Audit and Risk Committee Minutes

Date:
Tuesday, 29th June, 2010
Time:
4.30pm
Place:
Committee Room 3, Council Offices, Gernon Road, Letchworth Garden City
 
 

Attendance Details

Present:
Councillor M.E. Weeks (Chairman),Councillor John Booth (Vice-Chairman, Mrs A.G. Ashley, Councillor Marilyn Kirkland (substitute)and Councillor Deepak Sangha.
In attendance:
Morma Atlay - Strategic Director of Finance, Policy and Governance
Andy Cavanagh - Head of Finance, Performance and Asset Management
Fiona Timms - Performance and Risk Manager
Margaret Mulkerrin - Audit Manager
Tim Neill - Accountancy Manager
Nigel Schofield - Committee and Member Services Officer
Also Present:
From Grant Thornton:
Nick Caley
Phil Westerman
Item Description/Decision
PART I
1 APOLOGIES FOR ABSENCE
An apology for absence was received from Councillor Paul Clark and the Chairman announced that in accordance with the agreed procedures of North Hertfordshire District Council Councillor Marilyn Kirkland would be his substitute.
2 NOTIFICATION OF OTHER BUSINESS
There was no other item of business tabled.
3 CHAIRMAN'S ANNOUNCEMENTS
The Chairman welcomed everyone to this the first meeting of the Audit and Risk Committee as constituted at Annual Council on 20 May 2010.

The Chairman reminded Members that, in line with the Code of Conduct, any Declarations of Interest should be declared immediately prior to the item in question.
4 PUBLIC PARTICIPATION
There was no public participation.
5 REVIEW OF THE EFFECTIVENESS OF THE AUDIT AND RISK SUB - COMMITTEE
The Audit Manager (AM) presented the report of the Head of Finance, Performance and Asset Management which detailed the findings of the officer review of the Sub - Committees effectiveness based on CIPFA best practice guidelines and a Member assessment of the Audit and Risk Sub - Committee effectiveness based on a National Audit Office document . The Committee noted that the reviews had taken place during the end of the 2008 - 2009 Civic Year and the start of the 2009-2010 Civic Year.

The AM referred the Committee to Appendix A for the results of the officer review and to Appendix B for the responses from Members. The AM described the issues which had been included in an Action Plan which was detailed at Appendix C.

The Chairman thanked the Audit Manager for the presentation of the findings of the two surveys and the Committee reviewed the Action Plan with the six actions. Comment was made as to the progress with Action 3: Induction Programme and Action 5: Benchmarking. The AM confirmed that training on Risk Assessment and Governance and Reviewing the annual accounts was available and Members were requested to contact either the Audit Manager or Performance and Risk Manager for details of this and other external training. With regard to benchmarking the AM agreed to contact the National Audit Office for details of how the benchmarking data were collected for comparison.

RESOLVED:

(1)That the responses to the CIPFA ‘self assessment check list’ completed by Officers as presented at Appendix A and the Member self assessment check list as presented at Appendix B be noted;

(2)That the Action Plan for implementation in 2010 - 2011 as presented at Appendix C be agreed.

REASON FOR DECISION:
To ensure that NHDC complied with the requirement in the Code of Practice for Internal Audit in Local Government 2006 that an Audit Committee reviewed its own remit and effectiveness.
6 REVIEW OF THE EFFECTIVENESS OF THE SYSTEM OF INTERNAL AUDIT 2009 - 2010
The Head of Finance, Performance and Asset Management (HF) presented his report which was a review of the effectiveness of Internal Audit performed by Audit and Consultancy Services based on an assessment of compliance with the Code of Practice for Internal Audit in Local Government 2006.

The HF advised the Committee that there was a good system of Internal Audit which was substantially compliant with the Code, that the Audit Commission and the external auditors had confirmed that they were satisfied with the effective service of Internal Audit at NHDC which was enhanced by the work of the Audit and Risk Committee.

