Audit Committee – 30 June 2010
Chair: Councillor Whiteley
Venue: Pittwood House, Scunthorpe (Function Room 1)
- Substitutions (if any).
- Declarations of Personal or Personal and Prejudicial Interests (if any).
- To take the minutes of the meeting held on 13 April 2010 as a correct record and authorise the chair to sign.
- To note the date and time of future meetings
- Tuesday 28 September, 2010 at 10.00 am
- Tuesday 25 January, 2011 at 10.00 am
- Tuesday 12 April, 2011 at 10.00 am
- Sickness Absence Update – Scrutiny Review/Peer Review – Action Plan – Report of the Head of Strategy Development.
- Internal Audit – Effectiveness Report 2009/2010.
- Internal Audit – Annual Report 2009/2010.
- Risk Management – Progress Report.
- Counter Fraud Work.
- Data Quality Report – Report of the Chief Executive.
- Treasury Management and Investment Strategy – Annual Report 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 2009/2010.
- 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.
163 DECLARATIONS OF PERSONAL OR PERSONAL AND PREJUDICIAL INTERESTS – There were no declarations of personal or personal and prejudicial interests made at the meeting.
164 MINUTES – Resolved – That the minutes of the proceedings of the meeting held on 13 April 2010, having been printed and circulated amongst the members be taken as read and correctly recorded and be signed by the chair.
165 DATES AND TIMES OF FUTURE MEETINGS – Resolved – That the dates and times of future meetings of this committee be held at 10am on Tuesday 28 September, 2010, Tuesday 25 January, 2011 and Tuesday 12 April, 2011.
166 (1) SICKNESS ABSENCE – Further to minute 152, the Head of Strategy Development submitted a report informing the committee of the outcome of the improvement plan for sickness absence in the council.
The report explained that sickness absence was highlighted by the Audit Commission in the council’s Annual Audit and Inspection letter 2007/8 as a risk to capacity. Consequently, the Audit Committee sought assurances that action to be taken would have an impact on reducing the risk and requested regular reports from the Head of Strategy Development on the improvements made. At its last meeting, the committee requested that a copy of the action plan that was developed following the council’s scrutiny review into sickness absence and the recent improvement peer review, be submitted to this meeting so that it could be considered whether it would provide sufficient assurance that sickness absence would be reduced.
A copy of the action plan approved by Cabinet on 9 June 2010 was attached as appendix 1 to the report.
Resolved – (a) That following consideration of the above Sickness Absence Improvement Plan and discussion of its content, the committee agrees that the proposed action identified in the Improvement Plan provides sufficient assurance that the risk to capacity due to sickness absence will be reduced, and
(b) that the Head of Strategy Development submit a progress report to the January 2011 meeting.
167 (2) INTERNAL AUDIT – EFFECTIVENESS REPORT 2009/10 – 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 previously undertaken the triennial review of the council’s internal audit function which had been reported to the committee in June last year (minute 117 refers). 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, in September 2009 the Comprehensive Area Assessment (CAA) Use of Resources report showed the council was assessed as performing adequately -meeting minimum requirements (level 2) in the risk management and internal control sub theme. A contribution to that assessment was that the Internal Audit function met all CIPFA standards. The 2009/10 self assessment had been completed, but was now suspended by the government, therefore the potential outcomes were unknown. However, a request had been made to receive feedback on any improvement areas.
The Service Director in his report also identified positive feedback received on internal audit’s work from service questionnaires sent to managers following audits. Positive results from national and local benchmarking exercises were also summarised. Internal audit continued to provide an internal audit service for Humberside Police Authority won under contractual arrangements until 31 March 2010. The contract provided the opportunity for professional development and indicated a good quality audit service.
The report also stated that the reporting format for internal audit reviews had been revised and improved to provide greater clarity on the level of assurance that could be given after each audit. Furthermore, the roll out of the ‘audit management system’ had commenced with 2010/11 audit plan work being managed using this new beneficial software. Further updates would be reported at future meeting. Based on the above findings outlined in the report, the Service Director stated that Internal Audit has been assessed as providing an effective service to the council. He also 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 2009/10 provides assurance on its adequacy as a key component of the council’s internal review processes and internal control environment.
