Audit Committee – 13 April 2010
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 26 January 2010 as a correct record and authorise the chair to sign
- Sickness Absence Update – Oral report of the Head of Strategy Development
- Audit Committee – Forward Plan and Assurance Map 2010/11
- Internal Audit Plan, Strategy and Terms of Reference 2010/2011
- Internal Audit Progress Report
- External Audit Recommendations – Progress Report
- External Audit Report : Grant Claims 2008/09
- Accounting Policies 2009/10
- Quarterly Treasury Management and Strategy Report
- Value for Money Strategy : Better Value Together
- Risk Management Strategy 2010/2011
- 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 was a representative of the Audit Commission (the council’s external auditors).
The committee met at Pittwood House, Scunthorpe.
150 DECLARATIONS OF PERSONAL OR PERSONAL AND PREJUDICIAL INTERESTS – There were no declarations of personal or personal and prejudicial interests made at the meeting.
151 MINUTES – Resolved – That the minutes of the proceedings of the meeting held on 26 January 2010, having been printed and circulated amongst the members be taken as read and correctly recorded and be signed by the chair.
152 SICKNESS ABSENCE UPDATE – Further to minute 140, the Head of Strategy Development gave an oral report informing the committee of the up to date position of work currently being carried out to reduce the level of sickness absence of council employees. She informed members that based upon statistics to date, North Lincolnshire Council had moved out of the bottom quartile of councils’ sickness absence levels and was likely to achieve a level just above its target for the 2009/10 year.
The oral report confirmed that the joint peer review and scrutiny review plan would be reported to the council’s management team in May 2010 for consideration and action.
The Head of Strategy Development responded to questions asked by members.
Resolved – (a) That the position be noted, (b) that the joint peer review and scrutiny review action plan to be considered by the Council’s Management Team (CMT) in May 2010 also be submitted to the June 2010 meeting of this committee, so that it can be considered whether it will provide sufficient assurance that sickness absence will be reduced.
153 (26) AUDIT COMMITTEE – FORWARD PLAN AND ASSURANCE MAP – Further to minute 122, the Service Director Finance submitted a report containing a forward plan of reports and map of assurances for 2010/11. The plan also showed the assurance each report would provide to allow the committee to fulfil its terms of reference and whether the source of assurance was primary or supporting. Only 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 Committee needed to fulfil its terms of reference and culminating in the approval of the accounts and Annual Governance Statement, whilst appendix B contained the forward plan of reports.
Resolved – (a) That following consideration of the report and discussion of its content, the committee agrees that the Forward Plan for 2010/2011 provides sufficient scope to provide an appropriate level of assurance on the adequacy of the council’s internal control and governance, and (b) that the Forward Plan be approved.
154 (27) INTERNAL AUDIT PLAN, STRATEGY AND TERMS OF REFERENCE 2010/2011 – Further to minute 108, the Service Director Finance submitted a report which considered the council’s internal audit plan, audit strategy and terms of reference for 20010-2011. 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 monitoring the new anti- money laundering policy including making appropriate police referrals if necessary. Also the reporting section had been updated to reflect the forward plan of Audit Committee reports and map of assurances. 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. 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 2010 – 2011 was summarised in appendix C to the report. For the first time a separate counter fraud plan had been identified and regular updates would be provided on progress to provide the 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 2009/10 would be presented to the committee in the summer 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 Committee. The annual report was an important component of 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 for 2010/2011 would provide the committee with a sufficient level of assurance to fulfil its role.
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 20010/2011 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 2010/2011 be approved, subject to paragraph 5.1 of the terms of reference being re-written to reflect the Audit Committee’s expectations that if necessary appropriate matters shall be reported to them by the Audit and Risk Manager.
155 (28) INTERNAL AUDIT PROGRESS REPORT – Further to minute 143, the Service Director 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 their role and provide supporting evidence for the annual approval of the council’s Governance Statement. The Service Director in his report addressed and commented upon the following –
- Progress on the preparation of the audit plan (minute 154 also refers), allocation of resources and the completion of fundamental financial systems reviews since last reported to the committee in January 2010. Details were summarised in appendix A of the report. Also, a self assessment evaluation to capture Use of Resources development areas and demonstrable outcomes from arrangements in place would be reported to the next meeting;
- Counter Fraud work including the council’s first news letter to raise awareness, a fraud awareness survey distributed to all staff with findings to be reported to members in June and a separate fraud plan being included in the Internal audit Plan for the first time;
- Significant progress on Financial Management Standard in Schools self assessments (FMSiS) being made from primary schools in particular;
- A notable increase in the number of requests from service managers for financial advice and guidance in financial administration and responses provided;
- Work being carried out to improve service managers’ responses to audit recommendations as some responses remained slow. Approximately 65% of audit recommendations were implemented although high risk areas received closer attention;
- A follow up review of partnership governance arrangements had been completed showing that progress had been made, and further work was carried out in response to the audit with all recommendations addressed, and
- Roll out of the audit management system had commenced and 2010/2011 audit plan work would be managed using the software.
Resolved – (a) 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; (b) that the Service Director Finance write to the four primary schools identified in the report to remind them of the need to arrange a date for their FMSiS assessment, and (c) that the Service Director Finance also report the committee’s concerns over some managers slow and non-response to audit recommendations to the Council’s Management Team (CMT).
