Minutes of a meeting held on 28th November, 2017.
Present: Councillor M.R. Wilson (Chairman); Councillor L.O. Rowlands (Vice-Chairman); Councillors G.D.D. Carroll, Mrs. P. Drake, V.P. Driscoll, S.J. Griffiths, Dr. I.J. Johnson and Mr. P. Lewis (Lay Member).
Also present: S. Wyndham (Wales Audit Office).
485 MINUTES –
RESOLVED – T H A T the minutes of the meeting held on 20th September, 2017 be approved as a correct record.
486 DECLARATIONS OF INTEREST –
No declarations were received.
487 CORPORATE RISK REGISTER QUARTER 2 UPDATE (MD) –
Members received a presentation from the Head of Performance and Development on the Council’s new approach to Risk Management. During the course of the presentation, Members made a number of comments in regard to the methodology applied to evaluating risk.
The Chairman, given the comments made and with the agreement of the Committee,
RESOLVED – T H A T the report be deferred to the next meeting.
Reason for decision
To allow Committee to receive an appropriate briefing on the new arrangements.
488 EARLIER CLOSEDOWN OF ACCOUNTS (MD) –
The report sought to apprise the Committee of revised governance details relating to changes to the statutory deadlines for the production and audit of the Council’s Statement of Accounts.
The Principal Accountant referred to the statutory arrangements relating to the Accounts and Audit (Wales) Regulations 2014 (as amended) and the current responsibilities of the financial officer of a Local Authority who was required to certify that the Statement of Accounts gave a true and fair view of the financial position of the year to which they related, by no later than 30th June, immediately following that year which would then allow the Statement to be published no later than 30th September which would include the Auditors’ Opinion and Certificate.
There were a number of disadvantages with the current statutory timetable which had been identified by Welsh Government and related to the following:
- local government bodies published their Statements of Accounts later in the year than most other parts of the public sector;
- the accounts of local government bodies constituted a significant component of the UK-wide Whole of Government Accounts and the current local government timetable was considered to be one of the barriers to HM Treasury bringing forward the publication date of those accounts; and
- the equivalent regulations which applied to English Local Authorities would bring forward the dates for the preparation and publication of statements of accounts for the financial year beginning in April 2017. This would provide further disparity between the timetables for local government bodies in England and Wales.
The Committee was informed that the Accounts and Audit (Wales) Regulations 2016 amended the previous timetable so that the final date on which the responsible financial officer must sign and date these Statements of Accounts would be brought forward from 30th June to 31st May. The above Regulations also proposed that the date that the Local Authority must consider, approve and publish an audited Statement of Accounts would be brought forward from 30th September to 31st July and consequently the revised timetable will be implemented for the financial year ending on 31st March, 2021. The Principal Accountant also referred to the Authorities that had already moved to the new arrangements and referred to Pembrokeshire and Torfaen Councils.
During the intervening period, interim arrangements would be put in place for the financial years ending on 31st March, 2019 and 2020 to allow for the Statement of Accounts in those financial years to be signed and dated by the responsible financial officer by 15th June with an audited Statement of Accounts published by 15th September. This approach would provide the flexibility to identify and resolve any issues ahead of full implementation and further sought to reduce pressure on the audit process during the transition to the new timetable of arrangements.
In addition to the Council’s proposals to set a timetable for 2017/18 that would bring the completion of the draft Statement of Accounts forward by two weeks to the middle of June, the Accountancy team would also be working on a number of actions and engaging where appropriate with the Council’s External Auditors and the Council’s partners to take a number of actions as detailed below:
- review of deliverables required for External Audit and the preparation of and content of working papers;
- Increase the level of Accountancy resource engaged in the preparation of the Statement of Accounts to enable more informed quality assurance and improve throughput;
- regular meetings with the External Auditor to discuss emerging issues;
- increase scale of External Audit review at interim audit stage prior to preparation of the final accounts;
- review of what calculations could be carried out on a part year basis or closed based on an estimate e.g. depreciation charges.
- identification of critical activities and determination of any actions that could be taken to build in additional capacity in the process. For instance in respect of year end valuations which often cause delays in the closure process engaging with the valuers in the next few months with regard to provision of data earlier in the closing process based on estimates and sense checking the results once actuals were known;
- review of the profile of asset valuations carried out as part of the Council's rolling five year programme of valuation;
- early preparation for proposed accountancy code changes in 2018/19 and 2019/20;
- engagement with internal departments to prioritise the provision of information as part of the closing process, e.g. Human Resources, Council Tax, NNDR, Housing Benefits, Property, Schools to ensure that data was provided in a timely manner to feed into the final accounts;
- engagement with partners e.g. Cardiff and Vale Pension Fund, other Joint Committee host Authorities, External Valuers to ensure that they received the data that they required and that the information the Council required was received in the correct format in a timely fashion to feed into the Council's accounts; and
- early preparation for substantial change to the content of the Statement of Accounts when the proposed Local Authority Trading Company for Catering takes effect in 2018/19 which would require a move to Group Accounts.
