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AUDIT COMMITTEE

 

Minutes of a meeting held on 26th July, 2017.

 

Present:  Councillors G.D.D. Carroll, Mrs. P. Drake, V.P. Driscoll, S.J. Griffiths, L.O. Rowlands, M.R. Wilson and Mr. P.R. Lewis (Lay Member).

 

Also present: Councillors Dr. I.J. Johnson and J.W. Thomas; Messrs. S. Barry, G. Jones, S. Veale and S. Wyndham (Wales Audit Office).

 

 

202     APPOINTMENT OF CHAIRMAN –

 

RESOLVED – T H A T Councillor M.R. Wilson be appointed Chairman for the current Municipal year.

 

 

203     APPOINTMENT OF VICE-CHAIRMAN –

 

RESOLVED – T H A T Councillor L.O. Rowlands be appointed Vice-Chairman for the current Municipal year.

 

 

204     MINUTES –

 

RESOLVED – T H A T the minutes of the meeting held on 24th April, 2017 be approved as a correct record.

 

 

205     DECLARATIONS OF INTEREST –

 

No declarations were received.

 

 

206     ANNUAL GOVERNANCE STATEMENT 2016/2017 (MD) –

 

The above Statement was submitted for review and endorsement and subsequent adoption by the Leader of the Council and the Managing Director.

 

The Annual Governance Statement (AGS) related to the mechanism used to demonstrate that, during the financial year ending 31st March, 2017, the Council had an adequate governance regime in place and all business was conducted in compliance with the existing arrangements.

 

The AGS for the 2016/17 financial year related to the activities of the Council and were set out in Appendix A to the report.  This document had been drawn up with regard to the Code of Practice on Local Authority Accounting in the UK: A Statement of Recommended Practice (SORP).  The AGS also had regard to guidance issued by CIPFA / SOLACE with any amendments being made on the basis of the “Delivering Good Governance in Local Government: Framework”. 

 

The Head of Finance reported that the overall Annual Governance arrangements within the Council for the financial year 2016/17 were considered to be satisfactory.  However, she indicated that there were issues relating to unprecedented challenges the Council was facing with ever diminishing funding which was likely to impact on how the Council delivered its services, embarking on an ambitious programme of transformational changes making planning for the future difficult.

 

The Committee’s endorsement of the Statement was sought.

 

RECOMMENDED – T H A T the Annual Governance Statement be recommended for adoption by the Leader and Managing Director of the Council.

 

Reason for recommendation

 

In acknowledgement of the review and to progress the adoption of the Annual Governance Statement 2016/17.

 

 

207     WALES AUDIT OFFICE – ANNUAL IMPROVEMENT REPORT 2016-17: GOOD GOVERNANCE WHEN DETERMINING SIGNIFICANT SERVICE CHANGES AND CORPORATE ASSESSMENT FOLLOW UP (MD) –

 

Mr. Barry of the Wales Audit Office (WAO) briefly outlined matters in relation to the three Auditor General for Wales’ reports which had been submitted to the Committee for consideration and endorsement. 

 

Set out at Appendix 1 to the report was the Corporate Assessment Follow Up report, the summary of which contained at page 4 the details of the rive Proposals for Improvement considered in the initial Corporate Assessment undertaken and published in 2016.  Paragraph 2 (page 5) contained information as to whether the Council was making effective progress against the Proposals for Improvement.  The report concluded that the Council had implemented in full changes to its Performance Management and target setting arrangements.

 

Whilst the action against savings monitoring reports had been taken forward, the report concluded that there remained scope to improve the level of detail in some reports and to improve the use of the Red, Amber and Green (RAG) ratings to be more transparent.  This had been accepted by the Council and work was already underway to ensure that the quarterly reports to future Scrutiny Committees included further levels of details and further explanation on how savings were being progressed. 

 

In relation to the Proposal for Improvement relating to ICT and the need for an ICT Strategy, the finalisation of the Strategy had been noted, but recognition had also been given to the fact that this would be further refined by the completion of a Digital Strategy.  The Committee noted the fact that a draft Digital Strategy was already finalised and was being reported to the Cabinet in the near future. 

