AUDIT COMMITTEE

 

Minutes of a meeting held on 25th July, 2018.

 

Present:  Councillors G.D.D. Carroll, Mrs. P. Drake, Dr. I.J. Johnson, K.F. McCaffer and M.R. Wilson; and Mr. P. Lewis (Lay Member).

 

Also present: Mr. S. Wyndham (WAO).

 

 

219            APOLOGIES FOR ABSENCE –

 

These were received from Councillors V.P. Driscoll and L.O. Rowlands.

 

 

220            APPOINTMENT OF CHAIRMAN –

 

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

 

 

221            APPOINTMENT OF VICE-CHAIRMAN –

 

RESOLVED – T H A T Councillor Mrs. P. Drake be appointed Vice-Chairman for the current Municipal year.

 

 

222            MINUTES –

 

RESOLVED – T H A T the minutes of the meeting held on 1st May, 2018 be approved as a correct record.

 

 

223            DECLARATIONS OF INTEREST – 

 

No declarations were received.

 

 

224            PROPOSAL TO EXTEND THE SHARED SERVICE FOR INTERNAL AUDIT TO INCLUDE RHONDDA CYNON TAFF COUNTY BOROUGH COUNCIL AND MERTHYR TYDFIL COUNTY BOROUGH COUNCIL (REF) –

 

Cabinet, on 18th June, 2018, had approved proposals to change the current Internal Audit Shared Service to include Rhondda Cynon Taff and Merthyr Tydfil County Borough Councils.

 

It was noted that in recent years, collaborative working activity had increased at pace and in response to the challenging financial climate and also in recognition of the value that working in partnership to share skills, expertise and experience could have in tackling increasingly complex issues.

 

The provision of internal audit was recognised by all Councils as core to effective governance, risk management and control arrangements.  The requirement for Councils to maintain appropriate and effective internal audit arrangements was set out in the Accounts and Audit (Wales) Regulations 2018.

 

The Bridgend and Vale of Glamorgan Internal Audit Shared Service had been fully operational under a formal partnership agreement since February 2013, which had been extended to 31st January, 2020 as both Authorities had experienced the advantages of the shared service.  Since its inception, the Shared Service had delivered consistently against the approved annual risk based plans and had achieved the necessary coverage in order to issue a robust, evidence based audit opinion at the end of each year as well as fully complying with its statutory requirements under the Public Sector Internal Audit Standards (PSIAS).  In addition, it was reported that significant benefits had been realised by bringing the sections together, some of which included effective use of the total audit resource, knowledge sharing and harmonising working practices and systems.

 

The Service had been operating since 2013 and had faced some challenges over the past 18 months in terms of recruitment, although this had also presented the opportunity for more proactive and focused approaches being taken in respect of workforce planning and growing the Service to ensure its continued success.  As a consequence, the Section 151 Officer of each of the four Councils had been considering whether there would be any benefits in extending the current partnership arrangements to include the two additional Authorities. 

 

The principal functions of the Internal Audit Sections with the four participating Councils were broadly similar.  The development of a Regional Internal Audit Shared Service offered the opportunity to bring together related and complimentary professional disciplines across the Councils.  Discussions had concluded that Internal Audit was a service that could be delivered on a regional basis and a larger shared service would bring benefit to the four Local Authorities.

 

In addition, the extended Regional Service could become more entrepreneurial in its outlook which could include bidding for contracts with other public sector bodies which would drive down costs further. 

 

In order to develop an extended shared service, a legal Partnership Agreement based on Sections 101/ 102 of the Local Government Act 1972 would be required between the Councils in order to delegate the function and formalise the provision of services and also for the basis for cost apportionment.  In addition, the four Councils would be required to sign up to the terms and conditions of this document for a set period of time (proposed minimum of three years) in order to demonstrate commitment. 

 

Subsequently, it was

 

RESOLVED – T H A T Cabinet’s decision (outlined in Cabinet Minute number C340) to approve the proposal for the partnership for the Shared Service for Internal Audit to be extended to include Rhondda Cynon Taff and Merthyr Tydfil County Borough Councils be endorsed.

 

Reason for decision

 

To enable the extension of the current service to deliver a Regional Internal Audit Shared Service that would reinforce business resilience, further enhance the range of audit expertise available to the Council and support the delivery of a more efficient service.

 

 

225            ANNUAL GOVERNANCE STATEMENT 2017/18 (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, 2018, the Council had an adequate governance regime in place and all business was conducted in compliance with the existing arrangements. 

