AUDIT COMMITTEE
Minutes of a meeting of the Audit Committee held on 18 September 2012 in the
Committee Room, Council Offices, Holt Road, Cromer at 2.00 pm.
Members Present:
Committee:
Mr N D Dixon (Chairman)
Mr B Jarvis
Mrs A Moore
Mr R Oliver
Mr R Reynolds
Mr D Young
Officers in
Attendance:
The Head of Financial Services, the Procurement Officer, the Deputy
Audit Manager, the Civil Contingencies Manager (for minute 25) and the
Democratic Services Team Leader (MMH).
Also in
Attendance
Julian Rickett, Charlotte Kennedy (PriceWaterhouseCoopers)
14 CHAIRMAN’S ANNOUNCEMENT
The Chairman welcomed Mr R Reynolds to his first meeting of the Audit Committee. He
also introduced Emma Hodds, Deputy Audit Manager and Charlotte Kennedy, Manager,
PriceWaterhouseCoopers.
15 APOLOGIES
None received.
16 SUBSTITUTES
Mr R Reynolds was substituting for Mr S Ward and would be replacing him on the Audit
Committee with effect from 26 September 2012.
17 PUBLIC QUESTIONS
None received.
18 ITEMS OF URGENT BUSINESS
None
19 DECLARATIONS OF INTEREST
None
20 MINUTES
Audit Committee
1
18 September 2012
The Minutes of the meeting of the Audit Committee held on 18 June 2012 were approved
as a correct record.
21 AUDIT UPDATE AND ACTION LIST
Members were updated on progress on actions arising from the minutes of the meeting
of 18 June 2012.
a) Training on the Final Accounts had been delivered before the commencement of the
meeting.
b) External Audit fee: this was addressed in the ISA 260 report.
c) Inconsistencies regarding Rights of Access to records, assets, personnel and
premises had been notified to the Monitoring Officer for inclusion in the review of the
Constitution. Mrs A Moore, as a Member of the Constitution Working Party, would
monitor progress.
d) Fraud Risk: the Head of Financial Services was liaising with the Monitoring Officer
regarding work on Counter Fraud activities.
e) Implementation of internal audit recommendations: the full position would be reported
to the Performance and Risk Management Board on 28 September 2012. Deloittes
would be doing follow-up work in October and a report would be brought to the Audit
Committee in December.
f) Monitoring Officer’s report: the information about complaints should include a
summary of what the complaints were about, how they were dealt with and how long
they had been outstanding. The Audit Committee did not require the depth of detail
which was provided to the Standards Committee as this was not within its remit.
22 2011/12 STATEMENT OF ACCOUNTS
The Head of Financial Services notified the Committee of an amendment to the
Statement of Accounts document. This was a disclosure regarding related party
transactions concerning Victory Housing and dated back to the Housing Stock Transfer.
There were no further changes to any of the figures. The reserves were in a healthy
position.
The Audit Committee had received training on the Statement of Accounts prior to the
meeting. During the training a lot of ground had been covered and questions had been
asked. The Chairman asked the Democratic Services Team Leader to read out the
following points that had been raised at the training:
a) International Financial Reporting Standards (IFRS) had been introduced for 2010/11.
The Procurement Officer provided a refresh on IFRS and said that very little had
changed since last year.
b) One of the steers from the Audit Committee in 2011 had been to improve on working
papers, especially in relation to valuations. This year there had been no material
adjustments.
c) The Council had built up a good working relationship with PriceWaterhouseCoopers,
who would be the external auditors for the next 5 years. The Finance team received
a de-brief from PWC after last year’s Statement of Accounts. It had been very helpful.
d) The level of reserves was discussed. The ISA 260 report indicated that the external
auditors were satisfied with the level of reserves held by the Council.
e) Reserves were analysed into “usable” and “unusable”. Robustness of reserves
referred to usable reserves.
f) In response to a question about holding reserves against an eventuality such as
flooding it was explained that it would not be appropriate to hold an earmarked
2011/12 STATEMENT OF ACCOUNTS
(Continued)
Audit Committee
2
18 September 2012
reserve for an indefinite period. Provision for flooding or other emergencies would
come from the general reserve, or possibly the Bellwin Scheme.
g) Some of the movements between years on the balance sheet reflected treasury
management decisions made during the year, such as the reduction in long term
investments due to the disposal of Euro bonds. The Council had a good relationship
with the financial advisors, Arlingclose.
h) The level of audit fees would be challenged by the Committee.
i) Exposure to risk: pension investment was the province of Norfolk County Council
Although NNDC knew what was invested they had no control over the investment.
j) The 2011/12 ISA 260 report identified items that needed to be addressed:
1. Data extraction: work would be needed with the auditors to discuss how this
could be improved.
