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

Monday, 28th September, 2015
4.00 pm
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

Cllr Barry Woodhouse(Chairman), Cllr Chris Barlow(Vice-Chairman), Cllr Philip Dennis(Vice Cllr Laura Tunney), Cllr Stefan Houghton, Cllr Eileen Johnson, Cllr Mrs Kathryn Nelson, Cllr Ross Patterson, Cllr Paul Rowling, Cllr Mick Stoker,
Andrew Barber, Derek MacDonald, Paul Johnston(RES), David Bond, Sarah Whaley(LD)
In Attendance:
Martin Barnes, Mark Kirkham(MAZARS)
Apologies for absence:
Cllr Laura Tunney
Item Description Decision
RESOLVED that the declarations be noted.
RESOLVED that the minutes be approved and signed as a correct record by the Chairman.
RESOLVED that the report be noted.
RESOLVED that the report be noted.
RESOLVED that the report be approved.

1. The Committee note and approve the review report and the recommendations arising from it.

2. The Committee’s views in that respect be submitted to Cabinet, at its meeting on the 8 October, when it will be making recommendations to Council regarding the review.
RESOLVED that the report be noted
RESOLVED that the report be noted.
RESOLVED that the report be noted.
RESOLVED that the Statement of Accounts for 2014/15 be approved and the Chairman of the Audit Committee sign the balance sheet.
RESOLVED that the report be noted.
4.00pm - 5.00pm


The Evacuation Procedure was noted.
All Members declared a personal interest in relation to the Item, 'Statement of Accounts' at Appendix B as it listed the Annual Financial Statement 2014/15 for Members Allowances.
Consideration was given to the minutes from the meeting which was held on the 29th June 2015 for approval and signature.
Consideration was given to the External Audit - Audit Completion Report, the purpose of which was to summarise Mazars (the authorities external auditors), audit conclusions for the year ending 31st March 2015.

The scope of Mazars work, including identified significant audit risks and areas of management judgement was outlined in their Audit Strategy Memorandum which was presented to Audit Committee on 29th June 2015. Mazars had reviewed their Audit Strategy Memorandum and concluded that the original significant audit risks identified remained appropriate.

Mazars thanked the Officers of Stockton Borough Council for their assistance during the course of their audit.

The main topics discussed were as follows:

- The document had been prepared to communicate the findings of Mazars audit for the year ending 31st March 2015 to the Audit Committee of Stockton-on-Tees Borough Council which formed the basis for discussion at the Audit Committee meeting on 28 September 2015.

Mazars communication with the Committee was important to:

• Share information to assist both the auditor and those charged with governance to fulfil their respective responsibilities;

• Provide the Committee with constructive observations arising from the audit process;

• Ensure, as part of the two-way communication process, Mazars gained an understanding of the Committees attitude and views in respect of the internal and external operational, financial, compliance and other risks facing Stockton-on-Tees Borough Council;

• Receive feedback from the Committee as to the performance of the engagement team.

As outlined in Mazars Audit Strategy Memorandum, their audit had been conducted in accordance with International Standards of Auditing (UK and Ireland) which meant Mazars focus on audit risks that they had assessed as resulting in a higher risk of material misstatement. Section 3 of the report included Mazars conclusions on the significant risks and areas of management judgement that they set out in their Audit Strategy Memorandum.

Details of internal control recommendations in section 4 of the report and a summary of misstatements discovered as part of the audit were detailed in section 5 of the report.

Mazars had substantially completed their audit of the financial statements for the year ending 31st March 2015.

Mazars expected to be able to certify the closure of the 2014/15 audit by 30 September 2015. No objections had been received to the Council’s 2014/15 statement of accounts from electors and there were no outstanding matters or correspondence with electors.

Mazars reported their audit findings in respect of each of the significant audit risks they identified and, subject to the satisfactory conclusion of the remaining audit work, Mazars anticipated:

- issuing an unqualified opinion, without modification, on Stockton Borough Councils statement of accounts; and

- concluding that the authority had made proper arrangements to secure economy, efficiency and effectiveness in its use of resources.

Mazars also anticipated completing their work in respect of the Whole of Government Accounts submission in line with the group instructions issued by the National Audit Office before the deadline of 2 October 2015.

