Agenda and minutes

There were no declarations of interest.

RESOLVED – That the minutes of the meeting held on 12 March 2018 be confirmed and signed by the Chairman.

Report of the Director of Finance and Resources

The interim Chief Internal Auditor outlined the work undertaken by Internal Audit in respect of the 2017/18 Annual Plan.   The report contained the annual audit opinion for 2017/18.  As part of  internal audit’s professional standards (UK Public Sector Internal Audit Standards) (PSIAS) the Internal Audit team are responsible for delivering the annual audit opinion and to report to those charged with governance in time to support the Annual Governance Statement.  The standard sets out that the Annual Report must contain the overall audit opinion, a summary of the work that supports the opinion and a statement on conformance with PSIAS and the Local Government Application Note, highlighting areas of non-conformance.

The underlying principles to the 2017/18 Plan were outlined in the Audit Plan paper presented to and approved by Members of the Audit and Standards Committee on 26 June 2017.  During the year the Plan does remain flexible, with some items being added to the Plan and other items being deferred.  Internal Audit has its own performance standard, that they must deliver 90 per cent of the audit work in the Plan.  This target has been exceeded.

The role of management and internal audit in respect of the Plan was described. Audit opinions were awarded for individual systems and compliance within one of the following three categories:

• Substantial assurance
• Adequate assurance
• Limited assurance

Substantial and adequate assurance opinions are positive opinions. Limited assurance is a negative opinion.  During the year the Committee had received a number of limited assurance reports.

In terms of how the Internal Audit team form their judgement of the overall audit opinion, work is categorised into six areas and these categories were described in paragraph 7 of the report.  The interim Chief Internal Auditor went on to describe each of the 2017/18 Audit Plan Outcomes for each category of work.

In terms of the High Risk Auditable Areas work had been dominated during 2017/18 by the implementation of two new IT systems.  In December 2015 a decision was taken to purchase Integra as the Finance Solution for both schools and the County Council via Entrust – known as My Finance.  In June 2016 the decision was taken to purchase iTrent as the HR Solution for the County Council via a framework agreement set up by Worcestershire County Council.  This system is known as MyHR.  Both projects were successfully launched.  My HR went live on 1 September 2017, followed by My Finance on 6 November 2017.  The implementation of these two key fundamental IT systems was represented by two significantly large projects spanning most of 2017/18 known as the SAP replacement programme.  Internal Audit categorised this as “high risk” and dedicated a number of days’ project support work to give ongoing and timely assurance to senior management over the new control environment.  At the conclusion of the project a number of internal audit reports were produced giving a number of different opinions, detailed on a table on page 11 of the report.  The high level issues  ...  view the full minutes text for item 4.

The Chairman to move:-

PART TWO

(reports in this section are exempt)

RESOLVED – That the public be excluded from the meeting for following items of business which involve the likely disclosure of exempt information as defined in the paragraphs of Part 1 of Schedule 12A (as amended) of the Local Government Act 1972 as indicated below:

·         Exempt minutes of meeting held on 12 March 2018

·         SAP Replacement Programme – Top Ten Risk Review and Limited Assurance Review

·         Liberata Payroll System Review - Top Ten Risk Review and Limited Assurance Review

·         Sales to Cash System Review - Limited Assurance Review

·         Purchase Cards System Review - Limited Assurance Review

·         Special Educational Needs Disability (SEND) Action Plan - Limited Assurance Review

·         Mental Health – Recuperation of Health Contributions – Limited Assurance

·         Deputyships - Limited Assurance Review

·         Internal Audit Outturn Report 2017/18 – Appendix 2

PART ONE

(Reports in the section are open to the public)

(Exemption Paragraph 3)

(Exemption Paragraph 3)

(Exemption Paragraph 3)

(Exemption Paragraph 3)

(Exemption Paragraph 3)

(Exemption Paragraph 3)

(Exemption Paragraph 3)

PART ONE

(Reports in this section are open to the public)

(Exemption Paragraph 3)

(Exemption Paragraph 3)

Report of the Director of Strategy, Governance and Change

The Chairman introduced this report.  Members were asked to appoint five Members to sit on the Special Panel of the Audit and Standards Committee. 

Members did question whether there was a need to appoint Members to the Panel to consider remuneration on an annual basis.  The benefits were seen as continuity and reassurance to the public of an independent overview of Members’ allowances. 

The Chairman proposed that Councillor Trowbridge, Brookes, Oates, Wilson and Davis be appointed to sit on the Panel.

RESOLVED: That Councillor Trowbridge, Brookes, Oates, Wilson and Davis be appointed to sit on the Panel.

The interim Chief Internal Auditor presented the Audit Charter for 2018. The Charter had been presented to the Committee for approval. There were two minor changes in the Charter.  The first change was in regard to fraud and corruption related work highlighted on pages 390/391 of the report and the Role of Senior Leadership Members highlighted on page 396 of the report.

RESOLVED: That the Audit Charter be accepted.

Report of the Director of Finance and Resources

The interim Chief Internal Auditor gave a presentation on the proposed Internal Audit Strategy and Plan 2018/19 asking Members to note the balance between planned audit work in key risk areas, and any emerging items that may arise during the coming year.  The Audit Team has sufficient resources to deliver the Audit Plan. 

The Internal Audit Strategy is a key governance document.  It is produced annually and is brought to the Committee for approval each year. 

