AUDIT COMMITTEE

 

 

MINUTES of a meeting held on 14th May, 2007.

 

Present:  Councillor N.P. Hodges (Chairman); Councillor J. Clifford, A.D. Dobbinson (Vice-Chairman); Councillors Ms. L. Burnett, E. Hacker, Mrs. M. Kelly Owen and C.L. Osborne.

 

Also present:  Richard Harries of the Wales Audit Office.

 

 

1120               MINUTES -

 

RECOMMENDED - T H A T the minutes of the meeting held on 29th January, 2007 be approved as a correct record.

 

 

1121               DECLARATIONS OF INTEREST -

 

No declarations were received.

 

           

1122               CODE OF PRACTICE FOR INTERNAL AUDIT IN LOCAL GOVERNMENT IN THE UNITED KINGDOM 2006 (DFICTP) –

 

Audit Committee were informed of the revised Code of Practice for Internal Audit as published by the Chartered Institute of Public Finance and Accountancy (CIPFA) and under which the Vale of Glamorgan Council’s Internal Audit Section operates.

 

The 2006 Code defined the way in which the Internal Audit service should undertake its functions.  It consisted of 11 standards together with a checklist for compliance with the Code.

 

·                    Standard 1            Scope of Internal Audit

·                    Standard 2            Independence

·                    Standard 3            Ethics for Internal Auditors

·                    Standard 4            Audit Committees

·                    Standard 5            Relationships

·                    Standard 6            Staffing, Training and Continuing Professional Development

·                    Standard 7            Audit Strategy and Planning

·                    Standard 8            Undertaking Audit Work

·                    Standard 9            Due Professional Care

·                    Standard 10            Reporting

·                    Standard 11            Performance, Quality and Effectiveness

 

In order to assist the Committee in discharging its obligations under the Constitution, and to facilitate the monitoring of the internal audit function to ensure that a continuously effective level of performance is maintained, compliance with the 2006 Code of Practice for Internal Audit was mandatory.

 

A checklist was included as an appendix to the Code, which offered the Head of Internal Audit – Operational Manager – Accountancy and Audit to measure the service provision against the standards within the 2006 Code.  It was suggested that the results of this review be used as part of the annual internal report to those charged with governance to demonstrate compliance with the Code and identify any areas for further action.

 

Attached at Appendix A to the report were the results of the self-assessment of the Vale of Glamorgan Council’s Internal Audit Section against the checklist.  Committee noted that with the exception of three minor non-compliances and one minor partial compliance score, overall the Section had achieved 97.68% compliance with the Code.  Such compliance would be subject to a separate annual review by the Wales Audit Office.

 

The areas identified where action was required had already been addressed, thus ensuring adherence to the Standards.

 

RECOMMENDED –

 

(1)       T H A T the adoption of the standards contained within the Code of Practice for Internal Audit in Local Government in the United Kingdom 2006 by the Vale of Glamorgan Council’s Internal Audit Section be endorsed.

 

(2)       T H A T the results of the self-assessment checklist and the overall compliance of the Section with the 2006 Code be noted.

 

Reasons for decisions

 

(1)       To facilitate monitoring of the Audit Function.

 

(2)       To ensure that a continuously effective level of performance is being maintained by the Internal Audit Section.

 

 

1123               INTERNAL AUDIT PLAN ACTUAL OUTTURN 2006/07 (DFICTP) –

 

Committee were informed of actual internal audit performance against the 2006/07 Internal Audit Plan.  The actual position for the financial year 2006/07 compared against the Plan for the year was detailed at Appendix A to the report and showed that 91.5% of the overall original Plan’s time had been achieved.  However, as a result of the Senior Group Auditor being seconded from audit to oversee the Efficiencies Team and the temporary member of staff leaving the section, it had been necessary to revise the operational plan.  This had been submitted to the Audit Committee in January 2007.  It was noted that 99% of the revised Plan’s time had been achieved. 

