Agenda and minutes

Audit Committee - Thursday, 3 December 2015 7.00 p.m.

Venue: Georgian Room, Kendal Town Hall

Contact: Sandip Mahajan 

Items
No. Item

AUD/27

MINUTES pdf icon PDF 140 KB

To authorise the Chairman to sign, as a correct record, the minutes of the meeting of the Committee held on 23 September 2015 (copy attached).

Minutes:

RESOLVED – That the Chairman be authorised to sign, as a correct record, the minutes of the meeting of the Committee held on 23 September 2015.

AUD/28

DECLARATIONS OF INTEREST

To receive declarations by Members of interests in respect of items on this Agenda.

 

Members are reminded that, in accordance with the revised Code of Conduct, they are required to declare any disclosable pecuniary interests or other registrable interests which have not already been declared in the Council’s Register of Interests.  (It is a criminal offence not to declare a disclosable pecuniary interest either in the Register or at the meeting.)

 

Members may, however, also decide, in the interests of clarity and transparency, to declare at this point in the meeting, any such disclosable pecuniary interests which they have already declared in the Register, as well as any other registrable or other interests.

 

If a Member requires advice on any item involving a possible declaration of interest which could affect his/her ability to speak and/or vote, he/she is advised to contact the Monitoring Officer at least 24 hours in advance of the meeting.

Minutes:

RESOLVED – That it be noted that Councillor Ian Stewart declared an interest in Minute AUD/33 (2015/16).

AUD/29

LOCAL GOVERNMENT ACT 1972 - EXCLUDED ITEMS

To consider whether the items, if any, in Part II of the Agenda should be considered in the presence of the press and public.

Minutes:

RESOLVED – That it be noted that there were no items in Part II of the Agenda.

AUD/30

WORK PROGRAMME 2015/16 pdf icon PDF 101 KB

To review the Audit Committee’s Work Programme for 2015/16.

Minutes:

The Committee reviewed their Work Programme for 2015/16. The scheduled review of the Audit Committee’s Risk Register had been moved to the April meeting to ensure each meeting was practically balanced.

 

RESOLVED – That the Work Programme for 2015/16 be noted.

AUD/31

RISK MANAGEMENT UPDATE pdf icon PDF 139 KB

To note the Strategic Risk Register.

Additional documents:

Minutes:

The Principal Performance and Intelligence Officer presented the Strategic Risks Register update for quarter 2 of 2015/16. This was a full Register including strategic risks above the ‘line of appetite’ (outside acceptable tolerance levels) and below the ‘line of appetite’, (within acceptable tolerance).

 

Mitigation actions, which were considered by Senior Management to reduce the likelihood and impact of a risk above the ‘line of appetite’, were listed in the Register with due dates (for implementing actions) and reviewed quarterly. Risks below the ‘line of appetite’ were reviewed annually.

 

Risks being managed through mitigation would come off the Register (archived) if they were no longer a risk. Operational risks were controlled at service and management levels.

 

Members sought clarification on the proposed reduction in likelihood and impact of Risk 3 (Business Continuity). It was explained that each service had local business continuity plans which were reviewed and linked to the IT Recovery Plan and Strategic Business Continuity Plan. Both of these Plans were in place and the Strategic Plan would be reviewed. This risk was potentially moving towards only requiring annual review. Members accepted that the impact level could be reduced but concerns were still expressed that events outside immediate control meant a reasonable likelihood of this risk happening.

 

It was noted that one of the mitigations (resilient internet connection) was due. It was thought this was on track but would be checked and likelihood concerns would be considered for the quarter three review of risks. 

 

Similar concerns were expressed with Risk 6 (Medium Term Financial Plan (MTFP)) that Government could reduce funding more than expected, e.g. uncertainty over future New Homes Bonus funding and levels of business rate receipts. The assessment had been based on a robust MTFP which incorporated a track record of delivering savings but would be reviewed for quarter three.

 

Members felt that it was useful seeing the full Register and mitigation actions.

 

RESOLVED – That

 

(1)       the Risk Management update be noted; and

 

(2)       for the quarter 3 report, officers be asked to review the likelihood of Risks 3 (Business Continuity) and 6 (Medium Term Financial Plan) and update the mitigation status of Risk 3 with respect to the resilient internet connection.

