Agenda and draft minutes

Audit Committee
Monday, 4th March, 2019 7.00 pm

Venue: Committee Room 1, Council Offices, The Burys, Godalming

Contact: Amy McNulty  Democratic Services Officer

Items
No. Item

AUD 49/18

Minutes

To confirm the Minutes of the Meeting held on 5 November 2018 (to be laid on the table half an hour before the meeting).

Minutes:

The Minutes of the Meeting held on 5 November 2018 were confirmed as a correct record and signed.

AUD 50/18

Apologies for Absence

To receive apologies for absence.

Minutes:

Apologies for absence were received from Cllrs Mike Band, Pat Frost and Robert Knowles.

AUD 51/18

Disclosure of Interests

To receive from Members, declarations of interests in relation to any items included on the Agenda for this meeting, in accordance with the Waverley Code of Local Government Conduct.

Minutes:

There were no disclosures of interest in connection with items on the agenda.

AUD 52/18

Questions by Members of the Public

The Chairman to respond to any questions received from members of the public of which notice has been duly given in accordance with Procedure Rule 10.

 

The deadline for receipt of questions is 5pm on Monday 25 February 2019.

Minutes:

There were no questions from members of the public.

AUD 53/18

QUESTIONS FROM MEMBERS

The Chairman to respond to any questions received from Members in accordance with Procedure Rule 11.

 

The deadline for receipt of questions is 5pm on Monday 25 February 2019.

Minutes:

There were no questions from Members.

PART I - RECOMMENDATIONS TO THE COUNCIL

Background Papers

 

Unless specified under an individual item, there are no background papers (as defined by Section 100D(5) of the Local Government Act 1972) relating to the reports in Part I of these minutes.

AUD 54/18

Process and Documentation for Supplementary Estimates pdf icon PDF 68 KB

On 5 November 2018, the Audit Committee resolved that the Section 151 Officer and Head of Policy and Governance should produce a paper for the next meeting setting out the process and documentation required to support all future requests for supplementary estimates. 

 

This report sets out the process and documentation to be used whenever a supplementary estimate is to be considered by the Executive or Full Council. 

 

Recommendation

 

It is recommended that the Audit Committee:

 

1.    Endorses the process set out within this report required to support all future requests for supplementary estimates;

 

2.    Agrees to recommend to Council that paragraph 4.27 within the Council’s published Financial Regulations be revised as set out within Annexe 1; and

 

3.    Agrees to recommend to Council that the pro forma attached at Annexe 2 of this report be added to the Council’s published Financial Regulations.

Additional documents:

Minutes:

Graeme Clark presented the proposal to expand on the published Financial Regulations to ensure consistency across all requests for unexpected expenditure.

 

As set out within paragraph 4.27 of the Council’s published Financial Regulations (agreed by Full Council in October 2018):

 

‘A Supplementary Estimate is a request for additional unfunded budget that will increase the Council’s overall budget and be funded from reserves. Supplementary Estimates up to £100,000 shall be approved by the Executive and, if over £100,000, Full Council.’

 

The report highlighted that when the Executive or Full Council is asked to consider agreeing a Supplementary Estimate, they would need to:

 

(i)            Consider why the need for funds, that were not identified or provided for within the Annual Budget and which cannot be found within existing budgets, has arisen;

 

(ii)          Understand how much money is being requested and how it is proposed to be spent;

 

(iii)         Assess whether or not the proposed supplementary estimate represents value for money, which will include noting and considering:

 

a.    Any other options available to the Council that have been considered, including the control option of not taking any action;

 

b.    The expected benefits agreeing the supplementary estimate; and

 

c.    The expected risks, if any, of agreeing or refusing supplementary estimate;

 

The Council’s Section 151 Officer’s view on the supplementary estimate, including the above matters, would also be set out, either within a stand alone report or as part of another budget report.

 

Any manager wishing to propose a Supplementary Estimate, in the first instance would need to consider the issues set out above and submit their view to the Council’s Section 151 Officer, or designate.

 

Annexe 1 to these minutes sets out the proposed additions to paragraph 4.27 of the Council’s published Financial Regulations, including an advisory flow chart to support officers and councillors wishing to understand what supplementary estimates are and what needs to be considered before putting these to the Section 151 Officer and subsequently to Executive or Council as appropriate.

