Agenda item _5 _
AUDIT COMMITTEE
Minutes of a meeting of the Audit Committee held on Tuesday 15 September 2015 in
the Committee Room, Council Offices, Holt Road, Cromer at 2.00 pm.
Members Present:
Committee:
Mr V FitzPatrick (Chairman)
Mr S Hester
Mr M Knowles
Mrs A Moore
Mr D Young
Officers in
Attendance:
The Head of Finance, the Internal Audit Consortium Manager, the PWC
External Auditors (AB & AA), the Monitoring Officer and the Democratic
Services officer
13.
APOLOGIES
None.
14.
PUBLIC QUESTIONS
None received.
15.
ITEMS OF URGENT BUSINESS
None
16.
DECLARATIONS OF INTEREST
Mrs A Moore declared an interest – that her husband received a pension from NNDC.
17.
MINUTES
The Minutes of the meeting of the Audit Committee held on 16 June 2015 were
approved as a correct record and signed by the Chairman.
18.
AUDIT UPDATE AND ACTION LIST
It was agreed to move the self assessment item to March 2016 and that the medium
priority audit recommendations would be in the follow up report in the December
meeting.
19.
AUDIT COMMITTEE WORK PROGRAMME
Audit Committee
1
15 September 2015
The Committee were advised that PWC would be completing the Annual Audit Letter
for December 2015 and the certification for the March 2016 meeting.
20. MONITORING OFFICER’S REPORT
The Monitoring Officer introduced his report and explained that from 1989, each local
authority had a monitoring officer whose focus was on corporate governance, the
constitution, standing orders and procedures, and incorporated a whistleblowing role.
The Monitoring Officer said that his daily role was to advise on the constitution and on
processes and procedures; such as whether something is a Cabinet or Full Council
decision, Standards Committee and complaints (for NNDC as well as Parish and Town
Councils). He added that there were parish engagement events coming up and that he
would be supporting the authority with those.
The Monitoring Officer said that his annual report included ombudsman cases and
whistleblowing policies.
The Chairman thanked the Monitoring Officer for his report.
The Monitoring Officer said that unfortunately the statistics in the report on standing
order exemptions were old ones. He explained that, for example, time constraints
could limit the opportunity to get quotes on the open markets and that he assessed in
each case whether it was a reasonable request.
The Chairman asked whether this was on the register.
The Monitoring Officer confirmed that it was and that an up-to-date version would be
circulated.
The Head of Finance clarified that the franking machine was not an item of spend in
the Capital programme for 2014/15.
The Chairman asked whether the duties in section 2.1 were a reactive task rather than
a proactive one.
The Monitoring Officer said that it was a proactive role but that such reports were few
and far between in all authorities. Examples of this would be if a committee had made
an unlawful decision or that one didn’t fall within their terms of reference. He added
that they were usually sorted out early and in a satisfactory way.
The Chairman asked what kinds of cases the 11 ombudsman cases consisted of.
The Monitoring Officer said that the Ombudsman investigated maladministration which
was summarised as where the authority has not followed their own processes or where
an individual has been treated unfairly or that an injustice has been caused. He
explained that it was the operational side and that there was not any legal remedy and
that it was not about individuals (unlike the standards regime) but the Council as a
whole. He added that the Ombudsman took a pragmatic approach and that financial
recompense was sometimes awarded.
The Monitoring Officer said that the Ombudsman’s jurisdiction did not extend at
present to Parish Councils and that an authority can be compelled to make a public
report but that this was only in rare cases where the authority did not acknowledge its
blame.
Audit Committee
2
15 September 2015
21.
ANNUAL GOVERNANCE STATEMENT
The Head of Finance informed Members that the Annual Governance Statement is
updated each year and covers the processes and governance arrangements for how
the Council conducts its business. She said that it was refreshed and updated annually
at the same time as the Statement of Accounts. The statement refers to activities in the
year to support the governance for the Council including the Internal Audit reviews and
also includes details of boards and groups along with their objectives.
The Head of Finance explained that the AGS process identifies any governance issues
that require action and these are included at section 6 of the statement. The actions
from 2013/14 have been implemented and the new action arising from the 2014/15
process is in relation to the publications that the Council is required to make in line with
the Governments Transparency agenda.
The AGS for 2014/15 has been considered by the Performance and Risk Management
Board ahead of coming to the Audit Committee today and following consideration by
the Audit committee today will go to Full Council next week for approval.
The Chairman, referring to section 4.1.10 asked what the format of the Peer Challenge
was.
The Head of Finance explained that the review took place in December 2014 and that
it was not compulsory but that NNDC had chosen to take part. The organisation was
visited by other LGA members; a leader, a CEO and senior directors from comparable
councils. The focus of the review included economic growth and the Business
Transformation Programme and how NNDC were progressing with these and what
opportunities could be made.
