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AUDIT COMMITTEE

 

Minutes of a meeting held on 22nd February, 2016.

 

Present: Councillor K. Hatton (Chairman); Mr. P.R. Lewis (Vice-Chairman);

Councillors J.C. Bird, J. Drysdale and K.P. Mahoney.

 

Also present: Mr. J. Golding and Ms. L. Hallez (Grant Thornton LLP UK).

 

 

856     APOLOGIES FOR ABSENCE –  

 

These were received from Councillors Mrs. P. Drake and M.R. Wilson; and Mr. J. Barry (Wales Audit Office).

 

 

857     MINUTES –  

 

RESOLVED – T H A T the minutes of the meeting held on 16th November, 2015 be approved as a correct record subject to it being amended to include reference to a Member having expressed concern about the Authority having been exposed to an unacceptable level of risk during discussions on waste recycling (Minute No. 580 refers).

 

 

858     DECLARATIONS OF INTEREST –

 

No declarations were received.

 

 

859     ANNUAL AUDIT LETTER 2014/15 (MD) –  

 

Committee was presented with the Annual Audit Letter for the 2014/15 Financial Year.

 

The Appointed Auditor is required under the Public Audit (Wales) Act 2004 to:

 

  • provide an audit opinion on the accounting statements
  • review the Council’s arrangements to secure economy, efficiency and effectiveness in its use of resources
  • issue a certificate confirming that the Appointed Auditor has completed the audit of the accounts.

 

A copy of the Annual Audit Letter 2014/15 was attached at Appendix A to the report and summarised the key issues arising from the work the external auditors had carried out during 2014/15.

 

In relation to the Statement of Accounts, the Appointed Auditor issued an unqualified audit opinion on the accounting statements confirming that they presented a true and fair view of the Council’s financial position and transactions.

 

Overall, the Appointed Auditor was satisfied that the Council had appropriate arrangements in place to secure economy, efficiency and effectiveness in the use of its resources. 

 

The work undertaken on grant claims had not identified any significant issues that would impact on the key financial systems. 

 

The Appointed Auditor issued a certificate confirming that the audit of the accounts had been completed on 30th September, 2015. 

 

Having considered the report, it was

 

RESOLVED – T H A T the External Annual Audit Letter be endorsed and referred to Cabinet for approval. 

 

Reason for decision

 

To facilitate monitoring of the Audit Functions.

 

 

860     CERTIFICATION OF GRANTS AND RETURNS 2014-15 (MD) –  

 

Committee received the Council’s External Auditors’ report on the Grant work undertaken for 2014-15.

 

The Council received and certified 14 grant claims and returns from Government departments and other bodies requiring external audit certification in 2014-15, supporting income of £107,635,000. 

 

Grant Thornton UK LLT (GT), as the Council’s External Auditors and acting agents of the Wales Audit Office, were required to certify the claims submitted by the Council.

 

A summary of all claims and returns subject to certification was attached at Appendix A to the report, together with the certification fee and outcome of the External Auditors’ review.  The key message from the review was that while the Council had generally adequate arrangements in place for the production and submission of its 2014/15 grant claims, there was scope for some improvement.  The Council worked closely with the External Auditors to ensure that an accurate and up to date schedule of 2014-15 grants was in place throughout the year but there was scope to improve the Council’s arrangements for submitting its grant claims for audit.  Overall the External Auditors’ certificate 14 grants and returns.  8 were unqualified with no amendments, 2 were unqualified but required some amendments to the final figures, 3 required a qualification to the audit certificate and 1 was qualified and required some amendment to the final figures. 

 

Having considered the report, it was

 

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

 

Reason for decision

 

To facilitate the monitoring of the audit function.

 

 

861     INFORMATION AND ACTION REQUESTS (HOF/S151O) –  

 

Committee received a summary of the actions and information requests made by the Committee at its last meeting and any other items outstanding from previous meetings. 

 

In order to ensure that any requests raised by the Audit Committee are followed through, a summary of actions and information either outstanding or raised during the last Audit Committee were recorded and Members were provided with an update on the current status as shown below:

 

Audit   Committee

Action   / Request

Officer   Responsible

Comment

Current   Status

21st   Sep 2015

RESOLVED   – That a further report be brought before a future meeting of the Audit   Committee outlining:

(i)   The Vale of Glamorgan Council issues for the Audit Committee to consider;

(ii)   Central South Consortium issues for the Audit Committee to consider;

(iii)   How the Vale of Glamorgan Council’s Audit Committee related to Rhondda Cynon   Taff’s Audit Function in relation to the Consortium.

 

Director   of Learning and Skills / Head of Audit

A   report will be scheduled for the Council’s Audit Committee to consider at its   meeting to be held on 22nd February 2016

Complete

21st   Sep 2015

407   AUDIT OF THE 2014/15 FINANCIAL STATEMENTS – REPORTING TO THOSE CHARGED WITH   GOVERNANCE (MD) –

 

Head   of Finance / Section 151 Officer

That   a further report be brought before Audit Committee after March 2016 outlining   the outcome of the Officers’ actions in respect of the weaknesses identified   by the Appointed Auditor and detailed in Appendix 4 to his report.

Outstanding

16th   Nov 2015

That   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.

 

Head   of Finance / Section 151 Officer

 A report will be scheduled for the Council’s   Audit Committee to consider at its meeting to be held on 22nd February   2016

Complete

16th   Nov 2015

That   the Head of Strategic ICT be invited to attend the next meeting of the Audit   Committee to explain the findings of the Audit Review.

