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Waverley Borough Council Committee System - Committee Document

Meeting of the Executive held on 02/11/2004
Internal Audit Annual Report 2003-04



Summary & Purpose
This report summarises the work undertaken by the Internal Audit Section in 2003/04 and provides Members with an indication of the level of assurance that is given that controls designed to prevent loss or waste are working effectively and as planned.

Quality of Life Implications
Natural Resource Use
Pollution Prevention and Control
Biodiversity and Nature
Local Environment
Social Inclusion
Safe Communities
Local Economy
Natural
Resource Use
Pollution
Prevention and Control
Biodiversity
and Nature
Local
Environment
Social
Inclusion
Safe, Healthy
and Active
Communities
Local
Economy
N/A
N/A
N/A
N/A
N/A
N/A
Positive


APPENDIX H
WAVERLEY BOROUGH COUNCIL
EXECUTIVE - 2ND NOVEMBER 2004

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Title:

INTERNAL AUDIT ANNUAL REPORT 2003/04

[Wards Affected: N/A]
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Summary and purpose:

This report summarises the work undertaken by the Internal Audit Section in 2003/04 and provides Members with an indication of the level of assurance that is given that controls designed to prevent loss or waste are working effectively and as planned.

_________________________________________________________________________

Quality of life implications – social, environmental & economic (sustainable development):

This report concerns issues of corporate governance and audit matters. Whilst none of the above considerations are directly affected, governance impacts upon the way in which the Council provides all of its services and addresses its priorities and in this way can be regarded as contributing to a healthy local economy.

E-Government implications:

The report has no implications for electronic government, except that it is necessary for internal audit advice to be sought in instances where the Council is planning to introduce new avenues for electronic service delivery.

Resource and legal implications:

The work of Internal Audit may lead to recommendations being made that could have both legal and resource implications. Recommendations are always discussed with managers and matters requiring Member attention would then be reported by those managers. However, the intention and purpose of internal audit work is to prevent waste or loss of resources, which means that the recommendations are aimed at safeguarding the Council’s assets.

Assurance

Planned audit reviews

1. In accordance with the 2003/04 Audit Plan, nineteen planned internal audit reviews were commenced:

2. Not all of the above reviews were complete by 31st March 2004, and a final report has yet to be issued (as at the start of September 2004) in respect of those marked with an asterix. Final reports are only issued once all relevant managers have had time to consider the recommendations and have passed comments to Internal Audit - it can take some time before all the meetings with all the relevant managers can be held and final responses obtained. It is anticipated that the outstanding reports will be issued in the autumn of 2004.

3. In addition to the above, reports were issued in respect of the following 2002/03 reviews that were incomplete as at the 31st March 2003:
4. In respect of those reports issued, including the 2002/03 reports issued after 31st March 2003, there were 155 recommendations made. Of these, 153 were accepted (albeit in some instances subject to the practicalities of implementation). In one further case the recommendation related to the findings concerning two very old but still current cases; however the system had been changed since those two were set up which meant that the recommendation had, in effect, already been implemented.

5. This serves to show that managers are receptive to recommendations in order to improve the controls in place to safeguard the Council’s assets and interests. Whilst this may seem a high number of recommendations, the figure includes those that were suggestions or reflected best practice as well as those that were deemed essential.

6. It is hoped that reporting on the progress in the implementation of recommendations will be possible in the 2005 annual report.

7. In addition to carrying out planned audit work, the Section also has to respond to essential non-routine tasks that cannot be predicted accurately. When the demand from these tasks is greater than normal it is necessary to reconsider the audit plan.

8. The Director of Finance and Audit Manager carefully reviewed the Audit Plan and made a number of adjustments with a view to minimising risk to the Council whilst ensuring the Audit service remained relevant to the Council’s needs. The main adjustment included a re-phasing into 2004/05 of reviews of Housing repairs and maintenance (pending the implementation of a reorganisation of the repairs function), housing rent arrears (owing to availability of resources), the control of the environmental services contracts (pending the re-tendering of those contracts), two contract management reviews (seeking to identify best practice) and two IT-related reviews (owing to resource limitations).

Requested work

9. The Internal Audit Section continued to offer a support and advice service. This covers a wide variety of issues, which can range significantly in terms of time and effort required. The work helps to contribute to the Council’s governance arrangements by either providing an assessment of risks, or by investigating particular anomalies/issues. In this way, known issues are targeted and solutions agreed.

10. The assessment of potential contractors formed a significant part of the requests for work. This work attempts to evaluate the financial standing of contractors, and thus seeks to reduce the risk of appointing a contractor who may subsequently cease trading – a situation that could create considerable service delivery, legal and financial difficulties for the Council. However, a change in practices by the Housing Department in reviewing their standing lists of contractors meant fewer appraisals were required, and will continue to be required in future years. This will have a direct financial saving for the Council’s HRA of around 1,000 per annum on average.

11. A major piece of work was an audit review of a contractual claim; this was progressed to a settlement and recommendations were made with a view to avoiding a repetition of similar instances in future.

12. A significant amount of time was spent on dealing with payments procedures in the Housing Department. Revised procedures which met audit requirements were implemented. No financial losses were incurred.

