Audit Committee – 30 June 2008
Chair: Councillor Whiteley
Venue: Function Room 1, 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 17 April 2008 as a correct record and authorise the chair to sign.
- To note the dates and times of future meetings:
- Tuesday 30 September 2008 at 10am
- Monday 12 January 2009 at 10am
- Monday 20 April 2009 at 10am
- To note the Audit Committee’s Terms of Reference.
- External Audit and Inspection Plan 2008/2009.
- Internal Audit – Effectiveness Report 2007/2008.
- Internal Audit – Annual Report 2007/2008.
- Internal Audit/External Audit Protocol.
- Anti-Fraud Report.
- Final Accounts –
- Annual Governance Statement 2007/2008 – Joint report of the Service Director Finance, Service Director Legal and Democratic and Head of Strategy Development.
- Statement of Accounts 2007/2008.
- 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 Barkworth, Cawsey, T Foster and Vickers
Councillor Wells attended the meeting in accordance with Procedure Rule 37b.
The committeemet at Pittwood House, Scunthorpe.
72 DECLARATIONS OF PERSONAL OR PERSONAL AND PREJUDICIAL INTERESTS – There were no declarations of personal or personal and prejudicial interests made at the meeting.
73 MINUTES – Resolved – That the minutes of the proceedings of the meeting held on 17 April 2008, having been printed and circulated amongst the members be taken as read and correctly recorded and be signed by the chair.
74 DATES AND TIMES OF FUTURE MEETINGS – Resolved – That the dates and times of future meetings of this committee be held at 10.00 am on Tuesday 30 September, 2008, Monday 12 January, 2009 and Monday 20 April, 2009
75 (48) AUDIT COMMITTEE – TERMS OF REFERENCE – The committee’s Terms of Reference were circulated with the agenda papers for information. The Service Director Finance informed the committee of one technical amendment in the terms of reference. They had been updated in paragraph (d) under the heading ‘Regulatory Framework’ as the new Annual Governance Statement (AGS) had now replaced the Statement of Internal Control (SIC).
Resolved – That the committee’s Terms of Reference with the above technical amendment be noted.
76 (49) EXTERNAL AUDIT AND INSPECTION PLAN 2008-2009 – The Service Director Finance submitted a report which considered the Audit Commission’s External Audit and Inspection Plan 2008/2009. The plan had been drawn up from external audit’s risk-cased approach to audit planning and the requirements of the Comprehensive Performance Assessment (CPA).The plan included all audit and inspection work for 2008/2009. A copy of the plan was attached as an appendix to the report.
The plan was the result of a risk assessment and complied with statutory requirements governing external audit and inspection work, meaning that work would be targeted to have its greatest effect and help the council to continue to improve. The risk-based approach used, was based on an assessment of:-
- Risks facing the council and its improvement priorities.
- Audit Commission’s advice on high-risk areas for councils.
- Audit and Inspection work specified by the Audit Commission for 2008-9.
The planned work would be structured into three areas under the headings Audit, Inspection and Certification of grant claims and returns. Planned external audit fees for 2008/2009 were also set out in the report.
Members discussed the content of the plan with the council’s external auditors who were present at the meeting.
Resolved – That the External Audit and Inspection Plan for 2008/2009 be noted.
77 (50) INTERNAL AUDIT – EFFECTIVENESS REPORT 2007/2008 – 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 annual 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 Service Director Finance in his report summarised the audit opinions on the effectiveness of the council’s internal audit which included –
- Reference to the Corporate Performance Assessment (CPA) Use of Resources report (December 2007) assessing the council as performing consistently above minimum requirements (Level 3) in maintaining a sound system of internal control and internal audit met all CIPFA standards.
- Compliance with, following self assessment, the requirements and standards of the CIPFA’s Code of Practice for Internal Audit and Local Government 2006. Identifying four areas of improvement to be implemented during 2008/2009, some having been addressed through the Internal Audit/External Audit Protocol (minute 79 refers)
- Feedback on internal audit’s work for service managers following each system review and establishment audit. The 2007/2008 results of Service managers being asked to comment on their satisfaction and value added from audit work in a questionnaire, indicated that they considered the conduct, manner and attitude of audit staff to be good or excellent, with none rated as poor. Similarly, 94% found audit recommendations to be realistic and helpful.
