Agenda and minutes

Audit and Governance Committee - Friday 24 June 2016 10.00 am

Venue: Cabinet Suite - Shire Hall, Gloucester. View directions

Contact: Andrea Griffiths 01452 324206 

Items
No. Item

27.

Declarations of Interest

Minutes:

No declarations of interest were made. 

28.

Minutes pdf icon PDF 109 KB

To approve the minutes of the previous meeting held on the 15th April 2016.

Additional documents:

Minutes:

In light of the Referendum result to leave the European Union, it was suggested that the outcome be noted in the minutes of the meeting and made reference to at Full Council.  

 

The Director of Finance explained there could be volatility in the financial markets, including exchange rates and interest rates, as a result of the decision.  The Pension Fund relies on a long term funding strategy and is well diversified to mitigate any market volatility risk, whilst the Council’s cash investments are predominantly exposed to interest rates. She went on to assure the Committee that both the Pension Fund performance and the Council’s Treasury Management investments would be kept under close scrutiny and advice taken from the relevant advisers. 

 

The Chief Internal Auditor also assured the Committee that the Chief Officer Management Team (COMT) had already identified the EU Referendum as a risk on the Strategic Risk Register with mitigations.  It was noted that COMT had reviewed the register for 2016/17 at one of their recent meetings. 

 

 

Resolved

 

That the referendum result to leave the European Union be made reference to at Full Council.  

 

The minutes of the previous meeting held on the 15th April 2016 were agreed as a correct record and signed by the Chairman. 

29.

Grant Thornton Committee Update pdf icon PDF 10 MB

Minutes:

Terry Tobin presented the report.  The report detailed the progress Grant Thornton had made in delivering their responsibilities as the external auditors. 

 

It was noted that Grant Thornton had devised the plan in association with the Authority.  Accounting, audit issues and emerging issues would be flagged up as part of the regular report. 

 

 

It was noted that Grant Thornton were hosting an Audit Effectiveness Seminar on the 7th July 2016 for the Audit & Governance Committee, in addition the invitation had also been extended to the District Councils. 

 

During the discussion it was noted that good progress had been made on bringing the pilot closure of accounts forward.  It was noted that the any issues which emerged were being dealt with to avoid any snagging in the formal adoption of the process in 2018.   

 

Members referred to the term ‘cautious’ in relation to Joint Ventures  between public and private bodies and the mixed success in achieving outcomes for councils.  A copy of Grant Thornton’s ‘Better Together’ Report would be circulated via email to members, it could also be downloaded from:  www.grantthornton.co.uk/en/insights/building-a-succesful-joint-venture-company   

 

 

RESOLVED

 

That the website link for the Grant Thornton ‘Better Together’ publication be circulated to members.

 

That the report be noted

30.

Grant Thornton Audit Fee Letter pdf icon PDF 279 KB

Minutes:

Terry Tobin presented the report, which informed the Committee of the audit work to be undertaken for the 2016/17 financial year for Gloucestershire County Council and the fee involved. It was noted that the Council’s scale fee for 2016/17 was £98,010.  

 

Members questioned the audit fee constraints and asked if the reduced cost in comparison to previous year’s fees would result in a reduced audit service.  The committee were assured that it would not result in a reduced service function.  Officers explained that the local audit function was governed by a code of practice and had been procured nationally.

 

Grant Thornton explained that the fee was sufficient to cover the value for money conclusion and if any risks were highlighted, they would be discussed with the Director of Finance.  In response to a question, members were informed that the Internal Audit team worked in a collaborative manner with external audit to minimise duplication.

 

The Director of Finance informed members that officers were looking at the next process in terms of appointing external auditors.  This includes investigating the possibility of a joint collaboration with other local authorities via the Local Government Association (LGA) in order to retain value for money and maintain quality, when the contract with Grant Thornton expired.    The committee welcomed this opportunity, which would allow a discussion around specifying the audit requirement, whilst recognising that there may be an impact on the fees.     

 

Resolved

 

That the report be noted and an update on the process for procuring external auditors be brought to a future meeting.

31.

Annual Report on Treasury Management pdf icon PDF 253 KB

Minutes:

Paul Blacker, Head of Financial Management, explained that each year the council produced an Annual Report covering its Treasury Management activities for the financial year ending 31st March.  The annual report for 2015/16 was submitted to the Audit and Governance Committee to allow greater scrutiny under the Treasury Management Code.  The committee were advised that the Treasury Management Strategy and the Annual Investment Strategy were agreed by full Council as part of the annual budget setting process.  The committee discussed the report in great detail. 

 

It was explained that due to the significant amounts of money involved, the management of risk lay at the heart of the Council’s Treasury Management activity, however this needed to be balanced against the need to optimise the rate of return on investments and to minimise the Authority’s financing costs on borrowing. The committee noted that at 31st March 2016 the Council had £320m worth of loans and other long term liabilities, with the average cash balances being reported at £288m during the year.

