Audit Committee – 25 June 2013
Chairman: Councillor Eckhardt
Venue: Civic Centre, Scunthorpe, (Function Room 1)
Time: 10 am
1. Substitutions (if any).
2. Declarations of Disclosable Pecuniary Interests and Personal or Personal and Prejudicial Interests (if any).
3. To take the minutes of the meeting held on 16 April 2013 as a correct record and authorise the chairman to sign.
4. To note the date and time of future scheduled meetings of the committee.
Thursday 24 September, 2013 at 10.00 am
Thursday 23 January, 2014 at 10.00 am
Thursday 15 April, 2014 at 10.00 am
5. Sickness Absence – Report of the Assistant Director, Human Resources.
6. Data Quality
7. External Audit Reports.
8. Internal Audit – Effectiveness Report 2012/2013.
9. Internal Audit – Annual Report 2012/2013.
10. Risk Management Progress Report.
11. Counter Fraud Progress Report.
12. Treasury Management and Investment Strategy – Annual Report 2012/2013.
13. Annual Governance Statement – 2012/2013.
14. Member Training – Update.
15. 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 Policy and Resources unless otherwise stated.
PRESENT: Councillor Eckhardt in the chair
Councillors England (vice-chairman), T Foster, Gosling, Whiteley and Wilson
Also in attendance was a representative of KPMG (the council’s external auditors).
The committeemet at the Civic Centre, Scunthorpe.
304 DECLARATIONS OF PERSONAL OR PERSONAL AND PREJUDICIAL INTERESTS – There were no declarations of personal or personal and prejudicial interests made at the meeting.
305 MINUTES – Resolved – That the minutes of the proceedings of the meeting held on 16 April 2013, having been printed and circulated amongst the members be taken as read and correctly recorded and be signed by the chairman.
306 DATES AND TIMES OF MEETINGS – Resolved – That the dates and times of future meetings of the committee be held at 10:00am on –
Tuesday 24 September, 2013
Thursday 23 January, 2014 and
Tuesday 15 April, 2014
307 (1) SICKNESS ABSENCE – Further to minute 265, the Assistant Director Human Resources submitted a progress report providing the committee with the 2012/2013 year end position of sickness absence levels of employees of North Lincolnshire Council.
The Assistant Director explained that the average number of working days lost due to sickness absence in 2012/13 was 10.01 days against a target of 8.25 days. This was an increase of 1.51 days compared to 2011/12 and represented the first increase in absence levels in fours years. During 2012/13, there had been an eight per cent fall in the number of days lost to short term absence. However, there had been a 14 per cent increase in the number of days lost due to long term absence. Overall, this had resulted in a five per cent increase in the number of full time equivalent days lost due to sickness absence. Short term sickness absence accounted for 34 per cent of all absence, while long term periods accounted for 66 per cent. This was compared to 39 per cent and 61 per cent respectively in 2011/12. To date, CIPFA Human Resources benchmarking results for 2013 had not yet been received, but would provide more up to date information against which to compare the council’s 2012/13 year end position.
The Assistant Director in her report provided further performance data for periods of sickness absence, reasons for sickness absence and analysed sickness absence by type of work. Action taken to address sickness absence was also summarised, which emphasised that external feedback received through the recent Human Resources soft market testing exercise confirmed that the council was adopting best practice around sickness absence policy and procedures.
The Assistant Director Human Resources, who was in attendance at the meeting, responded to questions asked by members.
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that there is continuing assurance that adequate controls are in place to manage the risk to capacity from increased levels of sickness absence, and (b) that a progress report on sickness absence for the start of the 2013/14 year be submitted to the January 2014 meeting.
308 (2) DATA QUALITY – UPDATE – Further to minute 286, the Director of Policy and Resources submitted a report providing the committee with a position statement on the current status of Data Quality Audits of the council’s priority Performance Indicators (PI’s). The report provided members with an overview of the further developments planned to improve data quality across the council and confirmed that –
- The target of auditing 75% of the current priority performance indicators had been achieved;
- Findings from the audits indicate that data quality was robust, and
- Internal Audit had assessed the council’s data quality arrangements as adequate
The Director in his report also identified further developments to improve data quality using a risk based approach.
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the report provides sufficient assurance on the adequacy of the council’s data quality arrangements, and (b) that the planned developments to improve data quality as detailed in paragraph 2.12 of the report be noted.
309 (3) EXTERNAL AUDIT REPORTS – The Director of Policy and Resources submitted a report which considered external audit’s (KPMG) Interim Report and Certification of Grant Claims and Returns Letter for 2013/14.
The report explained that external audit’s Interim Report, attached at appendix A, summarised key findings arising from interim work in relation to the 2012/13 financial statements, and VfM conclusion work. No additional risks were identified at this time, but one improvement area was identified. The recommendation in the Audit Commission’s ISA 260 Report for 2011/12 had been addressed to improve information included in Property, Plant and Equipment in the financial statements.