AUD/32

INTERNAL AUDIT RECOMMENDATIONS AND ANNUAL GOVERNANCE STATEMENT ACTION PLAN - PROGRESS REPORT pdf icon PDF 138 KB

To note progress made with Internal Audit Recommendations, the Annual Governance Statement Action Plan 2015/16 and Anti-Fraud and Corruption.

 

Additional documents:

Minutes:

The Assistant Director Resources (Section 151 Officer) presented a progress report on implementation of Internal Audit recommendations and the Annual Governance Statement (AGS) Action Plan. The Action Plan had proved an effective monitoring tool that had significantly increased progress with implementing recommendations to over 95%.

 

There were 19 Internal Audit recommendations of which 16 had future completion dates; of the three recommendations due, all three had been completed.

 

The AGS Action Plan contained three longer-term actions and progress would be reported back to the Audit Committee in April 2016 as part of the updated Annual Governance process.

 

The report also covered managing the risk of fraud and corruption in line with the CIPFA Code of Practice and local codes. Six areas had been identified which required some improvement of which two had been actioned and previously reported (Minute AUD/65 (2014/15) refers).

 

Members noted the good progress made including the high rate of recommendations implemented. They considered whether an even higher target could be set but felt that the ethos was in the right direction of continuously raising standards.

 

RESOLVED – That the progress made with implementing Internal Audit recommendations and progress made against the Annual Governance Statement Action Plan and Fraud and Corruption be noted.

AUD/33

INTERNAL AUDIT PROGRESS REPORT 2015/16 (No. 3) pdf icon PDF 602 KB

To note a summary of the work carried out by Internal Audit and details of the progress made on the delivery of the approved Audit Plan for the third period of 2015/16 including Internal Audit reports.

 

Minutes:

Note - Councillor Ian Stewart declared an Other Registrable Interest in relation to the Homelessness Service as he held political responsibility at Cumbria County Council for temporary accommodation.

 

33.1    PROGRESS REPORT

The Head of Internal Audit presented this report which summarised the work carried out by Internal Audit and progress made on the delivery of the approved Audit Plan in period three of 2015/16. Audit staff had been allocated for all the planned audits. Six audits were in progress, including two due to be finalised, and would be reported to the Committee at its April 2016 meeting. This included the audit of Bereavement Services (listed in error as April 2015).

 

Five audits had been completed; three had been considered previously and two were being considered at this meeting. A quick-fire scrutiny of the current Digital Platform work, in its early stages, had taken place with feedback to ensure it was developing effectively. It was not proposed to present a report to the Audit Committee. Members queried what would happen to the 15 audit days set aside for this work in the Audit Plan. It was explained that the allocated days could be held in reserve for any contingency work but this would be checked.

 

Internal Audit’s performance related to ensuring that the Audit Plan was on track. Members requested that managers be thanked for helping with this.

 

The Head of Internal Audit outlined the findings and recommendations of the two recently completed audits. The scope of each audit was listed in the reports.

 

33.2    HOMELESSNESS SERVICE - SOCIAL LETTINGS SCHEME

This audit of the Homelessness Service’s Social Lettings Scheme, leasing properties from private landlords for renting to tenants (clients) in need, had reviewed the effectiveness of the Scheme, including arrangements for sub-letting, rents, private landlords and void management.

 

A partial assurance had been given with one high priority recommendation, seven medium priority recommendations and two advisory recommendations. The strengths of the service were also recognised, in particular being an innovative approach.

 

The audit had recognised that the accommodation was supposed to support tenants in the short-term but people were staying for some time. The high priority recommendation concerned long-term planning for wider objectives and benefits. This including ensuring that tenants were supported to fulfil their obligations and opportunities then sought for making their tenancy more long-term permanent accommodation. This meant that the scheme should evolve with existing landlords agreeing to house satisfactory tenants beyond the short-term and new landlords being encouraged to participate in the scheme.

