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AUDIT COMMITTEE

 

Minutes of a meeting held on 25th April, 2016.

 

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

 

Also present: Ms. C. Holzinger, Mr. A. Veale and Mr. S. Wyndham (Wales Audit Office).

 

 

1039   APOLOGIES FOR ABSENCE – 

 

These were received from Councillors Mrs. P. Drake, A.C. Williams and M.R. Wilson.

 

 

1040   MINUTES – 

 

RESOLVED – T H A T the minutes of the meeting held on 22nd February, 2016 be approved as a correct record.

 

 

1041   DECLARATIONS OF INTEREST –

 

No declarations were received.

 

 

1042   EXTERNAL AUDIT PLAN 2016 (MD) –

 

The Audit Committee considered the Council’s External Audit Plan 2016 which was produced annually by the Wales Audit Office.  The Auditor General for 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 the following: 

  • Examination and certification of the Council’s financial statements to ensure they are 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 has discharged its duties and met requirements of the Measure;
  • Bespoke pieces of work aimed at enabling the Council to make improvements in economy, efficiency and effectiveness or financial or other management practices.

A copy of the External Audit Plan was attached at Appendix 1 to the report, with key highlights as follows: 

  • To issue a certificate and report on the Council’s financial statements which include an opinion on their “truth and fairness”.  Whether the Council has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources and report by exception if the Annual Governance Statement did not comply with requirements.
  • To audit / independently examine the Joint Committee arrangements which are hosted by the Council, these being Shared Regulatory Services and Adoption Service.  This would be the first year that the Council would need to produce Financial Statements for these bodies.  In addition, an independent examination of the Welsh Church Act Fund would be undertaken in accordance with timescales agreed with the Council and the Charity Commission.
  • A programme of performance audit work would be undertaken, however the Auditor General for Wales was unable to be specific at this time but was working through the practicalities of designing an appropriate work programme and examining the implications of the reduction in grant funding with a view to ensuring, as far as possible, that there was little adverse impact on Local Authorities through fees.

Members discussed the proposals to explore alternative funding models in respect of fees for 2017/18.  The Committee was advised that the majority of audit work in the Vale of Glamorgan was charged via fees, with all Wales work being funded directly through Welsh Government.  It was planned that this would be considered in order to provide greater transparency around how fees were collected. 

 

A Committee Member queried the need to secure continual improvement and asked what the driving force behind this was.  In reply, the Committee was advised that this was being driven by the Local Government (Wales) Bill and through the Future Generations (Wales) Act 2015 around which the Vale of Glamorgan Council would need to demonstrate that it was continually improving.  There were no specific benchmarking data, but the role of the Audit Office would be to highlight any issues around service provision and, if appropriate, make recommendations which could be statutory.  Furthermore, the Committee was advised that the intention of the Wales Audit Office was not to evaluate the level of savings, but to comment on whether the Authority was moving in the right direction.  Further context would be provided following publication of the report on the Corporate Assessment.  In addition, a Committee Member stated that it would be the Council itself in conjunction with outside partnership who would be monitoring the effectiveness of service provision and he hoped that all performance indicators would be relevant to the local population. 

 

Following consideration of the 2016 External Audit Plan, the Committee

 

RESOLVED – T H A T the External Audit Plan for 2016 be accepted and be referred to Cabinet for approval.

 

Reason for decision

 

To progress the External Audit work programme and to ensure that robust scrutiny of the External Audit Plan takes place.

 

 

1043   FINANCIAL RESILIENCE ASSESSMENT (MD) –

 

The purpose of the report was to present Members with the Auditor General for Wales’ Financial Resilience Assessment on the Vale of Glamorgan Council.

 

The report advised that in addition to the Auditor General for Wales’ annual programme of audit and assessment work, he would also undertake a programme of Local Government Studies, normally consisting of three studies every year.  As part of the programme of work, the Wales Audit Office had completed a Financial Resilience Assessment of the Vale of Glamorgan Council on behalf of the Auditor General for Wales. 

 

The Financial Resilience Report was attached at Appendix A and summarised the key issues arising from the assessment work carried out during the period May to October 2015.  The assessment’s aim was to answer the following question:

 

Is the Vale of Glamorgan Council managing budget reductions effectively to ensure financial resilience?

 

This would take into consideration the following: 

  • Whether financial planning arrangements effectively support financial resilience
  • If financial control effectively supports financial resilience
  • Does financial governance effectively support financial resilience. 

Overall, the report concluded that the Council’s financial arrangements were effective but savings plans needed to be developed in more detail for future years.  This conclusion was based on the findings in relation to financial planning, financial control and financial governance arrangements.

