Top

Top

 

AUDIT COMMITTEE

 

Minutes of a meeting held on 20th February, 2017.

 

Present:  Councillor K. Hatton (Chairman); Mr P.R. Lewis (Vice-Chairman) (Lay Member); Councillors J.C. Bird, J. Drysdale, C.J. Williams and M.R. Wilson.

 

Also present:  Messrs. G. Rees and S. Wyndham (Wales Audit Office).

 

 

834     APOLOGIES FOR ABSENCE –

 

These were received from Councillors Mrs. P. Drake and A.C. Williams.

 

 

835     MINUTES – 

 

RESOLVED – T H A T the minutes of the meeting held on 21st November, 2016 be approved as a correct record.

 

 

836     DECLARATIONS OF INTEREST –

 

No declarations were received.

 

 

837     CERTIFICATION OF GRANTS AND RETURNS 2015-16 (MD) –

 

The Committee received the Council’s External Auditor’s (WAO) report on the grant work undertaken for the financial year 2015/16.

 

Mr. Rees (WAO), in outlining the report, indicated that during the period for 2015-16 they certified 11 grant claims, three fewer than the previous financial year (Sustainable Waste, Local Transport Fund and the Housing Revenue Account Subsidy Return which did not require certification in 2015/16).  The associated grants and returns value amounted to £103m in 2015/16 compared to £108m in 2014/15.  He also indicated that the Council had submitted all of its 2015/16 grant claims to the WAO on time and confirmed that they had received all of the claims.  Overall, the WAO certification work resulted in a £26,191 reduction in the amount of grant due to the Council.  Two of the claims were qualified (18%) which compared favourably with last year when four claims were qualified (29%) and the Welsh average of 25% for 2014/15.  The WAO’s audit fee for the certification work amounted to £59,000.  In concluding, he indicated that the following WAO recommendations would be the subject of follow up work by the WAO as part of their Grant Certification work for 2016/17. 

 

Issue

Implication

Recommendation

Priority

Comment

Responsible Officer and   Target Date

Payments were not made in   line with requirements as some Communities First invoices were certified for   payment by someone who was not an authorised signatory

Claims may be qualified

R! – Ensure all invoices   are authorised by an individual who is an authorised signatory

[2]

These finds are accepted.

 

In response all grant   managers will be contacted requesting them to confirm who is certifying   invoices for grant claims and confirm what their limits are.  This will then be checked to records.

 

Operational Manager,   Accountancy

April 2017

There were a number of   errors and other issues identified in our certification of the Housing   Benefit claim.

Grant may be reclaimed by   the Department of Works and Pensions

R2 – The Council should   evaluate the nature of matters identified in the qualification letter and out   other observations document to consider how the process may be improved in   readiness for next year.

 

[2]

These findings are   accepted.

 

The processes within the HB   service will be reviewed to address the particular issues raised.

Operational Manager,   Exchequer Services

May 2017

 

RECOMMENDED – T H A T the WAO report on the certification of grants and returns for 2015/16 be noted.

 

Reason for recommendation

 

In acknowledgement of the work undertaken by the WAO and the subsequent recommendations required to be undertaken as follow up work during 2016/17.

 

 

838     TREASURY MANAGEMENT AND INVESTMENT STATEMENT 2017/18 (S151O) –

 

The Welsh Government (WG) provided the Council with a General Capital Funding grant and the Authority was also advised of a level of borrowing that WG was prepared to fund via the Revenue Support Grant Settlement.  If the Council wished to borrow in excess of this level to increase its capital expenditure, then it could. However, it would either have to find the additional costs of borrowing through savings in other services or increases in Council Tax.

 

In order to manage this increased flexibility, Part 1 of the Local Government Act 2003 required Local Authorities to have regard to the Prudential Code, which has been developed by the Chartered Institute of Public Finance and Accountancy (CIPFA) as a professional code of practice.

 

The key objectives of the fully revised Prudential Code are to ensure that the capital investment plans of Local Authorities: 

  • Are affordable;
  • That all external borrowing and other long term liabilities are within prudent and sustainable levels;
  • The treasury management decisions are taken in accordance with professional good practice. 

In March 2012 the Council adopted the CIPFA Treasury Management in the Public Services: Code of Practice 2011 Edition (the CIPFA Code), which requires the Council to approve a treasury management strategy before the start of each financial year.