 

The AGS for the 2017/18 financial year related to the activities of the Council and was 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).  It also had regard to guidance issued by CIPFA / SOLACE in its publication “Delivering Good Governance in Local Government” and the Council’s Code of Corporate Governance.

 

The Head of Finance reported that the overall governance arrangements for the Vale of Glamorgan Council for the financial year 2017/18 were considered to be satisfactory.  However, she indicated that there were issues relating to the continuing challenges of year on year reductions in Council funding and the impact this had on services delivered.  The continuing programme of transformational change, together with a reduction in resources and increased demands on services, meant that there was a need to ensure that the Council’s control environment remained robust, proportionate and was as efficient and effective as possible. 

 

Therefore, the Committee’s endorsement of the Statement was sought.

 

The Committee queried progress around the Reshaping Services Programme, noting that of the 12 Tranche 1 projects, 3 had been completed.  In reply, the Head of Finance stated that the Council was currently involved in Tranche 3, and was beginning to look at Tranche 4.  She added during the last year, 75% of savings had been achieved, but the RAG status of some projects illustrated how difficult it was to find savings and how complex the changes to services had become.

 

The Committee also noted that commentary within the appendix would be updated as part of the submission of the Council’s Statement of Accounts in September.

 

RESOLVED – T H A T the Annual Governance Statement for 2017/18 be recommended for adoption by the Leader and Managing Director of the Council.

 

Reason for decision

 

In acknowledgement of the review and to progress the adoption of the Annual Governance Statement 2017/18.

 

 

226            UNAUDITED STATEMENT OF ACCOUNTS 2017/18 (HOF / S151O) –

 

The 2017/18 Statement of Accounts for the Vale of Glamorgan 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 Services Joint Committee 2017/18 unaudited Statement of Accounts was also attached at Appendix B and the Vale, Valleys and Cardiff Joint Committee’s Annual Return 2017/18 was attached at Appendix C.

 

Under the Accounts and Audit (Wales) Regulations 2014 (as amended), the Statement of Accounts must be certified by the Section 151 Officer before 30th June as presenting a true and fair view.  The 2017/18 Statement of Accounts for the Council and the Shared Regulatory Services and also the Annual Return for the Vale, Valleys and Cardiff Regional Adoption Service were certified as such by 15th June, 2018. 

 

The 2017/18 Vale of Glamorgan Statement of Accounts would be subject to external audit and the audited accounts would be presented to Audit Committee in September 2018, along with the External Auditor’s ISA 260 report for review prior to being submitted for approval by Council before 30th September, 2018.

 

The 2017/18 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 2018 along with the External Auditor’s report for review prior to being submitted for approval by the Shared Regulatory Services Joint Committee.

 

The Vale, Valleys and Cardiff Regional Adoption Service accounts were not subject to a full external audit by the 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.  The Wales Audit Office would be providing a limited assurance audit for this service. 

 

In addition to the above matters, the Principal Accountant provided additional context in regard to the accounts for 2017/18 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:

 

  • As at 31st March, 2018 the Council Fund stood at £9.635m, with the earmarked reserves being £69.678m.
  • In 2017/18, the Council spent £44m on capital, which included £2.052m for the City Deal.
  • The balance for the Housing Revenue Account at 31st March stood at £775k.
  • The level of external borrowing as at 31st March was £155.365m.  This figure differed to the level of debt indicated on page 5 Appendix A as £156.960m, as this included debt against Joint Committees.  It was agreed for an explanation on this to be included.
  • Pension liabilities during 2017/18 were £215.532m.  This value was based on a number of actuarial assumptions which would fluctuate between years.
  • For 2018/19, the Council had approved Capital Programme funding of £60.866m.  The Committee agreed that further information would be included detailing which grants contributed to this.
  • An analysis of expenditure and funding was provided on page 11, which indicated a £1,976m underspend to expenditure chargeable to the General Fund and the Housing Revenue Account.
  • Page 12 included a comparison in the movement in reserves between 2016/17 and 2017/18.  The Committee noted that the capital receipt reserves for 2018/19 had increased to £11.299m which was mainly as a result of overage from the sale of properties at Penarth Heights.
  • A statement of comprehensive income and expenditure was included on page 13.  The Committee noted that compared to 2016/17, the impairment losses on non-current assets charged to the revaluation reserve had increased significantly due to a revaluation of Council assets undertaken during 2017/18.  In addition, the re-measurements of the net defined benefit liabilities had decreased.  Further commentary on these changes would be included in the final Statement of Accounts.
  • The Council’s Balance Sheet on page 14 showed that the value of assets and liabilities held by the Council at 31st March, 2018 stood at £310.917m.  The Committee noted that the Council’s short term investments had increased in value by around £1m and there had been a slight reduction in the Council’s level of borrowing.  The Committee also noted that the level of long term borrowing currently stood at £2k.

