Minutes for Audit Committee meeting, Jul 28 2009, 7.30PM official page

To confirm and sign as a correct record the minutes of the previous meeting of the Committee held on 30th April 2009.

On item 1, it was –

RESOLVED – That the minutes of the previous meeting of the Committee, held on 30th April 2009, be confirmed as signed as a correct record.

The minutes were thereupon signed by the Chairman.

To receive any declarations of personal and prejudicial interests in any of the matters to be considered at the meeting.

On item 2, the Chairman asked if any Members needed to declare any personal and prejudicial interests.  The following declarations were made:

Councillor Todd declared a personal interest in relation to Paper No.09-680 in that he was a Governor of Sir James Barrie School.

Councillor Pugh declared a personal interest in relation to Paper No.09-680 in that he was a Governor of Swaffield School.

Councillor Davies declared a personal interest in relation to Paper No.09-680 in that he was a Governor of Battersea Park School.

To consider report of Director of Finance on the Council’s accounts for 2008/09 and the communication by the Council’s External Auditor under the requirements of the Statement of Auditing Standards (SAS) 610 including his annual declaration regarding his independence and objectivity.  (Attached – Paper No. 09-678)

Introducing item 3 (Paper No.09-678), the Chairman welcomed Mr. David Braithwaite and Laura Griffiths of PricewaterhouseCoopers LLP (PWC), the Council’s external auditors, to the meeting. 

The Head of Corporate Finance introduced the accounts and explained the adjustments to the accounts, following audit, compared to the accounts presented to the General Purposes Committee on 29th June 2009.  In particular he drew the Committee’s attention to the reclassification of the £51 million in respect of Pensions liabilities from a provision to a reserve and commented that this had no impact on the Council’s overall financial standing.

Mr Braithwaite referred to the comments of PWC given at Appendix A of the report, and underlined that in the context of the Company’s recent appointment as new external auditors for the Council, it was to be expected that more issues would be raised in the first year of their term than in subsequent years.  He confirmed that PWC were in a position to give an unqualified opinion on the 2008/09 accounts and that work was currently being concluded on the Use of Resources assessment, which was subject to consultation with the Audit Commission.  Mr Braithwaite explained that it had been decided to revert to the separate annual audit letter which would be reported to the Committee at their next meeting.

In response to a question from Councillor Pugh, the Director of Finance confirmed that the letter of management representations was, in effect, a joint letter between himself as the senior officer responsible for the Council’s finances, and the Audit Committee on behalf of the elected Members.  Councillor Pugh also asked about the reference to “electors’ questions” in the PWC comments, and it was confirmed that this was a normal part of the process of auditing the accounts whereby local electors could challenge items before the conclusion of the audit.  Arrangements for the public inspection of the accounts were publicised in the local press.

After discussion, it was –

RESOLVED –

(a)  That the communication from the external auditor shown at Appendix A of Paper No. 09-678, be received as information;

(b)  that the management representations letter at Appendix B be approved for signature by the Chairman of the Committee;

(c)  that the revised statement of the Council’s accounts for the financial year ended 31st March 2009 at Appendix C, be approve; and 

(d)  that the Director of Finance be authorised to make minor wording changes to the management representations letter in consultation with the Chairman.

To consider report by the Director of Finance on consultation by the Audit Commission on proposed fees and work programme for 2011/12 and indicative fees proposals for 2011/12 and 2012/13. (Attached – Paper No. 09-679.)

On item 4 (Paper No.09-679), the Director of Finance underlined the concerns over the reduction in the range of possible discount to be offered in the audit fee; the implication of this was that the Council could potentially be faced with an increase in costs of up to £46,000 in spite of its continuing good performance in financial management.  In response to Councillor Larsson’s query, the Director stated that he could not be confident that the Audit Commission would agree a fee outside the proposed range given their previous practice, even though this was a theoretical possibility.

Councillor Pugh said he was sceptical about the need to increase the fee itself, particularly in the context of so many professional services having to reduce costs and fees to clients in the current economic downturn.  The Director of Finance confirmed that the new International Finance Reporting Standards would necessitate additional work by the auditors, but this was supported by subsidy, the extent of which was unknown as yet.  He was aware of widespread concern among local authorities about the changes in the fee arrangements and indeed he had been asked to draft representations on behalf of the Society of London Treasurers which represented finance directors in the London Borough councils.

The Committee discussed the fee proposals and took the view that the concerns reflected in the report and in the draft response in Paragraph 9 should be expressed more robustly. 

