Stockton-on-Tees Borough Council

Big plans, bright future

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

Monday, 2nd December, 2013
4.00 p.m.
Conference Room 2, Second Floor, Municipal Buildings, Church Road, Stockton on Tees, TS18 1LD
Please note: all Minutes are subject to approval at the next Meeting

Attendance Details

Cllr Barry Woodhouse (Chair); Cllr Derrick Brown, Cllr Michael Clark, Cllr Phillip Dennis (Vice Cllr David Wilburn), Cllr Terry Laing and Cllr Ross Patterson.
G Cummings, A Barber, D MacDonald (R); P K Bell (LD).
In Attendance:
Martin Barnes (Mazars).
Apologies for absence:
Cllr Alan Lewis, Cllr Mick Moore, Cllr Mrs Kathryn Nelson and Cllr David Wilburn.
Item Description Decision
There were no interests declared.
The minutes of the meeting held on 23rd September 2013 were confirmed and signed as a correct record.
RESOLVED that the report be noted.
RESOLVED that the report be noted.
RESOLVED that the report be noted.
RESOLVED that the report be noted.
RESOLVED that the report be noted.
RESOLVED that the report be noted.
RESOLVED that the update be noted.
RESOLVED that the Work Programme 2013/14 be noted.
4.00 pm - 6.00 pm


Consideration was given to a report on the progress in relation to Mazars responsibilities as the external auditor of Stockton-on-Tees Borough Council. Also included in the report were key emerging national issues and developments.

At the meeting held on 23 September 2013 audit completion report was presented to Members, summarising the results of the 2012-13 audit of Stockton-on-Tees Borough Council.

On 30 September Mazars gave an unqualified opinion on the accounts and value for money conclusion, within the applicable deadline. The reports included certificates closing the 2012/13 audits. Mazars also gave an unqualified assurance statement on the consolidation schedules for Whole of Government Accounts on 30 September 2013, again within the applicable deadline.

The Annual Audit Letter for 2012/13 had been agreed with the Council, and submitted to the Audit Commission. The letter would be published on the Audit Commission website.

Work was continuing on the certification of the Council's 2012/13 Benefits Subsidy claim, which was the final element of the 2012/13 audit. Testing was at an advanced stage, and Mazars were expecting to complete the work and issue their report before the submission deadline of 30 November 2013.

Mazars would also begin planning their 2013/14 audit, and would expect to issue their Audit Strategy Memorandum early in the New Year.

The report outlined some significant emerging issues and developments in respect of:-

•Annual Fraud Indicator Report 2012/13;
•Audit Commission Value for Money profiles;
•Code of Practice in Local Authority Accounting in the UK: Disclosure Checklist 2013 -14 accounts; and
•Accounting and Auditing Standards: a Public Services Perspective
Consideration was given to a report on the External Audit Annual Letter.

The Mazars 2012/13 audit of Stockton-on-Tees Borough Council was made up of two elements:-

* The audit of the financial statements; and
* The assessment of arrangements for achieving value for money in your use of resources

The report summarised the key conclusions for each element.

With regard to the audit opinion and financial statements Mazars had issued an audit report including an unqualified opinion on the Council’s financial statements on 30th September 2013. The audit had progressed smoothly, and identified only a small number of errors.

With regard to Value for money Mazars had undertook work in line with Audit Commission guidance, including specific work on the robustness of the Council’s updated Medium-Term Financial Strategy. Mazars had concluded that the Council had proper arrangements to ensure economy, efficiency and effectiveness in the use of its resources. Mazars had also issued their certificate, closing the year’s audit, on 30 September 2013.

The letter represented the completion of Mazar's first year as the appointed auditor. Mazars recognised the challenges the Council faced, which included:-

* further reductions in the revenue budget, requiring savings of more than £50 million over the 7 years to 2016/17;

* pressure on demand led services such as those for looked after children, education and adult social care;

* a continuing programme capital works and redevelopment, including the Town Centre and High Street

Mazars would focus the audit on the risks that these challenges present to the Council’s financial statements and its ability to maintain proper arrangements for securing value for money. Where relevant Mazars would also share useful insights that Mazars had as a national and international accounting and advisory firm with experience of working with other public sector and commercial service providers.

With regard fees Mazars audit fees for the year were in line with those communicated to the Council in the Audit Strategy Memorandum dated January 2013, being £167,940 (plus VAT). Mazars did not undertake any non-audit services for the Council in 2012/13. Mazars discussed the letter with the Corporate Director of Resources and would provide copies for all Members. Further detailed findings and conclusions in the areas covered by the audit were included in the reports issued to the Council during the year.
Consideration was given to a report on the work carried out by the Internal Audit Section and the progress made during the period 2 September to 31 October 2013 against the 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.

Attached to the report were details of the sections performance in the following areas:-

* Key Performance Indicators

* Details of audits by Service Groupings (2012/13 & 2013/14).

