Agenda and minutes

Audit Committee
Wednesday, 18th June 2014 6.00 p.m.

Venue: Morecambe Town Hall

Contact: Jane Glenton, Democratic Services - telephone 01524 582068, or email  jglenton@lancaster.gov.uk 

Items
No. Item

1.

Appointment of Vice-Chairman

To appoint the Vice-Chairman of Audit Committee for the Municipal Year 2014/15.  
(The Chairman must not be a member of Cabinet or Overview and Scrutiny - Part 3, Section 8 of the Constitution.)  

 

Minutes:

The Chairman requested nominations for the position of Vice-Chairman.

 

It was proposed by Councillor Williamson and seconded by Councillor Scott:

 

“That Councillor Knight be Vice-Chairman of the Audit Committee for the Municipal Year 2014/15.”

 

There were no further nominations and the Chairman declared Councillor Knight to be nominated.

 

Resolved:

 

That Councillor Knight be Vice-Chairman of the Audit Committee for the Municipal Year 2014/15.

2.

Minutes

Minutes of meeting held on 22 January 2014 (previously circulated). 

Minutes:

The Minutes of the meeting held on 22nd January 2014 were signed by the Chairman as a correct record.

3.

Items of Urgent Business authorised by the Chairman

Minutes:

There were no items of urgent business.

4.

Declarations of Interest

To receive declarations by Members of interests in respect of items on this Agenda.

 

Members are reminded that, in accordance with the Localism Act 2011, they are required to declare any disclosable pecuniary interests which have not already been declared in the Council’s Register of Interests. (It is a criminal offence not to declare a disclosable pecuniary interest either in the Register or at the meeting.) 

 

Whilst not a legal requirement, in accordance with Council Procedure Rule 10 and in the interests of clarity and transparency, Members should declare any disclosable pecuniary interests which they have already declared in the Register, at this point in the meeting. 

 

In accordance with Part B, Section 2, of the Code of Conduct, Members are required to declare the existence and nature of any other interests as defined in paragraphs 8(1) or 9(2) of the Code of Conduct. 

Minutes:

There were no declarations of interest.

The Chairman advised that, with the agreement of Members, the following item of business would be brought to the beginning of the meeting to allow Richard Lee of KPMG LLP (UK) to join the meeting.

Richard Lee of KPMG LLP (UK) arrived midway through the following item.

5.

Financial Regulations and Audit Committee's Terms of Reference pdf icon PDF 134 KB

Report of Chief Officer (Resources)

Additional documents:

Minutes:

The Committee received the report of the Chief Officer (Resources) to advise of a proposed change in approach regarding responsibility for the Council’s Financial Regulations to reflect the Accounts and Audit (England) Regulations 2011, and to seek authority for proposed revised Terms of Reference for the Committee to be referred to full Council for approval.

 

It was reported that the Contract Procedure Rules (CPRs) had been approved by the Committee on 23rd January 2013, and the Financial Regulations were in need of review and update.  Many references were outdated and there was a need to update them and tie them in with other ongoing reviews of the Constitution, in particular, the Scheme of Delegation.

 

Members were informed that the Council had adopted an associated set of Financial Procedures in support of the Financial Regulations and CPRs, which formed part of the Constitution.  In addition, there was a wide range of separate financial policies and guides, and it was important that these were drawn together.

 

The proposed structure was as follows:

 

Level

Document(s)

Status

Ownership and Approval

1

Financial Regulations

Organisational rules.

High level statement of responsibilities for financial administration.

Part of the Council’s Constitution

Chief Officer (Resources) responsible for reviewing, updating and promoting the Regulations.

Changes to be reported to Audit Committee for endorsement.

2

Standing Financial Instructions & Guidance

More detailed rules, procedural instructions and guidance in support of the Regulations

Responsibility for maintenance, approval and promotion rests with the Chief Officer (Resources)

 

It was reported that the proposed structure reflected the requirements of the Accounts and Audit Regulations (England) 2011, which, in essence, established responsibility for the financial regulations with the Chief Officer (Resources), as Section 151 Officer, and recognised that the Council might choose to instruct that officer on particular matters, so long as any such instruction was consistent with the Accounts and Audit Regulations.

