Audit Committee – 20 April 2009
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 12 January 2009 as a correct record and authorise the chair to sign.
- Annual Audit and Inspection Letter – Joint Report of the Chief Executive and Service Director Finance.
- Use of Resources Judgement.
- Internal Audit/Risk Management Progress Report.
- External Audit Recommendations – Progress Report.
- Accounting Policies 2008/09.
- External Audit Report – Grant Claims 2007/08.
- Internal Audit Plan, Strategy and Terms of Reference 2009/10.
- Audit Fees Letter 2009/10.
- Risk Management Strategy 2009/10.
- Anti Fraud Theft and Corruption Strategy and Counter Fraud Work.
- 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), C Sherwood, Smith and Vickers
Also in attendance were representatives of the Audit Commission (the council’s external auditors).
The committeemet at Pittwood House, Scunthorpe.
100 DECLARATIONS OF PERSONAL OR PERSONAL AND PREJUDICIAL INTERESTS – There were no declarations of personal or personal and prejudicial interests made at the meeting.
101 MINUTES – Resolved – That the minutes of the proceedings of the meeting held on 12 January 2009, having been printed and circulated amongst the members be taken as read and correctly recorded and be signed by the chair.
102 (68) ANNUAL AUDIT AND INSPECTION LETTER – The Chief Executive and Service Director Finance submitted a joint report on the council’s annual audit and inspection letter provided by its external auditors, the Audit Commission. The letter was attached as an appendix to the report. Each year the letter gave an overall summary assessment of the council, drawing on audit, inspection and performance assessment work.
The joint report summarised the key messages of the annual audit and inspection letter which were:-
1. The council was improving well in many priority areas with many services rated as good. It had responded well to the findings of last year’s corporate assessment. The development of strategic leadership and the management restructure should allow members and officers to deal with the more difficult issues such as improving health, reducing crime and developing the local economy. Its ability to deal with these priorities in the current financial circumstances required active performance management and a clear emphasis on value for money.
2. The progress the council had made in agreeing shared priorities with its partners now needed to be followed by delivery. The local strategic partnership required effective leadership to respond to the needs of the community and reduce inequalities as set out in the Sustainable Communities Strategy.
3. The overall performance judgement was that the council was improving well and it had been classified as three star in its current level of performance under the Corporate Performance Assessment (CPA). The temporary protection given in 2006 and 2007 to councils whose corporate assessment score had gone down under the Harder Test had now been removed which had resulted in a fall of star rating. However, the positive response to the recommendations of the 2008 Corporate Assessment and service performance in the last 12 months had led to the conclusion that the council was improving well. This was an improvement on last year’s ‘improving adequately’ rating.
4. The findings of the 2007/8 audit were reported in September 2008 and an unqualified opinion was given on the accounts together with an unqualified conclusion on arrangements for securing value for money.
The Annual Audit and Inspection Letter also highlighted improvement actions that needed to be taken by the council in response to the above. Similarly, the cabinet had been made aware of the development actions that were published in the CPA annual judgement in March 2009 and had responded to these with detailed recommendations that would be taken to the council’s next Quarterly Performance Review (QPR). Resulting action plans would be monitored in line with the council’s performance management arrangements.
A key improvement action had also been suggested for the Audit Committee. The committee should increase the focus on how it obtained assurance regarding the operation of the council’s internal control framework and financial reporting arrangements. Consequently, appropriate reports on this agenda and thereafter would request the committee to consider assurance that each provided. A programme of work for the committee would be prepared for the next meeting to set out clearly the sources of assurance the committee would receive in order to fulfil its terms of reference.
The Chief Executive and Service Director suggested therefore, that the committee should consider the assurance that had been given or could be implied from the Annual Audit and Inspection Letter’s conclusions, should agree the implementation of development and improvement actions set out in the joint report and develop a future annual work programme for the committee.
Resolved – (a) That the Annual Audit and Inspection Letter be welcomed, (b) that following consideration of the above report and discussion of its content, the committee agrees that assurance is available regarding the council’s 2007/08 accounts, arrangements for securing value for money and other significant aspects of the council’s operations, (c) that improvement actions recommended by the Audit Commission and highlighted in the joint report be implemented and monitored, (d) that the committee receives a further report at its next meeting setting out an Annual Work Programme and sources of assurance, (e) that a copy of the Annual Audit and Inspection Letter be circulated to all members of the council, and (f) that progress on addressing levels of staff sickness as identified in paragraph 25 of the letter be included in a report to the next meeting.