In relation to the summary of misstatements which management had decided not to adjust, Mazars confirmed that the effect of the uncorrected misstatement was immaterial to the statement of accounts as a whole. A list of the uncorrected misstatements was attached to the main report as an Appendix.

In relation to further improvements, Members attention was drawn to the fact that the Council prepared high quality accounts and financial information. Mazars did, however, identify the following area where the Council could improve its arrangements for accounts preparation arrangements:

At the end of the financial year, letters were issued to Councillors and senior employees requesting declaration of interests, including those of family members. Those declarations were important in preparing disclosures on related party transactions, and for 2014/15 only 21 out of 56 Councillors replied. The remedial action proposed was to monitor response rates in future and to ensure Councillors provided the information required. The returns were issued to elected members earlier this year however the local elections and the number of councillors who retired or were not re-elected had an impact on the overall rate of return.

In relation to Management response, the number of returns received was lower than in recent years. Mazars stated that they would endeavour to encourage a better rate of response in 2015-16.
Members were asked to consider a report which under Section 5 of the Audit Commission Act 1998 gave Mazars a statutory duty to confirm that Stockton Borough Council had made proper arrangements for securing economy, efficiency and effectiveness in their use of resources.

Mazars referred to their assessment as the Value for Money (VfM) Conclusion.

The Code of Audit Practice 2010 required Mazars to adopt a risk-based approach to the work, focussing on criteria set annually by the Audit Commission. The Audit Commission issued guidance in October 2014 that defined sector specific risk areas for 2014/15.

The criteria for councils were whether external auditors assessed that the organisation had:

- proper arrangements in place for securing financial resilience;

- proper arrangements for challenging how economy, efficiency and effectiveness was secured.

The Audit Commission closed on 31 March 2015, but the requirements in relation to the 2014/15 VfM Conclusion were unchanged. Guidance was now maintained by the National Audit Office (NAO), and auditor compliance with the guidance was monitored by Public Sector Audit Appointments Ltd (PSAA).

In planning the 2014/15 audit Mazars referred to various risk factors which might indicate, for each criterion, a significant risk that thier assessment would result in an incorrect conclusion. In that way, Mazars could plan risk-based procedures to ensure that sufficient work was completed to support a sound conclusion.

In the 2014/15 Audit Strategy Memorandum which had been set out in some detail Mazars understanding of the financial position at the Council. Mazars reported that ongoing uncertainty on the scale of future decreases in funding available from Central Government, in particular following the General Election, presented a significant risk in respect of the financial resilience criterion.

Mazars had therefore considered in detail in Section 2 of the report how the Council approached:

- monitoring budgets;
- reviewing the medium term financial plan;
- ensuring that identified savings were being achieved;
- assessing the impact of budget reductions on service delivery.

The remainder of the report assessed the Council’s other arrangements based on the VFM criteria, and challenged their adequacy with a ‘reality check’ to verify their effectiveness in practice.

In relation to National Context, the Government’s 2010 Spending Review, covering the period from 1 April 2011 to 31 March 2015, had led to significant reductions in public spending. In its 2014 report Financial Sustainability of Local Authorities, the NAO reflected on the 26% reduction (excluding funding for schools and benefit claimants) in the local government departmental spending limit, the further 1% reduction in 2014/15 and the 10% reduction for 2015/16. Changes in the funding formula had resulted in much greater cuts in predominantly urban boroughs like Stockton than in more affluent, rural areas.

Subsequent spending reviews, financial settlements and budget declarations indicated that austerity was likely to continue for several years. The new Government intended to remove revenue support grant entirely by 2020/21 and was committed to the need for further cuts in public spending. The funding reductions came at a time when demographic changes were increasing demand for services, especially social care.

Broadly, councils had responded well to the challenges of recent years and made adequate arrangements to ensure financial resilience, economy, efficiency and effectiveness. However, all single-tier councils were making tough budget decisions and finding it increasingly difficult to protect front-line services. In this context the risk of auditors giving an unsafe conclusion on arrangements to secure VfM was significantly increased.