 

The Code of Practice and legislation requires the Council to set out its Treasury Management Strategy and to prepare an Investment Strategy.  The WG issued revised Guidance on Local Authority Investments in April 2010 that requires the Council to approve an Investment Strategy before the start of each financial year and states that Authorities may produce a single strategy document, covering both the requirements of the CIPFA Treasury Management Code and WG's guidance.

 

The Principal Accountant referred to the proposed Treasury Management and Investment Strategy for 2017/18, which was attached at Appendix 1.  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.  The document also included a number of statutory Prudential Indicators that may be used to support and record local decision-making.  She provided an overview of both elements indicating that in regard to the Treasury Management Strategy, she referred to the economic outlook for the UK and to the significant factors that could have a potential bearing on interest rate setting by the Bank of England.  However, Arlington Close Ltd., who provided independent treasury service to the Council, predicted that interest rates would remain stable during 2017/18. 

 

In regard to borrowing, she indicated that it was forecasted that non-HRA Borrowing CFR would reduce with small amounts of borrowing being made for the Capital Programme in relation to 21st Century Schools, whereas HRA Borrowing was forecast to increase significantly throughout the period in line with the Council’s Draft Housing Business Plan, with the Plan being approved before the end of March 2017.  In relation to investments, the Council’s level of reserves would enable the Council to undertake a certain amount of internal borrowing.  The CFR did not include additional borrowing that would be required under the City Deal or any financing for HRA or 21st Century Schools.  She also referred to Prudential Indicators and specifically to Indicator No. 5 – Gross Debt.  External borrowing was forecasted to reduce during 2016/17.  It was predicted that £13m would need to be borrowed, however, the Strategy was to internally borrow wherever possible, but there may be a need to borrow short term for cash flow purposes. 

 

Her attention then turned to the Investment Strategy going forward.  It was proposed to use Local Authorities and possibly Treasury Bills and Reverse Repurchase Agreements.  As for the MRP Policy which covered supported and unsupported borrowing, whilst no changes were proposed at this time for 2017/18, a review of the Policy had been undertaken by Arlington Close Ltd.  

 

In concluding, she referred to unsupported Prudential Borrowing which consisted of two elements vis-à-vis 21st Century School and WG funding (LGBI).  For unsupported borrowing for 21st Century Schools, the Council would make MRP Provision in line with the asset life and for the WG funded debt the Council would continue to make MRP Provision in line with revenue streams from WG.

 

Proposed Strategy 2017/18

 

As at 31st December, 2016 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 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.

 

Interim Report

 

Insofar as the Council’s Treasury Management operations entered into for the period 1st April, 2016 to 31st December, 2016 were concerned, all activities were in accordance with the Council’s approved strategy on Treasury Management.  The undermentioned table sets out the monies borrowed / repaid during this period.

 

Loan Type

Opening   Balance

Received

Repaid

Closing   Balance

 

01/04/2016

 

 

31/12/2016

 

£’000

£’000

£’000

£’000

PWLB

151,211

0

(812)

150,399

Other   Long Term Loans

6,000

0

0

6,000

WG   Concessionary Loan

2,100

0

0

2,100

Temporary   Loans

100

0

0

100

Total

159,411

0

(812)

158,599

 

The Council’s investments for the period to 31st December, 2016 are set out below:

 

Borrowing Institution

Opening   Balance

Received

Repaid

Closing   Balance

 

01/04/2016

   

31/12/2016

 

£’000

£’000

£’000

£’000

Local   Authorities

48,000

128,150

-111,150

65,000

Debt   Management Account Deposit Facility

30,600

1,371,350

-1,393,150

8,800

Total

78,600

1,499,500

-1,504,300

73,800

 

Interest at an average rate of 0.28% and amounting to £229,432 had been received from maturing investments for the first nine months of 2016/2017.

 

Annual Minimum Revenue Provision Statement 2017/18

 

Capital expenditure when financed by long term debt incurred two elements of cost, interest on and repayment of the principal sum borrowed.  The resources the Council must put aside in each year to repay the principal sum borrowed was known as the Minimum Revenue Provision (MRP).  The Local Authorities (Capital Finance and Accounting) (Wales) (Amendment) Regulations 2008, which became effective from 31st March, 2008, required:  “A local authority must calculate for the current financial year an amount of minimum revenue provision which it considers to be prudent”.

 

WG had issued guidance on what constituted prudent provision and this required the Council to approve an annual statement of its policy on calculating MRP.

 

The "Practitioners' Guide to Capital Finance in Local Government (2012 edition) " discusses four options for the prudent provision of MRP as follows:

 

Option 1 - The Regulatory Method, calculation of MRP provision by applying the statutory formula set out in the 2003 regulations.