 

Annexe 2 to these minutes sets out a new proposed pro forma to ensure a consistent approach is always taken and recorded.

 

The Committee thanked officers for providing a crisp and concise, yet thorough process. It was suggested that sections be added to the pro forma to set out the date of the request, as well as when and how the money would be spent.

 

In relation to the section on risk, Members felt that it was important that any identified risks related specifically to the action being requested, but should also link to the risk appetite statement where possible.

 

The Committee RESOLVED to endorse the process required to support all future requests for supplementary estimates; and now

 

RECOMMENDS to Council that

 

1.    paragraph 4.27 within the Council’s published Financial Regulations be supplemented as set out within Annexe 1; and

 

2.    the pro forma attached at Annexe 2 to these minutes be added to the Council’s published Financial Regulations.

AUD 55/18

Income and Debt Collection Policy pdf icon PDF 51 KB

To seek approval of a new Income and Debt Collection Policy which aims to achieve prompt collection of all sums of money owed to the council, whilst ensuring that a fair, proportionate and consistent approach is taken to the recovery of sums that are not paid when due.

 

Recommendation

 

It is recommended that the Audit Committee endorses the Income and Debt Collection Policy and recommends its adoption by Council.

Additional documents:

Minutes:

Peter Vickers introduced the Income and Debt Collection Policy to the Committee. The policy, attached at Annexe 3 to these minutes, had been developed following an in-depth review of all the income streams in the Council to assess current practices, deficiencies in processes and areas where improvements, especially with regard to utilising technology and new payment methods, could be made. The information gathered in this review had been used to develop a corporate wide policy on how the council should be collecting income and the recovery process should payment not be forthcoming.

 

Peter added that the policy would be particularly useful in situations where customers may have debts owing to different service areas, and would provide a priority system for pursuing debts.

 

The policy would apply to all services and all income streams. Regular monitoring of performance of income collection and debt recovery would be incorporated into the financial performance reporting process.

 

Graeme Clark highlighted that by endorsing this policy the Audit Committee would also be giving assurance to the council’s External Auditors that the Council was addressing the issue of debt on the Balance Sheet as identified in the External Audit Findings Report for 2017/18.

 

The Committee made several suggestions in relation the presentation and wording of the Policy. It was also suggested that the roles and responsibilities of the Corporate Debt and Income Officer be more clearly set out; further explanation be provided in relation to the recovery timetables; as well as including a reference to any data protection implications relating to the policy.

 

Members discussed the references to how customers, including vulnerable people, could get help and advice. It was felt that there didn’t need to be a distinction between the support available to all customers and that available to vulnerable customers, and that Citizens’ Advice should be signposted as an option for all customers seeking impartial advice. It was still useful, however, to identify which customers could be considered vulnerable. Officers agreed to review this section along with any references contained elsewhere in the policy.

 

Subject to the above comments, the Committee RESOLVED to endorse the policy and

 

RECOMMENDS to Council that

 

3.         the Income and Debt Collection Policy be adopted.

AUD 56/18

REVISED ANTI-FRAUD AND CORRUPTION POLICY pdf icon PDF 54 KB

To obtain Committee endorsement of the revised policies enabling these to be adopted and published on the website and cascaded to all members of staff, members, partners, the Council’s suppliers, thus reinforcing Waverley’s stance of zero tolerance to Fraud and Corruption. 

 

Recommendation

 

It is recommended that the Committee

 

1.         endorses the revised policy; and

 

2.         recommends to Council that it be approved and that officers are instructed to cascade using suitable media to publicise these documents to the appropriate recipients.

 

Additional documents:

Minutes:

Gail Beaton presented the revised Anti-Fraud and Corruption Policy to the Committee. The policy, attached at Annexe 4 to these minutes, had been revised as part of the scheduled cyclical review, to reflect changes in legislation, organisational restructure affecting job titles and positions and new developments in the methodology in tackling fraud. The policy was presented to the Audit Committee as a suite of documents to support awareness of the Council’s anti-fraud culture. However, Gail advised that each appendix was owned by a different service area and would be made available to members of staff as separate policies on the Council’s intranet.

