© 2014 Grant Thornton UK LLP | Annual Audit Letter | October 2014 DRAFT This version of the report is a draft. Its contents and subject matter remain under review and its contents may change and be expanded as part of the finalisation of the report. The Annual Audit Letter for Luton Borough Council Year ended 31 March 2014 Paul Dossett Engagement Lead T E October 2014 Cover page Nick Taylor Manager T E

© 2014 Grant Thornton UK LLP | Annual Audit Letter | October 2014 DRAFT 2 Contents SectionPage 1.Key messages3 Appendices A Key issues and recommendations B Summary of reports and audit fees Contents

© 2014 Grant Thornton UK LLP | Annual Audit Letter | October 2014 DRAFT 3 Key messages Overall review of financial statements Our Annual Audit Letter summarises the key findings arising from the work that we have carried out at Luton Borough Council ('the Council') for the year ended 31 March The Letter is intended to communicate key messages to the Council and external stakeholders, including members of the public. Our annual work programme, which includes nationally prescribed and locally determined work, has been undertaken in accordance with the Audit Plan that we issued on 12 March 2014 and was conducted in accordance with the Audit Commission's Code of Audit Practice, International Standards on Auditing (UK and Ireland) and other guidance issued by the Audit Commission. Financial statements audit (including audit opinion) We reported our findings arising from the audit of the financial statements in our Audit Findings Report on 17 September 2014 to the Audit Committee. The key messages reported were: The financial statements were adjusted to reflect that the old site for their PFI school has now been disposed of, leading to a book loss on disposal within the financial statements. Audit work identified a small number of grants where it was not possible to identify attached conditions requiring the income to be deferred. As such, the Council amended the financial statements to recognise the income in full. The Council had not completed all asset valuations in line with its policy. The policy requires whole classes of assets to be revalued within a single year, yet audit work identified that some assets had been missed. The Council performed an assessment supporting the fact that any difference in valuation as a result of this is unlikely to be material. Whilst we received draft financial statements in line with the national deadline of 30 June 2014, some of the accompanying working papers were not made available at the agreed start of the audit on 2 July 2014, in part due to some communication issues, and had not been collated into a central file. This led to some delays in the audit process and is reflected in the additional time that the audit team had to spend on site at the Council. The Finance Team worked hard to respond to audit requests, but the lack of some detailed working papers was an issue through the audit. In our view there needs to be a cultural change in the way in which the wider Council supports the work of the central finance team who have responsibility for closing the accounts and responding to the audit. Unless this happens the Council will not be able to deliver the audit of the accounts to the tighter deadline of July 31st which is proposed by Government. We issued an unqualified opinion on the Council's 2013/14 financial statements on 26 September 2014, meeting the deadline set by the Department for Communities and Local Government. Our opinion confirms that the financial statements give a true and fair view of the Council's financial position and of the income and expenditure recorded by the Council.

© 2014 Grant Thornton UK LLP | Annual Audit Letter | October 2014 DRAFT 4 Key messages Overall review of financial statements Value for Money (VfM) conclusionWe issued an unqualified VfM conclusion for 2013/14 on 26 September On the basis of our work, and having regard to the guidance on the specified criteria published by the Audit Commission, we are satisfied that in all significant respects the Council put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ending 31 March In common with local authorities nationally, the financial challenges facing the Council are significant. The Council is, however, meeting these challenges well and has good arrangements in place to ensure it remains resilient to deal with the new financial risks as they emerge. Our review of the Council's arrangements against the expected characteristics of proper arrangements as defined by the Audit Commission led us to assess the Council as 'green' in a red/amber/green rating matrix for all four characteristics, which are: key indicators of financial performance; financial planning; financial governance; and financial control. Whole of Government AccountsWe reviewed the consolidation pack which the Council prepared to support the production of Whole of Government Accounts. We reported that the Council's pack was consistent with the audited financial statements. Certification of grant claims and returnsWe are currently in the process of certifying the 2013/14 grant claims and returns. Details have been provided below of the claims that have been certified: Pooling of Housing Capital Receipts (CFB06) – no amendment / no qualification The following claims are yet to be certified: Housing Benefits Subsidy claim (BEN01) Local Transport Plan (TRA11) Once all certification work is complete we will report in full on the findings of our work to the Audit Committee. Audit feeOur planned fee for 2013/14 was set out in the Audit Plan as £162,000, excluding VAT, which was in line with our fee in the previous year. The final fee may be in excess of this level due to the additional work required to complete the audit. Further detail (including the certification fee) is included within appendix B.

© 2014 Grant Thornton UK LLP | Annual Audit Letter | October 2014 DRAFT 5 Appendix A: Key issues and recommendations This appendix summarised the significant recommendations identified during the 2013/14 audit. No.Issue and recommendationPriorityManagement response/ responsible office/ due date 1.Audit recommendation: The Council should review its process for accounting for disposals through the fixed asset register to ensure that they are appropriately recorded on the general ledger. HighAgreed. This is currently being reviewed. Responsible officer: Tracy Stone, Chief Accountant. Due date: 31 March Audit recommendation: The Council should reconcile the fixed asset register with the fixed asset department records to ensure that all assets within a class are identified for valuation by the valuations team. HighAgreed. All of the assets will be reconciled with fixed assets prior to the valuation process commencing, Responsible officer: Tracy Stone, Chief Accountant. Due date: 31 March Audit recommendation: The Council should put in place suitable arrangements for the preparation of detailed audit working papers in line with the agreed audit deliverables listing. These working papers should be collated centrally and made available at the outset of the audit process. HighAgreed. A revised audit working paper checklist is being compiled and a report is being created to show a full breakdown of transactions that will tie back to the trial balance and CIES Responsible officer: Tracy Stone, Chief Accountant. Due date: 31 March Audit recommendation: The Council should review its arrangements for assessing grants received to provide for clear consideration of the existence of conditions. This will help to ensure that grants are correctly accounted for going forward. MediumAgreed. All grants are to be individually reviewed and a checklist is to be issued to finance teams to check existence of conditions. Responsible officer: Tracy Stone, Chief Accountant. Due date: 31 March Audit recommendation: The Council should review its treatment of credit notes and expenditure discounts to ensure that these are correctly accounted for going forward. MediumAgreed. The finance teams have been updated. Responsible officer: Tracy Stone, Chief Accountant. Due date: 31 March 2015

© 2014 Grant Thornton UK LLP | Annual Audit Letter | October 2014 DRAFT 6 Fees Per Audit plan £ Actual fees £ Audit Fee (i)162,000TBC Grant certification fee (ii)26,500TBC Total fees188,500TBC Appendix B: Reports issued and fees We confirm below the fee charged for the audit and confirm there were no fees for the provision of non audit services. Fees for other services ServiceFees £ NoneNil i.The actual audit fee may be in excess of budget due to the cost of additional time required by the audit team to complete the audit given the delays in availability of information. This will be discussed in detail with the Council before submission to the Audit Commission in order for them to determine the additional fee payable by the Council. In addition, the Audit Commission has approved, in principle, a fee variation of £1,070 at unitary authorities for the additional work required on business rates following the removal of the requirement to certify the NNDR claim form. ii.Certification of grant claims and returns is on-going, so this remains a work in progress at the date of this letter. Based on the work completed to date, we expect our fees to be in line with the revised scale fee of £22,424. Confirmation of the final fee will be included within the separate Certification Report later in the year. Reports issued ReportDate issued Audit Plan March 2014 Audit Findings Report September 2014 VfM – Financial Resilience Report (included within the Audit Findings Report) September 2014 Certification report (on completion of certification work) December 2014 Annual Audit Letter October 2014

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