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

Monday, 30th November, 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 Chris Barlow, Cllr Eileen Johnson, Cllr Mrs Kathryn Nelson, Cllr Ross Patterson, Cllr Paul Rowling, Cllr Mick Stoker, Cllr Laura Tunney, Cllr Barry Woodhouse
Paul Johnston, Martin Skipsey(RES), Sarah Whaley(LD)
In Attendance:
Martin Barnes(MAZARS)
Apologies for absence:
Cllr Stefan Houghton
Item Description Decision
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 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.
4.00pm - 5.00pm


The Evacuation Procedure was noted.
There were no declarations of interest.
Consideration was given to the minutes of the meeting which was held on the 28th September 2015 for approval and signature.
Consideration was given to the External Audit Progress Report, the purpose of which was to update the Audit Committee on Mazars progress in meeting their responsibilities as Stockton Borough Councils external auditor. Mazars also included in the paper key emerging national issues and developments which may have been of interest to the Audit Committee with actions that may want to be considered.

Mazars highlighted to the Committee that following the Committee meeting on 29th September 2015, Mazars had issued an audit report including an unqualified opinion on the Council’s financial statements on 30 September 2015. Mazars audit report included a conclusion that the Council had proper arrangements in place to secure economy, efficiency and effectiveness in its use of resources.

Mazars reported to the National Audit Office (NAO) on 30th September 2015 that the Council’s 2014/15 Whole of Government Accounts consolidation pack was consistent with the audited financial statements. This enabled Mazars to certify completion of the 2014/15 audit in their report.

Mazars had now agreed their Annual Audit Letter for 2014/15 with the Council, for presentation to the Committee, and to Cabinet at a future meeting.

The Committee heard that Mazars had begun the early planning stages of the 2015/16 audit. Their early work had included discussing the impact of shortening accounts preparation and audit deadlines for 2016/17. Mazars aim was to work with the Finance function to complete processes earlier in 2015/16, enabling further reflection and planning to ensure the 31 July 2016 deadline could be met.

Work on the 2014/15 Housing Benefits Subsidy Claim was completed, and Mazars had certified the claim on the 27th November 2015 ahead of the DWP deadline of the 30th November 2015.

The Council was required by funding bodies to arrange independent certification of a range of grant claims and returns. In the coming weeks, Mazars would be agreeing the following engagements with the Council:

• 2 schemes under s256 Health Act 2006;

• Initial Teacher Training for the National College of Teaching and Leadership. In recent weeks, Mazars had completed the following such engagements:

• Teachers Pension Return, the fee being £2,750; and

• For Tees Valley Unlimited, the final return for a scheme under the Regional Growth Fund, with total fees of £4,700.

Members attention was drawn to the Emerging issues and developments within the report. It was highlighted that CIPFA had reported that Stockton Borough Council had significant levels of useable and earmarked reserves, and was required to maintain a policy for their accumulation and use. If Members required further information in relation to the report the paper could be found on the CIPFA website.

In relation to Regulatory Compliance monitoring report Quarter 1 2015-16 Mazars LLP, PSAA July 2015, PSAA had published the first quality monitoring report for 2015/16 for Mazars LLP, which showed it to be ‘green’ across all compliance measures.

In its report for the 2014/15 audit year, PSAA showed that Mazars LLP was now one of only 2 audit suppliers ranked ‘green’ for audit quality and regulatory compliance.

Satisfaction survey results showed that audited bodies were satisfied with the performance of Mazars as their auditor.

Members were informed that the next appointment for local authorities to appoint external auditors would be 2017 as the contract for external auditors was to be extended by 1 year, unlike the NHS which would remain a 5 year contract with the next appointment being 2016.

Members were given the opportunity to ask questions/make comments on the report and these could be summarised as follows:

- Was there any publicity in relation to the reserves local authorities were holding?

Officers explained that it was a press release which kick started started the ball rolling in relation to Local Authority reserves as they had increased from £13 billion to £22.5 billion. A comment had been made by the Chancellor that Local Authorities would have to start using reserves in the future to buffer cuts. Reserves would undoubtedly come down in the future.

Members of the Committee stated that reserves could not be spent to fund on-going costs. Reserves were for one off projects to enhance local areas making them better places to live.
Consideration was given to the External Annual Audit Letter which provided a summary of Mazars work and findings for the 2014/15 audit period for Members and other interested parties.

The purpose of the document was to summarise the outcome of the audit of the Council’s 2014/15 annual accounts and Mazars work on their value for money conclusion.