103 (69) USE OF RESOURCES JUDGEMENT 2008 – The Service Director Finance submitted a report confirming the council’s Use of Resources judgement for the financial year 2007/08. The assessment evaluated how well the council managed and used its resources focussing upon strategic financial management, sound governance and effective reporting arrangements. It was a statutory responsibility of the Audit Commission to report on the performance of local authorities as part of the Comprehensive Performance Assessment (CPA). From next year there would be a new assessment which would form part of the new Comprehensive Area Assessment (CAA).
The Audit Commission’s report, which was attached as an appendix, stated that overall the council continued to achieve level 3-‘performing well’. The score was a composite review of five themes- Financial Reporting, Financial Management, Financial Standing, Internal Control and Value for Money, which in turn was made up of one or more strands. The judgement on each strand, with comparable scores for the previous year, together with key findings and recommendations were summarised in the Service Director’s report.
The Service Director suggested that the committee should consider the Audit Commission’s (external audit’s) judgement, which was a positive one, and the assurance that could be implied from its conclusions and that of internal assessment.
Resolved – (a) That following consideration and discussion of the Audit Commission’s judgement and the council’s internal assessment, assurance is available that the council’s finance, governance, and control processes are performing well, and (b) that the Audit Commission’s recommendations be implemented and monitored.
104 (70) INTERNAL AUDIT / RISK MANAGEMENT PROGRESS REPORT – Further to minute 95, the Service Director Finance submitted a report updating the committee of key issues arising from Internal Audit and Risk Management Work. Regular reporting of this work was an important source of assurance for the committee to fulfil their role, provided supporting evidence for the annual approval of the council’s Governance Statement, and was recognised as good practice by the Comprehensive Area Assessment (CAA) Use of Resources criteria.
The Service Director in his report addressed and commented upon the following –
- The development of the 2009/10 Internal Audit Plan and Risk Management Strategy /action plan and Anti Fraud, Theft and Corruption Strategy (minutes 108 and 111 also refer);
- Progress on the audit reviews of the council’s fundamental financial systems, the outcomes of which would be reported to the next meeting of the committee;
- All secondary schools had submitted Financial Management Standard in Schools self assessments. Some primary schools had not submitted their self assessments in accordance with the agreed timetable with implications in 2009/10 for audit plan resourcing problems and delayed submission turnaround. Potential action through the DCSF was highlighted;
- Progress on the use of the council’s governance toolkit being applied to all significant partnerships to review and evaluate the adequacy of arrangements in place. Resources had been included in the 2009/10 audit plan to measure the impact of this work;
- Good progress had been made on implementing the External Audit review of the Internal Audit action plan. Details would be reported to the June meeting of the committee;
- Work carried out and progress made in the Risk Management Strategy and action plan 2009/10 against the action plan for 2008/09. An update to the January 2009 Strategic Risk Controls report was also provided in appendix A to the report, and
- The council’s Use of Resources self-assessment had been evaluated against the new requirements for 2008/09. The self-assessment highlighted adequate internal control arrangements in place and good risk management arrangements against recognised best practice. The outcome of external audit’s evaluation would be reported to the committee at a future meeting.
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 internal control and risk management arrangements, and (b) that the Service Director write in a month’s time to all primary schools which have not submitted their Financial Management Standards in Schools self assessments, and report back to the next meeting.
105 (71) EXTERNAL AUDIT RECOMMENDATIONS – PROGRESS REPORT – Further to minute 87, the Service Director submitted a progress report on the implementation of external audit recommendations in respect of the following key reports –
- Report to those charged with governance (matters arising from the audit of accounts) – ISA 260, and
- Data Quality Report
In addition, progress on other recommendations from specific one-off reports was also reported. These included:-
- Tackling Drugs Misuse through Joint Working, and
- Consequences of Flooding in Summer 2007
Progress on the key Annual Audit and Inspection Letter and one-off Grants Report had been reported in more detail during the meeting (minutes 102 and 107 refer).
The Service Director in his report suggested that the committee should consider whether the report provided sufficient assurance on the progress made on external audit’s recommendations and to seek clarification on its contents as necessary.
Resolved – That following consideration of the above report and discussion of its content, the committee agrees that the response to external audit’s recommendations as detailed in the report provides a sufficient level of assurance on action taken.
106 (72) ACCOUNTING POLICIES 2008/09 – The Service Director Finance submitted a report seeking approval of the accounting policies that the council would use to close the 2008/09 accounts. The Accounting Policies document was attached at appendix A.
