Agenda and minutes

Audit Committee
Thursday, 17 July 2014 7.00pm

Venue: Meeting Room 2 - Level 3, Gun Wharf, Dock Road, Chatham ME4 4TR

Contact: Anthony Law, Democratic Services Officer 

Items
No. Item

156.

Record of meetings pdf icon PDF 62 KB

To approve the record of the meeting held on 20 March 2014 and the record of the Joint Meeting of all Committees held on 15 May 2014.

Additional documents:

Minutes:

The records of the meeting held on 20 March 2014 and the Joint Meeting of All Committees held on 14 May 2014 (as tabled at the meeting) were agreed and signed by the Chairman as a correct record.

157.

Apologies for absence

Minutes:

Apologies for absence were received from Councillors Jarrett, Mackness and Maple. 

158.

Urgent matters by reason of special circumstances

The Chairman will announce any late items which do not appear on the main agenda but which he/she has agreed should be considered by reason of special circumstances to be specified in the report.

Minutes:

There were none. 

159.

Declarations of disclosable pecuniary interests and other interests

A member need only disclose at any meeting the existence of a disclosable pecuniary interest (DPI) in a matter to be considered at that meeting if that DPI has not been entered on the disclosable pecuniary interests register maintained by the Monitoring Officer.

 

A member disclosing a DPI at a meeting must thereafter notify the Monitoring Officer in writing of that interest within 28 days from the date of disclosure at the meeting.

 

A member may not participate in a discussion of or vote on any matter in which he or she has a DPI (both those already registered and those disclosed at the meeting) and must withdraw from the room during such discussion/vote.

 

Members may choose to voluntarily disclose a DPI at a meeting even if it is registered on the council’s register of disclosable pecuniary interests but there is no legal requirement to do so.

 

Members should also ensure they disclose any other interests which may give rise to a conflict under the council’s code of conduct.

 

In line with the training provided to members by the Monitoring Officer members will also need to consider bias and pre-determination in certain circumstances and whether they have a conflict of interest or should otherwise leave the room for Code reasons.

Minutes:

Disclosable pecuniary interests

 

There were none.

 

Other interests

 

There were none.

160.

Statement of Accounts 2013/2014 pdf icon PDF 44 KB

This report presents the draft 2013/2014 Statement of Accounts for approval and submission to the External Auditor.

Additional documents:

Minutes:

Discussion:

 

The Finance Support Manager presented the Council's Statement of Accounts for 2013/2014, which were required under the Accounts and Audit Regulations 2011.

 

The Statement of Accounts had been circulated to Members within Supplementary Agenda No. 1. It was noted that revisions to a number of the ‘Notes to the Financial Statements’ and ‘Supplementary Financial Statements’ had been circulated in advance of the meeting and a further amendment to the notes relating to ‘Amounts Reported for Resource Allocation Decisions’ was tabled at the meeting, along with a breakdown of the major variances on the Consolidated Income and Expenditure Account, Balance sheet and Collection Fund. The Finance Support Manager reported two typographical errors within the accounts, these being the duplication of a paragraph within the ‘Explanatory Foreword’ and the wrong job title shown in Note 24 ‘Officers’ Remuneration’ for the Deputy Director, Customer Contact, Leisure, Democracy and Governance. The Committee was also advised that further work was required to correct the ‘Movement in Reserves Statement’ on page 40 of the Statement of Accounts.

 

In his introduction to the Statement of Accounts the Finance Support Manager highlighted to the Committee that:

·        as Medway Norse was at the early stages of development and the value of transactions was not considered material, officers had not completed group accounts, although this would be reviewed in the future.

·        the accounts detailed a revenue surplus for 2013/2014 of £0.267m, which resulted in a contribution towards the General Reserve.

·        the General reserve, as shown in the ‘Movement in Reserves Statement for the Years Ending 31 March 2013 and 31 March 2014’, had reduced by £363,000. An explanation of all the movements on the General Reserve was provided.

