The Chair in welcoming all those present to this the first meeting of the Audit and Governance Committee of the new municipal year thanked Councillor R. Llewelyn Jones for his support during his term as Vice-Chair of the Committee.

To receive any declaration of interest by any Member or Officer in respect of any item of business.

No declaration of interest was received.

To present the minutes of the previous meetings of the Audit and Governance Committee held on the following dates –

·         23 April, 2019

·         14 May, 2019 (election of Chair/Vice-Chair)

The minutes of the previous meetings of the Audit and Governance Committee held on the dates noted below were presented and were confirmed as correct subject to the following –

•           23 April, 2019 with an amendment to the reference under item 4 to the Internal Audit Service being 40% off target with regard to achieving its Operational Plan so that it reads 60% off target.

Arising thereon –

The Head of Audit and Risk updated the Committee with regard to the self-evaluation questionnaire by saying that the Internal Audit Service was working with Chris Tidswell of CIPFA Wales to look at the effectiveness of the Audit Committee. He would be observing today’s and the 3 September meetings after which a package of work would be put together to assess how effective the Committee is and how it can fulfil its Terms of Reference.

•           14 May, 2019 (election of Chair and Vice-Chair)

To present the report of the Head of Function (Resources)/Section 151 Officer.

The report of the Head of Function (Resources) and Section 151 Officers incorporating the draft pre-audit Statement of the Accounts for the 2018/19 financial year along with the draft Governance Statement for 2018/19 was presented for the Committee’s consideration.

The Head of Function (Resources)/Section 151 Officer thanked the Accounts and Civica teams for their work in helping to ensure that the draft accounts were completed and issued in line with the statutory deadline which for the 2018/19 and 2019/20 financial years has been brought forward to the 15 June. The draft accounts were actually completed by the end of May in preparation for this becoming the statutory deadline for 2020/21 and beyond. The Statement of  the Accounts has been prepared and set out in accordance with accounting regulations and practices and is produced annually to give electors, local taxpayers, Members of the Council, employees and other interested parties information about the Council’s finances and how it spends public money. The Officer referred to the main financial statements and highlighted the key points arising therefrom as follows –

•           Narrative report – tells the story of the Council’s financial performance for the year and provides a guide to the more significant matters reported in the accounts including the key achievements, issues and risks affecting the Council. In 2018/19, the Council reported an overspend of £633k against a planned activity of £130.9m (net budget) and achieved £2.064m of savings. The table at 3.4.1 reflects the final budget for 2018/19 and actual income and expenditure against it. The Capital Budget was underspent in the year with the total spend amounting to £30.678m against a total Capital Budget for 2018/19 of £62.881m.

•           Comprehensive Income and Expenditure Statement – shows the accounting cost in the year of providing services in accordance with accounting practices rather than the amount to be funded from taxation, hence the deficit figure of £20.744m which reflects the inclusion of items of non-cash expenditure required by accounting practice (pension liability, depreciation, revaluation of assets) rather than the Council’s real cash outflow position.

•           Summary of Movements in Council Reserves (page 24 of the accounts) – shows the net overspend of £633k for the year in line with the revenue outturn report presented to the Executive as part of the financial monitoring process and the impact on the General Fund reserve. This figure represents the difference between budgeted and actual expenditure for the year. The Summary of Movements table also shows that the Housing Revenue Account balances had a surplus of £805k for the year and that the Council’s total usable reserves as at 31 March, 2019 stood at £24.844m compared to £24.069m as at 1 April, 2018.

•           The Balance Sheet – shows the value of the assets and liabilities (what the Council owns and what it owes but not including highways and bridges etc.) recognised by the Council on the Balance Sheet date i.e. 31 March, 2019. What the Council is worth has reduced from £183.2m as at 31  ...  view the full minutes text for item 3.

To present the report of External Audit.

External Audit’s Annual Improvement Report for 2018/19 in respect of the Isle of Anglesey County Council was presented for the Committee’s consideration. The report summarised the work carried out since the last Annual Improvement report including that of the relevant regulators.

