Agenda and draft minutes

To receive any apologies for absence.

Apologies for absence were received from Councillors Chris Mitchell and Joan King.

To confirm as a correct record the minutes of the Audit Committee Meeting held on Thursday 29 March 2022.

The Minutes of the Audit Committee meeting held on 29 March 2022 were confirmed as a correct record by the Committee and were signed by the Chair.

Items of other business notified under Council Procedure Rule 30 to be announced, together with special circumstances that justify their consideration as a matter of urgency.  The Chairman to rule on the admission of such items

The Chair advised Appendix 1 of item 6 (Statement of Accounts 2019/20) had not been available 5 clear working days before the meeting but the Chair had agreed to take as an urgent item so that approval of the Statement of Accounts would not be delayed further.

To receive any declarations of interest.

There were no declarations in interest.

To receive the External Auditor’s draft report for the 2019/20 accounts.

The External Auditors, EY, presented their report to the Committee and made the following points:

·         Referred to the Executive Summary and advised that since the plan had been submitted in 2020 there had been big changes to the climate with Covid at the end the financial year 2019/20 and as a result there had been some updates to the plan.

·         With regard to the reporting timescales this had been delayed from 31 July 2020 to 30 November 2020.  Although both dates had past it was important this was highlighted the delay was due to Covid and also a number of misstatements identified in the course of the audit.

·         On the audit plans there had been changes in risk in a few areas, due to Covid, which included fixed assets valuations of land and buildings, operational land and buildings, investment properties and surplus assets and they had identified a number of issues around the valuations and classifications of PPE, IP and surplus assets.

·         The adoption of IFRS 16 by CIPFA/LASAAC as the basis for the preparation of Local Authority Financial Statements had been deferred until 1 April 2024.

·         Advised that the audit was substantially completed other than a few areas as highlighted in the executive summary with the most significant areas being adjustments to fixed assets, property and equipment, investment properties and assets and resolving accounting issues for the South Oxhey Initiative (SOI).  A summary of the differences were provided to the Committee and the work required to overcome these.

·         Details were provided on the audit focus on financial statements which had identified a number of issues on valuation of land and buildings and the valuation of the Pension Fund Assets and Liabilities and also in other areas of high value activity like the classification of the South Oxhey Leisure Centre.

·         The conclusions on the significant risks were provided on Page 14 of the draft report Points 1 to 9.  EY were currently working with the Council’s Management Team to resolve these points.

·         Noted the actuary had identified an error in the pooling assumptions on the pension fund and re-run the IAS 19 report.  This meant the Valuation of the Pension Asset and Liabilities figure would have an understatement of pension liability and re-measurement of pension liability. These misstatements had been adjusted by management.  EY had consulted with their pension’s team on the revisions made in the revised IAS 19 report and work was ongoing.

·         In relation to the South Oxhey Initiative the Council would be transferring land and properties to the developer on a 250 year financial lease.  The correct accounting treatment should be to continue to recognise the land as an investment property until the lease agreement is reached.  Then the land should be held as a surplus asset until the lease commences. The surplus asset is then derecognised, and a finance lease asset will be recognised instead. The land had been classified incorrectly as inventory and therefore had not been revalued by the external valuers over  ...  view the full minutes text for item AC5/22

The Head of Finance advised that officers were seeking delegation from the Committee to sign off the draft accounts and to be able to make any further amendments to them prior to the next meeting but as the version of the accounts was only published today and as the Committee would not have had time to review them and it would not cause any significant further delay that a fully completed set of accounts be brought back to the Committee on 29 September and that they be signed there.  What the Committee do need to agree tonight is the Annual Governance Statement in relation to 2021/22. 

The Chair proposed, duly seconded, that the consideration of the 2019/20 Statement of Accounts be deferred to the September Committee meeting but that the Committee approve the Annual Governance Statement 2021/22 and to noted that the Director of Finance will authorise for issue a Draft Statement of Accounts 2021/22 for public inspection by 31 July 2022.

In response to a Member question on not signing off the 2019/20 accounts yet the Head of Finance advised that there is potential reputational damage but we are not the only LA to have their audit outstanding.  As outlined by the external auditor there had been a number of issues around fixed assets valuations which all LA’s had seen additional scrutiny around for their 19/20 accounts because there was a concept of material uncertainty around the year end date.  At the valuation date of 31 March 2020 Covid had just hit and we were in a lockdown world with significant uncertainty.  Valuers were therefore of the view that they could not have the usual level of confidence in their assumptions and resulting valuations.  As a result audit firms had to take a more detailed valuation approach and what had been uncovered was that some of the valuations were incorrect and some of the techniques used by the valuers were incorrect.  Some of the issues around classification and valuation methodology had also gone unseen for a number of years and had not been picked up over a period of time.  At the time there was also a change in audit practice where there was a lot more focus on fixed asset registers as well.  On the pension fund issue all Hertfordshire Authorities that are part of Herts Building Control all had the same issue in that the actuary made a mistake in the preparation of the actuarial valuation.  They assigned the pension liabilities of HBC to the originating authorities although they were not instructed to do.  All the Herts Authorities who are members of HBC are needing to deal with this issue.  Those who had already signed their 2019/20 accounts would need to deal with it as part of the 2020/21 audit.  There was a further consideration in the Hertfordshire Pension Fund (HPF) accounts where misstatements have been identified by the Pension Fund auditor.  HPF chose to correct some of the material misstatements and therefore a revised IAS19 report  ...  view the full minutes text for item AC6/22

This report informs members of the work of the Fraud Section for the financial year 2021 to date and provides updates on progress and developments.