·        Note 21 ‘Amounts Reported for Resources Allocation Decisions’ bridged the gap between the Management Accounts to the Comprehensive Income and Expenditure Account.

 

Members discussed the contents of the Statement of Accounts and officers provided further clarification on:

·        the reported £194.517 million Council obligation in respect of its defined pension benefit plans, which had to be declared in accordance with International Accounting Standard 19,

·        the assets that comprised the Local Government Pension Scheme and the role of the fund managers in maximising returns whilst minimising risk;

·        the presentation of the joint venture with Norse within the Council’s Statement of Accounts, as opposed to a presentation of their own accounts, and the transactions and external contracts won during the first year of operation;

·        the Children and Adults Services Directorate overspend of £1.2 million, which consisted of a £2.5 million overspend for Children’s Care and was largely mitigated by a £2 million underspend on Adult Social Care;

·        the reduction from £55.7 million to £39.3 million in invested funds, which reflected the Council’s policy of funding capital from cashflow and repaying debt;

·        the movement in school’s balances, which was largely attributable to the transfer of balances to converting academies, and the grouping of school balances within the council’s accounts;

·        the sustainability of the council’s various reserves, which included Earmarked Reserves of £29.9 million;  ...  view the full minutes text for item 160.

161.

Treasury Management Outturn Annual Report pdf icon PDF 177 KB

This report gives an overview of treasury management activity during 2013/2014.

Minutes:

Discussion:

 

The Finance Support Manager introduced the annual Treasury Outturn Report that provided an overview of treasury management activity during 2013/2014.

 

Members were advised that there had been a continued historically low base rate and dropping of market rates during 2013/2014, which was reflected within performance. Despite this, it was noted that overall the Interest and Financing Budget had made a surplus over its targeted budget of £43,000.

 

Officers highlighted that £10 million of debt had been repaid in 2013/2014 and not replaced. This was a continuation of the policy of not replacing loans as the cost of borrowing greatly exceeded the yield from investments. As a consequence of this policy and the funding of capital from cashflow a drop in total investments from 2013 to 2014 was also noted.

 

The Committee was also referred to the benchmarking information contained within the report. This showed that the council’s treasury costs per £million invested was more expensive than the average benchmarked cost by circa £31,000.  It was noted, however, that in 2013/2014 the Council had ceased using Investec, whose fees had been £30,100 for the year; without this cost the Council would be in line with the average.

 

The Finance Support Manager reported that the In-House team had achieved a return of 1.02% on investments whereas Investec only achieved 0.22%, this brought Medway’s total earnings down to 0.78%.  This was reflected in Graph 5 of the report, showing that on average the Council had performed below average. The Committee was advised however, that without Investec the Council would have achieved 1.02%, which was above the average of 0.85%

 

It was also reported that the Council’s average debt costs were marginally below the average benchmarking costs. Furthermore, as at 31 March 2014, the Council was performing marginally above the expected level of yield.

 

The Finance Support Manager referred Members to the Capita benchmarking that was included in the report, which accounted for risk, and that, as at 31 March 2014, the Council was performing marginally above the expected level of yield.

 

Members discussed the contents of the report and officers provided further clarification on the:

·        operation of Lenders Options, Borrowers Options (LOBO) debt – it was explained that this instrument permitted the lender to nominate a revised rate at periodic reset dates, and let the borrower decide whether to pay the rate or redeem the debt;

·        reported breach of treasury limits. It was noted that an investment had been made that, whilst not breaching the counterparty limits contained within the Treasury Management Strategy, exceeded more stringent internal criteria. This technical breach had had no adverse impact Council’s portfolio and was reported to the November 2013 meeting of the Committee;

·        Capita benchmarking data and the performance of other authorities as shown on their risk-adjusted model;

·        Council lending to other AAA rated local authorities for periods of up to 5 years. This was seen as a means to increase the yield whilst not increasing the risk inherent within the council’s portfolio.

