Audit Sub-Committee – 17 April 2012
Chairman: Councillor Eckhardt
Venue: Civic Centre, Scunthorpe (Function Room 1)
Time: 10 am
1. Substitutions (if any).
2. Declarations of Personal or Personal and Prejudicial interests (if any)
3. To take the minutes of the meeting of this sub-committee held on 31 January 2012as a correct record and authorise the chairman to sign.
4. Final Accounts and Accounting Policies 2011/12
5. Audit Committee – Forward Plan and Assurance Map 2012/13
6. Internal Audit Plan, Strategy and Term of Reference 2012
7. Internal Audit Progress Report
8. External Audit recommendations – progress report
9. External Audit Reports – Audit Committee Update
10. Treasury Management Quarterly, Progress Report
11. Risk Management Strategy and Action Plan 2012/13
12. Member Training – Update
13. Any other items which the chair decides are urgent by reasons of special circumstances which must be specified.
Note: Reports are by the Director of Finance unless otherwise stated.
PRESENT: Councillor Eckhardt in the chair
Councillors England (vice-chairman), and T Foster.
Also in attendance were representatives of the Audit Commission (the council’s external auditors).
The sub-committeemet at the Civic Centre, Scunthorpe.
250 DECLARATIONS OF PERSONAL OR PERSONAL AND PREJUDICIAL INTERESTS – There were no declarations of personal or personal and prejudicial interests made at the meeting.
251 MINUTES – Resolved – That the minutes of the proceedings of the meeting held on 31 January 2012, having been printed and circulated amongst the members be taken as read and correctly recorded and be signed by the chairman.
252 (26) FINAL ACCOUNTS AND ACCOUNTING POLICIES 2011/12 – The Director of Finance submitted a report seeking approval of the accounting policies that the council would use to close the 2011/12 accounts. The sub-committee was also asked to delegate to the Section 151 Officer (Director of Finance) the power to make new accounting policies and amend existing policies as may become necessary in the production of the accounts.
The report explained that The Code of Practice on Local Authority Accounting in the United Kingdom 2011/12 (CoP) required each local authority to adopt accounting policies that set principles for recording financial transactions within the Council’s accounts. The CoP was, in effect, a legal requirement as it was recognised in Government legislation as “Proper accounting practice”.
The CoP required that polices were set within UK accounting standards, which were from 2010/11 based on International Financial Reporting Standards (IFRS), but otherwise they may reflect matters appropriate to an authority’s circumstances.
The policies proposed for North Lincolnshire were based upon guidance issued by the Chartered Institute of Public Finance and Accountancy (CIPFA) and took account of local circumstances.
The report requested that members satisfied themselves that the Accounting Policies set out in appendix 1 were appropriate, paying particular attention to those policies highlighted as being modified to take account of local circumstances or added required, as listed and summarised in paragraphs 4.1 and 4.2 of the report.
Resolved – (a) That the accounting policies, as set out in appendix 1 of the report be approved, and (b) that the power to make new accounting policies and amend existing policies as may become necessary in the production of the accounts be delegated to the Director of Finance, with any such changes being reported to the next meeting of the sub-committee.
253 (27) FORWARD PLAN AND ASSURANCE MAP 2012/13 – The Director of Finance submitted a report containing a forward plan of reports and map of assurances for 2012/13. The plan also showed the assurance each report would provide to allow the sub-committee to fulfil its terms of reference and whether the source of assurance was primary or supporting. The forward plan had been refreshed for 2012/13 and minor changes had been made to reflect timing adjustments to some external audit reports.
Appendix A of the report showed the categories and level of assurance the Audit Sub-Committee needed to fulfill its terms of reference and approve the council’s audited accounts and Annual Governance Statement. A forward plan of reports for the sub-committee to consider was set out in Appendix B.
Resolved – (a) That following consideration of the report and discussion of its content, the sub-committee agrees that the Forward Plan for 2012/13 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 2012/13 be approved.
254 (28) INTERNAL AUDIT PLAN, STRATEGY AND TERMS OF REFERENCE 2012/13 – The Director of Finance submitted a report which considered the council’s internal audit plan, audit strategy and terms of reference for 2012/13. His report explained that the Accounts and Audit (England) Regulations 2011 placed a responsibility with the council to undertake an adequate and effective internal audit of its accounting records and of its system of internal control, in accordance with the proper practices in relation to internal control. The regulations also required that the council reviewed the effectiveness of its system of internal control at least once a year and must be considered, as part of consideration of the system of internal control which informs the Annual Governance Statement.
The report stated that Internal Audit played a principal role in advising the council, and in particular the Audit Sub-Committee, that internal control arrangements were in place and operating properly. This assurance and formal opinion on the adequacy of the council’s system of internal control was based on the work undertaken in delivering the audit strategy and plan.
