What is Year End for Town & Parish Councils?
When we say 'Mastering Year End' for Town & Parish Councils, we are referring to the preparation of the accounts, submission of the AGAR and everything in between! The financial year for local councils is a 12 month period from 1st April to 31st March, and is used as the basis for preparing the Annual Governance and Accountability Return (AGAR) - a mandatory document that local councils are required to complete and submit to the relevant authorities.
The year end provides a snapshot of the council's financial transactions, governance arrangements, and other key information. It helps to ensure that the council is operating in a responsible and efficient manner, and serves as a means of demonstrating accountability and transparency to the public.
Completing the AGAR is a legal requirement under the Local Audit and Accountability Act 2014, and failure to submit a completed AGAR can result in penalties and enforcement action by the relevant authorities.
Who uses the AGAR?
- Internal & external auditors - to assess the council's compliance with relevant regulations and laws, and ensure that public money is safeguarded and properly accounted for.
- Members of the council - to assess the council's financial health and make informed decisions, and ensure it is using resources effectively and in the interest of the public.
- Members of the public - to understand the council's activities and financial transactions.
So let's jump right in and look at what we can do now to ensure we're in good stead and ultimately lessen the workload at year end. Psst, if you plan to read this all at once grab yourself a tea or coffee - we'll be here a while!
Get data ready
Think about your cashbook, are you up to date in entering transactions? If you are a couple of months behind, book a few hours in your calendar throughout the week to get your transactions entered to date - consider how far behind you are, and the number of transactions that need entering when setting aside this time.
Check the accuracy of your transactions - have they been allocated to the correct budget heading and VAT rate? Corresponding paperwork can help with this, such as invoices and receipts, and this will help when you get to the internal audit.
Reconcile like you've never reconciled before
The last thing you want at 31st March is to be trawling through months of emails, documents and correspondence to investigate a discrepancy in your records. Get into the habit of reconciling every month, even if it's only a handful of transactions. Ensure your last bank reconciliation is balancing before moving on to the following month. This means if you do discover a discrepancy at the end of March, you only have one months worth of data to look back on.
Now is also the time to ensure your VAT records are up to date. If you're VAT registered, you will be governed by your VAT dates as to when you need to submit a return. If you're not VAT registered, and claiming VAT back via Form 126, there is no specific timeframe in which you need to do this. We therefore recommend doing this annually and ideally in line with the financial year. This is where checking corresponding documents comes in handy - ensure you have a valid VAT invoice and the suppliers VAT number in order to claim VAT back.
Get your assets in order
Ensure your asset register is up to date. Have assets been disposed of throughout the year and correctly updated on the asset register? Have you purchased new assets throughout the year and added these to your asset register? A lot of questions tend to arise around the asset register, have a read of Eleanor Greene's, Chief Accountant at Do the Numbers Limited and Secretary at the Parish Council Internal Auditors Forum and SLCC Hampshire, top tips on the asset register.
Understand your accounting approach
There are two approaches that can be taken when completing the Accounting Statements section of the AGAR, and it's important to know which approach you'll be using. Receipts & Payments (also known as cash accounting) records receipts and payments at the point they are received or paid, regardless of when they relate to. Income & Expenditure (also known as accruals accounting) records transactions on the date to which they relate, rather than when they were received/paid.
Councils are required to work on an I&E basis when their gross income, or gross expenditure, exceeds £200,000 for 3 consecutive years. Councils can also voluntarily opt to complete year end in I&E if under this threshold. Here's a flow chart to help you determine which accounting approach to use.
It's also important to note that if you're switching accounting approaches this year, you will also be required to restate the prior year figures in line with the new accounting approach. You do not need to wait until year end to do this, and we recommend doing this in advance so you have one less thing to think about.
You're not alone
It's important to mention that although the role of the Clerk can feel isolating at times, there are resources and support groups there to help - you are never alone! If needed you can refer to the JPAG Practitioner's Guide, which has a wealth of information on the year end process. There are also Facebook support forums with hundreds of Clerks on hand to answer your queries and support you through year end - take a look at The Clerk's Corner and the Community Clerks' Network.
Download the FREE Year End Checklist.
Since you have the link to the JPAG Practitioner's Guide above, it's worth mentioning that Section 4 has a great checklist on the internal audit. So if it's your first internal audit this year, it gives a good idea of what to expect - but let's have a further look anyway!
#2 The Internal Audit
The internal audit for local councils should be carried out at least annually (the scope and extent will largely depend on the size of the council). It is essentially the process of someone evaluating the council's internal processes and systems to ensure they are functioning effectively and efficiently. When I say someone, I mean the internal auditor, which must be appointed by the council (not just the Clerk).
When appointing an internal auditor, you must ensure that they are 1) independent from the council and 2) have good knowledge and understanding of local government finance and procedures.
The internal auditor's responsibilities may include:
What documents are required?
This is not a comprehensive list, but includes the most common documents required. Your internal auditor may well ask for documents not outlined here.