Mr Alan Hughes, Performance Audit Lead (WAO) reported that the Council is meeting its statutory requirements in relation to continuous improvement but, as with all councils in Wales, it faces challenges going forward. It is the Auditor General’s view that based on and limited to the work carried out by the Wales Audit Office and relevant regulators, the Council is likely to comply with the requirements of the Local Government Measure (2009) during 2019/20. However, it is recognised that all councils face significant financial pressures which will need continued attention in the short and medium term to enable them to reach a stable and sustainable financial position. Whilst the Auditor General did not make any formal recommendations during the course of the year, a number of proposals for improvement were made and these are reproduced in the report. Progress against these proposals and against the relevant recommendations from national reports (Appendix 3 to the report) will be monitored by External Audit as part of its improvement assessment work.

It was resolved to accept and to note the External Audit’s Isle of Anglesey Annual Improvement Report.

NO ADDITIONAL PROPOSAL WAS MADE

To present the report of the Head of Audit and Risk.

The report of the Head of Audit and Risk which provided an update on Internal Audit’s latest progress with regard to service delivery, assurance provision and reviews completed was presented for the Committee’s consideration.

The Head of Audit and Risk highlighted the main points as follows –

•           That three audit reports were finalised in the period. The first relating to CONTEST – Counter Terrorism resulted in a Reasonable Assurance opinion with the review finding  that the Council is making good progress in implementing an effective framework of controls to ensure that it can successfully discharge its statutory “Prevent”  responsibilities in respect of HM Government’s Counter Terrorism Strategy (CONTEST) 2018. The second report was in relation to Welfare Reform – Housing Rent Income which also resulted in a Reasonable Assurance opinion with the review concluding that the Council has a number of effective operational controls in place to manage the impact on the Council’s ability to collect Housing Rent income. For both reviews, Internal Audit identified scope for improving controls in future in the areas audited which is reflected in action plans agreed with Management (available to the Committee’s members on request to the Head of Audit and Risk). Internal Audit raised 4 major Risk/Issues on the CONTEST – Counter Terrorism review and 1 Major and 3 Moderate Issues/Risks on the Welfare Reform – Housing Rent Income which the Officer elaborated upon.  The third audit report completed was a health check of information governance and General Data Protection Regulation embedding across all the schools on the Island conducted by Strategic Risk Practice of Zurich Risk Engineering (ZRE) which as a consultancy piece of work for internal information only, did not provide an assurance rating.

•           That one Follow-up review was finalised in the period relating to Payment Card Industry Data Security Standard Compliance which resulted in the original Limited Assurance rating being upgraded to a Reasonable Assurance opinion. Follow-up reviews of Primary Schools Income Collection (First Follow-up) and Sundry Debtors (Second Follow-up) are currently in progress. A further three Follow-ups are scheduled for the remainder of the year in connection with the areas listed in paragraph 21 of the report.

•           That there had been a slight dip in addressing High/Red/Amber issues/risks from 89% in Quarter 4 of 2018/19 to 87% in Quarter 1 of 2019/10 although no High or Red issues/risk remain unaddressed. The decline is accounted for in paragraph 23 of the report.

•           That Internal Audit was hoping to finalise and report the outcome of four audits to the Committee at this meeting (Business Continuity Arrangements, Corporate Safeguarding Follow-up, IT Resilience and Corporate Information Governance Health Check)  but due to the reasons outlined in paragraph 29 of the report this has not been possible. Following the recommendation made in the Corporate Risk Management Health Check that the corporate risk register be reviewed and the corporate risks rationalised, the Senior Leadership Team reviewed the Corporate Risk Register and reduced the corporate risks by approximately half. This is reflected  ...  view the full minutes text for item 5.

To present the report of External Audit.

The report of External Audit on the findings of its examination of a step the Council is taking to meet its well-being  objectives, namely to promote Anglesey to encourage major developers to invest in the Island and use this as a catalyst for business development and jobs on the Island was presented for the Committee’s consideration.

