Venue: Meeting Room 1, Council Offices, Priory Road, Spalding
Contact: Christine Morgan 01775 764454
Declaration of Interests
(Where a Councillor has a Disclosable Pecuniary Interest the Councillor must declare the interest to the meeting and leave the room without participating in any discussion or making a statement on the item, except where a Councillor is permitted to remain as a result of a grant of dispensation).
There were none.
To sign as a correct record the minutes of the meeting held on 15 December 2016 (copy enclosed).
The minutes of the Governance and Audit Committee meeting held on 15 December 2016 were signed by the Chairman as a correct record.
South Holland District Council (report of KPMG enclosed).
Consideration was given to KPMG’s External Audit Plan 2016/17, which was presented to the Committee by the Audit Manager, KPMG.
The external auditor’s statutory responsibilities and powers were set out in the Local Audit and Accountability Act 2014 and the National Audit Office’s Code of Audit Practice.
The audit had two key objectives, requiring the external auditor to audit/review and report on the Authority’s:
· Financial statements (including the Annual Governance Statement): providing an opinion on the Authority’s accounts; and
· Use of resources: concluding on the arrangements in place for securing economy, efficiency and effectiveness in the Authority’s use of resources (the value for money conclusion).
Financial Statements Audit work followed a four stage audit process, and Appendix 1 to the report provided more detail on the activities that this included. The report concentrated on the Financial Statements Audit Planning stage of the Financial Statements Audit.
Value for Money Arrangements work followed a five stage process. More detail was provided within the report of what this included, and the report also concentrated on explaining the Value for Money approach for 2016/17.
The following headlines within the report were provided:
Financial Statement Audit
There were no significant changes to the Code of Practice on Local Authority Accounting in 2016/17, which provided stability in terms of the accounting standards the Authority needed to comply with.
Materiality – Materiality for planning purposes had been based on budgeted expenditure and set at £1million. KPMG were obliged to report uncorrected omissions or misstatements other than those which were ‘clearly trivial’ to those charged with governance, and this had been set at £50,000.
Significant risks – Those risks requiring specific audit attention and procedures to address the likelihood of a material financial statement error had been identified as:
· Significant changes in the pension liability due to LGPS Triennial Valuation;
· New payroll system;
· Revenue Recognition; and
· Management override of controls.
Other areas of audit focus – Those risks with less likelihood of giving rise to a material error, but which were nevertheless worthy of audit understanding, had been identified as:
· Changes to the format and reporting requirements for the Comprehensive Income and Expenditure Statement and the Movement in Reserves Statement, as required by the 2016 CIPFA Code of Practice on Local Authority Accounting.
Value for Money (VFM) Arrangements work
KPMG’s risk assessment regarding the Authority’s arrangements to secure value for money had identified the following VFM significant risk:
· Financial resilience in the local and national economy
The Committee was also advised of KPMG’s Audit fee. Their Audit Fee Letter 2016/17 had been presented to the Committee in April 2016, and had set out fees for the 2016/17 audit. The letter had also set out their assumptions. KPMG had not considered it necessary to make any changes to the agreed fees at this stage, although the fees may need to increase if there was additional work due to the issues raised in the plan.
The planned audit fee for 2016/17 was £44,537, which included work on the ... view the full minutes text for item 47.
Annual Report (report of KPMG enclosed)
Consideration was given to KPMG’s Certification of grants and returns 2015/16. The report summarised the results of work they had carried out on the return. This included the work they had completed under the Public Sector Audit Appointment certification arrangements, as well as the work completed on other grants/returns under separate engagement terms. The work completed in 2015/16 was:
· Under the Public Sector Audit Appointment arrangements, KPMG certified one claim – the Council’s 2015/16 Housing Benefit Subsidy claim. This had a value of £18.9 million.
· Under separate assurance engagements, KPMG also certified the Authority’s 2015/16 Housing Pooling Return.
