Audit and Governance Committee Minutes

Audit and Governance Committee Minutes

Date:
Thursday 20 June 2013
Time:
10:00 a.m.
Place:
Spencer Room, Town Hall, Middlesbrough
 

Attendance Details

Present:
Junier (Chair), Hudson, P Khan, McPartland
Officers:
B Baldam, P Clark, S Harker, M Padfield, J Sinclair
Apologies for absence:
were submitted on behalf of Councillors C Hobson, Loughborough and Taylor
Declarations of interest:

There were no Declarations of Interest at this point in the meeting.

Item Number Item/Resolution
PUBLIC
13/3 MINUTES - AUDIT AND GOVERNANCE COMMITTEE - 23 MAY 2013

The minutes of the meeting of the Audit and Governance Committee held on 23 May 2013 were taken as read and approved as a correct record.

13/4 INTERNAL AUDIT - ANNUAL AUDIT PLAN

The Audit Manager presented a report on the final Annual Audit Plan for 2013/2014.   The draft Plan had been presented to the Committee on 7 March 2013 so that Members could contribute to the consultation process by commenting on the areas selected for review and the overall scope of the Plan. It was highlighted that the Plan was flexible and the Audit and Governance Committee could recommend further areas for audit throughout the year.

 

Consultation had included the Chief Executive, the Directors of Neighbourhood and Communities, and Wellbeing, Care and Learning, Heads of Service, the Deputy Director of Resources, Director of Resources and the Performance Manager. Progress against the Plan would be reported back to the Committee by the Audit Manager throughout the year.

 

The work to be carried out by Tees Valley Audit and Assurance Services (TVAAS) was aimed at providing assurance to the Council’s senior officers, Elected Members and members of the public that the key risks faced by the Council were being managed effectively and that appropriate safeguards were in place for public funds and assets. From 2013/2014 onwards, increased focus would be given to internal audit work supporting the Council’s Change Programme, which set out how the Council would look in 2018.

 

The proposed final Annual Internal Audit Plan for 2013/2014 was attached at Appendix one to the submitted report. It set out how internal audit resources would be deployed between a number of assurance categories including corporate assurance, change programme support, internal control compliance reviews, counter fraud and financial systems. The Council faced significant financial challenges in the years ahead and would lose just under £73 million from its budget over a period of five years. As a result, the Council had devised an extensive series of efficiency savings, budget and service reductions. The work of internal audit needed to support the Council in meeting this financial challenge and therefore the draft Audit Plan included a category of work specifically linked to supporting the Change Programme.

 

The Plan had been written to allow time to be allocated to events as they emerged during the year. It was anticipated that close liaison with the Corporate Management Team, Heads of Service, Risk Management and Performance Management teams, external Audit and departmental managers would produce audits that would add value to the Council’s operations and address the management of key risks.

 

AGREED that the Middlesbrough Council Internal Audit Final Plan 2013/2014 be approved.

 

13/5 INTERNAL AUDIT - ANNUAL AUDIT ASSESSMENT

The Audit Manager presented a report on the Annual Audit Assessment for Middlesbrough Council for the audit year 2012/2013. The Annual Assessment comprised a summary of the delivery of the 2012/2013 plan of internal audit work and provided an overall opinion on the Council’s control environment based on the internal audit work undertaken. The assessment also reported on the outturn performance of the shared internal audit service against agreed performance measures as detailed in the service level agreement and gave an update on the progress made to develop the shared service.

 

Members approved the 2012/2013 Audit Plan at their meeting in June 2012. The total number of planned audit days for 2012/2013 was 1,325. The performance target for the Service was to deliver 100% of the agreed Audit Plan.

 

During the year under review, TVAAS operated in accordance with the CIPFA Code of Practice for Internal Audit in Local Government in the United Kingdom. The overall opinion of the Audit Manager on the controls operated in the Council was that they provided Satisfactory Assurance. There were no qualifications to this opinion and no reliance was placed on the work of other assurance bodies in reaching this opinion. The overall opinion was based on the audit work completed during 2012/2013 as detailed in Appendix A to the submitted work.