The Head of Finance explained that the review took place over four days and that it
was an intensive process where Members, staff and external stakeholders were
interviewed.
The Head of Finance said that at the end of the process, the peer team presented their
findings and recommendations. Their findings of the organisation were very positive,
and highlighted areas where the Council could develop its thinking to improve capacity
and also taking a more ambitious target around the outcomes on business
transformation.
It was PROPOSED by Cllr M Knowles and SECONDED by Cllr S Hester that the Audit
Committee RECOMMEND the report to Full Council.
22.
STATEMENT OF ACCOUNTS
The Head of Finance informed the Committee that the statement is produced every
year and that a draft version was produced by 30th June on the outturn position that
was reported to Cabinet and Scrutiny in June. . She explained that the outturn position
as reported to Members in June performance was measured against target and that
the accounts were very prescriptive, but lengthy. She added that the deadline for
production of the draft and final accounts would be brought forward in the future.
The Head of Finance informed Members that there was an underspend of £431,000
which was recommended to be transferred into the invest to save reserve. She said
Audit Committee
3
15 September 2015
that page 12 of the report detailed the movement in reserves and that it was split
between ‘useable’ and ‘unusable’. She further explained that the useable reserves
were cash back reserves of £20.5 at the year end and included earmarked reserves of
£12.2 million, general reserve of £2.3 million and capital receipts of £6 million. The
unusable reserves were largely accounting/statutory reserves which were £10.6
million. The Head of Finance said that there was detail in note 6 in the accounts and
that each of the statements was supported by notes.
The Head of Finance drew Members’ attention to page 41 of the report of earmarked
reserves and balance. She said that there was a big movement of £3.3m and that it
was an allocation to the business rates reserve and the broadband reserve. She
explained that the statement showed the council’s position as at 31 March and that it
didn’t reflect the forecast use of reserves for financing projects and capital spend over
the medium to long term in line with the financial strategy.
The Head of Finance said that the useable Capital Receipts reserve (asset disposal)
was for capital purposes only and that there were no capital grants that hadn’t been
used with £6 m left at the end of the year.
The Head of Finance said that the unusable was for accounting mechanisms and
entries to show other movements on assets and pension funds.
The Head of Finance said that the comprehensive income and expenditure account
included the cost of services, capital charges, depreciation charges and how this is
financed as well as grant income and taxation. She said that looking at the position
year on year, the accounts gave a snapshot of a specific point in time.
The Head of Finance said that the balance sheets on pages 14 and 15 showed the net
worth of NNDC and that the cash flow statements showed the cash transactions in a
year. She said that the collection fund at the end on page 98 showed the billing
authority and how the organisation was performing in terms of council tax and business
rates collection. She informed Members that the council tax collection fund l showed
them to be in a surplus position and that they had collected more than what had been
paid out but said that this was not an excessive surplus. The Head of Finance said that
the business rates were in a deficit of £1.9m and showed that what was collected was
less than what they had said they would pay out. She explained that they had to pay
out what they had committed to, but that this was mitigated through the section 31
grant to recompense fr the greater amount of reliefs paid out. The Head of Finance
concluded by saying that the report did not show the council’s future spending plans
and that this was an ongoing process throughout the year.
The Chairman congratulated the Head of Finance and her team for the work they had
done in order to produce the report.
The Chairman asked whether there would be an increase in the pension liability fund
as liabilities was a long term issue.
The Head of Finance replied that liability was taken into account in their long term
financial planning and that it was factored into the financial process.
Mr D Young asked whether the £39m was specific to NNDC employees.
The Head of Finance said that it was current and past employees.
Audit Committee
4
15 September 2015
Mr S Hester asked whether the lump sum payments in pensions would affect the
council.
The Head of Finance said that these would be taken into account.
Mr Knowles commented that this would affect cashflow rather than liability.
The External Auditor (AB) said that the pension fund was audited separately.
Mr Young asked about receivables on page 87 of the report and asked about the bad
debt provision of 10%.
The Head of Finance said that they used a robust process and that it was the age and
size of the debt, not just a percentage, and the likelihood of recovering some of these
debts.
Mr Young asked whether the debts should be written off.
The Head of Finance said that certain debts i.e. council tax debts of small amounts
might not be economical to chase. She said that they determined a bad debt provision
each year and that it was thoroughly looked at but that debt could be written back on.
Mr Hester asked whether a debt was passed onto the next of kin.
The Head of Finance said that they put charges on properties by enforcement.
Mr Young, referring to page 4 of the report, queried the reference to the recycling
contract and the loss of £250,000 in profit.
