Audit Committee – 30 June 2009
Chair: Councillor Whiteley
Venue: Pittwood House, Scunthorpe
- Substitutions (if any).
- Declarations of Personal or Personal and Prejudicial Interests (if any).
- To take the minutes of the meeting held on 20 April 2009 as a correct record and authorise the chair to sign.
- To note the date and time of future meetings -Wednesday 30 September, 2009 at 10.00 a.m.
Tuesday 26 January, 2010 at 10.00 a.m.
Tuesday 13 April, 2010 at 10.00 a.m.
- Audit Committee Terms of Reference.
- Internal Audit – Effectiveness Report 2008/2009.
- Internal Audit – Annual Report 2008/2009.
- Risk Management Progress Report.
- Treasury Management and Investment Strategy Annual Report 2008/2009.
- Implementation of International Financial Reporting Standards (IFRS) Progress Report.
- Audit Committee – Forward Plan and Assurance Map 2009/2010.
- Final Accounts –
- Annual Governance Statement – Joint report of the Service Director Finance, Service Director Legal and Democratic and Head of Strategy Development.
- Statement of Accounts 2008/2009.
- Review of Council Sickness Absence – Oral update by the Head of Strategy Development – To follow.
- Member Training Update.
- 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.
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 committeemet at Pittwood House, Scunthorpe.
113 DECLARATIONS OF PERSONAL OR PERSONAL AND PREJUDICIAL INTERESTS – There were no declarations of personal or personal and prejudicial interests made at the meeting.
114 MINUTES – Resolved – That the minutes of the proceedings of the meeting held on 20 April 2009, having been printed and circulated amongst the members be taken as read and correctly recorded and be signed by the chair.
115 DATES AND TIMES OF FUTURE MEETINGS – Resolved – That the dates and times of future meetings of this committee be held at 10.00am on Wednesday 30 September, 2009, Tuesday 26 January, 2010 and Tuesday 13 April, 2010.
116 (1) AUDIT COMMITTEE – TERMS OF REFERENCE – The Service Director Finance submitted a report requesting approval of updated terms of reference for the committee as set out in an appendix. Two proposed updates were as follows –
- The committee’s role in monitoring arrangements for achieving value for money as part of the council’s regulatory framework had been made clearer, and
- An additional role to maintain an overview of the council’s treasury management arrangements had been included. This was in response to advice received from CIPFA and other sources following the Icelandic banking crisis and general instability in the financial markets. Further details were contained in the Treasury Management and Investment Strategy Annual Report 2008/09, (minute 120 refers.)
The above now reflected better the committee’s role in monitoring arrangements for achieving value for money and treasury management as part of the council’s regulatory framework.
The Service Director suggested that the committee should consider whether the updated terms of reference provided sufficient scope to obtain assurance on the adequacy of the council’s internal control and governance arrangements.
Recommended to Council – (a) That following consideration of the above report and discussion of its content, the committee agrees that the proposed updated terms of reference provides sufficient scope to provide an appropriate level of assurance on the adequacy of the council’s internal control and governance arrangements, and (b) that the updated terms of reference for the Audit Committee be approved and adopted.
117 (2) INTERNAL AUDIT – EFFECTIVENESS REPORT 2008/09 – The Service Director Finance submitted a report which provided the committee with an audit opinion on the effectiveness of the council’s internal audit in accordance with the Accounts and Audit Regulations and the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice. The assessment was based on the following –
- External Audit’s assessment on Internal Audit’s work.
- Compliance with Best Practice as defined by CIPFA’s Code of Practice for Internal Audit.
- Customer feedback and endorsement.
- Achievement of performance targets.
The report explained that external audit (the Audit Commission) had undertaken the triennial review of the council’s internal audit function. The report was attached as appendix A. The review had concluded that the internal audit function had met all eleven standards as set out within the CIPFA code. External audit, therefore, was able to place reliance on the work of Internal Audit to discharge their own audit responsibilities.
Similarly, whilst external audit found no issues of non-compliance with the required standards, some areas of improvement were identified. Appendix B to the report provided information on progress made in response to agreed actions.
The Service Director in his report also identified positive feedback received on internal audit’s work from service questionnaires sent to managers following audits. Similarly, positive results from national and local benchmarking exercises were summarised which contributed to the review’s findings, assessing internal audit as providing an effective service to the council. Internal audit continued to provide an internal audit service for Humberside Police Authority and Humber Connexions, won under contractual arrangements. This provided the opportunity for professional development and indicated a good quality audit service.