 

Decision:

 

The Audit  ...  view the full minutes text for item 161.

162.

Corporate Fraud pdf icon PDF 580 KB

To inform Members of matters relating to corporate fraud, including outcomes of investigations and fraud referrals received by Audit Services.

Minutes:

Discussion:

 

The Audit Services Manager introduced a report informing Members of matters relating to corporate fraud, including outcomes of investigations and fraud referrals received by Audit Services.

 

The Audit Services Manager took this opportunity to update the Committee on the move of benefit investigations to the Single Fraud Investigation Service (SFIS) in the Department for Work and Pensions in February 2016. Members were referred to Annex C to the report, which set out details of the recommendation of the House of Commons Work and Pensions Select Committee to pause implementation so to align SFIS roll out with Universal Credit, and Annex D that set out a summary of consultation issues raised. Confirmation from the Minister for Welfare Reform that implementation of SFIS would continue as planned, despite these concerns, was set out in Annex E to the report. The Audit Services Manager confirmed that further updates would be provided to the Audit Committee in due course.

 

In relation to external fraud, the Committee were referred to Annex A to the report, which gave details of nine prosecutions and three cautions relating to benefits and council tax reduction. The Audit Services Manager gave details of three internal investigations as set out in Annex B to the report.

 

Decision:

 

The Audit Committee noted progress in investigating fraud in accordance with the approved Anti Fraud & Corruption policy.

163.

Internal Audit Annual Report pdf icon PDF 87 KB

To inform the Audit Committee of the overall opinion on control for 2013/14 based on internal audit’s work. This report will assist the Committee when considering the annual governance statement.

Minutes:

Discussion:

 

This report informed the Committee of the overall opinion for 2013/2014 based largely on Internal Audit’s work. It was noted that the Annual Internal Audit Report, which was attached at Annex A to the report, would assist Members when considering the Annual Governance Statement.

 

The Audit Services Manager advised that the annual report was a key independent and objective assurance for the council, reviewing internal control, management of risk, probity and compliance and pursuit of value for money.  It was reported that the overall Internal Audit opinion was that arrangements were sufficient, based on the central governance arrangements of the Council, along with the robust processes in place for managing key financial systems and the management response to issues identified in operational areas. 

 

The Committee was referred to key audit assurances and it was noted that all governance audits and key financial systems had positive outcomes and, year on year, had provided overall assurance on the key governance and financial processes in place across the council. The Audit Services Manager highlighted the “strong” audit opinion given to the procurement audit, which was seen as demonstrating the positive impact of category management on the procurement arrangements within the Council and greatly strengthened the level of assurance provided.

 

The Audit Services Manager explained and gave further examples of the risk based audits that focussed on key risks to the council, the programme of probity reviews in schools and the importance of external reviews, such as the Ofsted inspections of children services. Details of non-audit work (such as grant certification), confirmation on internal audit resources and the quality reviews undertaken was given.

 

Members discussed the contents of the report and officers provided further clarification on the:

·        Medway Action for Families Audit and how this had been undertaken given the complexities associated with the scheme’s financial framework and results-based funding scheme;

·        the role of the school probity audits and the way they are reported (without an audit opinion);

·        the procurement audit and the appropriateness and resource implications of focussing on arrangements for procuring goods and services over £100,000 only;

·        the reporting process regarding Norse control arrangements.

 

Decision:

 

(a)         The Audit Committee noted Internal Audit’s opinion on internal control for 2013/2014, as contained in Annex A to the report, and agreed to consider this report when considering the Annual Governance Statement.

 

(b)         The Audit Committee requested that Norse annual accounts be presented to this Committee, together with a Statement of Internal Control.

164.

Internal Audit Programme pdf icon PDF 222 KB

To advise Members of progress in delivering the approved 2013/2014 and 2014/2015 work programmes, and present outcomes completed since the last meeting of the Audit Committee.