Also an important role for the Audit Sub-Committee, as set out in the terms of reference, was to assist the council by providing independent assurance on the adequacy of internal control and governance arrangements throughout the council. In undertaking this role the sub-committee was responsible for:
- Approving (but not directing) Internal Audit’s strategy;
- Approving the annual plan of audits;
- Monitoring progress on delivery of the plan and considering the internal control issues that arise from the work undertaken, and
- Considering the assurance provided by the annual opinion report
The Director in his report explained that Internal Audit was a key part of the council’s internal assurance and governance system. The audit strategy was attached as appendix A to the report and described how the internal audit service would be delivered and developed in accordance with the terms of reference, and how it was linked to the council’s objectives and priorities.
Also, each year internal audit produced a plan of the work to be carried out. All the council’s activities were considered and prioritised based on a risk assessment. The draft plan was discussed with CMT and external audit. Progress in achieving the plan and issues arising from audit work would be reported to this sub-committee throughout the year. A risk-based approach was adopted to compile the plan and CIPFA’s Code of Audit Practice (the Code) had been considered, so the audit plan met best practice. The plan for 2012 – 2013 was summarised in appendix B to the report, and a separate counter fraud plan in appendix C. This, together with regular updates on progress would provide the sub-committee with clear assurance on the adequacy of counter fraud arrangements. The plan was discussed with external audit as part of the managed audit approach to avoid duplication of effort and that the benefit from audit resources in total was maximised.
In addition, the report explained that the annual report for 2011/12 would be presented to the sub-committee in June and would contain a summary of the work undertaken and significant outcomes of audit reviews. The report would include an overall audit opinion on the adequacy of the internal control environment within the council and provides an important source of assurance for the Audit Sub-Committee. The annual report was an important component of the Annual Governance Statement which was published with the council’s accounts.
The Director suggested that the sub-committee should consider whether the Internal Audit plan, strategy and terms of reference would provide the sub-committee with a sufficient level of assurance in 2012/13.
Resolved – (a) That following consideration of the above report and discussion of its content, the sub-committee agrees that the Internal Audit plan, audit strategy and terms of reference for 2012/2013 will provide the sub-committee with a sufficient level of assurance to fulfil its role, and (b) that the Internal Audit plan, audit strategy and terms of reference for 2012/2013 be approved.
255 (29) INTERNAL AUDIT PROGRESS REPORT – Further to minute 244, the Director of Finance submitted a report updating the sub-committee of key issues arising from work undertaken by Internal Audit in the 2011/12 audit plan year. Internal Audit delivered an annual programme of audit work designed to raise standards of governance, risk management and internal control across the council. This work culminated in the Internal Audit’s Annual Report that was used to inform the Annual Governance Statement. The Director in his report addressed and commented upon the following –
- Progress on completion of the Internal Audit Plan which was summarised in appendix A. Planned work had been reprioritised due to reduced resources and the impact of unforeseen work. Some reviews had also been postponed for the time being in agreement with the client due to changes in systems/procedures;
- A structural review of the Audit, Risk Management and insurance sections was planned to consider the level of mix of resource necessary to meet the future needs of the council in these disciplines;
- Evaluation of internal control arrangements – no further instances to report of those evaluated providing no assurance;
- Progress and success of recommendations retested between April 2011 and February 2012, and
- An update on and key proactive and reactive counter fraud work, which was summarised in appendix B.
The Director responded to members’ questions on aspects of his report.
Resolved – That following consideration of the above report and discussion of its content, the sub-committee agrees that the progress report contributes to a sufficient level of assurance on the adequacy of internal control arrangements, as detailed.
256 (30) EXTERNAL AUDIT RECOMMENDATIONS – PROGRESS REPORT – The Director of Finance submitted a progress report on the implementation of external audit recommendations in respect of the following key reports –
- Annual Audit Letter;
- Annual Governance Report;
- Certification of Claims and Returns – Annual Report, and
- Interim Systems Report (April 2011)
A summary progress report on ‘Interim Systems Report – Related Party Transactions was included as appendix A’ to the report.
The Director in his report explained that regular reporting on action taken to implement external audit recommendations was an important source of assurance for the sub committee to fulfil its role and provided supporting evidence for the annual approval of the Governance Statement.
Resolved – That following consideration of the above report and discussion of its content, the sub-committee agrees that the response to external audit’s recommendations as detailed in the report provides a sufficient level of assurance on action taken.
257 (31) EXTERNAL AUDIT REPORTS – AUDIT COMMITTEE UPDATE – The Director of Finance submitted a report which considered external audit’s ‘Audit Committee Update Report’. The report which was attached as appendix A to the report, provided the sub-committee with a summary on progress in delivering external audit’s statutory responsibilities. It also highlighted key emerging national issues and developments which maybe of interest to members, and included an update on external audit appointments.