 

Head   of Strategic ICT

Head   of Strategic ICT to Attend the Audit Committee scheduled for 22nd  February   2016

Complete

16th   Nov 2016

That   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.

 

Head   of Audit

A   report will be scheduled for the Council’s Audit Committee to consider at its   meeting to be held on 25th April 2016

Outstanding

16th   Nov 2016

That   the Operational Manager – Audit provide Members of the Committee with further   information on the potential of the National Fraud Initiative

Head   of Audit

A   report will be scheduled for the Council’s Audit Committee to consider at its   meeting to be held on 25th April 2016

Outstanding

 

Having considered the report, it was

 

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

 

Reason for decision

 

To facilitate monitoring of the Internal Audit Shared Service.

 

 

862     REGIONAL EDUCATION CONSORTIA (HOF/S151O) –

 

Committee was provided with a response to its information and action request raised at the meeting of the Committee held on 21st September, 2015. 

 

Cabinet and Scrutiny Committee (Lifelong Learning) had, on 7th September and 28th July, 2015 respectively, considered reports on the conclusions of Estyn and the Wales Audit Office (WAO) following their visits to the four education consortia.  Both reports contained recommendations for consortia, Local Authorities and Welsh Government to address and, as such, Cabinet resolved that “the contents of the report be noted and the Wales Audit Office report be forwarded to the Audit Committee”.

 

The matter was considered by the Audit Committee at its meeting held on 21st September, 2015. 

 

In considering the references, Audit Committee noted that recommendations as contained in the report were generic to all Local Authorities, and the view was expressed that the Committee should be advised how the report and its recommendations related to the Vale of Glamorgan Council and its Audit Committee.  Accordingly, it was resolved that a further report be brought before a future meeting of the Audit Committee outlining:

 

(i)         The Vale of Glamorgan Council issues for the Audit Committee to consider;

(ii)        Central South Consortium issues for the Audit Committee to consider;

(iii)      How the Vale of Glamorgan Council’s Audit Committee related to Rhondda Cynon Taff’s Audit function in relation to the Consortium.

 

In relation to points (i) and (ii) above, the majority of recommendations made by both Estyn and WAO were a matter for Cabinet to consider, challenge and support and also fell within the responsibilities of the Council’s Scrutiny Committee (Lifelong Learning) and were not necessarily a matter for the Council’s Audit Committee.  It would only be a matter for the Committee when issues related to the responsibilities of the Audit Committee as set out in its Terms of Reference. 

 

Cabinet had referred the report to the Audit Committee primarily because the WAO had identified issues in respect of the governance and financial management arrangements of the Consortia which clearly fell within the purview of the Audit Committee. 

 

It was for the Consortia to address and implement the recommendations to improve the effectiveness of governance and management arrangements and it was for the Consortia’s Joint Committee consisting of Cabinet Members for all five Authorities to seek the necessary assurances that this had been addressed.  It was then the responsibility of the Cabinet Member and the Council’s representative on the Executive Board to feedback progress to the relevant Scrutiny Committees, including the Council’s Audit Committee so that they, in turn, could be satisfied that improvements were being made.  One of the most effective ways to achieve this was by the submission of the Central South Consortium’s Annual Governance Statement which would provide an annual opinion on the Consortium’s overall governance framework including the system of internal control.  A copy of the Central South Consortium 2014/15 Annual Governance Statement was attached to the report for reference purposes.

 

In respect of point (iii) – “how the Vale of Glamorgan Council’s Audit Committee related to Rhondda, Cynon Taff’s Audit Function in relation to the Consortium”.  The Central South Consortium was a Joint Education Service commissioned by five Local Authorities namely Bridgend County Borough Council, Cardiff County Council, Merthyr Tydfil County Borough Council, Rhondda Cynon Taff County Borough Council and the Vale of Glamorgan Council.  The Legal Agreement for the Joint Education Service formally assigned Rhondda Cynon Taff County Borough Council as the Host Authority for the Central South Consortium and therefore it was Rhondda Cynon Taff who provided all support services including Internal Audit.

 

It was the responsibility of RCT’s Internal Audit section to undertake the appropriate reviews in order to provide the necessary assurances that there was a sound system of internal control, effective arrangements for the management of risk, adequate and effective financial management and good governance. 

 

Therefore, the Bridgend and Vale Internal Audit Shared Service would place reliance on the work undertaken by RCT via the Central South Consortium Annual Governance Statement and any matters of concern or significant governance issues would be reported to the Vale of Glamorgan Council’s Audit Committee and if deemed appropriate, would be reflected in the Council’s own Annual Governance Statement.

 

During 2014/15 RCT’s Internal Audit reviewed the core financial systems of the Central South Consortium Joint Education Service and concluded there to be no material weaknesses. RCT’s Internal Audit also agreed the reports provided by the Joint Education Committee and the Legal Agreement (which incorporates the Terms of Reference for the Executive Board, Operation Management Group, Board of Management and the Joint Education Committee).  No significant governance issues were raised during 2014/15. 

 

A Member noted that much of the report on the conclusions of Estyn and the Wales Audit Office were matters for the Cabinet and Scrutiny Committee (Lifelong Learning) to consider and expressed the view that the reference to Audit Committee should have been more focused on what was required of Audit Committee. It was requested that future referrals to Audit Committee from Cabinet be considered by Officers prior to their consideration by Audit Committee in order that their contents could, if necessary, be focused towards the work of the Committee.

