Minutes for Audit Committee meeting, Jun 30 2009, 2.00PM official page

Members are reminded of the need to consider whether they have a personal or prejudicial interest to declare in any of the items on this agenda.  If so, the nature of the interest must be declared at the start of the meeting.  In addition, the attached form must be completed and passed to the Committee Administrator.  The Officers will be pleased to advise, if necessary, and any request for assistance should be made, in the first instance, to the Committee Administrator whose name appears at the end of this agenda.  Ideally, such advice should be sought before the day of the meeting so that time is available to consider any uncertainty that might arise.

No declarations of interest were received.

To approve and sign as a correct record, the Minutes of the meeting held on 28 April 2009.  (Minutes attached).

RESOLVED that the minutes of the meeting held on 28 April 2009 be approved as a correct record and signed by the Chairman.

Public questions of which due notice has been given and which are relevant to the business of the Audit Committee.

The Chairman reported that no public questions had been submitted.

To consider the attached Work Programme (Reference 09/339), make appointments to the following positions:

• Audit Member Champions
• Internal Audit & Fraud Member Champions
• Governance Member Champions
• Housing Benefits KLOE – Member involvement

and consider Member training requirements for Final Accounts, Fraud and Corruption and Partnerships.

The Committee considered the Work Programme (Reference 09/339), which detailed the work for the 2009/10 Civic Year.  Members were also asked to consider appointments to the following positions:-

• Audit Member Champions
• Internal Audit and Fraud Member Champions
• Governance Member Champions
• Housing Benefits KLOE – Member involvement in joint Officer/Member Working Group.

Members had held a training session on 15 June 2009 and a further lengthy session on the accounts was held earlier in the day.

The Head of Finance and Asset Management advised Members that the next meeting in September would focus around the key themes of the Audit Committee: Risk, Internal Audit and Fraud and Governance and prior to the meeting Officers will provide suitable training for the Member champions

Members were reminded by the Chairman that they would be meeting with the External Auditor prior to the next meeting in September 2009.

RESOLVED that:-

(i)         the Work Programme for 2009/10 be accepted;

(ii)        Councillors Mrs H Lynskey and Dr S Rodgers be appointed Risk Member Champions;

(iii)       Councillors Mrs J Jefferson and M Ward be appointed Internal Audit and Fraud Member Champions;

(iv)       Councillors G W Allanson and J M Preston be appointed Governance Member Champions; and

(v)        Councillors J M Preston and M Ward be appointed to the joint Member/Officer Working Group for Housing Benefit KLOE.

To consider a report by the Head of Finance and Asset Management (Reference 09/363) attached.

The Committee considered a report by the Head of Finance and Asset Management (Reference 09/363) and introduced by the Head of Finance and Asset Management and presented by the Head of Transformational Management, which reported on the risks to the Council with regard to the procurement and implementation of an integrated financial management and property/asset management system and repairs information system (FAPM).

Members were advised that the Council had undertaken a fundamental review of its computer systems which affected the core business of the Council.  It had previously run two systems to deliver property maintenance and asset management, which had been necessary whilst the Council maintained the property of Yorkshire Cost Homes (YCH) but following the loss of the YCH contract, maintenance of two systems was considered unnecessary.

The old system, IBS CONPlus, introduced in 1994, had been unsupported since April 2008 and the Academy System had not been upgraded in recent times due to hardware capacity issues.  Although they provided the functionality required previously they would not now allow the Council to move forward in the delivery of effective and efficient services.

Numerous changes to volumes and delivery of the works had been made within service areas, for example, the number of works orders carried out against the Council’s own properties, highways and parks had reduced from 25,000 to 5,000 per annum. 

In addition, the current Financial System, purchased in 1997 which included ledger, debtors and creditor modules were core functions which had direct links to all other Council systems. The Financial System had received several upgrades to meet changes required by CIPFA in the Statement of Recommended Practice for producing financial information, however, further upgrades were no longer available.

New systems were designed to improve the way Local Authorities worked and introduce changes to working methods to modernise and streamline back office procedures as described in section 3.7 of the report.

A decision was made by Cabinet  in December 2008 to purchase a system produced by an Australian Company called “Technologyone”.  This was a major risk for the Council as it would be the first UK Local Authority to use the system.  Risks had been mitigated by the negotiation of the Contract and a Parent Company Guarantee in order to protect the Council from their withdrawal from the market.   Risks included financial risks; the risk of the project extending beyond March 2010 which would mean the possible extension of old systems, reducing service savings; resources, particularly of Audit staff and other senior staff who tended to be involved in major projects.  Significant benefits would be available to the Council as the new integratred solution would allow information to become easlily accessible to management allowing improved control of budgets and expenditure. 