Mazars carried out the audit in accordance with the Code of Audit Practice for Local Government bodies as issued by the Audit Commission and delivered all expected outputs in line with the timetable established by the Accounts and Audit Regulations 2011 and the National Audit Office.

2014/15 had been another challenging year for the Council and like most other authorities in the North East, Stockton-on-Tees made some tough decisions on its spending priorities and plans for the future.

Mazars issued an audit report including an unqualified opinion on the Council’s financial statements on 30 September 2015.

The Annual Audit Letter was made public and no objections had been received from the public during the audit.

In relation to the Financial Statements Mazars informed the Committee that all were completed within the required deadlines with the Councils support, providing Mazars with timely high quality information.

Members attention was drawn to the Value for Money(VFM) conclusion where it was highlighted that the Council had proper arrangements in place for securing financial resilience; and the Council had proper arrangements for challenging how it secured economy, efficiency and effectiveness.

Mazars work also included:

- review of the Councils Annual Governance Statement;

- review the work of other relevant regulatory bodies or inspectorates to the extent the results of the work had an impact on Mazars responsibilities (none in 2014/15); and

- carry out any risk-based work Mazars determined to be appropriate.

Last year significant risk had been recognised due to future cuts to funding. It was not until after the General Election in May 2015 that the extent of the cuts would be realised.

There had been a lot of work this year in terms of the Medium Term Financial Plan(MTFP).

The Committee briefly touched on the future financial challenges and other challenges. Each year undoubtedly became harder and the scope for reducing expenditure without affecting service standards also became more and more difficult. The Council continued to have a strong approach in considering a range of options, regularly updating and agreeing its plans well ahead of the relevant financial year.

As outlined in Mazars Audit Strategy Memorandum presented to the Audit Committee on 30 April 2015, the Audit Commission set a scale fee for there audit and certification work. The fees applicable to their work in 2014/15 were summarised within the main report.

Members made reference to the fact that external audit showed that Stockton Borough Council was being well ran.
Consideration was given to the Internal Audit Report Q2 which provided Members with an update of the work carried out by the Internal Audit Section and the progress made against the Audit Plan 2015/16.

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 and this 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 currently on maternity leave. This had resulted in a re-assessment of the plan for 2015/2016.

The main issues discussed were as follows:

- 45 audits had either been completed, were in draft or underway and 45 audits had not yet started. Officers were keeping a close eye on the plan however amendments may be required if necessary.

- In relation to audits which had been carried out 46% had achieved full assurance and 54% had achieved substantial assurance demonstrating that a sound system of internal control was being maintained.

- The vast majority of recommendations were low or medium priority with only 4% being high.
Consideration was given to a report which provided Members with an update of the practical implementation, in year, of the Treasury Management Strategy approved by Council in February 2015.


The Council held investments with banks and building societies which could be described as either term deposits or demand deposits. Term deposits were those that were held with a financial institution for a fixed term generally from 1 month to a few years; whereas demand deposits were those that had to be repaid on demand and were commonly called call accounts. Normally, the longer the term invested, the greater the return paid on those investments.

The UK continued to experience record low rates of interest with Bank of England base rate being maintained at 0.5%. Further pressure on interest rates had also resulted from changes in banking regulations. Banks and building societies were now reluctant to take deposits for less than one month because the new regulations required that they lodge a similar amount of security with the Bank of England for each deposit. Therefore interest rates on call accounts were now between 0.25% and 0.4%.

In addition to term and demand deposits there were a number of other investment products that the Council could consider for future use. These included certificates of deposit, gilts, bonds, money market funds and property funds. The current strategy did not include the use of those products but they would be considered within the Treasury Management Strategy for 2016/17 that would be presented to Council in February 2016.

The strategy adopted at present was to use call accounts for short term cash flow purposes and to use term deposits where funds were not needed in the immediate future and were held to match expected future expenditure profiles.

As reported at the June Audit committee meeting the investment target for 2015/16 had been set at £600,000. Investment returns for the first six months of the year showed that the authority were still on track to meet this year’s target. Returns were as detailed within the main report.

After making estimated allowances for the returns that had to be paid to schools for investing their school balances, and Tees Valley Unlimited etc., then the net return so far this year amounted to £318,000.


The Council continued with the policy of reducing its 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. The Council last borrowed on 15th August 2008.

Given the interest rate climate, there were no opportunities for rescheduling. Interest rates would have to rise several percentage points before rescheduling became a viable option. The Council’s borrowing stood at £47.9m.