 

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 Annual Governance statement of the Central South Consortium be brought before Audit Committee in future.

 

(3)       T H A T prior to references from Cabinet being considered by Audit Committee, the contents be considered by the Operational Manager Audit to consider the focus that should be drawn to the attention of the Audit Committee.

 

Reasons for decisions

 

(1)       To facilitate monitoring of the Internal Audit Shared Service.

 

(2)       To consider the matters relating to the governance and financial management of the Consortia.

 

(3)       To ensure references from Cabinet are more focused on the work of Audit Committee.

 

 

863     AUDIT COMMITTEE – FORWARD WORK PROGRAMME (HOF / 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 and that training for Members be arranged on Treasury Management issues, to include a breakdown of the Council’s debt schedule, and to also include data relating to the Vale of Glamorgan Council and examples of what could be done to mitigate the Council’s debt repayments.

 

Reason for decision

 

To keep the Audit Committee informed and to assist Members’ consideration of future reports on the Council’s Treasury Management and Investment Statement.

 

 

864     WASTE RECYCLING – INFORMATION AND ACTION REQUEST (HOA) –

 

Committee was provided with a response to their request for further information relating to the Head of Audit’s Outturn Report – April to September 2015 and more specifically to the update provided on the control weaknesses identified in the Waste Recycling Review. 

 

From time to time, the Head of Audit’s Outturn Report will bring to Members’ attention those reviews where weaknesses had been identified within the overall control environment.  Contained within the April to September 2015 Outturn Report was one such review, Waste Recycling.  During the presentation of this item to Committee and following comments made by the Wales Audit Office, Committee felt that it should receive a further report on the 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. 

 

Cabinet at its meeting held on 10th March, 2014 had approved the awarding of the contract for the processing of Co-Mingled Recyclable Materials for the period 1st April 2014 to 31st March, 2017 (Option to Extend to 31st March, 2018) to the preferred bidder of G A E Smith (Holdings) Ltd - trading as Casepak Ltd.

 

In October/November 2014, Internal Audit had undertaken a review into the operation of the co-mingled Waste contract where it was noted at that time that no formal contract was in place, despite it being operational for some seven months.  As a consequence of these findings, a Limited Assurance Report was issued in December 2014.  A formal response was received from Management indicating that a formal contract would be in place in the immediate future with an implementation date of December 2014. 

 

In April 2015 a follow up review was undertaken where it was identified that a contract was still not in place.  Therefore, once again, only Limited Assurance could be placed on the overall control environment.  Once again a formal management response was received providing an implementation date of January 2016. 

 

The Auditors had subsequently been informed that the Co-mingled Waste Contract had been signed by both parties on 18th December, 2015.  Although this was within the implementation date of January 2016, it was acknowledged that this was 20 months after the contract became effective on 1st April, 2014.

 

It was felt that the failure to secure a signed legally binding contract had exposed the Council to unacceptable levels of risk.  With no legally binding contract in place prior to the commencement of the service provision, any terms and conditions contained within the contract could prove difficult to enforce in a court of law.  Some of the possible risks could include, but were not limited to: inadequate performance, operational dispute, charging issues, reputational damage, future service delivery and health and safety.  It was considered fortunate that there did not appear to have been any contractual issues identified to date that resulted in the realisation of these risks for the Council. 

 

In order to ensure that this situation did not occur again, Internal Audit would be reviewing all other Waste Contracts and a sample of cross-Directorate contracts.  The Council’s Corporate Management Team was actively overseeing the implementation of a number of recommendations to improve the overall control environment.  In addition, the Council’s Contract Management Guidance and Toolkit was being reviewed and updated and Corporate Management Team had agreed that this would form part of the training being rolled out on Project Management. 

 

The Director of Environment and Housing advised:

 

-               it was accepted that a 20 month interval between the grant and signing of a contract was unacceptable;

-               the appointment of a contractor had been agreed by Cabinet and the relevant Operational Manager was expected to complete the contract formalities.  In the intervening period, the contract had been operating and it was acknowledged that enforcement of the contract may have been difficult should an issue have arisen;

-               the Operational Manager had since retired and  the process to secure a replacement was underway.

-               an investigation was currently being undertaken to look at the reasons for the delay in completing the contract and to identify blame;

-               an investigation was also reviewing cross-Directorate contracts; and

-               when the newly appointed Operational Manager is appointed they would be advised of the importance of completing all contracts as quickly as possible.

 

In noting that the Council’s Corporate Management Team was overseeing the implementation of a number of recommendations to improve the overall control environment and the review and update of the Council’s Contract Management Guidance and Toolkit, Members felt that Audit Committee should be advised of the outcome.

 

A Member enquired as to how many such contracts were in existence and was advised that the number was in the high “tens”. 

 

Members also enquired if a contract register was in existence and were advised that there was not, although it was acknowledged that there should be one. 

 

Committee was advised that the Council’s Corporate Management Team would consider the issue of a Central Contracts Register.

 

Members were of the view that the creation of a Central Contracts Register was essential.

 

A Member expressed the view that he felt reassured by what had been reported to the Committee. 

 

RESOLVED –

 

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

 

(2)       T H A T the Action Plan currently being overseen by the Council’s Corporate Management Team regarding the implementation of a number of recommendations to improve the overall control environment and outcome of the review of the Council’s Contract Management Guidance and Toolkit be brought before a future meeting of the Audit Committee.

