Venue: This will be a meeting held in line with The Local Authorities & Police & Crime Panels (Coronavirus) (Flexibility of Local Authority & Police & Crime Panel Meetings) (England & Wales) Regulations 2020
Contact: Democratic Services 01775 764626
Apologies for absence.
There were no apologies for absence.
Declaration of Interests
(Where a Councillor has a Disclosable Pecuniary Interest the Councillor must declare the interest and leave the meeting 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 no declarations of interest.
To sign as a correct record the minutes of the meeting held on 30 July 2020 (copy enclosed).
The minutes of the meeting of the Governance and Audit Committee held on 30 July 2020 were signed by the Chairman as a correct record.
Update report by Ernst Young (enclosed).
The Associate Partner (Ernst & Young) noted that it was unusual to present both the Audit Plan and Audit Results report on the same agenda. Due to the unusual circumstances of the year caused by the Covid pandemic, this was the first opportunity for presentation of the Audit Plan. The Audit Plan set out the Audit risks to be addressed, and were equally shown in the Audit Results report, and it was therefore agreed that the two reports be presented and discussed together.
There had been a number of constraints, with the Council’s budget being prepared by Council officers during lockdown, and the whole audit process had been undertaken remotely. There had also been additional financial reporting requirements involving additional procedures, as a result of Covid-19, around property, plant and equipment valuations, pension valuations and the going-concern concept. Auditors were working to a materiality level of £921,000 for the Council.
The following Audit Risks were explained, and were set out in both the 2019/20 Audit Plan and the Audit Results Report:
· Fraud risks- The risk could be that management could override controls and financially mis-report the position of the Council as at 31 March, and through the incorrect capitalisation of revenue expenditure. Auditors had found no evidence of this, and this was a key assurance for the Committee to note.
· Property, plant and equipment valuation– this would be a key risk in any normal audit year, but was heightened this year by the Covid pandemic, and the fact that the balance sheet date of 31 March 2020 was in the middle of the first lockdown period. This was key for assets valued at fair value. The Council had a relatively high level of investment property valued at fair value and the assets therefore had to be considered specifically, and the valuations tested upon which they were set within the financial statements. Auditors were awaiting sample documentation to complete procedures in this area and would expect some additional disclosures to be made in the set of accounts as a result.
· Pension liability on the balance sheet – There were two audit-related issues being focussed on: 1) National remedy to the McCloud issue (an employment equalisation of pay issue last year) – there had been a remedy in July this year, and this remedy had changed some of the assumptions built into the actuarial model behind the liability; 2) Value of investments assets in the Lincolnshire Pension Fund and how these were valued within the actuarial model – assurances had been received from the Pension Fund auditor, which showed that the fund was understated by £12million at 31 March. SHDC’s share of this was only £330,000, but this would reduce the liability showing within the draft financial statements. As a result of these two issues, officers had requested an updated actuarial valuation in order to assess the impact on the Council’s liability, and to reflect this appropriately in the revised accounts. Ernst and Young were awaiting this updated report.
· Non-domestic rate appeal provision ... view the full minutes text for item 14.
To seek approval for the Annual Governance Statement for inclusion with the Council’s published Financial Statements, and approval of the Audited Financial Statements 2019/20 for publication (report of the Executive Director Commercialisation (S151) enclosed).
Consideration was given to the report of the Executive Director Commercialisation (S151 Officer) which sought approval for the Annual Governance Statement for inclusion with the Council’s published Financial Statements, and approval of the Audited Financial Statements 2019/20 for publication.
The draft 2019/20 Financial Statements were signed by the Section 151 Officer on 28 August 2020, and were considered by the Committee at a training session on 22 October 2020.
A small number of presentational adjustments were made to the draft Financial Statements to ensure compliance with the Code of Practice on Local Authority Accounting in the United Kingdom 2019/20.
