Stockton-on-Tees Borough Council

Big plans, bright future

Audit Committee Minutes

Date:
Monday, 29th June, 2015
Time:
4.00 pm
Place:
Conference Room 2, Second Floor, Municipal Buildings, Church Road, Stockton on Tees
 
Please note: all Minutes are subject to approval at the next Meeting

Attendance Details

Present:
Cllr Barry Woodhouse(Chairman), Cllr Chris Barlow(Vice-Chairman), Cllr Stefan Houghton, Cllr Eileen Johnson, Cllr Jean O'Donnell(Vice Cllr Kath Nelson), Cllr Ross Patterson, Cllr Paul Rowling, Cllr Mick Stoker, Cllr Laura Tunney
Officers:
Paul Johnston, Martin Skipsey(RES), Sarah Whaley(LD)
In Attendance:
Martin Barnes(Mazars)
Apologies for absence:
Cllr Mrs Kathryn Nelson,
Item Description Decision
Public
A
1/15
EVACUATION PROCEDURE
 
A
2/15
DECLARATIONS OF INTEREST
 
A
3/15
EXTERNAL AUDIT - AUDIT PROGRESS REPORT
RESOLVED that the report be noted.
A
4/15
EXTERNAL AUDIT - AUDIT STRATEGY MEMORANDUM
RESOLVED that the report be noted.
A
5/15
INTERNAL AUDIT PEER REVIEW REPORT 2014/15
RESOLVED that
1.the report be noted

2.the following actions be undertaken and progress/completion be reported to future meetings of the Audit Committee:

- Extend the amount of specific anti-fraud work being undertaken, specifically additional data matching.

- Review and update monitoring and reporting procedures.

- Improved promotion of the service to provide managers and individuals with more information about the audit service and the audit process itself.

- Bringing together audit instructions/documentation into a single audit manual to reflect recent changes
A
6/15
INTERNAL AUDIT ANNUAL REPORT 2014/15
RESOLVED that the Audit Committee received the Annual Internal Audit Report for 2014/15 incorporating the opinion on the Council's control environment (paragraph 1.14) and the performance of the Internal Audit Section.
A
7/15
HEALTH & SAFETY ANNUAL REPORT
RESOLVED that the report be noted.
A
8/15
TREASURY MANAGEMENT UPDATE
RESOLVED that:

1. the report be noted

2. Members approve the changes to the Investment Strategy set out in the report
A
9/15
ANNUAL GOVERNANCE STATEMENT 2014/15
RESOLVED that the report be noted.
A
10/15
DRAFT STATEMENT OF ACCOUNTS
RESOLVED that the Draft Statement of Accounts for 2014/15 be noted.
A
11/15
CORPORATE RISK REGISTER Q4 APRIL 2015
RESOLVED that the report be noted.
A
12/15
WORK PROGRAMME
 

Preamble

ItemPreamble
A
1/15
The Evacuation Procedure was noted.
A
2/15
There were no declarations of interest.
A
3/15
Consideration was given to a report that updated Members on Mazars progress in meeting their responsibilities as the Council's external auditor. Also included in the report were key emerging national issues and developments which could be of interest to the Audit Committee and actions that may want to be considered.

Mazars had completed their initial audit planning processes for 2014/15 and agreed their Audit Strategy Memorandum for presentation to the Committee.

Formal responses had been obtained from the Corporate Director of Resources and the Audit Committee Chair on attitudes within the Council to fraud and compliance with laws and regulations, and the arrangements designed to prevent and detect incidents.

Mazars had planned their work programme in detail, discussed new developments and technical issues with key staff, ensured compliance with regulations governing the rights of electors, and completed early work on the Medium Term Financial Strategy and Plan.

Members were informed that the audit would begin in July 2015, and that Mazars would report their findings to the Committee at its September 2015 meeting.

Members were informed that in August 2010, the Department for Communities and Local Government (DCLG) announced plans to put in place new arrangements for auditing England's local public bodies.

The Local Audit and Accountability Act 2014 received Royal Assent on 30 January 2014. The Act made it possible for the Audit Commission to close, in line with Government expectations, on 31 March 2015, 30 years after it was established. Several of the Commission's functions would continue after its closure.

