Audit Committee – 25 January 2011
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 28 September, 2010 as a correct record and authorise the chair to sign
- Sickness Absence – Report of the Head of Strategy Development
- Performance Update – Report of the Head of Strategy Development
- Data Quality Update. – Report of the Head of Strategy Development
- Annual Audit Letter – Joint report of the Chief Executive and Service Director Finance
- External Audit Reports
- Claims Annual Report 2009/10
- Internal Audit Progress Report
- Risk Management Progress Report
- Protecting the Public Purse
- Counter Fraud Policies and Standards
- Quarterly Treasury Management and Strategy Report
- 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 committee met at Pittwood House, Scunthorpe.
186 DECLARATIONS OF PERSONAL OR PERSONAL AND PREJUDICIAL INTERESTS – There were no declarations of personal or personal and prejudicial interests made at the meeting.
187 MINUTES – Resolved – That the minutes of the proceedings of the meeting held on 28 September 2010, having been printed and circulated amongst the members be taken as read and correctly recorded and be signed by the chair.
188 (18) SICKNESS ABSENCE – Further to minute 166, the Head of Strategy Development submitted a report informing the committee of the impact of the improvement plan for sickness absence in the council.
The report explained that there had been an improvement in sickness absence, however, for the reporting period April to December 2010, the council was slightly off track to achieve its annual target of 9.25 days. The council had achieved an average of 7.05 days, which was slightly more than the target of 6.70 days per person. This was also an increase from the November 2010 position where the council was on track, but a reduction from the 7.57 days reported during the same period last year.
The report also identified in an appendix significant variations in the performance of services against targets set, where there had been reductions in some services, but increases in others. Increases were predominately due to a rise in longer-term sickness absence. Further improvement action had been instigated with those services where increases had been experienced.
The Head of Strategy and Development responded to members’ questions, which sought clarification and assurances on the impact of the improvement plan.
Resolved – (a) That following consideration of the report and discussion of its content, the impact of improvement action provides sufficient assurance that the risk to capacity due to sickness absence is being reduced, and (b) that a further progress report be submitted to the next meeting so that the position at the end of the year can be assessed and if necessary, further action taken.
189 (19) PERFORMANCE UPDATE – The Head of Strategy Development submitted a report updating the committee on the changes being made nationally to the Performance Framework for Local Government. This included government announcements in 2010 by the Secretary of State for Communities and Local Government to abolish the Comprehensive Area Assessment inspection framework for Local Government immediately, the Audit Commission from April 2011 and the Local Area Agreement (LAA) and associated award grant from the next financial year.
The report explained that the government had also announced that it would be replacing the LAA National Indicator set with a single list of all the data that councils were expected to provide the government from March 2011. In the interim, councils were required to continue to measure and report the National Indicators unless told not to do so by individual government departments.
On 22 December 2010 the government launched a consultation with councils on the new data required. This included 152 sets of data of which 15 were classed as new including plans for data collections on community budgets, neighbourhood plans and mutuals and co-operatives. These would replace the previous 180 National Indicators, but did not include indicators that would be required on the new health outcomes framework, and for planning services such as data reported by the police. This data was likely to be sub-divided, meaning that the number of indicators would increase. Performance leads were currently being consulted and a response from the council was being prepared. To minimise risk that performance may not be sustained, the council’s current Quarterly Performance Review (QPR) would continue. Preparation work for the new performance framework would also begin.
Resolved – (a) That the changes to the performance framework be noted; (b) that following consideration of the report and discussion of its content, the action taken gives sufficient assurance that performance arrangements are being developed in line with changing requirements, and (c) that following the consultation period on the proposed revised set of national indicators, the government be encouraged to finalise these and give direction to councils as quickly as possible.
190 (20) DATA QUALITY UPDATE – The Head of Strategy Development submitted a report informing the committee of North Lincolnshire Council’s current position with regards to Data Quality Audits carried out, and the current position with regards to the Data Quality Action Plan which was attached to the report as appendix 3.
