CIPFA - NW Risk & Governance Group
Annual Development and Training
“Financial Resilience - An Innovative Role for Internal Audit…….”
8th March 2014
Steven Mair – Borough Treasurer
Jane Whyatt – Audit and Counter Fraud Manager
Financial Resilience:
Innovative Approach for Internal Audit
 Our Story “…the Way we Were…”
 Public Sector Financial Pressures
 Our Journey
 Measuring Financial Resilience
 Internal Audit’s Contribution to Success
 External Validation
Oldham’s Story:
The way we were….. 2006/2007
 Audit Commission’s “Use of Resources” Report 2006/07:
– Internal control scored 1 out of max 4
– “…systems of internal control and arrangements to ensure probity
and propriety in the conduct of business deteriorated in 2006/07”.
 Audit Commission particularly highlighted that:
– Fundamental financial systems not reviewed by Internal Audit
– Absent / infrequent core bank and other reconciliations
– Fraud and corruption, and whistle-blowing policies not readily
available or appropriately communicated
 3 statutory recommendations - urgent action required
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Oldham’s Response
Financial Transformation Programme
• Immediate Improvements instigated in 2008/09:
– Statutory recommendations implemented
– Further change programme developed
• Financial Transformation required to the Culture:
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Managers to own their “financials”
Members’ to be engaged
Residents to see the benefits
“Silo” working does not deliver value for money
• Financial systems – “get the basics right….”
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The Financial Challenge Continues
• “Towards a Tipping Point”:
– “…largest reduction in public spending reductions since the
1920s….”
– “….reduce in real terms by 28% by 2014-15..” **
• Plus demand pressures:
– increased demand from demographic changes
– recession-led economic changes
– uncertainty in local government financial planning re: changes
• Beyond 2014/15, it gets more challenging:
– RSG reductions continue
– Income is volatile/ CT raising restrictions
• Not changing is not an option …….
** Source: Grant Thornton, 2012
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Innovation???
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“Financial Resilience”: Key Criteria
• Key Indicators of Financial Performance
– Benchmarked analysis using key indicators of financial health;
reserves, long term borrowing, liquidity, sickness
• Strategic Financial Planning:
– Budgets to be set in the long term context of the MTFS
– Responsive to uncertainties in the economy,
• Financial Governance:
– Quality of financial governance and leadership is critical to meet
financial challenges and for sustainability.
• Financial Control:
– Manage within their budgets and have robust challenge around
budget monitoring and that they can demonstrate VFM
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Financial Resilience:
Role of Internal Audit
• Question: “What’s all this got to do with
the Internal Audit Team?
• Answer: “it’s a no brainer…”
• Internal Audit is at the forefront of Oldham’s
success and is leading change in some cases
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Financial Resilience
Internal Audit - Adding Value
Indicators of Financial Performance:
Strategic Financial Planning:
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Liquidity
Borrowing
Workforce
Performance vs budget
Reserves
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Focus of MTFP
Adequacy of planning assumptions
Scope of the MTFP and link to
annual plan
Review processes
Responsiveness of plan
Financial Governance:
Financial Control:
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Understand financial environment
Executive and Member engagement
Performance manage budgets
Accuracy of committee/cabinet
reporting
Budget performance management
Performance vs savings plans
Key financial accounting systems
Finance department resourcing
IA arrangements
EA arrangements
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Oldham’s Innovative Approach
But what have we done differently?
• Commercial Approach:
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Successful business has tight financial management & control
Effective governance requires business and cultural change
Strong Finance Function essential to success
Getting the basics right
• Professionally collaborates to deliver cultural change:
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…with the business….
…with Finance….
…with External Audit…
…with external colleagues..
• Professional independence supports the business
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Internal Audit
Effective Collaboration…with the Business
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Embed sound governance into culture
Repositioning Oldham – align to change agenda
Be pro-active / support the business / risk manage
Communicate, listen and challenge professionally
Develop customer service, yet remain independent
Grasp opportunities to raise awareness and train
Internal control recommendations to accompany fraud
investigations
• Comply technically….always!