 

The medium priority recommendations concerned introducing performance targets for monitoring and being reported upon; making accommodation agreements more legally robust; checking the quality of housing including energy efficiency before signing agreements; arrangements for checking rent receipts and ‘write-offs’; robust arrangements for regular inspections of properties; clear breakdown of fees methodology; and cost recovery from tenants for damage.

 

The Head of Internal Audit explained that good work was going on with more comprehensive approaches needed for various areas such as documentation. This would help  ...  view the full minutes text for item AUD/33

AUD/34

EXTERNAL AUDIT - ANNUAL AUDIT LETTER 2014/15 pdf icon PDF 120 KB

To note the Annual Audit Letter for 2014/15.

Minutes:

The External Auditor presented the statutory Annual Audit Letter which summarised work undertaken over the last year. An unqualified opinion had been made for both the financial statements audit and value for money conclusion (economic, efficient and effective use of resources).

 

The certification of the Council’s Housing Benefits claim had now been completed resulting in a qualified opinion due to some errors noted during detailed testing. Returns had been submitted to the Department for Work and Pensions. The findings would be reported to the April 2016 meeting of the Committee.

 

Members thanked Finance staff for their efforts.

 

RESOLVED – That the Annual Audit Letter for 2014/15 be noted

AUD/35

EXTERNAL AUDIT PROGRESS REPORT pdf icon PDF 336 KB

To update Members of the Audit Committee on the progress made on the external audit and also on current issues for local government.

Minutes:

The External Auditor presented the regular progress report of areas of work undertaken and planned over the next year. The Accounts Audit Plan would be presented at the April 2016 meeting of the Committee. The Plan would detail work required for the audit of the Council’s 2015/16 financial statements as well as an assessment of the Council’s value for money (economic, efficient and effective use of resources). The certification of the Council’s Housing Benefits claim was completed resulting in a qualified opinion and the findings would be reported to the April 2016 meeting of the Committee.

 

Groundwork would include looking at financial systems, internal controls, accounting issues and robust testing. This would allow 11 sample months to be tested and, in due course, the final month. Early discussions were taking place with Finance to ensure good preparation for the advent of future earlier accounts reporting requirements.

 

Alongside this was the regular topical update exploring major challenges and opportunities for local government. They had also produced some guidance documents to complement their update.

 

The ‘Code of Audit Practice’ was produced by the National Audit Office (NAO) covering how auditors should undertake their functions for local authorities. The NAO planned to supplement the Code with detailed guidance in specific areas which had been produced in November 2015 following consultation. The guidance included definitions of audit ‘assurance’ opinions and ‘proper arrangements’ for securing value for money. This would supersede the ‘economy, efficiency and effectiveness in use of resources’ approach to a risk-based approach focusing on ensuring informed decision-making was taking place; sustainable resource deployment; and effective partnership working. The External Auditor was reviewing the NAO’s new guidance and would provide a more detailed report to the Audit Committee in due course.

 

‘Making devolution work: a practical guide for local leaders’ outlined the ingredients of making successful devolution bids covering what could an authority do differently and better; what precise powers were needed; what economic geography would be most effective; and what governance would be needed to give confidence to central government. Alongside this the report covered plans for local authorities to gain new powers; retain local taxes including business rates; and improve the efficiency of council tax collection.

 

‘Turning up the volume: the Business Location Index’ aimed to help local authorities and other stakeholders secure greater levels of inward investment (growth) by identifying key factors such as economic performance, people and skills and environmental and infrastructure characteristics of an area.

 

‘Knowing the Ropes - Audit Committee Effectiveness Review’ looked at ways in which audit committees could be effective role as part of an organisation’s governance and how they were perceived. ‘Supporting members in governance’ complemented the Effectiveness Review guidance. Members queried the reference in the Effectiveness guidance as to the model size of an audit committee being 3-5 members. It was explained that the guidance actually covered a number of sectors so was fairly broad and ‘one size didn’t fit all’. It was noted that the Audit Committee had grown  ...  view the full minutes text for item AUD/35

AUD/36

REVIEW OF THE LOCAL CODE OF GOVERNANCE pdf icon PDF 155 KB

To review the Local Code of Governance.

