Audit Committee – 27 September 2016
Chairman: Councillor Glover
Venue: Civic Centre, Scunthorpe, (Function Room 1)
Time: 10.00 am
1. Substitutions (if any).
2. Declarations of Disclosable Pecuniary Interests and Personal or Personal and Prejudicial Interests (if any).
3. To take the minutes of the meeting held on 28 June 2016 as a correct record and authorise the chairman to sign.
4. Internal Audit Progress Report.
5. External Audit Report.
6. Local Code of Corporate Governance.
7. Risk Management Progress Report.
8. Counter Fraud Progress Report.
9. Treasury Management and Investment Strategy – Mid Year Update 2016/17.
10. Annual Governance Statement 2015/16.
11. Audit of Accounts 2015/16 – Matters Arising from the Audit.
12. Any other items which the chairman decides are urgent by reasons of special circumstances which must be specified.
Note: Reports are by the Director of Policy and Resources unless otherwise stated
PRESENT: – Councillor Glover in the chair.
Councillors T Foster (vice-chairman), Clark, Gosling, Kirk, Perry, and K Vickers.
Also in attendance was a representative of KPMG (the council’s external auditors).
The committeemet at the Civic Centre, Scunthorpe.
444 DECLARATIONS OF DISCLOSABLE PECUNIARY, PERSONAL OR PERSONAL AND PREJUDICIAL INTERESTS – There were no declarations of interests made at the meeting.
445 MINUTES – Resolved – That the minutes of the proceedings of the meeting held on 28 June 2016, having been printed and circulated amongst the members be taken as read and correctly recorded and be signed by the chairman.
446 (9) INTERNAL AUDIT PROGRESS REPORT – Further to minute 430, the Director of Policy and Resources submitted a report updating the committee on key issues arising from work undertaken by Internal Audit in the 2016/17 audit plan year. Internal Audit delivered an annual programme of audit work designed to raise standards of governance, risk management and internal control across the council. This work culminated in the Internal Audit’s Annual Report that was used to inform the Annual Governance Statement. The Director in his report summarised key issues which included –
- Progress on delivering the 2016/17 Internal Audit Plan which was summarised in Appendix A;
- Significant Audit Findings – 2016/17 – there were no significant control weaknesses to bring to the committee’s attention. Appendix B to the report showed 2016/17 completed audits where an audit opinion on the control environment was provided. Two unplanned audits had highlighted control weaknesses in discrete areas and an audit opinion of no assurance in one and limited assurance in the other had been given. Action had been agreed with line-managers to improve controls. Income generating work and opportunities were also summarised, together with small scale consultancy work carried out;
- Advisory Support Work and Follow Up Work, and
- Shared Service Development – Progress
The Director in his report also referred to the current position regarding arrangements for the external audit appointment for the audit year beginning April 2018. He explained that the arrangements for the appointment of external auditors from April 2018 were laid down in the Local Audit and Accountability Act 2014 and the Local Audit (Appointing Person) Regulations 2015. The appointment from April 2018 must take place by 31 December 2017. The Act provided for two principal routes:
- The council leads the appointment process, either independently or in collaboration with other authorities. For this it needed to appoint an independent auditor panel to advise on the process. The final decision would be made by full Council; or
- Appointment via the approved sector-led body acting as “appointing person”. Public Sector Audit Appointments Ltd (PSAA) had been appointed to this role, was owned by the Local Government Association, and was the company managing the current external audit contracts since the Audit Commission closed.
The Director stated that in July, PSAA announced its timetable for those authorities which wished it to act as its “appointing person”. This was broadly summarised as follows:
- establish an overall strategy for procurement – by 31 October 2016;
- achieve ‘sign-up’ of scheme members – by early January 2017;
- invite tenders from audit firms – by 31 March 2017;
- award contracts – by 30 June 2017;
- consult on and make final auditor appointments – by 31 December 2017; and
- consult on, propose audit fees and publish fees – by 31 March 2018.
The council had not yet determined whether it would “sign up” as a scheme member but should this be the preferred option then approval would need to be obtained from full Council by 31 December 2016. However, his view was that the PSAA option was likely to be the best for the council, based on the effectiveness of current arrangements, savings made to date and likely further savings from procurement ‘at scale’. Although a joint procurement with North East Lincolnshire Council could lead to savings due to the shared services arrangements, it was considered unlikely that they would exceed those available via the PSAA route. The committee was therefore asked to consider supporting the use of the PSAA route, subject to a further report to Council in December 2016.
The Director responded to members’ questions on aspects of his report.
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the progress report contributes to a sufficient level of assurance on the adequacy of internal control arrangements, and (b) that, subject to a more detailed report to be produced for the council meeting on 15 December 2016, the committee supports the appointment of external audit via the Public Sector Audit Appointments Limited (PSAA).