The external audit of the Financial Statements for the year ended 31 March 2020 was now substantially complete, and the Statements were attached as Appendix A. At the time of writing the report, there were some areas of outstanding work that the external auditors, EY LLP, were still completing, primarily due to delay relating to the availability of up to date pension fund asset values. However, the Committee was advised that the Pension Fund Audit was now complete, a revised Pensions report had been requested for analysis to ascertain whether there had been any material changes from the version used in the accounts. If there had been any material changes, the accounts would need to be adjusted accordingly.
Officers requested that, as the accounts were not yet complete, that recommendation 2 of the report be amended to read:
· That the Section 151 Officer be delegated, in consultation with the Chairman of the Governance and Audit Committee, to authorise any amendments, if required, after the committee date and prior to the official signing of the Accounts.
Members requested that the recommendation be amended further to reflect the fact that the Financial Statements would not need to come back to the Committee, unless there was a material change. Officers responded that the recommendation could be changed in this respect, and even if there were no material changes to make to the accounts, an update would still be provided to the meeting following the signing of the accounts, to provide the Committee with an update to any amendments, if any, had been made following this meeting.
a) That the Financial Statements 2019/20 (Appendix A) be approved;
b) That the Section 151 Officer be delegated, in consultation with the Chairman of the Governance and Audit Committee, to authorise any material amendments, if required, after the committee date and prior to the official signing of the Accounts;
c) That the Annual Governance Statement 2019/20 be approved; and
d) That the Letter of Representation to EY (Appendix B) be signed by the Section 151 Officer and the Chairman of the Governance and Audit Committee, on the Committee’s behalf.
To set out the revised annual plan for internal audit activity for 2020/21 (report of the Head of Internal Audit for SHDC enclosed).
Consideration was given to the report of the Head of Internal Audit which set out the revised annual plan for internal audit activity for 2020/21.
The 2020/21 Internal Audit Plan was approved by the Governance and Audit Committee on 12 March 2020. However, in line with the PSIAS, the risk-based plan was required to be sufficiently flexible to reflect the changing risks and priorities of the organisation.
The Coronavirus pandemic had impacted the Council significantly in several ways and Internal Audit therefore needed to remain responsive to the needs and risks of the Council by revising the agreed Internal Audit Plan.
In response to the significant pressure placed on the Council to react effectively to the pandemic, the Chief Executive requested that all 2020/21 Internal Audit activity be paused until at least quarter 2. In addition, the Internal Audit contractors TIAA took the decision to furlough their workforce until 1 July 2020.
The Internal Audit Plan for 2020/21 would therefore be revised to respond to the changing risk profile of the Council, to ensure that Internal Audit and Officer resources were able to support the assurance work required to formulate an opinion on the governance, risk and control framework for 2020/21.
Members were advised that the revised plan had been agreed by managers in October, TIAA had started work on the plan and it had reduced the number of audit days from 225 to 150. The revised plan covered the necessities for the current year, and included a change of direction for some of the audits. This included an assurance mapping exercise to understand how the initial Covid outbreak had impacted on systems and processes and whether anything from the outbreak had impacted enough to warrant further audit work, impacted on the plan for the current or next year, or whether the internal audits being undertaken in the current year needed to be revised. Consideration had been given to the Council’s response to the outbreak, and how anything around the governance and assurance processes affected the plan. It also included a reduction in the remaining areas, and a Covid audit to be undertaken in quarter 4 to follow on from the assurance mapping exercise. This would look at the Council’s long-term response to Covid, how it was managed, and how it was managing the governance, risk and assurance around the Council.
The following issues were raised:
· The report stated that Internal Audit reviews that were included in the original plan for 2020/21 would be deferred to 2021/22, and that a risk assessment would be undertaken to establish whether each area was still required early in 2021 when the risk based internal audit plan for the year ahead was developed. What risk assessment had been undertaken relating to them being deferred in the first place?
o This was part of the assurance mapping exercise. As part of the exercise, the auditors would be looking to see what was removed from the plan that was a key area to be included, and ... view the full minutes text for item 16.
To examine the progress made between 21 July 2020 and 11 November 2020 in relation to the completion of the revised Annual Internal Audit Plan for 2020/21 (report of the Head of Internal Audit for SHDC enclosed).
