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AUDIT COMMITTEE

 

Minutes of a meeting held on 16th November, 2015.

 

Present:  Councillor K. Hatton (Chairman); Mr. P.R. Lewis (Vice-Chairman); Councillors Mrs. P. Drake, J. Drysdale, K.P. Mahoney and A.C. Williams.

 

Also present: Mr. S. Barry and Ms. L. Williams (Wales Audit Office).

 

 

574     APOLOGIES FOR ABSENCE – 

 

These were received from Councillors J.C. Bird and M.R. Wilson.

 

 

575     MINUTES – 

 

RESOLVED – T H A T the minutes of the meeting held on 21st September, 2015 be approved as a correct record.

 

 

576     DECLARATIONS OF INTEREST – 

 

No declarations were received.

 

 

577     AUDITOR GENERAL FOR WALES: ANNUAL IMPROVEMENT REPORT 2015 (MD) –

 

Members were advised of the results of the assessment by the Auditor General for Wales of the Council’s arrangements to secure continuous improvement. 

 

The Wales Audit Office’s (WAO) Annual Improvement Report of the Council was contained within the report attached at Appendix 1 to the report.  The report presented a picture of improvement over the past year.  For 2014-15, the WAO’s improvement assessment was based around three themes: performance, use of resources and governance.

 

Overall, the Auditor General had concluded that “the Council continues to perform well in the context of national indicators and continues to manage its finances effectively: its forward planning arrangements and track record suggest it is well placed to secure improvement in 2015-16”.  A total of 13 proposals for improvement had been made.

 

In terms of the Council’s performance, the Annual Improvement Report concluded that: 

  • The Council’s overall performance as measured by national indicators was comparatively strong.  During 2014-15, results for 20 of the national statutory indicators placed the Council’s performance in the top quartile compared to the rest of Wales.
  • Reporting did not provide a clear and balanced picture of performance and of the outcomes being achieved in respect of the Council’s priorities.  It was proposed that where necessary changes would be integrated with the development of a Corporate Plan during 2016.  Linked to this, the Annual Improvement Report found that the Council has improved the speed of delivery of Disabled Facilities Grants, but its evaluation focuses on a narrow range of information and service planning is not sufficiently strategic.
  • The Council was delivering environmental health services at above minimum standards despite a cut in budgets and a significant fall in staff numbers.
  • The Council was making progress in addressing some of its Estyn inspection recommendations.  Follow up monitoring in December 2014 against two recommendations found that the Authority was making good progress.  The final monitoring visit will take place in November 2015.
  • The Council was improving in some aspects of social care and had appropriate strategies for dealing with future demand, as highlighted by the CSSIW Annual Review and Evaluation of Performance 2013-14 published in October 2014. CSSIW outlined that the Council could demonstrate committed leadership with detailed plans in place to deal with areas where further change was necessary.
  • The Council monitors the level of and reason for Discretionary Housing Payments, but its monitoring arrangements did not enable it to establish the impact being achieved.
  • The Council continued to improve its Welsh speaking provision including staff training and working closely with Urdd Gobaith Cymru.

In terms of the Council’s use of resources, the Annual Improvement Report concluded that: 

  • The Council had complied with its responsibilities relating to financial reporting and use of resources and the Council had a good track record of delivering a balanced budget within year and monitoring service specific savings is undertaken by Scrutiny Committees.  The Council has an effective process for developing its future financial plans and is maintaining a robust approach to its Medium Term Financial Plan and is preparing for significant financial challenges in the future.

In terms of the Council’s governance, the Annual Improvement Report concluded that: 

  • The Council’s Reshaping Services Strategy conforms to good practice and demonstrates that it is following the right processes to achieve transformation.
  • The governance, accountability and management arrangements for overseeing whether the Council is meeting its safeguarding responsibilities to children are mostly adequate, but some improvements could be made.

Having considered the report, it was

 

RESOLVED –

 

(1)       T H A T the contents of the report be noted.

 

(2)       T H A T the report be referred to Scrutiny Committee (Corporate Resources) and Cabinet.

 

Reason for decisions

 

(1&2)  To provide for scrutiny and review of the Auditor General’s Annual Improvement Report.

 

 

578     CORPORATE RISK REGISTER UPDATE (CRMG) –

 

Committee were updated on the current position of the Corporate Risk Register.

 

The Corporate Risk Management Group (CRMG) met on a quarterly basis to review the Risk Register to consider the position of each corporate risk identified.  The Group evaluated whether there had been any changes in either the internal or external environment as well as any mitigating controls that were being put in place that would prompt a re-evaluation of the risk in terms of its score / position.