An independent company created by the Local Government Association, Public Sector Audit Appointments Limited (PSAA) was now responsible for overseeing the Commission's current external audit contracts with audit firms. This was intended to cover the period from 1 April 2015 until December 2017, or up to 2020 if the current contracts were extended. PSAA would manage the contracts and exercise statutory powers to appoint auditors, set and determine fees, and to make arrangements for housing benefit subsidy certification.
The professional conduct of auditors would continue to be regulated by the professional accountancy bodies. From 2017 or up to 2020, Recognised Supervisory Bodies would determine the eligibility of local public auditors and register them and, in turn, they would be recognised and supervised by the Financial Reporting Council (FRC).
FRC's Audit Quality Review team would continue to monitor the quality of local public audit work, through new regulatory arrangements that were being put in place.

Brief discussion also took place around the following:

- Code of Audit Practice.

- Whistleblowing.

- National Fraud Initiative (NFI).

- Counter Fraud.

- Provision of information about audit to electors.

- Analytical Tools/Value for Money (VFM).

- National Value for Money studies.

- Best Value inspections.

- Audit Commission historic reports and information.

Members discussed some significant emerging issues and developments in respect of:

- a briefing paper from CIPFA, 'Moving ahead with integration', published in May 2015; focusing on the integration of health and social care which had emerged as a key initiative, and three conditions proposed by CIPFA in order to meet it.

- a Mazars article from April 2015 published in the Room 151 magazine and website, covering Accounting for transport infrastructure - The long and winding road; it was reported that Local Authorities would have to account and report to Audit for their road networks, Stockton had already made good early progress in relation to this and were further ahead than most other authorities in the country.

- an update on new regulations on local authorities' disciplinary procedures for removing a senior officer. The finalised Regulations now provided, that where the final decision to dismiss any statutory officer (and not just the Head of Paid Service as now) must be taken by full Council, before taking that decision, Council must have invited at least two Independent Persons to be members of a Panel, and Council must take into account any recommendation of that Panel before taking a final decision to dismiss. The Committee were informed that Stockton's Monitoring Officer was aware of the changes and the arrangements which needed to be in place.
A
4/15
Consideration was given to the Mazars Audit Strategy Memorandum for Stockton-on-Tees Borough Council for the year ending 31 March 2015.

The purpose of the report was to summarise the audit approach that Mazars had taken highlighting significant audit risks and areas of key judgements and providing details of Mazars audit team.

The main issues discussed were as follows:

- Stockton Borough Councils accounts had been formerly published on the 24th June 2015 and would now be audited by Mazars in accordance with International Standards on Auditing.

- Mazars would give their opinion and statement on Stockton's accounts as to whether they were true and fair and delivering Value for Money (VFM).

- Audit Scope and Timeline approach. The Committee heard that regards timeliness Mazars were where they needed to be at this point in the Audit.

- Reliance on Internal Audit and other auditors such as Deloitte LLP.

- Reliance on the work of various experts in the preparation of various accounts which must be assessed and be reliable.

- Significant risks and key judgement areas.

- Management override of controls.

- Revenue Recognition, making sure a more positive picture had not been recorded in the accounts and that the revenue was real and reported within the right period.

- Pension reserve and liability, specifically in relation to balance sheet fluctuation and the reasons why.

- Value for Money (VFM) Conclusion, the risk highlighted here was if Mazars had given the wrong conclusion.

- Mazars audit team had remained the same at a senior level.

- Fees for Audit and other services which were fixed.

- In relation to Independence Mazars were required by the Financial Reporting Council to confirm at least annually in writing that they complied with the Auditing Practices Board's Ethical Standards. In addition Mazars communicated any matters or relationship which was believed may have a bearing on their independence or the objectivity of the audit team.

- Applying the concept of 'Materiality', when dealing with the risk of giving the wrong opinion.

- It was explained that materiality had been set at 6.7m with a clear trivial threshold of 202,000, below which identified errors would not usually be reported, however management would be informed.

- Members attention was drawn to Forthcoming accounting and other issues. Specifically to the earlier deadlines which the government had signalled for local authorities to produce their statements of accounts by 31st May 2017/18. The deadline for completion of external audit had also been moved forward to the 31st July 2017. In preparation for these earlier deadlines a joint project had begun for an earlier deadline in 2016 which would reduce the current timescale by one month.
A
5/15
Members were asked to consider and note a report that provided details of the review of the Internal Audit Service for 2014/15 and that the Committee agree that actions identified at paragraph 9 detailed within the report were to be undertaken and progress/completion be reported to future meetings of the Audit Committee.

