Audit Sub-Committee – 29 June 2011
Chairman: To be appointed
Venue: Pittwood House, Scunthorpe
Time: On the rising of the Audit Committee
- Substitutions (if any)
- To appoint a chairman of the sub-committee
- To appoint a vice-chairman of the sub-committee.
- Declarations of personal or personal and prejudicial interests (if any)
- Sickness Absence Update – Scrutiny Review/Peer Review – Action Plan – Report of the Head of Strategy Development
- Internal Audit – effectiveness report 2010/2011
- Internal Audit – Annual Report 2010/2011
- Risk Management – progress report
- Counter Fraud – progress report
- External Audit – progress report and briefing
- Treasury Management and Investment Strategy – Annual Report 2009/2010
- Annual Governance Statement – Joint report of the Director of Finance, and the Director of Corporate and Community Services
- Future of Local Public Audit Consultation
- 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 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-committee met at Pittwood House, Scunthorpe.
216 APPOINTMENT OF CHAIRMAN – Resolved – That Councillor Eckhardt be and he is hereby appointed chairman of the sub-committee.
Councillor Eckhardt thereupon took the chair.
217 APPOINTMENT OF VICE-CHAIRMAN – Resolved – That Councillor England be and he is hereby appointed as vice-chairman of the sub-committee.
218 DECLARATIONS OF PERSONAL OR PERSONAL AND PREJUDICIALINTERESTS – There were no declarations of personal or personal and prejudicial interests made at the meeting.
219 (2) SICKNESS ABSENCE UPDATE – Further to minute 202, the Head of Strategy Development submitted a report informing the sub-committee of the impact of the improvement plan for sickness absence in the council.
The report explained that there had been another improvement in sickness absence and the council had surpassed its annual target of 9.25 days. For the year 2010/11, the council had reduced the annual sickness to 9.01 days. This was a 12 per cent reduction from the 10.25 days reported in 2009/10.
At its last meeting the Audit Committee had asked for a comparison of the council’s sickness with other councils. True comparison had been difficult as the national indicator had now ceased. Some assurance that the level was now not above average could however be provided. The Chartered Institute of Personnel and Development’s annual survey showed public sector absence at 9.6 days. In addition the council had asked other unitary authorities for their 2010/11 figures and from those who responded, an average rate of 9.37 days was calculated.
The Head of Strategy in her report also stated that there was still variation in the performance of services. There had been reductions in ten of the areas reported on. All areas were set sickness reduction targets, which had been monitored throughout the year. These showed eight achieved the targets, two were slightly above target (up to five per cent) and four above target (above five per cent). Two areas that were above target did have absence levels that although below the council’s average were more likely to be variable due to the relatively small numbers of staff. An update on progress made in Children and Young People’s Services and Neighbourhood and Environmental Services was also outlined in the report.
For 2011/12 the council had set an annual target of nine days. The actual to end of April is 0.75 days which was on track to achieve the annual target. Individual service targets had not yet been set.
The Head of Strategy Development responded to questions asked by members.
Resolved – (a) That following consideration of the report and discussion of its content, the sub-committee agrees that the impact of improvement action provides sufficient assurance that the risk to capacity due to sickness absence has been reduced, and (b) that a report on Sickness Absence for the 2011/12 year be submitted to the January 2012 meeting of the sub-committee.
220 (3) INTERNAL AUDIT – EFFECTIVENESS REPORT 2010/11 – The Director of 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 assessment was based on the following –
- External Audit’s assessment of 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 report explained that external audit (the Audit Commission) had previously undertaken the triennial review of the council’s internal audit function, which had been reported to the committee in June 2009 (minute 117 refers). The review had concluded that the internal audit function had met all eleven standards as set out within the CIPFA code. External audit, therefore, was able to place reliance on the work of Internal Audit to discharge their own audit responsibilities. A self-assessment had also been completed as part of the CIPFA audit benchmarking exercise for 2010/11, which measured the level of compliance with the Code and professional best practice. The assessment showed arrangements had a high level of compliance (93 per cent) across all standards. The conclusions of the September 2010 Value for Money report carried out by external audit also demonstrated that Internal Audit, Risk and Internal Control systems were effective.
The Director of Finance in his report also identified positive feedback received on internal audit’s work from service questionnaires sent to managers following audits. Positive results from national and local benchmarking exercises were also summarised including one target, which was not met due to the adverse affect of the level of unforeseen work during the year. Internal Audit previously provided an internal audit service for Humberside Police Authority under contractual arrangements until 31 March 2011, and towards the end of the contract the Police Authority Treasurer and the Finance Committee wrote to express their thanks for the service and support provided to them.