The Service Director suggested that the committee should consider whether the level of effectiveness of Internal Audit’s work in 2008/09 provided sufficient assurance to fulfil its role as set out in the committee’s terms of reference.
Resolved – That following consideration of the above report and discussion of its content, the committee agrees that the level of effectiveness of Internal Audit in 2008/09 provides sufficient assurance on the adequacy of a key component of the council’s internal review processes and internal control environment.
118 (3) INTERNAL AUDIT – ANNUAL REPORT 2008/09 – The Service Director Finance submitted a report advising the committee on internal audit’s work during 2008/2009, and to provide an audit opinion on the adequacy of the council’s control environment. This provided the committee with an important source of assurance to fulfil its role and complied with the CIPFA Code of Practice for Internal Audit in local government in the United Kingdom.
The report explained that the requirement for internal audit was supported by statute in the Accounts and Audit Regulations 1996 (as amended 2006) and the Local Government Act 1972. The Accounts and Audit Regulations stated that a “relevant body shall maintain an adequate and effective system of internal audit of their accounting records and control systems”. 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 Service 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 reports for the year had yet to be finalised, the fieldwork for the outstanding reports had been completed, and there was nothing within the reports that would cause the overall opinion to change. 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 the council had adequate control and governance arrangements in place. It was acknowledged that this statement was given to provide reasonable and not absolute assurance of the effectiveness of the system of control.
In reaching this opinion the report identified factors which were taken into particular consideration under the following headings:-
- Risk Management
- Corporate Governance
- Fundamental Systems, including payroll, creditors, sundry debtors, local taxation (council and NNDR), accounting systems (eFinancials), cash receipting, treasury management and Carefirst
The Service 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 2008/09.
The Service 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 Internal Audit Annual Report provides sufficient assurance on the adequacy of the council’s internal control environment, (b) that the Internal Audit Annual report for 2008/09 be approved, (c ) that the Service Director Children’s Services reports to the next meeting of this committee on progress on achieving Financial Management of Schools, and (d) that this committee requests that the Service Director Finance, at a future meeting of the Council Management Team (CMT) informs all Service Directors that if their service’s operational risk register has not been reviewed, updated and received by Finance Services before the next meeting of this committee (30 September, 2009) Service Directors that have not complied will be requested to appear in front of the committee to explain why.
119 (4) RISK MANAGEMENT PROGRESS REPORT – Further to minute 104, 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, provided supporting evidence for the annual approval of the council’s Governance Statement and was recognised as good practice through the Comprehensive Area Assessment (CAA) Use of Resources criteria.
The Service Director in his report addressed and commented upon progress made since the approval of the Risk Management Strategy and Action Plan for 2009/10 (minute 110 refers) including –
- Information considered by the council’s Strategic Risk Management Group (SRMG) and Tactical Emergency Planning Working Group focussing upon business continuity planning and possible ramifications of potential outbreaks of swine flu;
- Publication of the council’s first risk management newsletter ‘Risk Roundup’ attached at appendix A to the report;
- Progress made on updating operational risk registers, and
- Provision of professional guidance on risk management from CIPFA to the council’s Better Governance Forum namely ‘New British Standards – Risk Management Code of Practice (BS3110) and ‘CIPFA Risk Management Tool Kit’.
The Service Director suggested that the committee considers whether this update provided sufficient assurance on the adequacy of risk management arrangements detailed in his report.
Resolved – That the progress report contributes to assurance on the adequacy of risk management arrangements, as detailed in the report.
120 (5) TREASURY MANAGEMENT AND INVESTMENT STRATEGY ANNUAL REPORT 2008/09 – The Service Director Finance submitted a report on the performance of the council’s treasury management function in 2008/09. Performance was measured against the Treasury Management and Investment Strategy set by council at its meeting on 20 February 2008.
The report explained that each year the council approved a treasury management and investment strategy which was prepared in line with –
- The CIPFA Code of Practice for Treasury Management (Chartered Institute of Public Finance and Accountancy)
- The Prudential Code
- The Local Government Finance Act 2003
- And guidance on Local Government Investments from the former Office of the Deputy Prime Minister (ODPM).
