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 AUDIT COMMITTEE

 

Minutes of a meeting held on 20th April, 2015.

 

Present:  Councillor K. Hatton (Chairman); Councillors J.C. Bird, Mrs. P. Drake and J. Drysdale.

 

Also present: Mr. S. Barry (Wales Audit Office), Mr. J. Golding (Grant Thornton UK LLP) and Mr. J. Herniman (Wales Audit Office)

 

 

1121   APOLOGY FOR ABSENCE -

 

This was received from Mr. P. Lewis (Vice-Chairman).

 

 

1122   MINUTES -

 

RESOLVED - T H A T the minutes of the meeting held on 24th February, 2015 be approved as a correct record.

 

 

1123   ANNOUNCEMENT -

 

Prior to the next item of business, the Chairman introduced Mr. John Herniman, Engagement Director for the Wales Audit Office.

 

 

1124   DECLARATIONS OF INTEREST -

 

No declarations were received.

 

 

1125   WHITE PAPER - REFORMING LOCAL GOVERNMENT: POWER TO LOCAL PEOPLE (REF) -

 

At the meeting of Cabinet on 23rd February, 2015 Cabinet had been requested to approve the circulation of the White Paper 'Reforming Local Government - Power to Local People’ to stakeholders for their comments in advance of the Council’s formal response to Welsh Government; the document had subsequently been referred to the Audit Committee for consideration.

 

The White Paper "Reforming Local Government:  Power to Local People" was Welsh Government's statement of intent about the future of local government in Wales.

 

The White Paper set out Welsh Government's proposals for making changes in the following fields: 

  • local democracy,
  • the roles and remuneration of Elected Members and senior officers,
  • community governance and Community Councils,
  • community rights,
  • corporate improvement,
  • service performance,
  • scrutiny,
  • audit,
  • inspection and regulation,
  • and finance.

The Head of Performance and Development, present at the meeting, informed the Committee that a draft response to the White Paper would be considered by Cabinet and would take into account the comments made by the Audit Committee and the other Committees to which it had been referred.  He drew the Committee’s attention to the relevant part of the White Paper, 'Corporate Governance and Improvement’ which specifically related to proposals regarding the roles and responsibilities of Audit Committees. 

 

The Committee was informed that one of the proposals was to clarify the responsibilities and remit of Audit Committees, rename them Corporate Governance and Audit Committees, and expand their independent membership, which would include the requirement that the Committee be Chaired by a suitably appointed independent person.  The Committee was informed that the aim of this proposal was to strengthen internal Audit Committees.

 

The Chairman invited the Head of Finance to comment and, in response he expressed the view that the Council’s Audit Committee performed its function well and he was unsure of the value of having an independent person as the Chairman of Audit Committees and unsure whether the White Paper added value in terms of governance the Operational Manager for Audit expressed the view that an independent person may not have the depth and breadth of experience to perform this crucial role. 

 

Discussion of the White Paper took place during which the following concerns were raised:

  • Concern was expressed that proposals in the White Paper seemed to indicate that Audit Committees should become less political, which was of concern as Members expressed the view that the Council’s Audit Committee was not political in performing its functions.
  • Members were unsure of the benefits of the proposal to increase independent membership of Audit Committees which seemed to indicate a move away from Elected Members and felt that this would be detrimental to the function of the Audit Committee.  Furthermore, views were expressed that although the Audit Committee took professional advice from the external Auditors it did not feel that it was handing over responsibility for the Committee to these auditors.
  • Views were expressed that it was a difficult undertaking for a Lay person to sit on an Audit Committee and the independent advice should come from the professional external auditors who were independent of the authority.  Furthermore, Independent members may not have the relevant understanding of local government that Elected Members had and concern was expressed that this could potentially be a hazardous way forward. 
  • A Member expressed the view that Independent Members simply meant that the individual was not an Elected Member, however, they may not necessarily be independent.  It was crucial that Independent Members knew what was expected of them and the White Paper did not provide this assurance. 
  • Concern was expressed in regard to the frequency of the biennial peer reviews proposed in the White Paper.  The Head of Performance and Development expressed the view that light touch self-assessments would be acceptable, however, if they were hugely bureaucratic and required to be carried out every two years, this would be too frequent and burdensome, particularly if other inspectorates e.g. Estyn and CSSIW continued to be required to carry out service assessments as proposed in the White Paper.
  • Members were of the view that self-assessments should be short and sharp and then focus in on areas of concern where improvement was required, furthermore, they should be carried out on a risk basis.
  • Members of the Committee expressed concern in relation to the proposal that the Annual Improvement Plan would be replaced by annual self-assessment plans and biennial peer reviews.  Members agreed that local authorities should carry out self-assessments, however, were of the view the quality varied and a lot of effort would be required for how these would be run and they would require input from external auditors.  Furthermore, concern was expressed that biennial peer reviews on top of the annual self-assessments may prove to be overly bureaucratic. 