This report informed Members of the work of the Fraud Section for the financial year 2021 to date and provided updates on progress and developments.

                     The Fraud Manager made reference to and highlighted the following points to the Committee:

·         Councils Regulation of Investigatory Powers Act 2000 (RIPA) policy and the use of the policy, training of staff and inspection by DVLA.

·         The work of the Council in investigating a cross border fraud involving applications for Business Rates Covid-19 restart grants.  On the first set of grants administered there was reduced guidance and pressure on LA’s to process.  On the second set much more experience and details were provided from the Government and checks were in place on the processing of the grants.  It is hoped that there is to be government audit of the payments gone through regarding post assurance work and we are working with NFI.

·         In respect of Council Tax Reduction, a local legal framework is in place to define who is entitled to the reduction and to reduce fraud from entering the system at inception.

·         Details on data matching on the discount for council tax and the savings identified for the Council.

·         Noted that the P&R Committee in September will be asked to approve the revised Anti-Fraud and Corruption Strategy and Anti Bribery Policy

·         Noted that the Councils whistleblowing policy and money laundering policy had both been updated.

A Member said it was comprehensive report and some of the figures quoted were alarming.  They referred to Paragraph 2.18 on the Business Rates Covid 19 restart grants and the work staff did in getting the grants paid but now some post grant work was required to make some checks. 

RESOLVED:

That Members note the content of this report and notes the Fraud and Corruption strategy attached to the report.

This report gives details of the 2021/22 year-end review of the Treasury Management function.

The Head of Finance advised that this report gave details of the 2021/22 year-end review of the Treasury Management function.

Members were referred to details on the external borrowing balance which we were well within, the CFR and Operational Boundary estimates and outturn, the money held in the accounts and details on our investment portfolio.  The CFR is subject to restatement following the finalisation of the Statement of Accounts audits for 2019/20 and 2020/21.

The overall performance for the year was below the benchmark for 2020/21 because treasury investments for 2021/22 were short-term.  This reflected the prioritisation of security and liquidity over yield, as cash was available for investment only for short-periods during the year and the returns on the shorter term loans are generally lower than the Bank of England base rate for counterparties of a very high credit quality.

A Member referred to a loss detailed in Paragraph 21.6 of the report.  This is a long term investment which would continue to be closely monitored but performance should be measured over the long term.

On being put to the Committee the Chair declared the recommendation CARRIED the voting being unanimous.

RESOLVED:

Noted the annual 2021/22 Treasury Management report.

This report:

a)     Details the Shared Internal Audit Service’s (SIAS) overall opinion on the adequacy and effectiveness of Three Rivers District Council’s (the Council) framework of governance, risk management and control. Reference is made to significant matters and key themes.

b)     Shows the outcomes of the self-assessment against the Public Sector Internal Audit Standards (PSIAS) incorporating the requirements of the Quality Assurance and Improvement Programme (QAIP).

c)     Summarises the audit work that informs this opinion.

d)     Shows SIAS performance in respect of delivering the Council’s audit plan.

e)     Presents the 2022/23 Audit Charter for approval.

The Committee received a report on SIAS 2021/22 Annual Assurance Statement and Internal Audit Annual Report.

The Client Audit Manager advised that the report set out:

a)    Details the Shared Internal Audit Service’s (SIAS) overall opinion on the adequacy and effectiveness of Three Rivers District Council’s (the Council) framework of governance, risk management and control. Reference was made to significant matters and key themes.

b)    Shows the outcomes of the self-assessment against the Public Sector Internal Audit Standards (PSIAS) incorporating the requirements of the Quality Assurance and Improvement Programme (QAIP).

c)    Summarises the audit work that informs this opinion.

d)    Shows SIAS performance in respect of delivering the Council’s audit plan.

e)    Presents the 2022/23 Audit Charter for approval.

Details on the audits undertaken were provided in Appendix A to the report both key financial system audits, operational audits and other audits carried out.  Following all the audits the Council were given a reasonable assurance level overall for both financial systems and non-financial systems which was the second highest rating.  In order to deliver the work a number of performance indicators are set by the SIAS Board and had to deliver their work against those performance indicators. The indicators were all met for the year.  

In terms of how SIAS operate and professional standards they are members of the Institute of Internal Auditors and governed by a Code of Conduct with CIPFA called the Public Sector Internal Audit Standards 

Members were referred to Appendix C of the report which provided details on the self-assessment which identified two areas of agreed non-conformance, these reflecting the unique nature of a partnership arrangement and were not considered material. 

Assurance was given to the Committee that SIAS were able to carry out their work without any limitations.