In relation to Local Context Mazars 2014/15 Audit Strategy Memorandum provided the context for their planning:

- the Council managed its financial health and sustainability over the medium term for both its revenue and capital resources;

- financial monitoring reports were detailed and sophisticated, showing how reserves would be used, replenished and preserved to the end of 2017/2018.

At the time, the net cost of services for 2014/15 was budgeted at £169.66m, with an expected £7.49m surplus at the year-end for use in supporting delivery of the Medium Term Financial Plan and Strategy (MTFPS - summarised in Appendix 1) 2015/16 to 2018/19. The long-term capital programme covered the period 2012 to 2018, and included approved investments and projects of £183.75m against which £96.97m had been spent.

The Council had total reserves of £123.22m at 31 March 2014, including the general fund reserve of £8.71m. Members had agreed utilisation of existing reserves and a range of one-off resources which allowed investment of a further £9.81m in strategic initiatives and developments alongside other existing commitments, whilst maintaining useable reserves at a consistent level.

At the time, the MTFPS set out how the Council expected to continue delivering services and maintaining financial stability with a ‘budget gap’ expected to reach £24.09m by 2018/19. Within this amount, £12.91m of the cost reductions and savings would be met from ongoing ‘Big Ticket’ reviews of social care for adults and children, and of energy and waste management. The reviews, which began in 2013, had already delivered significant savings from investment in new initiatives and service delivery models, which meant that £6.70m of the 2018/19 target had already been identified.
Other areas of service expenditure were balanced across the next two financial years but by 2018/19, further savings of £11.18m would need to be identified and secured alongside the remaining £6.21m from the ‘Big Ticket’ areas. In overall terms, in delivering the MTFPS the Council aimed to reduce service expenditure by a further 9.6% compared to the current year.

The 2014/15 VFM Conclusion was set out in Mazars Audit Completion Report, which would be presented to the Audit Committee in September 2015. The Conclusion would, however, be based on the assessment information set out in the report attached.

Members were informed that the financial resilience criterion had three aspects:

- financial governance;
- financial planning;
- financial control.

The typical characteristics of proper arrangements for those aspects, taken from the auditor guidance, were covered within the main report together with Mazars assessment of the Council’s arrangements.

Mazars also gave ratings as follows:

- Green - Adequate arrangements identified.
- Amber - Arrangements mostly adequate, but with some risks or weaknesses being acted on.
- Red - Arrangements were generally inadequate or had a high risk of not succeeding.

In relation to Securing the 3 E's the economy, efficiency and effectiveness criterion had two aspects:

- prioritising resources;
- improving efficiency and productivity.

Characteristics of proper arrangements for those aspects were covered within the main report, together with Mazars assessment of the Council’s arrangements, using the same rating model as in Section 2 of the report.

Members were informed that the ratings that had been given to Stockton Borough Councils financial resilience and securing the 3 E's in terms of Typical characteristics of proper arrangements were green.

Members thanked the Officers of Mazars for a positive report which showed every penny was considered value for money.
Members were asked to consider and approve the Annual Governance Report.

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.

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 this 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 Annual Governance Statement for 2014/15 was attached. 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, the Councils external auditors, had been consulted on the process and the identification of key governance issues.
Members were asked to consider and review a report detailing the Localism Act 2011 - Review of the Council's Local Standards Arrangements. Members views would be submitted to Cabinet at its meeting on the 8 October 2015, which would then be making recommendations to Council regarding the review.

When the Council’s local standards arrangements were first reviewed in September 2013, it was agreed that there would be a further review after 12 months of operation.

The Council agreed new standards arrangements, as required by the Localism Act 2011, on the 7 March 2012.

Subsequently, Council agreed a new code of conduct for members on 18 July 2012.

Council agreed that the new arrangements should be reviewed after 12 months of operation.

A review was undertaken, and was the subject of a report to Council in September 2013. One of the report’s recommendations, agreed by Council, was that another review of the standards arrangements should take place after a further 12 months of operation, and that the outcome, with any recommendations, should be reported to the Audit Committee, Cabinet and Council.

This review was referred to in the Annual Governance Statement for 2014/15 which was reported to and agreed by the Audit Committee on the 29 June 2015, under the section in the statement “promoting and demonstrating values of good governance through behaviour”.