The Accounts and Audit Regulations 2011 required an assessment of the Internal Audit service to be carried out annually against specific criteria set out in the ‘Public Sector Internal Audit Standards' and the associated ‘Local Government Application Note' (the Standards). An assessment had therefore been carried out against that check list. The assessment had again been undertaken by a designated member of the Corporate Governance Group.

The Code identified to sets of standards: attribute standards and performance standards, each of which included a number of themes of the Internal Audit process that needed to be considered in the assessment.

The main areas of discussion were as follows:

- The Assessment process which was undertaken was in a self-assessment type of way which involved reviewing the previous year's assessment and gathering additional evidence of compliance with the Standards through discussion with the Procurement & Governance Manager and the Audit and Risk Manager and by reference to key documents and supporting records.

- Recommendations from the Previous Assessment report which had been presented to the Audit Committee on 23rd June 2014. All of the improvement actions had now been completed.

- The Current Assessment had confirmed that there was a good level of compliance with the Code which facilitated the provision of a good Internal Audit service.

- It was noted that whilst the overall standard of Internal Audit was good, the assessment identified some areas of excellent practice that were worthy of acknowledgement which were detailed within the main report.

- The assessment did not identify any specific opportunities for improvement. Conformance with the Standard was confirmed in relation to each of the standards.

- It was highlighted in a report to the Audit Committee on the 23 February 2015, that additional actions had been identified to further enhance the internal audit service, one of these was to extend the amount of specific anti-fraud work being undertaken, specifically additional data matching.

- The Committee heard that the Internal Audit service complied fully with all key requirements of the Standards and overall the level of compliance was very high.

The Chairman informed Members that the Improvement Manager was the only external peer within the Council and worked outside of Audit.
A
6/15
Consideration was given to the Internal Audit Report 2014/15. This was the annual report of the Head of Finance Governance and Assets as required by the Public Sector Internal Audit Standards (PSIAS). The report included the Head of Finance Governance and Assets as the Chief Audit Executive's annual opinion on the overall adequacy and effectiveness of the Council's internal control and governance processes. As such it formed an integral part of the formulation of the Council's Annual Governance Statement, as required under the Accounts and Audit Regulations 2011 and the CIPFA "Framework for Delivering Good Governance in Local Government".

This report encompassed the reporting requirements specified in Standard 2450 of the PSIAS.

The main areas of discussion were as follows:

- Members attention was drawn to the Executive Summary which was detailed within the report. It was highlighted that the 2014/15 Audit Plan was approved by the Audit Committee on 24th February 2014. Best practice required that audit resources should target those areas that represented the greatest risk to the Council.

- There were to be a revised number of Audits to be undertaken of 108.

- The plan for 2014/15 was based on 7 full time auditors plus 1 part time auditor and comprised 1,451 planned audit days (Productive). A summary of the plan showing the planned and actual number of days was shown within the main report in table form. The table indicated the number of actual days exceeded the planned. The increase in unproductive time was as a result of the review of the service and an auditor changing role. There was also a period covering sickness absence for the audit manager and a period of long-term sickness within the team. With regard to the audits themselves these included additional unplanned audit work. This had not impacted on the ability of the Head of Finance Governance and Assets to provide assurance on the control environment.

- There had also been a large increase in the number of days it had taken to audit Schools. This was due to the implementation of a new audit approach and the bedding in period, whilst Auditors became familiar with the new approach.

- It was highlighted that there was still 12 outstanding audit engagements, however these had now been pretty much finalised and were due to complete in the next few days.

- A rating system was used when making recommendations from audits.to determine how the level of risk findings. 1* being minor and 4* being high risk requiring immediate attention. Stockton Borough Council had no 4* ratings.

- Members heard that each audit received an assurance opinion which ranged from full assurance to no assurance. The vast majority fell into the full or substantial assurance category.

- Members raised questions in relation to the auditing of schools. Officers confirmed that only Local Authority schools were audited by Stockton Borough Council. The likes of Academies etc., were responsible for their own audits and would use external auditors.

- Questions were raised in relation to the Customer Satisfaction Survey Results. It was explained that customer satisfaction came from departments which were audited including schools. If negative feedback was received then this would be looked into
A
7/15
Members were presented with the Health and Safety Report which provided an account of the activity undertaken by the Health and Safety Unit for the fiscal year 2014-15, to maintain and to improve the workplace health, safety and welfare control environment.
The main topics covered were as follows:
- 39 programmed corporate health and safety training sessions were delivered to a total of 385 delegates, with 21 further bespoke courses delivered to 187 delegates within departments.