 

Reason for decisions

 

(1&2)  To keep the Audit Committee informed and to provide a response to the request for further information raised at the Audit Committee held on 16th November, 2015.

 

 

865     INTERNAL AUDI T – OUTTURN REPORT – APRIL 2015 TO JANUARY 2016 (HOA) –

 

Committee received the actual Internal Audit performance against the ten months of the Audit Plan for the year covering April 2015 to January 2016. 

 

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

 

The following table shows an analysis of work done in relation to the Plan (1,461 available days). 

 

Directorate

2015/16

Full Year

Plan Days

Proportion

Of Plan Day

April to Jan 16

April 15 to Jan 16

Actual Days

Resources

415

346

246

Development Services

95

79

89

Visible Services & Housing

186

155

114

Learning and Skills

146

122

84

Social Services

110

92

70

Cross Cutting - (Including Fraud   & Error)

509

424

603

 

1,461

1,218

1,206

 

The figures showed that 1,206 actual days had been achieved, which fell slightly short of that expected by 12 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 had recently increased to three vacant posts as at the end of January 2016.  In addition, by the end of February 2016, this would increase to four vacant posts.

 

The opinion contained within the report at Appendix A 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 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 of internal audit work undertaken so far this year, and taking into account all available evidence, it was the opinion of the Head of Audit that a reasonable assurance level could be applied to standards of internal control at the Vale of Glamorgan Council so far to date. 

 

The Head of Strategic ICT was present at the meeting to advise on two internal control weaknesses identified.

 

 

(i)         Audit Review of the Management of the Corporate Firewalls

 

An audit review of the management of the corporate firewalls was undertaken.  A firewall is a device or collection of components placed between two networks as this is the most vulnerable point.  All traffic travelling from inside to outside the network and visa-versa must pass through the firewall.  Firewalls apply rules (also known as the security policy) to control the type of traffic flowing in and out.  The Council has many firewalls, both public (Internet) facing and between physical buildings on the corporate network such as schools.  The review focussed on the public facing firewalls as these are considered to be the most vulnerable.  The following key issues were identified during the audit:

 

  • The Policies concerning the network and firewalls, namely the VOG Network Security Policy and VOG Firewall Policy are out of date and incomplete in some sections
  • The firmware used in the C1V firewall cluster will become unsupported in November 2015.  No date has yet been allocated for upgrading
  • Access for administration of firewalls is not robust enough.  Additionally, a password policy is not enforced which is contrary to best practice and the VOG Password Policy
  • Firewall rule sets are not being reviewed.  It is best practice (and a PCI-DSS requirement) that firewall rules are reviewed periodically
  • Logging and alerting procedures are not as effective as they should be.  The C1V firewall cluster does not send logs to the network for backup and does not implement triggers to warn administrators of specific events
  • There does not appear to have been a Business Impact Assessment undertaken to establish the criticality of the network and firewalls in the running of vital Council services.

 

Update:  The Head of Strategic ICT was present at the Audit Committee to provide Members with an update on progress.

 

The Head of Strategic ICT advised that he met with the Head of Audit regularly and that the Section was heavily audited on a regular basis. 

 

A firewall ensured that information flowed in and out of the Council correctly.  The Service was subject to an annual assessment by PSN.  This was a requirement for the Council to deal with the Department of Works and Pensions.  The ICT Service had passed its audit last year. 

 

Additionally, a random audit had been undertaken by PSN in November 2015 and ICT had received one recommendation as a result, the same one as identified by Internal Audit.

 

In order for firewalls to be upgraded, it was necessary for them to be taken down and this was done at times of least demand.  However, OneVale required 24 hours cover. 

 

17 recommendations had been made, of which 11 had been completed, four would be completed within the next month and two had been allocated a timescale and would be completed on time.

 

Within months, all recommendations bar one would be completed – it would be a matter for the Departmental Management Team to determine on the last recommendation.

 

A Member enquired if the 17 issues found to be wrong were trivial and was advised that no, they were not – for example some firewall software was becoming out of date.

 

The firewall had been taken down at 2.00 a.m. over a Sunday night.  It was difficult to find the best time to cause the minimum disruption.

 

Other issues surrounded policies which were out of date.  Procedures had been put in place to correct this. 

 

A Member noted that the procedures were in place to “force” changes to be made to the systems which would maintain the Service’s Public Services Network Accreditation up to date.  The question was asked if the Council was ever at risk.

 

Committee was advised that the Service had not been at risk so far.  Everything was being done to minimise any risk, with a decreased level of staffing. 

 

In speaking of passwords, a Member enquired as to what the Service was putting in place to revitalise people’s attitudes and was informed that passwords were kept in a secure part of the network.

 

However, to change every password on every item of equipment regularly would be a fulltime job for one member of staff because there were thousands of devices with passwords. 

 

In referring to the 17 issues which had been identified, a Member enquired as to why these items had not been identified sooner and the Head of Strategic ICT replied that the issues surrounded resources.  The relevant Team struggled to find down-time from their day to day work to do these things.

 

As a result of the Audit review, implementation time had been agreed.

 

A Member enquired if the 17 points were “trivial” and was advised:

 

-               no, the matters were not trivial;

-               one referred to reviving the “firewall rules”.  There could be thousands of rules and although ICT were updating reviews on a regular basis, there was no procedure in existence to undertake a formal review.  Updating of the rules was very time consuming and the demand for services was increasing. 