 

A summary of audits undertaken during the period April 2006 to March 2007 was detailed at Appendix B to the report.  This provided the Committee with details of the reviews completed during the year, together with an overall Audit Opinion for each area.  It was reported that all those areas identified for review during 2006/07 as detailed within the Revised Audit Plan had been covered.

 

Detailed reports had been issued to the relevant service managers on the results of individual audits throughout the year and, where significant weaknesses had been identified, these had been followed up to ensure high priority recommendations had been implemented.  Key financial systems audits prioritised and completed were supplemented with a programme of financial audits in service areas.  Coverage across the Council ensured that all fundamental systems were audited.  This served to assist the Director of Finance, ICT & Property, as Section 151 Officer, in discharging her responsibilities for financial stewardship.  The work of internal audit had also contributed to the preparation of the Draft Statement on Internal Control.

 

Overall, with the exception of the Council’s Leisure Centres and Social Services, the reviews undertaken during the year had not identified any significant weaknesses in the system of internal control.  However, the auditors had continued to closely monitor progress against improvements needed at the Leisure Centres and follow-up reviews had been completed in February 2007 which identified significant improvements in the internal control environment (excluding catering and bars).

 

As a result of the projected overspend within Social Services estimated at £4.7m for the financial year 2006/07, the then Director of Community Services was charged with developing an action plan to identify how spending across Social Services could be reduced in order to deliver a balanced budget for Social Services.  This action plan had been subject to a formal risk assessment by the Audit Committee in accordance with the Council’s Risk management Strategy and as a result, when viewing the action plan as a whole, many of the proposals appeared disparate and lacking any overall strategic direction for this service.

 

Following the subsequent creation of a new Directorate of Social Services in late 2006 and the appointment of an interim manager, the Chief Executive as Acting Director of Social Services had initiated a Change Plan based upon a clear vision and strategy.  In this way the Chief Executive together with Corporate Management Team supported by a Change Plan were focussing on addressing the underlying causes of the budget overspends.

 

Both these areas would be included in the 2006/07 Statement on Internal Control.

 

RECOMMENDED –

 

(1)       T H A T the report on actual internal audit performance during the Financial Year 2006/07 be noted.

 

(2)       T H A T the Operational Manager – Accountancy and Audit and his staff be congratulated on the preparation of the report.

 

Reasons for decisions

 

(1)       To facilitate monitoring of the audit function.

 

(2)       To place on record the Committee’s appreciation of the work of the officers.

 

 

1124               DRAFT STATEMENT ON INTERNAL CONTROL 2006/07 (DFICTP) –

 

The Audit Committee received a draft Statement on Internal Control for review, and were recommended to recommend its adoption by the Leader of the Council and the Chief Executive.

 

The Statement on Internal Control relates to the system of internal control as it applied during the financial year for the accounts that it accompanies.  However, significant events or developments relating to the system of internal control that occurred between the balance sheet date and the date on which the Annual Statement of Accounts is signed by the responsible financial officer should also be reported.

 

Information to be included in the Statement on Internal Control is:

 

·                    an acknowledgement of responsibility for ensuring there is a sound system of internal control;

·                    an indication of the level of assurance that a system of internal control can provide;

·                    a description of the key elements of the internal control environment;

·                    a description of the process that has been applied in maintaining and review the effectiveness of the system of internal control;

·                    an outline of the actions taken, or proposed, to deal with significant control issues.

 

A draft Statement of Control for the 2006/07 financial year relating to the activities of the Council was attached at Appendix A to the report.  It had been drawn up with regard to the Code of Practice on Local Authority Accounting in the UK;  a Statement of Recommended Practice (SORP).  It also had regard to guidance issued by CIPFA in its publication “The Statement on Internal Control in Local Government: Meeting the Requirements of the Accounts and Audit Regulations”.