CIPFA’s Statement on the Role of Head of Internal Audit had also been issued late in the last year setting out best practice, core activities and behaviours. Although not mandatory, organisations should also use the statement as a framework to assess their existing arrangements. The local government version to date was not yet finalised, but a self-assessment was completed to gauge the level of compliance. This indicated a significant level of compliance, however a full assessment would be carried out using the local government specific statement once released, and results would be reported to the sub-committee.
The 2010/11audit plan work was managed using new audit management software for the first time. Some benefits the software had introduced included:
- Integrated time recording and audit planning modules
- Electronic working papers
- Automated recommendation tracking
- Automated performance management information.
Based on the above findings outlined in the report, the Director of Finance stated that Internal Audit had been assessed as providing an effective service to the council. He also suggested that the sub-committee should consider whether the level of effectiveness of Internal Audit’s work in 2010/11 provided sufficient assurance to fulfil its role as set out in the committee’s terms of reference.
Resolved – That following consideration of the above report and discussion of its content, the sub-committee agrees that the level of effectiveness of Internal Audit in 2010/11 provides assurance on its adequacy as a key component of the council’s internal review processes and internal control environment.
221 (4) INTERNAL AUDIT – ANNUAL REPORT 2010/11 – The Director of Finance submitted a report advising the sub-committee on internal audit’s work during 2010/2011, and to provide an audit opinion on the adequacy of the council’s control environment. This provided the sub-committee with an important source of assurance to fulfil its role and 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 2011 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 Director of Finance explained that the level of audit coverage during the year was considered sufficient to be able to offer an opinion on the overall adequacy and effectiveness of the organisation’s control environment. Notwithstanding that, some of the planned reports for the year had yet to be finalised, the fieldwork for the outstanding reports had been completed, and there was nothing within the reports that would cause the overall opinion to change. Based on knowledge of the council’s systems and procedures, the extent of work undertaken by Internal Audit, and as a result of the responses to audit recommendations, the overall assessment was that Internal Audit could provide assurance that the council had adequate control and governance arrangements in place. It was acknowledged that this statement was given to provide reasonable and not absolute assurance of the effectiveness of the system of control.
In reaching this opinion the report identified factors that were taken into particular consideration under the following headings:-
- Risk Management
- Corporate Governance
- Fundamental Systems, including payroll, creditors, sundry debtors, local taxation (council tax and NNDR), council tax and housing benefits, accounting systems (eFinancials), cash receipting, treasury management, asset management and Carefirst.
The Director of Finance also summarised key elements of Internal Audit’s work during 2010/11 including:-
- Audit Plan 2010/11 (planned and unforeseen audit assignments, appendix A, and action plans);
- Audit of schools under Financial Management Standards in Schools (FMSiS) and it being scrapped and replaced by the Schools Financial Value Standard (SFVS) by September 2011;
- Counter Fraud work;
- Savings identified as a result of audit work, and
- Benchmarking exercises.
The Director of Finance suggested that the sub-committee should consider whether Internal Audit’s Annual Report provided sufficient assurance on the adequacy of the council’s internal control environment in 2010/11. He also responded to members’ questions on aspects of his report.
Resolved – (a) That following consideration of the above report and discussion of its content, the sub-committee agrees that the Internal Audit Annual Report provides sufficient assurance on the adequacy of the council’s internal control environment, and (b) that the Internal Audit Annual report for 2010/11 be approved.
222 (5) RISK MANAGEMENT PROGRESS REPORT – Further to minute 195, 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 and was recognised as good practice by professional bodies CIPFA and ALARM (Association of Local Authority Risk Managers)
The Director in his report addressed and commented upon progress made including:
- The Strategic Risk Management Group (SRMG) being reformed and renamed as the Risk Management Group (RMG) with a rationalisation of membership;
- Procurement of a new and improved risk management system, with training scheduled for July and the system going live soon after;
- RMG approving a new format of Operational Risk Register;
- Raising awareness across the council of risk management, including edition 7 of the Risk Roundup newsletter included in appendix A of the report;
- Results of Internal Audit’s completed independent review of risk management arrangements across the council, showing that they were generally good and adequate assurance could be provided;
- The annual council wide review of operational risk registers was complete, and
- The CIPFA/ALARM risk management benchmarking questionnaire had been completed, with results due in July/August which will be reported to the sub-committee in September.
The Director of Finance suggested that the sub-committee considered whether 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.