Additional documents:

Minutes:

The Financial Services Manager explained that the Local Code of Governance had been updated in 2013 and annually reviewed. It had been reviewed again in line with best practice and was assessed as ‘fit for purpose’.

 

The national ‘Delivering Good Governance in Local Government Framework’ was being reviewed and an updated framework with guidance was expected in early 2016. This could have an impact on the Council’s Governance Framework including the Local Code of Governance. Therefore the Annual Governance Statement Action Plan (Minute AUD/32 (2015/16) refers) recognised the need to review local governance arrangements if national guidance changed. This could be reported back to the April 2016 meeting of the Audit Committee.

 

RESOLVED – That the review of the Local Code of Governance be noted.

AUD/37

REVIEW OF THE ANTI-FRAUD AND CORRUPTION POLICY AND ACTIVITY pdf icon PDF 168 KB

To review the Anti-Fraud and Corruption Policy and to provide statistical data on cases where sources of information indicated that fraudulent activity might be occurring.

Additional documents:

Minutes:

The Financial Services Manager explained that the current Anti-Fraud and Corruption Policy had been reviewed and merged with the Anti-Bribery Policy to create a simpler collective policy set which followed a recommendation from Internal Audit. A separate Anti-Money Laundering Policy was being retained as it concerned a small group of people. These changes would need to be reflected in the Constitution.

 

Several national and regional bodies were responsible for anti-fraud guidance and work. The Council identified best practice and developed local polices and work based on this. The recently appointed Corporate Anti-Fraud Officer had a key role including working with service managers to develop fraud and corruption risk assessments and action plans. Other work would include reference to the National Fraud Initiative (biennially) and annual cross-referencing of the Electoral Roll (updated 1 December 2015) with the Council Tax Register.

 

A key element of the various anti-fraud activities was to use the risk-based approach focusing on risks identified.  One current high priority risk was tackling Right to Buy (RTB) fraud, RTB properties were sold at heavily discounted prices so involved a range of fraud such as being purchased through the tenant by third parties who didn’t live at the property and provided the funds. Members requested how they and the public could provide fraud information and to what phone number. Relevant information would be provided to Members.

 

The review also included a range of statistical indicators of potential fraudulent activity. It was noted that the two recent cases of potential fraud had been investigated and been unfounded.

 

RESOLVED – That

 

(1)       the amendments to the Anti-Bribery, Fraud and Corruption Policy, as shown in Appendix 1 to the report, be noted and referred to Council for approval;

 

(2)       the amendments to the Article of the Constitution: Budget and Policy Framework, as shown in Appendix 2 to the report, be noted and referred to Council for approval;

 

(3)       the Anti-Money Laundering Policy, as shown in Appendix 3 to the report, be noted and referred to Council for approval; and

 

(4)       the anti-fraud activity be noted.

AUD/38

REVIEW OF THE WHISTLEBLOWING POLICY pdf icon PDF 155 KB

To review the Whistleblowing Policy.

Additional documents:

Minutes:

The Financial Services Manager explained that the Whistleblowing Policy was based on national guidance and best practice and was annually reviewed.  The Policy linked closely to the Anti-Fraud and Corruption Policy (Minute AUD/37 (2015/16) refers). There had been no incidents reported under the Policy, since it had been last reviewed in 2013. No changes were proposed to the Policy.

 

Members queried if the whistleblowing hotline number was known by staff and if it had been used. Whistleblowing training had been provided to managers and online training (anti-fraud and whistleblowing) was to be made available to all staff. The current Internal Auditor provided the hotline number which would be replaced in April 2016 when the new Internal Auditor was appointed.

 

RESOLVED – That the review of the Whistleblowing Policy, as shown in Appendix 1 to the report, be noted.

AUD/39

REVIEW OF THE EFFECTIVENESS OF THE AUDIT COMMITTEE pdf icon PDF 87 KB

To review the Audit Committee’s effectiveness.

Additional documents:

Minutes:

The Financial Services Manager explained that the Chartered Institute of Public Finance and Accountancy (CIPFA) had produced best practice ‘Practical Guidance for Local Authorities and Police Audit Committees’ for testing the effectiveness of audit committees. This comprised of a detailed self-assessment checklist and model terms of reference for audit committees.

