Agenda item

To present the report of the Audit and Risk Manager.

The report of the Head of Audit and Risk which provided an update on Internal Audit’s progress with regard to service delivery, reviews completed, follow up action taken and implementation of management action was presented for the Committee’s consideration.

The Head of Function (Resources) and Section 151 Officer summarised the main points as follows –

•           That 3 internal audit review reports were finalised in the period as detailed in paragraph 3.2 of the report. Two of the reports – Licensing Services and Council Tax and Non Domestic Rates resulted in a Substantial Assurance opinion and Reasonable Assurance opinion respectively.  The third Internal Audit Review report in relation in Sundry Debtors resulted in a Limited Assurance opinion and in accordance with agreed practice, the Committee has been provided with a copy of the full report separately to the agenda.

•           That a second follow up review of Building Regulations Fees – Inspection and Enforcement Regimes was carried out. Although this report had a Reasonable Assurance rating and would not normally be the subject of a formally reported follow-up, no progress had been made in implementing the management actions at the first follow up visit. The second follow-up review confirmed that from the four risks raised, actions have been partially implemented to address all risks and the priority ratings have been reassessed to take into account the actions implemented to date. The Building Control Team has demonstrated good progress in implementing the actions agreed to address the risks identified and the rating remains as Reasonable Assurance for the arrangements for governance, risk management and/or internal control.

•           That the graph at section 5.3 of the report shows that the Council has steadily improved its performance in implementing Internal Audit recommendations over the last 12 months, notwithstanding a slight trailing off of performance over the last month.

•           That to date, 41% of the Internal Audit Operational Plan had been completed with a further 31% currently work in progress. Due to a significant slippage of work from 2016/17, the retirement of the Senior Fraud Officer and the long-term absence of a Senior Auditor, the resource available to complete the Operational Plan for 2017/18 has been reduced. Consequently, the Head of Audit and Risk has undertaken a risk assessment with Heads of Service and the Head of Function (Resources)/ Section 151 Officer. Audit reviews have been prioritised to ensure resources are targeted to the areas of highest risk.

•           That the Committee should periodically review its terms of reference for appropriateness. In accordance with the Committee’s Forward Work Programme, the terms of reference were due to be considered at the Committee’s September meeting. It was determined that the review be postponed until the December meeting after publication of the new CIPFA guidance expected in November, 2017. However, CIPFA has confirmed it will now publish the guidance in December, 2017. Therefore, it is recommended that the review of the terms of reference be further postponed until the Committee’s February, 2018 meeting.

The Head of Function (Resources) and Section 151 Officer provided the Committee with the context to the Limited Assurance Internal Audit review report on Sundry Debtors. The Officer said that the audit was undertaken during a period of change within the Income section which has been undergoing a restructure since January, 2016.The purpose of the restructure amongst other things is to ensure that the Revenues section is sufficiently resourced to operate at full capacity and that there is a correct balance of resources between the various elements of the Revenue and Benefits Team. The restructure has taken longer than expected due to the appointment of two new managers for Revenues and Benefits externally and to allow them an input into the new structure. The overall aim within the Resources Service has been to develop and improve the Council’s financial systems and to make the best use of the technology available. As the developments are in addition to the staff’s normal day jobs and both financial and IT resources are limited, developments have been prioritised and improving the debtors system has had a lower priority. However, the service has secured funding to improve the cash system to enable collection of more income on-line before the service is provided, which will reduce the number of invoices needing to be raised. So the service was aware of issues arising with the sundry debtors system and those are now in the process of being addressed. Despite the inefficiencies identified in the sundry debtors system, the percentage of overall debt collected over the course of the last three years is 98.9%.

The Committee considered the information presented and made the following points:

•           The Committee noted with regard to the internal audit reviews of Licensing Services and Council Tax and Non Domestic Rates that although the risks identified are identical in number and level, the assurance rating for both differs with the former assessed as providing Substantial Assurance and the latter Reasonable Assurance only. The Committee’s Lay Members noted that in order to be able to appreciate the reasons for the difference in rating which they could not do from the summary provided, they would require access to the full reports. It was suggested by the Lay Members that it would in any case be helpful for them - and perhaps the Committee - to be able to see all completed internal audit reports to understand how conclusions are reached and assurance ratings determined. The Head of Function (Resources) and Section 151 Officer said that many of the review reports which Internal Audit produces can be lengthy and carry a level of detail which the Committee may not require especially if the assurance provided of the areas reviewed is Reasonable or Substantial. The Committee has to ensure that the information it receives is pertinent and manageable, it should not be so voluminous as to deflect from its main responsibility which is to satisfy itself that the Council’s system of internal control is effective in managing identified risks having particular regard to any shortcomings in internal control that have been reported. To this end, the Committee is provided with Limited Assurance reports on areas where significant weaknesses in internal control have been identified so that it can be assured that action to rectify the weaknesses has been agreed and that its implementation will be monitored. Otherwise the quarterly Internal Audit update provides the Committee with assurance as to areas where the internal controls have been found to be robust and functioning properly. 

