Audit Committee – 26 January 2010

Chair: Councillor Whiteley
Venue: Pittwood House, Scunthorpe, (Function Room 1)
Time: 10.00 am

AGENDA

  1. Substitutions (if any).
  2. Declarations of Personal or Personal and Prejudicial Interests (if any).
  3. To take the minutes of the meeting held on 30 September 2009 as a correct record and authorise the chair to sign.
  4. Sickness Absence Update – Oral report of the Head of Strategy Development.
  5. Data Quality Update – Report of the Chief Executive.
  6. Annual Audit Letter and Comprehensive Area Assessment.
  7. External Audit, Audit Opinion Plan and Fees 2009/2010.
  8. Internal Audit – Progress Report.
  9. Quarterly Treasury Management and Strategy Report.
  10. Risk Management Progress Report.
  11. Counter Fraud Policies and Standards.
  12. Implementation of International Financial Reporting Standards (IFRS) Update Report.
  13. Member Training Update.
  14. Any other items which the chair decides are urgent by reasons of special circumstances which must be specified.

Note: Reports are by the Service Director Finance unless otherwise stated.

MINUTES

PRESENT:- Councillor Whiteley in the chair

Councillors Wilson (vice-chair), Cawsey, T Foster and N Sherwood

Also in attendance were representatives of the Audit Commission (the council’s external auditors).

The committee met at Pittwood House, Scunthorpe.

138 DECLARATIONS OF PERSONAL OR PERSONAL AND PREJUDICIAL INTERESTS – There were no declarations of personal or personal and prejudicial interests made at the meeting.

139 MINUTES – Resolved – That the minutes of the proceedings of the meeting held on 30 September 2009, having been printed and circulated amongst the members be taken as read and correctly recorded and be signed by the chair.

140 SICKNESS ABSENCE UPDATE – Further to minute 129, the Head of Strategy Development gave an oral report informing the committee of the up to date position of work currently being carried out to reduce the level of sickness absence of council employees. She informed members that based upon statistics to date, which could be calculated pro rata to the end of the year, indicated that there would be an improvement in sickness absence.

The oral report confirmed that a peer review would be completed by the end of March 2010 and together with the expected outcomes of the recent scrutiny review, would enable an action plan to be completed as soon as possible.

The Head of Strategy Development responded to questions asked by members on short-term and long-term sickness trends, comparative data issues and corporate health indicator developments.

Resolved – (a) That the position be noted, (b) that the current and proposed action identified provides sufficient assurance that sickness absence will be reduced, and (c) that an update report be submitted to the next meeting of the committee.

141 (18) REVIEW OF DATA QUALITY – The Chief Executive referred to minute 94 and submitted a report informing the committee of North Lincolnshire Council’s current position with regards to Data Quality Audits and identified subsequent work and adjustments to the Data Quality Action Plan.

The report reminded members that historically, the council was subject to an audit of its data quality procedures by the Audit Commission as part of the Use of Resources assessment, which informed the Comprehensive Performance Assessment. Following the 2006/07 and 2007/08 audits the council had been assessed as performing well. Now under the revised Code of Audit Practice and with the introduction of the Comprehensive Area Assessment and revised Use of Resources criteria, data quality was no longer looked at as a separate study. It remained a key area specifically part of Use of Resources (data and use of information).

In reviewing the indicators and arrangements in this area during the 2009/10 CAA, the Audit Commission had reported that it was able to find evidence to support the view that data quality of the indicators reviewed was good. The Audit Commission’s recommendations had been incorporated in a revised Data Quality Action Plan (November 2009) which was attached as appendix 3 of the report.

The Chief Executive in his report explained that although the reliability of data for some indicators would be subject to investigation by internal audit beginning in January 2010, the revised plan now included, but was not limited to, developing data quality training and communication across the authority and the council’s partners, developing the use of data quality functionality of the performance management system, improving the system controls and working more closely with internal audit for guidance and mutual support.

The report also summarised in appendices the findings of audits carried out during 2009/10 to date by the corporate performance team on data quality arrangements for National Indicators, and a planned list of audits to be carried out by internal audit in quarter 4 of 2009/10 for Local Area Agreement (LAA) indicators.

Resolved – That following consideration of the report and discussion of its content, the action identified within the update report provides sufficient assurance of the adequacy of the council’s data quality arrangements.

142 (19) ANNUAL AUDIT LETTER AND COMPREHENSIVE AREA ASSESSMENT – The Chief Executive and Service Director Finance submitted a joint report on the council’s Annual Audit Letter 2008/09 and Comprehensive Area Assessment (Organisational Assessment) report December 2009 provided by its external auditors, the Audit Commission. The letter and report (summary version) were attached as appendices to the report.

