The results of the External Auditors financial audit for the year 2011/2012 had been presented to the Audit and Governance Committee at the September 2012 meeting. The External Auditor was in attendance to report on the findings of the value for money audit and the control recommendations that had arisen from their work. The report included a wider remit across the whole Council and not solely the finance.
An unqualified audit opinion was issued on the Statement of Accounts and the value for money conclusion on 28 September 2012 and no material weaknesses in the financial reporting systems were identified. The control observations noted in the report were considered to be minor.
The Whole of Government Accounts was presented for audit by the deadline set by HM Treasury. An unqualified opinion on the Whole of Government Accounts return was issued on 5 October 2012. In addition, the audit of the Teesside Pension Fund had been completed and the audit certificate would be issued within the next few days.
Although no significant control weaknesses from the current years audit had been identified, there were some areas for potential improvement in the control environment and these areas were highlighted to the Committee by the External Auditor.
Asset valuation was one of the areas highlighted and the issue related to quality of documentation in relation to valuations and communication between different service areas.
In addition, the Council had not explicitly considered the impact of economic factors from other areas of the business on the value of its property, plant and equipment. It was noted that whilst Officers were aware that income from car parks had reduced substantially, the impact this potentially had on the value of the car parks had not been considered.
With regard to related party transactions it was noted by the Auditor that although confirmation letters were obtained from all Members, they were not compared to the Register of Members Interests. It was recommended that a process was introduced to ensure that the Register of Members Interests and returns from Members were compared and any differences investigated in order to ensure that the list of related party transactions was complete.
In terms of the budget processes, a number of recommendations made by the External Auditor in relation to financial procedures had been taken forward by the Council. The number of material codes had been significantly reduced and a standardised template was in use to make financial information more comparable. Further work was ongoing to improve the budget process.
As the Council was currently reducing from four departments to two, the External Auditor recommended that an exercise to rebase the budgets to reflect the new cost base needed to underpin the service/cost centre to achieve its objectives and outputs, should be undertaken. The process needed to take into account the finance available and the current cost base, to identify where funding needed to be re-allocated or savings achieved, in order to meet the Councils objectives and financial targets.
In terms of the Value for Money (VFM) conclusion, the key audit risks identified as part of the overall audit strategy were as follows:
· Financial sustainability.
· Asset management and the development of the Hub Initiative.
· Management of information across the Council.
In relation to financial stability and the Medium Term Financial Plan, the External Auditors comments were similar to the prior year. In order to achieve transformation effectively, the Council needed to be clear about its strategic direction and vision for what the Council would look like at the end of the Medium Term Financial Plan.
The Council had now started to make significant progress in moving from focussing on cost-cutting to service and finance transformation. The Council was developing cost-saving initiatives that spanned the medium term financial period, rather than focussing on annual targets and considering which services it might not deliver in future. Whilst there were risks surrounding the achievement of savings plans in 2012/2013, detailed plans were in place to ensure savings were achieved.
In terms of asset management the External Auditor had looked at the Hub Initiative and the Non-Strategic Asset Review. The External Auditor had considered how the review fed into the overall transformation programme and cost-cutting plans and how value for money in relation to the decisions taken had been considered by the Council. The External Auditor had no concerns regarding value for money opinion in relation to this work. In total, the Hub Initiative was expected to generate £1.3m of savings, the first of which would be achieved in 2012/2013. Progress against the savings of the Hub Initiative was not monitored centrally as the savings were devolved down into each Directorates budgeted savings targets and monitored at that level. The External Auditor recommended that future programmes should allow for monitoring as a whole, so that the success of the full programme could be measured.
Since the area of Information Management was so wide-ranging, the External Auditor had focussed specifically on Safeguarding within Children Families and Learning, due to the continued financial pressure in this service area. A number of observations on information systems had been raised. It was highlighted that sources of information across the service were fragmented and operational systems were not integrated. Some employees were using individual systems and spreadsheets, which increased the risk of error or system failure.
Whilst the review had focussed on Safeguarding, the External Auditor did not think these issues were isolated to the Service and recommended that the Council considered the findings as part of the wider review of IT and information systems.
Finally, with regard to management reports it was highlighted that generally there was limited use and interpretation of comparative data and trends and of key performance indicators (KPIs) within the financial analysis. Management reports did not generally provide progress against strategic objectives and there was limited strategic information, interpretation or trends. The External Auditor noted that not all performance and financial reporting could easily be mapped to the overarching strategy and this could potentially lead to decisions being made that were not in line with the Councils strategic objectives.
It was acknowledged however, that management reports were comprehensive and from discussions with management and the External Auditors knowledge of the budgeting process from the financial audit, it was apparent that reports were reviewed in detail and Officers were aware of the key issues.
AGREED that the information provided be received and noted.