Agenda item

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

The report of the Head of Audit and Risk providing an update as at 27 January 2021 on the work of Internal Audit  since the last report to Committee on Internal Audit activity in December, 2020 was presented for the Committee’s consideration. The report outlined the current workload of the Internal Audit Service together with the priorities for the short to medium term.

The Head of Internal Audit and Risk updated the Committee on the following aspects of Internal Audit’s work –

•           The assurance work completed since the last update with reference to the table at paragraph 5 of the report. Of the six audits listed in the table, three had resulted in a Substantial Assurance rating; two had resulted in a Reasonable Assurance rating and one audit – Payments: Supplier Maintenance had resulted in a Limited Assurance rating. (In accordance with agreed practice the Limited Assurance report and accompanying action plan was issued separately to the Committee’s members and relevant Portfolio Holders).

•           Work in progress as illustrated by the table in paragraph 8 of the report which provides information regarding the audits underway, the stage reached at the time of writing and the anticipated reporting date. These will be prioritised for completion by the end of year whilst still ensuring that Internal Audit remains agile to react to any work at short notice as well as any request from the Senior Leadership Team. The previously identified priority areas for audit will be carried forward into the Internal Audit Strategy for 2021/22.

•           The biennial National Fraud Initiative exercise which is underway. The first tranche of matches which involved matching Council Tax Single Person Discount and Electoral Register data to identify any fraudulent claims have been received. An initial review of the matches has highlighted a data quality issue which Internal Audit is currently investigating. The remainder of the matches is expected to be released in February, 2021.

•           Overdue actions confirming that work is progressing to support services with implementing all outstanding actions as shown in the 4action dashboard at Appendix 1 to the report. Services have been working hard to address outstanding Issues/Risks leaving only three actions overdue relating to guidelines around Universal Credit, the payment of housing rent by standing order and independent check of payroll exception reports.

•           Providing assistance to the Learning Service with developing new guidance about the proper operation and arrangements of school funds following the Internal Audit review of School Unofficial Funds which resulted in a Limited Assurance rating. Two training events for head teachers and governors on their responsibilities as regards the proper operation of a school fund have been provided and Internal Audit has also offered to arrange and fund an independent audit of funds where the head teacher is struggling to appoint an auditor or has not had the fund audited for some years.

•           Providing assistance with three investigations at the request of Human Resources.

In the ensuing discussion the following points were raised by the Committee-

•           That with regard to the Limited Assurance Internal Audit review of Payments – Supplier Maintenance and Payment, whether the issues raised in relation to duplicate accounts and/or payments merit a more urgent timescale for action than 31 December, 2021 given the nature of the risk. It was further suggested that where addressing risks/issues involves more than one service, then a senior manager might be tasked with overseeing the progress of actions to ensure that completion dates are kept and that issues are resolved especially when those actions relate to matters of income and expenditure where the risk of fraud and error is high.

The Head of Audit and Risk clarified that whilst the due date for addressing the more critical issues/risks raised is by end of the current financial year the date for others has been put back. A number of the actions are to be undertaken collaboratively e.g. with Human Resources and also with the services themselves and are therefore likely to take more time to complete. Addressing the issues raised by the audit review also entails a cultural change ensuring that everyone involved in the payments chain has proper regard for agreed processes and procedures and follows them closely and consistently.

The Director of Function (Resources)/Section 151 Officer explained that the Civica financial system is fed information from Council staff across a range of services and schools some of whom due to frequency of use are more familiar with it than others; ensuring that all staff who access the system are properly versed in how the system works and appreciate why they have to follow certain practices in operating the system is problematic given the limited resources available. Whilst a programme of training was provided on the system’s introduction, the Civica Team now comprises 4 members of staff who are mainly responsible for running and maintaining the system hence the amount of resource that can be made available to provide training for staff who are new to the system and to refresh the knowledge of those who use the system periodically only is challenging. Many of the control issues raised by the audit relate to shortcomings in procedural compliance stemming from a lack of understanding of the Civica system e.g. the need to raise purchase orders for every item of expenditure and to check goods received and invoices against purchase orders to ensure that the quantity and price are correct prior to payment. Not following the appropriate procedures or only following them in part can increase the risk of duplicate and/or fraudulent payments being made. 

The matter is now being approached as a project headed by a Finance Manager who has been assigned to take the remedial actions forward on a project basis; and whilst issues that signify significant internal control weakness have a shorter timeframe for rectification, issues relating to training and to improving procedural awareness and understanding will likely take longer to fully address, based on current staffing, workload and remote working arrangements. Internal Audit has been asked to undertake an audit review with regard to identification of duplicate invoices and recovery of duplicate payments.

Responding to a further comment about the reduction over time in financial administration  staff within services being a factor in the weaknesses identified, the Director of Function (Resources) in agreeing that that will have contributed to a lack of understanding and appreciation of why compliance with financial procedures is important, advised that budget monitoring reports and  the accounts verification process are also additional end of process controls which will highlight any anomalies and/or discrepancies. 

The Head of Audit and Risk confirmed that the internal audit review of duplicate invoices/payments is being conducted in consultation with a software provider who is carrying out an in-depth examination of invoices paid; a meeting to discuss the outcome is scheduled for this coming Thursday and will be reported back to the Committee in April.

•           With reference to the School Unofficial Funds the Committee asked for an update on the provision of guidance to schools on the operation and arrangements of the   funds and also sought clarification with regard to the uptake for the two training events for head teachers and governors.

The Head of Audit and Risk confirmed that the guidance was circulated to schools around two months ago. A training event for school governors was held in December, 2020 and another session is planned for the coming June; the take-up to date has not been especially good. The Internal Audit Service has also assisted two schools with their audit of school funds and is working with the Learning Service to identify the status of the fund in each school and how recently they have been audited, if at all.

It was resolved to note Internal Audit’s assurance provision and priorities going forward.

NO PROPOSAL FOR ADDITIONAL ACTION WAS MADE