as based upon the External Auditor's report on the pension scheme it would be very easy to lose a £million and no-one ( except the external auditor ) would notice.
Here is the report that is going to the Pension Fund Committee this evening. You can download it
here to save yourself expanding each page, or you can go to Mr Mustard's executive summary at the end:
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| click click click to enlarge and then back to return |
So these are the main points that you need to know about this report on the state of the pension scheme at 31 March 2011.
Barnet Council say in the covering report to councillors at para 5.1
"Accurate financial reporting is important" ( do keep that in mind for what is coming soon ).
At para 9.4 Barnet Council say
There were some problems experienced in auditing the cash and current asset figures in the accounts.
which is what the large and expensive finance team should prevent.
At para 9.5 a scapegoat is wheeled out:
The problems arising from the audit of cash and current asset figures arose primarily as a result of the Treasury Manager leaving the Council during the audit. There are a number of controls and processes that need to be documented for 2011/12 to enable a smoother audit.
Mr Mustard suggests that means that the processes have not been written down in the past and they should have been and management either didn't know or didn't notice or they did notice but did nothing.
What the external auditor found during their normal checking:-
2.1 Investment income
Accrued investment income
The draft accounts incorrectly included accrued investment income totalling £1.6m from the December Investment Manager reports. This income had already been accounted for when received by the Fund and therefore had therefore been double counted. (and double "therefore"!)
An adjustment has been processed by the Pensions team within the financial statements having the effect of reducing the net asset value of the scheme by £1.6m.
Management response: the adjustment has been processed.
Mr Mustard's response: £1.6m. Why didn't Finance notice before the auditors?
Processing of investment data
The above errors have been exacerbated by investment transaction data which has not been processed within the SAP accounting software since mid-November 2010. ( Mr Mustard has never read a good word about SAP at Barnet Council but you can't blame the system if the staff don't input the information. )
The absence of recording investment transactions represents a control risk relating to an over-reliance on the fund manager reports and the lack of a proper and up-to-date reconciliation procedure between the accounting system and the investment manager reports. ( Reconciliations are basic accounting. A pity Barnet Council seem to struggle with the basics. Too busy with One Barnet probably )
There is also potentially a risk of misappropriation of assets in the absence of such controls. ( If anyone has wandered off with £1m would it be discovered ? Not internally, possibly externally? ).
Recommendation: We recommend that the Pensions team implement formal processes and controls to ensure that investment transactions are appropriately reflected in SAP and reconciled to investment manager reports and reviewed on a timely basis. ( External auditors get well paid to state the bleeding obvious ).
Management response: Accepted. The Treasury Manager left the team during the 2010/11 audit and this highlighted a lack of documentation of processes which will be rectified for 2011/12. ( There was a team. It can't all be the fault of one person, can it? Lessons have been learnt - stuck record )
2.2 Unrecorded benefits
As part of our audit procedures review, we found that approximately £1.6m of retirement benefits had not been provided for within the financial statements. ( £1.6m evidently not worth noticing at Barnet Council, again )
An adjustment has therefore been proposed, accepted by the Pensions Team and has been processed with the financial statements having the effect of increasing benefits payable and reducing the net asset value of the Fund by £1.7m. ( there was another oversight of £100k, apologies for mentioning such a small error )
Recommendation: We recommend that a further review of benefits is carried out on or around 31 March each year to ensure all amounts are properly recorded. ( how sensible )
Management response: Accepted.
2.3 Financial statements preparation
As part of our audit work we noted that that certain trial balance codes which would have been expected to have been mapped to the net assets statement had not mapped to the net assets statement as presented for audit. ( what idiot prepared these accounts? )
In addition, there was not a clear mapping of all the trial balance nominal ledger codes to the financial statements presented for audit. ( this audit is easy money )
Of the ten nominal ledger codes not clearly mapped, the following nominal ledger balances (all credit balances totalling £3.4m) were identified as balances that should have been included within the net asset statement: ( ooh, £3.4m, that's a lot, even more than the two lots of £1.6m I have already found )
* cash transfer account £1.3m
* investment management and professional fees creditors balance £1.8m
* Pay as you earn "PAYE" on pensions payments relating to the month of March 2011 £0.3m
On highlighting these issues, the pensions team have accepted that adjustments are required having the effect of reducing the fund account balance by £3.4m.
Recommendation: We recommend that a full review of the mapping process is performed. (Come on Barnet!)
. (Management don't know what happens in their teams)
2.4 Cash balances
Recommendation: We recommend that formal bank reconciliations are prepared on a monthly basis and reviewed and evidenced as reviewed by an appropriate member of the Pension team. ( Lesson 1 in accounting; lesson not yet learnt )
We also recommend that bank account reconciling items are agreed as having cleared after the month end to ensure they are valid entries. ( Lesson 1a in accounting )
Management response: the responsibility for bank reconciliations across all Council accounts rests outside of the Pensions Accounting team. ( Pathetic: the responsibility rests somewhere in Finance at Barnet Council )
This will be reviewed in 2011/12 to ensure that the most effective process is put in place but it is accepted that there needs to be oversight in the Pension Accounting team. ( There has been a lack of oversight by management )
2.5 Sundry debtors
The sundry debtors balance included old debtors amounting to £0.3m not considered recoverable by the Pensions team.
An adjustment has therefore been proposed, accepted by the Pensions Team and has been processed within the financial statements having the effect of reducing the net asset value of the Fund by £0.3m.
Recommendation: We recommend that the review of aged debtors is carried out more frequently. ( why is there such a lack of focus and application ? )
Management response: Accepted. This will form part of the 2011/12 year end process. ( that isn't what the recommendation says. Is once a year sufficiently regular? )
3.6 Connaught Partnerships
The scheduled body, Connaught Partnerships formally entered administration on 8 September 2010. The consequences of the administration will not be known until the process has been completed. The notes to the pension fund accounts include a statement to this effect. We recommend that the situation is closely monitored.
( Suck it up; the money is gone. £1,492,000 see the earlier blog post here )
Update for 2010/11: We understand that Barnet's legal department are liaising with KPMG, the administrator, to recover the outstanding payment. ( The money is already down the drain. Paying a solicitor to chase it is almost certainly a waste of money ).
Summary
The overall effect of the adjustments listed below is to decrease Fund assets by £7.0m ( Mr Mustard didn't reproduce the table - you have the info above )
So there you have it. The Treasury Team thought they had £7m more than they did and they are looking after the money of Barnet Council's pensioners and staff working towards retirement. Hard to have any confidence in their work isn't it?
Do you know that difference in the Accounts is about the amount that the Chief Financial Officer, Mr Andrew Travers is going to earn in 32 years ( 32 * £1,000 * 220 working days p.a. = £7,040,000 )
Yours frugally
Mr Mustard