 

Members’ support was sought to the proposal and the drafting of a new set of Financial Regulations to be implemented on this basis.  A target date of 30th September 2014 was proposed, and that the new draft Financial Regulations be submitted for the Committee to consider at its meeting on 17th September 2014.  Alongside this, all documents and information contributing to the Level 2 Standing Financial Instructions and Guidance would be reviewed with a view to having a complete framework in place by 31st March 2015.

 

In regard to the Regulations, it was reported that Members’ responsibilities needed to be reflected in revised wording of the Committee’s Terms of Reference.  A number of proposed changes reflected the requirements of the Public Services Internal Audit Standards (PSIAS), which had come into effect on 1st April 2013.

 

Members were informed that, following the Local Audit and Accountability Act 2014 and the abolition of the Audit Commission, local authorities would have more direct responsibility for appointing their internal auditor.  These changes would come into effect within the next two years.  As the Audit Committee was the Council’s delegated body to audit  ...  view the full minutes text for item 5.

6.

External Audit Certification of Grants and Returns pdf icon PDF 1 MB

Report of KPMG LLP

Minutes:

Richard Lee, Manager, KPMG LLP (UK), the Authority’s external auditors, guided Members through the Certification of Grants and Returns 2012/13, which summarised the results of work on the certification of the Council’s 2012/13 grant claims and returns. 

 

It was reported that the Council had good arrangements in place for preparing its grants and returns, and for supporting KPMG’s certification work. 

 

Members were advised that unqualified certificates had been issued for two of the three grants and returns.  A qualification had been necessary for the Housing and Council Tax Benefit claim, due to a minor issue concerning the Council’s compliance, which could not be resolved through adjustment. 

 

It was reported that the Audit Commission had changed its fee regime for certifying grants and returns in 2012/13, and had set an indicative fee for the Council, which was consistent with the fee outlined in KPMG’s annual fee letter 2012/13.

 

Resolved:

 

That the report be noted.

7.

External Audit Plan 2013/14 pdf icon PDF 1 MB

Report of KPMG LLP

Minutes:

Richard Lee, Manager, KPMG LLP (UK), the Authority’s external auditors, guided Members through the External Audit Plan 2013/14 prepared by KPMG.

 

It was reported that the Plan outlined how KPMG would deliver its audit work on the financial statements audit work for the Authority, their approach to value for money (VFM) work for 2013/14, and proposed deliverables, timescales and fees for their work. 

 

Three areas of audit focus had been identified.  These were:

 

Lancaster Market – It was reported that the payment to break the lease would be accounted for in full in the 2013/14 financial statements.

 

Luneside East – The Lands Tribunal would re-determine the associated compensation award and the liability for costs before the end of the financial year, and these would be reflected within the 2013/14 financial statements.

 

Local Government Pension Scheme (LGPS) triennial valuation 31st March 2013 – There was a risk that the data provided to the actuary by the administrators of the Pension Fund was inaccurate and that the actuarial figures in the accounts would be affected.  The accuracy of the data would be tested as part of the audit.

 

Members were advised that it had not been necessary to make any changes to the agreed audit fee at this stage.

 

Resolved:

 

That the External Audit Plan 2013/14 be accepted.

8.

External Audit Fee Letter 2014/15 pdf icon PDF 74 KB

Letter from KPMG LLP

Minutes:

The Committee received KPMG’s External Audit Fee Letter 2014/15, confirming the audit work and fee that was proposed for the 2014/15 financial year.

 

Richard Lee, Manager, KPMG LLP (UK) reported that the audit planning process for 2014/15, including the risk assessment, would continue as the year progressed, and fees would be reviewed and updated as necessary. 

 

It was reported that the Department for Work and Pensions (DWP) had asked the Audit Commission to prepare auditor guidance for the certification of housing benefit subsidy for 2014/15.  The housing benefit subsidy claim would continue to be certified under the Audit Commission’s arrangements.  Members noted that it was expected that arrangements for 2015/16 onwards would be made on the same basis by an independent private company to be set up by the Local Government Association (LGA), which would take on transitional responsibility for the management of the Audit Commission’s audit contracts following closure of the Audit Commission in March 2015.

 

Resolved:

 

That the indicative External Audit Fee be approved.

9.

Internal Audit Annual Report and Assurance Statement 2013/14 pdf icon PDF 192 KB

Report of Internal Audit Manager

Additional documents:

Minutes:

The Committee received the report of the Internal Audit Manager to inform of the extent and outcome of Internal Audit work during the 2013/14 financial year and to present an annual Statement of Assurance regarding the Council’s framework of governance, risk management and control.