 

Officers explained the Council had a fully funded capital programme in 2015/16, therefore no new long term borrowing was required.  The Council’s capital financing requirement at 31st March 2016 was £317.6m (including PFI liability), which was a reduction of £8.7m compared to 31st March 2015.  Following the successful repayment of debt over the past few years the Council had now paid down all internal borrowing.   It was explained that the negative internal borrowing, as shown on page 32 of the report, existed because the MRP paid in year exceeds the external debt maturing.  However, future external debt maturities would bring the debt back into balance. 

 

In response to a question, members were informed that the £8.7m MRP applied, reduced the Capital Financing Requirement (CFR) and repaid £4.9m of external debt that matured during the year. Members were informed that the premiums imposed by Public Works Loans Board (PWLB) for early repayment meant that early debt redemption was currently not cost effective. 

 

Consequently £0.54m had been allocated to repay debt.  The remaining £1.3m of internal debt was repaid, which resulted in a £2m over borrowed position.  Officers explained that this was a timing difference on the maturity profile, and could only be used for debt redemption in future years.  It was noted that this would happen automatically as the debt matured.  It was noted that average cost of borrowing was 5.14%.  Members requested that this explanation of debt redemption be included in the glossary. 

 

During the discussion, it was requested that the loan maturity profile graph on page 40 of the report, be amended to include the interest rates.  

 

Members requested information on how the authority benchmarked itself in comparison to other local authorities and required an explanation of the upward trend as depicted on page 45 of the report, in relation to the ratio of financing costs to net revenue stream.  Members also requested to know how GCC compared to other authorities in terms of the level of  ...  view the full minutes text for item 31.

32.

Annual Report on Risk Management Activity 2015/2016 pdf icon PDF 57 KB

Additional documents:

Minutes:

Theresa Mortimer, Chief Internal Auditor (CIA) presented the report in detail.  The report provided the committee with the details of the Risk Management activities undertaken during 2015/2016. 

 

It was noted that GCC’s Risk Management Policy and Strategy was reviewed and revised accordingly in 2015/16. The revised Policy and Strategy was approved by Audit and Governance Committee and CoMT in January 2016 and by Council in February 2016. The framework was in line with good practice governance principles and guidance and international standards (ISO31000 Risk Management – Principles and Guidelines).  Members were informed that the strategy had been disseminated to members and officers via relevant newsletter publications.

 

In response to a question, the CIA highlighted a key tangible positive outcome where the Council’s risk management arrangements were externally recognised as part of the Liability Insurance Tender process, which resulted in a 14% reduction in annual premiums (£29k per year / £87k over the three-year contract period).  Members were informed that the report provided further information on how risk management linked to insurance and how the insurance claims statistics played a valuable role in the risk management framework.     

 

It was explained that strategic ownership of risk management within GCC was evident, in so far as the Director of Finance is the Lead Officer and the Lead Cabinet Member for Finance and Change as having responsibility to ensure effective risk management arrangements were in place. As such regular updates were provided to these key personnel throughout the year. In addition, directors and heads of service were required to provide assurance via the Annual Governance Statement assurance gathering process, that risks were being managed within their service areas.

 

Some members felt there was an ongoing risk with adult social care, in terms of the continuous risk of overspend.  The Director of Finance explained that the risk of overspending in this area is fully recognised and as a result the adult social care budgets are being closely monitored. It is currently forecast that additional funding made available through the adult social levy will support the service’s aims to balance in 2016/17.

 

Members were informed that Risk Management continued to be fully integrated into key business systems and processes such as performance, option appraisals, business planning, financial planning and decision making processes.  Risk Management continued to be one of the key mandatory standards within the Council’s corporate programme and project management governance arrangements, which included Meeting the Challenge projects.

 

The CIA explained that a risk appetite model was used as part of the risk and opportunity decision making processes to help the Council be less risk averse and enabled the Council to understand which risks it was willing to accept.  In response to a question, it was noted that the leadership behaviours also encouraged calculated risk taking.

 

It was demonstrated that CoMT continued to take ownership of the strategic risk register, with each of the strategic risks being owned by a CoMT member. The Strategic Risk Register was dynamic with quarterly strategic risk management reports provided  ...  view the full minutes text for item 32.

33.

Annual Report on Internal Audit Activity 2015/2016 pdf icon PDF 50 KB

Additional documents:

Minutes:

Theresa Mortimer, Chief Internal Auditor (CIA) presented the report in great detail.  The committee were provided with an annual report on Internal Audit activity, which met the CIA annual reporting requirements as set out in Public Sector Internal Audit Standards (PSIAS). 

 

The report provided an annual opinion on the overall adequacy and effectiveness of the Council’s Internal Control environment comprising risk management, control and governance, this opinion supported the Council’s Annual Governance Statement. It was explained that a satisfactory opinion was provided.  

 

Members were referred to page 79 of the report which described the meaning of opinions given and page 80 provided the committee with a pie chart summary of the overall opinions provided during 2015/2016.  The CIA demonstrated that 72% of audited activity received a substantial or satisfactory opinion on control and 97% received on risk.  The committee’s attention was drawn to the spreadsheet which provided a summary of the activity undertaken from which the CIA’s opinion was derived.

