Agenda Item
AUDIT COMMITTEE
Minutes of a meeting of the Audit Committee held on 6 March 2012 in Meeting Room
One, Council Offices, Holt Road, Cromer at 2.00 pm.
Members Present:
Committee:
Members in
Attendance:
Officers in
Attendance:
Also in
Attendance
Mr N D Dixon (Chairman)
Mrs A Moore
Mr D Young
Mr P W Moore
The Interim Accountancy Manager, the Head of Internal Audit, the
Environmental Health Manager and the Civil Contingencies Manager (for
minute 68) and the Democratic Services Team Leader (MMH).
Sarah Brown (PriceWaterhouseCoopers)
55 APOLOGIES
Apologies were received from Mrs A Claussen-Reynolds, Mr B Jarvis, Mr J Punchard
and Mr S Ward.
56 SUBSTITUTES
Mr S Ward was substitute for Mrs A Claussen-Reynolds but had made his apologies.
57 PUBLIC QUESTIONS
None received.
58 ITEMS OF URGENT BUSINESS
None
59 DECLARATIONS OF INTEREST
None
60 MINUTES
The Minutes of the meeting of the Audit Committee held on 6 December 2011 were
approved as a correct record.
Audit Committee
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6 March 2012
5
61 AUDIT UPDATE AND ACTION LIST
Members were updated on progress on actions arising from the minutes of the meeting
of 6 December 2011.
a) To review the working protocol: this item would be removed from the Action List and
put on the Work Programme for December 2012.
b) Partnership Arrangements: the Performance and Risk Management Board had not
met since the last Audit Committee. It was due to meet on 16 March 2012 when the
Partnership Arrangements would be received. The Revenues and Benefits Shared
Services and FLAG arrangements should be brought into the Framework but this
needed input from the Partnership and Risk Management Board.
c) Terms of Reference of the Audit Committee: this would be considered by the
Constitution Working Party which was due to meet on 9 March 2012.
d) Members’ Allowances: procedures were in place with regard to changes:
• A Members’ Payroll Establishment Report was produced quarterly and
checked and authorised by the Democratic Services Team Leader. Any
changes were notified to Human Resources on a Notification of Change form.
• Any changes to Members’ Allowances were notified via the Democratic
Services Team Leader on a Notification of Change form. The details of the
change were recorded on the HR/Payroll system. As the system was date
driven a history was created every time a change was made. The details on
the form were checked again once the payroll had been processed by the
Payroll Officer and again by an HR Officer before the payroll was finalised.
The form was then placed on the Members’ file for reference.
• During an election due to the bulk changes the information was recorded on a
spreadsheet. The Payroll Officer provided a list of all current Members to the
Democratic Services Team Leader who was then responsible for advising the
Payroll Officer of any changes to be made. Lessons had been learned after
the election that more discussion was required between all parties involved.
Discussion needed to take place around the date of the election.
e) TEN system: the system needed to be examined and alternatives looked at, with our
current requirements in mind. The Interim Accountancy Manager and the Policy and
Performance Management Officer would undertake this task. The providers of the
TEN system would be invited and asked to look at how the Council was using it. An
update would be brought to the June meeting of the Audit Committee.
f) Risk Management Framework: the Interim Accountancy Manager had produced
some material which could be adopted for Audit Committee training purposes. It was
believed that Members of the Overview and Scrutiny Committee would also welcome
the training. The Member Training, Development and Support Group would be
approached to see if the training should be more widespread.
g) The future of public audit: further information had been received by the Interim
Accountancy Manager and was circulated to Members.
62 CERTIFICATION REPORT (2010/11) – REPORT TO THOSE CHARGED WITH
GOVERNANCE
At the request of the Chairman Sarah Brown had written an introduction to the
Certification Report. Members expressed approval of this.
The claims and returns certified in 2010/11 were the Housing and Council Tax Benefit
Subsidy, the Disabled Facilities Grant and the National Non-domestic Rates Return. A
qualification letter had been issued in respect of the Housing and Council Tax Benefit
Subsidy but the others had been certified without amendment or qualification.
Audit Committee
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6 March 2012
CERTIFICATION REPORT (2010/11) – REPORT TO THOSE CHARGED WITH
GOVERNANCE
(Continued)
The certification fees were lower than in the previous year. This was because less
testing had been needed on the Housing and Council Tax Benefit Subsidy. There was a
definite improvement on the previous year with no significant risks and not many
recommendations.
RESOLVED
to receive the report.
63 EXTERNAL AUDIT PLAN 2011/12
The significant and elevated audit risks were:
a) Fraud and management override of controls (significant)
b) Recognition of income and expenditure (significant)
c) Property valuation (elevated)
d) Heritage assets (elevated)
e) Valuation and accounting treatment of leases (elevated)
f) Redundancy costs (elevated)
Members requested that the level of risk should be denoted by a method other than
colour-coding.