Consideration was given to the report of the Head of Internal Audit, which examined the progress made between 21 July 2020 and 11 November 2020 in relation to the completion of the Annual Internal Audit Plan for 2020/21.
The Governance and Audit Committee received updates on progress made against the annual internal audit plan. The report formed part of the overall reporting requirements to assist the Council in discharging its responsibilities in relation to the internal audit activity.
The Public Sector Internal Audit Standards required the Chief Audit Executive to report to the Governance and Audit Committee the performance of internal audit relative to its agreed plan, including any significant risk exposures and control issues. The frequency of reporting at South Holland was to each meeting.
To comply with the above requirements, the report identified:
· Any significant changes to the approved Audit Plan;
· Progress made in delivering the agreed audits for the year;
· Any significant outcomes arising from those audits; and
· Performance measures to date
The Committee was advised of details of progress made in delivering the agreed audit work, and the outcomes arising from the auditor’s work was detailed within the report.
At the meeting on 12 March 2020, the Annual Internal Audit Plan for the year was approved, identifying the specific audits to be delivered. Since that meeting, the plan had been revised in order to better respond to the Coronavirus pandemic.
Due to the late start of the internal Audit Plan for the 2020/21 financial year, no reports had been finalised to date, however the plan of work was on track to the revised timetable.
With regard to the virtual nature of interactions and clients providing information online, a slight delay had been seen in the early stages, however this had now settled down, and new ways of sharing data were continually being developed.
For following issues were raised:
· The report stated that due to the late start of the Internal Audit Plan for work for 2020/21, a quarter one report was not provided, a quarter two report had been provided and upon return from maternity leave, the Internal Audit Manager would receive the quarter three report and would review both of the outputs with regard to the performance. Was this not being picked up during the officer’s absence?
· Members noted that within Appendix 1, no information had been added in the status column.
To provide members with the position on the progress made by management in implementing agreed Internal Audit recommendations as at 11 November 2020 (report of the Head of Internal Audit for SHDC enclosed).
Consideration was given to the report of the Internal Audit Manager, which provided members with the position on the progress made by management in implementing agreed Internal Audit recommendations as at 11 November 2020.
In 2017/18, a total of 85 recommendations were raised by both internal audit providers. Of those, 82 had been implemented by management, three were outstanding (one urgent and two important). The management responses in relation to the outstanding urgent and important outstanding recommendations could be seen at Appendix 2 of the report.
In 2018/19, a total of 76 recommendations were raised by both internal audit providers. Of those, 67 had been completed and 9 (two urgent, six important and one needing attention) were overdue. The management responses in relation to the outstanding important recommendations could be seen at Appendix 3 of the report.
In 2019/20, a total of 77 recommendations were agreed. Of these, 44 had been completed, 12 were outstanding (four urgent, four important and four needing attention). A total of 21 were not yet due.
The information within the report was considered, and the following issues were raised:
· It was disappointing that there were still some outstanding actions that were 2-3 years behind the original date, and rather than submitting comments on the report, managers should be asked to attend the meeting.
· The Strategic Finance and Compliance Manager advised of the three areas outstanding from the 2017/18 audit recommendations: 1) Asset Management programme review of all leases – there was some movement with this item in line with a report that had been presented to the last Cabinet meeting, but the officer could attend the next meeting if the Committee wished; 2) Accounts Payable Key Controls (Finance system) – the recommendation was predicated on the implementation of the new system which had been delayed until 2021; and 3) Welland Homes – the Strategic Housing Manager had been invited to the meeting to provide an update.
· The Strategic Housing Manager provided the following update regarding the outstanding action to devise a service level agreement to formally record the services provided by the Council to Welland Homes, and to the terms on which those services were provided, including service charges. It was anticipated that the final contract would be presented to a meeting of the Board on 26 January 2021. A draft report had been submitted to a Board meeting in August 2020, this had been broadly agreed, and officers were therefore in the latter stages of finalising this action. The main reason for the time taken to finalise the document had been in the understanding and content of the contract and agreeing that between the Council and the Company. At the time the recommendation was made, Welland Homes had one housing project that had been delivered for the Company by SHDC officers. Also at that time there was not an established Housing Development Team of officers. Now that ... view the full minutes text for item 18.