 

A Member enquired if the Service was considering Biometrics and was advised that costs were falling.  Some of the Council’s devices had fingerprint recognition but the Council was not at the point yet where it would want Biometrics to be widely used unless appropriate. 

 

A  Member spoke of the Council’s telephony system, and spoke of problems that he had encountered. 

 

The Councillor enquired if it were possible for every call to the Council to be recorded and was advised that there was no legal requirement on the Council to do this. 

 

The Council received £4m per year through credit card payments and consideration to the recording of phone calls could be considered although it was acknowledged that there would be massive costs to the Authority as a result of the necessary hardware and through backing up of the data.  Furthermore, there may be implications under the Regulation of Investigatory Powers Act. 

 

 

(ii)        Audit Review of the ICT Data Support Team as Part of the Learning and Skills Directorate

 

The Audit had identified a number of key issues which needed to be addressed and included:

 

Many of the privileged accounts in use by the ICT and Data Support Team, such as domain administrator, are generic and used by a number of people.  Best practice was to use individually assigned accounts to ensure that there was accountability for actions performed, especially where there were elevated permissions.  There were some access control issues and the Vale of Glamorgan ICT Password Policy had not been adhered to.  There were several issues around business continuity, particularly backups.  Virtual Machines were not currently backed up properly and database backups were not formally tested.  A large amount of data, used for reporting purposes, and containing personal and sensitive information, was stored within a folder structure which appeared to allow access to an excessive number of users.

 

Update: The Council’s Audit Committee had requested the attendance of the Head of Strategic ICT at the meeting of the Committee to be held on 22nd February to explain the findings of the Audit Review.

 

 

The Chairman noted that matters within the Learning and Skills Directorate did not fall within the remit of the Head of Strategic ICT but noted that the Head of Strategic ICT would address the Committee on this issue.

 

Committee was advised that the ICT Data Support Team provided support in schools. 

 

Some schools had opted out of receiving the service, but some had applied to return.

 

As part of the Reshaping Services Agenda, it had been suggested that the Team should be merged with ICT Services.

 

It was reported that some of the tasks that the Learning and Skills Directorate performed could be taken over by ICT.  The opportunity existed for the two Teams to merge.  The two Teams worked very closely. 

 

All of the actions in the Audit report had been carried out.  It had taken longer to complete than envisaged because a member of staff left the service and had not been replaced. 

 

Members referred to other issues identified by Audit and enquired as to what was happening.


The Head of Strategic ICT said he was unable to answer this question.  He was able, however, to say that there were processes that ICT Services could perform. 

 

Committee was advised that a follow up audit would take place.

 

A Member enquired if Audit Reports were presented to Scrutiny Committees and was informed that no, they were not. 

 

The Head of Strategic ICT advised Committee that he had taken on ICT support for Bryn Hafren School on a one off basis.  Consideration would be given to this service being offered to all schools within the Vale. 

 

The cost of providing this service would be recovered through charging for ICT’s services and possibly through the recruitment of additional staff. 

 

Members thanked Mr. Vining for his presentations. 

 

In referring to the pressure on the Council to reduce its budget, the Chairman felt that it was necessary to look at cuts on the Audit Service. 

 

Members were advised that it was necessary for the Head of Audit to look at the impact of cuts on the Service.  Reductions to the Service could mean that it would not be possible to give an Audit Opinion.

 

Looking forward, it was acknowledged that the budgetary reductions would be quite severe. 

 

The Chairman, in speaking of the Council’s Reshaping Services Agenda, felt that demand on the Audit Service was likely to increase in the future. 

 

The S151 Officer spoke of work being undertaken to assess the level of audit support required.  As S151 Officer, there was a need to be reassured that the Council’s systems were adequate.  If that were not possible, a debate would commence on the level of service that would be required. 

 

A Member suggested that the anticipated increase in workload of the Audit Service needed to be flagged up as a cost pressure. 

 

Having discussed the report, it was

 

RESOLVED –

 

(1)       T H A T the content of the report on Internal Audit performance for April 2015 to January 2016 and presentations by the Head of Strategic ICT be noted.

 

(2)       T H A T the Corporate Management Team be requested to protect the Audit Section’s budget for as long as possible in view of the looming cost pressures on the Service.

 

Reasons for decisions

 

(1)       To keep the Audit Committee informed.

 

(2)       In view of the impending cost pressures on the Service.

 

 

866     INTERNAL AUDIT SHARED SERVICE CHARTER 2016/17 (HOA) –

 

Committee received the Council’s Internal Audit Shared Service Charter for 2016/17. 

 

As at 1st April, 2013, the Public Sector Internal Audit Standards (PSIAS) came into force and superseded the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice for Internal Auditors. 

 

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

 

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

 

  • oversee its independence, objectivity, performance and professionalism
  • support the effectiveness of the Internal Audit process
  • promote the effective use of Internal Audit within the assurance framework.

 

One of the key roles which demonstrated the Audit Committee’s role in this respect was the approval of the Internal Audit Shared Service Charter.  The Audit Committee had approved the first Charter at its meeting held on 29th April, 2013 and had continued to be part of this process on an annual basis ever since.

 

The PSIAS required the Head of Audit to review the Charter periodically but final approval resided with the Audit Committee. 

 

The Internal Audit Shared Service Charter for 2016/17 was attached at Appendix A to the report.  It had been reviewed to ensure it continued to reflect the requirements of the PSIAS.  Any amendments, if applicable, had been highlighted by tracked changes.