 

CIPFA had also produced a model Knowledge and Skills Framework for ensuring Audit Committee Members had the right tools. The External Auditor, Grant Thornton, had produced an effectiveness guide ‘Knowing the ropes’ (Minute AUD/11 (2015/16) refers) which recognised that audit committees had resource restrains so needed to be effective including needing to be led by a capable chairman.

 

The overall checklist conclusion was that the Audit Committee was effective.

 

RESOLVED – That

 

(1)       the review and its conclusion that the Committee is operating effectively in all material respects be approved, and

 

(2)       the Skills Framework for Members of the Audit Committee, in Appendix 2 to the report, be noted.

AUD/40

REVIEW OF THE CONSTITUTION pdf icon PDF 186 KB

To review the Council’s Constitution (including Contract and Financial Procedure Rules).

Additional documents:

Minutes:

The Assistant Director Resources (Section 151 Officer) explained that the Council’s Constitution was reviewed annually and aspects relevant to the Audit Committee had been considered. A number of proposed changes were recommended to increase the efficiency of the procurement process and improve internal controls including financial thresholds relevant to Key Decisions made by the Executive (Cabinet or delegated to named senior officers)

 

The Review had focused on financial controls within the Financial and Contract Procedure Rules respectively and changes to relevant Articles of the Constitution. The two main proposed changes concerned the definition of Key Decisions and the procurement process for Tender Acceptances.

 

Key Decisions were defined as being of potential significant impact on two or more Wards (one Ward for two-Member Wards) or cost/save over £60,000. Statutory requirements for Key Decisions included publicising decisions at least 28 days before they were due for decision. This figure had been set in 2000 when executive arrangements had been introduced but the retail price index (inflation) had risen by over 50% since which would equate to a Key Decision figure of £91,500. Benchmarking had been undertaken with comparable authorities and so it was proposed that the Key Decision figure be increased to £100,000.

 

The second main change was to streamline and make efficient the procurement process by removing the need for tender acceptances to be processed through the Key Decision process which caused delays (including to bidders) and created extra staff costs. This would only apply to non-contentious contracts and be subject to proper processes. It was proposed that a single procurement schedule was produced, outlining procurement exercises planned for the year, which would form part of the annual budget approval process.

 

Other minor financial and procurement changes were also proposed as contained within the report.

 

Members recognised the rationale for the proposed changes but expressed some concerns over the proposed higher thresholds for executive or delegated decisions before Key Decision requirements applied. It was also suggested that if using the consumer price index instead of the RPI then proposed thresholds ought to be lower. Whichever inflation measure was used, some of the higher proposed thresholds, such as £100,000 for delegated decisions not subject to Key Decision requirements, seemed far too high. It was explained that, as well as identifying thresholds that were more up-to-date and appropriate, there needed to be a small number of clear structured thresholds that were manageable.

 

For contract overspend reporting requirements, it was explained that the proposed requirement to report overspends 10% or more over the contract value from the current 3% recognised that actual amounts involved needed to be recognised. Sometimes quite small amounts might be reported so the proposal avoided relatively minor overspends having to be reported.

 

Members felt that the proposed threshold increase from £35,000 to £100,000 for ‘writing off’ debts, before Key Decision requirements applied, was far too high. Instead a threshold of £60,000 was recommended. It was explained that this essentially concerned bankrupt businesses so the prospects of getting any return was  ...  view the full minutes text for item AUD/40

AUD/41

OTHER SIGNIFICANT FINANCIAL ISSUES

To receive a verbal update from the Assistant Director (Resources) and Section 151 Officer.

Minutes:

The Assistant Director Resources (Section 151 Officer) reported that a draft annual budget report might be prepared for Council on 17 December 2015. The Government was expected to announce the financial settlement for local government for 2016/17 around then and results would most likely be reported to Members after 17 December through a briefing paper.

 

It was noted that the proportionate allocations of New Homes Bonus funding and business rates receipts between the Council at district level and Cumbria County Council might change resulting in less budget funds for the Council. It was explained that neither of these income streams featured in the base budget.

 

RESOLVED – That the verbal report be noted.