The project was monitored regularly by a Member/Officer Project Board and it was going well.  The new system would mean a major change for staff in the way work was carried out and a lot of training would be necessary.

The replacement of the three applications was  ...  view the full minutes text for item 5.

To consider a report by the Head of Finance and Asset Management (Reference 09/364) attached.

The Committee considered a report by the Head of Finance and Asset Management (Reference 09/364) which sought approval for the Council’s Annual Governance Statement (AGS) attached as Appendix A to the report with a view to it being incorporated within the Statement of Accounts 2008/09.

Members were advised that the Annual Governance Statement was a statutory requirement, included within the annual Statement of Final Accounts, although it must be considered separately from the Accounts.  It was signed off by the Leader of the Council and Chief Executive and was also subject to Member approval by 30 June 2009.  The purpose of the AGS was, according to CIPFA guidance, “to provide a comprehensive review of the effectiveness of an organisation's governance framework, including internal control and risk management systems so as to give assurance on their effectiveness and/or to produce an action plan to address identified weaknesses in either process”.  Public assurance was therefore given.

The need for a full review of parking income was identified in 2007 and this had now been completed following the introduction of the de-criminalised parking system.  One issue relating to the reconciliation of car parking income remained outstanding and additional resources were being put into this to ensure matters were satisfactory.

Significant governance issues identified in the 2007/08 AGS and action taken were detailed on page 12 of the report and included the loss of the Highways Agency to the County Council and the ramifications of this change; the need to manage the Governance arrangements with major Partnerships (joint working) that the Council was entering into and the impact of the management re-structure on operating systems, the control environment and the morale of staff.   Good progress had since been made on these issues and work was now virtually completed.  

Issues identified in the 2008/09 AGS included the introduction of the new Technology 1 (finance and asset management system) detailed earlier in the meeting which would radically change the way in which the Council worked.  Additionally the Council had massive ambition, recognised recently by major UK and European awards and several major schemes were currently in progress.  This impacted on staff and resources and prioritisation would be necessary when deciding which matters would receive priority.  The national economy was also impacting on the Council’s finances and coupled with the need to deliver significant savings may lead to budgetary cuts that could weaken the Council’s governance and control framework.  There was also likely to be a greater demand for the Council’s services such as housing benefits and homelessness prevention.  Other major issues surrounded the project management of the Middle Deepdale Development.  These were being addressed by the introduction of a stronger project team and clearer separation of roles and responsibilities.  

RESOLVED that the Annual Governance Statement (Appendix A) with a view to it being incorporated within the Statement of Accounts 2008‑09 be approved.

Reason(s) for decision: the Statement is a mandatory requirement and must be reviewed by the Audit Committee and included in the Statement  ...  view the full minutes text for item 6.

To consider a report by the Head of Finance and Asset Management (Reference 09/351) attached.

The Committee considered a report by the Head of Finance and Asset Management (Reference 09/351), which asked the Committee to note the progress made in relation to the Key Lines of Enquiry (KLOE) Action Plan (attached as an Appendix to the report, a larger print version of which was circulated at the meeting) used to demonstrate and provide evidence to the Audit Commission on the delivery of the Use of Resources 2008/09 Framework. 

Members had requested an updated Action Plan at their last meeting.  The Head of Finance and Asset Management advised Members that assessment would be carried out by the External Auditors.  KLOE involved many different tests and the Council would be tested on what measures it had in place.  KLOE had changed recently in line with Comprehensive Area Assessment (CAA) and tests would be tougher in future.  It would become much harder to score well; however, measures had been put in place to aim for the achievement of a good score.

The Head of Finance and Asset Management explained the headings on the Action Plan which were the Lead (officer), Key lines of enquiry, Auditor guidance, level, requirement, assessment and evidence.  The last two headings were for Officers to complete. The Council had scores of 2 and 3 and was considered to be a “good” Council.

Some items were on the Committee’s Work programme and would be brought back later in the year.  The Action Plan would now be passed to the External Auditors and would be brought back to a future Committee with scores completed to indicate how the Council was doing.

RESOLVED that:-

(i)         the report be received; and

(ii)        progress made in relation to the Key Lines of Enquiry (KLOE) Action Plan used to demonstrate and provide evidence to the Audit Commission on the delivery of the Use of Resources 2008/09 Framework be noted.

Reason(s) for decision: to ensure progress against the Action Plan, ensuring continual improvement within the Council.

To consider a report by the Head of Finance and Asset Management (Reference 09/403, not 09/393 as originally advised) attached.

