Stockton-on-Tees Borough Council

Big plans, bright future

Audit Committee (ceased to operate 21/05/2019) Minutes

Date:
Monday, 27th February, 2012
Time:
4.00pm
Place:
Second Floor Conference Room, Municipal Buildings, Chruch Road, Stockton on Tees, TS18 1LD
 
Please note: all Minutes are subject to approval at the next Meeting

Attendance Details

Present:
Cllr Barry Woodhouse(Chairman), Cllr Derrick Brown, Cllr Phillip Dennis, Cllr Ben Houchen, Cllr Ross Patterson and Cllr David Wilburn.
Officers:
J Bell, P Johnston, D Macdonald, S Winship (R); K Wannop (LDS).
In Attendance:
C Andrew and M Kirkham(Audit Commission).
Apologies for absence:
Cllr Alan Lewis and Cllr Mrs Sylvia Walmsley.
Item Description Decision
Public
A
36/11
DECLARATIONS OF INTEREST
 
A
37/11
MINUTES OF THE MEETING HELD ON 5TH DECEMBER 2011
 
A
38/11
AUDIT COMMITTEE UPDATE REPORT
RESOLVED that the report be noted.
A
39/11
EXTERNAL AUDIT CERTIFICATION OF CLAIMS AND RETURNS 2010/11
RESOLVED that the report be noted.
A
40/11
EXTERNAL AUDIT OPINION PLAN 2011/12
RESOLVED that the report be noted.
A
41/11
GOVERNMENT RESPONSE TO THE FUTURE OF LOCAL AUDIT CONSULTATION
RESOLVED that the report be noted.
A
42/11
INTERNAL AUDIT PROGRESS REPORT
RESOLVED that the report be noted.
A
43/11
INTERNAL AUDIT STRATEGY, TERMS OF REFERENCE & PROPOSED ANNUAL AUDIT PLAN 2012/13
REOLVED that:

1. The Internal Audit Strategy and Terms of Reference be approved.

2. The Audit Plan for 2012/13 be approved.
A
44/11
HEALTH AND SAFETY REPORT
RESOLVED that the report be noted.
A
45/11
CORPORATE RISK REGISTER PROGRESS REPORT
RESOLVED that the report be noted.
A
46/11
ANNUAL REPORT OF THE AUDIT COMMITTEE 2011
RESOLVED that the work carried out by the Committee be noted.
A
47/11
WORK PROGRAMME 2011/12
RESOLVED that the Diary of Meetings and Work Programme for the Audit Committee for 2011/12 be noted.
A
48/11
DRAFT WORK PROGRAMME 2012/13
RESOLVED that:-

1. The scheduled meetings for 16th April 2012 and 21st May 2012 be cancelled.

2. The Work Programme for 2012/13 be agreed.
4.00pm - 5.30pm

Preamble

ItemPreamble
A
36/11
Cllr Woodhouse declared a personal non prejudicial interest in respect of agenda item 9 - Internal Audit Strategy, Terms of Reference and Proposed Annual Audit Plan as he was a governor at Oakdene Primary School.

Cllr Dennis declared a personal non prejudicial interest in respect of agenda item 9 - Internal Audit Strategy, Terms of Reference and Proposed Annual Audit Plan as he was a governor at Egglescliffe Primary School.

Cllr Wilburn declared a personal non prejudicial interest in respect of agenda item 9 - Internal Audit Strategy, Terms of Reference and Proposed Annual Audit Plan as he was a governor at St John's C of E Primary School and Crooksbarn Primary School.
A
37/11
The minutes of the meeting held on 5th December 2011 were confirmed and signed by the Chair as a correct record.
A
38/11
Members considered a report which provided details on the progress of the Audit Commission in delivering their responsibilities as external auditors. It included an update on the externalisation of the Audit Practice.

The paper sought to highlight key emerging national issues and
developments which may be of interest to Members. The paper concluded by asking a number of questions which Members may wish to consider in order to assess whether it has received sufficient assurance on emerging issues.