The Director in his report also stated that The Certification of Grant Claims and Returns Letter, attached at appendix B, set out the audit arrangements for 2012/13. This covered the schemes subject to audit, the indicative composite fee, audit fee assumptions and working paper requirements. The proposed fee for the audit of £24,000 was in line with the scale fee recommended by the Audit Commission. Also, the Audit Fee Letter presented to this committee in April 2013 contained a minor error in the planned fee for grants certification work for 2013/14, which should have read £20,700.
KMPG’s representative at the meeting responded to members questions on the above interim report and returns letter.
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the Interim Report and the change to the Audit Fee Letter be noted, and (b) that further reports be received as the work is concluded in the Certification of Grants Claims and Returns Report, Annual Governance Report and Annual Audit Letter.
310 (4) INTERNAL AUDIT – EFFECTIVENESS REPORT 2012/2013 – The Director of Policy and Resources 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 2011 and the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice (the Code) 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 and Statement on the Role of the Head of Internal Audit;
- Customer feedback and endorsement, and
- Achievement of performance targets.
The report explained that each year, internal audit carried out self assessment against the Code. Overall the service continued to maintain a high level of compliance and provided evidence of professional competence and sound process. The Code also recognised that to be ‘effective’ internal audit should comply with several characteristics of effectiveness. Appendix A to the report identified these and showed how these issues had been addressed.
The report stated that the 2006 Code had been replaced by a new set of Public Sector Internal Audit Standards (PSIAS) from 1April 2013. CIPFA had prepared an Application Note to accompany PSIAS which provided the details of how to apply the new standards in a local government setting. This report had been prepared in compliance with the 2006 Code which applied to audit work carried out during 2012/13. An assessment had also been carried out against the requirements set out in the Application Note and the self assessment checklist had been completed to assess compliance with the PSIAS during the 2013/14 audit plan period. The checklist was attached as appendix B showing internal audit was broadly compliant with PSIAS. A further update would be provided to the committee at its September 2013 meeting. In addition, an important aspect was the ‘audit charter’ which replaced audit’s terms of reference. The internal audit charter encapsulated many of the PSIAS requirements. It was a formal document that defined internal audit’s purpose, authority and responsibility. The internal audit charter established internal audit’s position within the organisation; authorised access to records, personnel and physical properties relevant to the performance of audit work; and defined the scope of internal audit activities. The audit charter for 2013/14 was attached at appendix C to the report for the committee’s consideration and approval.
The Director’s report also informed the committee of –
- An updated assessment in appendix D of the Statement of the Role of the Head of Internal Audit, remained largely compliant;
- Internal and external performance measures were good and targets for 2012/13 had generally been met;
- Annual CIPFA benchmarking results used to determine audit’s VFM profile for 2012/13 indicated that the service was evaluated as providing value for money (low cost/ high performance), with net cost per chargeable day being 4th lowest out of 60 authorities, and cost per auditor being 4th lowest out of 60 authorities.
The Director concluded his report stating that based on the findings described in the above paragraphs Internal Audit was assessed as providing an effective service to the council. External Audit would be able to place reliance on the work of Internal Audit if auditing standards were met.Feedback would be provided to the Head of Audit, Risk and Insurance at the end of external audit’s planned work.
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the level of effectiveness of Internal Audit in 2012/13 provides assurance on its adequacy as a key component of the council’s internal review processes and internal control environment, and (b) that the Internal Audit Charter for 2013/14 as detailed in Appendix C of the report be approved.
311 (5) INTERNAL AUDIT – ANNUAL REPORT 2012/2013 – The Director of Policy and Resources submitted a report which provided an audit opinion on the adequacy and effectiveness of the council’s control environment based upon work carried out by Internal audit in accordance with the approved 2012/13 audit plan. This provided the committee with an important source of assurance when considering the Annual Governance Statement and complied with the CIPFA Code of Practice for Internal Audit in local government in the United Kingdom. All audit work was also risk assessed to ensure it was prioritised to target areas of highest risk.
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 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. An opinion on the level of adequacy of internal control was given on each audit and the level and explanation of opinions and associated performance was highlighted in the report. 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 systems were adequate and internal control generally effective during 2012/13, except for the area identified in paragraph 2.8 of the report. 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 and summarised under the following headings:-
- Risk Management;
- Corporate Governance;
- Fundamental Systems;
- Schools Audits;
- Counter Fraud Work;
- Savings, and
The Director suggested that the committee should consider whether Internal Audit’s Annual Report provided sufficient assurance on the adequacy of the council’s internal control environment in 2012/13.
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the Internal Audit Annual Report provides sufficient assurance on the adequacy and effectiveness of the council’s internal control environment, and (b) that the Internal Audit Annual report for 2012/13 be approved and adopted.