- 3 programmed online training courses were recently made available to which 178 delegates took part in.

- In total 63 training courses were delivered to 750 candidates.

- Health and Well-being update included referrals to the service provided by Human Resources. These included 38 new physiotherapy appointments and 193 review physiotherapy appointments.

- There had been 110 accidents, 136 physical assaults and 15 Verbal assaults reported to the Health and Safety Unit during 2014/15, which was a reduction compared to the previous year.

- Brief discussion took place around Construction (Design Management) Regulations 2007 (CDM) integrating health and safety into the management of a project imposing specific duties onto clients, CDM Co-ordinators, Designers, Principal and Sub contractors and any others involved in the project.

- The Health and Safety unit assisted schools in assessing risks associated with educational visits.

- The Employee Protection Register (EPR) which helped identify known risks to front line staff.

- Brief discussion took place around Regulatory Updates. There had been recent updates to the Children and Families Act 2014 Sect 100, The Human Medicines Regulations (Amendment 2) Regulations 2014 and the Drugs Act 2005(assessment of misuse of drugs).

Members queried the number of verbal assaults which had been reported as it was felt the figure should be higher. Officers explained that systems were in place to enable staff to report any assault; however it was felt that a lot of staff would just consider it part of doing their job.
A
8/15
Consideration was given to a report that provided an update to Members of the practical implementation, in year, of the Treasury Management Strategy approved by Council in February 2015

The target for investment return in 2014/15 was 600,000. This was based on investing an average balance of 80 million at an average rate of 0.75%. The final out-turn figure of income achieved was 0.7746 million at a rate of 0.72%

The main issues discussed were as follows:

- Certain deductions had to be made from the interest earned figure as money had to be paid to certain services for the money that was invested i.e. school balances, commuted lump sums, Tees Valley Unlimited etc. In total, deductions amounted to 88,614 leaving a net return from investments of 685,979, a net return of 0.65% and 85,979 above target. The additional funds would be transferred in to general balances as a one off sum.

- Investment returns for the first two months of this year showed that Stokton was on track to meet this year's target; the estimated net return so far amounted to 105,200.

- The economic crisis in Greece was expected to impact on approximately 6 months of investment where rates would be expected to fall.

- Changes to Investment Strategy. The Council's treasury management consultants, Capita Asset Services, had advised that the Council would benefit from making some amendments to the strategy agreed in February 2015. The changes proposed were to:

a) Increase the amount that could be invested with the "Middle Limit Category" from 15m to 20m.

b) Increase the maximum duration of investments with other local authorities (including Police and Fire) to 3 years (currently 1 year).

c) Extend the maximum duration with RBS to 2 years (currently 1 year).

- In relation to borrowing as at 31st March 2015 it amounted to 48.04 million, of which 5.04 million was owed to the PWLB, with the remaining 43 million owed to Banks. Over the last few years the Council had followed a policy of reducing their cash balances to finance the Capital Programme rather than take out further borrowing. This was because the cost of borrowing in relation to what the Council received on its investments (the cost of carry) was high as was the risk of counter-party failure. The Council last borrowed on 15th August 2008. The Council would however need to borrow again in the future.

- With regards to the economy it had been estimated that there would not be an increase in interest rates around March 2016.

- Questions were raised in relation to divesting in the Royal Bank of Scotland (RBS) once it was no longer owned by the government. It was confirmed that once RBS was no longer state owned Stockton Borough Council would no longer invest. Key element when investing was that investments were safe. The situation with RBS would be reviewed on an annual basis.

- Members heard that returns on investments would go towards funding ongoing expenditure.
A
9/15
Members were presented with a report of the Council's draft Annual Governance Statement for 2014/15.

The Accounts and Audit (Amended) Regulations 2011 required all authorities in England to conduct a review at least once a year of the effectiveness of its governance framework and produce an Annual Governance Statement to accompany its Statement of Accounts. The deadline for completion of the Statement of Accounts for 2014/15 was 30 June 2015 at which point they were subject to the external audit process.

The audited Statement of Accounts and the Annual Governance Statement would be presented for approval to the Audit Committee on the 28 September, 2015.

A further requirement of the regulations stated that the Statement should be signed by the Chief Executive and the leading Member of the Council, following approval by the Committee. A key objective of this signing off process was to secure corporate ownership of the statement's contents.