168 (3) INTERNAL AUDIT – ANNUAL REPORT 2009/2010 – The Service Director Finance submitted a report advising the committee on internal audit’s work during 2009/2010, 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), council tax and housing benefits, accounting systems (eFinancials), cash receipting, treasury management, asset management and Carefirst
The report also stated that the format for reporting on internal audit reviews had been revised during 2009/2010 to provide clarity on the level of assurance that could be given following each audit. The levels of assurance were categorised as follows – Significant assurance, Adequate assurance, Partial assurance and No assurance.
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 2009/10.
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, and (b) that the Internal Audit Annual report for 2009/10 be approved.
169 (4) RISK MANAGEMENT – PROGRESS REPORT – Further to minute 145, 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 by professional bodies CIPFA and ALARM (Association of Local Authority Risk Managers)
The Service Director in his report addressed and commented upon progress made including –
- Completion of Internal audit’s independent review of risk management arrangements which had been reported in the Internal Audit’s Annual Report (minute 168 above refers);
- A review of all risks of none achievement of council objectives within enhanced service planning for 2010/11 to ensure that all significant risks would be captured. The outcome of this work to be reported to the September 2010 meeting;
- Introduction of ‘generic competencies’ on risk management for all staff in addition to it forming part of the council’s induction programme for new staff;
- The outcome of external audit’s strategic overview of IT controls informing its risk assessment of the adequacy of the council’s control environment each year – showing no significant control issues;
- Issues 4 and 5 of the council’s popular risk management newsletter ‘Risk Roundup’ attached as appendices A and B of the report, and
- Completion of the CIPFA/ALARM risk management benchmarking questionnaire indicating that risk management was embedded and integrated throughout the council (score 4 out of 5). Benchmarking club outcomes would be reported to the September 2010 meeting.
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 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.
170 (5) COUNTER FRAUD WORK – 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 Benefit Fraud Prosecution Policy, which was attached as appendix C.
Counter fraud work was an important feature in the audit plan. Resources had been identified for preventative work and a contingency for responsive work for such investigations. A separate counter fraud plan was identified for 2010/11 and this was the first of a series of regular updates to provide the committee with clear assurance on the adequacy of counter fraud arrangements. Apendix A of the report outlined some of the work already underway designed to prevent, detect and deter fraud.
The Service Director in his report addressed and commented upon the following :-
- Promotional work on the council’s counter fraud arrangements including a counter fraud newsletter ‘Fraud Focus’ which was attached as appendix B;
- Results of the council’s first fraud awareness survey;
- Preparation for the biannual Audit Commission’s National Fraud Initiative (Data Matching) exercise counter fraud tool scheduled for 2010-2012;
- Proactive work of the Benefits Fraud Team and a summary of successful outcomes and prosecutions, working closely with the DWP;
- Changes to the Regulation of Investigatory Powers Act (RIPA) 2000 which forms part of the council’s Anti Fraud Theft and Corruption Strategy (AFTC) (as submitted to Cabinet on 9 June 2010), and
- Changes to the Benefit Fraud Prosecution Policy, also part of the AFTC, which included changes in terminology and structure and amendments to the prosecution policy’s financial thresholds raised from £1500 to £2000 to align them with the DWP.
The Service Director suggested that the committee consider whether regular reports on proactive and reactive fraud work (as outlined above) would provide sufficient assurance on the adequacy of counter fraud arrangements during 2010/2011.
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the counter fraud work programme contributes to assurance on the adequacy of counter fraud arrangements and (b) that the Benefits Fraud Prosecution policy as detailed in appendix C of the report be approved.
171 (6) DATA QUALITY UPDATE – The Chief Executive referred to minute 140 and submitted a report informing the committee of North Lincolnshire Council’s current position with regards to Data Quality Audits carried out by the council’s internal and external auditors, and its Data Quality Action Plan, which was attached as appendix 3 to the report.
The report commented upon findings, good practice and improvement recommendations previously identified by internal audit and the Audit Commission during the 2009/10 Corporate Area Assessment (CAA), national indicators audited during 2009/10 and the Local Area Agreement (LAA). Recommendations and proposed action had been included in the above action plan.
The Chief Executive in his report stated that the Corporate Performance Team had now completely re-designed the process used to audit indicators based upon guidance from internal audit and best practice recommended by the Audit Commission. A more robust, evidence based evaluation of controls services had in place was now used for data quality arrangements.