- Cashbook, bank reconciliations and bank statements
- Budget, precept setting and reserves
- Risk assessment
- Asset register and insurance renewal
- Standing orders and financial regulations
- VAT submissions/reclaims
- Payroll procedures
- Balance sheet and reconciliation between Line 7 & 8 (I&E only)
- Previous internal auditors report to ensure any points raised have been addressed
When can the internal audit be carried out?
The internal audit can be carried out as soon as you have completed the financial year and have all documents readily accessible. It's good practice to have the internal audit carried out before the AGAR is approved by the council, as the internal auditors report will be available for them. If any matters are raised by the internal auditors report, these can then be addressed by the council.
Now that we understand more of what the internal audit will entail and the documents that need to be prepared, let's take a look at what happens after....
#3 Completing the AGAR
There are 3 separate AGAR Forms, and the one you will complete depends on your financial activity:
- Form 1 is to be completed by local councils with no financial activity for the year.
- Form 2 is to be completed by local councils that wish to claim exemption, due to the higher of gross income or gross expenditure not exceeding £25,000. You must still undergo the internal audit, and there are further criteria you must meet in order to claim exemption - this will be detailed on the AGAR.
- Form 3 is to be completed by all local councils where the higher of gross income or gross expenditure exceeded £25,000, but did not exceed £6.5 million.
We'll be focusing on Form 2 & 3 requirements. First up, the Annual Internal Audit Report....
Annual Internal Audit Report
This section is to be completed by your internal auditor, and and requires a ‘Yes’ or ‘No’ response to a set of statements. If the response to one of these statements is ‘No’, the internal auditor must state the implications and action being taken to address any weakness in the control identified - a separate sheet may need to be used and submitted for this.
This must be signed and dated by the internal auditor.
Section 1: Annual Governance Statement
This section is to be completed by the Clerk/RFO and approved at a council meeting before submission. The Annual Governance Statement is used to review the effectiveness of the system of internal controls and requires a ‘Yes’ or ‘No’ response to a set of statements. If responses to one of these statements is ‘No’, this must be accompanied by a separate sheet identifying weaknesses and how they will be addressed.
This must be signed by the Clerk/RFO and Chairman, with the date and minute reference of approval stated.
Section 2: The Accounting Statements
This section is to be completed by the Clerk/RFO and approved at a council meeting before submission. The way you complete the accounting statements will depend on your accounting approach. The two key differences to be aware of is VAT & Year Adjustments, which you can have a quick read on here.
Section 2 must be signed and dated by the Clerk/RFO, signed by the Chairman, and the date and minute reference of approval stated.
Watch a tutorial on the breakdown of the accounting statements and what each Line should include.
Section 3: External Auditor's Report and Certificate
This is for local councils completing Form 3, that are not exempt from the external audit. This section is to be completed by your external auditor, who will provide a limited assurance review of sections 1 & 2 of the AGAR.
Certificate of Exemption
This is for local councils completing Form 2, who have claimed exemption from the external audit. The certificate of exemption must be completed, which includes stating the gross income and gross expenditure. NOTE: if you are certifying the council as exempt, you do not need to send the completed Internal Audit Report, AGAR Section 1 and Section 2 to the external auditor - these just need to be approved and signed by the council.
This must be signed and dated by both the Clerk/RFO and Chairman, with the date and minute reference of approval stated.
Some key points when completing Form 2 & 3
- Ensure your prior year Line 7 (closing balances) matches your current year Line 1 (opening balances).
- Ensure the figures on the accounting statements balance
- Section 1: Annual Governance Statement must be completed on the same day, or before, Section 2: The Accounting Statements
- You will need to send a year end bank reconciliation and the commencement date for the exercise of public rights to the external auditor
- An explanation of significant variances must be provided in both words and numbers (e.g. Line 3 has increased by £5000 due to a grant received in the year of £4800 and a 5% increase in allotment fees resulting in an additional £200 in income).
Well done if you've read this far! We're not quite there yet, so go and grab that biscuit (I won't judge😉). Next up we'll be looking at the publication requirements for both exempt and non-exempt councils.
#4 Publication Requirements
Under the Accounts and Audit Regulations 2015 authorities must publish certain information on their website, and this differs dependent on whether or not the council is exempt from the external audit. There are deadlines for this so do make a note!
#5 Exercise of Public Rights
The exercise of public rights involves a 30 working-day period in which accounting records must be made available for inspection to any interested person, and the AGAR must be approved and published before this inspection period starts.
Within this period, electors can inspect and raise questions regarding the accounting records of the financial year in which the audit relates. They also have the right to request copies of accounting records during this period. *Documents containing information that is personal or protected by commercial confidentially cannot be inspected.
Setting the dates for the Exercise of Public Rights
As mentioned previously, the commencement date for the exercise of public rights must be provided to the external auditor. As the name suggests, you must also advise the public of the period of the exercise of public rights, and this includes advertisement through the council website.