 

The report provided a half yearly update on the current status of the risks contained in the Corporate Risk Register along with an update on key recent developments.  There were now 13 risks included in the Corporate Risk Register.

 

In terms of risk status, two risks were medium / high, 10 risks were medium and one risk was medium / low.  In terms of the direction of travel, of the 13 risks, 12 risks had remained unchanged and one risk had decreased.

 

The risk status in relation to Welfare Reform had reduced from a medium to medium / low with a score of 3.  There had been a shift in this risk because the Welfare Reform changes had not had the impact that was first anticipated.  Scrutiny Committee (Corporate Resources) had considered a report on Welfare Reform in January 2015 which had outlined the key developments in all areas of Welfare Reform.  The report highlighted that although the introduction of the Social Size (Bedroom Tax) had resulted in a reduction in Housing Benefit for some clients by 15-25% the numbers affected by this change had reduced.  Equally the numbers affected by the benefit cap had also reduced.  In terms of its Council tenants, the Council had put in place effective actions to mitigate the impact of the Welfare Reform changes.  Examples included the introduction of money advisors to support tenants who manage their money and prevent rent arrears, and greater investment in one and two bedroomed units at The Marine Heights Hotel, Barry Island and the former Barry Magistrates Court site.  The implementation of the Universal Credit would start in February 2016 with a full roll out by 2018.  Therefore, there had not been any significant implications as a result of the delay in the transfer to Universal Credit.  However, as it was difficult to predict the impact of this at the moment it had been recommended that this risk be lowered to medium / low but that this status should be reviewed at the beginning of the new financial year when there may be more information on which to base the assessment of risk.

 

It was anticipated that the Reshaping Services risk would increase over time, as the programme was still at the business case stage and the need to make increased savings year on year would make it increasingly challenging for the programme to achieve its intended outcomes.  Despite this, the programme had in place robust governance arrangements, and it was identified in a recent Wales Audit Office review of the Reshaping Services Strategy that the Council “conforms to good practice and demonstrates that it is following the right processes to achieve transformation”. 

 

In relation to legislative change and local government reform, it was forecast that this risk would escalate over time given the volume and pace of the legislative change instigated by the Welsh Government.  The diversity of the legislative programmes on the horizon would present an increase in challenge to the Council in terms of workforce, capacity and service pressures aside from the evident financial burdens such as legislative change creates.  Currently, the most pertinent pieces of legislation identified in the Risk Register related to the Social Services and Wellbeing Act, the Wellbeing of Future Generations (Wales) Act and the Welsh Language Standards.  There were currently a robust set of measures in place to mitigate the impact of these legislative changes but because of the likely financial impact of Welsh Language Standards it was anticipated that this risk would escalate over time. 

 

In terms of the Waste Management risk, although there had not been any significant developments since the CRMG last reviewed the risk, it was anticipated that this risk would move in an upward direction.  This was due to the likely implementation of the Environment (Wales) Bill.  It was anticipated that once passed, it would impact on the status of this risk.  A new risk factor that would contribute to escalate was in relation to the Single Environment Grant which brought together 3 formerly separate grants (Sustainable Waste Management Grant, Flood and Water Grant and Tidy Towns).  The combined grant was now smaller than the combined value of grants from the last three years as the Sustainable Waste Management Grant had been declining year on year, and some of the flood grant had been earmarked to support development work in preparation for the Coastal Defence Investment Programme and was now also required to achieve multiple benefits in line with the goals of the Well-Being of Future Generations (Wales) Act 2015.  Welsh Government officials have said that this could be subject to further cuts in future of anywhere between 25 ‑ 50%.  The impact of cuts of this magnitude would significantly increase the risk considering that the waste element of this grant accounted for the vast majority of the Council’s core waste activities introduced to enable them to work towards statutory recycling targets. 

 

The Risk Register had also been refreshed to ensure that where relevant any mitigating actions outlined in Service Plans were reflected as actions within the Register.  Appropriate linkages had also been made with any regulatory reports / reviews, by ensuing that any improvement proposals / recommendations outlined in the reports from the Inspectorates had also been appropriately referenced in the Register (where applicable to a corporate risk). 

 

Members discussed issues surrounding Waste Management.

 

A Member, in commenting on the WHQS Housing Improvement Programme was informed that the head of Housing and Building Services had requested that this matter be retained in the Corporate Risk Register because the Programme was incomplete.