 

A full revision of the Anti Money Laundering Policy and Guidance had been carried out to meet legislative and professional institutions best practice guides. It was proposed that these policies would be review annually by the responsible officers and, where necessary, endorsed by the Audit Committee every two years. Officers would be asked to cascade these policies throughout the authority, to suppliers, contractors and subcontractors where appropriate as part of contract terms and conditions. Presentation changes had been made to include all fraud and related policies as part of the authority’s Anti-Fraud and Corruption Policy.

 

The Committee queried whether there had been any experiences in the past of attempts to carry out money laundering, however officers advised that there was very little opportunity to do so due to the Council’s extensive due diligence processes.

 

In reference to the Fraud Investigation Plan, Cllr Hyman queried who was responsible for determining whether on not an allegation was true. Gail responded that she would investigate this as part of her role as Internal Audit Manager, and the final decision would be made by the Section 151 Officer, having reviewed the evidence.

 

The Committee made some further suggestions in relation to presentation and wording to improve the clarity of the policy.

 

Subject to the above comments, the Committee RESOLVED to endorse the policy and

 

RECOMMENDS to Council that

 

4.         the revised Anti-Fraud and Corruption Policy be approved and that offers be instructed to cascade using suitable media to publicise these documents to the appropriate recipients.

PART II - MATTERS OF REPORT

The background papers relating to the following items are as set out in the reports included in the original agenda papers.

AUD 57/18

2017/18 Certification Letter pdf icon PDF 455 KB

To receive the 2017/18 Certification Letter from Grant Thornton.

Minutes:

Tom Beake advised the Committee that Grant Thornton had certified the Housing Benefit subsidy claim for the financial year 2017/18 which related to a claim of £28.5m. A small number of errors had been identified, two of which had recurred from the previous year. The errors had been extrapolated and reported this to DWP, however the figure was considered insignificant in comparison with the total subsidy receivable. Grant Thornton recommended that the Council, as part of its internal quality assurance process, should increase its focus or level of testing in respect of the areas where errors were identified.

 

The Committee asked whether the recurrence of the errors should be seen as a cause for concern. Tom clarified that the issues were as a result of minor user error and were not indicative of deficiencies in the processes. The Housing Benefits team processed around 25k changes per year so the Committee acknowledged that a small number of errors could occur with such a high volume of transactions.

 

Members queried what additional work the DWP could ask the Council to do as a result of the errors. Tom explained that Grant Thornton did not ask for an adjustment based on the extrapolated figures but the DWP could ask the Council to carry out further testing. Graeme Clark added, however, that the Council hadn’t been asked to do any further work in the past as the amounts were always so low.

 

The Committee RESOLVED that the 2017/18 Certification Letter be noted.

AUD 58/18

2018/19 External Audit Plan pdf icon PDF 444 KB

To receive the 2018/19 External Audit Plan from Grant Thornton.

Minutes:

Sarah Ironmonger outlined the scope of what Grant Thornton intended to cover over the course of its audit for 2018/19. The External Audit Plan set out the key risks that would require special consideration. Management override of controls was a standard area to be covered by the audit. Additionally, the valuations of plant, property and equipment, and net pension fund liability were both included as they were large values with significant estimates, and therefore merited special consideration.

 

The Committee recalled that at its meeting in July last year, the Audit Findings report hadn’t been finalised in time for the agenda despatch and the complete version had not been available until the day of the Committee meeting. The Chairman asked both Grant Thornton and Waverley officers to confirm that they were comfortable working to the 31 July audit deadline. Tom Beake assured the Committee that arrangements were in place to meet the timescales, and advised that Grant Thornton would provide a draft Audit Findings Report to be included with the agenda despatch for the July Committee and a final version would be available to Members the day before the Committee.

 

Members noted that the materiality thresholds had increased notably since last year and queried what had caused this. Officers explained that the materiality threshold was based on the previous year’s gross expenditure and may have increased due to greater capital expenditure. Cllr Mulliner queried why there were different levels of materiality for the audit and certification of Hosing Benefit subsidies. Sarah responded that the DWP didn’t allow for any materiality threshold to be set for Housing Benefit subsidy claims.

 

Cllr Hyman noted that the Audit Plan identified Local Government financial pressures as a key matter to be considered in the audit, and asked whether part of the review would assess whether the Council’s plans to deal with financial pressures were realistic. Sarah confirmed that this had been identified as a significant risk in relation to the Council’s Value for Money arrangements and would be reviewed, although reasonable assumptions would be accepted.