447 (10) EXTERNAL AUDIT REPORT – The Director of Policy and Resources submitted a report on the external audit report, ‘Progress Report and Technical Update’. The Progress Report and Technical Update attached as an appendix to the report provided the Audit Committee with a summary on progress in delivering external audit’s statutory responsibilities. It also highlighted key emerging national issues and developments which may be of interest to members.
A representative of KPMG, the council’s external auditors who attended the meeting presented the above external audit report and responded to members questions.
Resolved – That following consideration of the above report and discussion of its content, the Progress Report and Technical Update be noted.
448 (11) LOCAL CODE OF CORPORATE GOVERNANCE – The Director of Policy and Resources submitted a report seeking approval of the ‘Code of Corporate Governance’. The code had been compiled in accordance with guidance provided by the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Society of Local Government Chief Executives (SOLACE) in their document “Delivering Good Governance in Local Governance Framework” (2016).This document superseded the one produced in 2007 and councils had been strongly encouraged to include its principles in their own code of governance.
The Director explained thatthe Framework defined the principles that should underpin the governance of each local government organisation. It provided a structure to help individual authorities with their approach to governance. How each organisation designed its code was for it to decide, although it should be able to demonstrate that its governance structures complied with the core and sub-principles contained in the Framework. It should therefore develop and maintain a local code of governance/governance arrangements reflecting seven principles set out in the report. The updated Code, using the seven principles contained in the framework, was attached as an appendix to the report.
The Director stated that the Code showed that overall, the council complied with the principles outlined in the CIPFA/SOLACE framework.
The Code would be a living document and therefore, would be updated as and when required, and compliance against the Code and future changes would be reported in the Annual Governance Statement (AGS). As part of the production of the Code areas of good practice shown in the CIPFA/SOLACE framework had been identified and where appropriate, would be considered for inclusion in the AGS.
Resolved – (a) That following consideration and discussion of the above report, the updated Code of Corporate Governance at appendix 1 to the report be approved, and (b) that the Director of Policy and Resources be authorised to update the Code as necessary, with changes being reported to the Committee alongside the Annual Governance Report (AGS).
449 (12) RISK MANAGEMENT PROGRESS REPORT – Further to minute 421, the Director of Policy and Resources submitted a report updating the committee of key issues arising from Risk Management work. Regular reporting on risk management issues was an important source of assurance for the committee to fulfil its role, and provided supporting evidence for the annual approval of the council’s Governance Statement.
The Director in his report addressed and commented upon progress made including –
- Work and initiatives carried out to develop risk management across the Audit and Assurance shared service with North East Lincolnshire Council;
- An important aspect of the risk management action plan was to continue raising awareness across the council. This was achieved through training programmes and communication networks. In addition to information available on the council’s relevant web page, edition 25 of the Risk Roundup newsletter had been published, and was attached as appendix A of the report;
- A presentation on the council’s Highways Inspection Regime was delivered to the Risk Management Group which included the council’s associated statutory duties. Assurance was provided that there were adequate procedures in place to mitigate risks in this area.
Resolved – That following consideration of the above report and discussion of its content, the committee agrees that the Risk Management Progress Report contributes to assurance on the adequacy of risk management arrangements.
450 (13) COUNTER FRAUD PROGRESS REPORT – The Director of Policy and Resources submitted a report informing the committee of key issues arising from counter fraud work. Regular reporting on counter fraud issues was an important source of assurance for the committee to fulfil its role and provided supporting evidence for the annual approval of the Governance Statement.
The Director in his report addressed and commented upon counter fraud work which was summarised under the following headings –
- Acknowledging and understanding fraud risks – including work on schools admissions and a summary of other proposed work for 2016/17;
- Preventing and Detecting Fraud – including a summary of investigative work, participation in the National Fraud Initiative, work with the unitary data hub, Department for Work and Pensions and the Multi Agency Child Exploitation (MACE) initiative, and highlighting other work for 2016/17, and
- Pursue – Being Stronger in Punishing Fraud and Recovering Losses – including an update on a potential prosecution case and referrals for potential fraud and misuse of financial support.
The Director of Policy and Resources responded to questions asked by members.
Resolved – (a) That following consideration of the above report and discussion of its content the committee agrees that the progress report contributes to assurance on the adequacy of counter fraud arrangements, and (b) that the counter fraud work programme delivers a sufficient level of assurance on the adequacy of counter fraud arrangements.
451 (14) TREASURY MANAGEMENT AND INVESTMENT STRATEGY MID YEAR UPDATE –The Director of Policy and Resources submitted areport on treasury performance to date in the 2016/17 financial year. The benchmark for measuring performance was the treasury strategy which the council set at its meeting on 23 February 2016.
The report outlined the legal and regulatory framework for treasury management performance, the council’s 2016/17 Investment and Borrowing Strategy, and the mid-year review – treasury monitoring reporting 2016/17. In particular the key points on the mid-year update were that the council
- would receive less interest from its investments as following the ‘EU Membership Referendum’ vote the base rate was cut to 0.25%.
- had an on-going need to borrow to finance its capital programme. The council would undertake long term borrowing at the most appropriate point in the year and would manage any cash flow requirements with short term borrowing in the interim.
