Audit Committee 28 June 2016
Chairman: Councillor Glover
Venue: Civic Centre, Scunthorpe (Function Room 1)
Time: 10 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 12 April 2016 as a correct record and authorise the chairman to sign.
4. To note the date and time of future scheduled meetings of the committee.
- Tuesday 27 September, 2016 at 10.00 am
- Tuesday 17 January, 2017 at 10.00 am
- Tuesday 11 April, 2017 at 10.00 am
5. Sickness Absence.
6. Data Quality – Update
7. External Audit Reports.
8. Internal Audit – Annual Report 2015/2016.
9. Risk Management Progress Report.
10. Counter Fraud Progress Report.
11. Treasury Management and Investment Strategy – Annual Report 2015/2016.
12. Annual Governance Statement – 2015/2016.
13. 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, O’Sullivan, Perry, and K Vickers.
Also in attendance was a representative of KPMG (the council’s external auditors).
The committeemet at the Civic Centre, Scunthorpe.
433 DECLARATIONS OF DISCLOSABLE PECUNIARY, PERSONAL OR PERSONAL AND PREJUDICIAL INTERESTS – There were no declarations of interests made at the meeting.
434 MINUTES – Resolved – That the minutes of the proceedings of the meeting held on 12 April 2016, having been printed and circulated amongst the members be taken as read and correctly recorded and be signed by the chairman.
435 DATES AND TIMES OF MEETINGS – Resolved – That the dates and times of future meetings of the committee be held at 10:00 am on –
Tuesday 27 September, 2016
Tuesday 17 January, 2017 and
Tuesday 11 April, 2017
436 (1) SICKNESS ABSENCE – Further to minute 396, the Assistant Director: Human Resources submitted a progress report informing the committee of sickness absence levels of employees of North Lincolnshire Council and the 2015/16 year-end position.
The Assistant Director explained that the average number of working days lost due to sickness absence in 2015/16 year end was 8.56 days against a target of 8.25 days. This indicated an eight per cent reduction in sickness absence levels compared to 2014/15 and was the lowest record in the previous nine years. Statistical data for previous annual average number of days lost (full time equivalent per employee), full time equivalent short term and long term absences, periods of sickness absence, reasons for sickness absence, and continuing action being taken to support attendance and address sickness absence, was also set out in the report.
The Assistant Director Human Resources responded to questions asked by members.
Resolved – That following consideration of the above report and discussion of its content, the committee agrees that there is continuing assurance that the risk to capacity due to sickness absence is being managed through adequate controls.
437 (2) DATA QUALITY UPDATE – Further to minute 397, the Director of Policy and Resources submitted a report providing the committee with a position statement on the current status of Data Quality Audits of the council’s priority Performance Indicators (PI’s). The report also provided members with an overview of wider developments planned to improve data quality across the council and confirmed that –
- The target of auditing 100% of the current priority performance indicators had been achieved;
- Findings from the audits indicated that overall data quality and review of audits was robust, and
- A plan was currently being developed to measure and improve the council’s data quality across key systems, processes and functions.The Director of Policy and Resources responded to questions asked by members.
Resolved – That following consideration of the above report and discussion of its content, the committee agrees that the report provides sufficient assurance on the adequacy of the council’s data quality arrangements.
438 (3) EXTERNAL AUDIT REPORTS – The Director of Policy and Resources submitted a report on two external audit reports ‘Annual Audit Fee Letter’ and ‘Local Authority Risk Register Analysis’.
The Director in his report explained that the Annual Audit Fee Letter, attached as appendix A, issued on 1 April 2016 set out the indicative fees for the annual audit of the accounts and certification of the Housing Benefit Subsidy Claim in 2016/17; these were £104,138 and £15,615 respectively. The fees were based on the Public Sector Audit Appointments Limited’s fee scales, and there was no change in the fee for the annual audit of the accounts and a 16.4% increase in the grant claim fee.
The Director also explained that the Local Authority Risk Register Analysis document attached as Appendix B to the report, summarised benchmarking of strategic risks between North Lincolnshire Council and a range of local authorities.