2. Contingent liabilities: it was suggested that the wording should indicate the
level of contingency.
3. Appropriate inclusion of finance leases: consideration was needed as to
whether embedded leases (e.g. refuse vehicles) should be included within the
Prudential indicator report for next year when reporting on the authority’s debt
and the calculation of any Minimum Revenue Provision (MRP).
4. Benefit accrual: this went into the general reserve and was the only figure
which had needed to be changed in the accounts. A new system of Council
Tax support could potentially impact on the reserves if the full savings
envisaged were not achieved.
k) The Audit Committee needed to understand the technical issues, but it was for the
Finance Team to decide how they should be resolved.
l) The Council produced a high level summary of the Statement of Accounts for
publication on the website.
The Chairman summed up by saying that the Committee had gained a good overview of
the Accounts and of the Council’s stewardship over its resources. He invited further
questions and discussion:
a) A breakdown of earmarked reserves could be found in note 6 on pages 40 to 43.
b) It was not the role of External Audit to determine reserve levels, but to consider the
levels in the context of both their responsibilities re financial standing and the overall
use of resources. In both regards there was nothing to draw Members’ attention to.
c) It was important for Members to understand the levels of reserves versus the risks.
The Budget Setting report that was made annually to Full Council included levels of
reserves arrived at as a result of a detailed process.
d) The Committee had drawn assurance from the fact that there were no material
adjustments. The issues from the 2010/11 ISA 260 had been noted. Members had
been assured that they had been addressed and that there was a good working
relationship with the external auditors.
RESOLVED
That having considered and reviewed the Statement of Accounts for 2011/12 the Audit
Committee recommended their approval to Full Council.
23 REPORT TO THOSE CHARGED WITH GOVERNANCE (ISA 260)
The purpose of the ISA 260 was to fulfil the external audit requirement to report to those
charged with governance the significant findings from the audit of the Financial
Statements before giving an opinion on the accounts. It had been agreed that those
charged with governance at North Norfolk District Council were the Audit Committee.
REPORT TO THOSE CHARGED WITH GOVERNANCE (ISA 260)
Audit Committee
3
(Continued)
18 September 2012
The audit work during the year had been performed in accordance with the plan
presented to the Committee on 6 March 2012.
There were no significant matters that had been discussed with management during the
course of the work. However a number of less significant matters had been identified:
a) The difficulties encountered in the extraction of the required data set through
Computer Assisted Auditing Techniques (CAATs) to facilitate testing of manual
journal transactions.
b) The appropriateness of inclusion of transactions as Contingent Liabilities.
c) The calculation of the Minimum Revenue Provision and the appropriate inclusion of
finance leases within this calculation and how it is reported to Members.
d) The inclusion of an accrual for over claimed benefit subsidy.
Members discussed extraction of data:
a) Julian Rickett was asked if other authorities using the same computer package as
NNDC had similar problems. Julian Rickett replied that this was something that
needed to be discussed with management. NNDC’s problem was shared by other
authorities. External audit had been able to obtain the necessary information but
better and quicker methods of extracting it were required. CAATs enabled external
audit to look at a whole population in an easy way rather than to take samples.
b) In response to a question about financial implications of improved data extraction the
Head of Financial Services said that the Council already had tools to interrogate the
system. It would be necessary to talk to external audit to see if they would be
compatible. The Council’s system (Business Objects) didn’t extract information from
the basic level. However it would be a question of configuration of the existing
system rather than purchasing new software. The finance team would work with
PWC to find out how this could be done. Any work would be carried out by in-house
ICT support.
c) Mr R Oliver asked if PWC’s CAATs system was commonly used by auditors or if
there was a possibility that more changes would be needed in 5 years time. Julian
Rickett was unable to give a definitive answer but hoped that all auditors would
require the information provided by CAATs.
d) Members decided that exploring the feasibility of using CAATs should be added to
the Action List.
e) Mr D Young asked if using CAATs would lead to a reduction in the audit fee. Julian
Rickett replied that it wouldn’t, because, in setting the fee, the Audit Commission
assumed an efficient audit approach. Any saving would be in officer time.
The report also detailed significant risks and proposed audit approach shown in the
March audit plan, with outcomes. The significant risks were:
a) Fraud and management override of controls.
b) Recognition of income and expenditure.