Mr Alan Hughes, Performance Audit Lead (WAO) reported that in accordance with the Well-being of Future Generations Act the Auditor General for Wales is statutorily required to examine public bodies to assess the extent to which they have acted in accordance with the sustainable development principle when setting their well-being objectives and taking steps to meet them. In the report above, the External Auditor has sought to establish whether the Council is acting in accordance with the sustainable development principle in its step to promote Anglesey to encourage major developers to invest in the Island. In order to act in accordance with the sustainable development principle, public bodies must take account of the “five ways of working” as defined in the Welsh Government’s Well-being of Future Generations (Wales) Act 2015 The Essentials document which relate to safeguarding the ability to meet long-term needs; acting to prevent problems occurring or getting worse; considering integrating the public body’s well-being objectives with their other objectives or other public body’s objectives; acting in collaboration with any other person or different parts of the body itself and involving persons with an interest in achieving the well-being goals ensuring that those persons reflect the diversity of the area which the body serves.

The report found that –

•           The Council has acted in accordance with the sustainable development principle in developing the step, but there are opportunities to further embed the five ways of working.

•           The Council has sought to obtain a thorough understanding of the adverse effects of a large scale project and understands the importance of gathering data to inform its preventative activities.

•           The Council considers how its step could contribute to the seven national well-being goals and its other well-being objectives, but it has not formally considered how the development will impact other public bodies’ well-being objectives.

•           The Council has taken steps to collaborate with partners and reflect the needs and wishes of local communities, but could improve how it reviews the effectiveness of collaboration.

•           The Council has involved stakeholders in the Wylfa Newydd project, but needs to develop its approach to involving the full diversity of the community.

Following the conclusion of the fieldwork, External Audit’s findings were presented to Council Officers at a workshop in March, 2019 where the Council began to consider its response to the findings. As a result of discussions at the workshop and further reflection on the findings, the Council has developed a series of actions under specific themes which are set out in the table in Part 2 of the report.

The Chief Executive commented that the examination sought to ask whether the Council has started  ...  view the full minutes text for item 6.

To present the report of the Head of Audit and Risk.

The report of the Head of Audit and Risk incorporating a Risk Management Statement setting out the responsibilities within the Council for identifying, managing and monitoring risks was presented for the Committee’s consideration.

The Head of Audit and Risk reported that as part of its arrangements for good corporate governance, the Council needs to have a clear statement of its overall policy in relation to managing risk in the achievement of its objectives and the delivery of its services. As a large and diverse organisation, appetite for risk will vary according to the activity undertaken and different appetites and tolerances to risk apply throughout the organisation. It is recognised that the Council must accept some risk so that it can achieve its objectives. Therefore, the policy is to ensure a culture of knowledgeable risk taking. An organisation’s risk appetite helps it determine what a material risk is; what a high risk is and what a low risk is. By deciding risk appetite, the Council is able to more effectively prioritise risk for mitigation and better allocate resources.

The Officer said that establishing the Council’s risk appetite is a piece of work which the Head of Audit and Risk in conjunction with Members and with the Senior Leadership Team would like to undertake so that a clear risk appetite statement can be formulated and approved. The Council’s current risk appetite position is reflected in the Risk Management Assessment Matrix at the end of the report and this will continue to be used until such time as a policy statement is issued. Different risk tolerance levels will apply throughout the Council depending on the individual service e.g. Social Services will have a different risk tolerance level to that of Highways Services.

It was resolved to accept the Risk Management Policy Statement as presented and to recommend its approval by the Executive.

NO ADDITIONAL PROPOSAL WAS MADE

To present the report of the Head of Audit and Risk.

The report of the Head of Audit and Risk incorporating the Annual Insurance report for 2018/19 was presented for the Committee’s consideration.

The Risk and Insurance Manager reported that the report provides a summary of claims against the Council’s external and internal based insurance arrangements for the period 1 April, 2014 to 31 March 2019 based on the date the incident occurred and not on the date of the making or presentation of the claim, and for claims presented before 1 April, 2019. The report also provides a commentary on claim trends and future challenges.  The summary of claims included in Appendix A to the report provides a breakdown per policy, per financial year for the Council as a whole of the number of claims that have been paid; claims that have been settled without cost or payment being made, or where the claim has not yet been settled. The summary includes the amount paid is respect of those settled claims and the amount reserved against those claims not yet settled.