External Audit used professional judgement to assess what was material. This included
consideration of the amount and nature of transactions. Generally 2% of gross
expenditure was the rule of thumb in determining an overall level of materiality for
Councils. External Audit was required to report to those charged with governance
uncorrected misstatements identified during the audit that were determined by
management to be immaterial to the financial statements, other than those which were
clearly trivial. In 2010/11 a triviality level of £50,000 had been adopted with respect to the
statement of accounts. In accordance with External Audit’s audit guide the upper limit to
the 2011/12 triviality calculation remained £50,000. It was proposed, subject to the
agreement of the Audit Committee, to continue defining the “clearly trivial” threshold as
being misstatements of £50,000 or less.
Risk of fraud: the responsibility of the Audit Committee as part of its governance role
was:
a) To evaluate management’s identification of fraud risk and implementation of antifraud measures.
b) To ensure any alleged or suspected instances of fraud brought to the Committee’s
attention were investigated appropriately.
The Audit Committee was not aware of any fraud. They had been aware of specific
instances of fraud in the past but were satisfied that procedures were in place to prevent
reoccurrence. The Internal Audit Strategy highlighted areas where historically there had
been the potential for fraud and corruption. The Internal Audit programme addressed
these areas. The Map of Audit Assurances provided since 2008/9 mostly showed
improvement although there were a few areas which had gone from Adequate to Limited.
There were protocols in place between Internal and External Audit to keep the Audit
Committee informed of any instances of fraud.
Recent developments: it was probable that provisions would need to be made at 31
March 2012 in relation to any costs likely to be incurred in meeting obligations relating to
Audit Committee
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6 March 2012
EXTERNAL AUDIT PLAN 2011/12
(Continued)
2011/12 carbon emissions. Detailed guidance was being provided. For the first time in
the 2011/12 Statement of Accounts the Code of Practice on Local authority Accounting
in the United Kingdom required authorities to present information about the heritage
assets they held. It was believed that the Council did not hold any heritage assets of
significant value although this was being investigated.
Audit fees: the increase on the budgeted fee was mostly because of work on the
Housing Benefits subsidy for additional testing performed due to errors noted and
producing a qualification letter and the NNDR claim as full testing is required at least
once every 3 years. Concern was expressed at the level of fees in such a period of
financial constraint. The Audit fee accounted for a significant sum of the base budget.
There was no option but to have the certification work carried out but the Committee
queried if ways of doing it as cost-effectively as possible could be identified. The
Committee would monitor this and refer the matter to Cabinet if necessary. Sarah Brown
confirmed to Members that certification fees are charged in accordance with the Audit
Commission certification hourly rates and external audit will continue to work as
efficiently as possible as they had always done in the past. The budgeted fee for
Housing Benefits did not include the fee for additional testing, which was required by the
certification instructions agreed by the DWP, for errors identified in initial samples. The
approach undertaken for additional testing is performed in full compliance with the
requirements for the DWP and after consultation and agreement with the Benefits
department. Fees would reduce if fewer errors were identified in the claim as
demonstrated in the reduction in fee from the prior year. Additional work was required on
the NNDR claim in 2010/11 because it was a requirement of the certification instructions
that full testing was performed every 3 years. As this work was performed in 2010/11
PWC fully expected the fee in 2011/12 to be in line with 2009/10.
Sarah Brown would discuss the committee’s comments regarding fees with the
engagement leader.
RESOLVED
to continue defining the “clearly trivial” threshold for the Council as being misstatements
of £50,000 or less.
64 PROGRESS REPORT ON INTERNAL AUDIT ACTIVITY, NOVEMBER 2011 –
FEBRUARY 2012
80% of the Internal Audit work had now been completed with 6 final audits and a further
6 in varying stages of delivery. Revisions to the Audit Plan, detailed in the Officer’s report
at Section 2.1 had led to a one day increase overall in the total audit days that had
originally been approved by the Committee in March 2011.
Amendments to the Annual Audit Plan were discussed. When amendments were
necessary the Head of Internal Audit would liaise direct with the S151 Officer and
discuss the matter with the relevant service heads. The Audit Committee would be
notified of any amendments via the quarterly progress report. Additional requirements
over and above the agreed allocation of days would also be brought back to the
Committee. The Audit Committee was concerned with strategic, not operational matters.
The Internal Audit strategy determined how Strategic and Annual Plans were developed.
It was important to have flexibility in the Annual Plan. There were occasions when, for
example, delaying an audit could ensure that a more constructive review was
subsequently delivered.