 

Whilst for 2006/07, the overall system of internal control within the Vale of Glamorgan Council was considered to be satisfactory, the lack of basic financial control within the Council’s Leisure Centres was highlighted as a significant internal control issue in 2005/06.  However, as previously reported to the Committee, the Auditors had continued to closely monitor progress against improvements needed at the Leisure Centres, and the last follow-up reviews had been completed in February 2007 and had identified significant improvements in the internal control environment (excluding catering and bars).

 

Furthermore, of particular concern for 2006/07 were the current budget issues within Social Services.  The trend showed significant expenditure in excess of the allocated base budget with an estimated overspend of £4.7m.  Following the subsequent creation of a new Directorate of Social Services in late 2006 and the appointment of an interim manager, the Chief Executive as Acting Director of Social Services had initiated a Change Plan based upon a clear vision and strategy.  In this way, the Chief Executive together with Corporate Management Team supported by a Change Team (incorporating staff from various departments with technical expertise and experience of managing change) were focussing on addressing the underlying causes of the budget overspends.

 

RECOMMENDED –

 

(1)       T H A T the Draft Statement of Internal Control for 2006/07 be recommended for adoption by the Leader and Chief Executive.

 

Reason for decision

 

(1)       To provide for a review of the system of internal control for 2006/07.

 

 

1125               CHAIRMAN –

 

At this point the Chairman of the Committee left the meeting and Councillor A.D. Dobbinson, Vice-Chairman, took the chair.

 

 

1126               2007/08 OPERATIONAL PLAN AND STRATEGY DOCUMENT (DFICTP) –

 

The 2007/08 Operational Plan and Strategy Document was submitted to Committee for approval. 

 

The formulation of the 2007/08 annual plan of work had been completely revamped to ensure compliance with the Standards as contained within the Code of Practice.  The plan had been based upon six main areas of audit coverage across each Directorate, encompassing “Corporate Governance, Performance Management, Risk Management, Anti-Fraud & Corruption, Assurance and Value for Money”.  The plan outlined the assignments to be carried out, their respective priorities, an estimate of resources needed and differentiated between assurance and other work.  A copy of the plan was attached at Appendix A to the report.

 

In addition, Members considered the Internal Audit Strategy document for 2007/08, a copy of which was attached to the report at Appendix B.  It demonstrated how the internal audit service would be delivered and developed in accordance with the Committee’s 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 Corporate Management Team, External Auditors and senior management. 

 

Members also received a copy of the Operational Plan as extracted directly from the Audit Planning and Control Environment (APACE) management system.

 

Mr. R. Harries of the Wales Audit Office provided an overview of the areas to be covered under the Regulatory Plan.  These included:

 

·                    Audit of the accounts

·                    Performance audit

·                    Inspection work

·                    Audit of grant claims

 

An update on each of the above was provided.  

 

During the course of the deliberations, Members were advised of a proposal by the Auditor General (Wales) that the Wales Audit Office be replaced as the Council’s auditor by a private firm of auditors, although the Wales Audit Office would still be responsible for auditing certain functions of the Council.

 

Members of the Committee expressed disquiet at the proposal in view of the good working relationships that had developed between the Council and the Wales Audit Office.

 

Further details of the proposal were not known at present.

 

Members expressed the desire to be better informed of the rationale behind the proposal, and it was

 

RECOMMENDED

 

(1)       T H A T the 2007/08 Operational Plan and Strategy Document be approved.

 

(2)       T H A T Cabinet be requested to keep the Audit Committee informed of the rationale and developments with regard to the appointment of the Council’s external auditors.

 

Reasons for decision

 

(1)       To facilitate monitoring of the audit function.

 

(2)       To keep the Audit Committee informed of the situation.

 

 

 

1127               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 stated, be considered.