13. There were also two minor special investigations involving suspected financial irregularity by parties external to the Council. There was no direct financial loss in either case. Matters were investigated and handed over to the police at the appropriate time in accordance with Council policy.

Corporate governance issues

14. The new Contract Procedure Rules took effect from 1st April 2003. Advice was given on a considerable number of occasions, in respect of various contracts, on the interpretation and application of these Rules.

15. Internal Audit was again, and continues to be, involved in the Kilnfields, Haslemere, redevelopment project. This marks a significant divergence from the traditional ways of procuring construction services, and the involvement of internal audit ensures that an audit opinion is available as and when required. Similarly, a member of the section continued to attend the regular officer meetings that discuss the East Street redevelopment project.

16. The Comprehensive Performance Assessment, which at its conclusion showed Waverley to be a “good” authority, nonetheless highlighted a number of areas in which the Council needed to take action. One such area was the Council’s Anti Fraud and Corruption Strategy, which had not been revised for a number of years. The Internal Audit section undertook the revision, along with the preparation of a prosecution policy, guidance notes and a fraud response plan. The new Strategy was approved by the Council in December 2003. Training for all staff on the Strategy will take place in the Autumn of 2004.

17. Other than the two cases of suspected irregularity mentioned above, there were no other reported matters of impropriety.

Corporate projects

18. The Audit Manager was, until 1st July 2003, the Council’s Data Protection Officer. This duty has been assumed by the Senior Auditor (IT), who commenced a two-year secondment to the Chief Executive’s Department on 1st April 2003, from where he is spearheading the Council’s preparation for the implementation of the Freedom of Information Act.

19. During 2003, the Audit Manager, who also acts as Deputy to the Council’s Monitoring Officer, took responsibility for a considerable amount of the Monitoring Officer’s duties. This was while the Assistant Chief Executive (who is the Monitoring Officer) was deeply involved in the Comprehensive Performance Assessment. The Audit Manager continues to be involved in some aspects of the duties, rather than acting only in the Monitoring Officer’s absence, as this provides experience that would be useful should the need arise to act as Monitoring Officer.

20. Over the past three years, the Audit Manager has played a leading role in the development of the Council’s Procurement Strategy, Procurement Manual and preparation of the new Contract Procedure Rules. Comprehensive Performance Assessment (CPA) identified procurement as being an area that was underdeveloped in Waverley. The Audit Manager has subsequently been asked to take the lead on procurement, and this took effect from May 2004.

21. The Council continues to develop its risk management strategy. The Internal Audit section is represented on the working group. An audit review of risk management implementation will take place once Waverley’s system has been developed and implemented, and will be conducted by a different member of the Audit Section to the person attending the working group.

22. Other corporate projects in which the Audit Section played a role include CPA, Implementing Electronic Government and the acquisition of the new financial systems.

23. The Council is currently developing its Business Continuity Plan. Internal Audit will review the Plan with a view to ensuring that it meets potential eventualities.

Performance

Audit Plan

24. The Director of Finance made a number of amendments to the Audit Plan in the year. The changes were largely in response to changed circumstances, and are broadly categorised as follows:

25. When preparing the 2004/05 Audit Plan, these changes were taken into account and appropriate provision was made to complete any incomplete work or to undertake the postponed projects.

26. A close relationship is maintained with the District Auditor (Audit Commission), who in the past has made comments in his Annual Letter concerning the level to which the Audit Plan has been fulfilled. His comments are being taken into account, and efforts are being made to increase the percentage of the Plan that is completed each year.

Conclusion

27. As in previous years, Members can be assured that controls and risk continue to be taken seriously at Waverley. Steps were agreed by managers to ensure audit recommendations, which are aimed at improving controls, are implemented. The support and advice is used when managers and their staff believe there is a matter of concern or wish to make changes to systems which may entail a new form of control.

28. Overall, therefore, the system and environment of control during 2003/04 was being given due consideration by management, and the involvement of Internal Audit in the key projects ensured that advice could be given as and when required so as to protect the Council’s position. Updated Contract Procedure Rules, and the preparation of a new Anti Fraud and Corruption Strategy, help to ensure relevant controls are in place.

29. The results of the Internal Audit Section’s work were taken into account in the production of the Council’s Statement on Internal Control. A high level of assurance that controls are in place and being operated can be given, reinforced by the fact that all the Section’s reports are considered by the Chief Executive and the Director of Finance.

30. Clearly, the Audit Plan can be affected significantly by unforeseen events or issues, and the Director of Finance and the Audit Manager acknowledge this and takes the necessary action to mitigate them. They continue to seek ways of improving the planning process and provide more stability to the Plan whilst seeking to retain flexibility in order to respond to changing needs. The effects of any significant amendments are taken into account when finalising the Plan for subsequent years.

Recommendation

It is recommended that the content and conclusion of this report be noted.

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Background Papers (DoF)

There are no background papers (as defined by Section 100D(5) of the Local Government Act 1972) relating to this report.

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CONTACT OFFICER:

Name: Mr M Hill Telephone: 01483 523240

E-mail: mhill@waverley.gov.uk

comms/exec/04-05/240