North Norfolk District Council
Audit Committee
Annual Report
2010-11
CONTENTS
Page
Foreword from the Chairman
1
The Role of the Audit Committee
2
Membership of the Audit Committee
3
Officer Support
3
Review of Audit Committee Activity in 2010/11
4
Looking Forward
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Foreword from the Chairman of the Audit
Committee, 2010-11
This is the last introduction I shall make to the Audit Committee Annual report, so I trust
you will excuse me for looking at the past four years rather than just the last year.
The committee was only a few months old when I took over as Chairman and in the past
four years I think we have made a great deal of progress. The two things that have
contributed most to this are the gentlemen of the committee who have supported me,
and the sensible running of the council, by dealing without fear, favour or political
bias with all the reports that came before us and our internal auditors who, because we
buy in their services from an external firm, are able to supply far more expertise than we
had when we started.
We have shown our teeth on a couple of occasions.
I understand that Nigel Dixon, who like me has been with the Committee since 2007, will
be taking over as Chairman, and I am sure the Committee could not be in safer hands. I
should also like to thank the other members and staff, whose support was so invaluable.
Ann Moore
1
The Role of the Audit Committee
The many benefits of an effective audit committee to local authorities were first outlined
in CIPFA’s publication, Audit Committees – practical guidance for local authorities.
These are summarised as:
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Raising greater awareness of the need for internal control and the
implementation of audit recommendations;
Increasing public confidence in the objectivity and fairness of financial and other
reporting;
Reinforcing the importance and independence of internal and external audit and
any other similar review process; and,
Providing additional assurance through a process of independent and objective
review.
There is presently no statutory requirement for a local authority to have an audit
committee. However, the establishment of such a Committee can make a significant
contribution to an organisation’s governance arrangements. This was recognised by
North Norfolk District Council in 2006/07 and led to the formation of an Audit Committee
which held its first meeting on 16 October 2006, and since that time, the Committee has
met at least 4 times per year.
The Committee’s Terms of Reference are firmly established within the Council’s
Constitution. During the past year, the Constitution itself has undergone review to
provide a more functional document and help understandability and ease of use – whilst
maintaining the substance of the previous Constitution. Whilst the terms of reference of
the Audit Committee were reviewed as part of this exercise, they were not subject to
amendment. To ensure appropriate independence, the Chair of the Committee is not
permitted to be a member of the Council’s Overview and Scrutiny Committee.
The Terms referred to above serve to demonstrate how the Committee contributes to
provide a strong scrutiny and governance function to the Council, and the responsibilities
they fulfill in doing so. Key features of the Committee’s role can be summarised from
these terms as:
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Providing independent assurance that the Authority’s financial and risk
Management arrangements are adequate and effective
Ensuring that there is a sound system of internal control that facilitates the
effective exercise of its functions – including:
o Oversight of the Council’s Internal Auditors, though review of the audit
plan, progress against that plan, the Internal Audit Annual Report and
effectiveness of the Internal Audit Service;
o Reviewing the Council’s External Auditors, including their plans and
reports;
o Approving the Council’s Statement of Accounts, accounting policies, and
receiving the Annual Governance Statement;
o Keeping under review the control environment, fraud and corruption
arrangements
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Membership of the Audit Committee
At the start of the year, 6 members were appointed to the Audit Committee;
unfortunately, Councillor Hannah resigned from the Committee with effect September
2010, which left a core composition of 5 members.
In previous years, the Committee has experienced difficulties in ensuring that meetings
were well attended, but as the remaining members have a good attendance record, and
are experienced in the functions and duties of the Committee, an additional appointment
was not made.
One of the strengths of the Committee is that all current members have been appointed
for over a year, and 2010/11 represented the Chair’s 4th successive year of appointment.
All members have received training in the Committee’s role, and are able to draw on a
wide range of experiences to provide challenge and scrutiny. The Committee has
recorded its strongest record of attendance this year, with 18 out of 21 (86%) of possible
attendances recorded – thus ensuring that Committee meetings are quorate and a
suitable political balance is maintained.
Officer Support
The following Officers have regularly supported the Committee during the course of the
Financial year:
• Mary Howard, Team Leader, Democratic Services
• Sheila Oxtoby, Deputy Chief Executive
• Karen Sly, Financial Services Manager
• Steve Hems, Environmental Health Manager
• Peter Gollop, Corporate Risk Officer
• Sandra King, Head of Internal Audit
In addition, the Engagement Partner for the External Auditors,
PricewaterhouseCoopers, has regularly attended the Committee.