 

Finally, the WAO noted that the Council had not met its own target for addressing the Proposal for Improvement in relation to asset management.  This had been accepted and although there had been progress against the proposals, further work was needed to ensure that work on data management was up to date to ensure readily accessible building compliance recording.  This was a matter which was ongoing and was being monitored by the Corporate Management Team and the Insight Board. 

 

The Council had also received a further WAO report entitled “Good Governance when Determining Significant Service Changes” and this was attached at Appendix 2 to the report.  This review concluded that the Council “has a clear corporate framework for determining and delivering service changes and effective arrangements to support delivery, with some opportunities to strengthen stakeholder engagement”.  The report also concluded that “the Council’s Reshaping Services Programme provided a framework for determining significant service changes and supports their delivery”.  Reference was made to the fact that the Council considered different models of service delivery for different services (a mixed economy model), this being a flexible approach.  Reference had also been made to “clear roles and responsibilities and strong programme and project governance” which were “well understood by senior officers and members” as well as effective working between Cabinet and senior managers, with a clear framework for Scrutiny.  The report also acknowledged the range of staff engagement and training that supported the delivery of Reshaping Services and wide activity.

 

Two Proposals for Improvement were set out which reflected the need to provide more information on Cabinet and Scrutiny Forward Work Programmes (P1) and the need to continue to consult and engage on all service changes where consultation and where engagement was not appropriate, such an approach should be clearly documented (P2).  These matters would now be factored into the Council’s approach moving forward.  With reference to P1, the Annual Forward Work Programme had been set and published for 2017/18.  However, for the quarterly Cabinet Work Programmes, the recommendations of the WAO would be incorporated and these Work Programmes would include additional detail in relation to the purpose of the reports.  In relation to P2, this was an issue that would be taken on board by the Reshaping Services Board and also in any reports that sought to progress any further service changes.  Progress against P1 and P2 would be monitored by the Council’s Insight Board and Corporate Management Team.

 

The Proposals for Improvement as outlined above were in turn referenced in the WAO’s Annual Improvement Report attached at Appendix 3 to the report.  Exhibit 2 of this Annual Improvement Report described the work undertaken by the WAO since the previous Annual Improvement Report.  As well as listing the Proposals for Improvement in relation to Governance, it also listed the Proposals for Improvement from an earlier report on Savings Planning (published in March 2017), which Proposal sought a strengthening of financial planning arrangements by developing a strategic approach to income generation and ensuring that all savings plans included in the annual budget were fully developed.

 

This report also listed recommendations that had arisen out of national reports published by the WAO.  It was notable that one of the recommendations related to income and charging policies.  In this regard, the Council was currently drafting an Income Generation Strategy and this would be submitted to the Cabinet in the Autumn 2017. 

 

The Chairman, in referring to the WAO “Good Governance when Determining Significant Service Changes” and in particular to P1, enquired of Mr. Barry if the WAO as part of its review, had evaluated governance arrangements in respect of the Cabinet and highlighted the need for further transparency when Cabinet meetings took place and alluded to public attendance and Members not of the Cabinet being able to address the Cabinet at meetings.  He also invited the Leader, who was in attendance, to also comment on this point.  Mr. Barry indicated that the review had not centred specifically on governance arrangements in respect of the Cabinet, but more on wider transparency within the Council when making its decisions which affected services.  The Leader, in responding to the invitation to comment on the matter, indicated that whilst he was happy to look at the point raised by the Chairman, he reminded the Committee that Cabinet agendas were published and meetings could be attended by the public and other Members of the Council.  Indeed, he indicated that there was no restriction on other Members of the Council attending and requesting to speak on any Cabinet report under consideration at that time as in the case of all Council meetings.

 

The Chairman also referred to the Council doing more in regard to public engagement and referred to Frome Town Council as best practice in regard to community engagement.  The Lay Member echoed the comments of the Chairman and supported the view that the Council needed to do better when undertaking engagement with the public, particularly where significant service changes were intended.