The Head of Performance and Development advised that the draft response to be considered by Cabinet did not support the proposal for an independent member to be Chairman of the Audit Committee and Members endorsed this.

 

The external auditors expressed the following views

  • They had experienced politics at play in some Audit Committees, however, advised that this should not be the case. 
  • It was important to strengthen governance and broadening Audit Committees ability to see what was happening was good. 
  • It was important that Audit Committee Members had an appropriate skill set which needed to be strengthened.

The Chairman expressed the view that he agreed with the point in relation to strengthening governance and if the White Paper could do this and elevate the standing of Audit Committees it would be a good thing.

 

RESOLVED - T H A T the Audit Committee’s concerns and comments in relation to the White Paper: 'Reforming Local Government: Power to Local People', as set out above, be submitted to Cabinet for consideration within the Council’s formal response to the White Paper.

 

Reason for decision

 

To ensure that the Council’s formal response on the White Paper 'Reforming Local Government: Power to Local People' to Welsh Government is informed by the response of the Audit Committee.

 

 

1126   REGULATORY AUDIT PLAN 2015 (MD) -

 

The Committee was presented with the report on the Council’s Regulatory Audit Plan for 2015 which was produced annually by the Wales Audit Office. 

 

The Auditor General Wales was required to carry out an audit which discharged its statutory duties and fulfilled its obligations under the Public Audit (Wales) Act 2004, the Local Government (Wales) Measure 2009, the Local Government Act 1999 and the Code of Audit Practice.  This involved:

  • Examination and certification of the Council's financial statements to ensure they were 'true and fair';
  • Assessment of the Council's arrangements for securing economy, efficiency and effectiveness in the use of resources;
  • Audit and assessment of whether the Council had discharged its duties and met requirements of the Measure; and
  • Bespoke pieces of work aimed at enabling the Council to make improvements in economy, efficiency and effectiveness or financial or other management practices.

The Regulatory Audit Plan 2015 outlined work to be undertaken in the Council during April 2015 and March 2016 by and on behalf of the Auditor General.

 

A copy of the Regulatory Audit Plan was attached to the report at Appendix 1.  Key highlights were as follows:

  • Certification work would be undertaken on the Council's grant claims and returns as part of the annual financial audit.
  • The Council would be subject to an in-depth Corporate Assessment during 2015/16 (scheduled for February/March).  This was a full review of the Council's capacity and capability to deliver continuous improvement which was undertaken once every four years by the Auditor General Wales in addition to the annual 'light touch' review.
  • Local government specific work was planned on the approach of councils to income generation and charging for services, council funding for third sector services and the effectiveness of local community safety partnerships.
  • A number of national value for money studies had been programmed to take place during the year including, picture of public services, regional education consortia, regeneration investment funding for Wales, flood and erosion risk management (focus on coastal flooding).  These studies were funded by the National Assembly and presented to the National Assembly's Public Accounts Committee to support its scrutiny of public expenditure.  Where relevant local authorities would be required to provide evidence as part of the data gathering process.

The Plan was a product of negotiation between the Council's Relationship Manager and other regulators of various services and was informed by a consideration of the risks and challenges facing the Council, audit and inspection knowledge and the Council's own mechanisms for review and evaluation.

 

The draft Plan was considered by Corporate Management Team and no changes were made.

 

Following consideration of the Regulatory Audit Plan for 2015, no specific observations were made, and the Committee

 

RESOLVED - T H A T the Regulatory Audit Plan for 2015 be accepted and referred to Cabinet for noting.

 

Reason for decision

 

In order to progress the Regulatory Work Programme for 2015.

 

 

1127   2014/15 ANNUAL INTERNAL AUDIT OPINION (HOA) -

 

The Committee was provided with a report detailing the Operational Manager - Audit (as the Head of Internal Audit) annual opinion report on the overall adequacy of the Council’s internal control environment.

 

The report gave a brief description of the role of Internal Audit, the control environment within which internal audit operated and also provided a summary of work carried out during the year to 31st March 2015.  A statement of overall opinion on the internal control environment was also given in support of the Annual Governance Statement which the Council was required to include with the Statement of Accounts.

 

Internal Audit was an assurance function that primarily provided an independent and objective opinion to the organisation on the control environment comprising risk management, internal control and governance by evaluating its effectiveness in achieving the organisation's objectives.  It objectively examined, evaluated and reported on the adequacy of the control environment as a contribution to the proper, economic and effective use of resources.