• Audit Committee – Independent Chair
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Internal Audit
Effective Collaboration....with Finance
• Audit is pivotal to Financial Management transformation:
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Strong professional collaboration across Finance
Key contribution in departmental transformation agenda
Job rotation / enlargement within & across teams & secondments
Staff benefits are significant
• Audit Managers lead projects & themes
• Audit support the Final Accounts
• Financial Systems Audits:
– Annual Interim and Final audits each year
– Control issue resolution included in close down timetable
– Continuous audits in key areas support monthly close-downs
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Internal Audit
Effective Collaboration...with External Audit
• Monthly Audit Liaison meetings:
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Revenue and capital outturn (monthly close-downs)
Results of continuous internal audit reviews
Council’s budgets and next steps
Emerging issues/risk
External Audit matters – AGS, Audit Committee reports
2014 FAN Events – External Audit
• Internal Audit Financial Systems audits:
– Aligned with EA control objectives +/- local risks
– Review interim audits as part of interim planning
– EA participate in weekly audit team meetings
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Internal Audit
Effective Collaboration…with 3rd Parties
• Finance and Audit judged as “best practice”:
− CIPFA, LGA, other Local Authorities, benchmarking
− DCLG using Oldham as exemplar evidence to raise national bar
− External Audit report professional standard of Internal Audit
• Finance and Audit share Knowledge:
− Raises governance and financial control standards
− Shapes and promotes future public sector finance
− 2013 CIPFA FAN Events and continuous advice to peers
• Professional Bodies seek support from Finance & Audit Team:
− 2014 on-going partnering with CIPFA
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Examples: Internal Audit’s Contribution
Theme
2008/09
2013/14
Internal Audit Role
Indicators of
Financial
Performance
Debtors out of
control
Debtors reduced by 66%,
further planned
Annual “receivables” audits,
w/o processes, Audit-led
theme based review
Strategic
Financial
Planning
Budget in crisis,
unplanned
overspends
2 year budget agreed in
2012, budgets always
balanced
Risk based, support overspend, financial control and
training,
IA leads CFO’s risk
assessment of reserves for
budget and MTFS
Financial
Governance
IA Planning process
under significant
development
Risk based Audit & Counter
Fraud Plan approved by
Audit Committee quarterly.
Pro-active and risk based
planning
Financial
Governance
No reliance on
Internal Audit
Full reliance on Internal
Audit, team highly regarded.
21% increase in Final Reports
since 2012/13
Financial
Governance /
Financial
Controls
Poor Financial
Management
Rigorous financial
management across a range
of complex issues
Audit embedded in
transformation e.g. led
Finance PM, drs, final
accounts, SSTP, CTR
Financial
Controls
No prompt payment
scheme, PO
coverage < 50%
Prompt payments scheme 90% coverage of POs
Planned audit reviews,
financial systems focus
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Impact and Where we are now….
Scale and Pace of Transformation in 4 Years
Financial
Year
Submitted for
External Audit
Audit Opinion
& Published
Accounts
National Ranking
2008-09
30 June 2009, material errors
End September
2009
Lower quartile performance
2009-10
27 May 2010, no material errors
31 August 2010
Top 6 Council &
1st Metropolitan Authority
2010-11
19 May 2011, no material errors
29 July 2011
1st Council (joint)
2011-12
3 May 2012, no material errors
25 June 2012
1st Local Government Body
2012-13
26 April 2012, no material errors
31 May 2013
1st Local Government Body
Ahead of > 40% of FTSE100
2013-14
(Planned)
22 April 2014, no material errors
28 May 2014
1st Local Government Body
Ahead of > 60% of FTSE100
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Scale and Pace of Transformation
“World Class” 2015/16
• Transformation vehicle for cultural change
• Audit support:
– Integrated Finance and HR system 2014
– Self service to be implemented by 2015
– Continuing close down timelines
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LEAN reviews continue for efficiency
Selling services to 3rd parties
Compete with the private sector
Future-proofed for anticipated changes
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Views of members and senior officers....
Leader of the Council, Jim McMahon:
“Strong corporate governance is the foundation of any successful
council. Without this, little else can be achieved.”
Carolyn Wilkins, Chief Executive:
“The Finance Team in Oldham have driven significant improvement to
governance and financial management across the Council. Members
and Officers have clear and timely information and are able
to realistically plan the future rather than focusing on past outturn.
This is essential to the success of the authority and the ability to play a
strong active role in wider public service reform.”
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What our review bodies think...
Peer Review 24th October 2013:
– “Financial management….highly effective, with a dramatic
improvement..”
DCLG 25th November 2013:
– names Oldham as “best practice”
– reports enhanced accountability to residents from earlier
publication of accounts
– benefits of a future-focus rather than on the past
Audit Commission 12th December 2013:
– only council to publish audited accounts in May since they
began collecting this information
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What the finance community thinks...
• CIPFA recognise the “… transformation programme which has
delivered significant sustainable benefits in the form of improved
financial rigour and long-term financial planning across the
organisation…” Rob Whiteman – Chief Executive CIPFA
• “Congratulations to Oldham for being shortlisted for the Corporate
Governance Award… The approach taken by Oldham, including
clear communication of the Council’s priorities, allows us to
effectively plan the annual audit well in advance of the year
end. Grant Thornton continues to be supportive of Oldham’s
ambition and how it works to continuously improve.” Sarah Howard,
Partner, Head of Public Sector Assurance, Grant Thornton
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Summary: Innovative Internal Audit is ....
 Embedded in the culture
 Supports the council agenda
 Professionally collaborates to drive change
 Technically and professionally compliant
 Externally validated by a range of organisations:
– DCLG, LGA, Audit Commission, CIPFA
 Thank you and any questions?
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