The report explained that the Statement of Recommended Accounting Practice (SORP) for local authorities required each local authority to adopt accounting policies that set principles for recording financial transactions within the council’s accounts. The SORP was a legal requirement recognised in legislation as ‘proper accounting practice’. North Lincolnshire’s proposed policies were based upon guidance issued by the Chartered Institute of Public Finance and Accountancy (CIPFA) and take account of local circumstances.
The Service Director also stated that it was also a requirement to review the policies annually and in order to strengthen the council’s governance arrangements from this year onwards the council’s reporting standards would be reported once a review had been carried out. This year the new policy statement did not propose significant changes to existing policies.
The committee was requested to satisfy themselves that the accounting policies set out in appendix A were appropriate, and to pay particular attention to those policies highlighted as being modified to take account of local circumstances. These local amendments and limited changes were outlined in the report.
Resolved – That North Lincolnshire Council’s Accounting Policies as set out in Appendix A be approved.
107 (73) EXTERNAL AUDIT REPORT: GRANT CLAIMS 2007/08 – The Service Director submitted a report from the council’s auditors, the Audit Commission, on the council’s arrangements for claiming grants in 2007/08.
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 2007/08 approximately £124m of grant income was subject to audit by 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 2007/08 were set out in the report, together an action plan prepared to implement their 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 that the council’s procedures for claiming grants are improved and are operating effectively, and (b) that the action plan be implemented and monitored.
108 (74) INTERNAL AUDIT PLAN, STRATEGY AND TERMS OF REFERENCE – Further to minute 68, the Service Director Finance submitted a report which considered the council’s internal audit plan, audit strategy and terms of reference for 2009-2010. His report explained that the Accounts and Audit Regulations 2003 (as amended) placed responsibility with the council for ensuring:
- Financial management was adequate and effective
- A sound system of internal control existed
- Arrangements were in place for the management of risk.
The regulations also required that the council reviewed the effectiveness of its system of internal control at least once a year and prepared an Annual Governance Statement.
The report stated that Internal Audit played a principal role in advising the council, and in particular the Audit Committee, that these 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 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 corporate governance arrangements throughout the council. In undertaking this role the 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
- Considering the assurance provided by the annual opinion report.
The Service Director in his report explained that Internal Audit was a key part of the council’s internal assurance and governance system, and that the terms of reference for Internal Audit had been reviewed and updated to reflect Internal Audit’s role in providing assurance to the committee and that counter fraud work was reported regularly. Revised terms of reference were attached as appendix A and the audit strategy at appendix B to the report.
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 EMT, Service Director Finance, and other Service Directors and external audit. Progress in achieving the plan and issues arising from audit work would be reported to this committee throughout the year. CIPFA’s Code of Audit Practice (the Code) has been considered and the audit plan met best practice. The plan for 2009 – 2010 was summarised in appendix C to the report. 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.
The report stated that the audit strategy described how the internal audit service would be delivered and developed in accordance with the terms of reference and how it linked to the council’s objectives and priorities. The strategy also contained a brief description of the types of audit work to be undertaken, resourcing implications and reporting and liaison arrangements.
In addition, the report explained that the annual report for 2008/09 would be presented to the committee in the summer and would contain a summary of the work undertaken and significant outcomes of audit reviews. In line with best practice the report would include an overall audit opinion on the adequacy of internal control within the council. This in turn informed the Annual Governance Statement which was published with the council’s accounts.
The Service Director suggested that the committee should consider whether the Internal Audit plan, strategy and terms of reference would provide sufficient assurance in 2009/10.
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the Internal Audit plan, audit strategy and terms of reference for 2009/10 will provide the 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 2008-2009 be approved.
109 (75) AUDIT FEES LETTER 2009/10 – The Service Director Finance submitted a report referring to a letter in appendix A, which provided the committee with details of external audit’s (the Audit Commission) proposed work and fee for the 2009/10 audit.
The report explained that the letter 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. Fees would be reviewed and updated as necessary as audit work for 2008/09 that impacted on the audit planning process for 2009/10 was completed. The planned work was structured into three areas, ‘Audit’ (opinion work on financial statements, including Whole of Government Accounts); Use of Resources/VFM conclusion, including risk – based audit work and data quality, ‘Inspection’- managing performance and ‘Certification of grant claims and returns’. The total indicative fee for the audit for 2009/10 was for £242,364.
Resolved – That the Audit Fee Letter and proposed audit fee for 2009/10 be noted.