 

The Risk Register would be published and publicised on the Council’s website. 

 

Having considered the report, it was

 

RESOLVED –

 

(1)       T H A T the current position in relation to corporate risks be noted.

 

(2)       T H A T the key recent developments and new / emerging corporate risks be noted.

 

(3)       T H A T the report be referred to Cabinet.

 

Reasons for decisions

 

(1)       To highlight the current position of corporate risks for the Council.

 

(2)       To ensure that all corporate risks for the Council are effectively monitored, addressed, reviewed and updated on a regular basis.

 

(3)       To ensure Cabinet are aware of and endorse the Risk Register and the actions being taken in mitigation.

 

 

579     INFORMATION AND ACTION REQUESTS (HF) –  

 

Committee received a summary of the actions and information requests made by the Audit Committee at its last meeting, held on 21st September, 2015.

 

RESOLVED – T H A T the contents of the report be noted.

 

Reason for decision

 

To facilitate monitoring of the Internal Audit Shared Service.

 

 

580     INTERNAL AUDIT – OUTTURN REPORT – APRIL TO SEPTEMBER 2015 (HA) –

 

Committee were informed of the actual Internal Audit performance against the six months of the audit plan year covering April to September 2015.

 

Attached at Appendices A and B to the report were the detailed reports (including the Head of Audit’s six month position report) on the work undertaken by Internal Audit so far this year.

 

The following table showed an analysis of work done in relation to the plan:

 

Directorate

2015/16

Full   Year

Plan   Days

Proportion  

Of   Plan Day

April   to September 15

April   to September

Actual   Days

Resources

415

207.5

174

Development Services

95

47.5

70

Visible Services and Housing

186

93

83

Learning and Skills

146

73

51

Social Services

110

55

58

Cross Cutting - Unplanned

102

51

118

Cross Cutting -Specific

190

95

125

Cross Cutting - Allocated

119

59.5

79

Cross Cutting  -   Fraud and Error (Including NFI)

98

49

26

 

1,461

730.5

784

 

The figures showed that 784 actual days had been achieved, which exceeded that expected by 53.5 days.

 

As at 1st April, 2015 the overall structure of the Section was based on 18.5 Full Time Equivalent employees.  However, since April the Section had been carrying 2.5 vacant posts and this remained the case. 

 

The opinion contained within the report at Appendix A related to the system of internal control at the Council and 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 policy, aims and objectives; it could therefore only provide reasonable and not absolute assurance of effectiveness.  Included within Appendix B to the report was the supporting evidence which listed all those assignments which had been commenced / completed during the first five months and where an assignment had been completed an audit opinion had been applied.

 

On the basis on internal audit work undertaken so far this year, and taking into account all available evidence, it was the Operational Manager’s opinion that the reasonable assurance level could be applied to standards in internal control at the Vale of Glamorgan Council so far to date.

 

In considering the summary of the works completed by the Audit Shared Service (attached at Appendix A to the report), Members expressed concerns about two of the Audit Reports:

 

Waste Recycling

 

Members noted that Audit, in June 2015 had identified weaknesses in the system of internal control relating to the procedures and processes in respect of Waste Management.  A further follow up report had been undertaken in October 2015 at which it had been identified that minimal progress had been made on drawing up a contract and as such a further follow up report would be necessary before the end of the financial year. 

 

Mr. S. Barry stated that a problem had been identified – this raised the question “Are there other problems to be identified?”.  This was a governance issue and the Wales Audit Office would seek assurances from the Managing Director.

 

Mr. Barry was asked what he thought the Council should do in such circumstances and replied that this was a matter of assessing the level of risk of the contract not being signed and having regard to legal advice. 

 

The issue here was that this was the second Audit Report and that the contract had not been completed following the initial Audit findings.

 

Members felt that they should receive a further report on this issue, to include details of any risks that the Council had faced and details of procedures that could be put in place to prevent such a situation occurring again.

 

ICT and Data Support Team

 

Committee noted the key issues identified within the ICT and Data Support Team. 

 

It was felt that the Head of Strategic ICT should be invited to attend the next meeting of the Committee to explain the Audit findings.

 

Committee noted that the overall structure of the Shared Audit Team was carrying 2.5 vacant posts.  It was felt that the filling of these posts could be beneficial in the medium to long term i.e. “Invest to Save”. 

 

RESOLVED –

 

(1)       T H A T the contents of the report in respect of Internal Audit performance for April to September 2015 be noted.