 

A Member, in referring to the Corporate Assessment Follow Up report and, in particular, in regard to the proposals for improvement in relation to asset management and related monitoring, enquired of Mr. Barry if it was the WAO’s intention to make any specific proposals in regard to recommendations for improvement.  Mr. Barry indicated that it was the intention of the WAO to continue to monitor the Council’s progress against its planned programme.

 

Having regard to the contents of the report and the attached appendices, including the above discussion, it was

 

RECOMMENDED – T H A T the contents of the Wales Audit Office reports in respect of the Annual Improvement Report 2016/17; Good Governance when Determining Significant Service Changes and the Corporate Assessment Follow Up, be endorsed.

 

Reason for recommendation

 

In acknowledgement of progress being made in addressing the WAO related proposals.

  

208     UNAUDITED STATEMENT OF ACCOUNTS 2016/17 (HOF / S151O) –

 

The 2016/17 Vale of Glamorgan Council Statement of Accounts was attached at Appendix A to the report and had been prepared in accordance with the requirements of the International Financial Reporting Standards (IFRS).  This was intended to provide for comparable accounts across all accounting boundaries, public and private, national and international.  The Shared Regulatory Service Joint Committee 2016/17 unaudited Statement of Accounts was also attached at Appendix B and the Vale, Valleys and Cardiff Joint Committee Annual Return 2016/17 was attached at Appendix C.

 

Under the Accounts and Audit (Wales) Regulations 2014, the Statement of Accounts must be certified by the Section 151 Officer before 30th June as presenting a true and fair view.  The 2016/17 Statement of Accounts for the Council and Shared Regulatory Service and also the Annual Return for the Vale, Valleys and Cardiff Regional Adoption Service were certified as such by 30th June, 2017.

 

The 2016/17 Vale of Glamorgan Statement of Accounts would be subject to external audit and the audited accounts would be presented to Audit Committee in September 2017, along with the external auditor's ISA 260 report for review prior to being submitted for approval by Council before 30th September, 2017.

 

The 2016/17 Shared Regulatory Services Joint Committee Statement of Accounts would also be subject to external audit and the audited accounts would be presented to Audit Committee in September 2017 along with the external auditor's report for review prior to being submitted for approval by the Shared Regulatory Service Joint Committee.

 

The external audit extended to the Annual Governance Statements for both the Vale of Glamorgan Council and the Shared Regulatory Service.  The Annual Governance Statement for the Vale of Glamorgan Council was not included in the version attached at Appendix A as it was included under a separate item on the Committee agenda.  The Annual Governance Statement for the Shared Regulatory Service was set out in Appendix B.

 

The Vale, Valleys and Cardiff Regional Adoption Service accounts were not subject to a full external audit by Wales Audit Office, but an Annual Return had been completed by Accountancy and Internal Audit as at 30th June and was attached at Appendix C.  Wales Audit Office would be providing a limited assurance audit for the service.

 

As part of the 2015/16 Audited Accounts, a number of Audit Recommendations were made in the ISA260 document as set out below:

 

 

Matter Arising

Description

Recommendation

1

Quality Control of the   Statement of Accounts

 

The Council should complete   a robust review of the draft accounts to ensure they are of good quality and   free of simple and avoidable error.

2

Timing of provision of   working papers to support the draft accounts

 

The Council should provide   a complete set of working papers to accompany the draft accounts at the start   of the audit. 

3

Incorrect treatment of   non-enhancing capital expenditure

 

The Council needs to ensure   that the correct accounting entries are made to record the non-enhancing   expenditure per the requirements of the Code and that appropriate audit   evidence is retained to support the basis of the non-enhancing   expenditure. 

4

Contract retention   liabilities not recognised in the Accounts

 

The Council should review   its rationale for not recognising these entries as creditors in the statement   of accounts and in doing so evaluate the extent to which previous contract   retentions have eventually been repaid to the contractors (or alternatively   retained by the Council). 

5

Employee Emoluments   disclosures

 

The Council should   undertake a detailed review of the Employee Emoluments note to ensure that it   fully compliant with the requirements of the CIPFA code.