 

The Principal Accountant also referred to other aspects of the report and touched upon specific aspects in relation to: adjustments for capital and pensions, transfers to and from reserves, interest payments, Council Tax, National Domestic Rates, movement in balances relating to property, plant and equipment, capital commitments, other long term liabilities, balance of cash and cash equivalents, employment emoluments and budgets for joint committees.

 

In relation to Note 24, around Council debtors, the Committee agreed that information regarding central government bodies would be emailed to members separately. In addition, the Committee noted that the difference in adjustments between 2016/17 and 2017/18 in relation to Housing Revenue Account was due to the re-valuation of assets and the capital receipts received from the Penarth Heights Housing Development.  Further information to explain these changes would also be included. 

 

In consideration of the Statement of Accounts for the Shared Regulatory Services, attached at Appendix B, the Committee noted that the accounts had been signed off by the Joint Committee.  It was also noted that the amount of usable reserves as at 31st March, 2018 stood at £740k and that it had been agreed for the previous year’s underspends to be returned to the partner Local Authorities.  In addition, the Shared Regulatory Services had received a significant increase in grant funding which included £624k paid to the Vale of Glamorgan from the Illegal Money Lending Grant.  In addition, the Committee agreed that further information in relation to an increase in premises costs for 2017/18 would be included. 

 

With regard to accounts for the Adoption Service, the Committee noted that for 2017/18 there was an overspend of £12k so additional funding from the partner Local Authorities had been sought.  The Committee agreed that the reconciliation of the accounts for this service would be forwarded on to Members.

 

In preparation for the early closure deadlines, the Accountancy Team set a deadline of 15th June, 2018 for final sign off of the unaudited 2017/18 accounts by the Section 151 Officer.  This was comfortably achieved by the Team which was important prior to the statutory deadline changes that would begin in 2019. 

 

Interim arrangements for early closure had been put in place for the financial years ending on 31st March, 2019 and 31st March, 2020.  For these financial years, the Statement of Accounts would need to be signed and dated by the responsible officer by 15th June, with an audited Statement of Accounts published by 15th September.  This interim approach would provide flexibility to identify and resolve any issues ahead of implementation.  It also sought to reduce pressures on the audit process during the transition to the earlier timetable. 

 

From 2021, the final date on which the responsible Financial Officer must sign and date the Statement of Accounts would be brought forward from 15th June to 31st May.  It was also proposed that the date that the Local Authority must consider, approve and publish an audited Statement of Accounts would be brought forward from 15th September to 31st July.

 

The Committee expressed concern around the proposal for Audit Committee to be given delegated powers to approve the accounts without discussion at Full Council.  The Committee considered it important for this to remain for the purpose of transparency and openness.  The Committee agreed that the Head of Finance/Section 151 Officer would investigate further the logistics behind the new deadlines and report back the technicalities around the reporting of accounts. 

 

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

 

 

RESOLVED –

 

(1)       T H A T the unaudited Vale of Glamorgan Council Statement of Accounts for 2017/18 be reviewed and the comments of the Committee 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 2017/18 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 2017/18 be reviewed and comments of the Committee referred to the Head of Finance as Treasurer of the  Joint Committee for subsequent discussion with the External Auditors, Wales Audit Office.

 

(4)       T H A T the Head of Finance as Section 151 Officer look at the technicalities from the early closure deadlines set by Welsh Government for approval of the Council’s Statement of Accounts from 2018/19 and for this to be reported back to the Audit Committee. 

 

Reasons for decisions

 

(1)       Following the Committee’s initial review of the unaudited Vale of Glamorgan Council’s Statement of Accounts for 2017/18.

 

(2)       Following the Committee’s consideration of the initial review of the unaudited Shared Regulatory Services Statement of Accounts for 2017/18.

 

(3)       Following the Committee’s initial review of the unaudited Vale, Valleys and Cardiff Adoption Collaborative Service Annual Return for 2017/18.

 

(4)       In order for the Committee to consider the impact following the change to the closure deadlines for the accountancy year ending 31st March, 2019.