Minutes:

Discussion:

 

The Audit Services Manager introduced this report providing an overview of the 2013/2014 and 2014/2015 internal audit work programme, together with details of probity and follow up work undertaken since the last Audit Committee Meeting.

 

It was noted that there were two 2013/2014 audits concerning Better for Less and Equality and Diversity still to be finalised and Annex B to the report listed the outcomes from the 2014/2015 plan and noted the Grant and Payment by Results certificates completed.

 

Members discussed the contents of the report and officers provided further clarification on the:

·        risk considered as part of the Local Income Management audit, that income may not be retained securely or banked promptly. Members considered the inconsistent approach adopted and were assured that management undertook risk assessments regarding the safety of those staff receiving cash;

·        findings of the carbon reduction audit, which had been reported to the Committee in September 2013. It was noted that this had been undertaken on this occasion by Internal Audit but would be a matter for management in future years;

·        findings of the corporate credit card audit, where the overall opinion on the effectiveness of controls was considered to be sufficient;

·        Payment Card Industry Data Security Standard compliance audit.  Members were advised that the processes were robust and the Chief Finance Officer updated the Committee on the implementation of new technology designed to safeguard data security.

 

During the discussion on this item the Monitoring Officer undertook to include the Medway Norse – SEN Home to School Transport audit within the next Norse Update report submitted to the Business Support Overview and Scrutiny Committee.

 

Decision:

 

The Audit Committee noted progress on the 2013/2014 and 2014/2015 audit programmes, and the outcome of Internal Audit’s work.

165.

Effectiveness of the Internal Audit System pdf icon PDF 50 KB

Members are required to review annually the effectiveness of the internal audit system, as required by the Accounts and Audit Regulations. 

Minutes:

Discussion:

 

The Chief Finance Officer introduced a report on the effectiveness of the internal audit system. It was noted that the Accounts and Audit Regulations required an annual review of the internal audit system and this formed part of the wider review of governance issues, leading to the approval of the Annual Governance Statement.

 

Members were referred to the assurances obtained and an updated copy of the Audit Charter and a set of Key Performance Indicators were attached to the report.

 

Decision:

 

a)     The Audit Committee endorsed the approach to the review of effectiveness of the internal audit system for 2013/2014 and the outcome of the review, in support of the Committee’s consideration of the Annual Governance Statement.

 

b)     The Audit Committee noted and approved the Internal Audit Charter as set out in Annex D to the report.

166.

Information Governance Policies pdf icon PDF 24 KB

This report seeks approval of the policies and guidance first presented to the Audit Committee on the 11 July 2013.

 

The suite of Information Governance policies and guidance are set out within Supplementary Agenda No.1. 

Additional documents:

Minutes:

Discussion:

 

The Assistant Director, Legal and Corporate Services/Monitoring Officer introduced a report that sought formal approval of the policies and guidance first presented to the Audit Committee on the 11 July 2013.

 

It was noted that the Council as a “public authority” and as a holder of personal and general information was subject to a number of well-known pieces of legislation and a suite of Information Governance policies and guidance had been developed to respond to this.

 

The suite of Information Governance policies and guidance were set out within Supplementary Agenda No.1:

·                    Information governance policy

·                    Data breach policy and guidance

·                    Data protection policy

·                    Data protection guidance

·                    Environmental information policy

·                    Environmental information guidance

·                    Freedom of information policy

·                    Freedom of information guidance

·                    Protective marking policy

·                    Records management policy.

 

Members were advised that consultation on the proposed changes had taken place, involving the Security and Information Governance Group chaired by the Assistant Director of Legal & Corporate Services, senior managers and the Caldecott Guardian.

 

Decisions:

 

a)     The Audit Committee approved the suite of Information Governance policies and guidance as set out within Supplementary Agenda No.1.