 

Option 2 - Capital Financing Requirement (CFR) Method, calculation of MRP provision by multiplying the CFR at the end of the preceding year by 4%.

 

Option 3 - Asset Life Method, calculation of MRP provision by amortising expenditure over the estimated useful life for the relevant assets created.

 

Option 4 - Depreciation Method, calculation of MRP provision by making charges to revenue which are based on the proper practices for depreciation as they apply to the relevant assets.

 

A correction was made to the report circulated verbally in paragraph 20 amending CFR Method to Regulatory Method.

 

The Council was required to have a consistent MRP policy.  It was therefore proposed that the MRP charge for 2017-2018 for capital expenditure would be calculated as in previous years using Option 1 as detailed above.  Taking into account the nature and age of the Council’s non-current assets, the Council had concluded that continuing with the Regulatory Method was sufficient to ensure prudent provision for supported borrowing and this approach matched the funding stream from WG.

 

Capital expenditure incurred during 2017/18 would not be subject to a MRP charge until 2018/19.

 

The above Regulations also required that the Regulatory and CFR methodologies could only be used for expenditure incurred before 1st April, 2008 and expenditure incurred after that date which was supported through Revenue Support Grant (RSG).

 

Included in the 2017/18 revenue estimates were principal repayments totalling £0.428m in respect of Prudential (unsupported) Borrowing (i.e. not supported for Revenue Purposes).  Of this funding, £0.113m was in respect of two specific schemes Llantwit Learning Community and Penarth Learning Community.  The provision made in respect of these schemes was commensurate with asset life as estimated by the Council's External Valuer.  In addition £0.315m had been included in respect of the Local Government Borrowing Initiative (LGBI) funding from WG for 21st Century Schools and the Local Road Network Improvement scheme.  The provision in respect of LGBI schemes was commensurate with the applicable WG funding streams through RSG.

 

The Section 151 Officer considered that the estimated costs of unsupported borrowing were both prudent and sustainable.

 

RESOLVED -

 

(1)       T H A T the Treasury Management interim report for the period 1st April to 31st December, 2016 be endorsed.

 

(2)       T H A T the policy for making Minimum Revenue Provision in 2017/18 be endorsed.

 

(3)       T H A T the proposed 2017/18 Treasury Management and Investment Strategy be endorsed, it be noted thereafter it would be referred to Cabinet and Council for approval, including the following specific resolutions: 

  • The Authorised Limit for External Debt be set at £192,500,000 for 2016/17, £214,700,000 for 2017/18, £214,400,000 for 2018/19 and £220,300,000 for 2019/20.
  • The Operational Boundary for External Debt be set at £185,600,000 for 2016/17, £200,300,000 for 2017/18, £199,200,000 for 2018/19 and £205,700,000 for 2019/20.
  • 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 £161,100,000 for 2016/17, for 2017/18 of £190,400,000, for 2018/19 of £190,100,000 and for 2019/20 of £196,000,000 of its net outstanding principal sum on its borrowings / investments.
  • An upper limit is set on its variable interest rate exposures of £0 for 2016/17, 2017/18, 2018/19 and 2019/20 of its net outstanding principal sum on its investments.
  • An upper limit of £5,000,000 for 2016/17, £10,000,000 for 2017/18, £5,000,000 in 2018/19 and 2019/20 is set for total principal sums invested for over 364 days.
  • 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 2017/18 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 decisions

 

(1)       To monitor the Treasury Management Interim Report.

 

(2)       To endorse the basis of the Minimum Revenue Provision calculation for 2017/18.

 

(3)       To allow the Treasury Management and Annual Investment Strategy to be prepared as required by the Local Government Act 2003.

 

 

839     UPDATE OF STAFF VACANCIES WITHIN THE INTERNAL AUDIT SHARED SERVICE (HOF/S151O) –

 

The Committee had been previously apprised by the Head of Finance and most recently at the last meeting of the Committee in November 2016, of the Section’s recruitment difficulties in attracting suitable candidates to cover a number of vacancies that existed within the Internal Audit Shared Service.  Committee noted that the number of vacancies had increased to 6.5 FTE vacancies and as a consequence of the recent recruitment campaign being unsuccessful, a review of the current structure of the section would be considered.  The Committee also noted that the current structure of the Audit Service had been in place since the commencement of the Shared Audit Service established in February 2013. 