The Code of Practice required a report to council outlining the proposed activities of the treasury management function at the start of a financial year. A report was made on aspects of performance against that strategy where necessary in the course of the year to cabinet, in particular any impact on budgets or performance indicators. At the end of the financial year a report was made to council. The 2008/09 strategy, which was outlined in the report with supporting appendices, covered:
- general economic prospects, including prospects for interest rates;
- the investment strategy;
- the borrowing strategy,
- and set prudential indicators for external debt and treasury management.
Also in accordance with the above revised CIPFA treasury management code, the Audit Committee would now take oversight of treasury management functions receiving regular reports; hence the suggested amendments to the committee’s terms of reference (minute 116 refers).
The Service Director in his report detailed how the strategy was implemented during the 2008/09 year, how unstable financial markets affected the council, what action was taken to address the challenges and the results of that action.
The key results were that the council had –
- Exceeded its target rate of interest by 0.42%;
- Exceeded its original target for return on investment of £2.25m;
- Kept the cost of borrowing below 6% of revenue stream, and
- Took steps to recover investments with Icelandic banks in concert with other local authorities through the Local Government Association (LGA). (The Service Director Finance provided a further update on this matter at the meeting)
The report also reviewed new guidance on treasury management from the Audit Commission and CIPFA and made recommendations how these were being addressed within the 2009/10 strategy.
The Service Director Finance suggested that the committee should consider the assurance provided by the Treasury Management and Investment Strategy Annual Report 2008/09 on the adequacy of arrangements and improvements made in the light of recent advice received.
Recommended to Council – (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 2008/09 provides sufficient assurance on the adequacy of arrangements and improvements made in light of recent advice, as detailed in the report; (b) that the Audit Committee receive further reports on Treasury Management to monitor performance and arrangements, and (c) that the committee endorses the Treasury Management and Investment Strategy Annual Report 2008/09.
121 (6) IMPLEMENTATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) – PROGRESS REPORT – Further to minute 58, the Service Director Finance submitted a report on progress made to date with the implementation of and compliance with International Financial Reporting Standards (IFRS). The report summarised work and training undertaken and its likely impact on the production of council’s annual accounts.
The Service Director Finance and a representative of the Audit Commission responded to questions asked by members.
Resolved – That the progress made towards the adoption of IFRS for the production of annual accounts be noted.
122 (7) AUDIT COMMITTEE – FORWARD PLAN AND ASSURANCE MAP 2009/10 – With reference to minute 102, the Service Director Finance submitted a report requesting members to approve the forward plan of reports for 2009/10 and to consider whether the assurances indicated against the plan provided adequate coverage to allow the Audit Committee to fulfil its terms of reference.
The report explained that External Audit’s Annual Audit and Inspection Letter was reported to the Audit Committee at its meeting on on 20th April 2009. It made specific recommendations relating to the council’s Audit Committee arrangements. The report highlighted how the Committee’s functions could be carried out more effectively. Key issues to address included:
- the need for a clearer focus on the purposes of the committee
- the absence of an assurance based plan; and
- reports to the committee were considered for information only, with no focus on assurance.
Consequently, work had already started to address these issues. Reports to the committee had been strengthened in terms of the level and scope of the assurance they aimed to provide to the committee; and recommendations were now more explicit about assurance provided. The Audit Committee’s terms of reference were also reviewed each year and suggested amendments had been reported (minute 116 refers).
Appendix A to the report showed the categories and level of assurance the Audit Committee needed to fulfil its terms of reference and culminating in the approval of the council’s accounts and Annual Governance Statement. A forward plan of reports had been compiled for the Audit Committee to consider (Appendix B). New reports for the committee were:
- Value for Money reports – updates on the council’s arrangements for achieving VFM would be reported in September and April.
- Treasury Management – the Treasury Management and Investment Strategy Annual Report 2008/09 would be reported in June and quarterly reports highlighting investments, interest and any salient issues as they arose.
The Service Director in his report stated that the current forward plan of reports had been prepared part way through the 2009/2010 financial year, but was indicative of future forward plans that would be prepared for the Audit Committee to consider and approve prior to the start of each financial year. The plan also showed the assurance each report would provide to allow the Audit Committee to fulfil its terms of reference. In addition to categories of assurance provided, the forward plan also indicated whether the source of assurance was primary or supporting.