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Review of Audit Committee Activity in 2010/11
a)
The Nature of Work considered by the Committee
The Committee regularly receives a wide range of reports from a variety of sources. The
growing profile of the Committee and its work is reflected in the increasing number and
type of reports it receives. During 2010/11, a total of 32 reports were presented to the
Committee, in addition to receiving oral updates:
Internal Control and Assurance Processes – Internal Audit Related
• 3 Progress reports reviewing the outcomes of Internal Audit Activity
• The Annual Report and Opinion of the Head of Internal Audit for 2009/10
• The Review of the Effectiveness of Internal Audit, 2009/10
• Terms of Reference, Code of Ethics, Internal Audit Strategy, and Internal
Audit Plans for 2011/12 and beyond
• 2 Follow-up reports on the status of agreed audit recommendations
Internal Control and Assurance Processes - External Audit Related
• Annual Audit Fee Letter, 2010/11
• The Audit of the Statement of Accounts, year ended 31 March 2009
• 2009/10 Report to those Charged with Governance
• Review of Internal Financial Controls, 2009/10
• The Audit of the Statement of Accounts, year ended 31 March 2010
• 2009/10 Summary of Recommendations
• 2009/10 Annual Audit Letter
• 2010/11 Annual audit Plan
• Oral Updates on the future of the Audit Commission
• External and Internal Audit Working Protocol
• 2009/10 Certification of Grant Claims report
• A briefing on the Impact of International Financial Reporting Standards
Financial Reporting Arrangements – Other Reports
• 2009/10 Financial Statements
Risk Management
• Annual Report on Risk Management Arrangements, 2009/10
• 3 Updates on the Corporate Risk Register
• Revised Risk Management Framework
Corporate Governance
• Annual Report on Partnership Arrangements, 2009/10
• Partnership Register
• Monitoring Officer Annual Report, 2009/10
• Updated Local Code of Corporate Governance and Action Plan
• Annual Governance Statements
• Business Continuity Plans
• Update on Business Continuity
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Audit Committee Activity Related Reports
• The Annual Report of the Audit Committee, 2009/10
b)
Work to develop the effectiveness of the Audit Committee
The Annual Report for 2009/10 highlighted that in May 2009, the Committee had
undertaken a self-assessment exercise against good practice identified in CIPFA’s
Toolkit for Local Authority Audit Committees. As a result, a number of actions had been
identified and throughout 2009/10 the Committee had worked to develop their level of
compliance with the Toolkit requirements.
This work has again continued in 2010/11. Prior to the approval of the statement of
accounts, Committee members received a specific training session hosted by the
Financial Services Manager and Engagement Partner for PricewaterhouseCoopers, the
Council’s External Auditors. This allowed the Committee to develop their knowledge and
understanding of the Council’s accounts and accounting policies.
A further element of compliance with the Code of Practice was the holding of private
discussions with the Council’s Internal and External Audit staff. Through regular
engagement at Committee meetings, the Committee has developed a strong working
relationship with both parties, enabling it to effective challenge and scrutinise the work
they perform.
Following training the Engagement Partner for PricewaterhouseCoopers had provided to
the Audit Committee in November 2009, the Committee felt that it would be useful if a
short presentation could be provided to Full Council during the year to raise the profile of
the work of the Committee and the audit function generally at the Council. This occurred
in September 2010, highlighting the strength of the Audit Committee and its members,
and addressed the developing issue of the abolition of the Audit Commission.
Throughout the year, the Committee has received regular newsletters from the Internal
Audit service designed to inform members of developments in Local Government audit
and governance matters. In addition, a specific newsletter to highlight the risks and
issues in Local Government fraud was provided in December 2010. In March 2011, the
Committee received a presentation on the impact of International Financial Reporting
Standards to address the potential issues the Council faces in preparing its first full set of
accounts under this framework for June 2011.
The Committee are due to undertake their next self-assessment exercise in June 2011,
through re-appraisal of the CIPFA checklist, to identify the extent to which they have
developed their levels of compliance with good practice, and identify if there are any
further areas in which additional development may be required.
c)
Key issues reviewed by the Committee
The effectiveness and value of the Audit function
The Committee have maintained a keen oversight and challenge to both the Council’s
Internal and External Audit Functions during the year. In particular, the Committee have
challenged the two bodies to ensure that maximum value and effectiveness is being
obtained in light of the costs of the audit function as a whole.