6

Netting off Council tax   debtors and creditors

 

The Council should ensure   it presents the Council tax debtors and creditors on a gross basis within the   balance sheet.

 

It was proposed that any comments of the Committee on the Unaudited Statement of Accounts, Shared Regulatory Service Joint Committee 2016/17 Unaudited Statement of Accounts or the Vale, Valleys and Cardiff Joint Committee Annual Return 2016/17, be referred to the Head of Finance as Section 151 Officer and Treasurer of the Joint Committee respectively for subsequent discussion with the Council's external auditors, Wales Audit Office.

 

The actions taken against the 2015/16 matters arising recommendations were set out below:

 

Matter Arising 1 – Quality Control of the Statement of Accounts

 

When planning the closure of the accounts for 2016/2017 time was placed in the timetable to ensure that adequate checking of the figures and the narrative could be done before the Statement of Accounts was signed off at the end of June 2017.

 

Matter Arising 2 – Timing of Provision of working papers to support the draft accounts

 

A discussion had taken place with the Wales Audit Office ahead of the audit to agree a list of required working papers and these were available at the start of the audit process in July 2017.

 

Matter Arising 3 – Incorrect accounting treatment of non-enhancing capital expenditure

 

Changes were made to the 2015/2016 accounts in line with the requirements of the auditors and this practice was repeated when closing the 2016/2017 accounts.

 

Matter Arising 4 – Contract retention liabilities not recognised in the accounts

 

A review was undertaken during 2016/2017.  It was not proposed to change the Council’s practice.

 

Matter Arising 5 – Employee Emoluments

 

Amendments were made to the 2015/2016 accounts and this practice was continued in the 2016/2017 accounts.

 

Matter Arising 6 – Netting off Council tax debtors and creditors

 

Amendments were made to the 2015/2016 accounts and this was reflected in the final 2016/2017 accounts.

 

In addition to the above matters, the Principal Accountant provided additional context in regard to the Accounts for 2016/17 and referred to specific issues that had been addressed within the Accounts.  In commenting on the Council’s Statement of Accounts, the Principal Accountant provided the Committee with further details in regard to the following matters: 

  • Key Statements – The financial accounts had a number of account adjustments that were included which were required to be made e.g. holiday pay accrual, capital adjustments namely depreciation and re-evaluations; pension adjustments (cash flow in year with the actuarial assessing current service costs).  These had a statutory override with limited implications for the Council’s financial position with the main source of differences between Management Accounts and Financial Accounts.  This had been recognised by CIPFA and consequently had introduced a new statement and disclosure note to explain the above adjustments.  These adjustments were further analysed in Note 7.  The introduction of new statement required the Council to restate the Accounts for 2015/16 as was referred to as a prior period adjustment in the Accounts. 
  • Reserves Statement – This provided an overview of the “bottom line” of the Council and was categorised as useable and unusable.  It was important to note that there had been a reduction in useable reserves for 2016/17.
  • Comprehensive Income and Expenditure Statement – The Principal Accountant indicated that the methodology had changed for 2016/17 and were now required to use the standard headings used for the Management Accounts.  Consequently, this had been restated for 2016/17 in the HRA Subsidy Note and the Transfer of Net Defined Benefit Liability Note.
  • Balance Sheet – This was unchanged from the previous year.  However, Property, Plant and Equipment had been re-evaluated.  In regard to Cash and Cash Equivalents, it was indicated that not all cash sat in the Council’s bank account and referred to Schools Cash, Cash in Transit and Overnight Investments on 31st March, 2017.
  • Pension Liabilities – There had been a triennial valuation in year and referred to the Shared Regulatory Services (SRS) and the Vale, Valleys and Cardiff Adoption Service (VVCAS).
  • The SRS Accounts were presented in a similar format of the Council’s and had been submitted to the SRS Joint Committee for approval recently.  The VVCAS Accounts were smaller and less complex and had been prepared by the Council and signed by the Section 151 Officer.  These had also been reported to the Joint Committee for approval.