 

b)     The Audit Committee agreed to delegate authority to the Assistant Director, Legal & Corporate Services, Monitoring Officer to amend the suite of Information Governance policies and guidance in compliance with current legislation and good practice.

 

c)      The Audit Committee requested that the Assistant Director, Legal & Corporate Services, Monitoring Officer publish, if appropriate, thesuite of Information Governance policies and guidance on the Council’s website.

167.

Annual Governance Statement pdf icon PDF 53 KB

This report explains the requirements for reporting and approving an Annual Governance Statement (AGS) (formerly known as the Statement on Internal Control (SIC)) covering the financial year 2013/14. It seeks comments and approval of the Statement.

Minutes:

Discussion:

 

The Assistant Director Legal and Corporate Services introduced a report that presented the 2013/2014 Annual Governance Statement.

 

The statement (attached to the report) summarised and reviewed the effectiveness the Council’s governance framework and key elements of internal control. The Committee was also referred to section 5 of the statement, which set out key areas for the Council to focus on. This included the continued challenges facing the Council following the reduction in Government grant funding; an “inadequate” Ofsted report on child protection services and a subsequent “inadequate” for safeguarding and looked after children that has required a detailed and comprehensive response from the Council; and, the 2015 general and local elections.

  

Decision:

 

The Audit Committee approved the draft Annual Governance Statement noting that a further key area for the council would be the retirement of the current Chief Finance Officer in 2015.

 

168.

Annual Review of Terms of Reference pdf icon PDF 26 KB

To consider whether any changes are required to this committee’s Terms of

Reference. 

Minutes:

Discussion:

 

The Audit Services Manager introduced a report on a review of the Committee’s terms of reference. It was noted that it was practice for the Committee to annually review the terms of reference to see whether any amendments were needed. It was reported that the only proposed change was to clarify the role of Audit Committee in monitoring the effectiveness of internal audit, which was in accordance with the Accounts and Audit Regulations.

 

The proposed change was shown in Appendix A to the report.

 

Decisions:

 

a)     The Audit Committee noted the Committee’s current terms of reference and confirmed that they, including the proposed revision, meet current and expected future needs.

 

b)     The Audit Committee recommended to Council the proposed amendment to the Committee’s terms of reference, as set out in Appendix A to the report.

169.

Exclusion of the press and public pdf icon PDF 14 KB

This report summarises the content of the appendix to agenda item 14, which, in the opinion of the proper officer, contains exempt information within one of the categories in Schedule 12A of the Local Government Act 1972. It is a matter for the Committee to determine whether the press and public should be excluded from the meeting during consideration of this document.

Additional documents:

Minutes:

Decision:

 

The press and public were excluded from the meeting during consideration of the exempt material contained within the appendix to agenda item 14 (Investigations Relating to Financial Irregularities) because consideration of this matter in public would disclose information falling within paragraphs 2, 3 and 7 of Part 1 of Schedule 12A to the Local Government Act 1972 as specified in agenda item 12 (Exclusion of Press and Public) and, in all the circumstances of the case, the Committee considered that the public interest in maintaining the exemption outweighed the public interest in disclosing the information. 

170.

Investigations Relating to Internal Financial Irregularities pdf icon PDF 16 KB

This report informs Members of the outcome of recent internal investigations

relating to financial irregularities. 

Minutes:

Discussion:

 

The Audit Services Manager introduced a report that set out the outcome of three recent internal investigations.

 

Members considered the information as set out and officers responded to Members’ questions as they related to the individual cases.

 

The Audit Services Manager took this opportunity to advise Members that a report to the Committee on the control arrangements at the Corn Exchange would be submitted in September. Members were also assured that there were no actions outstanding from audit of the highways maintenance contract, the outcome of which had been previously reported to the Committee, and that the matter was deemed closed.

 

Decision:

 

The Audit Committee noted the outcome of the irregularity investigations and the actions taken.