 

The Committee also noted the potential impact of Brexit and sought assurance from officers that plans were in place to deal with this. Graeme Clark confirmed that an officer group was working on this and had identified relevant risks and mitigations.

 

Cllr Hyman noted that the risk of fraud in revenue recognition had been rebutted and therefore there was no need to set out a proposed response to the risk; he highlighted that this may be of concern to the public. Sarah reassured Members, however, that this would be picked up through the audit of management override of controls, as any fraud would require specific action, although there was little incentive to manipulate revenue recognition anyway. Graeme added that spend against budget was closely monitored and regularly reported to Overview and Scrutiny Committees.

 

The Committee RESOLVED to note the External Audit Plan for 2018/19.

AUD 59/18

Audit Committee Terms of Reference pdf icon PDF 75 KB

This report briefs the Audit Committee on the revised CIPFA Audit Committee Practical Guidance 2018, and recommends that draft revised terms of reference for the Audit Committee are brought to the next meeting of the Committee, following detailed consideration of the new guidance.

 

Recommendation

 

That the Audit Committee notes the publication of the 2018 CIPFA Audit Committees: Practical Guidance for Local Authorities and Police, and that a draft of revised terms of reference for the Audit Committee will be brought to the first meeting of the committee in the new Council year following detailed consideration of the updated guidance.

Additional documents:

Minutes:

The Committee heard that since the last meeting, the Chairman and Vice-Chairman, met with the Head of Policy and Governance, Strategic Director and Head of Finance to discuss the Audit Committee Terms of Reference. Additionally, a new guidance document had been produced by CIPFA which set out the principles of good practice for audit committees and included suggested terms of reference for local authority audit committees as well as commentary on the characteristics of good audit committees.

 

It was felt that the publication of the new CIPFA guidance presented the opportunity to review the Audit Committee’s role and functions from first principles, rather than merely amending the existing terms of reference incrementally, and that it was would appropriate to present this to the new Audit Committee following the elections in May 2019.

 

The Committee RESOLVED to:

 

1.    note the publication of the 2018 CIPFA Audit Committees: Practical Guidance for Local Authorities and Police; and

2.    request that a draft of the revised Terms of Reference for the Audit Committee be brought to the first meeting of the Audit Committee in the new Council year following detailed consideration of the updated guidance.

AUD 60/18

Annual Governance Statement pdf icon PDF 140 KB

The purpose of this report is for the Audit Committee to consider governance progress in relation to informing the Annual Governance Statement (AGS) for the year ended 31 March 2019.

 

Recommendation

 

It is recommended that the Audit Committee considers the draft Annual Governance Statement and provides comments to officers.

Minutes:

Vicki Basley presented the draft Annual Governance Statement (AGS), which incorporated comments made by the Committee at previous sessions. The draft AGS would be published at the end of May along with the unaudited accounts.

 

Members noted the principles set out in the report through which the Council aimed to achieve good standards of governance. Several suggestions were made to improve the clarity and flow of this section, additionally Cllr Hyman raised some concerns about the extent the Council was achieving or working towards some of these aims, particularly in relation to the Monitoring Officer function.

 

In relation to the resolution of significant governance issues in 2017/18, Cllr Seaborne highlighted that some aspects of the air quality investigation were still ongoing and therefore it wasn’t possible to say that the issue was completely resolved.

 

In reference to the governance issues arising in 2018/19, the Committee queried whether the Judicial Reviews themselves constituted a governance issue, or whether it was the resulting supplementary estimate request that was the governance issue. Officers acknowledged that there were two separate issues and agreed to review this section to make it clearer.

 

The Committee RESOLVED to pass the above comments on the draft Annual Governance Statement to officers.

AUD 61/18

Statement of Accounts - Accounting Policies pdf icon PDF 49 KB

Local authorities in the United Kingdom are required to prepare their accounts in compliance with the terms of the Code of Practice on Local Authority Accounting in the United Kingdom (the Code). The Code is developed each year by CIPFA/LASAAC (Local Authority Scotland Accounts Advisory Committee) and has effect for financial years commencing on or after 1 April each year.

 

Recommendation

 

It is recommended that the Audit Committee notes the position in relation to financial reporting standards.