 

It was noted that the report (pages 80/81) contained a summary of the 10 limited assurance opinions on control provided during the year; and a summary of the 1 limited assurance opinion on risk.  The CIA confirmed all had been reported to the committee.  In response to a question, it was explained that whilst 28% of the opinions on control are limited, this may be related to transformational change, continuing to focus internal audit activity on the key risks of the Council and specific requests from Directors, who are asking for areas to be reviewed where issues have arisen and/or where independent assurance is required.

 

The committee was interested to learn that the report contained a summary of irregularity work which had been undertaken during the year, which in some cases had resulted in disciplinary action, resignations, monies recovered or loss avoidance.

 

Members discussed the terminology of fraud and referred to the chart on page 77 of the report.  Members questioned why the percentage of planned days to be spent on fraud had increased, with a percentage increase from 4.8% to 31.3%.  The CIA explained that due to the increased number of irregularities referred to internal audit, more investigative time was required.   During the discussion, it was suggested that in the future the graph should be retitled

“investigations”, as the term fraud conjured up a different view to many people and could be misinterpreted. 

 

With reference to counter fraud activity, the Director of Finance advised that the Shared Audit Service had participated in a countywide local authority bid for funding  for “Gloucestershire Fraud Hub” and that a briefing would be beneficial for the committee to explain this further. 

 

In terms of Internal Audit Effectiveness, the Public Sector Internal Auditing Standards (PSIAS) also required the CIA to annually report on compliance with the PSIAS, reporting any non conformance; and summarising the performance of the Internal Audit function.  The committee recalled that an external quality assessment had been undertaken by the Chartered Institute of Internal Auditors (CIIA) (national standard setters) in 2015,  ...  view the full minutes text for item 33.

34.

Internal Audit Limited Assurance Reports pdf icon PDF 68 KB

           FAB Team;

           Active together;

           Capital Virements

Additional documents:

Minutes:

Financial Assessments and Benefits Team – Mark Branton, Assistant Director Adult Social Care Commissioning, presented the report in detail.

 

Members noted that the service was currently in the process of making amendments to the ERIC system in an attempt to be able to use that as an interim measure until the implementation of ContrOCC which was planned for October 2016 which would hold a full case management system.  In response to a question, members were informed that the number of referrals outstanding were now down to 97. 

 

It was noted that there were systematic errors with ERIC, as it was never initially designed to be a management system.  Officers explained that the new ContrOCC system would be Care Act compliant.  It was noted that this issue would provide a limited assurance opinion until the new system fully replaced ERIC.  Some members noted that this area was not on the strategic risk register and suggested that it should be given the residual risk was deemed as high.  Officers were requested to update the strategic risk register accordingly. 

 

Resolved

 

That the interim system be placed on the strategic risk register, until such time the management system was replaced by ContrOCC.

 

That the report be noted. 

 

Active Together – Sarah Scott, Director of Public Health presented the report in detail. 

 

In response to a question, it was noted that to date 17 visits had been completed and the equipment initially bid for was in place.  Members suggested that feedback should be requested from members to check that all equipment bid for was actually in place and completed.   The Director of Public Health noted the issues raised and agreed to check the status of the visits. 

 

Resolved

 

That the number of visits to date be checked on the audit report. 

 

That the report be noted

 

Capital Virements – John Kear, Financial Accounting Manager presented the report in detail. 

 

In response to a question, members were informed that governance arrangements needed to be as robust as possible and so improvements had been made since the audit.  During the discussion it was confirmed that staffnet would be used for the dissemination of information relating to the scheme of delegation. 

 

Members questioned the funding of the capital schemes.  It was explained that funding is delegated to the Director of Finance per the constitution, who will liaise with the finance team and maximise value for money for the council during the closure of accounts.  Officers also informed members that the capital programme was monitored in year via the budget monitoring reports to Cabinet, therefore any change in circumstances would be discussed with the appropriate portfolio holder. 

 

It was noted that in terms of governance arrangements with the various boards, audit trails needed to be robust.  The CIA explained that in 2017/18, the delegated decisions process would be tested. 

 

Resolved

 

That the report be noted. 

 

35.

Exclusion of the Press and Public

THAT in accordance with Section 100 A (4) of the Local Government Act 1972 the public be excluded from the meeting for the business specified in agenda item 11 because it is likely that if members of the public were present there would be disclosure to them of exempt information as defined in paragraph 3 and 7 of Part 1 of Schedule 12 A to the Act and the public interest in withholding the information outweighs the public interest in disclosing the information to the public

 

Minutes:

THAT in accordance with Section 100 A (4) of the Local Government Act 1972 the public be excluded from the meeting for the business specified in minute 37 because it is likely that if members of the public were present there would be disclosure to them of exempt information as defined in paragraph 3 of Part 1 of Schedule 12 A to the Act and the public interest in withholding the information outweighs the public interest in disclosing the information to the public.

36.

Exempt Internal Audit Limited Assurance Report

Minutes:

The committee received and discussed the report in detail.

 

  Resolved

 

 That the report be noted.