A report, setting out the outcome of the most recent review of the Council’s standards arrangements, was attached at the Appendix to the main report.

The recommendations arising from the review report were as follows:-

- The report regarding the review of the Council’s local standards arrangements be considered; and (as the report recommended) that,

- No changes should be made to the principles of conduct or the Council’s code of conduct for Members;

- Awareness should continue to be maintained, and that appropriate advice, guidance and training should continue to be provided, in connection with the general principles and the code;

- The Council’s Confidential Information protocol should be re-issued and re-circulated to all Members, in order to highlight the arrangements and requirements regarding exempt and confidential information;

- Copies of the letters (about standards of conduct) previously sent to the Planning Committee should be re-circulated to all of the current Members of the Committee;

- Members should continue to be reminded of the importance of complying with the law, and the significant risk of not doing so, when using social media, or any other forms of electronic communication.

- The arrangements for dealing with member misconduct complaints should remain unchanged, and as originally approved by Council;

- All Council Members should take appropriate action to ensure that their register of interests details had been submitted and were being kept up to date;

- Regular reminders, advice and guidance should continue to be provided to Stockton’s Members and to the members of the borough’s Town/Parish Councils, regarding the need to submit and keep their registerable interests up to date;

- The procedures relating to the disclosures of interests at, and withdrawal from the Council’s meetings should be reaffirmed;

- Appropriate and timely advice regarding those procedures should be made available to all members when required;

- The documentation (protocol and application form) and procedure regarding dispensation applications and determinations should be reaffirmed and re-circulated to all Members;

- Guidance and/or briefings regarding any aspects of the Council’s standards arrangements should be provided to individual Members or their Groups if required, on request;

- The guidance for Members regarding gifts and hospitality should be reviewed and re-circulated; and that

- The Council’s standards arrangements should be reviewed again during the 2017/18 municipal year.

- The Committee was asked to consider the review report and the recommendations arising from it.

- The Committee’s views could then be reported to Cabinet, when it considered the matter at its meeting on the 8 October. Cabinet’s recommendations would be reported to full Council on the 21 October.

- The Committee supported the recommendations, but it was stressed that they should relate to all Members, and should not, as in the case of recommendation 5 for instance, be restricted to just Planning Committee Members.
Members were asked to consider and note the Internal Audit Progress report which provided members with an update of the work carried out by the Internal Audit Section and the progress made against the Audit Plan 2015/2016.

Internal Audit was an independent appraisal function established by the Council to objectively examine, evaluate and report on the adequacy of internal controls. The 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.

Committee Members were reminded that the list of audit assignments undertaken in the current year to date had been circulated to all Councillors prior to the meeting. The intention was to give Councillors the opportunity to raise questions on issues that affected their ward or other areas of responsibility and for answers to be provided at the meeting.

The attached update report showed the current position in respect of the progress against the 2015/16 audit plan and the results of the work that had been undertaken.

The post of Senior Auditor was vacant during April & May which had resulted in some slippage within the plan. The section also had a vacancy at Audit Technician level and the Risk and Special Projects Officer was due to start maternity leave shortly. This had resulted in a re-assessment of the plan for 2015/2016.

Members asked Officers if the recent staffing changes would result in the current high standard of risk not being maintained. Officers explained that staffing issues may cause some slippage in the future however there were ideas afoot to minimise the risk.

It was highlighted by Officers that the Audit Plan was constantly revised during the year to take account of changing requirements. Amendments to the plan which had been agreed in February 2015 were summarised at 1.3 of the report and also included unplanned Audits which had been added to the Plan. Members learned that some of the unplanned Audits were due to local schools which had not returned SFVS Self Assessments and therefore full audit was required. Members also heard about the unplanned Audit for Highways and Management HMEP Self-Assessment, which was a new requirement for 2015/16.
Members were presented with a report which 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 April 2015 - 30th June 2015.

The report encapsulated the regular, non responsive activity of the Health and Safety Unit including the following:-

Health and Safety Training
Health and Wellbeing Update
Accidents Reported
Physical Assaults Reported
Verbal Assaults Reported
Premises Audited
Construction (Design and Management) Regulations
School’s Educational Residential Visits
Employee Protection Register Activity
Safety Warnings, Advice or Reminders Issued
Regulatory Update.

