accountability return is made up of 3 parts, pages 3 to 6:

• the annual internal audit report must be completed by the authority’s internal auditor
• sections 1 and 2 must be completed and approved by the authority
• section 3 is completed by the external auditor and will be returned to the authority

The authority must approve section 1, annual governance statement, before approving section 2, accounting statements. Both must be approved and published on the authority website before 1 July 2023.

An authority with either gross income or gross expenditure exceeding £25,000 or with neither income nor expenditure exceeding £25,000, but which is unable to certify itself as exempt, or requesting a limited assurance review, must return to the external auditor by email or post (not both) no later than 30 June 2023 (reminder letters will incur a charge of £40 plus VAT):

• the AGAR sections 1 and 2
• a bank reconciliation as at 31 March 2023
• an explanation of any significant year on year variances in the accounting statements
• notification of the commencement date of the period for the exercise of public rights
• annual internal audit report 2022 to 2023

Unless requested, do not send any additional documents to your external auditor. Your external auditor will ask for any additional documents needed.

Once the external auditor has completed the limited assurance review and is able to give an opinion, the AGAR section 1, 2 and 3 – the external auditor report and certificate will be returned to the authority by email or post.

2. Publication requirements

Under the Accounts and Audit Regulations 2015 act, authorities must publish on the authority website/webpage.

Before 1 July 2023 authorities must publish:

• notice of the period for the exercise of public rights and a declaration that the accounting statements are as yet unaudited
• section 1 - annual governance statement 2022 to 2023, approved and signed, page 4
• section 2 - accounting statements 2023 to 2023, approved and signed, page 5

Not later than 30 September 2023 authorities must publish:

• notice of conclusion of audit
• section 3 - external auditor report and certificate
• sections 1 and 2 of AGAR including any amendments as a result of the limited assurance review

It is recommended as best practice, to avoid any potential confusion by local electors and interested parties, that you also publish the annual internal audit report, page 3.

3. Accountability Return 2022 to 2023

The authority must comply with proper practices in completing sections 1 and 2 of this AGAR. Proper practices are found in the practitioners’ guide which is updated from time to time. It contains everything needed to prepare successfully for the financial year end and the subsequent work by the external auditor.

Make sure that the AGAR is complete (no highlighted boxes left empty) and is properly signed and dated. If the AGAR contains unapproved or unexplained amendments, it may be returned, and additional costs will be incurred.

The authority should receive and note the annual internal audit report before approving the annual governance statement and the annual governance statement and the accounts.

Use the completion checklist table to review the AGAR for completeness before returning it to the external auditor by email or post (not both) no later than 30 June 2023.

The annual governance statement section 1 must be approved on the same day or before the accounting statements section 2 and evidenced by the agenda or minute references.

The responsible financial officer (RFO) must certify the accounts (section 2) before they are presented to the authority for approval. The authority must in this order; consider, approve and sign the accounts.

The RFO is required to commence the public rights period as soon as practical after the date of the AGAR approval.

You must inform your external auditor about any change of clerk, RFO or chairman and provide relevant authority owned generic email addresses and telephone numbers.

Make sure that the copy of the bank reconciliation to be sent to your external auditor with the AGAR covers all the bank accounts. If the authority holds any short term investments, note their value on the bank reconciliation. The external auditor must be able to agree the bank reconciliation to box 8 on the accounting statements (section 2, page 5). An explanation must be provided of any difference between box 7 and box 8. More help on bank reconciliation is available in the practitioners’ guide.

Explain fully significant variances in the accounting statements on page 5. Do not just send a copy of the detailed accounting records instead of this explanation. The external auditor wants to know that you understand the reasons for all variances. Include complete numerical and narrative analysis to support the full variance.

If the bank reconciliation is incomplete or variances not fully explained then additional costs may be incurred.

Make sure that the accounting statements add up and that the balance carried forward from the previous year (box 7 of 2022) equals the balance brought forward in the current year (box 1 of 2023).

The RFO on behalf of the authority, must set the commencement date for the exercise of public rights of 30 consecutive working days. This must include the first 10 working days of July.

The authority must publish on the authority website/webpage the information required by Regulation 15 (2), Accounts and Audit Regulations 2015 - including the period for the exercise of public rights and the name and address of the external auditor before 1 July 2023.