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As a result, the Engagement Partner and Engagement Manager for
PricewaterhouseCoopers met with the Head of Internal Audit in September 2010 to try to
identify ways that they could develop their relationship and, for example, ensure
duplication of audit effort was minimised.
The relationship between Internal and External Audit was already well established by the
Audit Working Protocol - previously approved by the Committee in March 2009. In
March 2011, a revised protocol presented and approved by the Committee which reaffirmed the commitment of External and Internal audit to work together effectively.
External Audit Outputs in 2009/10
The Council’s External Auditors have provided a regular stream of information and
updates to the Committee on how their work is progressing.
In September 2010, the Committee were notified that unqualified opinions had been
issued on the audit of the Council’s Statement of Accounts and Value for Money
Conclusion. In the past, the External Auditor has also been required to issue an opinion
on the Council’s Use of Resources; however, with the Coalition Government having
abolished the Comprehensive Area Assessment in May, this opinion is no longer
required. The key themes arising from the work already undertaken to support the Use
of Resources opinion before the work was abolished have been communicated to the
Committee, including that the Council had continued to make progress to implement
issues arising from the prior year, and remained strong in managing their finance. The
Committee has requested further detail on the ‘adequate’ assessment of the Council’s
Use of their Natural Resources.
Having provided the Committee with several training events and regularly attending
meetings, the Engagement Partner, Rob Bennett, left PricewaterhouseCoopers in
December 2010. The Committee were introduced to the new Engagement Partner,
Julian Rickett, at their meeting in March 2011.
Internal Audit Activity in 2010/11
In June 2010, the Committee received its first full assessment of the Effectiveness of the
Internal Audit function. The need for such a review has been since re-enforced by the
revised Accounts and Audit Regulations 2011, which confirm the need for such a review
to be undertaken by the Audit Committee.
The Committee has continued to maintain strong oversight of the Internal Audit function,
receiving regular progress reports on activity and details on how outstanding audit
recommendations have been implemented.
Internal Audit have continued to
demonstrate a growing improvement in the Council’s overall control environment,
reporting in their mid-year report in December 2010 that no high priority
recommendations have been raised on audit assignments undertaken at that stage, with
two “good” levels of assurance having been awarded.
Oversight of the Corporate Governance Framework
Each year the Audit Committee receives the Annual Governance Statement, before it is
presented to Full Council for approval. To support them in their oversight of the
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governance framework, the Committee receives reports and information in a number of
areas.
In September 2010, the Committee received the revised Business Continuity Plan, and,
at the time, it was noted that there were a number of resourcing issues within the
service. To ensure sound arrangements are in place, the Committee requested to
receive periodic updates on Business Continuity; the first report, in March 2011,
identified that ongoing difficulties were experienced and options for partnership working
are being investigated.
Meanwhile, the Committee recognised, in December 2010, that partnership working
would become increasingly important to deliver services because of the resource
challenges the Council was facing, and that the Council should ensure it maximises the
value it obtains from partnerships. During the year, the Committee has received an
Annual Report on Partnership arrangements, and received updates on the partnership
register.
To further support the Committee in fulfilling its role, periodic updates on risk
management are received. The Committee have maintained a keen challenge of the
Corporate Risk Register, examining risks, their potential implications and the mitigating
actions that may be required to support it in fulfilling its role. In particular, in December
2010, the Committee identified the need to ensure appropriate mitigating actions are in
place to support the top risk – central government funding reductions. The Committee
also receives an Annual Report on Risk Management arrangements, and has approved
the revised Risk Management Framework.
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Looking Forward
In August 2010, the Secretary of State for Local Government and Communities
announced the disbanding of the Audit Commission. This resulted, in March 2011, in
the Department for Communities and Local Government issuing a Consultation draft of
the Future of Local Public Audit, which sets out a very different picture for Local Authority
Audit Committees in the future. In particular, it is envisaged that Councils will now be
required to have an Audit Committee, which will feature a majority of “independent”
members (including an independent Chair) that will not be members of the Authority.
This Committee will be responsible for the appointment and oversight of an independent
external auditor.
The Consultation document does not address the other valuable roles served by the
Audit Committee at present, and how these will be addressed under the new framework.
However, as the Committee has recognised, with a high degree of change and
uncertainty for the Council - in terms of both legislation and financial resources, their role
becomes ever-more critical. Strong systems of governance and risk management should
aid the Council in moving forwards.
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