A representative of KPMG, the council’s external auditor who was present at the meeting commented upon the reports and responded to members’ questions.
Resolved – That following consideration of the above reports and discussion of their content, the committee notes the Annual Audit Fee Letter and Local Authority Risk Register Analysis.
439 (4) INTERNAL AUDIT – ANNUAL REPORT 2015/2016 – The Director of Policy and Resources submitted a report which provided an audit opinion on the adequacy and effectiveness of the council’s control environment based upon work carried out by Internal Audit in accordance with the approved 2015/16 audit plan. It also considered the effectiveness of the audit service. This provided the committee with an important source of assurance when considering the Annual Governance Statement, and complied with the Public Sector Internal Audit Standards (PSIAS) and The Accounts and Audit Regulations 2015.
The report explained that the requirement for internal audit was supported by statute in the Accounts and Audit Regulations 2015 and the Local Government Act 1972. The Accounts and Audit Regulations stated that a “relevant body must undertake and effective internal audit to evaluate the effectiveness of its risk management, control and governance processes taking into account public sector internal auditing standards of guidance”. Each year internal audit provided an independent appraisal of internal control as a contribution to the proper economic, efficient and effective use of resources.
In his report, the Director explained that the level of audit coverage during the year was considered sufficient to be able to offer an opinion on the overall adequacy and effectiveness of the organisation’s control environment. Notwithstanding that, some of the planned audits for the year had yet to be finalised, the fieldwork for these audits had not raised any findings that would cause the overall opinion to change. The Audit Plan 2015/16 was flexible to respond to changing circumstances and emerging risks and work was prioritised accordingly. It contained 105 planned assignments and 41 unplanned assignments, which were listed in appendix A.
An opinion on the level of adequacy of internal control was given on each audit and the level and explanation of opinions and associated performance was highlighted in the report. Based on knowledge of the council’s systems and procedures, the extent of work undertaken by Internal Audit, and as a result of the responses to audit recommendations, the overall assessment was that Internal Audit could provide assurance that systems were adequate and internal control generally effective during 2015/16. It must be acknowledged that internal control systems were designed to manage rather than eliminate the risk of failure, therefore this statement could only provide reasonable and not absolute assurance of the effectiveness of the system of control.
In reaching this opinion the report identified factors that were taken into particular consideration and summarised under the following headings:-
- Risk Management;
- Corporate Governance;
- Fundamental Systems;
- School Audits;
- Counter Fraud Work;
- Performance, and
- Shared Service Development
The Director suggested that the committee should consider whether Internal Audit’s Annual Report provided sufficient assurance on the adequacy of the council’s internal control environment in 2015/16.
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the Internal Audit Annual Report 2015/16 provides sufficient assurance on the adequacy and effectiveness of the council’s internal control environment, and (b) that the Internal Audit Annual report for 2015/16 be approved and adopted.
440 (5) 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 –
- Edition 23 and 24 of the Risk Roundup newsletter issued in March and June 2016 were attached as appendix A of the report;
- A summary of the findings of an internal audit review of risk management arrangements. Audit work undertaken provided evidence of satisfactory assurance on the adequacy of internal control arrangements, and
- Updating the council’s Code of Corporate Governance in accordance with the 2016 CIPFA/SOLACE publication ‘Delivering Good Governance in Local Government: Framework’. The Code would be presented to the Audit Committee in September 2016.
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.
441 (6) 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 –
- Counter Fraud Plan Progress – a summary of the work was provided in appendix A;
- Proactive Work – including the Audit Commission’s National Fraud Initiative annual exercise and significant associated savings;
- Reactive Work;
- Work of the Benefit Fraud Investigation Team – including successful prosecutions, sanctions of several fraud cases, and joint investigation work with the Department for Work and Pensions (DWP);
- Single Fraud Investigation Service (SFIS) – The successful transfer of council investigation staff to the Department for Work and Pensions on 1 November 2015, and the outcome of 111 successful investigations, and
- Further work carried out in accordance with the council’s Counter Fraud Strategy and CIPFA Code of Practice Managing the Risk of Fraud and Corruption.