The Audit Commission had revisited their risk assessments for 2011/12 and the audit plan would be considered at this meeting.

The Audit Commission had recently wrote to the Audit Committee Chair and the Corporate Director of Resources about arrangements in place for:-

- preventing and detecting fraud;
- ensuring the legality of transactions and identifying potential litigation;
- adopting the going concern principal for the accounts;
- related party transactions and relationships; and
- accounting estimates.
Meetings with officers from internal audit and accountancy had recently taken place to discuss the work needed to:
- confirm the features of Stockton Borough Council's material financial systems;
- test the controls for each material financial system; and
- obtain early substantive assurance.

It was explained that they planned to rely on internal audit work for controls testing wherever possible.

The specified criteria for assessment for 2011/12 were unchanged and
focused on:-

- financial resilience; and
- challenging economy, efficiency and effectiveness.

The Audit Commission published Value for Money (VFM) guidance for auditors in October 2011 and they had considered that guidance as part of the updated risk assessment.

The Audit Commission had issued their annual report on the audit of your grant claims and returns for 2010/11 which would be considered at this meeting.

Members were also provided with copies of the following documents:-
- Joining Up Health and Social Care: Improving Value for Money across the Interface
- Stockton-on-Tees Borough Council compared to similar area's: All English councils, 2012/11
- Checklist for those responsible for governance.
A
39/11
Members considered a report that provided details of external Audit Certification of Claims and Returns 2010/11. Local authorities claimed large sums of public money in grants and subsidies from central government and other grant-paying bodies and were required to complete returns providing financial information to government departments. The certification work provided assurance to grant-paying bodies that claims for grants and subsidies were made properly or that information in financial returns was reliable. The report summarised the outcomes of the certification work on Stockton Borough Councils 2010/11 claims and returns.

Under section 28 of the Audit Commission Act 1998, the Audit Commission may, at the request of authorities, make arrangements for certifying claims and returns because scheme terms and conditions included a certification requirement. Where such arrangements were made, certification instructions issued by the Audit Commission to its auditors set out the work auditors must do before they give their certificate. The work required varied according to the value of the claim or return and the requirements of the government department or grant-paying body, but in broad terms:

- for claims and returns below £125,000 the Commission did not make certification arrangements and Audit Commission was not required to undertake work;

- for claims and returns between £125,000 and £500,000, Audit Commission undertook limited tests to agree form entries to underlying records, but did not undertake any testing of eligibility of expenditure; and

- for claims and returns over £500,000 Audit Commission planned and performed their work in accordance with the certification instruction to assess the control environment for the preparation of the claim or return to decide whether or not to place reliance on it. Depending on the outcome of that assessment, they undertook testing as appropriate to agree form entries to underlying records and test the eligibility of expenditure or data.

Claims and returns may be amended where it was agreed with officers that this was necessary. The certificate may also refer to a qualification letter where there was disagreement or uncertainty, or they had not complied with scheme terms and conditions.

Members were provided with details on the following:-
- Summary of 2010/11 certification work.
- Results of 2012/11 certification work.
- Summary of progress on previous recommendations.
- Summary of recommendations.
- Summary of certification fees.
A
40/11
Members considered a report that set out the work for the 2011/12 audit. The plan was based on the Audit Commission's risk-based approach to audit planning.

The Audit Commission's Statement of Responsibilities of Auditors and of Audited Bodies set out the respective responsibilities of the auditor and the audited body. The Audit Commission had issued a copy of the Statement to you.

The Statement summarised where the different responsibilities of auditors and of the audited body began and ended and they undertaken their audit work to meet them responsibilities.

The Audit Commission complied with the statutory requirements governing their audit work, in particular:
- the Audit Commission Act 1998; and
- the Code of Audit Practice for local government bodies.