 

The Principal Accountant also referred to other aspects of the report and touched upon specific aspects in relation to the budgets to the Accounts; Joint Committees and Trust Funds in regard to Trust Funds relating to Welsh Church Act Estates and the former Cowbridge Comprehensive School Sixth Form site. 

 

General discussion ensued with a Member referring to the complexity of the report and associated appendices and whether the public would be capable of understanding its content.  He also suggested that when presenting future reports on this subject it would be helpful to Members to receive a presentation including graphs to assist Members’ better understanding of the issues under consideration.  He also sought clarification as to why there had been an increase in employees’ expenses, but also a reduction in services’ funding.  In response, the Principal Accountant was unable to provide an explanation and accordingly, the Chairman required a response on the query to be provided to Members of the Committee by e‑mail.

 

Another Member, in referring to the amount of reserves the Council held as set out in the Movement in Reserves Statement 2015/16 when compared to the reserves stated for the period 2016/17, enquired of the reason for the difference.  The Principal Accountant indicated that it was likely to do with the funding of the Council’s Capital Programme, however she would send an e-mail to the Members of the Committee clarifying the position.  The same Member also referred to exit payments and the reasons for the high levels and alluded to death in service payments.  The Principal Accountant clarified the position and confirmed that death in service payments were payments made through the Pensions Fund.  Exit packages were incurred in the financial year they were paid out.

 

Further discussion ensued with the Chairman suggesting that the Committee should be provided additional development and training to increase their knowledge and understanding of such matters and further alluded to the production of a glossary of terms.

 

A Member also made reference to Post Retirement mortality information contained within the report and sought clarification as to how the mortality assumptions were based.  The Principal Accountant and the representative of the WAO confirmed that the information was based on that provided by the Actuary and assumptions relating to pension liability and reasonableness.  The WAO representative also acknowledged Members’ comments regarding the complexities of the accounts and reporting requirements.  This was due to CIPFA guidance and was unlikely to change in the future. 

 

Finally, a Member referred to the monitoring arrangements of interest rates as set out on page 74 of the accounts.  The Principal Accountant indicated that loans secured by the Council were based on fixed interest rates with the Council borrowing internally wherever feasible.  Biannual meetings were held with the Council’s external financial advisors to monitor the position. 

 

Having regard to the contents of the report and the above discussions, it was

 

RECOMMENDED –

 

(1)       T H A T the unaudited Vale of Glamorgan Council Statement of Accounts for 2016/17 be reviewed and any comments of the Committee be referred to the Head of Finance as Section 151 Officer for subsequent discussion with the Council's external auditors, Wales Audit Office.

 

(2)       T H A T the unaudited Joint Committee Shared Regulatory Services Statement of Accounts for 2016/17 and the Shared Regulatory Services Annual Governance Statement be reviewed and any comments of the Committee be referred to the Head of Finance as Treasurer of the Joint Committee for subsequent discussion with the external auditors, Wales Audit Office.

 

(3)       T H A T the Annual Return for the Vale, Valleys and Cardiff Regional Adoption Service 2016/17 be reviewed and any comments of the Committee be referred to the Head of Finance as Treasurer of the Joint Committee for subsequent discussion with the  external auditors, Wales Audit Office.

 

Reasons for recommendations

 

(1)       To allow for the initial review of the unaudited Vale of Glamorgan Council Statement of Accounts by those charged with governance.

 

(2)       To allow for the initial review of the unaudited Shared Regulatory Service Statement of Accounts and Annual Governance Statement by those charged with governance.

 

(3)       To allow for the initial review of the unaudited Valleys, Vale and Cardiff Regional Adoption Service Annual Return by those charged with governance.

 

NOTE:Councillor Dr. I.J. Johnson spoke on the above matter with the consent of the Committee.

 

 

209     2017/18 QUARTER 1 – OUTTURN REPORT APRIL TO JUNE 2017 (OMA / HOA) –

 

Attached at Appendix A to the report was the quarterly extract from the Management Information System which provided the necessary detail on the jobs raised, the budget days allocated and highlighted those jobs closed for the period with the corresponding opinion. 

