Part of the External Audit for Local Councils involves completing an Annual Governance and Accountability Return (AGAR) and this is a legal requirement under the Local Audit and Accountability Act 2014.
There are 3 separate AGAR Forms so it's important to understand which one you need to complete.
This will depend on your financial activity for the year:
- 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.
- 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 the Sections to complete for Form 2 & 3. First up is 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.
Section 2 must be signed and dated by the Clerk/RFO, signed by the Chairman, and the date and minute reference of approval stated.
Section 3: External Auditor's Report and Certificate (Form 3 only)
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 (Form 2 only)
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. It's important to note that councils claiming exemption 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.
This must be signed and dated by both the Clerk/RFO and Chairman, with the date and minute reference of approval stated.
Top tip: 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.
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).