- The council had accessed the intra-local authority lending market as a means of funding its short-term borrowing requirement at well below PWLB rates.
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the update report provides sufficient assurance on the effectiveness of arrangements for treasury management, and (b) that the mid-year treasury management performance for the 2016/17 financial year be noted.
452 (15) ANNUAL GOVERNANCE STATEMENT 2015/16 – Further to minute 443, the Director of Policy and Resources submitted a report attaching the updated Annual Governance Statement (AGS) 2015/16 following the audit of the council’s accounts for the committee’s consideration and approval. The report explained that under the changes to the Accounts and Audit (England) Regulations 2015 the AGS must accompany the final accounts and be considered in its own right. This could take place in September, however the Audit Committee had decided it should be considered in June as well as in September to allow early action to be taken on any issues identified by the AGS. The Statement had now been updated to reflect the outcome of external audit’s final accounts work and future government funding considerations. The updated AGS was attached as appendix A to the report.
The Director stated that the AGS was generally positive and showed that the council’s governance arrangements continued to be good and met best practice in most areas. Although the AGS had been updated, there were no further development issues identified through the accounts audit process, but one development issue had been added regarding proposals for a new senior management structure agreed by council at its meeting on 29 September 2016. The AGS set out the council’s governance framework and the results of the annual review of effectiveness of the council’s arrangements. It also showed that the council had well established governance arrangements that were monitored and reviewed on a regular basis. Changes and enhancements described in the AGS demonstrated the council’s commitment to continual improvement. Governance issues requiring further development identified in the AGS had been approved at the June meeting of the committee.
Members asked questions on the content of the AGS, which the Director of Policy and Resources responded to.
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the Annual Governance Statement for 2015/16 provides a sufficient level of assurance on the adequacy of governance arrangements throughout the council to allow the committee to fulfil its role, and (b) that the Annual Governance Statement for 2015/2016 be approved.
453 (16) AUDIT OF ACCOUNTS 2015/2016 – MATTERS ARISING FROM THE AUDIT – The Director of Policy and Resources submitted a report informing the committee that the Accounts and Audit Regulations required the council to publish a statement of accounts each financial year. These accounts were the formal statement of the council’s financial performance for the year and its financial position at the end of that period. A financial year ran from April to March.
The accounts had been considered and approved by the council’s Chief Financial Officer (Director of Policy and Resources) on 27 June 2016, which met the statutory requirement that they be approved by 30 June 2016. Subsequently, they must then be audited and published within six months of the financial year-end or 30 September.
The report explained that the International Standard on Auditing 260 – ‘The Auditor’s Communication with those Charged with Governance’ (‘ISA 260’) required auditors to report certain matters arising from the audit of the council’s final statements before giving an opinion on them. Consequently, a report from the council’s external auditors KPMG was attached as an appendix setting out matters arising from the audit of the council’s 2015/16 accounts.
The Director’s report summarised the main findings of the external auditor’s report and the main issues resulting from the audit, and confirmed that he was in agreement with its findings. A representative of KPMG in attendance at the meeting presented their report and thanked the Director and his team for their cooperation during the audit.
The Director in his report explained that the International Standard on Auditing 580 ‘Management Representations’ required auditors to obtain written confirmations of appropriate representations from management before the audit report was issued. Additionally IAS 570 required a specific statement on the applicability of the ‘Going Concern’ concept to the council. The council’s accounts had been prepared on a going concern basis, and the committee was asked to confirm its agreement with this view. Also a proposed letter of representation was attached, which the committee was requested to approve and authorise its Chairman and Director of Policy and Resources to sign.
The Statement of Accounts 2015/16 was also attached as an appendix to the report. The Director referred to one minor amendment to the accounts, which required approval, but this did not change the final position of the accounts previously reported to cabinet in June 2016.The council’s external auditors were expected to issue an unqualified opinion on the accounts shortly.
Members commented on particular aspects of the council’s Statement of Accounts 2015/2016 and ISA 260 Report to which the Director of Policy and Resources and representatives of KPMG responded to.
Resolved – (a) That following consideration of the above report and discussion of its content the Statement of Accounts for 2015/16 prepared on a going-concern basis and as amended in line with the auditors’ findings, be received and approved; (b) that the content of the ISA 260 Report be noted, and (c) that the signing of the Letter of Representation by the Chairman and Director of Policy and Resources be endorsed, and (d) that the Director of Policy and Resources and his staff be thanked for their hard work in preparing and delivering the audited Statement of Accounts 2015/16, and the council’s external auditors also be thanked for their professional support.
454 LINDA WILD, KPMG – The Director of Policy and Resources reported orally that Linda Wild, Senior Manager, KPMG (the council’s external auditors) would be leaving her position with KPMG shortly, so she was attending her last meeting.
Resolved – That all members of the committee and the Director of Policy and Resources and his staff formally record their thanks for Linda’s hard work and good professional relationship over the years.