The HF was very pleased to report that those departments who had been audited had expressed a satisfied or very satisfied response to the audits by Audit and Consultancy Services. The Committee noted that the Committee were invited to observe an internal audit as part of the ongoing training in Audit and Risk

The HF referred the Committee to Appendix A which showed the final position of the Audit Plan and that there had been no divergences at Appendix B - The Self - Assessment for 2009-2010 against the CIPFA Code of Practice confirmed by independent assessments from the AM and FM. The HF confirmed that it had been agreed with External Audit that no Action Plan was developed for 2010-2011 as there were no material divergences from the Code of Practice , no high risk recommendations to be addressed and also that the AM’s time would be committed to contribute to the Hertfordshire Audit Pathfinder Initiative.

The Committee were pleased to welcome and acknowledge the excellent outrun of the Internal Audit assessments. There remained doubt in some quarters that the Pathfinder Initiative had not progressed at all and consequently why should work be held on an Internal Audit Improvement Action Plan for 2010 - 2011.

There ensued a short debate on the Pathfinder Initiative and the Strategic Director of Finance, Policy and Governance (SDF) stressed that it was very important that in order to save costs NHDC had to review the amalgamation of audit functions plans throughout Hertfordshire (including Herts County Council) It was proposed to bring a report to the December 2010 meeting of this Committee covering this work. Concern was expressed as to whether it was realistic to have no improvement plan if the Pathfinder Initiative was not developed and hence no delivery of perceived additional value.

The HF advised that the sharing of audit services was the best way forward due to lack of financial resources and the external auditor agreed that it was good to pool resources to ensure the delivery of audit services.

Reference was made as to the definition of ‘value for money’ and that it would be good practice during each audit if value for money of the service could be assessed. In response the Audit Manager advised that value for money was never a specific audit but that it was always an underlying theme in an audit as was an awareness of the potential for fraud.

On behalf of the Committee the Chairman thanked officers for their hard work in Internal Audit and that the results of the investigation into the Pathfinder Initiative should be carefully monitored as to progress at all times prior to the December meeting.

RESOLVED:

(1)That the requirement for an annual review of the effectiveness of an internal audit function be noted;

(2)That the details provided in the report in response to the requirement for an annual review of internal audit be noted;

(3)That the proposal to defer the development of an improvement plan for Audit and Consultancy Services for 2010 - 2011 be agreed;

(4)That the Strategic Director of Finance, Policy and Governance be requested to present a report to the Audit and Risk Committee at the meeting scheduled for 2 December 2010 which would update the Committee on the outcomes of the Hertfordshire Internal Audit Pathfinder Initiative;

(5)That the proposal to reallocate time assigned for internal audit development in the Hertfordshire Internal Audit Pathfinder Initiative be agreed.

REASON FOR DECISION:
To ensure that the Audit and Risk Committee fulfilled its obligations as the Audit Committee for North Hertfordshire District Council.
7 AUDIT AND CONSULTANCY SERVICES ANNUAL AUDIT REPORT FOR 2009-2010
The Audit Manager presented the report of the Head of Finance, Performance and Asset Management which reviewed the effectiveness of the internal control environment for the financial year 2009-2010; summaries of internal audit work from February to May 2010, the year end position against the 2009-2010 internal audit plan and Internal Audit’s year end performance against the 2009 - 2010 Internal Audit Performance Indicators. The AM was pleased to advise the Committee that based on the audit work undertaken during the 2009-2010 financial year there were no significant concerns that would give rise to any qualification of the internal audit opinion which was based on the outcomes of work agreed on the audit plan.

The AM confirmed that in 2009-2010 Internal Audit completed 19 projects. Three were assigned substantial to full assurance, nine substantial assurance and seven moderate assurance. Six audits had been concluded since year end, one of which was substantial to full assurance, three were given substantial assurance and two were given moderate assurance. Of the three outstanding audits two were assigned a moderate assurance. The AM also advised the Committee that consideration had been given to corporate governance arrangements as well as internal control, ethics, risk management and anti - fraud. The AM referred the Committee to Appendix A which detailed each audit and the level of assurance including those concluded after year end.