Minutes:

Vicki Basley advised the Committee of two new financial reporting standards which would affect the Council’s Accounting Policies for 2018/19. IFRS 9 introduced a new classification and measurement for financial assets. Vicki explained that the reclassification process had been quite simple, and wouldn’t have a significant effect. IFRS 15 which related to revenue recognition would also not have a major impact on the Council as it already recognised revenue when the service recipient received the benefit of the goods or services.

 

Cllr Hyman asked if the requirements of IFRS 9 would impact on the Council’s investment processes. Vicki explained that investment was already carried out within the constraints of the Council’s Treasury Management Framework, but IFRS 9 would further secure these controls.

 

A query was also raised in relation to IFRS 15 and income from leisure centres, which was based on turnover. Vicki explained that this was done at the end of the financial year.

 

Vicki added that there were no new substantial reporting requirements due in 2019/20 as IFRS 16 regarding lease accounting had been deferred to 2020/21.

 

The Committee RESOLVED to note the position in relation to financial reporting standards.

AUD 62/18

PROPOSED AUDIT PLAN FOR 2019-20 pdf icon PDF 52 KB

The Committee’s terms of reference include provision for the Committee to approve the proposed Internal Audit Plan for 2019-20.  This report presents the Draft Internal Audit Plan for 2019-20 and the Committee is invited to comment before the Plan is adopted.  The plan has been drawn up by the Internal Audit Client Manager through consultation with Heads of Service Team and Management Board and completing a risk assessment of the audit universe of the council’s activities.

 

Recommendation

 

The Audit Committee is invited to comment and approve the draft Internal Audit Plan for 2019-20, as attached in Annexe 1.

Additional documents:

Minutes:

Gail Beaton informed the Committee that in preparing the Audit Plan for 2019/20, she had consulted with the Directors and Heads of Service and carried out risk assessments in order to determine which items should be included

 

The Committee noted that a review of the new air quality arrangements would be carried out, and Cllr Hyman queried how broad the remit of the review would be and whether it would include the effectiveness of the air quality action plan. Gail responded that the review would cover all of the governance arrangements around air quality, including the action plan, monitoring and reporting. The review would be carried out in either Q1 or Q2, having allowed sufficient time for the new arrangements to bed in.

 

The Committee RESOLVED that the draft Internal Audit Plan for 2019/20 be approved.

AUD 63/18

PROGRESS ON THE INTERNAL AUDIT PLAN FOR 2018/19 pdf icon PDF 48 KB

The Committee’s Terms of Reference include provision for the Committee to monitor and comment on the progress made in the achievement of the Internal Audit Plan. An update on the current position of the reviews in 2018-19 is presented. 

 

Recommendation

 

It is recommended that the Committee

 

1.      approves the deferral of the review to 2019/20

 

2.      notes the status of the 2018-19 Audit Plan as attached in Annexe 1.

Additional documents:

Minutes:

Gail Beaton provided an update on the latest position on the reviews contained within the 2018/19 Internal Audit Plan. It was proposed that the Community Infrastructure Levy review be deferred until 2019/20 as this had only come into effect on 1 Mach and so there was not yet sufficient data to carry out a review. All other scheduled reviews would be completed by the end of March.

 

The Committee was concerned that some reviews on high profile topics would not be completed by the end of March, specifically Brightwells and the Investment Board activity. However officers assured the Committee that these reviews would be completed on time, particularly as the contractor would be changing next year, so it was important that the current contractor completed all its work before the end of the financial year.

 

Cllr Hyman queried what the scope of the Memorial Hall review had covered. Gail responded that this particular review was in relation to project management and processes.

 

The Committee RESOLVED to

 

1.            approve the deferral of the review relating to CIL to 2019/20, and

 

2.            note the status of the 2018-19 Audit Plan.

AUD 64/18

PROGRESS ON THE IMPLEMENTATION OF INTERNAL AUDIT RECOMMENDATIONS pdf icon PDF 145 KB

To inform the Audit Committee of Senior Management’s progress in implementing the recommendations raised by Internal Audit following a review in their service areas.  This report will enable the Committee to consider what action is required in respect of those that are overdue or appear likely to be implemented later than the target date.