3.1 Completion checklist - no answers mean you may not have met requirements

Section	Questions	Answer
All sections	Have all highlighted boxes have been completed?	Yes
All sections	Has all additional information requested, including the dates set for the period for the exercise of public rights, been provided for the external auditor?	Yes
Internal audit report	Have all highlighted boxes been completed by the internal auditor and explanations provided?	Yes
Section 1	For any statement to which the response is ‘no’, has an explanation been published?	Yes
Section 2	Has the responsible finance officer signed the accounting statements before presentation to the authority for approval?	Yes
Section 2	Has the authority’s approval of the accounting statements been confirmed by the signature of the chairman of the approval meeting?	Yes
Section 2	Has an explanation of significant variations from last year to this year been published where required?	Yes
Section 2	Has the bank reconciliation as at 31 March 2023 been reconciled to box 8?	Yes
Section 2	Has an explanation of any difference between box 7 and box 8 been provided?	Yes
Sections 1 and 2	Trust funds – have all disclosures been made if the authority as a body corporate is a sole managing trustee? Note: do not send trust accounting statements unless requested.

4. Annual internal audit report 2022 to 2023

4.1 River Arun internal drainage board

During the financial year ended 31 March 2023, this authority’s internal auditor acting independently and on the basis of an assessment of risk, carried out a selective assessment of compliance. They used the relevant procedures and controls in operation and obtained appropriate evidence from the authority.

The internal audit for 2022 to 2023 has been carried out in accordance with this authority’s needs and planned coverage. On the basis of the findings in the areas examined, the internal audit conclusions are summarised in this table. Set out below are the objectives of internal control and alongside internal audit conclusions on whether, in all significant aspects, the control objectives were being achieved throughout the financial year to a standard adequate to meet the needs of this authority.

If the response is ‘no’ please state the implications and action being taken to address any weakness in control identified (add separate sheets if needed).

Note: If the response is ‘not covered’ please state when the most recent internal audit work was done in this area and when it is next planned. If coverage is not required, the annual internal audit report must explain why not (add separate sheets if needed).

For any other risk areas identified by this authority adequate controls existed (list any other risk areas on separate sheets if needed).

4.2 Internal control objective

Section	Questions	Answers
A	Appropriate accounting records have been properly kept throughout the financial year?	Yes
B	This authority complied with its financial regulations, payments were supported by invoices, all expenditure was approved and VAT was appropriately accounted for?	Yes
C	This authority assessed the significant risks to achieving its objectives and reviewed the adequacy of arrangements to manage these?	Yes
D	The precept or rates requirement resulted from an adequate budgetary process; progress against the budget was regularly monitored and reserves were appropriate?	Yes
E	Expected income was fully received, based on correct prices, properly recorded and promptly banked and VAT was appropriately accounted for?	Yes
F	Petty cash payments were properly supported by receipts, all petty cash expenditure was approved and VAT appropriately accounted for?	Not covered
G	Salaries to employees and allowances to members were paid in accordance with this authority’s approvals and PAYE and NI requirements were properly applied?	Not covered
H	Asset and investments registers were complete and accurate and properly maintained?	Yes
I	Periodic bank account reconciliations were properly carried out during the year?	Not covered
J	Accounting statements prepared during the year were prepared on the correct accounting basis (receipts and payments or income and expenditure), agreed to the cash book, supported by an adequate audit trail from underlying records and where appropriate debtors and creditors were properly recorded?	Yes
K	If the authority certified itself as exempt from a limited assurance review in 2021 to 2022, it met the exemption criteria and correctly declared itself exempt (If the authority had a limited assurance review of its 2021 to 2022 AGAR put “not covered”)?	Not covered
L	The authority publishes information on a free to access website/webpage up to date at the time of the internal audit in accordance with any relevant legislation.	Yes
M	In the year covered by this AGAR, the authority correctly provided for the period for the exercise of public rights as required by the Accounts and Audit Regulations (during the 2022 to 2023 AGAR period, were public rights in relation to the 2021 to 2022 AGAR evidenced by a notice on the website and/or authority approved minutes confirming the dates set).	Yes
N	The authority has complied with the publication requirements for 2021 to 2022 AGAR (see AGAR page 1 guidance notes)?	No
O	(For local councils only) Trust funds (including charitable) – The council met its responsibilities as a trustee?	Not applicable

5. Annual governance statement 2022 to 2023 (section 1)

We acknowledge as the members of: River Arun internal drainage board.

