Agenda and draft minutes

Audit Committee
Friday, 12th July, 2019 10.00 am

Venue: CC2, County Hall, Lewes. View directions

Contact: Simon Bailey  Democratic Services Officer

Items
No. Item

1.

Chair's Announcements

Minutes:

1.1       The Chair welcomed the two new Committee members, Councillors Martin Clarke and Michael Ensor to the Committee.

 

1.2       The Committee recorded a vote of thanks to former Committee member, Councillor John Barnes for his long standing contribution to the work of the Audit Committee.

2.

Minutes of the previous meeting held on 25 March 2019 pdf icon PDF 114 KB

Minutes:

2.1       The Committee RESOLVED to agree the minutes of the meeting held on the 25 March 2019 as a correct record.

3.

Apologies for absence

Minutes:

3.1       There were no apologies for absence.

 

4.

Disclosures of interests

Disclosures by all members present of personal interests in matters on the agenda, the nature of any interest and whether the member regards the interest as prejudicial under the terms of the Code of Conduct.

 

Minutes:

4.1       There were none.

5.

Urgent items

Notification of items which the Chair considers to be urgent and proposes to take at the appropriate part of the agenda. Any members who wish to raise urgent items are asked, wherever possible, to notify the Chair before the start of the meeting. In so doing, they must state the special circumstances which they consider justify the matter being considered urgent.

 

Minutes:

5.1       There were none.

6.

Monitoring Officer's Annual Review of the Corporate Governance Framework 2018/19 pdf icon PDF 125 KB

Report by the Assistant Chief Executive.

Additional documents:

Minutes:

6.1       The Democratic Services Manager introduced the report. This item relates to the annual review of the Corporate Governance Framework. Each Chief Officer has reviewed the framework and confirmed that all management actions for the 2018/19 year have been undertaken. The management actions for the coming year are listed in Annex A of Appendix 3 of the Governance Committee report. The Governance Committee report also notes that in the most recent Annual Audit Letter the External Auditors confirmed that Annual Governance Statement (AGS) was consistent with their understanding of the Council’s governance arrangements and did not identify any issues.

 

6.2       The Committee discussed the contents of the report to the Governance Committee and the appendices. A summary of the Committee’s comments is given below.

 

Governance Committee report

 

6.3       It was confirmed that the External Auditors still examine the Council’s governance arrangements through the Annual Governance Statement (AGS), since the formal responsibility to assess them was removed when the Comprehensive Area Assessment (CAA) was abolished.  Grant Thornton will look at Council’s governance arrangements and will comment on them in the Audit Findings report. It was clarified that the former CAA function was the responsibility of Audit Commission and not the External Auditors.

 

6.4       All Chief Officers sign the assurance statements for their departments to confirm that there are proper governance arrangements in place, and there are effective risk assessment and internal control arrangements. The statements are not standard, as the requirements for each department varies with the nature of work of the department. This is a self-assessment process, but Internal Audit also checks these arrangements are in place through their audit work.

 

Local Code of Corporate Governance (Appendix 1)

 

6.5       Appendix 1 of the Governance Committee report contains a list of key policies and processes on which corporate governance framework sits. Each row in the table relates to the statutory items that the Council has to consider. The Committee commented that it was hard to interpret the information in this appendix and understand why some items are ticked and others not, without a narrative.

 

6.6       It was explained that the information contained in the table in appendix 1 aims to highlight the key elements of each policy or process, and how they contribute to the corporate governance framework.  The Committee was informed that the contribution of each policy against the seven headings has previously been reviewed by the Governance Committee. The Committee agreed that it would be helpful to include a narrative in future reports.

 

Actions to Strengthen Governance (Annex A)

 

6.7       The Committee noted that the number of actions listed under each department varied, with two listed for Adult Social Care and Health. It questioned whether two actions were sufficient given the scale and scope of the work being undertaken by the Adult Social Care and Health department. The Chief Operating Officer clarified the actions listed in Annex A are a statement about where the focus of work will be for the coming year, which is over and above the  ...  view the full minutes text for item 6.

7.

Internal Audit Annual Report and Opinion 2018/19 (including Internal Audit Progress Report Quarter 4, 2018/19) pdf icon PDF 143 KB

Report by the Chief Internal Auditor.