Certification and assurance results
Housing Benefit Subsidy
KPMG’s certification work on this claim included:
· Agreeing standard rates, such as for allowances and benefit incomes, to the CSP Circular communicating the value of each rate for the year;
· Sample testing of benefit claims to confirm that the entitlement had been correctly calculated and was supported by appropriate evidence;
· Undertaking an analytical review of the claim form considering year-on-year variances and key ratios;
· Confirming that the subsidy claim had been prepared using the correct benefits system version; and
· Completing testing in relation to modified schemes payments, uncashed cheques and verifying the accurate completion of the claim form.
As a result of issues identified in the previous year and, as result of KPMG’s initial work, it was necessary to perform the following additional work:
· 100% testing in relation to five specific issues where KPMG were able to effect claim adjustments; and
· 40+ testing in relation to eight further issues from which KPMG could not reach a conclusion as to whether the claim was fairly stated.
Following the completion of KPMG’s work, the claim was subject to a qualification letter, in addition to a number of audit adjustments. These amounted to £317 although did not result in any change to the amount of subsidy claimed, due to the Council’s total LA error rate falling below the lower threshold.
Housing Pooling Return
KPMG’s work on the Housing Pooling Return resulted in an unqualified assurance report, although an issue was noted in respect of the incorrect recording of mortgage repayments in the appropriate quarter to which they related.
Adjustments totalling £1,596 were necessary to differing cells on the return as a result of this issues, although this did not affect the amount of poolable receipts.
KPMG’s proposed fee for certifying the Council’s 2015/16 Housing Benefit Subsidy grant was £8,161, which was more than the indicative fee set by the PSAA. This increase was due to greater complexity of cases reviewed as part of KPMG’s work, with the final fee still subject to determination by the PSAA.
KPMG’s fees for other ‘assurance’ engagements were subject to agreement directly with the Council and were £3,000.
That the Certification of grants and returns 2015/16 be noted.
To provide an overview of the stages followed prior to the formulation of the Strategic Internal Audit Plan for 2017/18 to 2019/20 and the Annual Audit Plan for 2017/18. The Annual Internal Audit Plan will then serve as the work programme for the Council’s Internal Audit Services Contractor, TIAA Ltd. It will also provide the basis for the Annual Audit Opinion on the overall adequacy and effectiveness of South Holland District Council’s framework of governance, risk management and control (report of the Internal Audit Consortium Manager enclosed)
Consideration was given to the report of the Internal Audit Consortium Manager which provided information on the Strategic and Annual Internal Audit Plans 2017/18. The purpose of the report was to provide an overview of the stages followed prior to the formulation of the Strategic Internal Audit Plan for 2017/18 to 2019/20 and the Annual Internal Audit Plan for 2017/18. The Annual Internal Audit Plan would then serve as the work programme for the Council’s Internal Audit Services Contractor, TIAA Ltd. It would also provide the basis for the Annual Audit Opinion on the overall adequacy and effectiveness of South Holland District Council’s framework of governance, risk management and control.
The Accounts and Audit Regulations 2015 required that ‘a relevant authority must undertake an effective internal audit to evaluate the effectiveness of its risk management, control and governance processes, taking into account public sector internal auditing standards or guidance’. These standards were set out in the Public Sector Internal Audit Standards (PSIAS) which came into effect in April 2013.
The appendix attached to the report contained;
· The Internal Audit Charter which formally defined the internal audit’s purpose, authority and responsibility, and was a mandatory document. The Charter reflected the new Internal Professional Practices Framework (IPPF) and Public Sector Internal Audit Standards (PSIAS) – and in particular the mission statement and core principles. The Charter now also more explicitly included reference to the mandatory nature of the Core Principles for he Professional Practice of Internal Auditing, the Code of Ethics, and the Internal Standards;
· The Internal Audit Strategy, which was a strategic high level statement on how the internal audit service would be delivered and developed in accordance with the charter and how it linked to the organisational objectives and priorities;
· The Strategic Internal Audit Plan, which detailed the plan of work for the next 3 financial years;
· The Annual Internal Audit Plan, which detailed the timing and the purpose of each audit agreed for inclusion in 2017/18; and
· Provided the Committee with the performance measures against which the new contractor would be monitored.