 

The control environment comprised the organisation's policies, procedures and operations in place to:

  • Establish, and monitor the achievement of, the organisation's objectives;
  • Identify, assess and manage the risks to achieving the organisation's objectives;
  • Facilitate policy and decision making;
  • Ensure the economical, effective and efficient use of resources;
  • Ensure compliance with established policies, procedures, laws and regulations;
  • Safeguard the organisation's assets and interests from losses of all kinds, including those arising from fraud, irregularity or corruption.

One of the main aims of the Section was to provide assurance on the Council's overall system of internal control.  This was achieved in part through delivery of the Annual Audit Plan which was designed to address:

  • Requirements of the Audit Committee;
  • Delivery of a scheduled programme of audits on a risk based needs assessment;
  • Support the Managing Director and the Head of Finance in discharging their statutory duties.

Attached to the report at Appendices A and B were detailed reports (including the outturn for 2014/15) on the work undertaken by Internal Audit during the financial year 2014/15.  The purpose of the report was to satisfy the requirements of the Accounts and Audit (Wales) Regulations 2014 and the Head of Internal Audit's annual reporting requirements set out in the Public Sector Internal Audit Standards. The following information should be forthcoming:

  • Include an opinion on the overall adequacy and effectiveness of the organisation's control environment;
  • Disclose any qualifications to that opinion, together with the reasons for the qualification;
  • Present a summary of the audit work from which the opinion was derived, including reliance placed on work by other assurance bodies.
  • Draw attention to any issues the Head of Internal Audit judges particularly relevant to the preparation of the Annual Governance Statement.
  • Compare the actual work undertaken with the planned work and summarise the performance of the internal audit function against its performance measures and targets;
  • Comment on compliance with the Standards of the Code;
  • Communicate the results of the internal audit quality assurance programme.

The opinion contained within the report related to the system of internal control at the Council and the overall control environment in place.  The system of internal control was designed to manage risk to a reasonable level rather than to eliminate the risk of failure to achieve corporate/service policies, aims and objectives; it can therefore only provide reasonable and not absolute assurance of effectiveness.  Included within Appendix B was the supporting evidence which listed all those assignments which had been completed during the year where an audit opinion had been applied.

 

On the basis of internal audit work undertaken in 2014/15 and taking into account all available evidence, it was the opinion of the Head of Internal Audit that a reasonable assurance level could be applied to standards of internal control at the Vale of Glamorgan Council for the year ended 31st March 2015.

 

No key governance, risk management and internal control issues had been identified during the year.  However, with significant savings required throughout the Council, there was an inherent risk of breakdown in the systems of control particularly where roles, responsibilities and systems were changing.

 

In addition, it was imperative that the newly appointed statutory officers fully understood the expectations of their roles and have the relevant experience and expertise to help manage the Council during a very crucial period of financial uncertainty.

 

Following consideration of the report, the Committee

 

RESOLVED - T H A T the contents of the report on the 2014/15 Head of Audit’s Annual Internal Audit Opinion be approved.

 

Reason for decision

 

To keep the Audit Committee informed.

 

 

1128   INTERNAL AUDIT SHARED SERVICE SELF ASSESSMENT AGAINST THE PUBLIC SECTOR INTERNAL AUDIT STANDARDS (HF/S151O) -

 

The Committee was informed of the results of the self-assessment of the Internal Audit Shared Service function against the Public Sector Internal Audit Standards (PSIAS), effective from 1st April, 2013.

 

The PSIAS was applicable to all areas of the United Kingdom public sector and was based on the Chartered Institute of Internal Auditor's (CIIA's) International Professional Practices Framework.

 

The roles of the Audit Committee in relation to Internal Audit were to:

  • Oversee its independence, objectivity, performance and professionalism;
  • Support the effectiveness of the internal audit process and;
  • Promote the effective use of internal audit within the assurance framework.

The Operational Manager - Audit, as Head of Audit, had undertaken a self-assessment to demonstrate the extent to which the Internal Audit Shared Service complied with the PSIAS and to identify areas; if applicable, where further work was required to demonstrate compliance.

 

The self-assessment had recently been completed for 2014/15.  A summary of the assessment findings was attached to the report at Appendix A and the Conformance checklist was attached Appendix B, both highlighting where the existing service complied with the PSIAS; or was considered not applicable to the Service and where action was required to address areas of current non-compliance.

 

The PSIAS were broken down into two main areas:

  • Attribute Standards addressed the characteristics of organisations and parties performing Internal Audit activities;
  • Performance Standards described the nature of Internal Audit activities and provided quality criteria against which the performance of these services can be evaluated.

