Minutes of a meeting held on 21st September, 2016.
Present: Councillors J.C. Bird, J. Drysdale, C.J. Williams, M.R. Wilson and Mr. P.R. Lewis (Lay Member).
Also present: Mr. A. Veale and Mr. S. Wyndham (Wales Audit Office).
349 APOLOGIES FOR ABSENCE -
These were received from Councillor K. Hatton (Chairman) and Councillor Mrs. P. Drake.
350 MINUTES -
RESOLVED - T H A T the minutes of the meeting held on 27th July, 2016 be approved as a correct record.
351 DECLARATIONS OF INTEREST -
No declarations were received.
352 AUDIT OF THE 2015/16 FINANCIAL STATEMENT - REPORTING TO THOSE CHARGED WITH GOVERNANCE (MD) -
The Committee received a report of the Auditor General for Wales, following the audit of the Council’s Financial Statement for 2015/16.
The Council was responsible for the preparation of the Financial Statement that presented fairly its financial position as as 31st March, 2016. The Auditor General for Wales was responsible for the reporting whether, in his opinion, this was indeed the case. The audit was undertaken by the Wales Audit Office (WAO), as the Council’s Engagement Lead, on behalf of the Appointed Auditor.
The Statement of Accounts for 2015/16 were prepared by 30th June, 2016, in accordance with the statutory timeframe.
With the audit of these Financial Statements now substantially complete, a report detailing the key matters arising from the audit must be reported by the Auditor General for Wales to those charged with governance, in accordance with the International Standard of Auditing (ISA 260). In line with the terms of reference, the Audit Committee represented the appropriate bodies to which this report must be communicated.
At the meeting, the Committee was provided with an amended version of the Statement of Accounts 2015/16 (Appendix 1) alongside a new document at Appendix 1a which was the Statement of Accounts for the year ending 31st March, 2015. The Committee also received a revised copy of the Wales Audit Office’s Audit of Financial Statements report, issued during September 2016 (Appendix 2).
In presenting the revised documentation, Mr. S. Wyndham of the Wales Audit Office advised that various but not substantial changes had been made to the Wales Audit Office report entitled Audit of Financial Statement Reports. He drew Members’ attention to page 3 and the summary statement which outlined that the Auditor General intended to issue an unqualified audit report on the Council’s 2015/16 Financial Statement, and that there were some issues to report to the Council prior to their approval.
Mr. Wyndham also referred to the status of the audit and he advised that although the audit was substantially complete, the WAO was currently finalising its own review procedures and final checks on the revised Financial Statement. He also outlined that there were four significant issues arising from the audit. The first was in regard to incorrect misstatements which related to contractor retentions which had not been treated as Capital Creditors. The report advised that the Financial Statements did not recognise the contract retention that the Council had withheld from paying the contractors. The aggregate value of these retentions as at 31st March, 2016 amounted to £718,000. In the opinion of the WAO, it was likely that these retentions would eventually be paid to the various contractors and therefore should be recognised in the Financial Statements as a Capital Creditor meaning that the property, plant and equipment balance maybe understated, subject to valuation. This misstatement however had no impact on the Council’s income and expenditure position nor its usable reserves.
The second issue to highlight related to corrected misstatements that had been corrected by management, but which the WAO considered should be drawn to the attention due to their relevance to responsibilities over the financial reporting process. None of these misstatements had had an impact on the Council’s closing year end position or upon its usable reserves.
The third issue highlighted by the WAO was that during the course of the audit, it was considered that there were a number of qualitative and quantitative aspects of the Council’s accounting practices and financial reporting. Mr. Wyndham advised that documentation could have been provided earlier in the audit process, although he advised that these were provided within the necessary timescales.
With regard to the fourth issue, Mr. A. Veale of the Wales Audit Office advised that this related to the completion of the audit of the 2014/15 Financial Statement and one misstatement which also impacted on the audit for 2015/16. The Committee was advised that on 30th September 2015, the appointed auditor provided an opinion on the 2014/15 Financial Statements. However, at the time of providing their opinion, the auditor was unable to certify the completion of the audit due to a number of issues raised by electors that remained outstanding at that date. These matters had now been resolved and had no impact in respect of the Financial Statements or upon the wider responsibility of the Auditor General. On that basis, that these matters were now closed, the WAO now intended to reissue the Audit Opinion for the 2014/15 Financial Statements and certify the completion of the audit.