- The section continued to learn about this new process and best practice through the attendance of appropriate officers at meetings such as the Society of Welsh Treasurers and WAO Good Practice Exchange events.
The Accountancy structure and inter-relationships with regard to the above arrangements were detailed at Appendix B to the report.
A Member referred to those Councils which had already moved to the new arrangements and enquired if any lessons learned had been shared in terms of best practice and impact on the accuracy of the Accounts. The Principal Accountant referred to the resources available to both Councils (Pembrokeshire and Torfaen) which had allowed an early closedown to be undertaken and in regard to learned best practice, as examples she alluded to the setting of early deadlines for invoice in putting and dealing with depreciation.
In terms of the degree of accuracy, she indicated that it was likely that there would be an increase in unadjusted errors, but small in scale. The current financial year would be used for fact finding before moving towards new arrangements.
Mr. Wyndham echoed the views of the Principal Accountant and suggested the Council’s approach was prudent. In regard to uncorrected misstatements as long as these were not material, this should not affect the Audit Opinion. He further suggested that the work of the Committee aligned itself to ensure necessary approval of the Council could be obtained in a timely manner.
The Chairman referred to WG and CIPFA approval of the new arrangements and enquired if both had agreed a system for “smoothing out” the delivery of the same given the many complexities involved.
In acknowledging the point, Mr. Wyndham referred to NHS process for dealing with their own arrangements which were heavily templated and less complex. It was unlikely that the approach would change under the new arrangements given these were statutory.
The Lay Member enquired if the proposed changes had been communicated to all stakeholders involved, internal and external. The Principal Accountant confirmed that measures were in hand to ensure the relevant processes were aligned to ensure information was provided within an agreed timetable.
RESOLVED – T H A T the changes to the statutory deadlines and the approach proposed by the Council’s Section 151 Officer to addressing those changes be noted.
Reason for decision
In acknowledgement of the Committee’s responsibility in regard to governance and to make the Committee aware of the changes to the statutory deadlines and the steps that the Council and appointed External Auditors would be taking to address the associated changes.
489 UPDATE ON STAFF VACANCIES WITHIN THE INTERNAL AUDIT SHARED SERVICE (HOF / S151O) –
The Committee had received a number of updates to its previous meetings in relation to the currently staffing issues within the above service.
Having regard to the Committee’s concerns expressed at the last Audit Committee held in September and as agreed, the Committee would be updated specifically on the current staff vacancies within the Shared Services.
The Head of Finance indicated that the number of vacancies within the Shared Services had increased steadily year on year to the position of 9.5 FTE vacancies based on the old structure. Despite a number of recruitment campaigns, the service had not been successful in attracting the right calibre of staff. It had also been necessary to undertake a restructure of the existing service for a number of reasons as detailed below:
- the existing structure had been in place since the Joint Shared Service Agreement was established in February 2013;
- recruitment campaigns had been unsuccessful;
- the Public Sector Internal Audit Standards placed a requirement on the Head of Audit to ensure that "internal audit resources are appropriate, sufficient and effectively deployed to achieve the approved plan". Furthermore, the Head of Audit must ensure that all its internal auditors at all levels within the structure possess the knowledge, skills and other competencies needed to perform their individual responsibilities;
- Local Government, and therefore the role of audit, had changed considerably over the last five years. In addition, with the continuing requirement to work collaboratively with other Local Authorities, and indeed to provide services in a different way, had meant that the way in which audit was functioning now and would have to function in the future was changing rapidly. This meant that staff within the service would require broader skills and a more commercial outlook with regard to the Service that they would audit.
As reported previously to the Committee, the new staffing structure had become effective from 1st October, 2017, reducing the number of full time posts from 18 to 14 and consequently the number of vacancies held by the Service had reduced to 6.5 FTEs. The report detailed the differentials between the old and new structures for the benefit of the Committee’s consideration.