The Head of Finance said that it had been based on the previous contract and that the
profit shown were from the new contract. She explained that there was concern over
contamination ion the recycling and that this was being covered by the service area
involved.
Mr Young commented that the information from NNDC about recycling was less
detailed than the information provided by Norfolk County Council and that this should
be looked into.
The Chairman, referring to page 2 of the report asked why there was such a large
variance with a £3m underspend.
The Head of Finance said that this was mainly due to business rates and underspends
being allocated to reserves for future commitments. She said that there was also
stormworks being completed from the previous year, business rates section 31 grants
as well as an underspend and additional income.
Mr Hester asked what would happen with the surplus.
The Head of Finance said that this was a recommendation by Cabinet that the
underspend be allocated to the restructuring/invest to save reserve.
The Chairman, referring to page 42 of the report asked about the reserve statements.
The Head of Finance said that they had a whistleblowing amount of £10,000 which
was now zero and that this had come through the internal audit report and how the
Audit Committee
5
15 September 2015
council funded and resourced these types of investigations and that this had been
reallocated in 2013/14.
The Chairman said that the recharges were £1.2m on page 58 of the report.
The Head of Finance said that this was the cost that was budgeted for and that in
effect it was a recharge to all of the services that they supported to give a true cost of
the departments and all of their overheads.
It was PROPOSED by Cllr V FitzPatrick and SECONDED by Cllr S Hester that the
Audit Committee RECOMMEND the report to Full Council
23.
ANNUAL GOVERNANCE REPORT
The External Auditor (AA) introduced the report to Members and said that it was the
September issue. She outlined the following:
Page 2: Executive Summary – changes since the Audit Plan in March
1) Change in Engagement Leader
2) Increase of a risk – from elevated risk to significant risk
Pages 3,4,5: Risks identified in the audit plan
Page 8: included main accounting issues identified and related parties. She
said that since the Statement of Accounts had been updated there was a
change in Appendix 2.
Page 30: Annual Governance Statement and value for money conclusion
(which was still in progress)
The External Auditor (AA) said that they were required to inform the Council of any
significant deficiencies and that these were listed on page 14 of the report.
Mrs A Moore asked about the issues with Cabbell Park and Cromer on page 27, point
4 and asked whether Members had full access to the information.
This was discussed and Members should have all of the information.
Mr M Knowles asked about the asset valuation.
The External Auditor (AB) said that there was difference in calculation and that the
assets were not currently valued.
24.
INTERNAL AUDIT PROGRESS REPORT
The Internal Audit Consortium Manager introduced the report and drew Members
attention to page 178 of the report which explained the terminology used by the newly
appointed auditors, in comparison to that previously used.
The Internal Audit Consortium Manager referred Members to the table at 2.1 on page
181, which confirmed the IT audits that have subsequently been agreed with
management. The 2015/16 March audit plan is currently at 41% completion,
highlighting that internal audit plan is on track and where it was anticipated to be.
Audit Committee
6
15 September 2015
The Internal Audit Consortium Manager highlighted that there were new staff on the
contract but that they had kept people from the previous contract, and that this mix was
working well.
The Internal Audit Consortium Manager, in referring to the Waste Management audit,
confirmed that five recommendations had been raised with management and four had
been agreed. The one not agreed was regarding the Openwide contract and a five
year extension between NNDC and Places for People. She said that an issue
regarding the amount stated and agreed to pay varied and that no further action had
been taken.
The Internal Audit Consortium Manager said, in reference to waste management, that
a generic risk register was in place for Kier and that it needed to be reflective of the
contract. She also said that a software itinerary was needed in IT to ensure that
unauthorised software wasn’t added.
The Internal Audit Consortium Manager informed Members that the new contractors
performance was at appendix 3 and that there were no issues in relation to
performance.
Mrs A Moore commented that she preferred the analysis previously used.
The Internal Audit Consortium Manager explained that it was so they could be
benchmarked against the other clients of the contractor.
Mr D Young asked about the Waste Management audit and wanted to clarify that the
Openwide contract was for £377,000 a year and that it was renewed at £277,000 and
that the contract had not changed.
The Internal Audit Consortium Manger confirmed that NNDC was paying the correct
amount but that the contract did not reflect this. It had been referred to legal and no
further action had been taken.
The Head of Finance said that it would raise concerns in case of a dispute.
Mr Young said that he did not agree that no further action should be taken.
The Chairman agreed and said that it would be prudent to change it.
It was agreed that the Internal Audit Consortium Manager would go back to the Head
of Assets and Leisure and have the contract amended.
The Chairman commented that it was an unnecessary risk.
The Committee ACCEPTED the update.
The meeting closed at 3.50pm
______________________
Chairman
Audit Committee
7
15 September 2015