Members were also provided with information on the following:-
- Accounting statements and whole of government accounts.
- Value for Money.
- Key milestones and deadlines.
- The audit team.
- Independence and quality.
- Fees for audit.
- Independence and objectivity.
- Basis for fees.
A
41/11
Members considered a report on the latest position on the Government's proposals to abolish the Audit Commission and replace it with a new local public audit framework. The Government consulted on its proposals from 31st March to 30th June 2011 and Members had agreed the Council's response at its meeting on 27th June 2011. The Government published its response to the consultation on 5th January 2012 and was attached to this report.

The Governments response set out the key themes and views which were raised during the consultation and what the Government proposes for the new arrangements for the audit of principal public bodies. The principles behind the new framework for local public audit were that it should support localism, be transparent, achieve a reduction in overall cost, and uphold high standards of audit through effective and transparent regulation and conformity to the principles of public audit. The key points from the document were detailed within the report.

The implementation and next steps-draft legislation to abolish the Audit Commission and to put in place the new framework would be published in the spring of 2012. In the meantime DCLG would be holding further discussions with local authorities and other public bodies, as well as audit firms, to flesh out the details and how the framework might be implemented.
A
42/11
Consideration was given to a report on the work carried out by the Internal Audit Section and the progress made during the quarter October to December 2011 against the current Annual Audit Plan.

Internal Audit was an independent appraisal function established by the Council to objectively examine, evaluate and report on the adequacy of internal controls. This role ensured that there was proper economic, efficient and effective use of resources. It also ensured that the Council had adequate accounting records and control systems.

Members were reminded that the list of all audit work undertaken in the period covered by this report had been circulated prior to the meeting.

Members were provided with details of performance in the following areas:-

* Key Performance Indicators.

* Details of audits by Service Groupings

* List of audits completed this quarter and ongoing at end of Q3.
A
43/11
Consideration was given to a report on the Audit Strategy, Terms of Reference and proposed Annual Audit Plan for the coming financial year 2012/13.

The requirement for the Council to have an internal audit function was outlined in Section 151 of the Local Government Act 1972. More specific requirements were detailed in the Accounts and Audit (England) Regulations 2011 which required the Council to:

"undertake an adequate and effective system of internal audit of its accounting records and its system of internal control in accordance with the proper practices in relation to internal control".

The Council had delegated this responsibility to the Corporate Director of Resources.

Members were provided with details of the following:
- Internal audit Terms of Reference.
- Internal audit strategy.
- Audit plan.
- The productive audit days to deliver the 2012/13 audit plan.
- The proposed internal audit plan for 2012/13 and indicative plans for 2013/14 and 2014/15.
A
44/11
Consideration was given to a report that detailed the services provided by the Council's Health and Safety Unit to improve the health, safety and well-being control environment for the period 1st October to 31st December 2011.

The report covered the significant activity of the Health and Safety Unit, including partner and stakeholder involvement:-

1. Health and Safety Training
2. Health and Wellbeing Update
3. Accidents Reported
4. Physical Assaults Reported
5. Verbal Assaults Reported
6. Premises Audited
7. Construction (Design and Management) Regulations 2007 (CDM)
8. CDM-C Provision to External Clients
9. School's Educational Residential Visits
10. Children's Services Review of ‘visits' arrangements
11. Employee Protection Register Activity
12. Tendering Contractor Health and Safety Policy Appraisal
13. Involvement with external organisations
14. Löfstedt review update
A
45/11
Members were reminded that quarterly reports on the Corporate Risk Register were presented for the purpose of reviewing the key risks that had been identified as having the potential to deflect services from achieving their objectives over the next 12 months and beyond. They also set out the actions being taken to ensure that the risks, and possible adverse outcomes, are minimised.

Members had requested that, in the absence of substantial changes to the register, quarterly reporting should be confined to highlighting significant additions and amendments since the previous update, with a detailed report incorporating a review of the Council's risk management process being produced annually at the end of Quarter 4.