Having restructured the Service, the Head of Finance indicated it was unclear whether the changes made would have a positive impact on the Service’s ability to attract the right staff to the vacant posts. As reported previously to the Committee, the number of vacancies had had an impact on the Service’s ability to deliver the planned audit days and in order to address the anticipated shortfall, the South West Audit Partnership had been commissioned to undertake a number of audit reviews on behalf of both of the Councils, the cost of which would be met from within existing budgets. She also alluded to discussions which were currently taking place with other Councils regarding the feasibility of extending partnership working with the view to providing greater service resilience etc. Responding to a Member’s question regarding the time factors for a decision to proceed to extend partnership arrangements, the Head of Finance indicated that any decision would need to be made quickly so as not to delay recruitment to the new structure. The Chairman suggested that the matter be resolved prior to the Christmas holidays. The Head of Finance confirmed that this would be the case.
A Member referred to the budget savings as a result of the restructure and what this would be. The Head of Finance indicated that she did not have the exact figure to hand but would e-mail the Committee with the answer.
In the light of the current capacity issues affecting the Shared Services and its ability to meet the number of days to deliver activities within the Internal Audit Plan for 2017/18, it was
(1) T H A T the position in regard to the current staffing issues within the Internal Audit Shared Service be noted.
(2) T H A T the Chairman write to the Leaders of both Councils highlighting the Committee’s concern regarding the level of vacancies experienced in the Internal Audit Shared Service.
Reasons for decisions
(1) In acknowledgement of action taken to address the current staffing issues within the above Service.
(2) To expedite recruitment to the staff establishment.
490 INTERNAL AUDIT – OUTTURN REPORT – APRIL TO OCTOBER 2017 (OMA / HOA) –
The Committee was informed of the actual Internal Audit performance in regard to activities contained within the 2017/18 Internal Audit Plan and for the above stated period.
The Head of Audit referred to Appendices A and B of the report for the consideration of the Committee which detailed (including the Head of Audit’s seven months position report) the work undertaken by the Internal Audit Service so far this year, but did not include the work planned to be undertaken by the South West Partnership.
The undermentioned table details an analysis of work done in relation to the Plan (1,145 available days):
Apr to Oct 17
Apr to Oct 17
Managing Director / Resources
Environment & Housing
Learning & Skills
Cross Cutting (including Fraud & Error)
The above showed that 463 actual days had been achieved, which represented a shortfall of 205 days. As reported in an earlier report in the agenda considered by the Committee, this was due to the number of staff vacancies within the Service.
The opinion contained within the report at Appendix A related to the system of internal control at the Council and the overall control environment in place. Set out within Appendix B to the report was the supporting evidence which listed all those assignments which had been commenced / completed during the above period and where an assignment had been completed; an audit opinion had been applied.
A total of 28 reviews had been completed to date, 19 (68%) of which had been closed with either a substantial or reasonable assurance opinion level; 5 (18%) of the reviews completed had identified weaknesses in the internal control environment to such an extent that the overall audit opinion was limited. Of the remaining four reviews (14%), although necessary, they did not culminate in an overall audit opinion. The Committee noted that of the five reviews where weaknesses had been identified, two were as a result of specific investigations.
In terms of internal control weaknesses identified during the period, excluding those subject to a special investigation, related to the following areas:
E-Procurement Review – The Council had entered into a Memorandum of Understanding with the Welsh Government covering the use of the E-Bravo electronic procurement system and the Basware (previously known as ProcServe)
E‑Bravo was a standalone system that could be used to run tender exercises. E‑Bravo was similar to the Sell2Wales system currently in operation; however, E‑Bravo offered additional functionality through its contract management facility which went beyond just tendering. Basware was an electronic trading tool that allowed streamlining and simplification of access to all available National Procurement Service (NPS) Framework Agreement catalogues and frameworks. In using Oracle iProcurement as the front end, it would allow for the purchase and payment of goods electronically via Basware.
As a result of the audit review the following has been identified:
Several issues had led to desired timescales not being met. During the course of the audit, the Auditor formed the following conclusions as to these issues:
- the integration between Basware and Oracle required greater resources than was initially anticipated;
- there was a delay in installation of required software whilst awaiting the set-up of new hardware;
- there had been a lack of cohesion between stakeholders across the Managing Director and Resources Directorate in bringing the project to fruition;
- the project had suffered a lack of momentum with project staff only able to carry out duties when their day-to-day tasks allowed the opportunity;
- no exception reports had been created during the project;
- there was a lack of governance arrangement in place to cover the project following completion; subsequently there was a lack of accountability at both strategic and operational levels;
- there was no clearly identifiable plan for the day-to-day running of the new procurement systems.
Six recommendations for improvement had been made which management had agreed and an action plan had been put in place to address the issues.