Additional documents:

Minutes:

7.1       The Chief Internal Auditor introduced the report. The report is in a similar format to previous years which includes a summary of the internal audit work carried out during the year and an overall Internal Audit opinion. The Chief Internal Auditor confirmed that he is able to give an overall opinion of reasonable assurance. Section 3.2 of the Internal Audit Annual report gives an explanation of how the overall opinion is reached, and section 4 outlines the information used as a basis for the overall audit opinion. Section 5 of the Annual report provides a summary of key internal audit issues including details of the audits that have received an opinion of partial assurance and an update on anti-fraud and corruption work. There were twelve audits that were still in progress at end of year, and the outcome of these audits will be reported in the following quarter (quarter 1 of 2019/20).

 

7.2       The Annual report also contains details of the amendments made to the Audit Plan during the year, which have already been reported to the Committee. The final sections of the report provide information on the Internal Audit performance over the year against the targets and standards that have been set and a summary of audits undertaken during 2018/19 (appendix B). Annex B of the report provides details of the Audits completed in quarter 4 of 2018/19.

 

7.3       It was clarified that the terms ‘audit’ and ‘review’ are used interchangeably in the report and there is no difference between them. In the context where management actions are agreed, an action is an individual activity that has to be carried out as a result of a review to improve the control environment. Any high risk actions will be tracked and the Internal Audit Team will seek written confirmation that those actions have been completed.

 

Quarter 4, Audit Opinions

 

7.4       The Committee discussed the audits that were completed during quarter 4, and those that received a partial assurance opinion. The Committee made the following comments and points for clarification.

  • Staff travel and expenses. The audit summary describes the areas that were audited and the key areas for improvement. In particular, the outcomes of the audit highlighted the authorisation of claim forms and the rejection of claims where forms were not signed or did not have the right supporting information.
  • Home to School Transport. It was confirmed that a process for checking that valid insurance is held by operators is now in place. There was no indication that valid insurance was not in place, but the evidence that checks were being made needed to be recorded appropriately.
  • SAP Upgrade. It was confirmed that a formal upgrade procedure sign-off was put in place before the upgrade was undertaken. This was identified early on in the project and was rectified as part of the project. There was no suggestion that the upgrade was not going to be signed-off by the Project Board, and there was a check point milestone on the project  ...  view the full minutes text for item 7.

8.

External Auditor's Report to those Charged with Governance and 2018/19 Statement of Accounts pdf icon PDF 146 KB

Report by the Chief Finance Officer.

Additional documents:

Minutes:

8.1       Marcus Ward from Grant Thornton, the Council’s External Auditors, introduced report. The key findings from the audit are outlined in the Audit Findings report. The Auditors propose to issue an unqualified audit opinion on the Council’s accounts and Value for Money (VFM) statement. There are no adjustments that affect bottom line and there are two management recommendations that are detailed in the report. It is evident from the audit of the accounts that the Council has its finances under control.

 

Audit Findings - Other Issues and Key judgements and estimates

 

8.2       Other findings reported on as part of the audit include:

  • The McCloud Judgement is likely to have an impact on pension liabilities and should be accounted for as part of Pension Fund liabilities, but does not have a material impact on the accounts. The Auditors are comfortable with position management have taken on this and it will be dealt with as part of the triennial pension fund valuation.
  • Valuation of Property, Plant and Equipment. The audit has examined this and the valuation of investment properties to check how they have been valued. The Auditors do not foresee there being any material issues in respect of these valuations.
  • Net Pension Liability. The audit has examined the assumptions used for the valuation of the Pension Fund liability and the Auditors conclude that they are fair and accurate. They are therefore comfortable with the valuation and the valuation of the ‘difficult to value’ investments.
  • Going Concern. It is evident that Council has its finances under control in relation to the ‘Going Concern’ judgement contained in the audit.

 

Value for Money (VFM)

 

8.3       This is the part of the audit where the Auditors examine the financial sustainability of the Council. The Auditors are satisfied that the Council has got the processes and procedures in place for the key risks, the Medium Term Financial Plan (MTFP) and the key assumptions that underlie this. The Auditors have highlighted some of their work in this area in the report, which took an in depth look at the Council’s financial planning arrangements.

