Audit Sub-Committee – 27 September 2011

Chairman:  Councillor Eckhardt 
Venue:  Pittwood House, Scunthorpe
Time:  10am

AGENDA

  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 29 June 2011 as a correct record and authorise the chairman to sign
  4. Internal Audit – progress report
  5. External Audit Recommendations – progress report
  6. External Audit – progress report and briefing
  7. Risk management progress report
  8. Quarterly treasury management and strategy report
  9. Annual Governance Statement 2010/2011 – Joint report of the Director of Finance, and the Director of Corporate and Community Services
  10. Audit of Accounts 2010/2011 – matters arising from the audit
  11. Member training – update
  12. Any other items which the chairman decides are urgent by reasons of special circumstances which must be specified. 

 Note:  Reports are by the Director of Finance unless otherwise stated.

MINUTES

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-committee met at Pittwood House, Scunthorpe.

229  DECLARATIONS OF PERSONAL OR PERSONAL AND PREJUDICIAL INTERESTS – There were no declarations of personal or personal and prejudicial interests made at the meeting.

230  MINUTES – Resolved – That the minutes of the proceedings of the meeting held on 29 June 2011, having been printed and circulated amongst the members be taken as read and correctly recorded and be signed by the chairman.

231  (11) INTERNAL AUDIT – PROGRESS REPORT – Further to minute 206, the Director of Finance submitted a report updating the sub-committee of key issues arising from Internal Audit’s work. Regular reporting on Internal Audit issues was an important source of assurance for the sub-committee to fulfil its role and provided supporting evidence for the annual approval of the council’s Governance Statement. The Director in his report addressed and commented upon the following:

  • Internal Audit Plan continued to be reprioritised as a result of reduced resources and the impact of unforeseen work. Details were summarised in appendix A of the report;
  • The impact and examples of an increase in the level of unforeseen work and how internal audit resources, procedures and systems had been adjusted in response;
  • An update on and key features of counter fraud work, which were summarised in appendix B of the report. Appendix C attached the July 2011 edition of the council’s counter fraud newsletter for information;
  • There were no further significant issues to report on improvements to management responses to audit recommendations and follow up action;
  • Following notification of the government scrapping the Financial Management Standard in Schools (FMSiS) initiative, a new standard had been named ‘Schools Financial Value Standard’ (SFVS) and had become operational from September 2011. Requirements for schools and the  processes involved were summarised in the report. The audit programme for schools was also being revised to incorporate SFVS as far as possible, to provide additional assurance to support the certification of the outturn statement by the Director of Finance, and
  • CIPFA had now decided against publishing a local government version of the ‘Role of Chief Internal Auditors’. An evaluation of current arrangements against best practice guidance had been completed using the generic statement, which was summarised in appendix D of the report. Action to address the corresponding issues would be taken during the 2011/12 Audit Plan year and reported to the sub-committee as part of the annual report on the effectiveness of the Internal Audit service in June 2012.

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.

232  (12)  EXTERNAL AUDIT RECOMMENDATIONS – PROGRESS REPORT – Further to minute 207, 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;
  • Use of Resources Report, and
  • Interim Systems Report

Corresponding action plans for the last two reports were included as appendices A and B of 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.

233  (13)  EXTERNAL AUDIT PROGRESS REPORT AND BRIEFING – The Director of Finance submitted a report which considered external audit’s  Progress Report and Briefing. The Progress Report and Briefing, attached as an appendix to the report, provided the sub-committee with an update on progress of external audit’s statutory work as well as highlighting key emerging national issues and developments which maybe of interest to members. An update on the future of local audit and ongoing discussions with the Audit Commission, and notification of a rebate on audit fees of eight per cent (equivalent to £18,360) for the 2011/12 year was included.

Representatives of the Audit Commission, the council’s external auditors, presented their report, clarified emerging issues on the future of local audit provision and responded to questions asked by members.

Resolved – That external audit’s Progress Report and Briefing be noted.

234   (14) RISK MANAGEMENT PROGRESS REPORT – Further to minute 222, the Director of Finance submitted a report updating the sub-committee of key issues arising from Risk Management work. Regular reporting of this work was an important source of assurance for the sub-committee to fulfil its role, provided supporting evidence for the annual approval of the council’s Governance Statement.

The Director in his report addressed and commented upon progress made including –

  • The council’s new risk management system went live for operational risk in July 2011. Training for operational risk owners had been provided, and overall feedback on the system was positive. A central review of all operational risk registers would commence in October 2011;
  • Raising the awareness across the council of risk management as part of the ‘Risk Management Action Plan’ through comprehensive training programmes and communication networks. In October 2011 risk management awareness training sessions had been scheduled for operational risk owners. Also edition 8 of the Risk Roundup newsletter was included in appendix A of the report;
  • As part of a schedule of reviews of major projects, contained within the risk management action plan, a presentation on the conversion of schools to academy status and associated risks was delivered to the Risk Management Group, and
  • Results following council data submitted to CIPFA/ALARM’s risk management benchmarking club had now been received, which showed an encouraging level of compliance with best practice and risk maturity. The results were attached as appendix B of the report.