156 (29) EXTERNAL AUDIT RECOMMENDATIONS – PROGRESS REPORT– Further to minute 131, the Service Director submitted a progress report on the implementation of external audit recommendations in respect of the following key reports –
- Annual Audit and Inspection Letter;
- Annual Governance Report, and
- Use of Resources Report
Corresponding action plans for the last two reports were included as appendices A and B to the report.
The Service Director in his report explained that regular reporting on action taken to implement external audit recommendations was an important source of assurance for the 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 committee agrees that the response to external audit’s recommendations as detailed in the report provides a sufficient level of assurance on action taken.
157 (30) EXTERNAL AUDIT REPORT : GRANT CLAIMS 2008/09 – The Service Director submitted a report from the council’s auditors, the Audit Commission, on the council’s arrangements for claiming grants in 2008/09.
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 2008/09 approximately £130m 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 2008/09 were set out in the report, together with an action plan in appendix 2, prepared 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, (b) that the action plan in appendix 2 of the report be implemented and monitored, and (c) that the Service Director Finance forward the concerns of this committee to the appropriate service director following the repeat error relating to the South Humber Bank Heritage claim.
158 (31) ACCOUNTING POLICIES – The Service Director Finance submitted a report seeking approval of the accounting policies that the council would use to close the 2009/10 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 took account of local circumstances.
The Service Director also stated that in 2010/11 with the introduction of International Financial Reporting Standards (IFRS) the SORP would be replaced by a Code of Practice (COP). The accounting policies would be subject to major changes. Although the 2009/10 accounts must be prepared on the current accounting rules, the council must be able to restate them to comply with IFRS as comparators for the 2010/11 accounts.
The report also set out local amendments to the standard accounting policies, which were unchanged from 2008/9, and other minimum changes because of the transition year between current accounting arrangements and IFRS changes.
Resolved – (a) That North Lincolnshire Council’s Accounting Policies as set in Appendix A of the report be approved, and (b) that the Service Director Finance be authorised to implement revised accounting policies should this be necessary in the production of the accounts.
159 (32) QUARTERLY TREASURY MANAGEMENT AND STRATEGY REPORT – Further to minute 145, 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 2009 and February 2010. It explained how the strategy had been implemented during the first nine months of the year and the state of 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, on the adoption of the revised code of practice for treasury management and the approval of a revised treasury strategy for 2010/11 at council in February (minute 1830 refers).
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees 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.
160 (33) VALUE FOR MONEY STRATEGY: BETTER VALUE TOGETHER – The Service Director Finance submitted a report which referred to the development of a Value for Money Strategy: Better Value Together. This had been approved recently by the council’s Cabinet (Minute 856 refers). The report indicated that value for money was about getting the best possible outcomes for local people from the resources available to the council. It recognised the relationship between economy (cost), efficiency (productivity), and effectiveness (impact). VFM was achieved where there was the optimum combination of these elements – relatively low costs, high productivity and successful outcomes.
VFM performance was extremely important – local people, service users, businesses, council tax payers and elected members rightly expected value for money from their council. Increasingly, external inspection bodies such as the Audit Commission expected the council to demonstrate good value and VFM was now a key element of the Comprehensive Area Assessment organisational assessment. The development of VFM performance across the public sector was central to an increasing range of national and regional initiatives, details of which were contained in paragraph 2.3.
The council had a long history of providing and demonstrating value for money and had worked over the last few years to develop the council’s VFM capability and deliver improvements. The concept of VFM was recognised and well understood by service managers and a wide array of initiatives had been implemented to raise awareness, ranging from training for managers to specific VFM reviews and the incorporation of VFM benchmarking and profiling in service plans.
A number of themes had been identified as the key to driving improvement and these were set out in paragraph 2.8. Attached as an appendix to the report was the VFM strategy entitled “Better Value Together 2010-2013.”
The Service Director requested that the committee should consider whether the VfM Strategy provided sufficient assurance that the council’s VfM improvement measures for 2010-2013 were adequate, and to make any suggestions to strengthen them.
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the Value for Money Strategy with the corresponding report provides sufficient assurance that the council’s value for money improvement measures for 2010-2013 are adequate.
161 (34) RISK MANAGEMENT STRATEGY – With reference to minute 110, the Service Director Finance submitted a report which sought approval of the Risk Management Strategy for 2010/11. 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 2009/10. The action plan was attached as appendix B. 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 Service 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. The proposed action plan for 2010/11 had been structured to meet the aims and objectives of the strategy. Key work including the implementation and delivery of the council’s transformation strategy and review of the strategic risk register following completion of new style service plans, would be reflected in the risk management strategy.
The Comprehensive Area Assessment – Use of Resources had rated the council’s internal control arrangements (which included risk management arrangements) as 2 – meeting minimum requirements, performing adequately. This represented consolidation of arrangements against more demanding criteria. One important development for 2010/2011 was the introduction of performance measures to demonstrate success and positive outcomes/impact on strategy. This would help the council take the step change necessary to hopefully achieve level 3 in its risk management arrangements.
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 in 2009/10, (b) that the strategy’s proposed work plan will deliver similar assurance in 2010/2011, and (c) that the Risk Management Strategy for 2010/2011 be approved.
162 MEMBER TRAINING UPDATE – The Service Director Finance referred to minute 149, and the training events scheduled and informed the committee that in addition to these, a further event on final accounts training would be scheduled before the end of June for the committee and/or possibly all members.
Resolved – (a) That the position be noted, and (b) that the suggested additional training event be welcomed.