The AM confirmed that there had been a proactive review of officer mileage and travel and subsistence allowances, a review of the NHDC Anti - fraud and Corruption Policy and a review of the Officer Conflicts of Interest Arrangements. The AM was pleased to report that the external auditors had examined two of the key financial systems audits for 2009-2010 and were satisfied with the working papers and reports provided and that reliance could be placed upon the Internal Audit work. Also, that that the Head of Finance, Performance and Asset Management had confirmed that a review of the effectiveness of Internal Audit’s compliance with the CIPFA Code of Practice had found a substantial compliance.

The AM confirmed that all recommendations on the assurance levels were analysed to ascertain any key themes. Although moderate assurance levels tended to have the most recommendations the following were key points:
1.Non compliance with Financial Regulations, Contract Procurement Rules and legislation;
2.Need for policy, procedural and process development;
3.A need for compliance with procedures and processes;
4.A need for training.

The Committee reviewed the individual audits assurance levels as presented at Appendix A, the position against the 2009 - 2010 Action Plan at 31 March 2010 as presented at Appendix B and the Summaries of Audit Work carried out between February and May 2010 relating to the annual audit plan 2009-2010.

Specific reference was made to the Information Assurance Audit which had 13 Medium Risk recommendations and in response to an enquiry the AM confirmed that this audit would be tracked through the audit plan. The AM also confirmed that the Retention Schedule would be re-issued in light of the office accommodation move and the need to have less space for the storage of documents.

Discussion also took place on the Business Continuity Management Audit which also had 13 Medium Risk recommendations and in particular the fact that business continuity plans were not regularly reviewed and updated.

As per previous reports on the Internal Audit Annual Plan the Committee noted the excellent work undertaken by Audit and Consultancy Services at NHDC, the compliance with CIPFA Code of Practice and the assessment of the effectiveness of the system of internal control at NHDC.

RESOLVED:

(1)That the opinion of Audit and Consultancy Services confirming an internal control environment at NHDC based on work undertaken by Audit and Consultancy Services in 2009-2010 be noted;

(2)That the work undertaken by Internal Audit between February and May 2010 as related to the Annual Audit Plan for 2009 - 2010 be noted;

(3)That the issues judged to be relevant for inclusion in the Annual Governance Statement as described at Paragraph 4.4 be noted;

(4)That the Audit and Consultancy Services year end performance against the 2009-2010 Internal Audit Performance Indicators and the feed back from the Quality Assurance exercises be noted;

(5)That the compliance of Audit and Consultancy Services with the Code of Practice be noted and applauded.

REASON FOR DECISION:
To ensure that North Hertfordshire District Council complied with the requirements of the Code of Practice for Internal Audit in Local Government 2006.
8 RISK MANAGEMENT UPDATE
The Risk Manager (RM) presented the report of the Head of Finance, Performance and Asset Management which provided the Committee with an update on the management of Strategic and Corporate risks owned by the Corporate Management Team and Cabinet.

The RM confirmed that all the Top Risks had been reviewed and where appropriate changes were made to the scope of the risk and updates made to progress against the mitigating actions and were presented at Appendix A. The RM detailed the specific changes to delivering the Corporate Work Programme which required the division of this Top Risk into two new Top Risks of : Organisational Workload and Corporate Plan as presented at Appendix B. The RM proposed that the Corporate Plan should remain as a Cabinet Risk. The RM next proposed that the current Top Risk of Office Accommodation and Asset Management should also be divided into two new separate Top Risks of Office Accommodation and Asset Management as presented at Appendix B . The RM explained that the need to have an Office Accommodation Top Risk owned by Cabinet was to cover the key risks attached to the movement of staff from Town Lodge and above Letchworth Museum to the District Council Offices.

The Committee discussed the proposals made by the RM and agreed to the changes and the ownership by Cabinet of these revised Top Risks of the Corporate Plan, Office Accommodation and Asset Management.

