Agenda and minutes

Audit & Governance Committee
Tuesday 30th July 2019 6.00 pm

Venue: CR1 (Pink Room) Arun Civic Centre

Contact: Carley Lavender 

Items
No. Item

143.

Declarations of Interest

            Members and Officers are reminded to make any declarations of pecuniary, personal and/or prejudicial interests that they may have in relation to items on this agenda and are reminded that they should re-declare their interest before consideration of the item or as soon as the interest becomes apparent.

 

            Members and officer should make their declaration by stating :

a) the application they have the interest in

b) whether it is a pecuniary, personal and/or prejudicial

c) the nature of the interest

d) if it is a prejudicial or pecuniary interest, whether they will be exercising their right to speak to the application

 

Minutes:

There were no declarations of interest made.

144.

Minutes pdf icon PDF 341 KB

To approve as a correct record of the Minutes of the meeting of the Audit & Governance Committee held on 2 July 2019.

Minutes:

The Minutes of the Special meeting held on 2 July 2019 were approved by the Committee as a correct record and signed by the Chairman.

145.

Response to Ernst & Young on Annual Assurance Letter regarding Governance arrangements pdf icon PDF 491 KB

The Committee is requested to note the attached correspondence.

Minutes:

            The Internal Audit Manager introduce this item and the Committee received and noted the letter of assurance regarding Governance arrangements.

146.

Ernst & Young Annual Audit Fee Letter 2019/20 pdf icon PDF 23 KB

To be presented by Ernst & Young LLP.

Minutes:

Jason Jones from Ernst & Young presented the Ernst & Young, Annual Fee letter and provided the Committee with an overview of its contents.

 

Key points highlighted were:

           

§  Referring to the Housing Benefit subsidy it was advised that Ernst & Young had been appointed to complete the audit for this, which is now handled under a separate contract from the annual Accounts work

§  Additional work had been completed on asset valuations, including involvement of EY’s valuations specialists

§  Additional work had been undertaken on the valuation of the net pension liability, including the involvement of Ernst & Young’s pensions specialist

 

Following some further discussion, the Committee noted the content of the Annual Audit Fee letter.

 

 

147.

Ernst & Young Audit Results Report pdf icon PDF 5 MB

This report will be presented by Ernst & Young LLP.

 

Minutes:

Jason Jones from Ernst & Young presented the report to the Committee providing detail of its contents.

 

The Key points highlighted were:

 

§  Risk of fraud in revenue recognition, capitalising revenue expenditure, it was explained that an opportunity had been identified to capitalise expenditure under the accounting framework, by it being removed from the general fund. That could result in funding expenditure, that should be properly defined as revenue, through inappropriate sources such as capital receipts, capital grants or borrowing. It was advised that the audit confirmed there had not been any inappropriate capitalisation of revenue expenditure.

§  Misstatements due to fraud or error, it was confirmed that E&Y had not identified any material weaknesses in controls or evidence of material management override. No instances of inappropriate judgements being applied or of any management bias were identified and that there were not any transactions during the audit which appeared unusual or outside the Council’s normal course of business.

§  Valuation of land and buildings, it was confirmed that this was a significant amount that was subject to a large number of estimation techniques.

§  Pension liability evaluation, accounting for this scheme involves significant estimation and judgement, therefore management engaged an actuary to undertake the calculations. As a result of a recent Court judgement affecting pensions, one adjustment was made that effected the pension fund liability, the effect of which increased past service cost and gross liability. The Council contacted the actuary for an updated IAS 19 report and have amended the accounts. Work on this area is substantially complete.

§  HRA Depreciation, 2017/18 was the first year that Authorities with HRA housing stock needed to account for depreciation using proper accounting practices, E&Y engaged with management early in the process and no issues were found.

§  Accounting standards, to be implemented from 1 April 2020, this was deferred by CIPFA. The Council did not have significant operating contracts and therefore E&Y do not believe this will have an impact on the Council in the future.

§  Audit report, it was E&Y’s opinion that the financial statements gave a fair view of the Council and it was confirmed that no matters were due to be presented as an exception.

§  Audit differences, it was confirmed that there had been one misclassification identified between two different accounts, the amounts had been manually captured incorrectly in the Collection Fund, however the net effect was zero; and it was confirmed that at the time of writing the report there were no uncorrected misstatements.

§  Value for money risks, one significant risk had been identified in October 2018 in relation to the lack of financial reserves, given the financial pressures in the public sector there is an increased focus and wider public interest in the financial resilience of the Local Government. However, it was confirmed that 2019/20 budget was balanced.

 

Jason was asked if any risks been identified in terms of I.T infrastructure being vulnerable to cyber-attacks. He confirmed there nothing had  ...  view the full minutes text for item 147.

148.

Statement of Accounts 2018/19 pdf icon PDF 139 KB

This report will be presented by the Financial Services Manager, Carolin Martlew.