 

In addition, the report gave a risk rating to each of the following aspects:

 

Financial planning – Medium Risk – some shortcomings in systems, processes or information that may affect the ability to deliver the desired outcomes of the Council’s financial plan

 

Financial control – Low Risk – arrangements were adequate (or better) with few shortcomings in systems, processes or information.  Impact on the ability to deliver the Council’s financial plan may be minimal

           

Financial governance – Low Risk – as above.

 

In addition, the Wales Audit Office had made three proposals for improvement, these being the following: 

  • Financial planning – develop more detailed savings plans to cover the period of the Medium Term Financial Plan
  • Financial control – develop an income generation / charging policy
  • Financial governance – develop key performance indicators to monitor the Medium Term Financial Plan.           

In discussing the Reshaping Services programme, Members commented that they felt that they had seen very little information in the way of developments and updates.  In reply, the Head of Finance stated that regular reports had been provided to Cabinet and Scrutiny Committees and it was planned for Corporate Performance and Resources Scrutiny Committee to receive at least a quarterly update on developments.  Furthermore, the Committee was advised that Tranche 1 savings from Reshaping Services would materialise during the current financial year, with Tranche 2 savings scheduled to come into effect during 2017/18.  Therefore, there were no savings to report on prior to this current financial year. 

 

RESOLVED – T H A T the Wales Audit Office report in respect of the Council’s Financial Resilience Assessment be endorsed and referred to Cabinet for approval.

 

Reason for decision

 

To facilitate monitoring of the Audit function.

 

 

1044   INFORMATION AND ACTION REQUESTS (HOF / S151O) –

 

The Operational Manager – Audit presented the report, the purpose of which was to provide a summary of the actions and information requests made by the Audit Committee at its previous meeting on 22nd February, 2016 and any other items outstanding from previous meetings.

 

In order to ensure that any requests raised by the Audit Committee were 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 in the table 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 was presented to the Council’s Audit Committee to consider at its   meeting held on 22nd Feb 2016

 

The   following further resolutions were made by Committee:-

 

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

 

That   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.

 

Complete

 

 

 

 

 

 

 

 

 

 

 

 

 

Included   in the FWP

 

 

 

 

 

 

 

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

 

This   will be reported at  14th July   Audit Committee meeting.

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 was presented to the Council’s   Audit Committee at its meeting held on 22nd Feb 2016.

A   further resolution was made by Committee that:

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

 

Complete

 

 

 

 

 

 

 

 

 

Outstanding

16th    Nov 2015

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 a   future meeting of the Committee.

Outstanding

16th    Nov 2015

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 a   future meeting of the Committee.

Outstanding

 

 

 

22nd   Feb 2016

Treasury   Management

 

That   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

 

 

 

 

Head   of Finance

 

 

 

This   will be arranged for prior to the start of the July 2016 Committee Meeting.

 

 

 

Outstanding

 

Scheduled   for 21st July meeting.

 

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.

 

 

1045   AUDIT COMMITTEE – PROPOSED INTERNAL AUDIT SHARED SERVICE STRATEGY AND ANNUAL RISK-BASED AUDIT PLAN 2016/17 (HOF / 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 2016 to March 2017.

 

It was important for Internal Audit to plan effectively to ensure that they contributed to the Council’s objectives at both strategic and operational levels.  Planning enabled Internal Audit to demonstrate both internally and externally that they were 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 external auditors would assess the Council’s Shared Audit Service.  It was important that this overall assessment of Internal Audit’s work programme and the contribution that this made to the overall control environment of the Authority that external auditors would draw on the necessary assurances that they need. 

 

The plan provides for a total of 1,287 productive days being delivered during 2016/17 which equated to slightly in excess of 7 full time equivalent employees. 

 

Attached at Appendix A to the report was the proposed Internal Audit strategy document for 2016/17 along with the annual risk-based Audit Plan for each Directorate, which was attached at Appendices B to F to the report.  This demonstrated how the Internal Audit Shared Service would be delivered and developed in accordance with its Terms of Reference and how it linked 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 2016/17 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.

 

The Operational Manager – Audit also advised that status reports on Internal Audit work would be presented to the Audit Committee on approximately a quarterly basis.  The purpose of these reports was to provide an update on progress made against the delivery of the Internal Audit Plan.  The report would provide details of audits completed to date, the assurance of opinion given and the number and type of recommendations made. 

 

The Committee was advised that an Annual Assurance report would be provided to the Audit Committee which would present the Head of Audit’s opinion on the overall adequacy and effectiveness of the framework of governance, risk management and internal control. 

 

The Committee noted that the pilot scheme with Newport around the computer audit system had been concluded.  An update report outlining the lessons to be learned from the pilot would be presented to the Committee in due course.  The Operational Manager – Audit stated that going forward the service would be undertaking a lot more computer audit work which had more to do with data analysis and which would involve more detailed monthly reports that would contain a raft of information.  She also added that she would contact other chief auditors in Wales in order to seek interest around the procurement of the computer audit service on a regional basis. 