223 (6) COUNTER FRAUD PROGRESS REPORT – The Director of Finance submitted a report to provide the sub-committee with an appropriate level of assurance that the council’s counter fraud arrangements were adequate, and to approve an appendix on the Bribery Act 2010 for inclusion in the updated Counter Fraud Strategy. This was attached as appendix A.
The report explained that the Counter Fraud Strategy set out the council’s determination to deter, prevent and detect fraud and safeguard its assets. The Strategy encompassed policies and procedures that collectively helped to drive down the risk of fraud and provide a framework to investigate instances of potential fraud. The Strategy was revised periodically to reflect changes in legislation and recommended best practice guidance. This ensured that the council remained at the forefront of the prevention and detection of fraud and corruption.
The Bribery Act came into force in July 2011. The new Act clarified the offence of bribery (relevant to the public sector) as:
- To offer, promise or give an advantage
- To request, agreeing to receive or accepting an advantage
There was also a new offence that was relevant to all public bodies including councils that did not have adequate systems in place to prevent a bribe being paid on its behalf.
Internal audit had recently reviewed arrangements in place in response to this legislation. The review found work had already started to raise awareness through publicity and training. Further measures were also scheduled to strengthen arrangements including revision of relevant polices. The Counter Fraud Strategy has been updated and a new appendix was attached as appendix A.
The Director stated that counter fraud work was an important feature in the audit plan. Resources had been identified for preventative work and a contingency for responsive work for such investigations. A summary of work was provided in appendix B to the report.
In addition, the Director of Finance in his report addressed and commented upon the following counter fraud work:
- Risk assessed proactive work to evaluate risk of misuse of council funds had been completed for mileage and overtime claims;
- The Counter fraud newsletter ‘Fraud Focus’ which was attached as appendix C;
- Referrals from the Whistle Blowers hotline and the increased rate of investigations carried out by Internal Audit;
- A specific external fraud attempt averted and successful ongoing work of the Benefits Fraud Team with the DWP tackling benefit frauds;
- The Audit Commission’s National Fraud Initiative (Data Matching) exercise 2010/11 data sets having being received with significant matches been made and the remaining being investigated – updates would be reported to future meetings of the sub-committee;
- Results of Internal Audit’s internal data matching exercise using audit interrogation software;
- The Audit Commission’s national fraud survey was submitted in May with results being published next year in their national report on fraud entitled ‘ Protecting the Public Purse’, and
- Liaison and referral arrangements protocol being put together with Humberside Police.
Resolved – (a) That following consideration of the above report and discussion of its content, the sub-committee agrees that the counter fraud work programme provides a sufficient level of assurance on the adequacy of counter fraud arrangements; (b) that appendix A on the Bribery Act 2010 be approved and included in the Counter Fraud Strategy, and (c) that the Director of Finance be thanked for the above informative reports (minutes 220 to 223 refer).
224 (7) 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.
Representatives of the Audit Commission, the council’s external auditors, presented their report and responded to questions asked by members.
Resolved – (a) That the Progress Report and Briefing be noted, and (b) that the sub-committee agrees that assurance can be taken from progress given on the external audit plan.
225 (8) TREASURY MANAGEMENT AND INVESTMENT STRATEGY ANNUAL REPORT 2010/11 – The Director of Finance submitted a report on the council’s treasury management and investment performance in 2010/11. The benchmark for measuring performance was measured against the Treasury Strategy set by the council at its meeting on 25 February 2010.
The report explained that each year the council approved a treasury management and investment strategy which was prepared in line with:
- The CIPFA Code of Practice for Treasury Management (Chartered Institute of Public Finance and Accountancy)
- The Prudential Code
- The Local Government Finance Act 2003
- And guidance on Local Government Investments from the Department for Communities and Local Government.
The code of practice required the council received a report on treasury management strategy at the start of the financial year, at mid year and at year end. Also our local requirements require a quarterly report to the Audit Committee (and/or Audit Sub-Committee.
The Director of Finance in his report outlined the annual strategy under headings which covered – the Investment Strategy; the Borrowing Strategy, and prudential indicators for external debt and treasury management, and identified key investment and borrowing statistics indicating how the council had performed against the strategy.
The report also gave the up to date position as regards to the council’s investment with two Icelandic owned institutions, Landsbanki and Heritable.
Resolved – (a) That following consideration of the above report and discussion of its content, the sub-committee agrees that the Treasury Management and Investment Strategy Annual Report 2010/11 provides sufficient assurance on the adequacy of treasury management arrangements, and (b) that the Treasury Management and Investment Strategy Annual report 2010/11 be noted.