 

 

227            UPDATE ON EXTERNAL ASSESSMENT – INTERNAL AUDIT SHARED SERVICE (HOA) –

 

The purpose of the report was to provide Members with an update on the implementation of actions resulting from the External Assessment of the Internal Audit Shared Service completed in January 2017.

 

The review commenced on 30th January, 2017 and the on site assessment concluded on 3rd February, 2017.  The Assessor made 18 recommendations and further 10 suggestions for improvement.  The Action Plan (including responses and action dates) was agreed by the Audit Committee on 24th April, 2017. 

 

An update of the Action Plan was attached at Appendix A, and the Committee noted that all recommendations and suggestions for improvement had been completed. 

 

Subsequently, it was


RESOLVED – T H A T the Action Plan attached at Appendix A to the report and the progress that had been made be noted.

 

Reason for decision

 

To facilitate the monitoring of the Council’s Internal Audit Shared Service and to ensure that it remained compliant with the Public Sector Internal Audit Standards.

 

 

228            AUDIT REPORT – HEALTHY ORGANISATION REVIEW 2017/18 (OMA / HOA) –

 

The Committee agreed that this item should be deferred to the next Committee meeting is September in order for a revised Appendix to be submitted.

 

RESOLVED – T H A T the Audit Report – Healthy Organisation Review 2017/18 be deferred to the Committee meeting set for September 2018.

 

Reason for decision

 

In order for the Committee to consider a revised Appendix of the Review.

 

 

229            AUDIT COMMITTEE – COMPLIANCE WITH CONTRACT PROCEDURE RULES (OMA / HOA) –

 

The Operational Manager as the Head of Audit, presented the report, the purpose of which was to provide Members with an update on the progress made on the Contract Management arrangements and its compliance with the Council’s Contract Procedure Rules. 

 

During 2015/16, as a result of work undertaken on Contract Management, it was deemed necessary to reflect the significant governance issues identified within the Council's Annual Governance Statement.  Following conclusion of ongoing audit work during 2016/17 it was clear from these reviews that Contract Management was a key issue throughout the Council and one that was taken very seriously by the Managing Director and the Corporate Management Team.  Regular updates were provided to the Council's Audit Committee in order to ensure oversight, as well as regular progress reports to the Managing Director and Corporate Management Team.  During 2016/17 significant improvements were made, so much so that this was no longer considered a significant risk and therefore was not included in the 2016/17 Annual Governance Statement.

 

In order to assist the Audit Committee in ensuring that the issues identified were addressed, the following list provides Members with some of the improvement measures that have been put in place to demonstrate compliance.

 

  • The Council recognised that it operated in a changing procurement landscape that was led by an agenda for improvement.  New technology, changing demographics, increasing awareness of sustainability issues and legislative changes were all transforming the world of public procurement at a rapid pace.  These changes created challenges to which the Council needed to respond to.  As a consequence, the Council had revisited and enhanced its Procurement Strategy and had developed and implemented a Procurement Code of Practice (PCOP), together with updating the Council's Contract and Financial Procedure Rules which replaced the old Contract Standing Orders and Financial Regulations;
  • The Council had incorporated, published and implemented Contract Management Guidance and a Contract Management Toolkit within the PCOP;
  • The Managing Director and the Council's Section 151 Officer received fortnightly progress reports to ensure that the Contract Management actions were being addressed and this continued throughout 2016/17 and into 2017/18 until they were satisfied that all actions had been implemented;
  • A programme of Senior Management Training had been delivered covering procurement, contract management and project management.  This also formed part of the Management Development Programme;
  • Specific requests from service areas had resulted in bespoke training being delivered on Contract Procedure Rules by the Council's Section 151 Officer and Head of Audit;
  • Internal Audit concluded a number of follow up audits which clearly evidenced that improvements had been made to the Council's overall Contract Management arrangements;
  • The Council's Monitoring Officer maintained a Contract schedule which provided updates on specific contracts and was a standing item on the Corporate Management Team agenda;
  • The Insight Board's work programme contained an item on procurement with the action tracker containing actions associated with Contract Management;
  • During 2017/18 a Healthy Organisation review was undertaken on Commissioning and Procurement together with Project and Programme Management.  Whilst the review did highlight some areas for attention which were being addressed, overall it was concluded that a level of high assurance could be placed on the control environment with a low level of risk;
  • The Audit Plan for 2018/19 included a number of reviews which should continue to provide the necessary assurances on compliance to Contract Procedure Rules;
  • The procedure and protocol for the request to waiver Contract Procedure Rules was well embedded and Internal Audit provided the necessary challenge prior to any waiver being granted;
  • The Operational Manager for Property developed a Contract Register which was introduced in March 2017.  The register tracked the process and progress from Cabinet approval through to contracts being completed for all Property managed schemes where a contract was required.  A copy of the monthly updated register was provided to both the Head of Finance and the Principal Lawyer – Property and Contracts Team.  The register was a useful mechanism for recording and checking that all necessary approvals were in place with relevant dates recorded and that contracts had been awarded where required.