Economy UK

UK GDP growth rates in 2013 of 2.2% and 2.9% in 2014 were the strongest growth rates of any G7 country; the 2014 growth rate was also the strongest UK rate since 2006 and the 2015 growth rate was likely to be a leading rate in the G7 again, possibly being equal to that of the US. However, quarter 1 of 2015 was weak at +0.4% (+2.9% year on year) though there was a rebound in quarter 2 to +0.7% (+2.4% y/y). Growth weakened marginally to +0.5% in quarter 3 as the economy faced headwinds for exporters from the appreciation of Sterling against the Euro and weak growth in the EU, China and emerging markets, plus the dampening effect of the Government’s continuing austerity programme, although the pace of reductions was eased in the May Budget.

Despite the headwinds, the Bank of England was forecasting growth to remain around 2.4 - 2.8% over the next three years, driven mainly by strong consumer demand as the squeeze on the disposable incomes of consumers had been reversed by a recovery in wage inflation at the same time that CPI inflation had fallen to, or near to, zero over the last quarter. Investment expenditure was also expected to support growth.

The August Bank of England Inflation Report forecast was notably subdued with inflation barely getting back up to the 2% target within the 2-3 year time horizon. However, with the price of oil taking a fresh downward direction and Iran expected to soon re-join the world oil market after the impending lifting of sanctions, there could be several more months of low inflation still to come, especially as world commodity prices had generally been depressed by the Chinese economic downturn.

There was therefore considerable risks around whether inflation would rise in the near future as strongly as previously expected; this would make it more difficult for the central banks of both the US and the UK to raise rates as soon as had previously been expected, especially given the recent major concerns around the slowdown in Chinese growth, the knock on impact on the earnings of emerging countries from falling oil and commodity prices, and the volatility we had seen in equity and bond markets in 2015 so far, which could potentially spill over to impact the real economies rather than just financial markets.

Economy Eurozone

Eurozone GDP grew faster than expected in the second quarter. The revised estimate revealed that Q2 GDP grew by +0.5% (+1.5% y/y). The revision was driven by better than expected data in Italy, the third largest economy in the Eurozone.

Following the European Central Bank’s (ECB) meeting in September, its interest rate remained unchanged at 0.05%. The ECB also maintained a negative deposit rate at -0.20%. The ECB announced its Quantitative Easing (QE) programme in January and began the programme in March. The ECB would purchase 60bn of public and private sector assets per month between now and September 2016.

The decision to leave the cost of borrowing unchanged was widely expected after the ECB cut rates to record low levels a year ago and repeatedly said they had hit “the lower bound”.

Interest Rate Forecast

Capita Asset Services, the Council’s Treasury Management advisors, had provided their rate forecast as detailed with the main report.

The impact of the forecast changes in interest rates woul be reflected within the Council’s Medium Term Financial Plan.

Brief discussion took place around recent events which had seen the closure of SSI where the government had promised £80 million to help those effected. TVU were acting as the overall body and as Stockton Borough Council(SBC) were the accountable body for TVU, SBC currently had £25 million of the £80 million promised. The money had been given back to the government as an investment to gain a return of 0.25% in interest as the money could not be tied up.

Members were given the opportunity to ask questions/make comments on the report and these could be summarised as follows:

- Members wanted assurances that the government would be giving all of the £80 million as promised, to help those effected by the SSI closure.

- Members understood that the £25 million was for training and creating job opportunities and questioned whether this was the responsibility of TVU.

- Members requested that a clear audit trail be implemented so it was clear where money had gone and what it had been spent on.

Officers addressed the Committee in response to some of the questions raised. Their comments could be summarised as follows:

- A task force headed by the Chief Executive of Redcar and Cleveland Borough Council had been set up. Funds would need to be handed over to TVU by 1st April 2016.

- Officers were documenting the money for SSI to enable them to report back.
Consideration was given to the Corporate Risk Register Q2 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.

The report covered the period 1 April to 30 September 2015. All Service Groups had been contacted and the returns indicated that there had been one addition to the Corporate Risk Register, 12 - Regeneration and Environment Local Plan (RELP) and Community Infrastructure Levy (CIL) Charging Schedule. 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 of a general update to all risks to reflect on-going progress.

As a result, the total number of significant risks in the Corporate Risk Register at the end of Quarter 2 was 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 Appendix A attached within the main report.

Brief discussion took place in relation to the timing of actions to be completed against specific risks and clarification of the current controls contained within the new risk added to the register.
Consideration was given to 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 July 2015 - 30th September 2015.