 

 

1128               MAKING THE CONNECTIONS: SHARED SERVICES IN SOUTH EAST WALES (REF) –

 

Urgent by reason of the need to avoid undue delays

 

Cabinet on 9th May was informed of progress to date of a multi-authority project in South East Wales to evaluate the feasibility of sharing certain “back office” and professional support services as part of the “Making the Connections” agenda.  As reported to Cabinet in October 2006, the Connecting South East Wales Board had agreed a project to investigate the potential for sharing various “back-office” functions with a view to releasing resources to invest in frontline services.  The project was due for completion by July 2007 and had been divided into the following three stages:

 

§                Phase 1 - to develop a Strategic Outline Case (SOC) examining seven functional areas with a view to sharing: Payroll and HR; Training; Council Tax and NNDR; Internal Audit; Procurement; ICT; and Debt Recovery;

§                Phase 2 - to develop an Outline Business Case for services with the greatest potential for sharing;

§                Phase 3 - to produce an Outline Implementation Plan for consultation.

 

Phase 1 of the project had now been completed and the Executive Summary and conclusions from the first phase of the Feasibility Study (Strategic Outline Case) prepared by PriceWaterhouseCoopers (PwC) was appended to the report.  It was noted that a full Lessons Learned Review would be carried out at the end of the project but the Steering Group overseeing the project had already identified a number of benefits which had emerged as a result of the work carried out in Phase 1, including:

 

§                recognition of successful shared service relationships and best practice methodology currently undertaken by Local Authorities;

§                improved communications between colleagues, counterparts and Local Authorities through various methods;

§                challenges to current status quos within Councils;

§                embedding of staff skills in the Shared Service sphere.

 

The main conclusions of the Feasibility Study, led by PwC, were appended to the report and were:

 

§                that, even without sharing services, there was scope for improvements and efficiency savings by learning from best practices in South East Wales and elsewhere and standardising and streamlining existing processes;

§                that there was scope for sharing across all seven of the services considered;

§                that the largest scope (i.e. with the greatest potential for improvement in efficiency savings) fell within HR / Payroll including Training, Council Tax / NNDR and Internal Audit;

§                that there was a need for up-front investment in order for savings to be realised in the longer term.

 

The main comments resulting from a consequent consultation exercise related to the accuracy of data.  The Steering Group, having considered that, had concluded that the data was sufficiently robust for a decision to be made about which services should progress to Phase 2.  Phase 2 would then allow further study of a narrower range of services, including a more detailed analysis of data with a view to making that consistent across the Councils involved, before a decision was made on how to progress to Phase 3.  Following a risk assessment carried out by the Steering Group to determine the risks in taking forward each function to Phase 2 - Outline Business Case, the Steering Group accepted that there would be an element of risk in taking forward any shared services option to release benefits.  The functions that presented the lowest risk were identified as Training; Internal Audit; and Procurement, with the two functions identified as having the greatest potential for sharing (Payroll / HR and Council Tax / NNDR) presenting medium and high risk respectively.

 

The recommendations of the Steering Group, as contained in the report and summarised below, had been agreed by the Connecting South East Wales Board on 5th April, 2007:

 

§                proceed to the Outline Business Case (Phase 2), reconfirming the scope for Training and HR and Payroll services with external support;

§                proceed to the Outline Business Case for Internal Audit services;

§                wait for the outcomes and learn the lessons from the North Wales Board Council Tax and Benefits shared services review before proceeding to the Outline Business Case;

§                not to progress the Procurement services project any further until the various national studies were completed;

§                ensure that the ICT Working Group continued to meet to identify opportunities to simplify and standardise current ICT related matters;

§                do not continue to explore the opportunity of sharing Debt Recovery services as part of the project;

§                review the management and delivery of Phase 1 of the project to date in order to learn from the experience;

§                continue to instruct consultants to support the project on Phase 2.

 

As part of the business case, it was noted that the Steering Group would explore the amount of initial investment needed in order to break-even and consider approaches to accelerate the pay-back periods.  It was proposed to conclude Phase 2 by 30th June, 2007.

 

This was a matter for Executive decision.

 

Cabinet had

 

RESOLVED -

 

(1)       T H A T the ongoing work to explore the feasibility of sharing back-office functions with neighbouring Councils be noted.

 

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

 

(3)       T H A T the contents of the report be communicated to staff generally through the Council’s internal communication mechanisms.”