 

During 2012/2013 the following areas of concern were highlighted by internal audit work and have therefore been recommended for inclusion within the Council’s Annual Governance Statement: Foster Carers’ Payment Module, Payroll overpayment and Data Protection. Detailed information in relation to each item was contained within the submitted report.

 

The original number of days planned for audit work for 2012/2013 was 1325 (2011/2012 - 1440 days). The final outturn completion of the Plan was 92%. Whilst this was less than the targeted 100% it was an improved position compared with last year (86%).

 

A number of variations to the agreed audit plan occurred during 2012/2013 as a result of emerging issues and/or requests from directorates. A number of audits were not started because the proposed audit area was no longer considered to be a priority area for review. Appendix D to the submitted report detailed the variations to the version of the Plan originally agreed in June 2012. The variations had been reported to the Audit and Governance Committee throughout the year. Variations highlighted in bold were those that had been requested since the last progress report was presented to the Committee in February 2013.

 

In addition to the areas detailed in Appendix D, additional time had been spent on following up implementation of previously agreed recommendations and on responding to queries and requests for advice from Council departments.

 

All future significant variations to the Audit Plan would continue to be subject to a Change Control process to ensure that audit resource remained focussed on areas of strategic importance to the Council and reassure Members of the Committee that there was a controlled process for deviating from the agreed audit plan.

 

In order to continuously improve the delivery of internal audit services, TVAAS regularly reviewed and modernised the way it worked. Recent changes within the team had led to a review of the way in which audit plans were managed and delivered and how the individual skills and knowledge of the audit team could be maximised.

 

During 2012/2013, work carried out by members of TVAAS had helped identify a number of issues and key risks that needed to be addressed, examples of which were given in the submitted report. The Service had a strategy and action plan in place which detailed its vision and key development actions to be taken.

 

In order to ensure that TVAAS delivered an effective internal audit service, the Manager completed the annual assessment against the criteria set out in the CIPFA (Chartered Institute of Public Finance and Accountancy) Code of Practice for Internal Audit. The final assessment of the Service against the Code was attached at Appendix E to the submitted report. A detailed assessment of the Service against the new PSIAS (Public Sector Internal Audit Standards) would be carried out and reported to the Audit and Governance Committee later in the year.

 

AGREED that the Internal Audit Annual Assessment be received and noted.
 

13/6 PLANNING REPORT TO AUDIT AND GOVERNANCE COMMITTEE ON THE 2012/2013 AUDIT - DELOITTE

The External Auditor presented Deloitte’s planning report for the year ended 31 March 2013. The Plan informed Members and Council Officers of the responsibilities of the External Auditor and how they would be discharged. The scope and approach of the audit was outlined and included the External Auditor’s initial view on the key audit risks to the Council.

 

A "Briefing on Audit Matters" document referred to in the planning report had not been circulated prior to the meeting and the External Auditor agreed to forward this document to Audit and Governance Committee Members.

 

The Council continued to face significant financial challenge and had responded by developing a transformation programme which aimed to fundamentally review the way in which the Council operated and provided services. The audit plan had been developed to focus on the key challenges and risks that faced the Council including consideration of fraud, internal control and value for money.

Based on an initial audit risk assessment, the external audit would concentrate specific audit effort on the following areas:
 

  • Revenue recognition: recognising grant income.
  • Recoverability of investments.
  • Valuation of fixed assets.
  • Disclosure of related parties.
  • 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.

In relation to the Value for Money Conclusion, the Auditor would provide an opinion on proper arrangements for securing financial resilience and for challenging how economy, efficiency and effectiveness were secured. In response to the financial pressures that the Council was facing, significant progress had been made in 2012/2013 in moving from a focus on cost-cutting, to service and finance transformation. As the Council finalised its transformation plan there would be an increased need to ensure good project management was in place to support and facilitate changes as well as robust governance to ensure the Council monitored the impact of the changes.

