Agenda item

To submit the report of the Interim Audit Manager.

The report of the Interim Internal Audit Manager incorporating a revised Strategic Internal Audit Plan for 2015/16 to 2017/18 was presented for the Committee’s consideration and approval.

The Interim Internal Audit Manager reported that the existing Operational Audit Plan for 2015/16 was presented to and approved by the Audit Committee at its meeting on 23 February, 2015. Enquiries since than have identified the need to re-examine the planned internal audit coverage resulting in the presentation to the Committee of the proposed modified strategic audit plan under Appendix A. The Officer said that the main modifications and the reasons for change can be summarised thus –

•           Compared with the existing plan, the revised plan is more balanced, spreads audit coverage more widely and extends over three years rather than one. The plan addresses all areas considered relevant for review by internal audit within the three year timespan.

•           The allocation of audit resource in the original plan was heavily weighted towards key financial systems and as it was based on a fixed amount of resources, it did not allow for the coverage of other equally significant areas of activity. The revised plan seeks to re-balance the audit resource to enable the examination of a number of areas which have not been subject to audit review in recent years.

•           The revised plan has an in built element of flexibility and provides a contingency item of approximately 10% of resource.

•           Auditing of schools is targeted at the larger schools within the revised plan rather than being undertaken by rote as was the past practice. The plan also provides for thematic reviews across a selection of smaller schools.

•           The plan has identified a shortfall in internal audit resources and indicates that the service is in need of one additional full time person to deliver the planned work. The service currently has two vacancies at junior level, and having considered how the shortfall can be best addressed in terms of effectively delivering the plan, the opinion is that the two junior posts should be relinquished in favour of one senior post.

The Committee considered the revised strategic internal audit plan and made the following comments thereon –

•           The Committee acknowledged the plan as comprehensive in its coverage and welcomed the new three year perspective. The Committee also deemed that the plan satisfied the request made at the previous meeting for a working guide to the areas and themes which it should be keeping under review.

•           The Committee noted that the Internal Audit function is a key part of the Authority’s governance framework in terms of monitoring the performance of the Council’s internal controls and in providing confidence and assurance with regard to how the Council conducts its business, manages its risks and complies with regulations and internal policies. It stressed that Internal Audit needs to work closely with Management to ensure that the system of internal controls is working effectively. The Interim Audit Manager said that there are several areas of Council activity that require examination that have not been looked at for a number of years and that the revised audit plan identifies this requirement and meets it head-on. However, it is important that the audit plan is not viewed as a document set in stone - issues will inevitably arise during the course of the year and whilst in the past planned projects yielded to those issues, the revised audit plan has a contingency of 10% which means that planned commitments do not have to be sacrificed in order to be able to respond to emerging issues. The Audit Team requires an element of flexibility in order to be effective.

•           The Committee expressed some concern regarding the proposed sacrifice of two junior posts in favour of one senior post  in terms of capacity building within Internal Audit  for the future and in the context of an avowed intention to take a “grow your own” approach to developing capacity and skills within the Authority generally. The Committee noted that sacrificing the developmental element for a short term imperative might be counter-productive in the long term. The Interim Internal Audit Manager said that the Internal Audit Service requires a skilled individual who can take up the work immediately; being a small team with objectives to fulfil within a prescribed time period, the service requires a level of expertise to satisfy those responsibilities and therefore cannot afford to engage a trainee at this time although that is not necessarily reflective of the approach the Authority might wish to take corporately.  The Interim Head of Resources and Section 151 Officer informed the Committee that there will be a limited level of trainee time available next year as the Council has taken on a Corporate Finance Trainee; the proposed training programme for that individual will involve spending a period of time in Internal Audit thereby providing a modicum of additional resource within the service. The point made by the Interim Internal Audit Manager about the value to the Council of having a single qualified individual rather than two individuals at junior level is a valid one and one that the  Committee needs to bear in mind. Should an issue around resources arise in the coming months there will be an opportunity to identify such  issues in Internal Audit progress reports;  however, it would be premature to seek to make any determination as  regards staffing at this meeting. Such a decision needs to be made carefully and on the basis of a report setting out all the facts  about what is required to ensure the Internal Audit Service is adequately resourced and has the right staff mix and competencies to be able to carry out its responsibilities effectively.

•           The Committee noted that some areas scheduled for review within the revised Audit Plan had not been examined for a number of years and therefore carried no audit opinion and provided no level of assurance. The issue of Safeguarding was given as an example as an especially current and critical area which the Committee believed needed to be audited regularly. The Interim Internal Audit Manager confirmed that under the revised plan, Safeguarding as an area of activity is to be audited annually, thus ensuring that it is placed on a sound footing from now onwards. The Officer said that with regard to the last audit undertaken for each area in the plan he had not investigated further back than 2012/13 on the grounds  that any review of longer standing would have minimal value and relevance.

•           The Committee also highlighted Business Continuity as of particular relevance given the Island’s industrial context and was concerned that the last audit review of this area carried a red audit opinion. The Committee sought clarification of how soon a report on this area would be available to it.  The Interim Head of Resources and Section 151 Officer advised that the Committee’s focus should be on the Management response to any recommendations made by Internal Audit on improving Business Continuity governance arrangements once the report is issued rather than the report itself. The scenario wherein no action is taken by Management on a report is the situation that should occasion concern to the Committee otherwise the information it would receive were it to try to look at each and every report would become unmanageable. The Internal Audit Service will continue to produce quarterly progress reports which show what issues are outstanding and will continue to report on those issues until they are properly addressed and resolved. The Committee needs to stay up to date on Management’s response to the recommendations issued by Internal Audit.

•           The Committee noted that several areas identified for review within the audit plan particularly those of a corporate nature are areas which the Committee has previously  identified as needing attention and which it is keen to see being moved forwards. The Committee sought assurance that the audit plan would not be changed without its first being consulted, and emphasised that it did not wish to see these areas being lost in the changeover to new internal audit management arrangements. The Interim Head of Resources and Section 151 Officer confirmed that the Audit and Governance Committee would be consulted in the event of any proposed changes as the deciding authority with regard to the audit plan.

•           The Committee suggested that as well as being kept informed on progress and outcomes it would be helpful if it were in possession of a process log which would show key process milestones for those issues that might not have fallen but might still be in process. It was proposed that Internal Audit consider incorporating such a provision within its reporting arrangements.

It was resolved to approve the Strategic Audit Plan for 2015/16 to 2017/18 as set out in Appendix A to the report.

ACTION ENSUING: Internal Audit to incorporate within its reporting arrangements a provision for showing issues that are still in process.