After further discussion, it was –

RESOLVED –

That the proposed response to the Audit Commission as shown in paragraph 9 of Paper No. 09- 679, be approved, subject to the Director of Finance re-wording it in consultation with the Chairman, to underline the Council’s objections more robustly.

To consider report by the Head of Audit on the review of the Council’s governance arrangements including internal control and on the publication of the Annual Governance Statement for 2008/09 (Attached – Paper No. 09-680)

On item 5 (Paper No. 09-680), the Head of Audit outlined the key aspects of the report, confirming that it demonstrated generally sound controls and performance, and where weaknesses and risks had been identified, appropriate arrangements to monitor and address these had been put in place. 

Councillor Pugh pointed out that one of the reported cases of fraud involving a member of staff (Ref. ASS-86W in Appendix E) did not indicate what action had been taken.  The Head of Audit apologised for this omission and confirmed that the member of staff had been dismissed. 

Councillors Pugh and Larsson asked about the reference in the corporate governance management action plan to the review of the fitness for purpose of Council committee reports.  The Head of Executive and Committee Services reported that this had taken the form of a check against established internal standards and procedures, such as the approach to report summaries, followed by refreshing guidance for report authors and rolling out training sessions for relevant staff.  Councillor Pugh considered that more should be done to improve reports to make them more concise and effective, and Councillor Larsson felt that the review should have been more structured and rigorous; for example by developing a template of key issues to be addressed in all reports.  The Head of Audit underlined the tension between the value of brevity in reports and the need to ensure that Members were adequately briefed to make informed decisions.  He suggested that the points raised at the meeting be addressed in the “follow up” exercise to be conducted during the September cycle of meetings, as indicated in the action plan. 

Councillor Larsson queried the delay in some of the actions identified following audit work; for example, the Contract Signing item (C.1 in Appendix D) had been put back to the end of September.  The Head of Audit explained that in some cases, decisions would require Member-level authority and some time was therefore required for the committee process.  The Director of Finance added that some actions required careful planning and procurement to take place after a Council decision.

The Chairman queried the timescale relating to the Electoral Registration Operating Platform (Item A.6 of Appendix D).  The Head of Audit confirmed that this was not directly controlled by the Council which was reliant on decisions of a client user group about the development and upgrading of the application. 

The Chairman sought more detail in relation to the audits with findings of limited or no assurance (Paragraph 59 of the report refers).  The Head of Audit advised that most of the items concerned schools and the Council was in a position of trying to influence their actions rather than being able to control them directly.  Problems were often related to a change in staffing in a key position, such as the Headtecher or Bursar; this sometimes meant that less experienced and skilled staff would be trying to cover relevant duties.  The Head of Audit suggested that he or a member of his team could attend the School in such circumstances to advise and assist the Governors in ensuring that appropriate arrangements were made.  Mrs. A. Stokes confirmed that audit issues would feature in training sessions for new headteachers and that a session on audit requirements would be held in September for governors of schools in the Borough.  Internal Audit would be involved in this work. 

The Chairman suggested that, in approving the Annual Governance Statement, the Committee should explicitly endorse these efforts to support schools.

After further discussion, it was –

RESOLVED –

That Paper No.09- 680 be noted and that the proposed Annual Governance Statement for 2008/09 be approved for signature and publication with the Council’s accounts and annual report, subject to additional advice and support to schools from Internal Audit as proposed at the meeting by the Head of Audit, and subject to the additional training for headteachers and governors identified at the meeting by the Head of Financial Management, Children’s Services Department.

To consider report by the Head of Audit on the annual quality and performance review of Internal Audit. (Attached – Paper No. 09-681)

On item 6 (Paper No. 09-681), the Head of Audit outlined the principal features of Internal Audit’s performance in 2008/09, underlining the agreement to issue draft audit reports if follow-up information was not provided within two weeks by the department concerned.  This would speed up the overall issue rate, but would also allow for reports to be altered if information was provided subsequently. 

Councillor Larsson queried why the target for the number of cyclical audits was 25% below the number carried out in 2008/09.  The Head of Audit explained that the intention was to alter the organisation of audits combining them into large audit themes to make more effective use of resources.  He underlined that the frequency of audits in higher risk areas would be maintained.  Councillor Larsson acknowledged the value of structuring the audit programme with regard to the inter-dependency and synergy between audit areas.

After further discussion, it was –

RESOLVED –

That Paper No. 09-681 be noted and that the timetable and arrangements for quarterly monitoring and review by the Committee, and by their Members, be confirmed.