 

Recommendation

 

It is recommended that the Committee:

 

1.    considers the information contained in Annexe 1 and, following discussion at the Audit Committee meeting, identifies any action it wishes to be taken.

 

2.    considers the Head of Service(s) justification for a change in the due date  for the recommendations listed in Annexe 2 and agree an appropriate implementation date(s).

Minutes:

Gail Beaton introduced the report highlighting the internal audit recommendations that were overdue or appeared likely to be implemented later than the target date. The report also included a request from a Head of Service for changes to two implementation due dates.

 

The request for extensions had arisen following a recent Housing O&S review which had recommended that a review be undertaken of the Council’s Housing Allocation Policy. The Committee queried how long this policy review would take but, taking into account the Committee approval process, concluded that 31 December 2019 was, on balance, an acceptable time extension.

 

The Committee RESOLVED to approve the requests for change in due dates as set out below.

 

Recommendation Ref.

Title

Revised Due Date

IA18/25.001

 

IA18/25.002

Housing Allocation Scheme.

 

Documents provided to support application

31 December 2019

 

31 December 2019

 

AUD 65/18

Fraud Investigation Summary pdf icon PDF 59 KB

The report provides an update to the Committee on the progress made by Waverley Borough Council officers on the work being completed in investigating fraud, primarily focusing on Housing Tenancy fraud.

 

Recommendation

 

It is recommended that the Audit Committee notes the success of the housing fraud investigation activity with the results achieved and the improvements in processes to limit the opportunity for fraudulent housing tenancy practices to occur in the future.

Additional documents:

Minutes:

The Committee considered the report which provided an update on the progress made by officers in investigating fraud, primarily focusing on Housing Tenancy fraud. Gail Beaton reported that so far this year, four properties had been returned to the Council, one right to buy had been stopped and two housing applications had been rejected. She added that some of the cases the Fraud Investigation Officer had been dealing were particularly difficult and lengthy.

 

While Committee noted that there had been fewer cases referred to the Fraud Investigation Officer this year, it attributed this to the deterrent effect of the work and felt that this was a very positive outcome.

 

The Committee RESOLVED to note the success of the housing fraud investigation activity with the results achieved and the improvements in processes to limit the opportunity for fraudulent housing tenancy practices to occur in the future.

AUD 66/18

STRATEGIC RISK REGISTER pdf icon PDF 54 KB

This report presents the Risk Management Policy and the Strategic Risk Register based on the Corporate Strategy 2018-2023 adopted in July 2018.

 

Recommendation

 

It is recommended that the Risk Management Policy be approved and risk register be reviewed and comments and observationsbe passed to officers.

Additional documents:

Minutes:

Peter Vickers presented the revised Risk Management Policy which had been updated in light of the new Corporate Strategy and incorporating the risk appetite statement which had recently been adopted. The new Risk Management Policy included a toolkit to help officers across the organisation when analysing risk. Graeme Clark added that the risk appetite statement had been developed through sessions involving the Executive, Audit Committee Members and senior officers, facilitated by an external specialist.

 

The Committee felt that the policy was a clear, accessible document which would help to inform decision-making going forward.

 

There were some queries in relation to the definitions, particularly with reference to finance, as it wasn’t felt that £100k was necessarily ‘devastating’. Cllr Mulliner suggested that officers consider using the terminology ‘severe, moderate, and minor’. The Chairman added that it might be helpful to test some examples against the matrices in order to determine if the levels and terminology were correct.

 

Members also noted that there were references to accountability in the policy, and suggested that these be made clearer to show where the accountability ultimately sits.

 

Cllr Hyman was concerned that the wording of the risk appetite statement could be misinterpreted as the Council authorising illegal action. Officers clarified that this section did not provide authority to break the law, but given the complexities of Council operations, acknowledged that there may be isolated legal challenges. For example, day to day operation of playgrounds could leave the Council open to legal challenge as it was not possible to eliminate all risk, regardless of the safety measures in place. Members agreed that some degree of legal risk was inevitable as it was not possible to prevent third parties bringing legal action against the Council.

 

The Committee RESOLVED that the Risk Management Policy be approved.

AUD 67/18

Committee Work Programme pdf icon PDF 65 KB

Recommendation

 

The Audit Committee is invited to note the recurrent annual work programme, attached.

Minutes:

The Committee RESOLVED to note its recurrent annual work programme.