 

(2)       T H A T Committee receive a further report concerning the failure to finalise the contract identified in the Audit Report, such report to recommend procedures that should be put in place to prevent this matter occurring again.

 

(3)       T H A T the Head of Strategic ICT be invited to attend the next meeting of the Audit Committee to explain the findings of the Audit Review.

 

(4)       T H A T further consideration be given to the filling of the 2.5 vacant posts within the Shared Audit Service.

 

Reasons for decisions

 

(1)       To keep the Audit Committee informed.

 

(2)       To ensure such an occurrence is not repeated.

 

(3)       To explain the findings of the Audit Review.

 

(4)       The filling of the vacancies could result in cost savings to the Authority.

 

 

581     ANNUAL REPORT ON SCHOOLS 2014/15 (HF/S151O) –

 

Committee received a copy of a report issued to the Director of Learning and Skills, summarising the findings made by the Internal Audit in relation to the school based audits conducted in the 2014/15 audit year.

 

On an annual basis, the Internal Audit Section visits a proportion of the Authority’s Primary, Secondary and Special Schools in order to carry out a pre-determined programme of work, with a view to giving the school, their Governing Body and the Authority assurance that controls were operating effectively.

 

In 2014/15, over £85m was delegated to the Authority’s Secondary, Primary and Special Schools.

 

During 2014/15 a total of 18 audit visits were conducted, 14 being planned visits, one being a follow up where the previous visit had identified controlled weaknesses and the remaining three visits were unplanned and made at the request of the Headteacher or Director.  Details of the key findings made during these Audit visits were attached at Appendix A to the report.

 

In summary, 14 of the schools visited were graded as providing substantial or reasonable assurance (77%) whilst one was graded as limited assurance.  The three unplanned visits were not assigned Audit opinions as they were in response to Audit advice being requested on specific matters.

 

Any recommendations made relating to Internal Audit’s findings had been presented in a report directly to the school and Governing Body concerned.

 

In order to ensure that Audit days available were used in the most effective way, changes would be made to the school audit programme for 2015/16 which would allow for more in-depth coverage of high risk areas.  Therefore, a Control Risk Self-Assessment (CRSA) questionnaire would be issued to all schools annually which would enable schools to self-evaluate the controls they had in place to mitigate risk.  The completed CRSA would be evaluated by Internal Audit and any issues would be addressed with the school.  In addition a Headteacher Assurance Statement would be required which would provide assurance that the Headteacher was ensuring that a school had sufficient internal controls.  A similar statement would also be sent to the Chair of Governors.  The planned audit days for schools would then be used to undertake reviews of particular areas across schools such as safeguarding or procurement, or it would allow more in-depth reviews at individual schools based on a robust risk assessment which took into account senior management requirements. 

 

In considering the Internal Audit’s Report, Committee noted the comments that, “From analysis it was identified that five primary / nursery schools had balances in excess of 10% of their budget share, the greatest of these being Ysgol Dewi Sant with a surplus of 40.3% of their budget which equated to £148,280.  Within comprehensive / special schools none had a surplus balance greater than 10% although the highest value could be accredited to Bryn Hafren Comprehensive School with a surplus of 4.76% of their budget share (£230,765)”.

 

It was further noted that the relevant schools had completed a return to indicate their planned use of the balances.  The Head of Service and the Finance Manager intended to meet with the Headteachers and Governors to challenge, where necessary, those schools which had carried forward balances for more than a year. 

 

It was further noted that under the School Funding (Wales) Regulations 2010, excessive carried forward balances (greater than £50,000 or 5% for Primary Schools and £100,000 or 5% in Comprehensive / Special Schools) were liable for Clawback where the Governing Body failed to comply with a direction from the Local Authority on how balances should be spent.

 

As yet, no Clawback had been applied.

 

Members of the Committee felt that the issue of school balances should be drawn to the attention of Scrutiny Committee (Lifelong Learning).

 

Having considered the report, it was

 

RESOLVED –  

 

(1)       T H A T the contents of the report be noted.

 

(2)       T H A T the report be referred to Scrutiny Committee (Lifelong Learning) in order that the Scrutiny Committee could scrutinise the reasons for the size of the schools balances.

 

Reasons for decisions

 

(1)       To keep the Audit Committee informed.

 

(2)       In order that the Scrutiny Committee could scrutinise the reasons for the size of some of the schools’ balances.

