Waverley Borough Council Committee System - Committee Document
Meeting of the Executive held on 08/11/2005
INTERNAL AUDIT ANNUAL REPORT 2004/05
WAVERLEY BOROUGH COUNCIL
EXECUTIVE – 8TH NOVEMBER 2005
INTERNAL AUDIT ANNUAL REPORT 2004/05
[Wards Affected: N/A]
Summary and purpose
This report summarises the work undertaken by the Internal Audit Section in 2004/05 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.
This report concerns issues of corporate governance and audit matters. 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.
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. The work of Internal Audit is reviewed and used by the District Auditor in his assessment of the Council’s arrangements for production of the Statement of Accounts and arrangements for corporate governance.
Planned audit reviews
1. In accordance with the 2004/05 Audit Plan, twenty four planned internal audit reviews were commenced:
Farnham Locality Office Planning Applications (determinations) systems
Cash Office Revenues Recovery Section*
Housing Repairs* Rent Arrears
Concessionary Fares IT Environmental Controls (IT Section offices)
Post Implementation of Financial Ledgers
Management of contracts (Leisure) General Ledger
IT Inventory* IT File Controls
Contract Planning and Controls* Payroll
Creditors Emergency Planning and Health and Safety
Housing Benefits Management of contracts (Environmental Services)
Grants and subsidies receivable Buildings Security (Cranleigh and Haslemere Locality Offices)
Banking Arrangements Contract Documentation*
A leading specialist audit firm continued to be engaged to undertake some of these reviews. More is said about this below.
2. Not all of the above reviews were completed by 31st March 2005, and a final report has yet to be issued (as at the start of October 2005) 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 meetings with all the relevant managers can be held and final responses obtained. It is anticipated that the outstanding reports will be issued by the end of January 2006.
3. In addition to the above, reports were issued in respect of the following 2003/04 reviews that were in progress as at 31st March 2004:
Payroll Network Security Sundry Debtors Planning Fees Elections and Electoral Registration Capital Programme Treasury Management General Ledger Environmental Health Housing Allocations and Nominations
Therefore all the report finalisation, exit meetings and report issue activities were also undertaken in the year in respect of these reports.
4. As at the start of October 2005, the number of recommendations made in reports issued, including the 2003/04 reviews completed after 31st March 2004, was 234. All were accepted. Once again, this shows 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 suggestions and matters of best practice, as well as those that were deemed essential.
5. Two new local performance indicators were introduced for annual publication at the end of each financial year; the percentage of audit recommendations agreed and the percentage implemented. The information on progress on implementation is sought from relevant managers, and subject to sample verification. Owing to practicalities, the indicators reflect the previous year e.g. the figures published at the end of March 2005 related to 2003/04. This is to allow managers the agreed time to implement recommendations and to allow for the inevitable delays in completing reviews commenced and the agreement of the final reports. The figures (previously reported with all other performance indicators) were 98% and 90% respectively.
6. The Director of Finance and Audit Manager carefully reviewed the Audit Plan throughout the year 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. A member of staff resigned in June 2004, and the contractor was asked to undertake more work than had originally been planned. The Plan, therefore, had to be assessed to identify the work that was most appropriately awarded to the contractor. Consequently, six planned reviews were postponed till future years, whilst two reviews were brought forward from 2005/06.
7. 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 issues. In this way, known issues are targeted and solutions agreed.
8. 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. Around 40 appraisals were required in respect of the applicants for the two environmental services contracts alone (grounds maintenance and waste collection/street cleaning). The depth of appraisal for these was far greater than is normal because of the strategic importance of the contracts.
Corporate Governance Issues
9. Advice was given on a considerable number of other occasions, on the application of Contract Procedure Rules (CPRs). For example, the Housing Department wished to develop its partnering relationship with the gas maintenance contractor. Internal Audit gave advice on how to ensure competitive prices were achieved in a single tender situation. Following the experience of involvement in the re-tendering of the environmental services contracts, some changes were drafted to overcome some practical issues that arose over the interpretation and application of, specifically, the “best value solution”.
10. The major item that required Internal Audit’s involvement was the implementation of the new web-based and automated telephone-based credit/debit card payment facilities, which were introduced from September 2004 onwards. Such facilities require sound controls, both technical and managerial, and thus Internal Audit were represented on the project group and able to have an input to the design of the system and controls at the outset.