The report explained that in reviewing data quality arrangements during the 2008/09 Use of Resources Assessment, the Audit Commission had reported that they were able to find evidence to support the view that data quality of indicators reviewed was good. The external auditors made some recommendations in their report, which had been incorporated into the revised Data Quality Action Plan (Nov 2009), and in most cases these actions had been addressed. The Data Quality Action Plan was attached at appendix B of the report. To date, of the 28 actions on the plan, 24 had been completed, 2 were in progress, and 2 were on hold. As the government had subsequently abolished the Use of Resources Assessment for 2009/2010, a 2009/2010 Value for Money assessment was carried out based on the Use of Resources Key Lines of Enquiry (KLOE’s), an element of which was a review of ‘Data Quality and the Use of information’. The Audit Commission reported they found evidence of service improvement following intervention by performance management and improving data quality for key indicators. The report also stated that the council had further improved arrangements, responding to recommendations made in 2008/09 across all KLOE focus points, and arrangements had demonstrated clear impact. There were no areas identified for improvement.
The report further explained that as a result of the abolition of the Use of Resources Assessment, it was expected that there would no longer be any external inspection of Data Quality. However, the report emphasised the need for high quality data to support and assist decision-making and external accountability.
The Head of Strategy Development in her report also summarised in appendix A the audits carried out from April to December 2010, and further data quality achievements in the last six months.
Resolved – That following consideration of the report and discussion of its content, the action identified in the update report provides sufficient assurance of the adequacy of the council’s data quality arrangements.
191 (21) ANNUAL AUDIT LETTER – The Chief Executive and Service Director Finance submitted a joint report on the council’s Annual Audit Letter 2009/10 provided by its external auditors, the Audit Commission, and requested the committee to consider the assurance that had been given or that could be implied from its conclusions. The letter was attached as appendix A 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 and value for money work. The letter’s key messages were –
- An unqualified audit opinion was issued on the 2009/10 accounting statements on 30 September 2010;
- An unqualified value for money conclusion was issued on 30th September 2010. This meant that External Audit was satisfied that the council had made proper arrangements to secure economy, efficiency and effectiveness of its use of resources;
- The council had made good progress in dealing with the improvement areas highlighted in last year’s assessment;
- The Audit Committee monitored progress on the recommendations detailed in audit reports issued during the year;
- It was too early to assess the impact of the transformation plan developed in response to the expected future reduction in central government grants, and
- The council had made good progress in implementing the requirements of International Financial Reporting Standards (IFRS).
The following had also been identified as some areas for improvement as a result of work carried out during the year –
- Continue to raise public awareness of the local standards framework;
- Ensure overall risks facing the council were more explicit;
- Fully implement journal approval policies;
- Ensure that strong controls were in place for all bank accounts including those held by the council on behalf of others, and
- Confirm signed agreements were in place for the major partnerships.
All action plans had been agreed with responsible officers concerned.
Resolved – (a) That following consideration of the letter and discussion of its Content, the Annual Audit Letter be welcomed, (b) that the committee agrees that assurance is available regarding the council’s 2009/10 accounts, arrangements for securing money and other significant aspects of the council’s operations, (c) that improvement actions be implemented and monitored, and (d) that a press release be issued by the council highlighting the positive conclusions of its Annual Audit Letter for 2009/10.
192 (22) EXTERNAL AUDIT REPORTS – The Service Director Finance submitted a report on three external audit reports, ‘Audit Plan for 2010/2011’, ‘External Audit Progress Report and Briefing’ and ‘2010/11 Opinion Audit- Changes you can expect to see’.
The Service Director in his report explained that the Audit Plan detailed external audit’s proposed work and fee for 2010/11, and was based on the risk based approach to audit planning as set out in their Code of Practice and mandated work determined by the Audit Commission. A copy of the report was attached in appendix A. Fees would be reviewed and updated as necessary as audit work that impacted on the audit planning process for the 2010/11 audit was completed.
The External Audit Progress Report and Briefing was designed to provide the committee with a report on progress in delivering the Audit Commission’s statutory responsibilities. The update also sought to highlight key emerging national issues and developments which maybe of interest to it. Four key issues were highlighted in the report which was attached as appendix B.
Key changes to audit guidance and frameworks in relation to the audit of financial statements were highlighted in external audit’s third report – 2010/11 Opinion Audit – changes you can expect to see – which was attached as appendix C to the report. The council’s accountants would work with the external auditors to continue to ensure that the final accounts process was being concluded efficiently and effectively, and financial statements were presented in accordance with professional standards.
Resolved – (a) That following consideration of the reports and discussion of their content, the Audit Plan be approved and the audit fees for 2010/11 and the additional risk posed by the need to comply with IFRS for the first time in 201/11 be noted; (b) that the external audit Progress Report and Briefing be noted and a progress report on key issues highlighted in paragraph 2.3 be submitted to the next meeting, and (c) that the new requirements to the audit of financial statements and the assurance provided in paragraph 2.4 of the Service Director’s report that they will be complied with, be noted.