The RM advised the Committee that the Corporate Management Team had considered the request made by the Audit and Risk Sub - Committee (Minute 31 (6) refers) and advised that as there was a formal record of Cabinet’s Decision regarding Top Risks in Cabinet Minutes there was no need for any additional sign off procedure.

In response to an enquiry on the evidence of Top Risks being managed by Cabinet or the acceptance of such risks by Cabinet rather than explicit management the Strategic Director of Finance, Policy and Governance (SDF) advised the Committee that the Portfolio Holder for Finance (including Risk) was aware of the Cabinet Risks and regularly attended the Risk Management Group. As a follow up to this and who was responsible for the management of any particular risk and whether the acceptance of a risk should be by the Corporate Management Team the SDF confirmed that each risk had an officer assigned to that risk and that any problems were reported immediately to the respective Portfolio Holder and it was noted that the Top Risks were directly linked to the three Priorities. It was agreed that the RM should consider the terms used in the next review of the Risk and Opportunities Management Strategy to allow for greater clarity.

In response to another enquiry concerning Comprehensive Area Assessment the SDF advised that neither NHDC or the external auditor currently had any plans for an alternate form of external performance management.

The Chairman commented on the viability and timetable of delivering the Top Risk of moving all staff to the District Council Offices in the proposed time schedule and the Head of Finance, Performance and Asset Management confirmed that the project was still on target for closure by this Christmas 2010.

The RM referred the Committee to The Annual Report for the Financial Year 2009-2010 on Risk Management presented at Appendix C and summarised the aims of the report which inter alia identified the significant changes to Top Risks, listed the achievements against the Risk Management Action Plan and reviewed the proposed action plan for 2010-2011. The Committee reviewed the Annual Report and agreed that it should be referred to Cabinet for consideration and endorsement.



RESOLVED:

(1)That the continuing strong processes of the Risk Management framework at this authority be noted and welcomed;

(2)That the risk treatment measures undertaken in 2009-2010 be noted;

(3)That the amendments to the Top Risks as described at Paragraph 4 to the report be noted;

(4)That the proposal to divide the Corporate Work Programme into a new risk of Organisational Workload and a revised risk for the Delivery of the Corporate Plan be agreed and referred to Cabinet;

(5)That the proposal for Cabinet to retain ownership of the Corporate Plan Risk be agreed and referred to Cabinet;

(6)That the proposal to divide the Top Risk of Office Accommodation and Asset Management to form two separate risks for Asset Management and Office Accommodation be agreed and referred to Cabinet;

(7)That the proposal for Cabinet to retain ownerships of these two new and separate risks be agreed and referred to Cabinet;

(8)That the Annual Report for 2008- 2009 on Risk Management be approved and referred to Cabinet for consideration prior to presentation to Council.

RECOMMENDED TO CABINET:

(1)That Cabinet be requested to consider and accept the proposal to divide the delivery of The Corporate Work Programme Risk into two new Top Risks of Organisational Workload and Delivery of the Corporate Plan as detailed at Appendix B;

(2)That Cabinet be requested to accept and retain ownership of the Corporate Plan Risk;

(3)That Cabinet be requested to consider and accept the proposal of dividing the Top Risk of Office Accommodation and Asset Management to form two separate risks of Asset Management and Office Accommodation as detailed at Appendix B;

(4)That Cabinet be requested to consider, accept and retain ownership of the two new Top Risks of Asset Management and Office Accommodation;

(5)That Cabinet be requested to consider and accept the Annual Report on Risk Management as presented at Appendix C and if agreed forward to a future meeting of Council.

REASON FOR DECISION:
To ensure compliance with the NHDC Risk and Opportunities Management Strategy and allow Cabinet to accept ownership of new Top Risks.
9 ANNUAL GOVERNANCE STATEMENT
The RM presented the report of the Head of Finance, Performance and Asset Management which concerned the review and if appropriate the approval by this Committee of the Annual Governance Statement (AGS) for 2009-2010. The RM referred the Committee to Appendix A which presented the AGS and to Appendix B which presented the Action Plan arising from the AGS 2009-2010 for implementation in 2010 - 2011.