Furthermore, the WAO audit of the 2015/16 Financial Statement identified a misstatement in regard to the treatment of non-enhancing capital expenditure that had a material impact on both the 2015/16 and 2014/15 accounts. This misstatement required correction within the 2015/16 accounts and, as the Certificate of Completion of the 2014/15 audit had not yet been issued, the 2014/15 accounts. Mr. Veale advised that this specifically related to capital expenditure for the refurbishment of Council housing and related to money spent on items such as new kitchens and new heating systems , which the Council had indicated had not increased the value of the houses. Mr Veale stated that this meant that there was no change to the bottom line figures and there was no need for an increase in Council Tax in order to make up any shortfall.
A Committee Member commented that if this made no material difference why was there need for the readjustment. In reply, Mr. Veale stated that this was down to how the accountancy Code of Practice required authorities to administer their accounts. The Chairman then stated that he was satisfied that there was no real impact and this was a simple accountancy adjustment. He confirmed that he had asked the same question prior to the meeting and it was outlined that the previous auditors, Grant Thornton, had interpreted the Code differently to the WAO.
In querying the impact on the level of reserves, the Committee was advised that the adjustments did not have an impact on the Council’s usable reserves. Mr. Veale referred to the definition within the Code around accountancy which had been formulated by the Chartered Institute of Public Finance and Accountancy (CIPFA) and the WAO had to ensure that all Councils met this Code. The WAO were therefore obliged to report the adjustments. Mr Veale, in providing some context, reiterated his previous point that there was no impact on the level of Council Tax or the Council budget.
A Committee Member in referring to the inability of the auditor to sign off the accounts for 2014/15 stated that as this related to queries raised by members of the public and so was something that was out of the control of the Council he believed that a proviso should have been included saying that the accounts had been closed subject to a number of queries being resolved. In reply, Mr. Veale stated that this indeed was outside the control of the Council and, the ability of the public to review the auditors and ask questions, was a matter of national legislation. The auditor was therefore unable to certify the accounts last year, but did provide a rider stating that the accounts had been audited but not closed.
In response to a query on who scrutinised the Wales Audit Office, Mr. Veale stated that the WAO was subject to scrutiny and the WAO had its own internal audit and was also audited by external organisations. The WAO also reported back to the Finance Committee of the Welsh Government.
In referring the £718,000 withheld in relation to the payment of contractors a Committee Member queried whether there was an element of double counting and in his view the accounts should show a true and fair reflection of the Council’s position and go into more detail where necessary. In reply, Mr. Veale stated that there had been discussion with the Council’s Finance Officers and it was the judgement of the WAO that the retention money would be paid. He also reiterated his previous points that this would not impact on the bottom line figures of the accounts and that the WAO would not reissue a revised statement if this money was not paid.
For the purpose of accuracy, the Committee then raised a number of amendments to the report. The first related to the 2015/16 Statement of Accounts and page 8, 2nd paragraph in which there appeared to be some words missing. A Committee Member also queried whether there was an update in relation to the Corporate Assessment and the findings which had been recently published. The Committee also queried the reference to the Teacher’s Council which had been replaced by the Education Welfare Council and the Committee noted that there was no grant money allocated in relation to this organisation.
Having considered the audit of the Council’s Financial Statements for 2014/15 and 2015/16, it was
RESOLVED - T H A T the report of the Appointed Auditor on the audit of the Council’s Financial Statements for 2014/15 and 2015/16, be approved and the Financial Statement including the final Letter of Representation be recommended for signature by those authorised.
Reason for decision
Following consideration of the results of the audit of the Council’s Financial Statement for 2014/15 and 2015/16.
353 AMENDED ANNUAL GOVERNANCE STATEMENT 2015-16 (MD) -
The purpose of the report was to submit the amended 2015/16 Annual Governance Statement for review and acceptance. At its previous meeting held on 27th July, 2016, the Audit Committee proposed that the draft Annual Governance Statement for 2015-16 be recommended for adoption by the Leader and the Managing Director. As such, both signatures were appended to the draft Annual Governance Statement and appended to the Unaudited Statement of Accounts for the financial year 2015/16.