•           The Committee noted with regard to the Internal Audit Operational Plan that there seemed to be noticeable variances between the planned days assigned to some audits and the actual days spent on them – the audit of the Housing Benefit and Council Tax Reduction Scheme being a case in point where 15 days were assigned to the audit and 23 days actually spent on it. The Committee sought clarification of the extra days especially as the assurance provided was Reasonable suggesting that no complications requiring additional time to resolve were encountered. The Head of Function (Resources) and Section 151 Officer said that the Housing Benefit and Council Tax Reduction Scheme is a complex area so the 15 days planned allocation would have been a conservative estimate. The Committee also noted that the 11.25 days out of a planned 15 days spent on scoping the Housing Rents Readiness for Welfare Reform appeared excessive. The Senior Internal Auditor said that the service could check for an update on this position.

•           The Committee noted that the Audit Plan at Appendix A makes no reference to follow-up action; the Committee sought clarification therefore of the process for allocating resources to monitoring the implementation of Internal Audit recommendations. The Head of Function (Resources) and Section 151 Officer said that a batch of days is allocated to follow-up work  with the Head of Audit and Risk then determining how these are to be allocated taking into account the views of the Committee.

•           With regard to the Limited Assurance report in relation to Sundry Debtors, the Committee was concerned that although the value of invoices written off at the 2016/17 year end was only 1% of income which in a period of austerity is still a substantial amount, it has taken a length of time to recognise how inefficient  the system is which suggests that the level of internal controls in place and their oversight were inadequate in bringing to  Management’s attention the shortcomings in what is a significant element of the Council’s revenue raising function. The Committee sought assurance that the Internal Audit process is now sufficiently robust to avert a similar situation of cumulative inefficiencies over time from reoccurring, The Head of Function (Resources) and Section 151 Officer said that since his appointment to post, the priority has been to restructure the Revenues and Benefits service; the debtors system although it was not working as well as it could, was functioning in terms of recovering debt and was therefore a lesser priority. Having completed the restructure, changes can now be made to the debtors system. Additionally, the Council’s financial systems are subject to more rigorous scrutiny and testing than any other service systems both by way of internal audit and also by external audit as part of the audit of accounts process. It is reasonable to assume therefore that the external auditors at the time found the level of assurance provided by the Debtors system to be adequate in terms of allowing them to certify that the Council’s income was properly accounted for in its accounts otherwise the audit certificate would have specified differently.

•           The Committee sought clarification of the processes for recovering Home Care debts and whether any best practices in other areas have been identified as well seeking assurance that arrangements will be put in place to ensure the collection of school transport income given that the school reorganisation programme is likely to make this task more vital. The Head of Function (Resources) and Section 151 Officer said that due to the nature of its clients, Home Care debts are difficult to recover because withdrawal of the service due to non-payment is not an option. However, the Finance Service and Social Services will have to review arrangements to ensure that recovery procedures for Home Care debtors are established. The Officer said that he was not aware of the availability of benchmarking data in relation to the recovery of Home Care debts. With regard to school transport, the Finance Service plans to make available by September, 2018 a facility that will allow parents to pay for school bus passes on-line in advance of receiving the pass as opposed to the current arrangement whereby parents are billed for the pass after it has been issued. The new system is intended to reduce the need to chase for non-payment which in the case of home to school transport is difficult because enforcement on the bus can be problematic as can recovery as the level of income involved often does not justify the costs of recovery.

•           The Committee noted that due to the number of officers across a range of services which the Sundry Debtors review affects, one officer should be designated to oversee progress to ensure the recommended actions are implemented in full and in a timely way. The Head of Function (Resources) and Section 151 Officer said that the responsibility for implementation rests with the Revenues and Benefits Manager with oversight to be provided by the Section 151 Officer.

It was resolved -

•           To note Internal Audit’s latest progress in term of its service delivery, assurance provision, and reviews completed, performance and effectiveness in driving improvement and to accept the assurance provided with regard to the areas reviewed and actions taken and/or proposed.

•           To postpone the review of the Committee’s terms and conditions until CIPFA issues its new guidance document.

ADDITIONAL ACTION PROPOSED: The Chair, Portfolio Member for Finance and Head of Function (Resources) /Section 151 Officer to meet with the Committee’s two Lay Members to consider how best to enable them to have access to the range of Internal Audit reports in support of their role on the Committee.