The RM referred the Committee to Paragraph 5 which provided an update on the Action Plan arising from the AGS for 2008-2009 and specifically actions AGS 002.002, AGS 007.001, AGS 008, AGS 009.002, AGS 010 and AGS 014.

The RM next referred the Committee to Paragraphs 6 and 7 for more precise detail on specific actions carried forward to 2010-2011 (i.e. AGS 004.002, AGS 011, UOR 002, UOR 003.001, AGS 016, AGS 015, AGS 010.002/3, AGS 017 and TR 10.8).

The Committee noted that AGS 011 (Audit of IT Controls) was due for completion by 30 June 2010 and that the contract for e- tendering had yet to be let as a suitable contract had yet to be identified (UOR 003.001). The RM advised that AGS 017 had been added as an action to review the Council’s Financial Regulations and Contract Procurement Rules

The Committee reviewed the AGS for 2009-2010 as presented at Appendix A in detail and the Action Plan as presented at Appendix B. During the wide ranging and extensive discussion it was clear that some text - supported by Grant Thornton - that could be removed without any detriment to the AGS. Clarification was also necessary in certain sections of the ASG e.g. the difference between the District Wide Survey and The Place Survey and the statistics shown for the public understanding of how money was spent by NHDC and how ‘value for money’ was accepted. It was also agreed that wherever possible comparisons year on year should be shown, that the contracts register should be up to date and that the AGS should be more ‘user friendly and easy to understand. It was agreed that following the approved changes to the AGS the RM should circulate the amended version in an electronic format to the Committee and that the final version should be presented to the next meeting of the Audit and Risk Committee to be held on 15 September 2010.

RESOLVED:

(1)That the Annual Governance Statement for 2009 - 2010 as presented at Appendix A and supporting documentation be agreed and as amended subsequent this meeting, included in the Annual Statement of Accounts for 2009-2010 (Minute 12 below refers) be endorsed;

(2)That any amendments proposed for the Annual Governance Statement in the light of any significant investigations or internal audit work in 2009-2010 which conclude before the approval of the annual accounts (Minute 12 below refers) be referred to the Chairman and Vice-Chairman of the Audit and Risk Committee for adjudication;

(3)That the actions arising from the Annual Audit Letter for 2009-2010 be noted and agreed;

(4)That the actions arising from the 2009-2010 Annual Governance Statement as presented at Appendix B be noted and agreed;

(5)That the Risk Manager be requested to ensure that all progress against actions throughout 2010-2011 be reported to future meetings of the Audit and Risk Committee.

RECOMMENDED TO COUNCIL: That the Annual Governance Statement for 2009 - 2010 as presented at Appendix A (with amendments) and supporting documentation be endorsed;

REASON FOR DECISION:
To allow the Audit and Risk Committee the opportunity to review the Annual Governance Statement and the Action Plan and make any appropriate amendments.
10 AUDIT APPROACH MEMORANDUM
Mr P Westerman and Mr N Caley thanked the Chairman for the invitation to the meeting and described in some detail the Audit approach for 2010-2011 and its objectives, strategy, high risk areas, materiality, internal controls, audit of IT and outsourced systems, the key audit issues and financial reporting matters and the audit timetable.

The Committee noted the five main risks: Current Economic Climate, Investment Balances, SORP requirements, IFRS progress and Use of Resources and that these risks had been discussed and agreed with the Strategic Director of Finance, Policy and Governance and the Head of Finance, Performance and Asset Management. The external auditors confirmed that they would look closely at the progress towards compliance with IFRS and that the Use of Resources work was complete and that there no issue of a formal score.

The Committee noted that the external audit of financial statements commenced on 28 June 2010 and was due for completion in July 2010 with a presentation to this Committee on 15 September 2010.