 

8.4       In terms of reserves, ESCC is in a good financial position in relation to other local authorities as illustrated by the graph on page 17 of the Audit Findings report, which shows the level of reserves held as a percentage of net revenue expenditure. The Value for Money assessment focused on two specific areas: Joint Working with Health and Brexit. The report finds arrangements for work with NHS on social care are proactive in moving issues forward. In terms of Brexit, what the Council has put in place seems a reasonable and sensible analysis of the potential scenarios.

 

8.5       The Auditors have no issues to report in terms of fraud or other issues. Overall they reflected that these are a good set of accounts, with only a small number of presentational changes required to the draft accounts made public on 31 May 2019. Grant Thornton confirmed their independence as auditors.

 

Action Plan

 

8.6  ...  view the full minutes text for item 8.

9.

External Auditor's Report to those Charged with Governance for the Pension Fund and 2018/19 Statement of Accounts pdf icon PDF 143 KB

Report by the Chief Finance Officer.

Additional documents:

Minutes:

9.1       Marcus Ward from Grant Thornton introduced report. He outlined that the accounts for the East Sussex Pension Fund were a good set of accounts. The accounts are based on the last full valuation of the Pension Fund which was carried out in 2016, and also include a note on the impact of the McCloud Judgement. The External Auditors will be issuing an unqualified opinion and have highlighted the same two management recommendations in the Action Plan as for the ESCC accounts.

 

9.2       The Committee discussed the report and asked if a key to the risk scores for the East Sussex Pension Fund Risk Register (pages 6 & 7 of the East Sussex Pension Fund Annual Report and Accounts) could be provided in future. The Chief Finance Officer confirmed that a key to this table will be included in the report.

 

9.3       The Committee RESOLVED to:

1) Note the report and its appendices; and

2) Note management actions detailed on page 13 of the Independent Auditor’s report to those charged with governance.

10.

Strategic Risk Monitoring - Quarter 4, 2018/19 pdf icon PDF 127 KB

Report by the Chief Operating Officer.

Additional documents:

Minutes:

10.1     The Chief Operating Officer introduced the report. Strategic risk monitoring is also part of the Reconciling Policy, Performance and Resources (RPPR) process, and was included in the quarter 4 Council Monitoring report that went to Cabinet recently. A Climate risk has been added to Strategic Risk Register to reflect the risk from climate change. The covering report also summarises any changes to the strategic risks and the management responses to them.

 

10.2     The Committee discussed the report and welcomed the addition of the Climate risk and a No-Deal Brexit risk to the strategic risk register. A summary of the comments made by the Committee during the discussion of the strategic risk register is given below.

 

  • RPPR. The Committee noted that the existing text of this risk makes no mention of the increasing difficulty of delivering savings in the current financial climate. The Committee agreed that it would be worth suggesting a revision to the wording of this risk. The Chief Operating Officer agreed to discuss an amendment to the wording with the Corporate Management Team.
  • Local Economic Growth – The Committee commented that it is reassuring to see that there are some risks that are rated as ‘green’. It also commented that it was not solely the responsibility of the Council to deliver economic growth, and perhaps a form of wording that reflects the leverage that the Council has and what it can deliver may be more appropriate. The Chief Operating Officer will discuss re-wording the risk outside the meeting.
  • Departmental risk registers. The Committee asked whether it would be possible to examine the departmental risk registers, which sit below the strategic risk register. The Chief Operating Officer outlined that it would be possible to share the contents of the departmental risk registers with interested Committee members.
  • Workforce. It was noted that Workforce issues are a common problem for all local authorities and not just confined to East Sussex County Council (ESCC).

 

10.3     The Committee RESOLVED to note the current strategic risks and the risk controls / responses being proposed, and welcomed the addition of the Climate and No-Deal Brexit risks to the strategic risk register.

11.

Work programme pdf icon PDF 303 KB

Minutes:

11.1     The Chair invited the Committee to discuss any items that it would like to add to the future work programme.  The Committee noted that it had been agreed during the meeting that the Chief Finance Officer would bring a report to the next meeting to update the Committee on the review of managing and monitoring and ‘super user’ access to the SAP financial system, referred to in the Audit Findings report (item 7).

 

11.2     It was agreed that the explanation of the Local Code of Corporate Governance framework details contained in Appendix 1 of the Governance Committee report (pages 15 and 16 of the agenda) will be emailed to the Committee rather than being presented as a separate report at the next meeting.

 

11.3     There were no further additions or changes to the future work programme of the Committee.