Other risks were:
a)
b)
c)
d)
Heritage assets.
Valuation and accounting treatment of leases.
Redundancy costs.
Savings plans.
REPORT TO THOSE CHARGED WITH GOVERNANCE (ISA 260)
Audit Committee
4
(Continued)
18 September 2012
When the report was written:
a) Testing of exit packages had been completed.
b) The explanatory forward had been reviewed. External audit was satisfied that it was
consistent with the Code and the rest of the accounts.
c) NNDR balances: certification work had been completed on an NNDR claim form.
d) Testing of related parties had been completed. It had been agreed to add Victory
Housing.
e) Testing of Members’ allowances had been completed.
f) Internal review and quality control procedures were ongoing.
g) The review of the final version of the financial statements, approval by the Audit
Committee and receipt of all relevant signed statements and the management
representation letter were matters of process.
Julian Rickett reported to the Committee that there was nothing to draw to their attention
regarding the Valuation of Property.
The following judgments and accounting estimates had been used in the preparation of
the financial statements:
a)
b)
c)
d)
e)
f)
Property, Plant and Equipment – Depreciation and Valuation.
Bad Debt Provision.
Accruals.
Provisions.
Pensions.
Provision for accumulated absences.
Economy, efficiency and effectiveness: the value for money code gave external audit
responsibility to carry out sufficient and relevant work in order to conclude that the
Council had proper arrangements to secure economy, efficiency and effectiveness in the
use of resources. The conclusion was based on 2 criteria:
a) The organisation has proper arrangements for securing financial resilience.
b) The organisation has proper arrangements for challenging how you secure economy,
efficiency and effectiveness.
It was anticipated that an unqualified value for money conclusion would be issued.
Fees update: until the audit work was completed PWC was not in a position to provide
Members with an update on fees for 2011/12. This would be included as part of the
Annual Audit Letter which would be received by the Committee in December, but Julian
Rickett believed it would be within the proposed sum of £118,750. The lower fee
proposed for 2012/13 reflected the fact that commission was no longer taken by the
Audit Commission.
The fees were discussed:
a) The Chairman said that because of the reduced funding from central government and
the subsequent spending cuts in local government, it had been hoped that a
reduction of fees could be achieved. Julian Rickett explained that the Audit
Commission had consulted in depth with local authorities and other interested parties
and had subsequently reduced the fee. PWC could not reduce lower than the Audit
REPORT TO THOSE CHARGED WITH GOVERNANCE (ISA 260)
Audit Committee
5
(Continued)
18 September 2012
Commission scale fee which pre-supposed good organisation of background papers
and a straightforward audit.
b) Mr R Oliver asked if goodwill was taken into account. Julian Rickett explained that
PWC asked for information that, in their professional opinion, they needed. The
Audit Commission scale fee was set at a level that enabled a proper audit to be
carried out at the correct level. It was very rare for PWC to reduce fees, especially
as they were already set at a relatively low level. The scale fees were published
nationally and applied to all public authorities.
c) Mr D Young asked about the current status of the Audit Commission. Julian Rickett
explained that the Audit Commission would remain in being for as long as the statute
requiring the appointment of auditors to public bodies remained in current legislation.
The Audit Commission would continue to set a scale fee until at least 2017/18. If
PWC significantly increased their fee they would be accountable to the Audit
Commission.
d) Julian Rickett told the Committee that, although PWC had given consideration, they
couldn’t reduce the fee below a level which was appropriate for a proper audit. He
agreed to produce a statement that, in response to a robust request from the Audit
Committee, the possibility of reducing the fee had been fully explored but a reduction
was not possible.
RESOLVED
To receive the ISA 260 report.
24 PROTOCOL FOR LIAISON BETWEEN INTERNAL AND EXTERNAL AUDITORS
The purpose of the Document was to set out the general approach and principles to be
put in place to facilitate the delivery of a managed audit. This would aid joined-up
working and reduction of duplication of audit work. The document set out:
a) Confirmation of the liaison arrangements between Internal and External Audit.
b) The requirements to be followed in order that PWC could place the desired level of
assurance on the work of internal audit.
c) PWC requirements on sample sizes.
d) A detailed summary of controls and suggested testing that PWC considered key in
proving the internal financial control systems.
The arrangements were subject to regular review by both parties and amendments could
be made subject to mutual agreement. PWC had placed complete reliance in last year’s
internal audit work.
RESOLVED
to note the Protocol.