The Strategy sets out the risk assessment process that the Council has adopted to produce their Internal Audit Plan. There are number of key principles that the Team adopt when producing the Plan.  The Plan also explains the Audit Team resources.

The methodology used to produce the Internal Audit Plan was reviewed as part of the External Quality Assessment and was positively reported upon by the external assessor. 

There are a number of audit areas identified and as part of producing the Plan, the Plan is discussed with key stakeholders including the Senior Leadership Team and members of the Wider Leadership Team and Operational Management Team. The fraud risk assessment is updated taking into account relevant documents.  Key partnerships are also considered.  Previous audit work is also considered and past audit opinions.  In terms of the detailed risk assessment this is set out in the report and the planned risk assessment methodology is detailed in Appendix A to the report.  Alternative sources of assurances are also considered e.g. the work of external audit and other inspection teams such as health and safety and the Peer Review due in September.  Susceptibility to fraud is also considered as well as the stability of the system. 

A score is given for all the areas identified in the risk assessment to give an overall percentage score. Scores over 60 percent are considered high risk.  Scores between 59 per cent and 40 per cent, medium risk and scores below 39 per cent, low risk.  On occasions audits are performed on low risk areas.  The percentage score acts as guide.  Within the audit strategy, key principles are set out which are used to formulate the audit plan and applied.  The service is mindful of when alternative sources of assurance can be given.  ‘Top Ten Risk’ Reviews are identified and key financial systems are conducted.  A schools’ audit programme is developed based upon a formal risk assessment.  An initial allocation of 200 days of audit time is given in the counter fraud Plan to conduct Special Investigations.  An initial contingency allocation is also made. This is variable year on year and is included in the Internal Audit Plan.  Time is included to undertake proactive counter fraud work. Compliance reviews are also included in the Internal Audit Plan.

The Resource requirement indicates that the County Council has allocated 2,065.5 days for audit work during the year.  In addition 354.5 days has been allocated for external clients.  The total resource requirement for the coming year is 2,420 days and this shows a reduction  ...  view the full minutes text for item 17.

Verbal Update by Ernst & Young

The External Auditor gave an update on their engagement with the audit cycle.  He outlined some of the work that had been done in regard to the risks identified in the Plan reported to the Committee in March 2018.

In November 2017, Ernst &Young began their early engagement in regard to audit of the change of the financial system from SAP to Integra, seeking assurance regarding the date when SAP would be switched off and what the implications would be for accessing the data held in SAP.

The External Auditors tested a number of transactions that were on the system for periods 1-6.  These were designed to test the potential significant risks around management override, fraud, revenue and expenditure recognition, valuation of land and buildings and the new general ledger system (value for money).

The Plan outlined a number of procedures to get assurance in regard to management override and fraud in revenue and expenditure recognition. The Plan outlined a number of procedures that Ernst and Young would require to get assurance, some aligned to year end procedures, but some could take place earlier.  Ernst and Young were pleased to report that they had completed a ‘walk through’ of 13 out of 15 systems.  The two outstanding procedures being in regard to property, plant and equipment  (fixed assets) and year end accruals.  These would be completed next week.

Journal entries that have been recorded in the ledger have been tested in regard to periods 1-6 and there are no issues.  Period 7 to year end will now be completed.

In terms of sampling a number of revenue and expenditure transactions starting with period 1-6 in November and period 7 to year end in February,  to date there are no issues to report arising from this work.  There are four areas where work is outstanding, and the Finance Team have agreed to provide information on these matters next week.

In terms of the Integra system, Ernst and Young identified this as a risk, and commissioned their own risk assessment team to complete an independent review of the data migration from the old to the new system.  The work has been substantially completed. 

In regard to land and buildings, the Council had responded to a number of issues that Ernst and Young had identified in regard to the valuation of land and buildings by appointing external valuers.  Ernst and Young have appointed an in house team to review the work of the external valuers.  No issues have been identified to date or alerted to the Audit Team. This will be reviewed again next week.

In terms of value for money, Ernst and Young identified three risks: the financial resilience of the Council in regard to the plans to address future financial challenges; arrangements in respect of the delivering the Better Care Fund and securing finances, and finally in regard to Entrust and the material reduction in the Council’s stake in Entrust and whether the Council had sufficient arrangements to monitor  ...  view the full minutes text for item 18.

The interim Head of Audit and Financial Services stated that on an annual basis the Committee are informed of the annual audit fee by the auditors. 

The planned fee for 2017/18 is £109,755.  This includes an element for the Pension Fund, and is £84,511 for 2018/19. The Council had opted into the national scheme managed by the Public Sector Audit Appointments Limited for the appointment of their external auditors with effect from 1 April 2018/2019 financial year.

The external auditors stated that they had a responsibility to advice the Council of its audit fees annually. 

The Director of Finance and Resources drew Members’ attention to a gradual reduction in the fees, and to the potential compromise in audit quality.  Members asked if there was any way in which further efficiencies could be achieved. The Director of Finance and Resources stated that there may be opportunities for further automation of systems.  Ernst & Young stated that they were also relying on data analytics that enabled them to use data in a more efficient way.

RESOLVED: That the report be received.

The interim Head of Audit and Financial Services stated that two additional meetings had been added to the Forward Plan on 30 October and 29 January 2019 in an effort to smooth out the volume of papers being presented to the Committee. 

RESOLVED: That the report be received.