Representatives of the council’s external auditors, the Audit Commission, in attendance at the meeting commented on the update report. In particular, the sub-committee was informed that following the Audit Commission’s exercise to outsource the work of its in-house Audit Practice, the successful tenderer in Yorkshire and Humberside was KPMG. KPMG would be the auditor for continuing Audit Commission appointments from 2012/13 audits onwards, initially for five years. Associated reduction in fees was also referred to as a likely outcome.
Resolved – That following consideration of the above report and discussion of its content, the external audit ‘Audit Committee Update Report’ be noted.
258 (32) QUARTERLY TREASURY MANAGEMENT AND STRATEGY REPORT – The Director of Finance submitted areport which provided the sub-committee with a regular review of the treasury strategy approved each year by the council.
The report outlined treasury management performance between April 2011 and February 2012. It explained how the strategy had been implemented to date and the response to changing conditions in financial markets.
The Director in his report also provided an update on the latest position with regard to recovering the council’s Icelandic investments.
Resolved – (a) That following consideration of the above report and discussion of its content, the sub-committee agrees that the quarterly report provides a sufficient level of assurance on the effectiveness of arrangements for treasury management; (b) that the treasury management performance for the period as outlined in the report, be noted, and (c) that following the final payments being recovered by the council for its Icelandic investments, a report be submitted to the sub-committee analysing their impact on council finances.
259 (33) RISK MANAGEMENT STRATEGY 2012/13 – The Director of Finance submitted a report which sought approval of the Risk Management Strategy for 2012/13 and Terms of Reference for the Risk Management Group. The strategy was an important source of assurance for the sub-committee as it described the council’s risk management framework, the work completed during the year and a comprehensive action plan for the forthcoming year. The strategy was attached as appendix A of the report.
The report stated that good progress had been made on the council’s risk management arrangements. The Risk Management Group (RMG) had been successful in achieving most of the action plan set for 2011/12. The action plan was attached as appendix B.
The Director in his report explained that the Risk Management Strategy and action plan helped to prioritise work to the areas of highest risk to the council and the proposed action plan for 2012/13 was structured to meet its priorities. The Strategy had been updated to reflect national and local economic and financial risks which may impact on the council along with significant change through major restructure, reshaping service delivery and operations and new legislation. Included in the action plan was a rolling programme of service reviews to monitor progress on efficiency and budget reduction measures agreed as part of the 2012/16 Financial Plan.
The Risk Management Group membership would be reviewed following the council restructure and its Terms of Reference had been updated at appendix C to the report for consideration and approval by the sub-committee.
The report also referred to the Audit Commission giving a positive VFM opinion in their Governance report (September 2011). This showed that there were proper arrangements in place for managing risk and a sound system of internal control was maintained.
The Risk Management Strategy and action plan and quarterly progress reports provided important sources of assurance to the Audit Sub-Committee that all significant risks to the council achieving its priorities were adequately managed. The council’s high level commitment to corporate governance and risk management would inform the Annual Governance Statement that the Audit Sub-Committee would be invited to approve, to accompany the Statement of Accounts.
Resolved – (a) That following consideration of the above report and discussion of its content, the sub-committee agrees that the Risk Management Strategy and action plan for 2011/12 contributes to assurance on the adequacy of the council’s risk management arrangements in 2011/12; (b) that the strategy’s proposed work plan will deliver similar assurance in 2012/2013; (c) that the Risk Management Strategy for 2012/2013 be approved, and (d) that the terms of reference for the Risk Management Group as detailed in appendix C of the report be approved.
260 MEMBER TRAINING UPDATE – The Director of Finance informed the sub-committee that the final ‘finance’ related training event in 2011/12 was to be held on 25 April on ‘Fraud and Governance’ issues. He was also proposing to schedule the following member training events into the council’s committee timetable for the 2012/13 municipal year – ‘Accountancy, Making Sense of Accounts’ – June, ‘Corporate Commissioning Strategy and Performance Scorecard Issues’ – September, ‘Local Taxation and Benefits – Managing Changes – October, ‘Effective Governance – Managing Risk and Fraud’ – December and the ‘Budget Briefing’ – February. These would be confirmed in due course and members informed accordingly. It was recommended that Audit Sub-Committee members attend these events, together with other members of the council.
Resolved – That the above member training be welcomed and that they be supported by members of the sub-committee and all other members of the council.
261 CHAIRMAN’S REMARKS – The chairman stated that this was the last meeting of the sub-committee in the 2011/12 council year. On behalf of the sub-committee, he expressed his thanks to the Director of Finance, his staff, Audit Commission and all officers who had provided support and comprehensive reports to the sub-committee over another busy year.