The Internal Audit Consortium Manager advised that the Committee would receive programme reports and updates throughout the year.
a) That the report be noted;
b) That the Committee approve:
· The Internal Audit Charter for 2017/18;
· The Internal Audit Strategy for 2017/18;
· The Strategic Internal Audit Plans 2017/18 to 2019/20; and
· The Annual Internal Audit Plan 2017/18; and
c) That the Committee receive programme reports and updates throughout the year.
To present the results of an external review, by the Institute of Internal Auditors, of Eastern Internal Audit Service’s conformance with the Standards (report of the Internal Audit Consortium Manager enclosed)
Consideration was given to the report of the Internal Audit Consortium Manager, which presented the results of an external review by the Institute of Internal Auditors of Eastern Internal Audit Service’s conformance with the Standards.
The objective of the review was to undertake an independent, objective external quality assessment of the Eastern Internal Audit Service against the IPPF. This included considering the team’s conformance to the IPPF (Internal Professional Practices Framework), benchmarking the function’s activities against best practice and assessing the impact of internal audit on the organisation.
The report concluded that the internal audit team fully met most of the Standards, as well as the Definition, Core Principles and the Code of Ethics which formed the mandatory elements of the Institute of Internal Auditors’ International Professional Practices Framework, the globally recognised standard for quality in Internal Auditing. This was described as ‘Generally conforms’ (this was the best rating available), and meant that the internal audit team could stated in its audit reports that the work ‘had been performed in accordance with the IPPF’.
The assessor had noted that key achievements within the attached report, with the following overriding summary statement provided:
· Eastern Internal Audit Services deliver an effective independent and objective assurance and consulting service across the authorities it serves, covering the full range of activity that this organisation undertakes. Some challenges remain, of course, but overall we believe that stakeholders see the Internal Audit Consortium Manager and the core internal audit team as professional, approachable and competent in their work.’
In addition, the Institute of Internal Auditors (IIA) benchmarked the service against others that had been assessed and concluded against five key areas that:
· The service was ‘excellent’ in the efficiency of its operation (this emphasised how well the contract worked and the IIA confirmed that this was a conclusion rarely achieved in such a review)
· The service was ‘good’ in its Reflection of the Standards and the Quality Assurance and Improvement Programme.
· In relation to focusing on performance, risk and adding value, the team was ‘satisfactory’ (this related to more formally documenting the risks to the internal audit service and undertaking a more formal assessment of risks at each Authority and formally linking this through to the audit plans)
· In relation to coordinating and maximising assurance, the team was considered to ‘need improvement’ in this area (this was not uncommon, and a conclusion drawn on by the assessors in the majority of the reviews they undertook).
That the report, the results of the assessment and the resultant action plan be noted.
To confirm the response to the external audit mandatory inquiries (report of the Executive Director Commercialisation (S151 Officer) enclosed)
Consideration was given to the report of the Executive Director Commercialisation which asked members to confirm the response to the external audit mandatory enquiries.
In order to comply with a number of International Standards of Auditing, external auditors were required to obtain an understanding on how those charged with governance exercised oversight of management’s process in relation to fraud, laws and regulations and going concern. To assist this work, which formed part of the annual audit, the external auditor issued a number of questions to those charged with governance. This year’s focus was on fraud and significant unusual transactions.
Appendix A set out the enquires to those charged with governance. It had been pre-populated to a large extent, where possible, following discussion between the Section 151 Officer and Internal Audit. However, one question on fraud asked for an opinion and it was therefore felt inappropriate to pre-empt the Committee’s response.
Members were asked to consider these responses and to be satisfied that they corresponded to the Committee’s own view of affairs, or whether the responses required modification.