 

It was reported that the 2013/14 Internal Annual Audit Plan had been approved by the Audit Committee at its meeting on 24th April 2013 and subsequent adjustments had been made.  The annual outturn position against the 2013/14 Annual Plan was summarised in the report.  Overall, 19 more days than originally planned had been delivered on the core programme assurance audit work.

 

Members were advised that a new area of work had been added to the Plan during the year, which related to work on ‘Corporate Service Reviews’, reflecting the increasing financial pressures on the Council.  The number of days actually delivered in this area of work (37) had been less than envisaged.

 

It was reported that the Internal Audit Team had provided the Lake District National Park Authority (LDNPA) with part of its internal audit service for 2013/14, amounting to 26 days of work.  It was also noted that there had been little call for formal investigative work elsewhere in the Plan and no other major variances in the workload.  The general contingency of 40 days had been sufficient to cover any changes.

 

Compliance with Professional Standards

 

It was reported that internal audit in local government was required to operate in accordance with ‘proper practices’ as set out in the Public Sector Internal Audit Standards (PSIAS) and the Local Government Application Note (LGAN).  The PSIASrequired the Internal Audit Manager to maintain a Quality Assurance and Improvement Programme (QAIP) including periodical internal and external assessments of compliance with the Standards.  Standard 1322 of the PSIAS required the Council to consider disclosing any significant deviations in its Annual Governance Statement. 

 

Members had approved a revised Internal Audit Charter at Committee on 22nd January 2014, which considered the results of the internal assessment, and had noted the resulting action plan.  It was reported that, based on this most recent assessment, full compliance with the PSIAS and LGAN had not yet been achieved.  It was, however, the Internal Audit Manager’s view that none of the points of non-compliance or partial compliance represented a deviation of such significance as to warrant disclosure in the Annual Governance Statement.

 

External Assessments

 

With regard to external assessments, it was reported that CIPFA had advised that the first external assessments, which were required every five years by the PSIAS, should be undertaken by 1st April 2016.  External assessments must be carried out by a competent assessor or assessment team, but it was a matter for the Internal Audit Manager to discuss and agree with Audit Committee.  This requirement was being considered collectively by the heads of Internal Audit of the 15 Lancashire local authorities comprising the Lancashire Chief Auditors Group. 

 

Two main options had been identified, which were engaging a professional  ...  view the full minutes text for item 9.

10.

Internal Audit Strategy and Risk Based Plan pdf icon PDF 135 KB

Report of Internal Audit Manager

Additional documents:

Minutes:

The Committee received the report of the Internal Audit Manager to seek Members’ approval for a proposed three-year Internal Audit Strategic Plan and Annual Operational Plan for 2014/15.

 

Members were advised that there was an ongoing need to ensure that standards of governance, internal control and conduct in the Authority were maintained.  Internal Audit’s strategy was both to promote these standards and to provide independent assurance on the effectiveness of arrangements.

 

It was reported that the draft Risk Based Internal Audit Plan had been developed along similar lines to recent years.  The Annual Plan for 2014/15 was based on estimated available resources of 690 days being delivered by the in-house team of 3.81 FTE staff.  The Internal Audit Manager’s role as Deputy Section 151 Officer had been estimated as requiring 10 days, giving a net allocation to audit activity of 680 days.

 

It was anticipated that the scope and objectives of audit work during the year would once again be greatly influenced by the financial pressures affecting the Council.  In recognition of this, the draft Plan incorporated an allocation of 50 days to support corporate service reviews, and would be managed flexibly in order to be effective.

 

Members were advised that the draft Plan also included 50 days relating to the provision of an Internal Audit service to the Lake District National Park Authority (LDNPA).  This arrangement had built on the provision of ad-hoc audits to the Authority in the past two years and the provision of an extended service for 2014/15 had been discussed with the Chairman of Audit Committee.

 

Resolved unanimously:

 

(1)        That the Internal Audit Strategy and Risk Based Plan for 2014/15 be approved.

 

(2)        That the action taken by the Internal Audit Manager, in consultation with the Audit Committee Chairman, to arrange the provision of 50 days of internal audit service to the Lake District National Park Authority, be endorsed.