 

In the prior year, the External Auditor had identified a potential risk in relation to the management of information across the Council. A review on the Safeguarding Service within the Children, Families and Learning Directorate highlighted a number of potential risks and areas for improvement, particularly in relation to management reporting. The Council had since developed its forecasts for predicting demand for social care in order to focus its resources appropriately. The External Auditor would undertake a high level review of the social care demand model, in order to share ideas from work undertaken in other sectors. It was highlighted that this review would not constitute an audit of the model and an opinion would not be provided.

Other accounting judgements included in the audit, which had not initially been identified as audit risks, were Provisions and Pension liability.

The External Audit work was due to be completed by the end of August 2013 and the findings would be presented to the Audit and Governance Committee in September 2013.

AGREED that the Deloitte report on the 2013 Audit Planning be noted.


 

13/7 DRAFT STATEMENT OF ACCOUNTS 2012/2013

 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 2012/2013. 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 2012/2013 Statement of Accounts had been prepared in compliance with International Financial Reporting Standards (IFRS).  The Government had recommended that the Council move to the Government Reporting Manual and produce a financial report rather than just the Statement of Accounts.  The first steps in the process had been taken and it was planned that for 2013/2014 the Council would be fully compliant with the Government's recommendation.

The Explanatory Foreword included information in relation to the Council’s vision, core financial statements and financial report for 2012/2013 and beyond.

 

The Deputy Director of Resources gave a detailed presentation of Section 2 of the Statement of Accounts which covered a review of the year and summary financial information under the following headings:

  •  The 2012/2013 Revenue Budget - Outturn Report.
  • Local Economic Climate 2012/2013.
  • Financial Report.
  • Balance Sheet.
  • Debtors.
  • Creditors.
  • Teesside Pension Fund Accounts.
  • Looking Ahead to 2013/2014 and beyond.

The Statement of Accounts would be subject to external audit by Deloitte which would commence on 1 July and was expected to be completed by 31 August 2013. 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 £191,000 (0.14%).

 

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 23 May 2013.   The Deputy Director of Resources drew the Committee's attention to an amendment to the Annual Governance Statement post year-end. 

 

Following a recent Senior Management re-structure in June 2013, the Director of Strategic Resources' post was removed from automatic attendance at the Corporate Management Team and Executive.  It was considered that the Authority's financial management arrangements no longer conformed with the governance requirements of the CIPFA Statement on the Role of the Chief Financial Officer (CFO) in Local Government (2010).  It was highlighted that the new senior management arrangements were still to be established and were subject to further consideration.

 

AGREED that:

1.     the contents of the draft Statement of Accounts 2012/2013 be noted.

2.     the Chair and Vice Chair of the Audit and Governance Committee would arrange to meet with the Senior  

        Management Team in relation to the new management arrangements and governance requirements of

        CIPFA.

13/8 ANY OTHER URGENT ITEMS WHICH IN THE OPINION OF THE CHAIR, MAY BE CONSIDERED.

Committee Development

 

The Chair informed Members that following recent discussions with the External Auditor and other Local Authorities' Audit and Governance Committees, it would be helpful for the Committee's future development to undertake some form of action planning and assurance mapping in terms of strengthening the Committee's challenge role.

 

Independent Non-Elected Members

 

The Chair highlighted that there were currently vacancies on the Audit and Governance Committee for up to two Independent Non Elected Members.   It had been conveyed to the Chair that Ian Hope, a former Internal Auditor from the TVAAS, was interested in joining the Audit and Governance Committee. 

 

AGREED that the Senior Scrutiny Officer would seek legal advice as to the correct procedure for appointment of Independent Non-Elected Members.

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