11. Another significant piece of work in which Internal Audit was involved was an exercise to write-off long outstanding debts that were considered to be irrecoverable. It is contrary to accountancy principles to show debts in an organisation’s accounts that are beyond recovery as this overstates the assets. Internal Audit ensured that objectivity was maintained through its role as independent observer.
12. Internal Audit was again, and continues to be, involved in the Kilnfields redevelopment project and has a regular attendance at officer meetings relating to the East Street redevelopment project.
13. As was mentioned in the 2004 Annual Report, the Council’s Anti Fraud and Corruption Strategy was reviewed and approved by the Council in December 2003. Internal Audit was involved in provision of training for all staff on the Strategy, Whistleblowing and Benefit Fraud in the autumn of 2004. This helps ensure that the Council’s members of staff are aware of the part they can play in combating illegal activities.
14. As was reported in the 2004 Annual Report, the Audit Manager was asked by the Chief Officer Group to lead on procurement and the implementation of the National Procurement Strategy. There have been many national targets and developments in respect of procurement, which is now regarded as a key activity in the achievement of the Government’s efficiency target. The Audit Manager has met regularly with the portfolio holder and the chief officer champion for procurement to discuss developments and the work programme.
15. Waverley now plays its part in the Surrey Procurement Network (SPN), a group set up to pool expertise and identify opportunities for joint procurement exercises. The Audit Manager is leading on one of the joint procurement projects being conducted under the auspices of the SPN. A new Procurement Strategy was presented to the Executive in February 2005, which was subsequently adopted. Other procurement developments have been reported to the Executive on previous occasions, including e-procurement matters and the implementation of procurement cards.
16. The re-tendering of the environmental services contracts was overseen by a project group, which included the Audit Manager. The purpose was primarily to ensure objectivity was maintained through compliance with CPRs. This experience led to a revision of CPRs which should provide clearer guidelines for future projects.
17. 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:
2003/04 audits incomplete as at 31st March 2004: 33 days net were allocated to audits that were commenced in 2003/04 but incomplete at the start of 2004/05
Audits extended to cover additional work: 30 days were required over and above original time allocations to ensure audits were completed to a satisfactory standard and were adequately discussed with client managers
Audits brought forward from 2005/06/postponed to 2005/06: 13 days of work were allocated to audits that were originally included in the 2005/06 plan whilst 45 days’ work was postponed
Contingencies: overheads (training, administration and management) -19 days, sickness +16 days, corporate duties –13 days (due to the Audit Manager no longer serving as deputy Monitoring Officer), support and advice –24 days, vacancy (net of time bought-in from contractor) +96 days.
18. When preparing the 2005/06 Audit Plan, these changes were taken into account and appropriate provision was made to complete any incomplete work or to undertake the postponed projects.
19. Mention has been made of the use of contractors. The Internal Audit Section has five staff. Since 2003, the Senior Auditor (IT) has been on secondment to the Chief Executive’s Department (as the Information Rights Officer). Subsequently, in July 2004, one of the Auditors resigned and took a promotion with another authority, and his post has been held vacant pending the outcome of the housing ballot. The opportunity was taken to use contractors to cover these vacant posts. This was not only expedient in minimising the Council’s commitments, but also provided experience of different forms of service delivery.
20. The arrangement has meant that the remaining three members of staff have been able to undertake programmed audit reviews, provide the support and advice (as discussed above) and participate in corporate developments and projects as necessary. The contractors, free from these demands on their time, have been able to concentrate on programmed reviews and hence the number of audits completed has been maintained without a fall-in service.
21. The procurement work is fitted in around the Audit Manager’s main duties. This situation will be kept under review as the procurement agenda develops.
22. 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 follow-up of audits provides information that can be used in assessing whether risks identified are being addressed through agreed action, and the new local performance indicator results demonstrate that measures are being taken broadly in line with agreed action plans. Additionally, the support and advice service 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.
23. Overall, therefore, the system and environment of control during 2004/05 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 CPRs, and the training on the Anti Fraud and Corruption Strategy, help to ensure relevant controls are in place.
24. A high level of assurance that controls are in place and being operated can be given, reinforced by the fact that the Section’s reports are all considered by the Chief Executive and the Director of Finance.
25. 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 continue to take the necessary action to mitigate them. The effects of any significant amendments are taken into account when finalising the Plan for subsequent years.
It is recommended that the content and conclusion of this report be noted.
There are no background papers (as defined by Section 100D(5) of the Local Government Act 1972) relating to this report.
Mr M Hill