Leasehold surveys – earlier control weaknesses in regard to the record management of surveys had been identified. This work was to review the new procedures that had been formulated. However at the time of the review, although developed, the new procedures were in the early stages of implementation and therefore substantial testing could not be undertaken. Therefore it could not be demonstrated that these would address and mitigate the control weaknesses that had previously been identified.
In regard to audit recommendations during 2017/18 and for the seven month period, Internal Audit had made a total of 25 recommendations, of which management had given a written assurance that all would be implemented.
Internal Audit – Performance
The Section participated annually in the Welsh Chief Auditors Group benchmarking exercise. The results for 2016/17 had been received and are shown below. It was disappointing to report that only 10 of the 22 Welsh Authorities responded, representing 45%.
Performance Indicator 2015/16
IASS Performance for the Vale
Overall WCAG Average Performance 2016/17
IASS Performance for the Vale
Overall WCAG Average Performance 2015/16
Percentage of Planned Audits completed
Number of Audits completed
Percentage of Audits completed in Planned Time
Percentage of directly chargeable time, actual versus planned
Average number of days from Audit closing meeting to issue of draft report
% of staff leaving during the Financial Year
* The whole of the Shared Audit Service
In relation to the overall governance arrangements, one of the main issues raised and highlighted over the last few years had been the ability of the Council to carry on meeting its service objectives and delivering positive outcomes for its customers and clients in the light of continued reductions in Welsh Government Funding.
The Council recognised that it was facing unprecedented challenges with continuing year on year reductions in Council funding and the impact this had on the services delivered. At the same time the Council was dealing with increasing expectations and demands on services. The Council had already identified approaching £45m in savings since 2010, yet the challenges continued. With diminishing funding impacting on how the Council delivered its services, embarking on an ambitious programme of transformational change made planning for the future difficult.
The Council addressed this by undertaking regular Budget reviews and putting in place a financial strategy for the Council which presently ran until 2018. The purpose of this was to ensure:
- a sustainable budget was achieved within predicted funding levels;
- the budget was aligned to the Council’s priorities as set out in the Corporate Plan;
- best value for money was being obtained, i.e. identifying efficiency savings, opportunities for income generation and better use of external grants; and
- collaborative initiatives and options for alternative service delivery were considered.
Separate financial strategies had been established for funding education and schools, social services and other services having regard to the relative risks and priorities of each. In total over the next three years to 2018-19 savings of £20.941m minimum would need to be achieved. In accordance with the financial strategies agreed, savings targets together with areas for savings had been identified. In addition, the Council continued its Reshaping Services programme in order to fundamentally review the need for and methods of service delivery across all Council services. In future years a higher proportion of the required savings would have to be found through the programme and a number of specific services had been identified in two tranches for delivery from this Financial Year onwards. Further work would be required to ensure that all necessary action had been taken to mitigate any potential impact upon service delivery and clients e.g. consultation and scoping / completion of equality impact assessments.
The Head of Audit’s Annual Opinion report was presented to the Audit Committee at the meeting held on 24th April, 2017. Based on the work carried out during 2016/17, the overall opinion was that the Council’s framework of governance, risk management and internal control was satisfactory. Significant issues had been identified during 2016/17 relating to Waste Management. However, as a consequence of the significant amount of work undertaken, which was fully supported by Corporate Management Team, to address the governance issues, this was no longer considered to be a significant risk. Contract Management across the Council was included in the 2017/18 Audit Plan to ensure that the control environment remained robust.
In addition to these areas the challenge from an audit perspective, as recognised by corporate and senior management, continued to be the financial context in which the Council was required to operate. The impact of delivering the further programme of savings would be substantial, impacting on all areas of the business and was predicated on a range of reasonable, but ambitious, assumptions. There had been extensive planning and ongoing consultation on the budget proposals and efficiency targets had been set out in Directorate Plans and encompassed within the Council’s Reshaping Services programme. Whilst the Council was well placed to respond to this challenge, and the Section 151 Officer was of the opinion that the savings whilst extremely challenging were achievable, the scale and pace of required change continued to remain a fundamental risk. Of significant issue for the Internal Audit Shared Service was the current lack of resource and this was having an impact on the 2017/18 Audit Risk Based Plan. The current structure for the Shared Service had recently been reviewed and although the staff numbers had been reduced, the number of senior posts had been increased. The purpose of this was to ensure a more resilient service moving forward which would not only meet the requirements of the Public Sector Internal Audit Standards, but also the changing environment in which the Council operated.