 

Discussion ensued with a number of Members of the Committee raising observations in regard to the ongoing implications of unfilled posts and the subsequent impact on the delivery of the joint audit service.  Particular reference was made in regard to the financial implications for both Councils as a result of restructuring the service, the ability of the service going forward to recruit and retain professionally qualified staff so as to ensure appropriate workforce planning arrangements were in place and the ongoing capacity of the service to deliver its objectives given the number of vacancies on the establishment.  In response, the Head of Finance indicated that there were a number of reasons why staff were leaving the service which, in the main, related to staff leaving for other opportunities and career progression.  She also alluded to the fact that the restructuring of the service would take account of the ever changing environment of audit within the Local Government environment with the view to making the establishment structure more competitive, thus attracting appropriately qualified staff to the service. 

 

In addition, the Chairman invited the WAO representative to comment on the current number of vacancies within the Joint Audit Service.  Mr. Wyndham acknowledged the recruitment difficulties experienced generally across Wales where there was a difficulty attracting appropriate candidates into the audit profession.  He indicated that any new business case to restructure the service would need to take account of the
impact on external audit as part of its options appraisal.  However, he indicated that the current level of vacancies was unlikely to impact on external audit activities.

 

Having regard to the above, it was

 

RESOLVED – T H A T the contents of the report be noted with the Committee additionally noting that the structuring review would be subject of a further report to the Committee.

 

Reason for decision

 

In acknowledgement of staff vacancies and recruitment difficulties.

 

 

840     INTERNAL AUDIT – OUTTURN REPORT – APRIL 2016 TO JANUARY 2017 (OMA/HOA) –

 

As in previous reports to Committee, it was informed of the actual Internal Audit performance in regard to activities contained within the 2016/17 Internal Audit Plan and for the above stated period.  Attached at Appendices A and B for the benefit of the Committee were detailed reports (including the Head of Audit’s ten months’ position report) on the work undertaken by Internal Audit so far this year and related to the following matters which were in addition to those matters reported at the previous meeting of the Committee in November 2016, relating to Pay Process External Provider and Management of Trees:

 

Food and Feed Law Enforcement

 

Councils had a duty to enforce the Food Safety Act 1990, the Official Food and Feed Controls (Wales) Regulations 2009 and a wide variety of other food / feed legislation including the Food Hygiene (Wales) Regulations 2006 within their area. The Food Standards Agency (FSA) Framework Agreement set out what was expected from Local Authorities in their delivery of official controls in terms of the planning and delivery, based on the existing statutory Codes of Practice.  Since 1st May, 2015 the Councils of Cardiff, Bridgend and the Vale of Glamorgan had been delivering regulatory services through a collaborative arrangement or SRS.  Whilst a number of strengths and areas of good practice were identified during the review, the main issues of concern identified related to feed premises inspections not meeting the FSA agreed schedule at the time of the review.  In addition, ICT issues continued to be a problem for accessing the separate systems.  A follow up review was planned for Quarter four, however, the Operational Manager within Regulatory Services had advised that staff were currently preparing information to be sent off to the Food Standards Agency by the end of February, as they were due to be assessed during late March.  As this would inform the Council’s follow up it had been agreed to defer the work until April 2017.

 

Deprivation of Liberty Safeguards (DoLS)

 

The Deprivation of Liberty Safeguards are the measures found within the Mental Capacity Act 2005 that ensured that there was an independent system of review available to all adults who lacked the mental capacity to consent to their care in registered accommodation.  The Vale of Glamorgan Council, Cardiff Council and Cardiff and Vale University Health Board commissioned an independent team to co-ordinate the DoLS process.  This team was operationally managed by the Vale of Glamorgan Council, and accountable to a steering group of senior managers who represented the Supervisory Bodies of each of the contributing agencies.  Whilst a number of strengths and areas of good practice were clearly evident, the area of most concern related to the backlog of referrals awaiting assessment.  It was recognised that as a result of a ruling by the Supreme Court there had been a significant increase in DoLs applications across Wales.  The Vale of Glamorgan alone had seen an influx of demand of more than 80 times compared to that of 2014/15.  A robust plan should be developed and implemented to deal with the backlog of referrals to reduce and mitigate risk.

 

Appendix A to the report also dealt with significant governance issues identified in the 2015/16 Annual Governance Statement which, in the main, related to an update on actions taken in regard to Waste Management contracts which had been the subject of a number of reports to previous meetings of the Committee.  Since last reporting, the Council’s Contract Management Guidance and Toolkit had been updated.  In addition, the Corporate Management Team continued to have oversight to ensure improvements to contract management were realised and related training for employees would commence in March 2017. 