- Contractual arrangements with Humberside Police Authority and Humber Connexions to provide an internal audit service. This provided the opportunity for professional development and indicated a good quality audit service.
- Participation in local and national benchmarking which demonstrated the council’s internal audit provided good value for money, through high investment in staff development and below average staff costs when direct comparisons were made. Also confirmation of results and achievements set for performance targets for 2007/2008.
Based upon the above, internal audit was assessed as providing an effective service to the council.
Resolved – That the committee notes the opinion that internal audit provides an effective service to the council.
78 (51) INTERNAL AUDIT ANNUAL REPORT 2007/2008 – The Service Director Finance submitted a report advising the committee on internal audit’s work during 2007/2008, and to provide an audit opinion on the adequacy of the council’s control environment. This 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 2003 (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 identified key points which were summarised as follows –
- Based on work completed, the audit opinion was that internal control and corporate governance arrangements were generally sound although some areas for improvement had been identified. Remedial works had been carried out and were now nearing completion;
- Work completed in the year targeted areas of high risk to the council;
- Internal audit continued to provide the focus for the council’s Anti Fraud and Corruption Strategy;
- Most performance targets had been achieved, and
- Audits of the Fundamental Financial Systems for 2007/2008 had been completed.
The Service Director responded to members’ questions on key aspects of his report.
Resolved – (a) That the Internal Audit Annual Report for 2007/2008 be received, (b) that the committee notes the audit opinion that the council’s internal control and corporate governance arrangements are generally sound, and (c) that the Service Director Finance, on behalf of the committee, write to the Service Director Children, Strategy and Partnerships, Service Director Learning, Schools and Communities and the Head of Strategic Regeneration, Housing and Development requesting that they complete their service’s ‘authorised signatory lists for payroll and creditor payments’ by 31 August 2008. They should also be reminded that the council’s external auditor was likely to consider its impact within their reporting procedures.
79 (52) INTERNAL AUDIT/EXTERNAL AUDIT PROTOCOL 2008/2009 – The Service Director Finance submitted a report seeking approval of an Internal Audit/External Audit Protocol for 2008/2009.
The report explained the different roles and responsibilities of internal and external audit and emphasised that effective cooperation and communication between them was important. This ensured that audit plans were coordinated and reliance was placed on each others work wherever possible to achieve the most effective audit coverage and minimise duplication.
The Service Director in his report stated that the relationship between internal and external audit at the council had always been very professional with good cooperation. With the recent change in external audit provider, the opportunity had been taken to develop a protocol for joint working between internal and external audit. The protocol, attached at appendix A to the report, set out consultation and communication arrangements, the coordination of audit plans and where reliance would be placed on work undertaken by both internal and external audit to ensure duplication of effort was minimised. It also provided a mechanism for the Audit Committee to ensure that a professional relationship was maintained and effective liaison arrangements were in place. The protocol was a working document and whilst it would be subject to annual formal review, it would be changed as the operational and statutory need arose.
Resolved – That the Internal Audit/External Audit Protocol for 2008/2009 be approved.
80 (53) ANTI-FRAUD WORK – The Service Director Finance submitted a report which summarised the findings of the council’s current position in relation to the Chartered Institute of Public Finance (CIPFA) requirements for counter fraud, and arrangements in place to allow the Audit Committee to exercise oversight of management’s processes for identifying and responding to the risks of fraud and internal controls established to mitigate them.
The report explained that the council had a track record of dealing effectively with fraud cases as they occurred, and reducing the likelihood of further cases. The council’s fraud experience had been relatively infrequent and of a low value. This was substantiated through the National Fraud Initiative (NFI), which provided potential fraudulent data matches for the council to investigate. The last NFI exercise returned fewer cases than would be expected of the size of this council and investigations revealed few instances of actual frauds that had occurred.
In his report the Service Director Finance referred to minute 67, and stated that as part of an assessment of the effectiveness of the Audit Committee a requirement was included for it to assess counter fraud arrangements against the CIPFA publication ‘Managing the Risk of Fraud – Actions to Counter Fraud and Corruption’ On the committee’s behalf, Internal Audit had evaluated the council’s current arrangements in relation to its circumstances of low fraud activity. The exercise showed that most of the CIPFA requirements were being fully or partially met. There were a number of areas where improvements could be made which were outlined in the report, together with associated action and resources allocated in the 2008/2009 Audit Plan. Further outcomes from this work would be reported to the next meeting of the committee.