In response to queries by the Committee, the Risk and Insurance Manager clarified the following –

•           That the Council has personal injury insurance to cover staff and volunteers acting on behalf of the Council wherever that may be. The insurance would not apply however in the case of professional tradesperson volunteering their services e.g. an electrician volunteering to do a job of work at a school.

•           That the £174,199 in reserve for public liability claims for 2018/19 although higher than the sums in reserve for the previous years is set against the correspondingly higher figure of 39 claims still open in 2018/19 which include more recent claims which will take longer to close down be they settled with or without cost.

•           That the majority (over 50%) of public liability claims are highways related e.g. slips, trips or falls on a Council controlled slipway and pothole damage to vehicles.

•           That the Council endeavours to learn from claims made. In cases where claims are the result of errors by Council drivers for example, the Highways Service arranges driver training to try to reduce the likelihood of errors occurring and therefore claims arising therefrom.

It was resolved to accept and to note the Annual Insurance Report 2018/19.

NO ADDTIONAL PROPOSAL WAS MADE

To present the report of the Head of Function (Resources)/Section 151 Officer.

The report of the Head of Function (Resources)/Section 15 Officer incorporating the Treasury Management Review for 2018/19 was presented for the Committee’s consideration.

The Head of Function (Resources)/Section 151 Officer highlighted the following -

•           That in light of the ongoing uncertainty surrounding the economy over Brexit and continuing low interest rates the Treasury Management Strategy has remained to borrow only when required and to invest on the basis of safety and liquidity ensuring that the Council’s invested cash is readily available.

•           The Council’s strategy over a number of years has been to utilise its own cash resources to fund capital expenditure where possible. However, due to low cash balances during the year, it was decided to externalise borrowing taking out two long term loans with the PWLB – £15m in January, 2019 over 50 years at an interest rate of 2.49% (£5m of which was used to repay a maturing loan) and £10m in March 2019 over 46 years at an interest rate of 2.24%.

•           At the beginning of the year, the internal borrowing position was £19.9m. By taking out the loans referred to above, the internal borrowing position at 31 March, 2019 was reduced to £6.2m.

•           During that year, the Council also entered into two short-term borrowings – for £5m in October, 2018 for 3 months with North Yorkshire County Council with an interest rate of 0.85% and for £5m in December, 2018 for 1 month with Tyne and Wear Pension Fund with an interest rate of 0.8%. These borrowings were taken out to cover short-term cash flow difficulties.

•           During 2018/19, the Council complied with its legislative and regulatory requirements. The forecast Capital Financial Requirement (CFR – the Council’s underlying need to borrow) at the time of producing the prudential indicators for 2018/19 was £148.940m.The actual CFR was significantly lower at £138.660m.  Neither were the Authorised Borrowing Limit (£177m) nor the Operational Boundary (£172m) breached during the year, with the amount of external debt peaking at £134.4m only. The performance against the Prudential Indicators set by the Council show that the Council’s Treasury Management activities are being undertaken in a controlled way which ensure the financial security of the Council and do not place the Council at any significant financial risk in term of unaffordable or excessive borrowing.

•           Looking forward the strategy will likely remain low risk, low return investments and a planned approach to borrowing to minimise interest charges.

It was highlighted at this point that as the Committee had now been in session for three hours, under the provisions of paragraph 4.1.10 of the Council’s Constitution, a resolution by the majority of those Members of the Committee present to continue with the meeting was required. It was agreed that the meeting should continue.

In response to points raised by the Committee, the Head of Function (Resources)/Section 151 Officer further clarified -

•           That the underspend on the capital budget relates mostly to schemes that are funded by capital grants. The Council’s  ...  view the full minutes text for item 9.

To present the report of the Head of Audit and Risk.

The Committee’s Forward Work programme was presented and was accepted and noted without amendment.