Members were advised that, in relation to fraud, the main issue was whether there were systems in place for the Committee to be advised of any major fraud issues. With regard to the Fraud statement in Appendix A – ‘What are your views about fraud risks at the entity’, it was felt that this was a sweeping statement, and how could the Committee be sure that the various processes were robust. It was agreed that the Committee could only expect that there was reasonable assurance for arrangements being robust. The Committee also agreed that the first sentence of the comment within the Fraud statement at Appendix A be amended to read as follows, with the remainder of the comment to remain as it was:
· The Committee agreed that they had reasonable assurance with regards to the assessment of fraud risks, and that no trends had been identified
a) That the response to the external audit mandatory inquiries be approved; and
b) That the first sentence of the comment within the Fraud statement at Appendix A be amended to read as follows, with the remainder of the comment to remain as it was:
· The Committee agreed that they had reasonable assurance with regards to the assessment of fraud risks, and that no trends had been identified
To inform the Committee on the current status of the Council’s strategic risks (report of the Executive Director Strategy and Governance enclosed)
Consideration was given to report of the Executive Director Strategy and Governance which informed the Committee on the current status of the Council’s strategic risks.
The Performance and Change Manager referred members to the strategic risk register that formed Appendix A within the report, which included 13 strategic risks, a decrease of 1 risk from Quarter 2.
The following risk areas were highlighted:
· There were currently no risks reported in the high category. The risk relating to the failure of CPBS to deliver core services reported as high risk in Quarter 2 had decreased in score since the last quarter. The decrease in risk had been assessed due to previously reported issues within the Revenues and Benefits team subsiding to a more controllable level and less risk of the HB LA Error rate remaining above the threshold at which the organisation would incur a loss/reduction of subsidy payment. Additionally, money saved in staffing vacancies was being used to fund CIVICA consultancy for 12 months which would maintain the recent improvements and sustain service delivery going forward where the organisation was struggling to recruit suitable high quality Benefits Assessors.
· There were currently ten risks which fell into the medium category. Of these risks, most remained at the same score as last quarter with only one increasing. The failure to deliver the outcomes of Welland Homes currently remained at six, and there were options being presented to the Welland Homes Board to address this level of risk.
· There was one strategic risk which was currently reported and was suggested to be removed. This was the risk concerned with Failure to deliver the Council’s Corporate Priorities. This was a risk that had been scored consistently within the low risk category and has consistently met its target risk score. It was proposed that the risk was removed in the interim and re-added if there was any escalation in the risk level.
· There were 3 risks currently reported in the low category and these were scored as they were in the previous quarter.
· All but two of the risks had had a target risk level added to their assessment. The targets were considered appraisals of the risk levels that the organisation would like to achieve. Targets could change over time in order to reflect changing circumstances and changes to these would be highlighted to the board.
The Committee considered the report and asked whether any more information was available regarding Welland Homes. The Executive Director Commercialisation advised that the Welland Homes Board had met recently and that the risk relating to the company should now be reassessed. Significant steps forward had been taken, and there was now much more clarity going forward.
That the contents of the report be noted.
To set out the Work Programme of the Governance and Audit Committee (report of the Executive Manager Governance enclosed).
Consideration was given to the report of the Executive Manager Governance, which presented the Work Programme of the Governance and Audit Committee, as set out in Appendix A within the report.
The schedule of meetings for 2017/18 was now available, and dates for Governance and Audit meetings had been added to the Work Programme. Regular items had been transferred from the 2016/17 municipal year to the appropriate meeting dates for the new municipal year. Contributors were requested to confirm that the reports, and the meeting dates on which they were to be reported, were correct.
The Committee considered the report and the Work Programme for the forthcoming year and agreed all items on it were correct.
That the report be noted.
Any other items which the Chairman decides are urgent.
NOTE: No other business is permitted unless by reason of special circumstances, which shall be specified in the minutes, the Chairman is of the opinion that the item(s) should be considered as a matter of urgency.