Our responsibility for ensuring that there is a sound system of internal control, including arrangements for the preparation of the accounting statements. We confirm, to the best of our knowledge and belief, with respect to the accounting statements for the year ended 31 March 2023, that:

Section	Statement	Answer	Yes means that this authority:
1	We have put in place arrangements for effective financial management during the year, and for the preparation of the accounting statements.	Yes	Prepared its accounting statements in accordance with the Accounts and Audit Regulations.
2	We maintained an adequate system of internal control including measures designed to prevent and detect fraud and corruption and reviewed its effectiveness.	Yes	Made proper arrangements and accepted responsibility for safeguarding the public money and resources in its charge.
3	We took all reasonable steps to assure ourselves that there are no matters of actual or potential non-compliance with laws, regulations and proper practices that could have a significant financial effect on the ability of this authority to conduct its business or manage its finances.	Yes	Has only done what it has the legal power to do and has complied with proper practices in doing so.
4	We provided proper opportunity during the year for the exercise of electors’ rights in accordance with the requirements of the Accounts and Audit Regulations.	Yes	During the year gave all persons interested the opportunity to inspect and ask questions about this authority’s accounts.
5	We carried out an assessment of the risks facing this authority and took appropriate steps to manage those risks, including the introduction of internal controls and/or external insurance cover where required.	Yes	Considered and documented the financial and other risks it faces and dealt with them properly.
6	We maintained throughout the year an adequate and effective system of internal audit of the accounting records and control systems.	Yes	Arranged for a competent person, independent of the financial controls and procedures, to give an objective view on whether internal controls meet the needs of this smaller authority.
7	We took appropriate action on all matters raised in reports from internal and external audit.	No	Responded to matters brought to its attention by internal and external audit.
8	We considered whether any litigation, liabilities or commitments, events or transactions, occurring either during or after the year-end, have a financial effect on this authority and, where appropriate, have included them in the accounting statements.	Yes	Disclosed everything it should have about its business activity during the year including events taking place after the year end if relevant.
9	(For local councils only) Trust funds including charitable. In our capacity as the sole managing trustee we discharged our accountability responsibilities for the fund(s)/assets, including financial reporting and, if required, independent examination or audit.	Not applicable	Has met all of its responsibilities where, as a body corporate, it is sole managing trustee of a local trust of trusts.

Please provide explanations to the external auditor on a separate sheet for each ‘no’ response and describe how the authority will address the weaknesses identified. These sheets must be published with the annual governance statement.

Please refer to Matters of Internal Control.

6. Accounting statements 2022 to 2023 (section 2)

6.1 For River Arun internal drainage board

Section	Item	Year ending 31 March 2022	Year ending 31 March 2023	Notes and guidance: please round all figures to nearest £1. Do not leave any boxes blank and report £0 or Nil balances. All figures must agree to underlying financial records.
1	Balances brought forward	£54,165	£45,441	Total balances and reserves at the beginning of the year as recorded in the financial records. Value must agree to Box 7 of previous year.
2	(+) Precept or Rates and Levies	£72,997	£73,469	Total amount of precept (or for IDBs rates and levies) received or receivable in the year. Exclude any grants received.
3	(+) Total other receipts	£11,500	£10,670	Total income or receipts as recorded in the cashbook less the precept or rates/levies received (line 2). Include any grants received.
4	(-) Staff costs	£0	£0	Total expenditure or payments made to and on behalf of all employees. Include gross salaries and wages, employers NI contributions, employers pension contributions, gratuities and severance payments.
5	(-) Loan interest/capital repayments	£0	£0	Total expenditure or payments of capital and interest made during the year on the authority’s borrowings (if any).
6	(-) All other payments	£93,221	£125,042	Total expenditure or payments as recorded in the cash book less staff costs (line 4) and loan interest/capital repayments (line 5).
7	(=) Balances carried forward	£45,441	£4,538	Total balances and reserves at the end of the year. Must equal lines (1+2+3) - lines (4+5+6).
8	Total value of cash and short term investments	£45,438	£4,535	The sum of all current and deposit bank accounts, cash holdings and short term investments held as at 31 March – to agree with bank reconciliation.
9	Total fixed assets plus long term investments and assets	£3	£3	The value of all the property the authority owns – it is made up of all its fixed assets and long term investments as at 31 March.
10	Total borrowings	£0	£0	The outstanding capital balance as at 31 March of all loans from third parties (including Public Works Loan Board).
11a	(For Local Councils Only) Disclosure note re Trust funds (including charitable)	not applicable	not applicable	The Council, as a body corporate, acts as sole trustee for and is responsible for managing Trust funds or assets.
11b	(For Local Councils Only) Disclosure note re Trust funds (including charitable)	not applicable	not applicable	The figures in the accounting statements above do not include any trust transactions.