To provide an update of the treasury management position of the Council as at 30 September 2020 (report of the Executive Director Commercialisation (S151) enclosed).
Consideration was given to the report of the Executive Director Commercialisation (S151 Officer), which provided an update of the treasury management position of the Council as at 30 September 2020.
In December 2017, the Chartered Institute of Public Finance and Accountancy (CIPFA), issued revised Prudential and Treasury Management Codes. As from 2020/21, all local authorities would be required to prepare a Capital Strategy which was intended to provide the following:
· A high-level overview of how capital expenditure, capital financing and treasury management activity contributed to the provision of services;
· An overview of how the associated risk was managed;
· The implications for future financial sustainability.
· A report setting out the Authority’s Capital Strategy was taken to full Council as part of the budget setting report on 26 February 2020.
The mid year report had been prepared in compliance with CIPFA’s Code of Practice on Treasury Management, and covered the following:
· An economic update for the 2020/21 financial year to 30 September 2020;
· A review of the Treasury Management Strategy Statement and Annual Investment Strategy;
· The Council’s capital expenditure, as set out in the capital strategy and prudential indicators;
· A review of the Council’s investment portfolio for 2020/21;
· A review of the Council’s borrowing strategy for 2020/21;
· A review of any debt rescheduling undertaken during 2020/21;
· A review of compliance with Treasury and Prudential Limits for 2020/21
That the report, the treasury activity as detailed in Appendix A and the economic update from Link Asset Services at Appendix B be noted.
To provide an update to the Committee on the progress of the Council’s identified strategic risks (report of the Executive Manager Growth)
Consideration was given to the report of the Executive Director Strategy and Governance, which provided an update to the Committee on the progress of the Council’s identified strategic risks.
The report aimed to present an overview of the strategic risks identified by the Council, approach to mitigations and risk scores associated with the risks. The report included, at Appendix 1, a more detailed Strategic Risk Register document This was the first risk report presented to the Committee since the Coronavirus pandemic, and was a significantly changed document from previous versions. It covered a new set of areas that had arisen as a result of the pandemic including the risks of dealing with more than one specific event at the same time in addition to the challenges around the Covid pandemic, the potential impact on the economy, the ability to conclude Council business, decision making in a virtual way, and business continuity in key areas such as waste collection.
Officers pointed out that the report stated that there were 27 strategic risks with 12 at a medium score. However the number of risks with a low score was stated as 18 however this should have been 15.
As this was the first iteration of the document in the current Covid situation, comments from the Committee were welcomed.
Members considered the report, and the following issues were raised:
· The report was useful however there was a great amount of detail within it which was not easily read on an electronic device.
· Members responded that the Strategic Risk Register itself had much detail on it and needed to be produced in an A3 paper format for consideration at future meetings.
· There did not appear to be a definition of what constituted red, amber or green risks.
· Technology and infrastructure failure – in view of the fact that recently, email had not been available for a number of days, should the impact of this risk be changed?
· The Authority was offering financial support to the leisure provider, Parkwood, until the end of December – this date was approaching quickly. Was this mitigation changing?
To set out the Work Programme of the Governance and Audit Committee (report of the Executive Manager – Governance (Deputy Monitoring Officer) enclosed).
Consideration was given to the report of the Executive Manager – Governance (Deputy Monitoring Officer) which set out the Work Programme of the Governance and Audit Committee.
The following items were noted, following discussions during the meeting:
· Outputs from the Savings Task Group would be added to the Work Programme
· Adjustments would be made to the External Audit reports as a result of the accounts closure/signing having to be delayed
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.
It was noted that the Committee were very supportive of the Finance staff, were particularly keen to ensure that the audits were on track, and that there were concerns with the increased external audit fee.