In response to a Member question on the difference between reasonable and substantial assurance the Client Audit Manager advised that it would depend on what the outcomes of the audit were and if there was anything significant.  It was a subjective call when considering the findings, whether there were any recommendations and what priority level you attach to them.

The Head of Finance advised that some areas which were audited regularly could receive a reasonable assurance which did not mean that it was not meeting all the requirements it was because the environment was changing all the time.

The Head of Finance confirmed that the scope and resources for internal audit were not subject to inappropriate limitations in 2021/22

On being put to the Committee the recommendations were declared CARRIED by the Chair with the voting being unanimous.

RESOLVED:

Noted the Annual Assurance Statement and Internal Audit Annual Report.

Noted the results of the self-assessment required by the Public Sector Internal Audit Standards (PSIAS) and the Quality Assurance and Improvement Programme (QAIP).

Approved the SIAS Audit Charter 2022/23.

Noted that Management assurance was given that the scope and resources for internal audit were not subject to inappropriate limitations in 2021/22

This report details:

a)    Progress made by the Shared Internal Audit Service (SIAS) in delivering the Council’s annual audit plan for 2022/23 as at 15 July 2022.

b)    Proposed amendments to the approved 2022/23 Annual Audit Plan.

c)    Implementation status of all previously agreed audit recommendations from 2018/19 onwards.

d)    An update on performance management information as at 15 July 2022.

                     The Client Service Manger presented the report to the Committee which provided the following details and which had been agreed by the Committee in March:

1      Progress made by the Shared Internal Audit Service (SIAS) in delivering the Council’s annual audit plan for 2022/23 as at 15 July 2022.

2      Proposed amendments to the approved 2022/23 Annual Audit Plan.

3      Implementation status of all previously agreed audit recommendations from 2018/19 onwards.

4      An update on performance management information as at 15 July 2022.

            The original approved Shared Services 2022/23 Audit Plan included an allocation of 30 days for audits within the Revenues and Benefits Service. Following a meeting with the Head of Revenues and Benefits and agreement with the Director of Finance (Section 151 Officer) the following audits have been agreed for use of this time and are brought to the attention of this Committee:

            Council Tax

·         NDR (Business Rates)

·         Sundry Debtors

SIAS would continue to progress through the plan but are where expected at this time.

The Client Audit Manager advised that in respect of the following four recommendations, no updates had been received from the action owner:

·         One from the 2018/19 Benefits audit (target date 15 March 2022),

·         One from the 2019/20 Risk Management audit (target date 31 January 2022),

·         One from the 2020/21 Debtors audit (target date 31 December 2021), and

·         One from the 2021/22 NDR audit (target date 31 March 2022).

         On the Benefits audit and the deletion of data it had been a long process to try and get the scripts written to be able to do this automatically and a revised date had been set of 31 August 2022.  At this time SIAS were not aware if the date related to the implementation of the required scripts or manual removal of obsolete data.

The Committee asked that the Lead Manager for the audit be contacted to provide an update as requested and that this be circulated to the Committee Members to consider and make a decision on whether they should be asked to attend the next Audit Committee meeting to provide a further explanation. 

On being put to the Committee the recommendations with the amendment were declared CARRIED by the Chair with the voting being unanimous.

RESOLVED:

Noted the Internal Audit Progress report for the period to 15 July 2022.

Approved amendments to the Audit Plan as at 15 July 2022

Agreed changes to the implementation dates for 6 audit recommendations (paragraph 2.6) for the reasons set out in Appendices 3 to 6 but requested that explanations be provided to the Committee by email on the extensions requested for the audits in Paragraph 2.7 and that if these explanations are not considered satisfactory that the Lead Manager be asked to attend the September meeting.

Agreed removal of implemented audit recommendations (Appendices 3 to 6

A report by the Head of Finance on the latest position in respect of the evaluation of financial risks facing the Council for discussion and any recommendations or comments they wish to make.

The Head of Finance presented the report to the Committee and advised that the high rate of inflation (currently 9.1%) would be a challenge for the Council.  Further details would be provided to the P&R Committee in September as part of the budget monitoring report.

An update has been provided for risk FIN24 in relation to loss of key personnel.  Two key positions had now been filled on a permanent basis following successful secondments.  Recruitment was underway to fill four other vacancies within the team, two of which are currently covered by interim appointments to ensure that there is sufficient capacity within the team to meet business needs. 

FIN07 risk would be lowered once the accounts were signed off.

On being put to the Committee the Chair the recommendation was declared CARRIED the voting being unanimous.

RESOLVED:

Reviewed the Financial and budgetary risks and made comments as detailed above.

To receive the Committee’s work programme.

The Committee received their work programme.

RESOLVED:

That the work programme be noted and that the date of the next meeting be flexible so that the accounts could be finalised.

If any confidential business is approved under item 3, it will also be necessary to specify   the class of exempt or confidential information in the additional item(s) and a resolution to be passed in the following terms

“that under Section 100A (4) of the Local Government Act 1972, the press and public be excluded from the meeting for the following item(s) of business on the grounds that they involve the likely disclosure of exempt information as defined under the respective paragraphs 1 to 7 of Part 1 of Schedule 12A to the Act”.