110 (76) RISK MANAGEMENT STRATEGY 2009/10 – With reference to minute 69, the Service Director Finance submitted a report which sought approval of the Risk Management Strategy for 2009/10. The strategy was an important source of assurance for the 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 explained that good progress had been made on the council’s risk management arrangements. The Strategic Risk Management Group (SRMG) had been successful in achieving most of the action plan set for 2008/09 Strategic and operational risks were identified and controls were monitored and managed through the registers. Details of work completed were described within the report.
The Comprehensive Performance Assessment Use of Resources had rated the council’s Risk Management arrangements as 3 – consistently above minimum requirements, performing well. The main reason leading to this result was that the risk management strategy was regularly reviewed, training was in place for relevant staff and members and key business risks were being monitored, managed and reported to members.
The report also summarised the key elements of the council’s risk management action plan for 2009/10 and stated that the strategy, plan and quarterly progress reports provided important sources of assurance to the committee, and that all significant risks to the council in achieving its aims and objectives were adequately managed. The council’s high level commitment to corporate governance and risk management would inform the Annual Governance Statement that the committee would be invited to approve for inclusion in the annual report and accounts.
The Service Director Finance suggested that the committee should consider whether the Risk Management Strategy provided sufficient assurance on the adequacy of the council’s risk management arrangements in 2008/09 and, whether the proposed plan would deliver similar assurance in 2009/10.
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the Risk Management Strategy and action plan for 2009/10 contributes to assurance on the adequacy of the council’s risk management arrangements 2008/09, (b) that the strategy’s proposed work plan will deliver similar assurance in 2009/10, and (c) that the Risk Management Strategy for 2009/10 be approved.
111 (77) ANTI FRAUD THEFT AND CORRUPTION STRATEGY AND COUNTER FRAUD WORK – The Service Director Finance submitted a report seeking approval of the council’s updated Anti Fraud, Theft and Corruption Strategy. The strategy aimed to provide the committee with an appropriate level of assurance that counter fraud arrangements were adequate.
The report explained that the Anti Fraud Theft and Corruption Strategy set out the council’s approach to deter, prevent and detect fraud and safeguard its assets. The strategy was revised periodically to reflect changes in legislation and recommended best practice guidance. It had been revised to take account of the counter fraud self-assessment against CIPFA guidance completed in 2008. This ensured that the council remained at the forefront of the prevention and detection of fraud and corruption.
The committee continued to receive reports throughout the year on counter fraud work to provide assurance on the adequacy of arrangements the council has in place. Two types of work are reported; proactive- designed to evaluate controls in place to prevent and detect fraud occurring, and reactive-the outcome of fraud investigated.
The Service Director in his report summarised the following work undertaken to provide the committee with an appropriate level of assurance –
- ‘Managing the Risk of Fraud’ self assessment carried out by Internal Audit leading to a review of the Anti Fraud Theft and Corruption Strategy, and establishing the council’s approach to money laundering to be included in the strategy.
- The council’s response to CIPFA’s guidance on compliance with money laundering guidance and associated legislation, responsibilities within the council, training for those involved and the role of the Audit Committee;
- Progress on the council’s participation in the Audit Commission’s National Fraud Initiative (Data Matching), with outcomes to be reported to future meetings;
- The outcome of a fraud investigation at one of the council’s leisure facilities, and
- Successful work undertaken by the council’s Benefit Fraud section including close working with other agencies, especially the Department for Work and Pensions.
The Service Director suggested that the committee should consider whether the Anti Fraud Theft and Corruption Strategy would provide sufficient assurance on the council’s counter fraud arrangements
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the Anti Fraud Theft and Corruption Strategy delivers a sufficient level of assurance on the adequacy of the council’s counter fraud arrangements, and (b) that the Anti Fraud Theft and Corruption Strategy be approved.
112 MEMBER TRAINING UPDATE – Further to minute 99, the Service Director Finance updated members by informing them that future training events would be provided for the committee on ‘Outcome of the Annual Audit and Inspection Letter – Assurances provided to the committee by a programme of planned work (to be reported to the next meeting)’ and ‘Further training on the Annual Accounts’. These were likely to be facilitated jointly by the Service Director Finance and the Audit Commission. Similarly, further training events for all members would be provided throughout 2009/10 on ‘Budget and Procurement’, ‘Governance and Fraud’ and ‘Raising awareness of Anti-Fraud and Money Laundering’
The chair and vice-chair would also be attending a training event in York in June organised by CIPFA on ‘Risk Management-Approving Final Accounts’.
Resolved – (a) That the position be welcomed and noted, and (b) that the Service Director Finance and his staff, together with all other appropriate officers be thanked for their hard work in preparing reports and supporting the committee.