312 (6) RISK MANAGEMENT PROGRESS REPORT – Further to minute 290, the Director of Policy and Resources submitted a report updating the committee of key issues arising from Risk Management work. Regular reporting on risk management issues was an important source of assurance for the 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 progress made including –
- Summary of the main findings of the Internal Audit review of risk management arrangements. Evidence of adequate assurance on the adequacy of internal control arrangements was provided;
- Edition 13 of the Risk Roundup newsletter issued in November 2012 was attached as appendix A of the report;
- The CIPFA/ALARM risk management benchmarking questionnaire had been completed, with results due in July/August and the benchmarking club outcomes to be reported to the committee in September, and
- An analysis of Operational Risk Registers across the council had been undertaken. Appendix B of the report detailed the top ten risks by residual risk score and appendix C the top ten risks by the number of registers.
Resolved – 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 risk management arrangements, as detailed in the report.
313 (7) COUNTER FRAUD PROGRESS REPORT – The Director of Policy and Resources submitted a report informing the committee of key issues arising from counter fraud work. Regular reporting on counter fraud issues 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.
The Director in his report addressed and commented upon counter fraud work which was summarised under the following headings –
- Counter Fraud Plan Progress – a summary of the work was provided in appendix A;
- Proactive Work – including the Audit Commission’s National Fraud Initiative annual exercise;
- Reactive Work, and
- Work of the Benefit Fraud Investigation Team – which included an update to the council’s benefit fraud prosecution policy, which now reflected the fact that a new council tax reduction scheme had been introduced.
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the progress report provides sufficient assurance on the adequacy of risk management arrangements, as detailed in the report, (b) that the counter fraud work programme delivers a sufficient level of assurance on the adequacy of counter fraud arrangements, and (c) that the revised Benefit Fraud Prosecution Policy be noted and approved.
314 (8) TREASURY MANAGEMENT AND INVESTMENT STRATEGY ANNUAL REPORT 2012/13 – The Director of Policy and Resources submitted a report on the council’s treasury performance in 2012/13. The benchmark for measuring performance was measured against the Treasury Strategy set by the council at its meeting on 19 February 2013.
The report explained that each year the council approved a treasury management and investment strategy which was prepared in line with –
- The CIPFA (Chartered Institute of Public Finance and Accountancy); Code of Practice for Treasury Management April 2009;
- The Prudential Code;
- The Local Government Finance Act 2003, and
- Guidance on Local Government Investments from the Department for Communities and Local Government (CLG).
The code of practice required that the council received a report on treasury management strategy at the start of the financial year, at mid year and at year end. The Audit Committee received progress reports at each meeting and an annual report on the outturn position.
The Code alsorequired the Council to maintain suitable Treasury Management Practices (TMPs), setting out the manner in which the organisation would seek to achieve its Treasury Management policies and objectives, and prescribing how it would manage and control those activities. As part of this ongoing process the Treasury Management Practices adopted by the council were reviewed on a regular basis.
The Director in his report outlined the annual strategy under headings which covered – the Strategy for 2012/13, the Investment Strategy; the Borrowing Strategy, and How the Council Performed, including key investment and borrowing statistics and associated arrangements 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, and informed the committee that in accordance with the council’s Contract Procurement Rules, the council’s banking services had been opened up to the market place and Barclays had been successful with their tender. They officially had taken over from NatWest Bank in December 2012
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the Treasury Management and Investment Strategy Annual Report 2012/13 provides sufficient assurance on the effectiveness of arrangements for treasury management, and (b) that Treasury Management’s performance for the 2012/13 financial year be noted.
315 (9) ANNUAL GOVERNANCE STATEMENT 2012/13 – The Director of Policy and Resources submitted a report presenting the council’s draft Annual Governance Statement (AGS) 2012/2013 for the 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 Director in his report stated that CIPFA had also provided guidance to support councils to produce the AGS. The document provided examples of sources of assurance and evidence to compile the AGS. The report explained that the 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 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 Director of Policy and Resources, Assistant Director Legal and Democratic and Head of Audit, Risk and Insurance had overseen the process using key objectives.
The draft Annual Governance Statement 2012/2013 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 and summarised in the report.
The Director also reminded the committee that the Annual Governance Statement for 2012/13 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 committee alongside the audited accounts.
The Director suggested that members should consider whether the AGS provided the committee with sufficient assurance on the council’s governance arrangements in 2011/2012, prior to approval and make any amendments or seek clarification as necessary.
Members asked question on the content of the AGS which the Director responded to.
Resolved – (a) That following consideration of the above report and discussion of its content, the committee agrees that the Annual Governance Statement for 2012/13 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 2012/2013 be approved and a further update be submitted to the committee alongside the audited accounts in September.
316 MEMBER TRAINING UPDATE – The Director of Policy and Resources updated the committee informing members that for 2013/14 training events had been scheduled in the council’s committee timetable/yearbook as follows –
4 July 2013 – Corporate Commissioning Strategy, Performance Scorecards and Procurement;
19 September 2013 – Understanding the Council’s final accounts;
8 and 22 October 2013 – Finance – Public Health Transfer;
18 February 2014 – Budget, Business Rates and Council Tax: the Budget Decision, and
8 April 2014 – Fighting Fraud in North Lincolnshire.
Members of the 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.