The Committee considered a report by the Head of Finance and Asset Management (Reference 09/403) which asked Members to scrutinise the information contained within the Council’s 2008/09 Statement of Accounts and approve the Accounts.

Members had held a training session on the Accounts on 15 June 2009 and a further lengthy session was held prior to the Committee meeting itself which had allowed Members to ask questions and seek clarification on issues.

The key points highlighted in the report were:-

• An underspend of £355K compared to budget as detailed in section 3.1.2 of the report.
• £224k of the General Fund Balance was used to fund costs associated with the loss of the Yorkshire Coast Homes Contract. In total £1m was earmarked for these costs and £31k now remains. This remaining balance has been earmarked to fund any unforeseen costs associated with the Highways and Property Trading Units in 2009/10.
• In 2008/09 £345K of the General Fund Balance was allocated for priority areas as detailed in section 3.1.4 of the report.
• The overall reduction in this years’ General Fund Balance was therefore £214K.  The General Fund Balance as at 31 March 2009 stood at £2.217m which was in excess of the range set out in the Financial Strategy. Recommendations would be made to Cabinet to utilise the underspend on investments in a range of Council priority areas.
• The levels of Corporate Reserves were within the optimum ranges set out in the Financial Strategy although outstanding commitments against the insurance reserve would cause the minimum level to be breached as reported previously.  However measures were in place to achieve the optimum level by the end of the 2009/10 financial year.
• The Balance Sheet showed a £64.394m pension liability in relation to the Local Government Pension Scheme.  This fluctuated according to the stock market and would be addressed by the North Yorkshire Pension Fund Investment Strategy over the next 30 years.
• The Council had invested £4.820m in capital schemes and grants financed from capital resources.  This, together with grants and contributions from funding partners, has enabled total investment of £11.895m in the year. Significant areas of investment were the purchase of the McCain Stadium (£1.43m), purchase of properties on the Sands Development (£0.356m), expenditure on the Creative Industries Centre (£1.003m) and improvements to Park and Play Areas (£0.610m). In addition, £0.861m was invested in vehicle, plant and equipment replacement and a further £2.186m was spent on completion of Scarborough Business Park infrastructure.     
• The current economic climate could impact on the Council through reduced investment returns; reduction in asset values; security of investments; reduced income and additional cost pressures.  £170k had been set aside as a contingency to mitigate any cost pressures.

Members asked questions during the training session including spending on priority areas as detailed in section 3.1.4 of the report.  Members questioned the difference of £10K between the underspend for 07/08 and the amount investment in priority areas and were advised that this had been invested in the General Fund.  Members asked  ...  view the full minutes text for item 8.

To consider a report by the Head of Finance and Asset Management (Reference 09/367) attached.

The Committee considered a report by the Head of Finance and Asset Management (Reference 09/367) which appraised Members of current issues identified through the delivery of the approved Internal Audit Plan.

Members were advised by the Head of Audit Partnership that the whole of the year’s internal audit work led to the Annual Statement as described in section 1.3 of the appendix.  A tri-annual review of the Partnership would be carried out in 2009/10.  The table on the front of the appendix showed a table detailing the opinion of audits completed in 2008/09.  None were unsound and most were satisfactory or good.

Special investigations carried out in 2008/09 had been higher than expected; however, their impact on the programmed work had not been significant, leading to 12% of time spent on audits.

The chart on page 59 of the agenda showed the number of audits carried out, however this was skewed towards special investigations of 39% as detailed above.  Managed audits accounted for 19%; cyclical audits 29%, value added audits whilst small at 3% included the introduction of the new Technologyone system and follow up audits accounted for 10%.

Significant matters were detailed in section 3 of the appendix.  Good areas included risk management and risk management training; methodology for the management of Performance Indicators, recognised as good practice by the Audit Commission and Partnership Governance was now much stronger. 

Areas of concern included poor controls in a number of audits, mainly reconciliations; Customer First controls and mobile telephony.

The Assurance Statement was detailed on page 61 of the agenda and confirmed that overall the audit opinion was that the Internal Control Environment for the Council was operating to standard.  77% of audits completed had a good or satisfactory audit opinion.

Work carried out during the course of the year was detailed on pages 61 and 62 of the agenda.  Unsatisfactory areas included Debtors outside the core Debtors function; subsidiary management functions concerning the Payroll function and mobile telephony.

Members commented on previous reports and the need for full reports to be seen by the Audit and Fraud Member Champions.

RESOLVED that:-

(i)         the report be received;

(ii)        the Annual Internal Audit report be approved; and

(iii)       the forward plan outlined in section 7 of the report be approved.

Reason(s) for decision: this is an annual report to committee to ensure that they are appraised of current issues identified through the delivery of the approved Internal Audit Plan.