Internal Audit was very mindful of the fact that in a Council of this size and complexity, with its significant savings requirements, there was an inherent risk of breakdown in the systems of control particularly where roles, responsibilities and systems were changing. As the Council continued to experience reduced resources, increased demands on services and new and innovative forms of service delivery there was a need to ensure that the Council’s control environment remained robust, proportionate and was as efficient and effective as possible.
In the context of a new staffing structure and the number of actual days delivered as detailed in the report, a Member enquired as to how decisions were made to prioritise audit work and what percentage of days would be required to be delivered by the year end to provide satisfactory assurance. The Operational Manager for Audit indicated that this would be based on an assessment of Risk for example, priority areas would be safeguarding Joint Services etc. In acknowledging the challenges and demands on the service, she was confident that she would be in a position to give an assurance by the financial year end.
RESOLVED – T H A T the report be noted.
Reason for decision
In acknowledgement of the Committee’s responsibility for oversight of matters contained within the related Plan.
491 COUNTER FRAUD FRAMEWORK – FRAUD RISK ASSESSMENT (OMA / HOA) –
Set out for the Committee’s consideration were the results of the Counter Fraud Framework review (incorporating the Fraud Risk Assessment) which assessed how well the Council acknowledged the risk of fraud and how it prevented, detected and pursued monies or assets obtained fraudulently.
Following a desktop review which had been undertaken as part of the Audit Plan for 2017/18 to provide both the Council’s Corporate Management Team and the Audit Committee with assurance of the robustness of the Council’s Counter Fraud Framework, including an assessment of Fraud Risk. The content of the review and assessment were set out in Appendices A and B to the report. The review had identified that whilst the Council’s current arrangements were good, there were areas where the control framework could be improved and related to the following matters:
- the need for a comprehensive Fraud Response Plan;
- whether the resource was sufficiently robust to tackle fraud risks and investigate suspected and known fraud;
- the lack of training across the Council specifically dedicated to the Fraud Framework;
- the lack of a central register and therefore hindering the ability to identify trends.
A Member, in referring to the results of the review, enquired of the timetable for implementing its findings. He also enquired of the effectiveness of the Council’s Whistle Blowing Policy. The Operational Manager (Audit) indicated that subject to the Corporate Management Team’s consideration, it was anticipated before the end of the financial year. She further confirmed that the Whistle Blowing Policy was effective.
The Chairman referred to the Review findings regarding the training of staff and suggested that this should be progressed as soon as practicable.
Having regard to the above, it was
(1) T H A T the content of the review and assessment, including those actions identified to be taken forward, be endorsed.
(2) T H A T the delivery of the Action Plan be added to the Committee’s Work Programme and that a further update report on the subject be submitted to the Committee.
Reason for decisions
(1&2) In acknowledgement of the work undertaken to facilitate the monitoring of the Council’s Internal Audit Shared Service and to ensure it remained compliant with the Public Sector Internal Audit Standards.
492 UPDATE ON EXTERNAL ASSESSMENT – INTERNAL AUDIT SHARED SERVICE (OMA / HOA) –
As reported previously to the Committee, a review of the Internal Audit Shared Service by way of an external assessment had been completed in January 2017 and resulted in the production of an Action Plan which took account of the assessor’s 18 recommendations and a further ten suggestions for improvement.
The Action Plan previously endorsed by the Audit Committee at its meeting on 24th April, 2017 was set out at Appendix A which detailed progress made against the recommendations and improvements since previously reported. All the recommendations, with the exception of four, had been completed (R6, R12, R13 and R14). As for the suggestions for improvement, five had been completed and four were ongoing (S5, S7, S8 and S9).
In regard to S10, the Operational Manager (Audit) indicated that this proposal had not been accepted as the Service was in the position to demonstrate that it had measures in place already to deal with the subject. A Member suggested that given the ability had been demonstrated, S10 should be recorded as completed.
Having regard to the contents of the report, it was
RESOLVED – T H A T the progress made to date in delivering the external assessment Action Plan as set out in the report be noted.
Reason for decision
In acknowledgement of the Committee’s responsibility for monitoring the Council’s Internal Audit Shared Service and to ensure it remained compliant with the Public Sector Internal Audit Standards.
493 AUDIT COMMITTEE – FORWARD WORK PROGRAMME (OMA / HOA) –
Consideration was given to an updated Forward Work Programme for 2017/18 which had been previously approved by the Committee at its meeting held in April 2017.
RESOLVED – T H A T the updated Forward Work Programme for 2017/18 in regard to the Audit Committee be noted.
Reason for decision
To apprise the Committee of any changes to its Forward Work Programme.