The interim report covered the period 1 October to 31 December 2011. All Service Groupings had been contacted subsequently and the returns indicated that there had been some changes to the Authority's risk profile over the months in question. This comprised the addition of one risk to the register, revision and update of a number of existing entries and of the numbering sequence where necessary.

The new risk and the updates of existing risks were detailed within the report.

As there had been one addition and no deletions from the Corporate Risk Register, the total number of entries at the end of the current Quarter had increased to 12.

For purposes of record, the changes referred to above had been incorporated in the latest version of the full Corporate Risk Register. This was available in the Member's Library and following approval, an electronic copy incorporating the supporting risk assessment details would be placed on the intranet.
A
46/11
Consideration was given to the Annual Report of the Audit Committee.

The Chartered Institute of Public Finance & Administration (CIPFA) stated that an effective Audit Committee would produce annual reports on its work and findings.

The report informed Members of the work of the Audit Committee during the past year and the sources of information upon which the enclosed Audit Committee opinion statement was based.

Members were reminded of the role of the Audit Committee which was:

- Reviewing and monitoring the Council's approach to risk management and corporate governance including the approval of the Statement of Internal Control.
- Monitoring the integrity of the Council's financial statements and approving the Statement of Accounts.
- Reviewing any proposed changes to accounting policies and promoting discussion around these.
- Considering budget reports and the effect of government announcements on the Council's finances.
- Reviewing Financial Update reports identifying the impact on the Medium Term Financial Plan.
- Approving the role and responsibilities of the Internal Audit Service.
- Considering the appointment of the External Audit, as far as the Audit Commission's rules permitted and monitoring the effectiveness of auditor's performance.
- Approving the internal and external audit plans.
- Reviewing Internal Audit work on a quarterly basis; internal and external annual reports together with any management response and receiving details of specific significant issues highlighted via audit work and referring to the Executive Scrutiny Committee; the Select Committees; the Standards Committee; Cabinet or Council, as appropriate, any issues arising which were key in nature.
- In conjunction with the Standards Committee, maintaining an overview of the Council's Constitution in respect of contract procedure rules, financial regulations and codes of conduct and behaviour, and considering the Council's compliance with its own and other published standards and controls.
- Considering details of key ethical and wider corporate governance issues submitted by the Standards Committee.

The Terms of Reference for the Audit Committee were approved by Council, at its meeting held on 25 January 2006, and formed part of the Council's Constitution.
At its meeting in January, Council also approved a Statement of Purpose for the committee:-

- The purpose of the Audit Committee was to provide independent assurance of the adequacy of the risk management framework and the associated control environment, independent scrutiny of the authority's financial and non financial performance to the extent that it affects the authority's exposure to risk and weakens the control environment, and to oversee the financial reporting process.

The report covered the period from 1st October, 2010 to 30th September, 2011 As many other reports give opinions or results at the end of the financial year, the timing of the report was to show that the review/appraisal of the control environment within this Council were on-going.

Although a new Audit Committee was still in the first year of operation, there had been a sufficient number of Members who had been members of both committees to ensure a continuance of the review/ appraisal process across the period of reporting.

The opinions of the Audit Committee expressed in the report were based on information supplied by the following specialist risk assessment services:-
- The Council's Monitoring officer,
- The Chief Accountant,
- The External and Internal Audit services,
- Health & Safety, and
- Risk Management and Insurance.
- A number of Corporate Governance reports.

The main thrust of all the specialist reports was to ensure risks were identified, managed appropriately and the resulting control environment was reliable. In receiving and challenging these reports the Audit Committee was well placed to form an independent over-view of the complete control environment including the Authorities Anti- fraud Strategy.

The carry over of membership of the Committee from the previous municipal year was sufficient to ensure work in progress was continued. To avoid the unsatisfactory possibility that Audit Committee members be required to report on a year of which they have no personal knowledge or experience (and therefore be reliant on the Officers upon whom they were supposed to exercise oversight), the previous Chair suggested that the Committee's report cover the work on the Authority's control environment for the year ending 30th September.