 

Audit Committee, having considered the decisions of Cabinet

 

RECOMMENDED – T H A T the decisions be noted.

 

 

1129               EXCLUSION OF PRESS AND PUBLIC -

 

RESOLVED - T H A T under Section 100A(4) of the Local Government Act 1972, the press and public be excluded from the meeting for the following items of business on the grounds that they involve the likely disclosure of exempt information as defined in Part 4 of Schedule 12A (as amended) of the Act, the relevant paragraphs of the Schedule being referred to in brackets after the minute heading.

 

 

1130               APPOINTMENT OF AUTHORISED OFFICERS (DFICTP) (EXEMPT INFORMATION – PARAGRAPH 14) –

 

Audit Committee received a report which notified of those officers within the Internal Audit Section who were designated as Authorised Officers under the Social Security Administration Act 1992.

 

The appointment of Authorised Officers under the Social Security Administration Act 1992 was necessary to demonstrate a consistent investigation approach for all benefit investigations, across Department for Work and Pensions and local authorities, supporting a professional approach.

 

Either the Head of Paid Service or the Chief of Finance Officer could appoint local authority Authorised Officers.  In addition, authorities were requested to advise the Jobcentre Plus Programme Protection Division Joint Working Unit of Authorised Officer appointments and to notify changes and new appointments as they occurred.

 

The current list of appropriate trained and duly authorised officers for the Vale of Glamorgan Council was listed at Appendix A to the report.

 

RECOMMENDED – T H A T the list of Authorised Officers be noted.

 

Reason for decision

 

To keep the Audit Committee informed.

 

 

1131               PROGRESS REPORT – LEISURE AND TOURISM – FINANCIAL MANAGEMENT OF THE COUNCIL’S LEISURE CENTRES (DFICTP) (EXEMPT INFORMATON – PARAGRAPH 14) –

 

At the meeting of the Audit Committee held on 29th January, 2007, the Committee were provided with background information relating to the financial management of the Council’s Leisure Centres.  Committee were advised of the detailed progress made to date since the matter was last reported to Committee.

 

Members of the Committee felt that the contents of the report to the meeting on 29th January, 2007 raised serious concerns and felt that urgent action was required, and more effective progress needed to be made immediately by the Senior Leisure Management.  As a result, Internal Audit had commenced their follow-up reviews in February 2007 and Committee were provided with an up to date progress report.

 

Reviews were undertaken during the week commencing 5th February, 2007 and were comprehensive in coverage.  A systems based approach was used to record, test, evaluate and report on the controls in place at the six Leisure Centres.  The role of senior management in this process was also reviewed.

 

Notwithstanding the significant improvements that had been made to date, and the commitment demonstrated by individual members of staff, it was clear that the audits continued to identify certain weaknesses.  A number of issues cut across several centres and as a result had adversely affected the overall audit opinion rating.  The most significant area was that of catering and bars.  Once again there appeared to be little or no progress in respect of this area, so much so that it was felt that Senior Management must now take immediate action in relation to the individuals concerned.  At a meeting on 27th April, 2007, Senior Leisure Management gave a commitment in this respect.  The ongoing position with the Leisure Centres would continue to be reflected in the Statement on Internal Control and the remaining issues would be reviewed as part of the 2007/08 Internal Audit Operational Plan until such time as all significant matters had been resolved.

 

RECOMMENDED –

 

(1)       T H A T the contents of the report, together with the significant improvements made to date on the internal control environment within the Council’s Leisure Centres be noted.

 

(2)       T H A T, in the event of the follow-up audit revealing that certain weaknesses still persisted, the relevant officers be instructed to appear before the next meeting of the Audit Committee.

 

Reasons for decisions

 

(1)       To keep the Audit Committee informed and ensure that the background and reasons relating to the financial management of the Council’s Leisure Centres have been fully considered by the Audit Committee.

 

(2)       To provide an opportunity for members of the Audit Committee to seek explanations from the relevant officers.