The report also explained that management and ‘those charged with governance’ had primary responsibility for preventing and detecting fraud. Consequently, the Audit Committee within its terms of reference, had a vital role to promote the council’s counter fraud arrangements across the council and apply it to all key processes and policies. In particular, this included approval of the council’s accounts. Similarly, external audit (the Audit Commission) were required under their Code of Audit Practice and compliance with International Standards for Auditing to ascertain how the Audit Committee discharged their responsibility for the prevention and detection of fraud in key processes. Appendix A of the report listed the significant issues External Audit were required to assess and the council’s arrangements to address these.
Resolved – (a) That the report be noted; (b) that further work highlighted in the report to establish improvements to anti fraud arrangements designed to meet the council’s identified needs be approved, and (c) that the arrangements in place is respect of the Audit Committee’s anti fraud role as summarised in Appendix A of the report be endorsed.
81 (54) FINAL ACCOUNTS – Annual Governance Statement – Further to minute 57, the Service Director Finance, the Service Director Legal and Democratic and the Head of Strategy Development submitted a joint report presenting the council’s draft Annual Governance Statement (AGS) 2007/2008 for the committee’s comments following approval by the Leader of the Council and Head of Paid Service. The committee was required to oversee the production of the AGS and formally adopt it as part of the council’s accounts.
The report explained that the draft Annual Governance Statement set out the council’s governance framework and the results of the annual review of the effectiveness of the council’s arrangements. Sources of assurance to support the statement were gathered throughout the council in the form of annual assurance statements prepared by Service Directors. These statements provided an evaluation of the adequacy of internal control within their service area and were evidenced by sources of assurance and managerial processes. External audit reviews and inspections provided other important sources of assurance. Independent reviews carried out by internal audit in key areas such as risk management, corporate governance and fundamental financial system work were also key contributors.
The draft Annual Governance Statement 2007/2008 was attached as appendix A to the report and showed that the council had well-established governance arrangements that were monitored and reviewed on a regular basis. Changes and enhancements described in the AGS demonstrated the council’s commitment to continual improvement. Significant governance issues requiring further development were identified in the AGS.
The Service Directors also reminded the committee that their report enabled members to give full consideration to the AGS and suggest amendments, prior to its inclusion in the council’s 2007/2008 accounts. External audit would also consider the AGS as part of the financial accounts audit.
Resolved – (a) That the committee’s comments on the Annual Governance Statement be noted; (b) that the Annual Governance Statement for 2007/2008 be adopted as part of the council’s accounts, and (c) that relevant Service Directors be thanked for the preparation of this comprehensive report and accompanying document.
82 (55) Statement of Accounts 2007/2008 – The Service Director Finance submitted a report seeking the committee’s consideration and approval of the Statement of Accounts for North Lincolnshire Council for 2007/2008. 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 performance for the year and its financial position at the end of that period (April to March). The 2007/2008 Statement of Accounts had to be considered and approved by this committee by 30 June 2008, and then audited and published within six months of the financial year end, by 30 September 2008.
The report 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 which were attached as Appendix A of the report. They incorporated details reported to the council’s Cabinet on 21 May 2008 (minute 738 refers).
The external auditors would issue an audit report on the accounts in due course and the contents of this would be reported back to the committee. The external auditors would then provide an opinion on the accounts as a fair representation of the Council’s performance for 2007/8 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. Reference was made to slight amendments to the accounts as printed which had resulted in a need to circulate one revised sheet.
Members then asked questions about individual elements of the accounts which the Service Director Finance responded to.
Resolved – (a) That the Statement of Accounts for 2007/2008 be received and approved with the addition of the amendments circulated, and (b) that the Service Director Finance and his staff be thanked for their work in the preparation of the Statement of Accounts 2007/2008.
83 (56) MEMBERS’ TRAINING – UPDATE – The Service Director reminded the committee of ‘Finance, Value for Money’ training for all members scheduled for 17 July 2008. There was a possibility that this may not now take place because of expected UNISON industrial action that day. Any postponement would be confirmed. He also stated that ‘Governance and Risk Management’ training was scheduled in the council’s timetable for November 2008. Other opportunities for further training and member suggestions would be discussed with the committee.
Resolved – (a) That the position be noted, and (b) that further training opportunities be discussed with the committee.