RESOLVED:

(1)That the submission of the Accounts Audit Approach Memorandum be noted and accepted;

(2)That the Identified High Risk Areas: Current Economic Climate, Investment Balances; SORP requirements; International Financial Reporting Standards and Use of Resources be noted;

(3)That the timetables and milestones identified by Grant Thornton be noted.

REASON FOR DECISION:
To ensure that the Audit and Risk Committee and Officers were aware of the issues and work programme proposed by Grant Thornton.
11 EXTERNAL AUDIT REPORT FOR 2009-2010
The external auditors advised the Committee that there were no significant issues after the interim audit visit in March 2010.

The Committee noted that following the cessation of the Comprehensive Area Assessment the Audit Commission had issued advice on how the Use of Resources assessment would be concluded for 2009-2010:
1.No score issued in respect of the 2009-2010 Use of Resources Assessment;
2.A Value for Money conclusion in concert with the financial statements opinion;
3.Grant Thornton would present a report on the findings of the assessment but would not include any scores;
4.The Annual Audit Letter would present any significant findings from the Use of Resources work and that there would not be any scores in this report either.

The Chairman thanked Grant Thornton for the update on the external audit and noted that work was still required on the value for money conclusion with confirmation that there would be no impact on the audit fees for 2009-2010.

RESOLVED:

(1)That the confirmation of the interim audit in March 2010 with no significant issues be welcomed and noted;

(2)That the cessation of the Comprehensive Area Assessment be noted;

(3)That the assessment of Use of Resources in light of (2) above be noted.

REASON FOR DECISION:
To ensure that the Audit and Risk Committee are aware of the findings of the external auditor.
12 STATEMENT OF ACCOUNTS
The Accountancy Manager (ACM) presented the report of the Strategic Director of Finance, Policy and Performance which at Appendix A detailed the Annual Statement of Accounts (Un-audited) for 2009-2010.
The ACM advised the Committee that this Statement of Accounts was compliant with the 2009 CIPFA Statement of Recommended Practice (SORP) and the Best Value Accounting Code of Practice and was a statutory requirement for approval before 30 June 2010. The ACM described the various component parts of these un - audited accounts by reference to the appropriate page in Appendix A, viz. Prior Period Adjustments; Income and Expenditure Account; Balance Sheet; and Cash Flow Statement. The ACM advised the Committee that there had been no events between 31 March 2010 and 29 June 2010 which would have a bearing on the financial results for 2009-2010.

The Committee reviewed the accounts and in particular: Local Government Pension Scheme; Agency Services; Movement of Fixed Assets; Debtors; Long Term Borrowing; Reserves including Environmental Warranty Reserve; Housing and Council Tax Benefits. In response to an enquiry the Strategic Director for Finance, Policy and Governance confirmed that all benefit paid out by NHDC was recovered 100 per cent from central government and there was one possible problem in that should housing benefit payments be reduced this could have a ‘knock on’ effect by an increase in the number of persons registered as homeless which would be a cost borne by this authority without reimbursement. A Member also suggested that a current market value should be given to Letchworth Leisure Centre and shown in the balance sheet. The ACM advised the Committee that the Environmental Warranty Reserve provided to North Herts Homes would remain active until the liability was resolved. A query was also raised on Agency Services where the expenditure on Royston Town for building maintenance and grounds was more than double the income received.

The Chairman thanked the Accountancy Manager for the report and specifically the Statement of Accounts for 2009-2010 with clarification of several issues raised by the Committee. It was proposed and agreed that the Chairman should sign the Statement of Responsibilities for the Statement of Accounts for 2009-2010.

RESOLVED:

(1) That the 2009 - 2010 Annual Statement of Accounts (Unaudited) as presented at Appendix A be endorsed;

(2) That the Chairman of the Audit and Risk Committee should sign the Statement of Responsibilities for the Annual Statement of Accounts for 2009 - 2010.

REASON FOR DECISION:
To allow the Audit and Risk Committee review and comment if appropriate on the 2009 - 2010 Statement of Accounts prior to signature by the Chairman.
Published on Tuesday, 27th July, 2010
19.06