 

The Committee discussed the number of productive days per full time equivalent staff and the Committee noted that the total of 180 days included the factoring out of Bank holidays, annual leave and a provision for sickness and training.  Members noted that the Operational Manager – Audit would present further information around this at a future meeting. 

 

Mr. A. Veale, of the Wales Audit Office, commented that from their perspective they could see that a lot of work had gone into the production of the Audit Plan and that it also included financial controls and was risk based.  He also added that it was good that the service was moving to more computer audit work and that the Plan was useful as it allowed them to see which areas the service was focusing on.

 

A Committee Member commented that they had noticed that many risks around new legislation, although contained as corporate risks, were not highlighted within individual Service Plans.  The Head of Finance would pick this issue up with the relevant Corporate Directors. 

 

RESOLVED – T H A T the Internal Audit Shared Service Strategy and Risk Based Audit Plan 2016/17 be endorsed.

 

Reason for decision

 

In order to approve the Shared Service Strategy and Risk based Audit Plan 2016/17.

 

           

1046   AUDIT COMMITTEE – TERMS OF REFERENCE (HOF / S151O) –

 

The purpose of the report was to present to Members the Audit Committee’s Terms of Reference as set out in the Council’s Constitution. 

 

The Chartered Institute of Public Finance and Accountancy (CIPFA) had published practical guidance for Local Authorities and Police which set out the function and operation of Audit Committees in Local Authorities. The guidance represented CIPFA’s view of best practice for Audit Committees and recognised that Audit Committees were a key component of governance.  Taking into consideration the suggested Terms of Reference as outlined in the CIPFA publication, together with the necessary regulations including the Accounts and Audit (Wales) Regulations 2014, the Accounts and Audit (Wales) (Amendment) Regulations 2010, the Local Government (Wales) Measure 2011 and CIPFA’s Delivering Good Governance in Local Government Framework, the current Terms of Reference for the Audit Committee had been reviewed and no amendments had been made.  Therefore, the current Terms of Reference as contained within the Council’s Constitution was attached at Appendix A to the report. 

 

Having considered the report, the Committee

 

RESOLVED – T H A T the contents of the report and the Terms of Reference as attached at Appendix A be noted.

 

Reason for decision

 

To keep the Audit Committee informed and to ensure that the Audit Committee’s Terms of Reference are up to date.

 

 

1047   AUDIT COMMITTEE – FORWARD WORK PROGRAMME (HOF / S151O) –

 

The Operational Manager – Audit presented the report, the purpose of which was to present to Members the updated Forward Work Programme for 2015/16 and the proposed Forward Work Programme for 2016/17.  

 

The Terms of Reference for the Audit Committee are: 

  • To consider the external auditor's annual report and other relevant reports and to make recommendations on their implementation to Cabinet and / or Council as appropriate;
  • To consider specific reports as agreed with the external auditor and to make recommendations on their implementation to Cabinet and / or Council as appropriate;
  • To maintain an overview of contract procedure rules, financial regulations and officers' code of conduct and behaviour and to make recommendations to Cabinet and / or Council as appropriate;
  • To monitor Council policies on "Raising Concerns at Work" and the anti-fraud and bribery strategy and the Council's complaints procedure and to make recommendations to Cabinet and / or Council as appropriate;
  • To oversee the production of the Council's Annual Governance Statement and to recommend its adoption;
  • To review the annual Statement of Accounts.  Specifically, to consider whether appropriate accounting policies have been followed and whether there are concerns arising from the financial statements or from the audit that need to be brought to the attention of the Council. 

With delegated powers: 

  • To approve the Internal Audit Charter;
  • To approve the risk-based Internal Audit Plan and to approve significant interim changes to the risk-based Internal Audit Plan;
  • To oversee the Council's Internal Audit arrangements (including the performance of the providers of Internal Audit);
  • To contribute to the Quality Assurance and Improvement Programme and in particular, to the external quality assessment of Internal Audit that takes place at least once every five years;
  • To consider and approve the Head of Internal Audit's annual report and opinion, and a summary of internal audit activity (actual and proposed) and the level of assurance it can give over the Council's risk management, internal control and corporate governance arrangements;
  • To consider and approve summaries of special internal audit reports as requested;
  • To consider and approve reports dealing with the management and performance of the providers of internal audit services;
  • To consider reports from internal audit on agreed recommendations not implemented within a reasonable timescale and approve necessary remedial action;
  • To comment on the scope and depth of external audit work and to ensure it gives value for money;
  • To commission work from internal and external audit;
  • To review and determine on any issues referred to it by the Head of Paid Service, Section 151 Officer, Monitoring Officer or by a Director, or any Council body;
  • To approve measures to ensure the effective development and operation of risk management and corporate governance in the Council;
  • To consider the Council's arrangements for corporate governance and to approve necessary actions to ensure compliance with best practice;
  • To approve the external auditor's report to those charged with governance on issues arising from the audit of accounts. 

