Audit and Governance Committee Minutes

Audit and Governance Committee Minutes

Tuesday 19 June 2012
10:00 a.m.
Oberhausen Room,Town Hall, Middlesbrough

Attendance Details

Councillor L Junier (Chair), Hawthorne, Hobson, P Khan, S Khan (as substitute for Harvey), Taylor.
B Baldam, P Clark, H Fowler, S Harker, I Hope and M Padfield.
Apologies for absence:
were submitted on behalf of Councillors Harvey and Hudson
Declarations of interest:

There were no declarations of interest at this point in the meeting.

Item Number Item/Resolution

The minutes of the meeting of the Audit and Governance Committee held on 24 May 2012 were taken as read and approved as a correct record.


The Deputy Director of Resources presented a report for Members of the Audit and Governance Committee to receive and review the Middlesbrough Council Draft Statement of Accounts 2011/2012. The Statement of Accounts included the accounts for Teesside Pension Fund for which the Council was the administering authority.


The Statement of Accounts was a technical publication containing accounting statements that had been prepared in accordance with the Code of Practice on Local Authority Accounting in Great Britain and the Statutory Accounts and Audit Regulations (The Code). The Code was updated annually and specified the accounting principles and practices required to prepare a Statement of Accounts that presented a true and fair view of the position of a Local Authority.


The 2011/2012 Statement of Accounts had been prepared in compliance with International Financial Reporting Standards (IFRS).


As previously requested by the Audit and Governance Committee, the Explanatory Foreword included details of the key indicators of the state of the local economy and the impact on the Council. The overall economic conditions continued to be difficult, although the impact of these circumstances varied significantly depending upon which sector individual businesses were operating in. Nationally, retail continued to struggle, whilst those serving wider markets such as engineering and the oil and gas sectors were taking advantage of increasing global opportunities.


The Annual Governance Statement reported on the key financial controls and wider governance arrangements in operation within the Council and was approved by the Corporate Affairs Committee on 24th May 2012.


The Deputy Director of Resources highlighted that the financial performance of the Teesside Pension Fund in the year to 31 March 2012 was again positive, with the Fund’s value increasing by 0.4% to £2,597 million. Although the market value of investments had fallen, this was more than offset by investment income. The membership of the Fund continued to increase, however over the last five years the number of active members had fallen by almost 7.5%, the number of pensioners increased by 25.4% and the number of deferred members by almost 54%.


At the last valuation of the Fund, the Actuary declared a funding level of 99%. This had allowed many of the employers in the Fund to decrease the amount of their contributions for the following three years, and release money for front-line services. The next valuation would be carried out in March 2013.


The Pension Liability increased to £199.5 million from £79.1 million at March 2011, due to a reduction in the value of assets and lower returns on investments held. This was the value placed on the Council liability by the Pension Fund Actuary and was offset in the balance sheet by a corresponding credit on the Pension Reserve. The Deputy Director of Resources confirmed that this was a technical adjustment in the accounts and related to a specific band rate that all Local Authorities had to use when working out liabilities.


The Statements would be subject to external audit by Deloitte which would commence on 3 July and was expected to be completed by 31 August 2012. A Statement (ISA260) would be produced which would detail any unadjusted misstatements found during the course of the audit.


Overall the accounts showed a sound financial position for the Council with the level of balances being in line with the Council’s Medium Term Financial Plan.


The application of sound financial management across all services was reflected in the final outturn for the year with a net saving compared to budget of £506,000 (0.37%).


The Council had identified savings from service efficiencies, staffing structure reviews, a review of accommodation, joint working with other bodies, and service reductions to fund reductions of £13.8 million in 2011/2012. The cuts process was continuing with reductions of £12.8 million for 2012/2013 and the Council would need to make some difficult and fundamental changes in the services it provided and the way it operated to make the level of savings due in 2013/2014 and 2014/2015.


There would be a significant risk on the delivery of planned savings/cuts and the Council would need to continue to invest in service reconfiguration in order to improve services and generate greater savings. The £1.2 million savings made during 2011/2012 had been transferred to the Change Programme Reserve to fund this essential investment. In addition, £0.5million had been transferred into the Social Care/Vulnerable Children Reserve to cover financial risks related to increased demand in those areas.


Actual capital spend in the year was £63.7 million, compared with a budget of £70.0 million. Expenditure during the year was mainly funded from grants (70.3%), from borrowing (22.8%), and from capital contributions (6.96%). The percentage of spend achieved compared to the budget represented 91.0%.