 

The Committee requested that a further report should be presented detailing the Council’s the procurement rules and contract procedures.  Further to this, the Head of Finance stated that the South West Audit Partnership was currently looking at Council procurement, so she suggested that the findings of this should also be included.

 

Having considered the report, it was

 

RESOLVED –

 

(1)       T H A T the contents of the report be noted and, in particular, the improvements to the Council’s Contract Management arrangements.

 

(2)       T H A T the Audit Committee consider a further reporting detailing the Council’s procurement rules and contract procedures, which will also include the findings of review of procurement being undertaken by the South West Audit Partnership.

 

Reason for decision

 

(1)       Following consideration of the report and improvements to the Council’s Contract Management arrangements.

 

(2)       In order for the Committee to consider the Council’s procurement rules and contract procedures.

 

 

230            PROGRESS AGAINST THE AUDIT RISK BASED PLAN 2018/19 – (OMA / HOA) –

 

In accordance with the Public Sector Internal Audit Standards, the Head of Audit was responsible for developing a Risk Based Annual Audit Plan which took into account the Council’s risk management framework.

 

The 2018/19 Internal Audit Plan was submitted to the Audit Committee for consideration and approval on 1st May, 2018.  The Plan outlined the assignments to be carried out and their respective priorities.

 

The Plan provided for a total of 1,350 audit days to cover the period April 2018 to March 2019.  These days were split into those reviews considered to be Priority One and those considered to be Priority Two with the aim of completing the whole Plan by the end of the financial year.

 

Actual progress against the 2018/19 Risk Based Plan was attached at Appendix A to the report and in order to assist with the effective monitoring of the Annual Risk Based Plan, further information was attached at Appendix B which detailed those reviews that had not yet been allocated in the respective quarter and those reviews which had been brought forward from future quarters.

 

At present, the overall structure of the section continued to be based on 14 Full Time Equivalent employees.  As previously reported, the section continued to carry vacant posts, however the recent recruitment campaign had proved to be extremely successful in so much as the section had managed to fill all but half a vacant post within the Auditors grade and recruited another Senior Auditor.  The section had also once again commissioned the services of the South West Audit Partnership in order to address in some part the shortfall in days necessary to complete the Plan, which was likely to continue during the first half of the financial year.

 

The Operational Manager reassured the Committee, that the Internal Audit Service were considering and looking at the Council’s key priority areas, and that in future, the Risk Based Plan would include a reason why an area of work had been deferred.

 

Having considered the Risk Based Plan for 2018/19, it was

 

RESOLVED – T H A T the contents of the report and the progress made to date be noted.

 

Reason for decision

 

Following consideration of the progress made with the Audit Risk Based Plan 2018/19.

 

 

231            AUDIT COMMITTEE – FORWARD WORK PROGRAMME 2018/19 UPDATE (OM / HOA) –

 

Consideration was given to an updated Forward Work Programme for 2018/19 which had been previously approved by the Committee at its meeting held in May 2018.

 

The Committee noted that following deferment, the Audit Report in respect of the Healthy Organisation Review 2017/18, would be considered during the Committee’s next meeting in September.

 

RESOLVED – T H A T the updated Forward Work Programme for 2018/19 in regard to the Audit Committee be noted.

 

Reason for decision

 

In acknowledgement of the Committee’s responsibility for oversight of its Forward Work Programme.

 

 

232            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 item of business on the grounds that it involves 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.

 

 

233            FRAUD – COUNCIL TAX (S151O) (EXEMPT INFORMATION – PARAGRAPHS 13, 14 AND 18) –

 

The Committee was apprised of an ongoing case in relation to Council Tax fraud.

 

Members were advised that as a result of this an investigation had been undertaken and Council procedures had been revised. 

 

Subsequently, it was

 

RESOLVED – T H A T the contents of the report be noted.

 

Reason for decision

 

To ensure that Members were aware of an issue of fraud and the current and future actions taken arising as a consequence thereof.