The members of the Committee had shown a strong commitment to the work for which they had been given responsibility and despite the influx of new Members and change of Vice Chair whose experience of Audit work had been invaluable the committee has functioned well. The Members had studied agendas and asked searching questions of officers not only presenting reports but also requesting further investigation of issues and explanation by the Chair and supporting officers of the committee.

It was fortunate insofar as the make up of the Audit Committee membership was diverse not only geographically but also in experience and expertise. Members represent not only the North and South of the Borough but also the major conurbations and communities giving a broad spectrum of geographical and electoral knowledge.

This overview coupled with long serving members with experience of Cabinet and Chairing Scrutiny Committees and members elected recently indicates a searching and enquiring membership with a varied and extensive knowledge capable of ensuring sound and ethical governance.

Members examined, challenged and approved the Annual accounts and noted the adjustments therein particularly to the value of the property portfolio of Council housing stock. The examination of these documents required the committee to examine and query at length the content and following lengthy discussion were accepted and approved.

The Committee was provided with details and discussed relevant avenues of borrowing potential agreements and Members of the Audit Committee discussed the issues surrounding Treasury Management, and the implementation of the Strategy at Stockton during 2009/10 to provide the Council, and its Committees, with sufficient safeguards and long term prudent financial planning. Members also looked in greater detail at the reports submitted by the Health and safety officer with regard to staff illness and injury and training and procedures for the prevention and monitoring of occurrences.

As well as looking at the Internal Audit Report, Corporate Risk Register and the Health and Safety Report at each meeting the Committee had, and would continue to include in its deliberations and debates External Audit Updates, The Audit Commission Annual Governance Report 2009/10, The Annual Governance Statement, Constitutional Updates (as required), The Annual Report of Standards Committee and The Monitoring Officer's Report. And last but certainly not least The Role of Internal Audit.

Under the Accounts and Audit (Amendment) Regulations 2006 an internal review of the Internal Audit service should be carried out each year. Consideration was given to the fifth such review, which had again been conducted under the auspices of the Corporate Governance Group. Two members of the Group had reviewed evidence and had formulated conclusions, findings and recommendations regarding the service, the details of which were submitted.

The financial statements were the first to be produced under International Financial Reporting Standards. This in itself was a major change to the accounting regime and had required the restating of the Balance Sheets for 2008/09 and 2009/10 and of the Comprehensive Income and Expenditure Statement for 2009/10.

The Council prepared well for the introduction of IFRS and produced the draft financial statements in time for the statutory deadline of 30 June. There were a large number of errors and inconsistencies in the statements, mainly due to IFRS adoption and stock transfer, including some material errors.

In conclusion the following would be added:-
It must record the Committee's gratitude to the Head of Internal Audit and wish him well in his retirement. His contribution and that of all of the staff involved in the provision, monitoring and control of the Governance and management of the affairs of the Authority had ensured that:-
'The Council has a sound, effective system of internal control. The Audit Committee is now well established with comprehensive terms of reference. The Audit Committee has responsibility for risk management, internal control and financial reporting. The Chair of the Audit Committee prepares an annual report on the Committee's work for presentation to Cabinet. Effective corporate and ethical governance is critical to an authority's performance and to demonstrating continuous improvement it is therefore, a fundamental element of the modernization agenda. Probity and high standards are an inherent part of corporate/ethical governance. They are also priorities in Law and Democracy's Service Plan and in the Council Plan.'
A
47/11
Members were presented with the Diary of Meetings and Work Programme for the Audit Committee for 2011/12.
A
48/11
Members were presented with the draft Diary of Meetings and Work Programme for the Audit Committee for 2012/13.

Members agreed that the two scheduled meetings for 16th April 2012 and 21st 2012 be cancelled and the work programme for 2012/13 be agreed.

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