* List of audits completed and in progress and number of recommendations made (2012/13 & 2013/14)
Consideration was given to a report that provided an update on the practical implementation, in year, of the Treasury Management Strategy approved by Council in February 2013.

The target for investment return in 2013/14 was £800,000. The position at halfway through the year was that investment income of £590,000 had been returned. This meant that the target should be comfortably achieved. However the amount returned in the second half of the year would be considerably less. The average rate of return in April was 1.24%, by September this had dropped to 0.96%. At this current moment in time the authority had only two placements that were above 1%. These would both cease in March 2014. Members had been made aware previously how the Funding for Lending Scheme had impacted on rates of return, and this showed no sign of easing in the foreseeable future. Therefore the forecast for 2014/15 was likely to be reduced again. The final calculation would be included in the Medium Term Financial Plan report and process. Members were reminded that at the time of the credit crunch crash in 2008 Stockton had a target of £4.6m for investment income return. As a consequence the Medium Term Financial Plan faced a considerable pressure from this development, in addition to the reductions in funding that are occurring.

With regards to the main UK banks the Council had on the counterparty list, performance for the half year results showed all five were in profit for the first time since 2010. In comparison to the first half of 2012 though it was more of a mixed picture. HSBC, RBS, and Lloyds improved on their performance from last year. Both Barclays and Santander UK showed comparative reductions in the profit gained. The improvement in Lloyds led to a partial sale of the tax holders’ stake in the bank, and further sales were expected as its position improved. It had also been reduced in size with the separation of branches into the TSB brand. In addition late in October the Chancellor announced plans to assess the break up of some of the current RBS structure into a bad bank, to isolate those financial deals considered most at risk of default. This continued the momentum to try and add stability, and diversity, to the banking sector, but there was undoubtedly a substantial way to go before this was achieved.

The economic position both in the UK and Europe had improved since the last report. The improvement in UK had been the more substantial, although many commentators point out there was still some considerable way to get back to 2008 levels. The recovery in Europe was much smaller but nevertheless was seen as the first possible sign that it may be ‘turning the corner’. As always with the Eurozone the picture was not consistent. The position in Spain and Italy was still one that raised cause for concern.

It was just over five years since Lehman Brothers became insolvent and the reverberations were felt in large parts of the international banking sector. The above paragraphs show that there had been a measure of improvement in the banking sector, and the economy, in recent months. Since the collapse banks had been made to increase their capital requirements to absorb losses. They were also required to more evenly match their loans to those they give out, stopping the imbalance that was one of the contributing factors to the credit crunch. However it was the considered opinion of the Stockton Treasury Management team that it was too early to be considering placements beyond 12 months. There needed to be a much greater, more sustained, recovery before a return to that position occurs.

Members felt that future Treasury Management Strategy reports should include information on Council borrowing.
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, were minimised.

As a reminder, risks were scored on a scale of one to five for both ‘impact’ and ‘likelihood’. The scores were multiplied to generate a total score. Historically, any risks with a score of 16 or above were included on the Corporate Risk Register. However, officers had suggested that risks that score 15 should also be included on the Corporate Risk Register, because these risks must had been scored a 5 for either ‘impact’ or ‘likelihood’ and therefore contained a serious element worthy of inclusion on the register.

For information, any risks scored 9, 10 and 12 were included on Service Group Risk Registers.

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. However, due to the changes to the scoring criteria to risks for inclusion on the Corporate Risk Register, a full copy of the current register was reported for this quarter.

The report covered the period 1 July to 30 September 2013. All Service Groups 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. The changes comprised the addition of 4 risks, 2 of which were existing risks scored 15 that were included on the register.

Full details of all risks were included on the Corporate Risk Register and were attached to the report. The recent additions were summarised within the report.

As four new risks had been added, the total number of significant risks in the Corporate Risk Register at the end of the current quarter was 11.

At the Audit Committee Meeting held 23rd September 2013, Members expressed an interest in viewing risks scored between 12 and 15 that were included on Service Group Risk Registers. Risks scoring 15 were now included on the Corporate Risk Register, so those risks scoring 12 had been included and were attached to the report for information.
Consideration was given to a report that detailed the regular non -responsive services provided by the Council’s Health and Safety Unit to monitor, improve and to ensure compliance of the health, safety and well-being control environment for the period 1st July 2013 to the 30th September 2013.

This detail encapsulated the regular, non-responsive activity of the Health and Safety Unit, including:-

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. School’s Educational Residential Visits
9. Employee Protection Register Activity
10. Tendering Contractor Health and Safety Policy appraisal

Members discussed the Health and Wellbeing Update and felt that future reports should include more detailed information on the value for money for physiotherapy referrals and sickness reduction. (DEREK IS THIS PARA OK?)
The Chair requested that if any Member had anything that they wanted including in the Annual Report they should email him the details for inclusion.
Consideration was given to the Work Programme 2013/14.

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