The Service Director Finance suggested that the committee should consider whether the forward plan for 2009/10 provided sufficient scope to obtain assurance on the adequacy of the council’s internal control and governance arrangements to fulfil its terms of reference.
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the forward plan for 2009/10 provides sufficient scope to provide an appropriate level of assurance on the adequacy of the council’s internal control and governance arrangements, and (b) that the forward plan for 2009/10 be approved.
123 (8) FINAL ACCOUNTS – Annual Governance Statement – Further to minute 57, the Service Director Finance, the Service Director Legal and Democratic and the Head of Strategy Development submitted a joint report presenting the council’s draft Annual Governance Statement (AGS) 2008/2009 for the committee’s comments following approval by the Leader of the Council and Head of Paid Service. The committee was required to oversee the production of the AGS and formally adopt it as part of the council’s accounts.
The report explained that the draft 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 Service 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. 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 above service directors, Head of Strategy Development and Audit and Risk Manager had overseen the process using key objectives. Last year’s AGS also incorporated an evaluation of the council’s governance arrangements against best practice and highlighted significant issues that required action by the council. Progress on these actions was reported in the 2008/09 statement.
The draft Annual Governance Statement 2008/2009 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.
The Service Directors also reminded the committee that their report enabled members to give full consideration to the AGS and suggest amendments, prior to its inclusion in the council’s 2008/2009 accounts. External audit would also consider the AGS as part of the financial accounts audit.
The Service Directors suggested that members should consider whether the AGS provided the committee with the assurance required on the adequacy of governance arrangements throughout the council.
Resolved – (a) That following consideration of the above joint report and discussion of its content, the committee agrees that the Annual Governance Statement for 2008/09 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 2008/2009 be adopted as part of the council’s accounts.
124 (9) Statement of Accounts 2008/09 – The Service Director Finance submitted a report seeking the committee’s consideration and approval of the Statement of Accounts for North Lincolnshire Council for 2008/2009. The Statement of Accounts was attached as an appendix to the report.
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 (April to March). The 2008/2009 Statement of Accounts had to be considered and approved by this committee by 30 June 2009, and then audited and published within six months of the financial year end, by 30 September 2009.
The Statement of Recommended Accounting Practice (SORP) required each local authority to adopt accounting policies that set principles for recording financial transactions in the council’s accounts. The audit committee had approved these at its April 2009 meeting (minute 106 refers).
The report also explained the context of the committee’s approval, the responsibilities of the ‘Responsible Financial Officer’ – the Service Director Finance in preparing the accounts and detailed the various elements of the accounts. They also incorporated details reported to the council’s Cabinet on 10 June 2009 (minute 819 refers).
The external auditors would issue an audit report on the accounts in due course and the contents of this would be reported back to the committee. The external auditors would then provide an opinion on the accounts as a fair representation of the Council’s performance for 2008/09 and its position at the end of the year.
The Service Director Finance at the meeting presented the accounts to the committee and commented in detail on the various sections and accounting statements. He requested that a slight amendment be made on page 69 of the final accounts with the deletion of the final comment on asset valuation which was no longer required.
Members then asked questions about individual elements of the accounts which the Service Director Finance responded to.
Resolved – (a) That the Statement of Accounts for 2008/2009, with the above deleted comment on page 69, be received and approved, and (b) that the Service Director Finance and his staff be thanked for their work in the preparation of the Statement of Accounts 2008/2009.
125 REVIEW OF COUNCIL SICKNESS ABSENCE – ORAL UPDATE – The Head of Strategy Development was unable to attend the meeting.
Resolved – That a written update report be submitted to the next meeting of the committee and current sickness absence statistics for the council be circulated to all members of the committee.
126 MEMBER TRAINING UPDATE – Further to minute 112, the Service Director Finance updated members by informing them that Final Accounts training held on 18 June 2009 had been attended by members of this committee and other members of the council. Further training on thissubject was likely to be arranged.
Additional training for members had now been arranged and scheduled within the council’s committee timetable on –
- 22 September 2009 – Local Taxation and Benefits, an operation overview;
- 4 November 2009 – Governance and Risk Management, and
- 17 February 2010 – Training, Budget Briefing.
- To be confirmed – Finance, Value for Money
Training on Treasury Management and Investment was also likely to be arranged following receipt of expected CIPFA revised guidance.
Resolved – That the position be noted and welcomed.