The 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 2015
8. School’s Educational Residential Visits
9. Employee Protection Register Activity
10. Safety Warnings, Advice or Reminders Issued

7 programmed corporate health and safety training sessions were delivered to a total of 56 delegates, with 1 further bespoke course delivered to 8 delegates within departments.
In support of the Control of Asbestos Regulations 2012 and the Council’s Asbestos Management Policy, an on-line e-learning platform had been made available to provide refresher training to key nominated personnel with responsibility for managing asbestos containing materials. This would ensure compliance was maintained amongst Services and individual premises personnel with responsibility for the effective management of asbestos containing materials.

4 programmed online training sessions had been set up and a total of 106 delegates took part in online training.
In total 12 training courses were delivered to 170 candidates.

Referrals to the services provided by the Well-being Team were detailed within the main report. The majority of physiotherapy referrals related to back problems. A lot of officers did not sit at their desks correctly

Accidents reported to the Health & Safety Unit during the period were 13. This compared with 37 over the same period last year and with 19 in the previous reporting (quarter) period.

Physical Assaults reported to the Health & Safety Unit the period were 37. This compared with 36 over the same period last year and with 32 in the previous reporting (quarter) period.

Verbal Assaults reported to the Health & Safety Unit this period were 3. This compared with 1 over the same period last year and with 2 in the previous reporting (quarter) period.

The number of health and safety audit inspections conducted during the reporting period was 13, with a total of 15 recommendations issued to Premises Managers to ensure a satisfactory standard of safety management safeguards.

Construction (Design & Management) Regulations 2015 Client Adviser.
The revised Regulations 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.

The Regulations applied to all construction work whether or not the project was notifiable to the HSE and imposed specific duties onto :-

• Clients,
• Principal Designers,
• Designers,
• Principal and Sub-contractors,
• Others involved with the project.

Subject to the size and complexity of individual projects, the Health and Safety Unit act as ‘CDM Advisor’ to the Client and or the Principal Designer, as duty holders. The CDM Advisor carried out functions including :-

• notification to the regulator, the HSE
• production of Pre-construction Information
• appraisal of the Principal Contractors Construction Phase Plan
• provision of construction health & safety advice.

During the reporting period, 10 Pre Construction Information Documents were issued.

A total of 262.5 hours of resources were dedicated to the preparation, planning, monitoring and reviewing of a broad range capital works construction projects to ensure compliance with the CDM Regulations and other associated statutory provisions.

Design stage
Ensuring design management arrangements were in place, providing pro-active and practical help to Clients and designers in response to individual project’s demands.Facilitating design risk management process, providing advice and assistance to Clients and designers on risk reduction and health and safety management in design.

Pre Construction Stage
Appraise and approve Contractor’s Construction Phase Health and Safety Plan. Ensuring construction management arrangements were in place prior to works commencing. Ensuring effective co-operation and co-ordination and that sufficient time had been allocated for planning and preparation of project safety.
Provide when requested advice on competence of Client appointments - Principal Contractors.

• Construction Phase
Ensure construction management systems remained in place for the duration of the construction phase.
Liaise with Client, Designer, Principal Contractor throughout the construction phase to ensure safe design and build.
Conduct site inspections on certain construction sites where there may be specific risks to the general public.

Educational Visits Adviser’s role
The Health and Safety Unit performed the role of Educational Visits Adviser in accordance with the revised guidance issued by the Department of Education in July 2011.
During the quarter, the safety management safeguards of 25 school’s educational residential visits had been appraised, challenged and endorsed. The risk management process involved had regularly been reviewed and revised, further improving school’s and the authority’s resilience to an adverse event occurring.

The Employee Protection Register(EPR), launched in July 2008, was an on-line database of known perpetrators who presented an identified risk to the continued safety of the Council’s and Partner organisation’s workforce. The EPR had been successfully launched in all schools to provide additional security to Parent Support Advisers and other members of the school’s workforce who may be conducting pastoral care or domiciliary visits.

Safety warnings, Advice or Reminders Issued
An overview of the requirements of the Construction (design and management) regulations 2015 and the implications for Clients was presented to :

• Head Teachers on 1.7.15
• Chairs of Governing bodies on 14.9.15.
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 was to inform members of the work of the Audit Committee during the past year and the sources of information upon which the enclosed Audit Committees opinion statement was based.

The Chairman highlighted the change of Members to the Committee since the May Elections and the report was noted.
The Work Programme was noted.

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