193 (23) CLAIMS ANNUAL REPORT 2009/10 – The Service Director submitted a report from the council’s auditors, the Audit Commission, on the council’s arrangements for claiming grants in 2009/10.
The Service Director’s report explained that the council received a wide range of grants from government departments and other bodies each year. There were conditions attached to some of these grants by the grant paying body and in these cases there needed to be an independent audit to verify that conditions had been met. In 2009/10 approximately £137m of grant income was subject to audit by the Audit Commission.
The report outlined the aims of the Audit Commission annual audit of grant claims. These relied upon the council’s overall arrangements for submitting grant claims and on specific tests for individual claims, with key controls being the council’s financial procedures and the grants protocol. It was the ultimate responsibility of the Service Director Finance to sign off grant claims.
The key findings of the Audit Commission’s report on grant claims for the accounting year 2009/10 were set out in the report, together with an action plan in appendix 2, prepared in order to implement its recommendations.
The Service Director suggested that the committee needed to consider the level of assurance that could be implied from the Audit Commission’s conclusions regarding the operation of the council’s procedures relating to grant claims.
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that assurance is available from the report’s conclusions regarding the operation of the council’s procedures for claiming grants, and (b) that the action plan in appendix 2 be endorsed.
194 (24) INTERNAL AUDIT PROGRESS REPORT – Further to minute 182, 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 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 the following –
- Good progress of the Audit Plan and an explanation of reprioritised work as a result of reduced resources and the impact and outcomes of unforeseen work. A summary was provided in appendix A of the report;
- A review of strategic risk controls had commenced, with the outcome of the review to be reported to the April 2011 meeting of the committee;
- Key results,action and outcomes of audit reports issued so far this year:
- The government announcement on 15 November 2010 to abolish the Financial Management Standard in Schools (FMSiS) with immediate effect, and likelihood of a simpler replacement system being introduced next year. The current FMSiS position for North Lincolnshire schools was also summarised;
- Improved management responses to audit recommendations following the introduction of the ‘audit management’ software. Retesting levels show approximately 73 per cent of audit recommendations were being implemented, although high risk areas continue to receive closer attention, and
- CIPFA’s progress on the development of a statement on the role of chief internal auditors in public sector organisations. Consultation on a draft local government specific version of the document ended on 19 January 2011, and the finalised document was expected in February 2011. Further details and an evaluation of current arrangements against best practice would be reported to the April 2011 meeting of the committee.
The Service Director responded to members’ questions on aspects of his report.
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.
195 (25) RISK MANAGEMENT PROGRESS REPORT – Further to minute 182, 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 progress made including –
- Designation of lead responsibilities to senior officers for each risk of the revised Strategic Rick Register and an evaluation of controls was underway. The outcome of this work would be reported to the April 2011 meeting of the committee;
- Council wide annual review of operational risk registers (ORRs) was underway with 56% (updated at the meeting at 71%) of registers being received to date. Details were provided in appendix A of the report. Reminders had been sent to Service Directors. (members asked specific questions in relation to reasons for delays in complying with an important control process);
- Progress against this year’s Risk Management action plan was being monitored by the Strategic Risk Management Group (SRMG). Overall completion was on target, and the action plan was summarised in appendix B of the report;
- Continued awareness raising of aspects of risk management through training, including part of the ‘induction for new managers’, and through the Risk Roundup Newsletter issued on intralinc and web pages (attached as appendix C to the report), and
- Feedback from the new CIPFA/ALARM risk management benchmarking club, showing the council having an encouraging level of compliance with best practice and risk maturity. Appendix D of the report summarised the results.
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 risk management arrangements, as detailed in the report, and (b) that the Service Director Finance write on behalf of the committee to Service Directors who have not reviewed or returned their Operational Risk Registers, emphasising the importance of doing so as soon as possible.
196 (26) PROTECTING THE PUBLIC PURSE – The Service Director Finance submitted a report informing the committee of the main messages contained in the Audit Commission’s counter fraud report ‘Protecting the Public Purse’, and invited members to consider the checklist to the report showing arrangements that should be in place in model counter fraud policies.
The Service Director in his report explained that the latest report issued in October 2010 showed that fraud continued to be a significant problem affecting the whole economy. For local government, although detected fraud losses were low compared with total council spend significant amounts of money was involved nationally – Detected fraud in 2009/10 amounting to £135m; and 119,000 individual fraud cases.