7. Appendix A - Matters of internal control - an internal audit AGAR report 2022 to 2023

7.1 Control objective F: Petty cash payments were properly supported by receipts, all petty cash expenditure was approved and VAT appropriately accounted for.

Not covered by internal audit as no petty cash balances are held or administered by the IDB.

7.2 Control objective G: Salaries to employees and allowances to members were paid in accordance with the authority’s approvals, and PAYE and NI requirements were properly applied.

Not covered by internal audit as there are no specific employees working for the IDB as all work done for the IDB is performed by employees of the Environment Agency who work on other duties. Therefore no salaries were directly paid by the IDB.

7.3 Control objective I: Periodic and year-end bank account reconciliations were properly carried out during the year.

Not covered by internal audit as the administered River Arun IDB does not operate a separate bank account. It is therefore not possible to test a separate bank account reconciliation related specifically to the IDB (i.e. cash book to bank statement to general ledger). Transactions that involve real ‘cash’ transfers are conducted through the Environment Agency’s bank account which is reconciled every month by its Shared Services Centre (SSCL) provider. The transactions that are recorded on the IDB project codes represent the cash flows as if the IDB were a separate entity.

7.4 Control objective K: If the authority certified itself as exempt from a limited assurance review in 2020/21, it met the exemption criteria and correctly declared itself exempt.

This control objective is not applicable as the River Arun IDB did not certify itself as exempt.

7.5 Control objective M: The authority, during the previous year (2020/21) correctly provided for the period for the exercise of public rights as required by the Accounts and Audit Regulations (evidenced by the notice published on the website and/or authority approved minutes confirming the dates set).

Finding: A statement is required to be published by the latest date of 30 June to allow public inspection to commence 1 day later, to cover the first 10 working days of July of each year. The Arun IDB did not comply with this requirement for its 2020-21 AGAR as it did not publish on its website a statement setting out the period for the exercise of public rights and commenced the public rights period from 29th July 2021 to 9th Sept 2021 which did not cover the first 10 working days of July.

Implication: Non-compliance with the Accounts and Audit Regulations 2015 (Section 15) that requires to publish, on the Authority’s website, a notice for public rights inspection by the required statutory deadline.

Reason for non-compliance: A combination of two issues has contributed to the requirements not being met including:

• a change in key positions of Arun IDB support staff during the year which impacted continuity of understanding around the timetable for publication (a new RFO, clerk, and project manager were appointed)

• accounts were originally scheduled to be presented to the July 2021 Environment Agency Board (acting as the Board of the IDB) - but had to be brought forward to the end of June 2021 under Order 4.1 of the Standing Orders of the Board and which delegates authority to the chair (in conjunction with the chief executive and on the advice of other appropriate officers) to conduct urgent business between board meetings to ensure approval of the AGAR return by 30 June 2021 - ‘hard copy signatures’ on the AGAR return were not able to be obtained until one month after Environment Agency board approval which required postal distribution to signatories

Management Action: A timetable has now been developed and is held on the Arun IDB permanent management record to show the publication dates required. This will minimise the risk of non-compliance in future years.

7.6 Control objective N: The authority has complied with the publication requirements for the 2020 to 2021 annual governance and accountability return (AGAR).

Finding: Documents to show the conclusion of the Arun IDB 2020 to 2021 audit were not uploaded to the Arun IDB “GOV.UK” website until 19 January 2022. This should have been done by 30 September 2021.

Implication: Non-compliance with the Accounts and Audit Regulations 2015 (Section 13) that requires publication on the authority’s website:

• the statement of accounts
• the local auditor opinion
• the annual governance statement

by the latest date of 30 September following the end of the year to which the statement relates.

Reason for non-compliance: As above for control objective M.

Management action: As above for control objective M.