The Annual Governance Statement (AGS) related to the mechanism used to demonstrate that, during the financial year ending 31st March, 2016, the Council had an adequate governance regime in place and all business was conducted in compliance with the existing arrangements. However, significant events or development relating to the AGS that occurred between the balance sheet date and the date on which the audited Annual Statement of Accounts was presented to those charged with governance should also be reported.
Therefore, the amended AGS for the 2015/16 financial year relating to the activities of the Council was attached at Appendix A. Amendments had been made to reflect the outcome of the Council’s Corporate Assessment and the findings of the annual review of the performance of all Councils in Wales reported by the Data Unit. The amendments could be found under Section 11 - Significant Governance Issues of the AGS (pages 24 and 25).
A Committee Member, in referring to future versions, stated that a large portion of the AGS related to what he considered to be procedural aspects of the Council and that more emphasis should be placed on what was the opinion of the Council by other organisations, along with evidence on how well the Council was performing. He asked whether it would be better whether commentary around the procedural aspects could be moved to an appendix. In reply, the Operational Manager for Audit stated that one thing that needed to be considered for next year, was for the AGS to be aligned to the Council’s Corporate Plan and to the Wellbeing of Future Generations Act. This meant that next year, the Council would produce a much more streamlined document.
Having considered the report the Committee
RESOLVED - T H A T the amendments to the 2015/16 Annual Governance Statement be accepted and appended to the Audited Statement of Accounts for 2015/16.
Reason for decision
Following the review of the governance framework and the system of internal control, which had been in place within the Council for the year ending 31st March, 2016.
354 AUDITED - STATEMENT OF ACCOUNTS 2015/16 (MD) -
The Principal Accountant presented the report, the purpose of which was to advise the Committee of the report of the Auditor General for Wales, following the audit of the 2015/16 Financial Statements of the Shared Regulatory Service and the Vale, Valleys and Cardiff Regional Adoption Service.
The Vale of Glamorgan Council was responsible for the preparation of the Financial Statements that presents fairly the financial position of the Shared Regulatory Services and the Vale, Valleys and Cardiff Regional Adoption Service as at 31st March 2016. Huw Vaughan Thomas of the Wales Audit Office in his capacity as Auditor General for Wales was responsible for reporting whether, in his opinion, this was indeed the case. The audits were undertaken by the Wales Audit Office, as the Council's Engagement Lead, on behalf of the Appointed Auditor.
The Statement of Accounts for 2015/16 was prepared by the 30th June 2016, in accordance with the statutory timeframe and on 27th July 2016, unaudited copies were brought to this Committee.
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 has been completed by Accountancy and Internal Audit. Wales Audit Office provided a limited assurance audit for the service.
With the audit of these Financial Statements now substantially complete, a report detailing the key matters arising from the audits must be reported by Auditor General for Wales. In line with their terms of reference, the Financial Statements of the Shared Regulatory Service and the Vale, Valleys and Cardiff Regional Adoption Service must be approved by their respective Joint Committees and should be signed by their Chairs.
Shared Regulatory Service
The latest 2015/16 Statement of Accounts incorporating all currently agreed amendments was attached at Appendix 1 and the Audit of Financial Statements Report was attached at Appendix 2.
The majority of the audit work was complete and the provisional findings of the Wales Audit Office, on behalf of the Appointed Auditor, was that there were no misstatements identified in the financial statements which remained uncorrected. There were a small number of misstatements that had been corrected by management following discussion between the Wales Audit Office and the Section 151 Officer and were as follows:
IAS19 Pension Fund Actuarial Figures - The IAS19 figures within the Financial Statements and the related disclosures had been amended in accordance with the revised information provided by the Pension Fund actuary to reflect the transfer of staff from the three predecessor Councils to the Shared Regulatory Services Joint Committee.
Employees Emoluments - The Remuneration Bandings table within the Note had been amended to include the fact that individuals received compensation in regard to loss of office. These compensation payments required disclosure within the Note in accordance with the requirements of the Code.
Exit Packages - The number and cost for one of the bandings was amended to reflect the correct basis for compiling the disclosure, in this case including an additional entry to the 0 - £20,000 banding.