In his report the Chief Executive also outlined work undertaken to monitor continuously and update the Data Quality Action Plan. Successes were identified together with findings following the 2009/10 audit of National Indicators. A summary of National Indicators audited in 2009/10 was attached as appendix 1 of the report and a further appendix 2 summarised a Forward Plan of audits for 2010/11.
Resolved – That following consideration of the above report and discussion of its content, the committee agrees that the action identified in the update report contributes to assurance on the adequacy of the council’s data quality arrangements.
172 (7) TREASURY MANAGEMENT AND INVESTMENT STRATEGY – ANNUAL REPORT 2009/2010 – The Service Director Finance submitted a report on the council’s treasury management and investment performance in 2009/10. Performance was measured against the Treasury Strategy set by council at its meeting on 25 February 2009.
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 council had also implemented expected changes, summarised in the report together with action taken, to the above codes which had been re-published in November 2009. The council formally adopted the revised codes on 24 February 2010. Supporting revised and updated treasury management practices (TMPs), which underpin the day-to-day arrangements for the treasury management function, were also approved by Cabinet on 9 June 2010. The Audit Committee had the responsibility to scrutinise the council’s treasury management arrangements and seek assurances that the codes and TMPs were implemented effectively.
The Service Director in his report outlined the annual strategy under headings which covered – the Investment Strategy; the Borrowing Strategy, and prudential indicators for external debt and treasury management, and identified key investment and borrowing statistics indicating how the council had performed against the strategy. The report also described how the strategy operating and was audited within a legal and regulatory framework, providing assurances about how the council operated its treasury management processes.
The report also gave the up to date position as regards to the council’s investment with two Icelandic owned institutions, Landsbanki and Heritable.
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 2009/10 provides sufficient assurance on the adequacy of treasury management arrangements, and (b) that the Treasury Management and Investment Strategy Annual report 2009/10 be noted.
173 (8) FINAL ACCOUNTS – Annual Governance Statement 2009/2010 – 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) 2009/2010 for the committee’s comments following approvals by the Leader of the Council and Head of Paid Service. The committee was requested to formally adopt it as part of the council’s accounts.
The Service Directors in their report stated that CIPFA had previously produced guidance to support councils to produce the AGS. Additional guidance had been issued by CIPFA/SOLACE in March 2010 on how compliance with CIPFA’s statement on the role of the Chief Financial officer in local government should be reflected in the AGS. How the council’s response to this was incorporated in the AGS was summarised in the report.
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 2009/10 statement.
The draft Annual Governance Statement 2009/2010 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 prior to its inclusion in the council’s 2009/2010 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 in 2009/2010.
Resolved – (a) That following consideration of the above joint report and discussion of its content, the committee agrees that the Annual Governance Statement for 2009/10 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 2009/2010 be adopted as part of the council’s accounts.
174 (9) Statement of Accounts 2009/010 – The Service Director Finance submitted a report seeking the committee’s consideration and approval of the Statement of Accounts for North Lincolnshire Council for 2009/2010. 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 2009/2010 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 2010 meeting (minute 158 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 9 June 2010.
Assurance about the effectiveness of the council’s processes and governance, which underlies the accounts could be gained from the Annual Governance Statement, which did not highlight any significant issues with the council’s control environment and also other reports on this agenda such as the Internal Audit Annual Report.
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 at its September 2010 meeting. The external auditors would then provide an opinion on the accounts as a fair representation of the Council’s performance for 2009/10 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 59 of the final accounts with the addition of ‘arising from accelerated consumption of economic benefit’ after 2009/10 in the first sentence of the last paragraph.
Members then asked questions about individual elements of the accounts which the Service Director Finance responded to.
Resolved – That the Statement of Accounts for 2009/2010, with the addition of the above on page 59 as stated, be received and approved.
175 MEMBER TRAINING UPDATE – The Service Director referred to minute 162 and stated that ‘Final Accounts’ training for members had taken place on Monday 28 June 2010. Members commented upon the content of the training and how it had continued to improve their knowledge and understanding.
The Service Director also referred to additional forthcoming finance related training events, which had already been scheduled within the council’s committee timetable.
Resolved – (a) That the position be noted ,and (b) that the scheduled training events be welcomed.