 

Having considered the report, it was

 

RESOLVED – T H A T the Internal Audit Shared Service Charter for 2016/17 as appended to the report be approved.

 

Reason for decision

 

To keep the Audit Committee informed and to approve the Internal Audit Shared Service Charter for 2016/17 to ensure compliance with the Public Sector Internal Audit Standards (PSIAS).

 

 

867     MATTER WHICH THE CHAIRMAN HAD DECIDED WAS URGENT –

 

RESOLVED – T H A T the following matter, which the Chairman had decided was urgent for the reason given beneath the minutes heading, be considered.

 

 

868     TREASURY MANAGEMENT AND INVESTMENT STATEMENT 2016/17 (REF) –

Matter which the Chairman had decided was urgent by reason of the need for the matter to be discussed prior to the next meeting of Council on 2nd March, 2016

 

Scrutiny Committee (Corporate Resources) on 9th February, 2016, received the Treasury Management and Investment Statement 2016/17. 

 

The Treasury Management Strategy itself covered a rolling period of three years and was intended to link in to the Medium Term Financial Planning process.  The Investment Strategy covered the next financial year and also included a number of statutory Prudential Indicators that may be used to support and record local decision-making. The proposed Treasury Management and Investment Strategy for 2016/17, was attached at Appendix 1 to the report. 

 

In regard to the proposed Strategy 2016/17, as at 31st December, 2015 the Authority had placed all of its investments with either the 'Debt Management Account Deposit Facility' (DMADF) of the Bank of England which were guaranteed by the UK Government or placed with UK Local Authorities.

 

The Authority would continue to use credit ratings from the three main rating agencies Fitch Ratings Ltd, Moody’s Investors Service and Standard & Poor’s to assess the risk of loss of investments.  The lowest available credit rating would be used to determine credit quality.  In addition, regard would be given to other available information on the credit quality of banks and building societies.

 

In terms of the interim report, the Council’s treasury management operations entered into for the period 1st April, 2015 to 31st December, 2015, were in accordance with the Council’s approved strategy on Treasury Management. 

 

The following table sets out the monies borrowed / repaid during the period.

 

Loan Type

Opening   Balance

Received

Repaid

Closing   Balance

 

01/04/2015

 

 

31/12/2015

 

£’000

£’000

£’000

£’000

PWLB

90,266

   63,156       

   (812)

     152,610

Other   Long Term Loans

  6,002

           0

         (2)

        6,000

Temporary   Loans

    100

760

(760)

          100

Total

     96,368

    63,916      

     (1,574)

     158,710

 

Loans borrowed from their Public Works Loan Board (PWLB) were intended to assist Local Authorities in meeting their longer term borrowing requirements.  The above loans were all at fixed rates of interest.  The rate paid on each loan was largely dependent upon the original duration of the loan and date taken out.

 

Other long term loans represented those non-PWLB loans that are repayable at least one year or more from the date they were advanced.  The bulk of this debt was represented by two market loans of £2,000,000 and £4,000,000. The balance of this debt was local bonds which expired during the period.

 

Temporary loans represent those loans that were borrowed for a period of less than one year, borrowed on notice.

 

The Council’s investments for the period to 31st December, 2015 are set out below:

 

Borrowing   Institution

Opening   Balance

Invested

Returned

Closing   Balance

 

01/04/2015

£’000

£’000

31/12/2015

Local   Authorities

    30,000

74,000

    (54,000)

      50,000

Debt   Management Account Deposit Facility

   51,125

1,155,130

(1,166,005)

      40,250

Totals

         81,125

 1,229,130

(1,220,005)

       90,250

 

Interest, at an average rate of 0.33% and amounting to £201,399 had been received from maturing investments for the first nine months of 2015/2016.

 

General discussion at the Scrutiny Committee ensued regarding the Council’s intended Borrowing Strategy, with the Chairman noting that the interest rates contained within the Statement were high in comparison to interest rates that you would normally find and available from high street banks.  He also indicated that the saver rates were also low compared to those that could be obtained from high street banks.  In response, the Principal Accountant indicated that the priority of the Council internally was to use cash investments to limit the Council’s borrowing and also to minimise risk.  In addition, she also alluded to debt rescheduling / repayment and to advice from advisors on the same which indicated that any savings made from early repayment would be small taking account of premiums that would likely to be charged for an early repayment. 

 

A Member of the Scrutiny Committee enquired if any advice had been obtained from CIPFA or the Council’s external advisors in relation to limiting interest rates on borrowing and maximising income on interest saving rates.  In response, the Principal Accountant acknowledged the point regarding low interest rates available to the Council and with this in mind, officers would continue to discuss the issue with treasury advisors.  In addition, the Section 151 Officer made reference to those Local Authorities who had rescheduled borrowing to reduce budgetary pressures, the consequence of such were likely to have short term benefits but with long term costs.  She also referred to the Wales Audit Office’s view that Local Authorities should resist rescheduling loan repayments given the wider context around the Future Generations Bill and placing debt onto later generations. 

 

Another Member of the Scrutiny Committee referred to the Council’s new Bankers and enquired if they were performing to the Council’s expectations.  In response, the Section 151 Officer indicated that the new Bankers’ performance was being monitored and some issues had been identified with meetings being held regularly to address specific areas of concern. 