25 PROGRESS ON INTERNAL AUDIT ACTIVITY, APRIL TO SEPTEMBER 2012
The report examined progress made between April and early September 2012 in relation
to delivery of the Annual Audit Plan for 2012/13. The report detailed the delivery of audit
work and outcomes of work undertaken. Good progress was being made on the plan.
The organisation should be congratulated on achieving adequate assurance levels in
respect of 3 audits completed in the first 5 months of the financial year. The audits were:
PROGRESS ON INTERNAL AUDIT ACTIVITY, APRIL TO SEPTEMBER 2012
(Continued)
Audit Committee
6
18 September 2012
a) NN/13/01 Property Services and Coastal Protection.
b) NN/13/02 Strategic Housing and Homelessness.
c) NN/13/03 Corporate Policy, Planning and Performance Management
Management summaries were attached to the report.
Since the previous report to the Committee in March there had been some changes to
the Annual Audit Plan, initiated by Management. The changes were:
a) Expansion of the Property Services Audit which led to the job budget being increased
from 14 to 19 days.
b) Inclusion of an audit to examine data verification and governance arrangements
applying to the Revenues and Benefits Shared services. A budget of 14 days had
been provided and the work would be done in 2 phases. Phase 1 was completed in
July 2012 and it was envisaged that Phase 2 would be carried out in the early part of
2013.
c) At the request of Corporate Leadership Team the job budgets in relation to 2
computer audits had been reduced. The reviews were the Cash Receipting
Application and IT Project Management Arrangements. It had been possible to
commute the job budgets while ensuring that assurances could be provided.
In response to a question from Mr D Young regarding the Strategic Housing and
Homelessness audit, the Deputy Audit Manager explained that debts dating back to
2007 were still being paid off, albeit at a slow rate.
RESOLVED
To note the outcomes of the three audits completed between April and August, together
with recent amendments made to the Annual Audit Plan for 2012/13.
26 BUSINESS CONTINUITY
a) The existing top level plan, last reviewed in 2009, needed review to make it fit for
purpose and reflect changes following the management restructure. The policy
document had been reviewed and signed off by CLT. The old plan had been
updated to improve the structure and format of a number of areas and to update the
information so it is fit for purpose. The draft plan had been peer reviewed by the
Business Continuity Working Group (BCWG) and was now at a final draft stage
waiting final formatting. It would be completed by mid October. Further updates to
improve the format of the plan would be undertaken during its coming review cycle.
The review would be undertaken by the BCWG and the Civil Contingencies Manager
and would form a standing item on the Group’s meeting agenda.
b) The Civil Contingencies Manager had recently completed and passed the Business
Continuity Institute Certificate in Business Continuity Management. This had led to a
review of the requirements placed on teams within the organisation in relation to
business continuity. All teams should produce a Business Impact Assessment (BIA).
This would allow an analysis of the team to be carried out and give a rating to show if
the team delivered a critical service. At present the BCWG have reviewed the old
critical service list from the 2009 plan and from knowledge and experience have
defined the Authorities’ critical services. This would be reviewed once all BIAs had
been produced. At this stage only teams with critical elements would be required to
produce a team Business Continuity plan. In response to a question from the
BUSINESS CONTINUITY
(Continued)
Audit Committee
7
18 September 2012
Chairman, the Civil Contingencies Manager said that it was aimed to have all plans
completed by the time the Audit Committee met in December. The Audit Committee
wished to support the Civil Contingencies Manager in bringing the Business
Continuity plans to fruition and asked to receive an update in December.
c) The Civil Contingencies Manager was still working with managers to produce their
plans. He had also put other teams’ Business Continuity plans onto the intranet to
provide a working guide.
d) Business Continuity training would be given to all new employees and the Civil
Contingencies Manager would attend team meetings to help explain the need for
Business Continuity. He would also be working with Corporate Health and Safety to
deliver the new evacuation procedure to the existing wardens in October/November.
e) A feasibility study had been undertaken regarding the use of Fakenham Connect if
the Council Offices were unusable. ICT had already installed disaster recovery
facilities at Fakenham therefore the investment would be minimal. The timescale for
implementation was November/December to coincide with the demolition of the
Annexe. An update would be made to the Committee in December. The feasibility
report would be emailed to Members.
RESOLVED
to receive a further update, including progress on business continuity and the use of
Fakenham Connect for disaster recovery, in December.
27 AUDIT COMMITTEE WORK PROGRAMME
RESOLVED
to note the Work Programme.
The meeting ended at 3.45 pm.
______________________
Chairman
Audit Committee
8
18 September 2012