Audit Committee
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6 March 2012
PROGRESS REPORT ON INTERNAL AUDIT ACTIVITY, NOVEMBER 2011 –
FEBRUARY 2012
(Continued)
During the period November 2011 to February 2012 when completing audits of Car
Parking and Markets and Sundry Debtors Internal Audit gave a limited assurance to
these areas whereas previously it had classified their corresponding systems of internal
control as adequate. However this year’s review of Sports Halls/Centres had conversely
shown that arrangements here had improved such that the previous assessment of
limited had been revised to an adequate assurance level. In response to a question
regarding Car Parking and Markets, the Head of Internal Audit said that follow-up work
would be undertaken in 2012/13 to monitor progress in relation to the implementation of
audit recommendations applying to these two areas. The Committee agreed that the
issues highlighted by this particular audit needed to be considered further at the next
meeting.
The report on Sundry Debtors was discussed. The Interim Financial Services Manager
made mention that consideration was being given to centralising debtor accounts
because, with the current system, the same debtor could appear on several different
accounts. This added difficulty to the process of pursuing a debtor.
Such debts were usually of low value but there should be credit checks before entering
into higher value arrangements, e.g. tenancy of an industrial unit.
The report on Corporate Governance was discussed. There was a low risk
recommendation to replace the committee report template with a revised version. Mr P
W Moore explained that he was chairing an Overview and Scrutiny Committee Task
Group which was doing further work on the template. The Audit Committee agreed that
the implementation of the template could be held over until the work was complete. Once
it was in place, the use of the template would be strictly enforced.
The report also highlighted revisions needed to the Council’s Constitution. The
Constitution Working Party had been re-convened and was due to meet on 9 March
2012 to revise the document. The revisions would be brought to Full Council on 18 April
2012.
When considering the proposed audit coverage for the 2012/13 review of Corporate
Governance arrangements, it was recognised that this should take into account the
outcomes of the Chief Executive’s planned work on the committee system and cycle of
meetings.
RESOLVED
to note the outcomes of the 6 audits completed between November and February, and
the recent amendments made to the Annual Audit Plan.
65 RISK
The Corporate Risk Register was due to go to the Performance and Risk Management
Board on 16 March 2012. Concessionary fares had been deleted. Shared Services and
other items which could impact the viability of the Council had been added. The Register
was still in the old format as there was no approval as yet to use the new one. The new
format enabled the risks to be merged in categories with a series of actions allocated to
named officers. In June the Audit Committee should be able to see the new format. The
Chief Executive was the Corporate Risk Officer.
RESOLVED
to receive the Corporate Risk Register at the June meeting.
Audit Committee
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6 March 2012
66 INTERNAL AUDIT’S TERMS OF REFERENCE, PERFORMANCE INDICATORS,
CODE OF ETHICS, STRATEGY, AUDIT PLANS AND SUMMARY AUDIT COVERAGE
INFORMATION FOR 2012/13
The report provided an overview of the stages followed prior to the formulation of the
Strategic Audit Plan for 2012/13 to 2014/15, and the Annual Audit Plan for 2012/13.
The Annual Audit Plan would then serve as the work programme and initial terms of
reference for the Council’s Internal Audit Services Contractor, Deloitte Public Sector
Internal Audit Ltd, and provide the basis upon which the Head of Internal Audit would
subsequently give Audit Opinions on the systems of internal control and risk
management, and corporate governance arrangements at North Norfolk District Council
for the year 2012/13.
The report also aimed to clarify the links between Internal Audit’s Terms of Reference,
Performance Indicators, Strategy, and its Strategic and Annual Audit Plans, as well as
detailing the way in which Internal Audit would operate at the Council in the year ahead,
in order to satisfy the CIPFA Code of Practice for Internal Audit in Local Government and
Statement on the Role of the Head of Internal Audit in Public Service Organisations.
When conducting the audit needs assessment exercise for 2012/13, Internal Audit had
been mindful of the financial pressures facing the authority both currently and in future
years. Internal Audit was also aware of recent developments affecting the Council,
namely the appointment of a new Chief Executive, formation of a new Corporate
Leadership Team and a current restructuring exercise at Service Manager/Heads of
Service level. Aside from these significant management restructuring initiatives, Internal
Audit also understood that the Revenues and Benefits Shared Service arrangements
with Kings Lynn and West Norfolk Borough Council were progressing well and that from
August 2012; the Council was seeking to join the CNC Building Control Partnership.
Appropriate internal audit arrangements were being made for these shared services
arrangements.
Internal Audit’s Terms of Reference were reviewed annually by the Head of Internal
Audit and then presented to the Audit Committee for formal approval. The Terms of
Reference for 2012/13 were attached at Appendix C.