 

Scrutiny Committee (Corporate Resources) had

 

RECOMMENDED –

 

(1)       T H A T the Treasury Management interim report for the period 1st April to 31st December, 2015 be endorsed.

 

(2)       T H A T the proposed 2016/17 Treasury Management and Investment Strategy including the below draft resolutions to be considered by Council on 2nd March, 2016 be endorsed:

 

  • The Authorised Limit for External Debt be set at £229,000,000 for 2015/16, £249,000,000 for 2016/17, £254,000,000 for 2017/18 and £256,000,000 for 2018/19.
  • The Operational Boundary for External Debt be set at £210,000,000 for 2015/16, £229,000,000 for 2016/17, £227,000,000 for 2017/18 and £227,000,000 for 2018/19.
  • The Section 151 Officer be given delegated authority within the total Authorised Limit and Operational Boundary as estimated for individual years to effect movement between the separately agreed limits for borrowing and other long term liabilities.
  • An upper limit is set on its fixed interest rate exposures of for 2016/17 of £220,000,000, for 2017/18 of £234,000,000 and for 2018/19 of £234,000,000 of its net outstanding principal sum on its borrowings / investments.
  • An upper limit is set on its variable interest rate exposures of £0 for 2015/16, 2016/17, 2017/18 and 2018/19 of its net outstanding principal sum on its investments.
  • An upper limit of £15,000,000 is set for total principal sums invested for over 364 days for 2015/16, 2016/17, 2017/18 and 2018/19.
  • The amount of projected borrowing that is fixed rate maturing in each period as a percentage of total projected borrowing that is fixed rate for 2016/17 be set as below:

 

 

Upper Limit

Lower Limit

Under   12 months

20%

0%

12   months and within 24 months

20%

0%

24   months and within 5 years

30%

0%

 5 years and within 10 years

40%

0%

10   years and above

100%

0%

 

  • The Prudential Indicators set out in Appendix 1 be approved.
  • The Treasury Management Policy set out in Appendix 2 be endorsed

 

Reasons for recommendations

 

(1)       To endorse the Treasury Management Interim Report.

 

(2)       In acknowledgement that the matter was to be considered by the Audit Committee and Council.

 

Audit Committee were informed that the calculations in the Corporate Resources Treasury Management and Investment Statement 2016/17 were based on the draft Housing Business Plan and draft Final Capital Proposals.  The reports had been finalised and were included on the 22nd February 2016 Cabinet agenda and the Treasury Management Statement had been amended accordingly.  The changes to the figures were relatively minor and the impact of the finalised figures on the prudential indicators where amended are set out below.

 

The figures included in recommendation 3 of the report to the Scrutiny Committee (Corporate Resources) were amended in accordance with these changes. 

 

1.    Ratio of relevant financing costs to HRA income and to the amount to be met from government grants and local taxpayers for Non HRA.

 

 

2014/15

2015/16

2016/17

2017/18

2018/19

 

Actual

Estimate

Estimate

Estimate

Estimate

 

%

%

%

%

%

HRA   Original

1.26

25.53

29.00

35.21

35.84

HRA   Amended

1.26

25.02

28.30

33.83

31.14

Non   HRA Original

4.24

4.44

4.24

4.34

4.34

Non   HRA Amended

4.24

4.37

4.24

4.34

4.34

 

3. Capital expenditure

 

Capital   Expenditure

2014/15

2015/16

2016/17

2017/18

2018/19

 

Actual   £000      

Estimate £000

Estimate £000

Estimate £000

Estimate £000

Learning   & Skills

22,806

19,221

17,654

6,016

3,241

Social   Services

588

588

839

1,439

100

Visible   & Housing Services

7,489

10,805

7,200

2,250

2,150

Resources   & Managing Director

8,130

10,863

14,660

20,044

4,342

Non   HRA total

39,013

41,477

40,353

29,749

9,833

HRA

18,975

84,233

28,882

8,134

10,676

Total

57,988

125,710

69,235

37,883

20,509

Previous   Capital Expt. Total

57,988

125,058

69,760

36,168

19,853

Increase/(Decrease)   from 9th February Scrutiny Report

0

652

(525)

1,715

(656)

 

4. Capital Financing Requirement (CFR)

In-Year   Movement CFR

2014/15 Actual £000

2015/16 Estimate   £000

2016/17 Estimate   £000

2017/18 Estimate   £000

2018/19 Estimate   £000

Non   HRA

6,348

2,565

-1,044

-1,877

-2,136

HRA

4,135

71,943

21,628

419

2,626

Total

10,483

74,508

20,584

-1,458

490

CFR   at 31st March

2014/15 Actual £000

2015/16 Estimate   £000

2016/17 Estimate   £000

2017/18 Estimate   £000

2018/19 Estimate   £000

Non   HRA

119,612

122,177

121,133

119,256

117,120

HRA

6,215

78,158

99,786

100,205

102,831

Total

125,827

200,335

220,919

219,461

219,951

Previous   Total CFR

125,827

200,335

221,458

220,313

220,842

Increase/(Decrease)   from 9th February Scrutiny Report

0

0

(539)

(852)

(891)

 

5. Gross debt and the Capital Financing Requirement

Original figures as shown in Corporate Resources Scrutiny Report

 

Gross   Debt

2014/15 Actual £000

2015/16 Estimate   £000

2016/17 Estimate   £000

2017/18 Estimate   £000

2018/19 Estimate   £000

Brought   forward 1 April

95,369

96,368

157,316

182,734

186,674

Carried   forward 31 March

96,368

157,316

182,734

186,674

193,425

In   year  requirement

999

60,948

25,418

3,940

6,751

 