226 (9) ANNUAL GOVERNANCE STATEMENT 2010/11 – The Director of Finance and the Director of Corporate and Community Services submitted a joint report presenting the council’s draft Annual Governance Statement (AGS) 2010/2011 for the sub-committee’s comments and approval. The report explained that the Accounts and Audit (England) Regulations 2011 required the council to publish with its accounts an AGS. The AGS must accompany the final accounts and be considered in its own right, as had been the case at this meeting. Under the new regulations this could take place in September. However the Audit Committee had previously decided to consider the AGS in June as well as in September to allow early action to be taken on any issues identified by the AGS. The Statement would be updated to reflect assurance provided through the outcome of external audit’s final accounts work and presented again in September for approval.
The Directors in their report stated that CIPFA had also provided guidance to support councils to produce the AGS. Additional guidance had been issued by CIPFA/SOLACE in March 2010 on how compliance with CIPFA’s statement on the role of the Chief Financial officer in local government should be reflected in the AGS. How the council’s response to this was incorporated in the AGS, and was summarised in the report.
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. Independent reviews carried out by internal audit in key areas such as risk management, corporate governance and fundamental financial system work were also important sources of assurance. External audit reviews and inspections also contributed as sources of assurance.
In accordance with best practice, a management team comprising the above Service Directors, Assistant Director Democratic and Legal, Assistant Director Audit, Risk and Insurance and Head of Strategy Development had overseen the process using key objectives.
The draft Annual Governance Statement 2010/2011 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 Directors also reminded the sub-committee that the Annual Governance Statement for 2010/11 was currently in draft and represented the culmination of internal and external assurance sources. Therefore, the statement would need to be updated to reflect the outcome of the final accounts audit process prior to resubmission to the sub-committee alongside the audited accounts.
The Directors suggested that members should consider whether the AGS provided the sub-committee with sufficient assurance on the council’s governance arrangements in 2010/2011, prior to approval and make any amendments or seek clarification as necessary.
Members asked question on the content of the AGS which the Director of Finance responded to. The Director also stated that wording may need to be included in the AGS on the Audit Committee’s new structural arrangements.
Resolved – (a) That following consideration of the above joint report and discussion of itscontent, 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 committee to fulfil its role, and (b) that the Annual Governance Statement for 2010/2011 be approved and a further update be submitted to the sub-committee alongside the audited accounts in September.
227 (10) FUTURE OF LOCAL PUBLIC AUDIT CONSULTATION – The Director of Finance submitted a report advising the sub-committee of a consultation on proposals for a new audit regime published by the Department for Communities and Local Government, following its announcement last August of plans to disband the Audit Commission, transfer its in house practice to the private sector and establish a new local audit framework.
The consultation paper, which was available on the department’s website, was based on four key principles leading to proposals that would change the nature, membership and role of Audit Committees. The report set out the four principles and summarised the main features contained within the proposals.
The report explained that the consultation document included a number of questions the responses to which would help shape the audit framework. The council’s response had been prepared by the Director of Finance in consultation with the Chairman of the Audit Committee/Sub-Committee to be returned by the deadline date of 30 June. The response was attached as appendix A for the sub-committee to consider. Draft legislation was expected to be published in the autumn.
The Audit Commission was also working closely with the DCLG on options to externalise the work of the in-house audit practice and would start preparatory work for the potential outsourcing with effect from 2012/13 audits. This included designing a procurement process that allowed a range of firms to bid, including the possibility of an in-house bid. However, it was not yet clear how this process would affect the proposals set out in this consultation; it could be possible that it may delay their implementation if a ‘central’ procurement process was to take place as proposed.
The Director of Finance and the chairman responded to questions asked by the sub- committee.
Resolved – (a) That following consideration of the above report and discussion of its content, the sub-committee agrees that the Department for Communities and Local Government’s (DCLG) consultation paper on the Future of Public Audit be noted; (b) that the response to the consultation paper in appendix A of the report be approved, and (c) that the Director of Finance be authorised to submit the response to the DCLG on behalf of the sub-committee.
228 MEMBER TRAINING UPDATE – The Director of Finance updated the committee informing members that the Governance training held on 16 June had been well attended, and that further training had been scheduled in the council’s committee timetable/yearbook as follows –
19 July 2010 – How to make sense of accounts
22 September 2010 – Delivering quality performance
25 October 2010 – Raising tax, paying benefits
13 December 2010 – Tackling fraud
16 February 2011 – Balancing the books
Members of the sub-committee were encouraged to attend the above, and to suggest any further training they may require over the council year.
Resolved – That the above training events be noted and welcomed.