 

The following table showed an analysis of the days delivered against the Plan by Directorate:

 

Directorate

2017/18

Audit Plan

Year

Quarter 1

Budget days

Expected

Quarter 1

Actual days

Delivered

Managing Director / Resources

315

79

60

Social Services

130

32

17

Environment and Housing

150

38

24

Learning and Skills

130

32

7

Cross Cutting (including Fraud and Error)

420

105

111

TOTALS

1,145

286

219

 

The figures showed that 219 actual days had been achieved, which was less than expected by 67 days.

 

As at 1st April, 2017 the overall structure of the Section continued to be based on 18 Full Time Equivalents (FTE), of which the Section was carrying nine vacant posts at present.

 

Nine reviews had been completed so far, all of which were closed with substantial or reasonable assurance.

 

Based on the work undertaken so far it was too early in the year to provide an overall opinion, however, nothing had come to my attention that would cause me serious concern.

 

The Head of Finance referred to the number of vacancies currently held on the section’s staff establishment and this had consequently had an impact on the actual audit days delivered.  A Member, in referring to the number of vacancies held within the section, sought an assurance that the higher risk rated projects would be prioritised.  In response, the Head of Finance indicated that this was so, with the situation being monitored on a regular basis.

 

The Chairman referred to the information set out in paragraph 5 of the report and enquired of the views of the WAO regarding the introduction of RAG indicators for these matters given the use of such elsewhere in the Council for its performance reporting processes.  In response, the WAO representative indicated that it was unlikely that RAG indicators were needed and given that the situation was being monitored they were satisfied that the Council could give an overall audit opinion on its activities. 

 

Having regard to the contents of the report and to the above, it was

 

RECOMMENDED – T H A T the Internal Audit Shared Service delivery of work against the 2017/18 Annual Audit Plan be noted.

 

Reason for recommendation

 

In acknowledgement of progress made to date in delivering the Plan.

 

 

210     AUDIT COMMITTEE – FORWARD WORK PROGRAMME (OM / HOA) –

 

The Committee reviewed the proposed Forward Work Programme for 2017/18.  The Head of Finance indicated that the Programme was open to Members of the Committee to add items.  She also indicated that two items contained within the Work Programme had been considered by the Committee at its last meeting held on April 2017. 

 

A Member referred to the Grenfell fire incident that took place the previous month and enquired if the Council was exposed to any risk / liability.  In response, the Leader indicated that the Council had taken appropriate measures.  The Chairman enquired of the WAO if they had any views on the subject.  In response, the representative of the WAO indicated that they had not looked specifically at the matter, but any liability would need to be considered and taken into account in respect of the Council’s accounting arrangements.  It was likely that the subject would be raised regarding potential liabilities to the Council.

 

Having regard to the report, it was

 

RECOMMENDED – T H A T the proposed Forward Work Programme for 2017/18 be approved.

 

Reason for recommendation

 

To report the proposed Work Programme for approval.

 

 

211     AUDIT COMMITTEE – INTERNAL SHARED SERVICE CHARTER 2017/18 (OMA / HOA) –

 

The Internal Audit Shared Service Charter for 2017/18 was set out at Appendix A to the report and had been reviewed / amended following comments received as part of the External Assessment and to ensure it continued to reflect the requirements of the Public Sector Internal Audit Standards (PSIAS).  Any amendments, if applicable, had been highlighted by tracked changes.  Approval of the Charter was required by the Audit Committee.

 

The Chairman, in referring to the contents of Appendix A and in particular to the Standards referred to in the document, suggested that a glossary of terms should be added to the document to provide better understanding for Members when they were considering the information.  In response, the Head of Finance acknowledged the point and indicated that such a glossary of terms would be added to the document. 

 

RECOMMENDED – T H A T the Internal Audit Shared Service Charter for 2017/18 be approved.

 

Reason for recommendation

 

To allow for the approval of the Charter for the period 2017/18 so as to ensure compliance with the PSIAS.

 

 

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