 

 

582     THE PUBLIC SECTOR INTERNAL AUDIT STANDARDS – PROPOSALS FOR UNDERTAKING AN EXTERNAL ASSESSMENT (HA) –

 

Committee received a report which outlined the benefits of, and which sought agreement to, the proposed arrangements for carrying out the external review of the Council’s Internal Audit Shared Service function, as required by the Public Sector Internal Audit Standards (PSIAS).

 

The PSIAS introduced a requirement for an external assessment which must be conducted at least once every five years by a qualified independent review from an outside organisation.  The relevant Standard stated:

 

Standard 1312 – External Assessments must be conducted at least once every five years by a qualified, independent assessor or assessment team from outside the organisation.  The Chief Audit Executive (Head of Internal Audit) must discuss with the Board (Audit Committee) the form of external assessments, the qualifications and independence of the external assessor or assessment team, including any potential conflict of interest.

 

The purpose of the external assessment was to help improve delivery of the audit service to an organisation.  The assessment should be a supportive process that identified opportunities for development which ultimately helped to enhance the value of the audit function.

 

The two possible approaches to external assessment outlined in the Standard included either a full external assessment or an internal self-assessment which was validated by an external reviewer.  Therefore, the options available to the Audit Committee were as follows: 

  • Peer reviews to be carried out by the heads of Internal Audit across Wales
  • Buying-in the function from a professional body e.g. the Institute of Internal Auditors
  • Buying-in the service from another suitably qualified and experienced individual / firm.

Attached at Appendix A to the report was a summary of the options which outlined the advantages and disadvantages associated with each option and a rough estimate of the likely cost.

 

It was clear from the summary that the most cost effective option was the peer review although Members were requested to have regard to the fact that all Welsh Internal Audit Services had some knowledge of each other and this could have an impact on objectivity and / or independence.

 

Having considered the contents of the report, it was

 

RESOLVED –

 

(1)       T H A T having regard to the options as set out in Appendix A to the report, the preferred choice to ensure that compliance with the Public Sector Internal Audit Standards was achieved would be through the buying-in the function from a professional body e.g. the Institute of Internal Auditors.

 

(2)       T H A T a further report be presented to Members in due course, setting out the proposed scope and objectives of the assessment in accordance with the preferred choice as outlined above.  This should ensure that the Committee can gain the necessary external assurances on the effectiveness of the Internal Audit Shared Service function.

 

Reason for decisions

 

(1&2)  To keep the Audit Committee informed and to ensure compliance with the Public Sector Internal Audit Standards.

 

 

583     NATIONAL FRAUD INITIATIVE 2014 (HF/S151O) –

 

Members were presented with a status report on the progress made to date on the National Fraud Initiative 2014.

 

The National Fraud Initiative (NFI) was a data matching exercise that helped to detect fraud and overpayments across the UK.  43 Welsh public sector bodies took part in the exercise, including Local Authorities, NHS bodies, Police authorities, fire authorities and Welsh Government. 

 

The NFI had been run every two years since 1996 and to date, had been used to identify fraud and overpayments totalling over £26m in Wales. 

 

Data was last submitted to the Council in October 2014 with the results being released in January 2015.  Council Tax data was submitted separately and matches were released at different dates.

 

Internal Audit acted as the Key Contact.

 

A table within the report highlighted progress made so far by departments along with an example of the types of resolutions being achieved.

 

Mr. S. Barry, of the Wales Audit Office, advised that the National Fraud Initiative was a mandatory exercise in that the Audit General for Wales had the power to request data from organisations and undertake the data matching exercise.

 

Mr. Barry expressed the view that the Council could enhance the effectiveness of the data matching exercise and suggested that Members of the Audit Committee may require more information in relation to the initiative if it is to be exploited to its full potential.

 

It was suggested that the Operational Manager – Audit provide Members of the Committee with further information on the potential of the National Fraud Initiative.

 

Having considered the contents of the report, it was

 

RESOLVED –

 

(1)       T H A T the contents of the report be noted.

 

(2)       T H A T the Operational Manager – Audit provide Members of the Committee with further information on the potential of the National Fraud Initiative.

 

Reasons for decisions

 

(1)       To keep the Audit Committee informed.

 

(2)       To exploit the National Fraud Initiative to its full potential.

 

 

584     AUDIT COMMITTEE – FORWARD WORK PROGRAMME (HF/S151O) –

 

Committee received the updated Forward Work Programme for 2015/16. 

 

RESOLVED – T H A T the updated Forward Work Programme for 2015/16 be noted.

 

Reason for decision

 

To keep the Audit Committee informed.