The core functions of an effective Audit Committee are: 

  • To consider the effectiveness of the Council's risk management arrangements, the control environment and associated anti-fraud and corruption arrangements;
  • Seek assurance that action is being taken on risk related issues identified by auditors and inspectors;
  • Be satisfied that the Council's assurance statements properly reflect the risk environment and any actions required to improve it;
  • Oversee the work of internal audit (including the annual plan and strategy) and monitor performance;
  • Review summary internal audit reports and the main issues arising, and seek assurance that action has been taken where necessary;
  • Receive the annual report of the Operational Manager – Audit as the Head of Audit;
  • Consider the reports of external audit and inspection agencies, where applicable;
  • Ensure that there are effective relationships  between external and internal audit, inspection agencies and other relevant bodies, and that the value of the audit process is actively promoted;
  • Review the financial statements, external auditor's opinion and reports to Members, and monitor management action in response to the issues raised by external audit. 

Effective Audit Committees help raise the profile of internal control, risk management and financial reporting issues within an organisation, as well as providing a forum for the discussion of issues raised by internal and external auditors.  They enhance public trust and confidence in the financial governance of an Authority.

 

In considering the Forward Work Programme, the Committee agreed that a report around complaints made by staff and their associated outcomes would be presented during the course of the year.  In addition, an update on the Council’s Whistleblowing Policy would also be presented.

 

Following consideration of the report, the Committee

 

RESOLVED – T H A T the updated Forward Work Programme for 2015/16 and the proposed Forward Work Programme for 2016/17 be approved.

 

Reason for decision

 

To keep the Audit Committee informed.

 

 

1048   2015/16 ANNUAL INTERNAL AUDIT OPINION (HOA) –

 

The Operational Manager – Audit presented the report which provided the 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, 2016.  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 within 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 would objectively examine, evaluate and report on the adequacy of the control environment as a contribution to the proper, economic and effective use of resources.

 

Attached at Appendices A and B were detailed reports (including the outturn for 2015/16) on the work undertaken by Internal Audit during the financial year 2015/16.  The purpose of the report was to satisfy the requirements of the Accounts and Audit (Wales) Regulations 2014 and the Head of Audit’s annual reporting requirements set out in the Public Sector Internal Audit Standards.  These set out that 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 that the Head of 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 of 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 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.

 

In total 135 reviews had been completed so far to date, with 69 (51%) closed with either a substantial or reasonable assurance opinion level.  25 (18.5%) of the reviews completed had identified weaknesses in internal control environment to such an extent that the overall audit opinion was limited.  Of the remaining 41 reviews (30.5%), 32 of which, although necessary, did not culminate in an overall audit opinion and 9 reviews had been carried forward into 2016/17. 

 

On the basis of Internal Audit work undertaken in 2015/16 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 for the year ended 31st March, 2016.

 

In reply to a query regarding a School Summary report presented at a previous Committee meeting held on 16th November 2015, the Operational Manager - Audit stated that this report represented a summary of the programme of audit work undertaken within schools during the previous academic year.  This brought together all the work undertaken along with an overview of what was looked at, what was found and what recommendations had been made.

 

With regard to a query raised by a Member in relation to Child Protection, the Committee was advised that this area was part of the programme of future work and incorporated within the schools programme and included as a section within the Controlled Risk Self-Assessment questionnaires that are sent out annually to all schools.  The Operational Manager – Audit stated that she would ensure that the School Summary report for the academic year 2015/16 would provide a more detailed account of the findings in this area as a result of the audit programme. 

 

The Chairman commented that it had been highlighted that the audit service had four full time equivalent vacant posts and he had concerns as to whether the Head of Audit had the necessary resources in order to deliver the Council’s audit plan.  He expressed concern for the future and the time taken to train fully qualified auditors and he alluded to issues around staff retention.  The Chairman stated that it was unclear what the future would bring and he asked for the Committee to put down a marker in that it did have concerns about the level of resources available to the Head of Audit and also around the potential fall in funding.  The Chairman therefore requested for the Head of Finance to monitor the situation in order to ensure that the level of resources available to the Head of Audit does not diminish to such an extent that the Audit section was not able to carry out its duties in accordance with the Public Sector Internal Audit Standards.

 

Having considered the report, the Committee

 

RESOLVED – T H A T the 2015/16 Head of Audit’s Annual Internal Audit Opinion be approved.

 

Reason for decision

 

To keep the Audit Committee informed.