The advertisement must include the following:
- the dates of the period for the exercise of public rights
- how you can communicate to the smaller authority that you wish to inspect the accounting records and related documents
- the name and address of the auditor
- the relevant legislation that governs the inspection of accounts and objections
It's important to note that the period of the exercise of public rights must include the first 10 working days of July. PKF Littlejohn have suggested the dates Monday 5th June – Friday 14th July 2023. However, the latest possible dates that comply with the statutory requirements are Monday 3rd July – Friday 11th August 2023.
#6 Looking Ahead to the New Financial Year
It's so easy to become bogged down in the current financial year, especially with Year End and deadlines looming. However, it's a really good idea to set aside some time to get the cashbook set up and ready to go for the new financial year.
Now is a good opportunity to objectively review your cashbook, consider the following:
- Fit for purpose - How secure is my accounting system? Is it just on the council laptop or computer? Is it accessible from other devices? How easy is it to share information with other members of the council?
- Training - Do you need training on it? Have you recently taken over and were handed a laptop with no handover or training? Is it easy to obtain the training or was the system set up as a stand alone?
- The needs of the council - Has it been updated and brought into line with your current functions? Was it great 5 years ago but actually the needs of the council have now changed and it needs to be reflected?
- Improvements - What are you finding difficult? Through the year end process and collation of the data, what elements are you finding difficult to do? Is it time consuming?
- Medium - Consider your accounting software. If you're using paper records, is it time to move onto a spreadsheet? If you're using spreadsheets, do you need to revisit it, or is time to move to software?
- Coding structure - When thinking about how to structure the cashbook, base it on the council's budget/precept breakdown, this will help when it comes to analysing actuals vs budgets. Consider adding more codes to help you analyse the data further. Or on the flip side, is it too detailed? Are there codes that are redundant or codes that could be merged together?
Hopefully this provides you with some food for thought, and best of luck with Year End - you've got this!
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🙋 Questions and Answers
Question: If I need to restate, how do I do this?
When you are submitting this years AGAR, you simply input the updated prior year AGAR figures in the left hand column and write "RESTATED" next to the updated figures. A separate document can be provided with the reasonings for restating so the auditors can understand the differences.
Question: We are a small parish council under the £200,000 threshold so work in Receipts & Payments. My auditor has recommended switching to Income & Expenditure as this is what she prefers, and my council want to follow what she is suggesting. Is it my choice as the Clerk/RFO which accounting approach we use?
There can be a conflict here, especially if someone on the council is financially minded and wants to see a more sophisticated approach. A conversation is definitely needed, but as you are under the £200,000 threshold it is not mandatory to work in I&E. If you do not have a great fluctuation on income and the things you spend on, there is not much benefit to moving over to I&E.
Question: We are almost at the £25,000 threshold for exemption from the External Audit - should we be looking at the gross income and gross expenditure, or net values?
When you're looking at this threshold and whether you exceed it, you will need to look at gross figures.
Question: How do you find out if your on Receipts & Payments or Income & Expenditure?
If you look at your prior year AGAR and Line 7 & 8 are the same then you are almost certainly working in Receipts & Payments. If these figures are different you will likely be working in Income & Expenditure as adjustments have been made.
Question: I was over £25k last year, but expect to be under this year - do I just do a Declaration of Exemption?
Yes, provided you are under the £25k gross income or gross expenditure, and meet the criteria for exemption, you can simply send the External Auditor your Declaration of Exemption. The additional criteria that needs to be met to certify as exempt can be found on the Certificate of Exemption.
Question: If a transaction has not come through on the statements by 31st March, should we not include it in this years accounts?
Answer: An unpresented item is different to creditors or debtors. For example, if you issued a cheque that the supplier has not yet cashed, it would be included in the current financial year and form part of the total of your Box 8. Click here for a full understanding of unpresented items vs Year End adjustments (I&E only).
Tip: Box 8 = bank statement figure as at 31st March +/- any unpresented items.
Question: Can you explain what an accrual is? I have to re-teach myself every year!
Answer: An accrual can sometimes be confused with a creditor. A creditor is someone that you owe money to and have received an invoice from, but this won’t be paid until the new financial year. An accrual is where you’ve been provided with some goods/services but have not received an invoice and do not know exactly how much you owe. The adjustment will be the amount you expect the invoice to be and this will be paid in the new financial year.
Question: Where do I get the AGAR forms from?
Answer: From the auditor i.e. PKF Littlejohn’s website. Auditor appointments by area for 22/23 - 26/27 can be viewed here.
Question: Tax is going digital, does this mean submitting your VAT Return online?
As of April 2022 all VAT registered councils are required to submit VAT Returns digitally through Making Tax Digital, regardless of whether they are above the threshold. This does not apply to non-VAT registered councils who claim back VAT using Form 126.
👀 Watch the 5 Part Series to Master Year-End
Join Hannah and Jo in this Year-End 5-part series, click below to watch!