Final

Protected
Internal Audit
Report
VAT
Document Details:
Reference:
Senior Manager, Internal Audit & Assurance:

1.9/2014.15
Dave Jenkins ext. 6567

Date: 2 December 2014

This report is not for reproduction publication or disclosure by any means to unauthorised persons.
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Internal Audit Report VAT

1. EXECUTIVE SUMMARY
1.1

INTRODUCTION
As part of the 2014/15 Internal Audit Plan an audit of VAT was carried out, with the
focus being an overview of management responsibilities with regard to VAT and the
associated control environment.
VAT is a tax on transactions affecting most entries in the Council's accounting system.
It is the Council's responsibility to make correct VAT returns to HMRC detailing input
and output tax. The HMRC's statutory powers mean that the Council is always
exposed to the risk of a detailed investigation going back a number of years. This may
result in a significant liability and therefore it is essential that there are appropriate
controls over the compilation of the return.
The following control objectives were used for the internal audit:
Adequate guidelines are available for officers processing VAT transactions;
There are appropriate controls in place to ensure that the information on the
financial accounting system is accurate with regard to VAT;
There are adequate procedures in place to ensure that VAT returns are calculated
and submitted in a timely manner;
There are appropriate procedures in place to ensure VAT returns are accurate;
There are adequate controls in place to ensure VAT exempt income is correctly
accounted for;
There are appropriate procedures in place for the storage of all VAT returns and
appropriate documentation.

1.2

OVERALL OPINION
Following completion of the review by Internal Audit the work on VAT has been given
an overall opinion of Significant Assurance.
Following the previous audit, it is pleasing that there is now a second person with
password access in case the VAT officer is absent long term and the signatories list
was updated in June 2014.
We have specifically identified a number of areas good of practice with processes and
procedures operating effectively.
The VAT officer has shown commitment to ensuring that controls are both robust and
effective. Exception reports are run regularly to support the accuracy of VAT claims
which are submitted promptly.
The audit opinion is based on work carried out on the May 2014 VAT claim along with
a sample of 2 invoices relating to overseas transactions.
It was also appreciated that the VAT Officer completed Internal Audit's Management
Control Questionnaire for VAT which informed on the control environment for the
current audit work.

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Internal Audit Report VAT

Overall Audit Opinion
Full assurance
Full assurance that the system of internal control meets
the organisations objectives and controls are
consistently applied.

Significant
assurance

Significant assurance that there is a generally

sound system of control designed to meet the
organisations objectives. However, some
weaknesses in the design or inconsistent
application of controls put the achievement of some
objectives at some risk.

Limited
assurance

Limited assurance as weaknesses in the design or

inconsistent application of controls put the achievement
of the organisations objectives at risk in some of the
areas reviewed.

No assurance

No assurance can be given on the system of internal

control as weaknesses in the design and/or operation of
key control could result or have resulted in failure(s) to
achieve the organisations objectives in the area(s)
reviewed.

2. SUMMARY OF CONCLUSIONS
2.1

The conclusion for each control objective evaluated as part of this audit was as follows:

Control Objective
Full

CO1: Adequate guidelines are available for officers

processing VAT transactions.
CO2: There are appropriate controls in place to
ensure that the information on the financial
accounting system is accurate.

Assurance
Significant Limited

None

CO3: There is adequate procedure in place to

ensure that VAT returns are calculated and sent off
in a timely manner.

CO4: There are appropriate procedures in place to

ensure VAT returns are accurate.

CO5: There are adequate controls in place to

ensure VAT exempt income is correctly managed.

CO6: There are adequate procedures in place for

the storage of all VAT returns and appropriate
documentation

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Internal Audit Report VAT

2.2

The recommendations arising from the review are ranked according to their level of
priority as detailed at the end of the report within the detailed audit findings.
Recommendations are also colour coded according to their level of priority with the
highest priorities highlighted in red, medium priorities in amber and lower priorities in
green. In addition, the detailed audit findings include columns for the management
response, the responsible officer and the time scale for implementation of all agreed
recommendations.

2.3

Where high recommendations are made within this report it would be expected that
they should be implemented within three months from the date of the report to ensure
that the major areas of risk have either been resolved or that mitigating controls have
been put in place and that medium and low recommendations will be implemented
within six and nine months respectively.

3. LIMITATIONS REGARDING THE SCOPE OF THE AUDIT

The audit work involved the updating of a management questionnaire. There was a
review of a claim for a selected month. Testing was limited to an overseas transaction.

4. ACKNOWLEDGEMENTS
Audit would like to thank all involved for their assistance during this review.

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5. DETAILED AUDIT FINDINGS

Ref.

Priority

Findings

Risk Arising/
Consequence

Recommendation

Management Response

CO2: There are appropriate controls in place to ensure that the information on the financial accounting system is accurate
1
Medium Two overseas invoices were
Best value may not be The VAT manual should
Low priority as volume of
examined where VAT could not obtained.
make reference to VAT
VAT is small. Continue to
be claimed back because
requirements when dealing
monitor (via VF indicator,
correct procedures were not
By not using the
with overseas transactions.
overseas payments and Vat
followed:
proper process WCC
queries from officers). Also
may not be
considered when reviewing
Invoice for 264.18
maximising income
Consideration should be
new procedures for
including VAT of 42.18.
from claiming back
given to determine whether
payments.
SAP document number
VAT where
there should be a value at
4600052735 Invoice for
appropriate.
which VAT on overseas
Vat guidance will need to be
134.73, 117.16 and
transactions should be
reviewed in line with
17.57 (15% VAT) SAP
Lack of appropriate
claimed.
commissioning contract and
document number
written procedures
this will include updates on
4600046137
with regard to
Consideration should be
Foreign transactions.
overseas
given to close monitoring of
Although the amount of VAT is
transactions.
overseas transactions to
quite low in the above
see to what extent VAT is
examples, consideration
reclaimed or the correct
should be given to foreign
procedure is being applied.
transactions and increasing
The coding of foreign
use of the internet. The VAT
transactions and
officer is in the process of
procedures around the
adding VF to the VAT system
implementation should be
so the foreign transactions can
rolled out to everyone.
be better monitored. This has
not yet been circulated to all
the appropriate staff.
The VAT manual does not

www.worcestershire.gov.uk

Responsibility Recommendation
and Timescale
Implemented
(Officer & Date)
Principal
Accountant
VAT Officer
September
2015

Internal Audit Report VAT

Ref.

Priority

Findings

Risk Arising/
Consequence

Recommendation

Management Response

Responsibility Recommendation
and Timescale
Implemented
(Officer & Date)

make reference to such

transactions.
Furthermore, it would appear
from discussions with the VAT
Officer that the cost of tracing
and reclaiming VAT in this
situation can be a factor in
determining whether VAT is
reclaimed or not.
Key to Priorities:
High
Medium
Low

This is essential to provide satisfactory control of serious risk(s)

This is important to provide satisfactory control of risk
This will improve internal control

Limitations relating to the Internal Auditor's work

The matters raised in this report are limited to those that came to our attention, from the relevant sample selected, during the course of our audit and to the
extent that every system is subject to inherent weaknesses such as human error or the deliberate circumvention of controls. Our assessment of the controls
which are developed and maintained by management is also limited to the time of the audit work and cannot take account of future changes in the control
environment.

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Internal Audit Report VAT

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