The joint report explained that the Annual Audit Letter provided the council with an overall summary of the Audit Commission’s assessment of the council drawing on final accounts, value for money and Use of Resources work. The letter’s key messages were –

  • An unqualified audit opinion was issued on the 2008/09 accounting statements on 30 September 2009.
  • Accounting statements were much improved in 2008/09 compared to prior years with fewer errors and better working papers. Scope to improve some important controls over the general ledger was identified and these issues were now being addressed.
  • Overall there were adequate arrangements in place in each of the main Use of Resources themes (managing money, governance and managing resources). Some good arrangements were identified but not at a consistent level across all areas of the key lines of enquiry.
  • Many of the issues identified in last year’s letter had been addressed but reducing the level of overall staff absence continued to be a problem.
  • An unqualified value for money conclusion was issued on 30 September 2009.

The following had also been highlighted as actions that needed to be taken in response with the Audit Committee ensuring that –

  • The shortfalls in efficiency targets be addressed and should ensure fully financial and performance reporting was fully integrated to further drive the improvement agenda;
  • The committee to receive information to enable it to provide robust scrutiny of data quality and Internal Audit work, and to continue to develop the assurance framework, and
  • The carbon action plan and environmental policy be encompassed into an overarching strategy to drive forward the reduction in natural resources.

The Chief Executive and Service Director in their report also stated that the Audit Commission had also assessed the organisation’s performance. This year its overall judgment was that the council’s performance was adequate. The Commission identified thatthe council had a clear vision of what it needed to deliver, based on an assessment of local need. It feltthat the council’s services were variable with a mix ofsome good performance and some that could be improved. It also identified that service performancewas not sufficiently focused on priorities and could be better focusedon outcomes for local people.In addition it identified a number of areas where service performance could be mproved.Corporate areas for improvement were being linked into the council’s transformation plan. Service issues that had not already been identified as a performance exception had been asked to complete an exception report by 25 January 2010.

Resolved – (a) The Annual Audit Letter and Comprehensive Area Assessment (Organisational Assessment) Report be welcomed; (b) that following consideration of the joint report and discussion of its content, the committee agrees that assurance is available regarding the council’s 2008/09 accounts, arrangements for securing value for money and other significant aspects of the council’s operations; (c) that the improvement actions recommended by the Audit Commission and highlighted in the joint report be implemented and monitored, and (d) that a copy of the Annual Audit Letter be circulated to all members of the council.

143 (20) EXTERNAL AUDIT, AUDIT OPINION PLAN AND FEES 2009/2010 – The Service Director Finance submitted a report on the council’s external auditor’s (the Audit Commission) Audit Opinion Plan for 2009/2010. The Audit Opinion Plan detailed external audit’s proposed work and fee. This was based upon the risk based approach to audit planning as set out in its Code of Practice and mandated work determined by the commission. A copy of the plan was attached as an appendix to the report

The Service Director explained that the Audit Commission’s fees set out in paragraph 5.1 of the report, would be reviewed and updated as necessary as audit work that impacted on the audit planning process for 2009/2010 audit was completed.

Resolved – That the Audit Opinion Plan and proposed audit fee for 2009/10 be approved.

144 (21) INTERNAL AUDIT PROGRESS REPORT – Further to minute 130, the Service Director Finance submitted a report updating the committee of key issues arising from Internal Audit’s work. Regular reporting on Internal Audit issues was an important source of assurance for the committee to fulfil their role and provide supporting evidence for the annual approval of  the council’s Governance Statement. The Service Director in his report addressed and commented upon the following –

  • Concluding elements (benefits subsidy claim) of the 2008/09, and good progress of the 2009/10 fundamental financial systems audits;
  • Internal Audit Plan progress and deployment of resources, as detailed in appendix A of the report;
  • Evaluation of and strengthening of the council’s Anti Fraud and Corruption Strategy in response to CIPFA and Audit Commission guidance and the increased risk of fraud across the public sector as a result of the recession;
  • A better response from schools on the submission of Financial Management Standard in Schools (FMSiS) self assessments;
  • Work being carried out to improve service managers’ responses to audit recommendations, and
  • Internal audit’s continuing good performance with improvements against its suite of performance indicators set each year, as at December 2009;

Resolved – 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 as detailed.

145 (22) QUARTERLY TREASURY MANAGEMENT AND STRATEGY REPORT – Further to minute 132, the Service Director Finance submitted a report which provided the committee with a regular review of the treasury strategy approved each year by the council.

The report outlined treasury management performance between April and December 2009. It explained how the strategy had been implemented during the first nine months of the year, the state of financial markets and what action had been taken to address the challenges and results of the action.

The Service Director in his report also provided an update on the latest position with regard to recovering the council’s Icelandic investments through the Local Government Association. He also summarised the content and impact of new treasury management guidance for local authorities. This had been published by the Chartered Institute of Public Finance and Accountancy (CIPFA) in December 2009 revising its ‘Treasury Management in the Public Service: Code of Practice and Cross Sectoral Guide’ Similarly, CIPFA had also updated (December 2009) ‘The Prudential Code for Capital Finance in Local Authorities’ which underpinned the system of capital finance and borrowing in particular. Local authorities were required by regulation to have regard to the code when carrying out their duties under Part 1 of the Local Government Act 2003.

Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the report provides a sufficient level of assurance on the effectiveness of arrangements for treasury management, and (b) that the key findings on the operation of the current strategy in 2009/10 be noted.

146 (23) RISK MANAGEMENT PROGRESS REPORT – Further to minute 133, the Service Director Finance submitted a report updating the committee of key issues arising from Risk Management Work. Regular reporting of this work 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 Service Director in his report addressed and commented upon –

  • Strategic Risk Position Statements had been updated and a summary was attached at appendix A of the report. Generally all risks were evaluated as being managed to an appropriate level and controls were assessed as satisfactory or good, This represented an overall improvement compared to the evaluation of strategic risks controls reported to the January 2009 meeting. Specifically strategic risk ‘serious breach of information integrity, confidentiality and availability’ was now evaluated as satisfactory;
  • Jardine Lloyd Thompson (JLT) had successfully retained the contract as the council’s brokers recently which included risk management consultancy expertise and delivery of training. JLT had commenced reviewing current arrangements to contribute to the development of the risk management strategy and action plan 2010/2011. This would be reported to the committee’s next meeting;
  • Feedback from the Audit Commission on current arrangements and examples of good practice elsewhere, following the council’s Use of Resources evaluation of risk management. Improvement opportunities would be considered alongside JLT’s work as described above;
  • Publication of the third edition of the risk management newsletter ‘Risk Roundup’, attached as appendix B of the report;
  • An evaluation of the council’s risk management activity and maturity using ALARM’s ‘National Performance Model for Risk Management in Public Services’ health check in preparation for ALARM/CIPFA benchmarking due to be launched in 2010. This was attached as appendix C of the report, which indicated that arrangements were generally good. Targeted improvements would be incorporated in the risk management strategy and action plan for 2010/11.

Resolved – 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 risk management arrangements, as detailed in the report.

147 (24) COUNTER FRAUD POLICIES AND STANDARDS – Further to minute 34 the Service Director Finance submitted a report summarising proactive and reactive counter fraud work being carried out officers. This aimed to provide the committee with an appropriate level of assurance that counter fraud arrangements were adequate within the council.

The Service Director in his report requested approval of the council’s updated Anti-Fraud, Theft and Corruption Strategy, which was attached as appendix A of the report. Specific changes which were identified in appendix B, strengthened existing arrangements in response to new and emerging risks. This included the councils anti money laundering policy as an important addition.

The report also explained that counter fraud work had always been an important feature of the audit plan. During 2009/10 greater emphasis had been placed on such work in response to CIPFA and the Audit Commission’s guidance to and the increased risk of fraud across the public sector as a result of the recession. A summary of this work was attached as appendix C of the report.

The report of the Service Director also addressed and commented upon –

  • Promotional work on the counter fraud arrangements, with particular reference to the increasing referrals of the ‘Whistleblowers hotline’ with subsequent investigations;
  • Successful proactive work and investigations of the Benefits Fraud Team, including work with the police and Department for Work and Pensions (DWP);
  • Completion of the Audit Commission’s National Fraud Initiative (Data Matching) exercise 2008-2010 ahead of the deadline, outlining the objectives of the exercise and findings of investigations carried out.

Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the Anti Fraud and Corruption Strategy and counter fraud work programme delivers a sufficient level of assurance on the adequacy of counter fraud arrangements, and (b) that the updated Anti Fraud Theft and Corruption Strategy be approved.

148 (25) IMPLEMENTATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) UPDATE – Further to minute 121, the Service Director Finance submitted a report on further progress made to date with the implementation of International Financial Reporting Standards (IFRS). This was identified in paragraph 4.2 of the report.

The report explained that in order to comply with IFRS, of which Local Government had no option, the council was required to prepare its accounts using IFRS from 2010/11 accounts. Also 2009/10 accounts would have to be restated on the same basis for comparison purposes. This would be prepared by the end of January 2010. The Audit Commission would review the work the council has undertaken before April 2010.

Resolved – That following consideration of the above report and discussion of its content, the committee aggress that the report delivers a sufficient level of assurance that adequate preparations for the implementation of IFRS in the council’s final accounts are taking place.

149 MEMBER TRAINING UPDATE – Further to minute 137, the Service Director Finance updated members by informing them of a further training event scheduled for –

  • 17 February 2010 – Budget Briefing

Also, he suggested that the following training could be provided for members of the committee and other members of the council during 2010/11, subject to the committee’s agreement –

  • Treasury Management Update (following publication of the CIPFA guidance (minute 145 refers))
  • Counter fraud – money laundering
  • Asset Management (best practice)
  • Value for Money Strategy and
  • Worksmart issues

Resolved – (a) That the position be noted, and (b) that the suggested training above to be held during 2010/11 be welcomed.

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