 

In addition, also set out in Appendix A, were the Internal Audit successes for the Committee’s consideration.

 

The Committee also considered Appendix A1 attached to the report which listed outstanding reviews were weaknesses were identified during 2015/16 and which culminated in only limited assurance being provided on the overall internal control environment.  This list provided the Committee with an update on the current position and, where applicable, the current audit opinion relating to the following areas: 

  • Landlord Compliance
  • PCI – DSS
  • Telecare Follow Up
  • Social Media
  • Corporate Firewall
  • Food and Feed Law Enforcement
  • Deprivation of Liberties (DoLS)
  • Management of Trees. 

The Committee was also advised that the Council’s Corporate Management Team had also been apprised of the current position relating to such reviews.

 

In terms of outstanding audit recommendations for the above period, as at the end of January 2017, it was reported that there were no outstanding recommendations which were “fundamental” Priority 1.  However, it was noted that 22 recommendations were outstanding and not complied with which were “significant” Priority 2.

 

As considered by the Committee in an earlier report in the agenda, it was noted that the service was carrying 6.5 vacant (FTE) posts and the proposed recruitment campaign.

 

Having regard to the above and related issues, it was

 

RESOLVED – T H A T the contents of the Internal Audit Outturn Report for the period April 2016 to January 2017 be noted.

 

Reason for decision

 

In acknowledgement of the Committee’s responsibility for oversight of matters contained in the Internal Audit Plan.

 

 

841     AUDITS NOT UNDERTAKEN 2016-17 (OMA/HOA) –

 

The Committee was apprised that as a consequence of the impact of the number of staff vacancies the Joint Service was currently carrying, there were a number of audits which would not be delivered as part of the 2016/17 Annual Audit Plan. 

 

Set out below for the consideration of the Committee were details of the audit area and a description of what reliance could be placed from various other sources.  The Committee was provided with an assurance that even though these reviews would now been undertaken, this would not affect the ability of the Head of Audit to provide her annual opinion. 

 

Directorate

 

Audit Area

CIA – Comments

Social Services and   Wellbeing

Social Services and   Wellbeing Act

A number of days were   allocated at the start of the year as a contingency in order to provide   advice, guidance and some assurance work in relation to the introduction of   the Social Services and Wellbeing Act and the changes made to any working   practices. Some work had been undertaken in this area, but the full   allocation had not been used. As processes continued to change as a result of   the requirement of the Act being implemented, then further work would be   undertaken in 2017/18. 

Data

 

 

This was included in the Plan   in order to provide assurance that sufficient processes and procedures were   in place for handling data to ensure its accuracy and integrity. Whilst this   area would not now be reviewed as a single assignment, a corporate review of   safeguarding was being undertaken which would review the Council's operating   model and safeguarding arrangements.  This   work would therefore cover the high risk areas of children and adults and the   processes surrounding handling sensitive data.

Cross Cutting

Reshaping Services -   Digital Transformation

The Council's Reshaping   Services Programme was regularly reported to the Programme Board to monitor   the progress of all the identified projects.  One such corporate project was Digital Vale.  

 

In December 2016, the   status of this project was Amber.  However,   it was reported that progress on a number of digital initiatives were   progressing with pilots and business cases being developed.  A draft Digital Strategy was also under   development. Regular oversight was maintained by the Reshaping Services   Programme Board.

Learning and Skills

 

School Surplus balances

Due to resource issues this   audit would not be undertaken.

 

A number of schools carried   forward large surplus balances into 2016/17.  Each relevant school completed a robust plan   which was agreed by the Authority and the Governing Body.  The Council's Schools Finance Team monitored   the plans throughout the year to ensure balances were spent appropriately and   in line with that agreed.

 

Having regard to the above,

 

RESOLVED – T H A T the content of the report be noted and the proposed changes be approved to the 2016/17 Annual Audit Plan.

 

Reason for decision

 

In acknowledgement of the Committee’s responsibility for oversight of matters contained within the Internal Audit Plan.

 

 

842     FORWARD WORK PROGRAMME (OMA/HOA) –

 

Consideration was given to an updated Forward Work Programme for 2016/17 which had been previously approved by the Committee at its meeting held on 21st April, 2016 (Minute No. 1047 2015/6 refers).

 

RESOLVED – T H A T the updated Forward Work Programme 2016/17 in regard to the Audit Committee be noted.

 

Reason for decision

 

To apprise the Committee of changes to its Forward Work Programme.

 

Share on facebook Like us on Facebook