The report identified progress made by local government nationally to specific areas of fraud and outlined how tackling fraud could help councils to get more value from taxpayers’ money by addressing fraud risks in significant areas of expenditure. These had been recognised locally and included in the council’s Audit Plan. The outcome of this work would be reported in the Internal Audit Annual Report to be submitted to the June 2011 meeting of the committee.
The Service Director also stated that the council was in a strong position and arrangements were continually reviewed against best practice and procedures, and partnerships were developed to prevent and deter fraud. Some examples included:
- All potential fraud areas had been risk assessed and additional controls identified. Specific counter fraud activity was included in the audit plan and progress reported regularly to the Audit Committee;
- The Counter Fraud Strategy had been strengthened and clearly supported the council’s zero tolerance to fraud;
- The communication strategy of newsletters, fraud bulletins, screen savers, posters, leaflets and magazine articles had generally raised awareness and general staff responsiveness;
- Every opportunity was taken to use intelligence to prevent fraud through National Anti Fraud Network and CIPFA Better Governance Forum membership and National Fraud Initiative (Data Matching) participation, and
- Well-established Chief Auditor networking with neighbouring councils shared intelligence on fraud experience. Protocols had been established with human resources colleagues and police liaison officers to efficiently investigate and prosecute fraud.
The report included a number of recommendations which were attached in appendix A, along with North Lincolnshire’s response. A checklist of best practice arrangements that members should look for was also included for information in appendix B.
Resolved – That following consideration of the report and discussion of its content, the committee agrees that the report contributes to a sufficient level of assurance on the adequacy of counter fraud arrangements.
197 (27) COUNTER FRAUD POLICIES AND STANDARDS – The Service Director Finance submitted a report to provide the committee with an appropriate level of assurance that the council’s counter fraud arrangements were adequate, and to approve an updated Counter Fraud Strategy, which was attached as appendix A of the report.
The report explained that the Counter Fraud Strategy set out the council’s determination to deter, prevent and detect fraud and safeguard its assets. The Strategy was revised periodically to reflect changes in legislation and recommend best practice guidance. This ensured that the council remained at the forefront of the prevention and detection of fraud and corruption. The main changes to the strategy were set out in the report. These changes strengthened existing arrangements in response to new and emerging risks.
Counter fraud work continued to be an important feature in the audit plan. Resources had been identified for preventative work and a contingency for responsive work such as investigations. During 2010/2011 greater emphasis had been placed on counter fraud work 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 summary of the work was provided in appendix B of the report.
The Service Director in his report also addressed and commented upon the following-
- Promotional work on the council’s counter fraud arrangements including warning bulletins through the council wide communication network, a payslip insert and the popular counter fraud newsletter ‘Fraud Focus’ which was attached as appendix C;
- Revamped Whistleblowers hotline posters and leaflets had been sent to all council premises (except schools). Referrals received through the hotline were summarized, these indicated that the facility was being used properly and that users felt confident using it.
- The rate, content and outcomes of investigations carried out by internal audit;
- Work of the Benefits Fraud Team, in partnership with the DWP with successful outcomes and prosecutions, and
- Work in association with the Audit Commission’s National Fraud Initiative (Data Matching ) exercise.
Resolved – (a) That following consideration of the report and discussion of its content, the committee agrees that the counter Fraud Strategy and counter fraud work programme delivers a sufficient level of assurance on the adequacy of counter fraud arrangements, and (b) that the updated Counter Fraud Strategy be approved.
198 (28) QUARTERLY TREASURY MANAGEMENT AND STRATEGY REPORT – Further to minute 172, 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 2010. It explained how the strategy had been implemented to date and the response to changing conditions in financial markets.
The Service Director in his report also provided an update on the latest position with regard to recovering the council’s Icelandic investments. This was also updated further at the meeting.
Resolved – (a) That following consideration of the above report and discussion of its content, that the quarterly report provides a sufficient level of assurance on the effectiveness of arrangements for treasury management, and (b) that the treasury management performance for the period as outlined in the report, be noted.
199 MEMBER TRAINING UPDATE – Further to minute 185, the Service Director Finance reminded the committee that the last of this year’s timetabled training events was the ‘Budget Briefing’ on 17 February 2011. He then invited members to submit any suggestions to him for next year’s training.
Resolved – (a) That the position be noted, and (b) that the Service Director be thanked for the informative and interesting training events carried out during the 20010/11 council year.