It is the intention of the Appointed Auditor to issue an unqualified audit report on the Financial Statements once the relevant Council Officers have provided a signed Final Letter of Representation.
Vale, Valleys and Cardiff Regional Adoption Service
The Annual Return had been amended to include an adjustment for accumulated absences. A copy of the return was included at Appendix 3.
A Committee Member queried plans in relation to scrutiny arrangements of the Shared Regulatory Service (SRS). In reply the Operational Manager for Audit stated that this was oversight and this would be included in the next review report.
Furthermore and in reference to the need for robust scrutiny arrangements, a Committee Member commented that as a result of more joint working and partnership arrangements, the need for more joint scrutiny was a national issue and the Member considered that this was something that the WAO should be pushing. The Member also stated that in respect of the SRS, as the Vale was the host Authority, then in his opinion, either Cardiff or Bridgend Councils should be tasked with leading on the scrutiny side. In reply, Mr. Veale stated that scrutiny arrangements would not be something that the WAO would comment upon, although it would comment on how effective these arrangements were. He added that the joint working arrangements of the SRS were still fairly new and so time was need to allow this new service to ‘bed in’.
Having discussed the need for joint scrutiny of the SRS, the Committee agreed that this was something that needed to be considered by the Democratic Services Committee.
In regard to the SRS pension liabilities, the Committee was advised that this was shared and that there was an agreement in place as to how this was divided up among the three authorities.
Having considered the above the Committee
(1) T H A T the Financial Statements relating to the Shared Regulatory Service and the Vale, Valleys and Cardiff Regional Adoption Service be noted.
(2) T H A T the Democratic Services Committee consider the need for joint scrutiny arrangements of the Shared Regulatory Service.
Reason for decision
(1) To ensure that Members are aware of the results of the audit of the 2015/16 Financial Statements of the Shared Regulatory Service and the Vale, Valleys and Cardiff Regional Adoption Service.
(2) To consider arrangements around scrutiny of the Shared Regulatory Service.
355 INFORMATION AND ACTION REQUESTS (HOF/S151O) -
The report summarised the actions and information requests made by the Audit Committee at its last meeting on 27th July, 2016 and any other items outstanding from previous meetings in respect of the following:
Action / Request
16 Nov 2015
That Committee receive a further report concerning the failure to finalise the contract identified in the Audit Report, such report to recommend procedures that should be put in place to prevent this matter occurring again.
Head of Finance / Section 151 Officer
A further resolution
was made by Committee that:
the Action Plan currently being overseen by the Council’s Corporate Management Team regarding the implementation of a number of recommendations to improve the overall control environment and outcome of the review of the Council’s Contract Management Guidance and Toolkit be brought before a future meeting of the Audit Committee
An update report will be presented to Audit Committee at its November meeting.
16 Nov 2015
That the Operational Manager – Audit provide Members of
the Committee with further information on the potential of the National Fraud Initiative
Head of Audit
A report will be scheduled for the Council’s Audit Committee to consider at a future meeting of the Committee.
Outstanding – due to the number of agenda items for the July Committee. This item has been deferred to November 2016.
22 Feb 2016
That training be arranged for the Members of the Audit Committee and Scrutiny Committee (Corporate Resources) on Treasury Management issues, to include a breakdown of the Council’s debt schedule, and to also include data relating to the Vale of Glamorgan Council and examples of
what could be done to mitigate the Council’s debt repayments.
Head of Finance
This will be arranged for prior to the start of the July 16 Committee Meeting.
Deferred and Scheduled for the November meeting.
RESOLVED - T H A T the summary of actions and information requests, including the status of each as indicated above, be noted.
Reason for decision
In acknowledgement of the Committee’s responsibility for monitoring the Internal Audit Shared Service.
356 AMENDED KEY AUDIT DOCUMENTS (HOF/S151O) -
The Operational Manager for Audit presented the report the purpose of which was to finalise changes that had been made to a number of key documents used by the Internal Audit Shared Service.
Following a review of the Internal Audit Shared Service manual, a number of the associated appendices had been updated. Copies of the revised documents were contained in Appendices A to C.