The Director of Finance suggested that the sub-committee considered whether or not 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 sub-committee agrees that the progress report contributes to assurance on the adequacy of risk management arrangements, as detailed in the report.

235  (15)  QUARTERLY TREASURY MANAGEMENT AND STRATEGY REPORT – Further to minute 225, the Director of Finance submitted a report 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 and August 2011. 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, and (b) that the treasury management performance for the period as outlined in the report, be noted.

236   (16)  ANNUAL GOVERNANCE STATEMENT 2010/11 – Further to minute 226, the Director of Finance and Director of Corporate and Community Services submitted a joint report attaching the updated Annual Governance Statement (AGS) 2010/11 following the audit of the council’s accounts, for the sub-committee’s consideration and approval.

The joint report explained that under the changes to the Accounts and Audit (England) Regulations 2011 the AGS must accompany the final accounts and be considered in its own right. This could take place in September, however the Audit Committee had decided it should be considered in June  as well as in September to allow early action to be taken on any issues identified by the AGS. The statement had been updated to reflect assurance provided through the outcome of external audit’s final accounts work and it was presented in appendix A.

The Directors stated that the AGS was generally positive and showed that the council’s governance arrangements continued to be generally good and met best practice in most areas. Developments designed to address significant issues were also identified in the AGS. Whilst no significant issues were identified through the accounts audit process a development point had been added about audit committee/sub-committee membership and attendance.

Members asked questions on the content of the AGS which the Director of Finance responded to.

Resolved – (a) That following consideration of the above joint report and discussion of its content, the sub-committee agrees that the Annual Governance Statement for 2010/11 provides a sufficient level of assurance on the adequacy of governance arrangements throughout the council to allow the sub-committee to fulfil its role; (b) that the Annual Governance Statement for 2010/2011 be approved, and (c) that the chairman meet informally with the Leader of the Labour Group to progress the matter of audit committee/sub-committee membership and attendance.

237  (17) AUDIT OF ACCOUNTS 2010/2011 – MATTERS ARISING FROM THE AUDIT – The Director of Finance submitted a report informing the sub-committee that 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. A financial year ran from April to March.

The accounts had to be approved by the Director of Finance by 30 June each year and be audited and published within six months of the financial year-end or 30 September. These deadlines were government requirements. This year’s accounts were also the first produced by the council under International Reporting Standards (IFRS), and where such a major accounting policy had required changes to take place, a restated balance sheet for the previous two years had been included to assist comparability and consistency.

The report explained that the International Standard on Auditing 260 – ‘The Auditor’s Communication with those Charged with Governance’  (‘ISA 260’) required auditors to report certain matters arising from the audit of the council’s final statements before giving an opinion on them. Consequently, the Annual Governance Report (AGR) from the council’s external auditors, the Audit Commission, was attached as an appendix to the report. It set out the matters arising from the audit of the council’s 2010/11 accounts.

The Director of Finance in his report summarised the main findings of the external auditor’s report and the main issues resulting from the audit, and confirmed that he was in agreement with its findings. The representatives of the Audit Commission in attendance at the meeting also gave a brief explanation of their report.

International Standard on Auditing 580 ‘Management Representations’ also required auditors to obtain written confirmations of appropriate representations from management before the audit report was issued. Additionally IAS 570 required a specific statement on the applicability of the ‘Going Concern’ concept to the council. The council’s accounts had been prepared on a going concern basis, and the sub-committee was asked to confirm its agreement with this view. Also a proposed letter of representation was attached, which the sub-committee was requested to approve and authorise its Chairman and Director of Finance to sign.

The Statement of Accounts 2010/11 was attached as an appendix to the report. The Director referred to three minor amendments to the accounts in relation to ‘Property, Plant and Equipment’, ‘Construction Contracts’ and ‘Monies held on behalf of others’, which he explained, circulated at the meeting and confirmed that they did not change the final position of the accounts.

Members asked questions on particular aspects of the Annual Governance Report and the council’s Statement of Accounts 2010/2011 to which the Director of Finance and representatives of the Audit Commission responded to. 

Resolved – (a) That following consideration of the above report and discussion of its content the Statement of Accounts for 2010/11 prepared on a going-concern basis and as amended in line with the auditors’ recommendation, together with the corrected version of the ‘Property, Plant and Equipment’, ‘Construction Contracts’ and ‘Monies held on behalf of others’ accounts, as circulated, be received, approved and adopted; (b) that the action plan contained in the Annual Governance Report be approved, (c) that the IT control issue raised by external audit at the meeting be addressed as soon as possible, and the Director report any findings directly to members and also within normal reporting mechanisms to the sub-committee, and (d) that the signing of the Letter of Representation by the Chairman and Service Director Finance be approved.

238  MEMBER TRAINING – UPDATE – The Director of Finance referred to  minute 228 and reminded members of the dates and subjects of the finance/audit related training events scheduled throughout the 2011/12 council year.

Members of the sub-committee stated how interesting and informative these training events were and suggested that all members should try to attend when possible.

Resolved – (a) That the position be noted and welcomed, and (b) that the Director of Finance be thanked for the excellent training events held to date.

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