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.
442 (7) TREASURY MANAGEMENT AND INVESTMENT STRATEGY ANNUAL REPORT 2015/16 – The Director of Policy and Resources submitted a report on the council’s treasury performance in 2015/16. The benchmark for measuring performance was measured against the Treasury Strategy set by the council at its meeting on 24 February 2015.
The report explained that each year the council approved a treasury management and investment strategy which was prepared in line with –
- The CIPFA (Chartered Institute of Public Finance and Accountancy) Code of Practice in the Public Service Fully Revised 2011;
- The Prudential Code Fully Revised Second Edition 2011;
- The Local Government Finance Act 2003, and
- Department for Communities and Local Government (DCLG) Guidance
The code of practice required that full Council received a report on treasury management strategy at the start of the financial year, at mid-year and at year end. The Audit Committee received progress reports at each meeting and an annual report on the outturn position.
The Code also required the Council to maintain suitable Treasury Management Practices (TMPs), setting out the manner in which the organisation would seek to achieve its Treasury Management policies and objectives, and prescribing how it would manage and control those activities. As part of this ongoing process the Treasury Management Practices adopted by the council were reviewed on a regular basis.
The Director in his report outlined the annual strategy under headings which covered – the Strategy for 2015/16, the Investment Strategy; the Borrowing Strategy, and How the Council Performed, including key investment and borrowing statistics.
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the Treasury Management and Investment Strategy Annual Report 2015/16 provides sufficient assurance on the effectiveness of arrangements for treasury management, and (b) that Treasury Management’s performance for the 2015/16 financial year be noted.
443 (8) ANNUAL GOVERNANCE STATEMENT 2015/16 – The Director of Policy and Resources submitted a report presenting the council’s draft Annual Governance Statement (AGS) 2015/2016 for the committee’s comments and approval. The report explained that the Accounts and Audit Regulations 2015 required the council to publish with its accounts an AGS. The AGS must accompany the final accounts and be considered in its own right, as had been the case at this meeting. This was due in September, however the Audit Committee had decided to consider the AGS in June as well as in September to allow early action to be taken on any issues identified by the AGS. The Statement would be updated to reflect assurance provided through the outcome of external audit’s final accounts work and presented again in September for approval.
The Director in his report also stated that CIPFA guidance to support councils to produce the AGS had been used. The document provided an example of an AGS and sources of assurance and evidence to compile the statement. The report explained that the Annual Governance Statement set out the council’s governance framework and the results of the annual review of the effectiveness of the council’s arrangements. Sources of assurance to support the statement were gathered throughout the council in the form of annual assurance statements prepared by Directors. These statements provided an evaluation of the adequacy of internal control within their service area and were evidenced by sources of assurance and managerial processes. Assurance was also provided from regular reports on various issues to the Audit Committee. Independent reviews carried out by internal audit in key areas such as risk management, corporate governance and fundamental financial system work were also important sources of assurance. External audit reviews and inspections also contributed as sources of assurance.
In accordance with best practice, a management team comprising the Director of Policy and Resources, Assistant Director Legal and Democratic and the Risk Management Group had reviewed the draft AGS.
The draft Annual Governance Statement 2015/2016 was attached as appendix A to the report and 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. Significant governance issues requiring further development were identified in the AGS and summarised in the report.
The Director also reminded the committee that the Annual Governance Statement for 2015/16 represented the culmination of internal and external assurance sources. Therefore, the statement would need to be updated to reflect the outcome of the final accounts audit process prior to resubmission to the committee alongside the audited accounts.
The Director suggested that members should consider whether the AGS provided the committee with sufficient assurance on the council’s governance arrangements in 2015/2016 prior to approval, and make any amendments or seek clarification as necessary.
Members asked questions on the content of the AGS which the Director 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 and a further update be submitted to the committee alongside the audited accounts in September 2016.