RECOMMENDED that the contents of the draft Statement of Accounts 2011/2012 be noted.


The Audit Senior Manager, Deloitte, presented a report that set out the details of the proposed external audit of Middlesbrough Council and the areas that would be covered, which included key audit risks, consideration of fraud, internal control and value for money.


Based on their initial audit risk assessment, Deloitte would concentrate specific audit effort on the following nine areas:


Revenue recognition: recognising grant income.
Recoverability of investments.
Accounting for Heritage Assets.
Valuation of fixed assets.
Disclosure of related parties.
Presentation of summary financial statements.
Risk of Accounts Payable control deficiencies.
Management of override of internal control.
Financial standing.


The submitted report provided details of each of the risk areas and identified how the External Auditor would assess the Council’s actions.


Materiality would be similar to the previous year at around £4million, and only adjustments over £200k would be reported.


In addition to the financial statement risks, the Auditor would look at value for money although this would be less in depth than in previous years. The key audit risks identified as part of the overall audit strategy were:


Financial sustainability.
Asset management and the development of the ‘hub’.
Management of information across the Council.


A particular focus would be based on the Council’s vision and strategy for the future and what  options were being considered for future service delivery.


The External Audit work was due to be completed by the end of August 2012 and the findings would be presented to the Audit and Governance Committee.


RECOMMENDED that the Deloitte report on the 2012 Audit Planning be noted.


The Internal Audit Manager presented a report on the final Internal Audit Plan 2012/2013. The draft plan had been presented to the Audit and Governance Committee in March 2012 for Members’ comments.


A copy of the Internal Audit Plan 2012/2013 was attached to the submitted report as Attachment 1 and provided for 1325 audit days. The plan set out how internal audit resources would be deployed between a number of assurance categories including corporate assurance, internal control compliance reviews, counter fraud and financial systems.


The Council faced significant financial challenges and had to make savings of over £50 million over a four-year period. The Council had devised an extensive series of efficiency savings, budget and services reductions in order to meet these financial challenges. The Audit Plan 2012-2013 therefore included a category of work specifically linked to service reviews and savings proposals.


The Audit Plan 2012-2013 had been written to allow time to be allocated to events as they emerged throughout the year. Close liaison with Heads of Service, Risk Management and Performance Management Teams would produce audits that would add value to the Council’s operations and address the management of key risks.


A service agreement had been produced for the TVAAS shared service and included a number of performance measures. Progress against the performance measures would be provided to the Audit and Governance Committee throughout the financial year.


AGREED that the Middlesbrough Council Internal Audit Draft Plan 2012/2013 be approved.


The Internal Audit Manager presented the Internal Audit Annual Assessment report for Middlesbrough Council for the audit year 2011/2012. The Annual Assessment comprised a summary of the delivery of the 2011/2012 plan of internal audit work and provided an overall opinion on the Council’s control environment based on the internal audit work undertaken. A copy of the Assessment was attached to the submitted report.


Members approved the 2011/2012 Audit Plan at their meeting on 23 June 2011. The total number of planned audit days for 2011/2012 was 1,440. The performance target for the Service was to deliver 100% of the agreed Audit Plan. The final outturn completion of the Plan was 85%. It was considered that this was a considerable achievement given that 2011/2012 was the first full financial year of the shared service and there were a number of factors which had an impact on the available resources.


The overall opinion of the Audit Manager on the controls operated in the Council was that they provided Satisfactory Assurance. The overall opinion was based on the audit work completed during 2011/2012, details of which were included at Appendix A to the report.


Two areas of concern had been highlighted by internal audit work and were included in the Council’s Annual Governance Statement. The actions planned and already taken in response to these two issues were detailed in the Annual Governance Statement.


RECOMMENDED that the Internal Audit Annual Assessment be noted.


The Chair reminded Members that throughout the course of the previous year
the Panel had looked various items on the Strategic Risk Register. The Chair invited Members to suggest any particular areas affected by the budget cuts that they wished the Committee to explore.


AGREED that Members would notify the Chair or Scrutiny Support Officer of any particular issues with the regard to the impact on the Council of the budget cuts for consideration by the Committee. 


A provisional Work Programme for 2012-2013 for the Audit and Governance Committee had been circulated. Members were invited to submit any further suggestions for topics to the Chair or Scrutiny Support Officer.


AGREED that:
1. The provisional Work Programme 2012-2013 for the Audit and Governance Committee be approved.
2. Members would submit any further topics for consideration to the Chair of Scrutiny Support Officer.

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