Revised Figures

 

Gross   Debt

2014/15 Actual £000

2015/16 Estimate   £000

2016/17 Estimate   £000

2017/18 Estimate   £000

2018/19 Estimate   £000

Brought   forward 1 April

95,369

96,368

157,316

182,195

185,811

Carried   forward 31 March

96,368

157,316

182,195

185,811

192,453

In   year  requirement

999

60,948

24,879

3,616

6,642

 

6. Operational boundary for external debt

 

2015/16

Probable outturn

£'000

2016/17

Estimate

 

£'000

2017/18

Estimate

 

£'000

2018/19

Estimate

 

£'000

Total   Operational Boundary Original

210,000

228,000

228,000

228,000

Total   Operational Boundary Amended

210,000

228,000

228,000

228,000

 

7. Authorised limit for external debt

 

2015/16

Probable outturn

£'000

2016/17

Estimate

 

£'000

2017/18

Estimate

 

£'000

2018/19

Estimate

 

£'000

Total   Limit for External Debt Original

229,000

249,000

254,000

255,000

Total   Limit for External Debt Amended

229,000

248,000

254,000

255,000

 

8. Upper limits on fixed interest rate and variable interest rate exposure;

Fixed   Interest Rate Exposure

2015/16

Probable Outturn

£'000

2016/17

Estimate

 

£'000

2017/18

Estimate

 

£'000

2018/19

Estimate

 

£'000

Net   principal fixed rate borrowing Original

194,000

220,000

234,000

234,000

Net   principal fixed rate borrowing Amended

194,000

219,000

223,000

223,000

 

HRA limit of indebtedness

Original figures as shown in Corporate Resources Scrutiny Report

 

 

2015/16

Probable Outturn

£'000

2016/17

Estimate

 

£'000

2017/18

Estimate

 

£'000

2018/19

Estimate

 

£'000

 

£M

£M

£M

£M

Limit of Indebtedness

103.723

103.723

103.723

103.723

Projected HRA CFR

78.158

100.325

101.057

103.722

 

Revised Figures

 

 

2015/16

Probable Outturn

£'000

2016/17

Estimate

 

£'000

2017/18

Estimate

 

£'000

2018/19

Estimate

 

£'000

 

£M

£M

£M

£M

Limit of Indebtedness

103.723

103.723

103.723

103.723

Projected HRA CFR

78,158

99,786

100,205

102,831

 

In bringing the report before the Audit and Scrutiny Committee (Corporate Resources) Committees, officers acknowledged that Members would benefit from training on the subject matter and it was suggested that a training session be included in the Committee’s work programme.

 

Committee noted that Scrutiny Committee (Corporate Resources) had been concerned about the low level of investment income received by the Council and the level of borrowing charges being incurred. 

 

In terms of borrowing, Committee was advised that the largest amount was fixed-rate at 8.6%.  £63m represented new borrowing as part of the housing subsidy buy-out. 

 

Large amounts of the higher fixed-rate debt came over to the Council on Local Government reorganisation in 1996 at a rate of 9%. 

 

Rescheduling of the debts had been considered, but a considerable sum would be required. 

 

Members enquired if it would be beneficial for the Council to borrow money at a cheaper rate to repay the debts which were attracting higher interest rates but were informed that the Council would incur penalty charges as a result of the early repayment of the debt, although overall there could be some savings.  Account would be taken of this in the coming year. 

 

Members enquired if the repayment periods were fixed and were informed that the debt was – some over a 50 year period.

 

The view was expressed that it would be beneficial if Committee were advised of the interest rates charged on the various debts of the Council together with the penalty charges that would be incurred for early repayment of the loans. 

 

A Member, in noting the difference between the interest received by the Council and the interest paid, asked what could be done to “close the gap” and was advised that the penalties for early repayment could be stringent. 

 

If it were possible for the Council to set monies aside, the Council’s advisors would suggest the best debts to repay early, but the sums of money could be between £60-£70m.  Furthermore, as a result of penalty payments, the savings to the Authority could be quite small. 

 

Mr. Golding added that early repayment of debt was a difficult issue in that penalties for early repayment would be applied, although debt rescheduling could “close the gap”. 

 

Members asked how the Council could lend and borrow at the same time and were advised that the Council was able to lend surpluses of resources and working capital. 

 

The Chairman advised that an explanation of the pros and cons of debt rescheduling would form part of the training to be provided. 

 

It was acknowledged that there was a large amount of data contained within the report.  It was suggested that the training include data relating to the Vale of Glamorgan Council and examples of what could be done to mitigate the debt repayments.

 

Having considered the reference and subsequent discussions, it was

 

RESOLVED –

 

(1)       T H A T the comments of Scrutiny Committee (Corporate Resources) be endorsed.

 

(2)       T H A T training be arranged for the Members of the Audit Committee and Scrutiny Committee (Corporate Resources) on Treasury Management issues, to include a breakdown of the Council’s debt schedule, and to also include data relating to the Vale of Glamorgan Council and examples of what could be done to mitigate the Council’s debt repayments.

 

Reasons for decisions

 

(1)       Having regard to the comments of Scrutiny Committee (Corporate Resources) and subsequent discussions.

 

(2)       To assist Members’ consideration of similar such reports when they are brought before the Committee.

 

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