The Annual Governance Statement included an acknowledgement of responsibility for ensuring that proper arrangements were in place around the governance of its affairs and an indication of the level of assurance that the system provided. The statement also included a description of the key elements forming the governance framework, a description of the process applied in reviewing the effectiveness of the framework, including the system of internal control, and an outline of the actions taken or, proposed to be taken, to deal with significant governance issues.

The Council's draft Annual Governance Statement for 2014/15 was attached at Appendix A of the main report. At this time the Council had not identified any significant issues that were not being addressed within the Statement. Officers would be present at the meeting to report on the governance framework and control environment in place within the Council that enabled the detailed preparation of the statement. Mazars LLP, Stockton Borough Councils external auditors, had been consulted on the process and the identification of key governance issues.

The main topics discussed were as follows:

- Stockton Borough Councils Scope of Responsibility.

- The Purpose of the Governance Framework.

- The Governance Framework.

The Council
- The Council as a whole was responsible for agreeing the Constitution, which underpinned the governance arrangements.

- The constitution was reviewed in 2014/15 in order to reflect changes which had occurred such as new legislation, decisions taken by Cabinet or Council or revisions or functional responsibilities of services as a result of operational or management reviews, or to rectify inconsistencies, errors or presentational issues.

The Cabinet
- The Cabinet was the part of the Council and carried out all of the local authorities functions which were not the responsibility of any other part of the local authority whether by law or under the constitution. The Cabinet was made up of the Leader of the Council and 6 other Members.

- Significant internal control issues

Members were invited to e mail the Procurement and Governance Manager with any comments they wished to make in relation to the Annual Governance statement.
A
10/15
Members were asked to consider and note the Draft Statement of Accounts for 2014/15.

The key issues discussed were as follows:

- The previous process used was to present the statement of accounts to the Audit Committee prior to the accounts being passed to external auditors. A new process dictated that external auditors would receive the accounts by the 30th June without the requirement of the Audit Committee's approval. It was however seen as good practice to continue to present the accounts to Audit Committee and therefore remained as part of the process.

- None current assets amounted to 347 million which was a decrease of 9 million over 2014/15 due to schools attaining academy status and therefore being removed from the Councils asset register. Also changes reflecting the long-term lease arrangements for leisure facilities.

- Investments and Cash amounted to 72.3 million. This was a decrease of 25.3 million from the previous year. This reflected the investment in the Council's capital programme and the repayment of a long term loan.

- The Council's current Long and Short-Term Borrowings.

- The Council's earmarked reserves (excluding schools) had increased to 111.8 million which was an increase of 5.4 million from the previous year.

- The level of General Fund balances at the 31st March stood at 6.8 million and School Reserves stood at 7.2 million.

- The Council's Pension Scheme deficit had increased from 165.9m to 224.1m, an increase of 58.2m. This resulted from the actuaries' assessment of fund performance, the re-measurement of scheme assets and liabilities and the use of a lower discount rate to calculate the present value of future pension liabilities. It was noted that Teesside Pension was operated like a proper pension fund and was more than 100% funded.

- The external auditors, Mazars LLP, had determined that the statutory audit would formally commence on 13th July 2015. Members of the Public had a 4 week period to request anything they wanted however the period of public scrutiny would change going forward
A
11/15
Consideration was given to a report relating to Corporate Risk Register for quarter 4 (2014/15) - period ending 31 March 2015.
The Committee was reminded that quarterly reports on the Corporate Risk 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 and any risks with a score of 15 or above were included on the Corporate Risk Register. For information, any risks scored between 9 and 12 were included on Service Group Risk Registers.

The committee 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.

This report covered the period 1 January to 31 March 2015. All Service Groups had been contacted and the returns indicated that there had been one risk added to the Corporate Risk Register. The risk related to the Better Care Fund and although the risk was previously identified and sat on the CESC risk register, a recent review had resulted in the impact score increasing from 4 to 5. In addition there had been some minor updating to the risks previously included on the Council's Corporate Risk Register over the months in question. The changes comprised a general update to all risks to reflect ongoing progress.

As a result, the total number of significant risks in the Corporate Risk Register at
the end of Quarter 4 is 11.

For purposes of record, the changes referred to above had been incorporated in the latest version of the full Corporate Risk Register. This was detailed within Appendix A of the main report.
A
12/15
The Work Programme was noted.

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