Attached at Appendix A was the Internal Audit Charter which described the purpose, authority and principal responsibilities of the audit service. The content of the previous Charter had not changed greatly, rather it had been amended in order to align with the Public Sector Internal Audit Standards. Minor additions to the Charter included reference to the Head of Audit as the Chief Audit Executive and the Audit Committee who assumed the responsibility of the Board.
With regard to the Code of Ethics, attached at Appendix B, in accordance with the Internal Audit Charter, all internal auditors were required to confirm that they would work in accordance with the Code of Ethics. The only update required to this document had been to include reference to the Seven Principles of Public Life.
Attached at Appendix C was the amended Quality Assurance and Performance Management document which had been drafted to record in one place the various activities performed by Internal Audit to ensure that the work of Internal Audit was being controlled at each level of operation to ensure continuously effective levels of performance.
RESOLVED - T H A T the amendments to the key audit documents be approved.
Reason for decision
Following consideration of the key documents presented to Committee.
357 AUDIT - FORWARD WORK PROGRAMME (HOF/S151O) -
The Committee reviewed the updated Forward Work Programme for 2016/17 which had previously been approved by the Audit Committee at its meeting held on 27th July, 2016.
The Committee having considered the updated Work Programme as attached at Appendix A to the report
RESOLVED - T H A T the updated 2016/17 Forward Work Programme be approved.
Reason for decision
In acknowledgement of the Committee’s responsibility for the oversight of its Forward Work Programme.
358 OUTTURN REPORT - APRIL TO AUGUST 2016 (OMA/HOA) -
The Operational Manager for Audit presented the report the purpose of which was to present the actual Internal Audit performance for the five months of the audit plan year covering April to August 2016.
The 2016/17 Internal Audit Plan had been submitted to the Audit Committee for approval on 25th April, 2016. The Plan outlined the assignment to be carried out and their respective priorities.
In referring to paragraph 5 of the report, the figures indicated that 533 actual days had been achieved, which exceeded that expected by 97 days. In addition, at 1st April, 2016 the overall structure of the Section was based on 18 Full Time Equivalents (FTE) of which, the Section was carrying five vacant posts.
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. Included at Appendix B was the supporting evidence which listed all those assignments which had been commenced/completed during the first five months and where an assignment had been completed, an audit opinion had been applied. Information attached at Appendix A1 to the Head of Audit’s Opinion Report, provided Members with the progress being made on those reviews where weaknesses in the internal control environment was identified and where the overall opinion was that of limited during 2015/16.
The Committee was advised that a total of 19 reviews had been completed so far to date, 11 of which had been closed with either a substantial or reasonable assurance opinion level. 3 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 5 reviews, although necessary, these had not culminated in an overall audit opinion. It was noted that the last 3 reviews where weaknesses had been identified, 2 were as a result of a specific investigation and subject to a separate report in due course.
Members raised concerns in relation to the number of full time current vacant posts and the ability to attract new staff. In reply, the Operational Manager for Audit stated that a review of staffing levels had been carried out at the start of the year and that the Audit Plan was formulated with budgetary savings in mind. An amended Audit Plan would be presented later on in the year. She added that although Audit had been able to meet its commitment, for the longer term this may not be sustainable and would largely depend on how successful the recruitment process was.
The Chairman enquired if there was anything that the Audit Committee could do in order to assist. The Operational Manager for Audit commented that if the Audit service was unable to meet its commitments, she would bring this to the attention of the Audit Committee. She stated that a main issue related to the ability to recruit to vacant posts and not the Audit services budget. The Committee noted that a review of the Audit function would be undertaken as part of the Reshaping Service Programme.
A Committee Member queried the increase in number of audit days provided, and he asked whether this was a result of better planning or as a consequence for more issues coming to light. In reply, the Operation Manager for Audit stated that this was about good planning. The Committee Member also raised a general point in relation to the moderation of comments made on social media and queried whether this was something that the Council was looking at. The Committee was advised that this would be clarified.
Having considered the report it was
RESOLVED - T H A T the contents of the report in respect of the Internal Audit Shared Service delivery of work against the 2016/17 Annual Audit Plan be noted.
Reason for decision
In acknowledgement of the Committee’s responsibilities to monitor the Annual Audit Plan.