In accordance with contractual arrangements each year, an Audit Needs Assessment
was completed by the Head of Internal Audit or the Deputy Audit Manager as part of the
audit planning process, culminating in the development of a Strategic Audit Plan, with an
Annual Audit Plan being extracted from the latter for adoption in the succeeding financial
year. In previous years, there had been 5-year Strategic Audit Plans but this year a 3year Strategic Audit Plan would be trialled. Consultations with Section 151 Officers
across the Norfolk Internal Audit Consortium had indicated the need to continue to
provide a forecast of future audit coverage but given the changing environment which
local government currently faced, adopting a shorter timeframe was favoured, and the
end date of the Plan effectively tied in with the financial year when the existing Internal
Audit Services Contract with Deloitte Public Sector Internal Audit Ltd was due to expire.
Detailed planning work had already been undertaken in relation to the Cedar Financial
Application, as noted in the most recent Progress Report on Internal Audit Activity.
Arrangements were being made for completion of the requisite review work linked to the
Cedar Application in 2012/13.
The Corporate Leadership Team was interested in pursuing a combined computer audit
review of Project Management and the Cash Receipting Application during 2012/13.
Internal Audit was currently examining how this might be achieved in terms of providing
Audit Committee
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6 March 2012
INTERNAL AUDIT’S TERMS OF REFERENCE, PERFORMANCE INDICATORS,
CODE OF ETHICS, STRATEGY, AUDIT PLANS AND SUMMARY AUDIT COVERAGE
INFORMATION FOR 2012/13
(Continued)
robust assurances over the two areas, whilst also generating cost savings for the
authority in complying with this request.
The computer audit of the Civica application and the Document Imaging system
scheduled for 2012/13 might not go ahead as planned because of the Revenues and
Benefits Shared Services project and the fact that the Partnership Agreement made the
internal auditors at King’s Lynn and West Norfolk Borough Council responsible for
auditing all aspects of Revenues and Benefits for the 2 Councils from 2013/14 onwards.
However, there had been a request from North Norfolk’s Corporate Leadership Team for
a review of the developing Revenues and Benefits shared service provisions to be
performed in 2012/13. The requirement had yet to be incorporated into the Annual Audit
Plan for 2012/13.
A revised version of the Internal Audit Plan would be brought back to the Committee
upon finalisation with the Corporate Leadership Team of auditing requirements with
reference to Project Management, the Cash Receipting application and the Revenues
and Benefits developing shared service provisions.
RESOLVED
To approve:
•
•
•
•
•
•
Internal Audit’s Terms of Reference and Performance Indicators for 2012/13;
Internal Audit’s Code of Ethics for 2012/13;
Internal Audit’s Strategy for 2012/13;
The Strategic Audit Plan for 2012/13 to 2014/15;
The Annual Audit Plan for 2012/13; and,
The Summary of Internal Audit Coverage for 2012/13.
67 AUDIT COMMITTEE SELF-ASSESSMENT 2011 – 12
The Members of the Committee had completed the self-assessment individually. The
responses had been collated by the Interim Accountancy Manager. The self-assessment
highlighted the need for training on the Statement of Accounts, which would be arranged
by officers.
The Committee had experienced difficulties regarding stability of membership. This was
being addressed. It was unfortunate that Members in full-time employment, who had so
much to offer, were unable to attend regularly.
RESOLVED
To note the content of this report and commission Officers to provide the improvements
noted in section eight.
68 BUSINESS CONTINUITY
a) Ten Team Plans were in place. Teams were being asked to produce Plans even
though the Senior Management Review might impact on them.
b) The Business Continuity Working Group meetings were working well.
Audit Committee
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6 March 2012
BUSINESS CONTINUITY
(Continued)
c) Standby power: a generator had been tested at the weekend and worked well.
d) The Corporate Business Continuity Plan was almost complete and would go to CLT
for approval. It would be revised in 6 months time when all the Team Plans were in
place and the Senior Management Review was complete.
e) The Disaster Recovery and Work Action Recovery sites review was still on going. it
was hoped that the Victory Housing Trust site could be used in the event of the
Annexe being unusable.
f) The interim recommendations of the internal audit report had been used by officers
as a health check.
g) The Committee requested an oral update on Team Plans for the June meeting and
requested 3 updates per annum on Business Continuity – March, June and
December.
RESOLVED
to note the contents of the report.
69 PERFORMANCE MANAGEMENT FRAMEWORK
This item had been covered under Minute 61 (e)
70 AUDIT COMMITTEE WORK PROGRAMME
The following updates were made to the Audit Committee Work Programme for June:
a) To add the Working Protocol for December 2012.
b) To receive an update on the TEN system in June.
c) It was unlikely that PWC would have any reports for June.
The meeting ended at 4.45 pm.
______________________
Chairman
Audit Committee
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6 March 2012