Audit and Governance Committee Minutes

Audit and Governance Committee Minutes

Thursday 6 December 2012
10:00 a.m.
Oberhausen Room,Town Hall, Middlesbrough

Attendance Details

Junier (Chair), C Hobson, Loughborough, Taylor.
B Baldam, P Clarke, H Fowler, S Harker, I Hope and B Roberts.
Apologies for absence:
were submitted on behalf of Councillors Harvey, Hawthorne and P Khan
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 20 September 2012 were taken as read and approved as a correct record.


 The results of the External Auditor’s 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 year’s 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 Council’s 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 Auditor’s 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 Directorate’s 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 Council’s strategic objectives.


It was acknowledged however, that management reports were comprehensive and from discussions with management and the External Auditor’s 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.


The Audit Manager presented a report, the purpose of which was to inform Members of the progress made to date in delivering the 2012/2013 Internal Audit Plan and any developments likely to impact on the Plan and other agreed performance measures throughout the remainder of the year. The report also outlined the main findings from 2012/2013 internal audit reports that had been issued in final so far this year and provided an update on the progress in implementing recommendations made as a result of audit work undertaken in the last financial year 2011/2012.


Members approved the 2012/2013 Audit Plan on 19 June 2012 and the total number of planned audit days for 2012/2013 was 1,325. The performance target for the Internal Audit Service was to deliver one hundred percent of the agreed Audit Plan. The Tees Valley Audit and Assurance Services (TVAAS) had issued a number of 2012/2013 audit reports in final and a brief summary of the main findings of each of these audits together with the overall assurance opinion was provided in attachment two to the submitted report. A summary of the progress made by management to implement recommendations made as a result of audit reports issued from the previous year’s internal audit plan was provided at attachment three to the submitted report.


Attachment one to the submitted report detailed the performance measures for 2012/2013 as set out in the Service Level Agreement. The main measure was the percentage of the audit plan completed. At the present time the number of drafts issued was relatively low and this was due mainly to the timing of audits. The Service was confident that the Plan would be achieved providing the current level of staff resources was maintained. All the other performance measures were either achieved or on target. In terms of customer satisfaction, the TVAAS was currently exceeding its target of 3.5, at 3.88.


All variations to the agreed Audit Plan as a result of emerging issues and/or requests from Directorates would, in future, be subject to a Change Control process. Any significant variations would then be communicated to the Audit and Governance Committee for information. This would ensure that audit resource remained focussed on areas of strategic importance to the Council and would reassure Members that there was a controlled process for deviating from the agreed Audit Plan.


To date, the only audit proposed to be removed from the Plan was Highways Maintenance. Due to service restructuring, it had been agreed that a complete review of the Fleet Management Service would be undertaken in place of Highways Maintenance. The time originally allocated for Highways Maintenance would be added to the time for Fuel and Vehicle Usage so that one combined review could be undertaken. Highways Maintenance would be deferred until 2013/2014.


A number of additional assignments had been carried out using the contingency allocation of time as follows:

Foster Carers’ Payment Module.
Albert Park theft.
Purchase of holidays.
Disposal of surplus land.
Procurement fraud.


Internal audit work during 2011/2012 resulted in a total of 543 recommendations being agreed with management. In addition to the agreed recommendations, a further three Priority 3 recommendations were made that were not agreed by management. Management provided reasons for non-acceptance of these actions and the risk of non-implementation was deemed to be low. Priority 3 recommendations were the least significant and were described by the Internal Auditor as prudent rather than essential.


It was noted that in some cases the recommendations needed removing from the schedule, for example, for schools that had now converted to academies TVAAS was unable to request information relating to the recommendations.   It was highlighted also that Services were not always informing Internal Audit when a recommendation had been completed. In future, schedules of outstanding recommendations would be passed to the Service Areas’ management teams to ensure that a response was received.

AGREED that the information provided be received and noted.


A report was presented to provide the Audit and Governance Committee with an update on the action taken following the Audit Report into Winter Maintenance. The Audit and Governance Committee was concerned with the main findings of the Audit Report which highlighted the lack of an up-to-date Winter Maintenance Plan as well as a lack of means for measuring rock salt stocks to ensure that gritting needs could be met. Concerns were raised that the recommendations made by the Overview and Scrutiny Board (OSB) in December 2010 had not been implemented.


As a result of the Audit and Governance Committee’s concerns, the OSB addressed the issue at its meeting on 16 October 2012. The Board invited the service responsible for winter maintenance and the Executive Member with this portfolio to attend the meeting and present the current position with regard to implementation of each of the recommendations within the scrutiny report that was presented to the Executive in 2011. The Board also invited the Auditor to the meeting to outline the findings and clarify each item from the Auditor’s findings in relation to the service response.


At the OSB meeting held on 16 October 2012, the Assistant Director, Environment, informed the Board that the non-implementation of these Executive decisions was an oversight. This was due to changes in the structure and the absorption of the Transport and Design section, which coincided with the departure of that section’s management from the Council.


It was confirmed that following receipt of the Auditor’s report, a Winter Maintenance Plan had now been completed and all the recommendations from the OSB that were endorsed by the Executive in 2011 had now been implemented.


The OSB were pleased that the Auditor had uncovered these issues and that the Audit and Governance Committee had pursued this to OSB. However, the OSB were concerned that the Executive decisions had not been monitored or implemented. Although fully appreciative of the circumstances that had led to this situation, the Board considered that there was a service responsibility to monitor the implementation of decisions.


The OSB agreed that a report would be presented to the Executive on 4 December 2012 regarding the need for Directors and Executive Members to monitor the progress of the implementation of Executive decisions.


AGREED that:


1. The information provided be received and noted.
2. Audit and Governance Committee recommend to the Executive that a process be put in place to ensure timely implementation and monitoring of Executive decisions.

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