The attached appendices showed that the Internal Audit Shared Service was fully compliant with all relevant parts of the Standards.  However, in relation to Standard 1312 - 'External Assessment'; two responses had attracted negative answers. These could only be addressed once the Internal Audit Shared Service had agreed a timetable for being externally assessed; as these questions related specifically to agreeing a scope of the external assessment.  The Standard stipulated that an external assessment must be carried out, at least once every five years.  As the Standards became effective from 1st April 2013; the Section must therefore have undergone an assessment before the end of March 2018.

 

Following consideration of the report, the Committee

 

RESOLVED - T H A T it be noted that the Internal Audit Shared Service Self-Assessment showed that the Audit function complied with the PSIAS and that the negative responses to the Standard 1312 'External Assessment' would be addressed in a timely manner to allow the assessment to be undertaken before the end of March 2018.

 

Reason for decision

 

That the Committee was informed and satisfied that the Internal Audit Shared Service self-assessment complied with the Public Sector Internal Audit Standards (PSIAS) and that the areas of non-compliance were to be addressed.

 

 

1129   PROPOSED INTERNAL AUDIT SHARED SERVICE STRATEGY AND ANNUAL RISK BASED AUDIT PLAN 2015/16 (HF/S151O) -

 

The Committee considered a report on the Council’s proposed Internal Audit Shared Service Strategy and Annual Risk Based Audit Plan for the year April 2015 to March 2016.

 

It was important for Internal Audit to plan effectively to ensure that it contributed to the Council's objectives at both strategic and operational levels.  Planning enabled Internal Audit to demonstrate both internally and externally that it was making best use of scarce resources.

 

Effective planning was one of the Standards contained within the Public Sector Internal Audit Standards (PSIAS) and against which the Council’s external auditors assess it.  It was from this overall assessment of internal audit's programme of work and the contribution that this makes to the overall control environment of the Authority that the Council’s external auditors would draw the necessary assurances they needed.

 

Internal Audit planning was not an exact science but it was felt that the proposed plan for 2015/16 struck a good balance between the risks identified, the internal audit resources available and the assurance work being carried out by other agencies.  Therefore the plan provided for 1,461 productive days being delivered during 2015/16 which equated to approximately 8 full time equivalent employees.

 

Attached to the report at Appendix A was the proposed Internal Audit Strategy document for 2015/16 and the annual risk-based Audit Plan 2015/16 for each Directorate was attached at Appendices B to G.  It demonstrated how the Internal Audit Shared Service would be delivered and developed in accordance with its Terms of Reference and how it would link to the Council's objectives and priorities.  The Strategy would be reviewed and updated annually in consultation with stakeholders namely the Audit Committee, Corporate Management Team, External Auditors and senior management.

 

The 2015/16 proposed Annual Risk Based Audit Plan of work had been formulated to ensure compliance with the Standards as contained within the PSIAS.  In order to keep Members of the Audit Committee fully informed, and to ensure compliance with Standards for Internal Audit.

 

Following consideration of the report, Committee

 

RESOLVED - T H A T the proposed Internal Audit Shared Service Strategy and Annual Risk Based Audit Plan for 2015/16 be approved.

 

Reason for decision

 

To keep the Audit Committee informed and to approve the proposed Internal Audit Shared Service Strategy and Annual Risk-Based Audit Plan for 2015/16 to ensure compliance with the Public Sector Internal Audit Standards (PSIAS).

 

 

1130   AUDIT COMMITTEE - FORWARD WORK PROGRAMME (HF/S151O) -

 

Prior to the presentation of this item of business, the Operational Manager for Audit informed the Committee that the proposed Forward Work Programme for 2015/16, attached to the report at Appendix B, should be disregarded as there were a number of errors within the document.  She further advised that the proposed Forward Work Programme would follow along the same lines as the previous Programme and the Forward Work Programme for 2014/15 had been completed successfully.

 

The Chairman informed the Committee of the meeting dates for the municipal year 2015/16, which were as follows:

  • 6th July, 2015
  • 21st September, 2015
  • 16th November, 2015
  • 22nd February, 2016
  • 25th April, 2016.

The Committee resolved that the meeting date for July, 2015 be changed from the 6th July, 2015 to the 13th July, 2015.

 

The Operational Manager for Audit confirmed that she would send the correct Forward Work Programme for 2015/16 to all Members of the Audit Committee.

 

RESOLVED -

 

(1)       T H A T the update on the Forward Work Programme for 2014/15 be noted, Committee being satisfied that all core functions had been adequately reported.

 

(2)       T H A T the meeting date for July 2015 be changed to 13th July, 2015.

 

Reason for decisions

 

(1)       To ensure that the Audit Committee remained informed and that all aspects of their core functions had been adequately reported.

 

(2)       To change of date for the July 2015 Audit Committee meeting.

 

 

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