The main issues discussed were as follows:

- Members attention was drawn to look at incidents and accidents which were detailed at appendix 2 of the report.

- Officers highlighted the revised Construction (Design & Management) Regulations 2015 which came into force on 6 April 2015. The Health & Safety Executive (HSE) objectives behind the new regulations were far-reaching and marked a significant shift in the health and safety regulatory regime for procurement, design and delivery of construction projects. Members were informed that all staff carried out statutory requirements in relation to training across all types of construction on site.

- Discussion took place in relation to the Employee Protection Register, around formal reporting regarding verbal assaults and what measures were in place to deal with them. If threats were made and were likely to be realised, consultation would take place with the employees Line Manager and the employee would be protected. In rare cases the police would be involved. Counselling was also available if required through Alliance.

- Safety warnings. Advice or Reminders issued.

- Regulatory Update.

Members raised questions in relation to online staff training and whether it was more cost effective and as effective as classroom training and whether it would be expanded.

Officers explained that some online training was at refresher level only, such as the asbestos training which was only open to those who had previously attended a course. Lifting courses also operated in the same way. It was also explained that online training must dovetail adequately with corporate training. Expansion of online training would be looked at next year.
Consideration was given to a report which provided details to Members of the performance in 2014-15 against the Treasury Management Strategy approved by Council in February 2015.

The Local Government Act 2003 required the Council to produce an annual treasury management review of activities and the actual prudential and treasury indicators for 2014/15.

The Council operated within the requirements of the CIPFA Code of Practice on Treasury Management and the CIPFA Prudential Code for Capital Finance in Local Authorities. The Council was required to comply with both Codes through Regulations issued under the Local Government Act 2003.

The report set out the key prudential indicators and the Council’s performance against them. In summary the Council remained within its set Authorised Limit and Operational Boundary for the year. Investment returns exceeded the target and borrowing costs were reduced by the repayment of a long term loan.

The main issues discussed were as follows:

- Interest rates remained low with the base rate remaining at 0.5%.

- It was difficult to make a profit on Council funds, however the authority was trying to generate as much return as possible.

- Borrowings were at fixed rates and long term.

- Although the authority could borrow more there wasn't the need to do so.

- The authorities level of debt had been reduced which had resulted in a saving of £700k of interest.
Members were asked to consider and approve the Statement of accounts 2014/15.

The accounts had been completed in accordance with the “Code of Practice on Local Authority Accounting in the United Kingdom 2014/15” which was prepared under International Financial Reporting Standards.

The Accounts and Audit Regulations (England) 2011 required all authorities in England to prepare their Statements of Accounts by 30th June each year. The completed draft accounts for 2014/15 were passed to the external auditor by the deadline.

The Accounts and Audit Regulations (England) 2011 required that Members approved the accounts after the audit had been completed and by 30th September.

The following key financial issues were included in the accounts:

Non-Current Assets amounted to £348.5 million; this was a decrease of £7.1 million over 2014/15. The reduction in value was due to schools attaining academy status and being removed from the Council’s asset register and 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 total £48.6 million which was a reduction of £8.3 million.

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.

The statutory audit formally commenced on 13th July 2015. The audit process highlighted a small number of non-material errors that had been corrected within the accounts which were set out in the Audit Completion Report. The Auditor’s Audit Completion Report appeared elsewhere on the agenda and set out their findings together with the overall audit opinion.

A requirement of the regulations stated that the lead Member of the Committee must sign the balance sheet and it was requested that the committee, having considered the Auditor’s report, approve the Statement of Accounts enabling the Chair of the Audit Committee to undertake this role.
Members were asked to consider and note the Corporate Risk Register Progress Report.

The Committee was 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 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 April to 30 June 2015. All Service Groups had been contacted and the returns indicated that there had been no changes to the Corporate Risk Register. 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 1 was 11.

The format of the Corporate Risk Register had been revised as corporate risks were now recorded and reported using Internal Audit software.

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 Appendix A.
The Work Programme was noted.

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