Additional documents:

Minutes:

            The Financial Services Manager advised the Committee that there were no uncorrected misstatements and very little in terms of other issues (mainly presentational typos) which was good news for the Council and this Committee.

 

The significant issue around HRA depreciation had been resolved and Arun now had a depreciation methodology that was acceptable to both the Council and the External Auditors.  This was quite a significant piece of work as was not always easy to find auditable historic information on component assets like the age of boilers and pipes.

 

Turning to the Statements of Accounts it was explained that these were very different to the outturn report which although was in the same format as the approved budget and would be considered at the Cabinet meeting on 2 September, the difference was that the Statement of Accounts was prepared using proper or generally accepted accounting practice underpinned by International Financial Reporting Standards (IRFS), which was more relevant to commercial entities.

 

The Financial Services Manager advised that it was important to note that, as a Local Authority, certain accounting adjustments required under IFRS – mainly depreciation and valuation adjustments were not allowed to be funded from Council Tax or Rents by statute.  These types of adjustment therefore had to be reversed in the Movement in Reserves Statement (MiRS).  She confirmed that these adjustments effectively had zero effect.

 

 

The Committee was informed that the Expenditure and Funding Analysis was nota core statement, but it provided a link between what was chargeable to the Tax and Rent payer in the outturn report and the net expenditure in the Comprehensive Income and Expenditure Statement.

 

Explaining the first of the core statements [Comprehensive Income and Expenditure Statement] that showed the accounting cost in the year providing services rather than the costs that can be funded from taxation or rent.

 

In relation to the Movement in Reserves Statement (MiRS) she advised that it showed changes in the Council's reserves for the year, and essentially reconciled the Comprehensive Income and Expenditure Statement with those items that may not fall to be charged, to the General Fund under statute and those which do fall to be met from the General Fund were also under statute. It was here that the large movements relating to property revaluations are disclosed.

 

Showing where the valuation/accounting adjustments that were mentioned earlier were essentially reversed out.   Most importantly it showed the level of usable Reserves and Unusable Reserves at 31st March 2019.

 

It was made clear that usable reserves could be used for service provision or the reduction in tax, whereas unusable reserves could not.  That was because unusable reserves rise, due to things like the valuation adjustment and these would not be realisable until that asset was sold.

 

The usable reserves could be seen in the General Fund balance.  Arun started the year with £9.344M and applied £2.268m ending with a General Fund balance of £7.076m at 31st March 2019.

 

Stating that the Council requires a reasonable level of balances for  ...  view the full minutes text for item 148.

149.

Annual Governance Statement 2018/19 and Local Code of Corporate Governance 2019/20 pdf icon PDF 362 KB

The attached reports will be presented by Stephen Pearse, Internal Audit Manager.

Additional documents:

Minutes:

The Committee received details of the Annual Governance Statement from the Internal Audit Manager. He explained that the statement was based upon CIPFA best practice to ensure that it was able to meet the requirements of the regulations.

 

 He referred Members of the Committee back to an earlier question that had been asked regarding the Council’s IT infrastructure and its ability to be protected in the event of a cyberattack, he confirmed that page 216 of the statement provided an overview of the work that had been and was ongoing in terms of the Council’s IT and Business transformation.

 

            After some discussion Members asked about the Council’s business continuity plans and wanted to know if the Internal Audit Manager was satisfied with how prepared the Council was in the event of a cyberattack. It was confirmed to the Committee that business continuity plans were still being reviewed and updated by the appropriate area, but that it was an item on the Council’s Strategic Risk Register that would be brought to the Committee in November 2019.

 

 

            The Committee

 

                        RESOLVED - That

 

1)    the minor change to the local Code of Corporate Governance be endorsed; and;

 

2)    the Council’s Annual Governance Statement for 2018/19 be approved.

 

 

The Committee also requested that a formal officer update on Business Continuity Planning be provided in November as well as the Strategic Risk Register.

 

 

150.

Treasury Management Annual Report 2018/19 pdf icon PDF 330 KB

The attached report will be presented by Sian Southerton, Senior Accountant / Treasury & Investment Officer.

Minutes:

The Senior Accountant introduced her report and a detailed overview. The key points she highlighted were:

 

§  HRA borrowing – 53m current borrowing. 17.7m had already been repaid and £17.7m due to be repaid within 3 years.

§  In terms of investments, the Council had invested £5 million with the Churches, Charities and Local Authorities (CCLA) property fund – we are achieving approx. a 4.2% return on this investment.

§  The CCLA property fund had a diverse property investment portfolio, none of which were in shopping centres due to the current climate.

§  SLY - Security (first and foremost), Liquidity and Yield (return on investments.

§  The Council receives 3 reports a year – this was the annual report for 2018/19

§  Drawing the Committee’s attention to part 4.0 [The Council’s Overall Borrowing Need] she confirmed that the Council no longer had an overdraft facility as the increased banking costs made it very expensive and rather than incurring costs for the facility, Arun now maintained an approximate £200k balance in the account (daily) to cover any potential cash flow needed.

 

The Committee

 

RECOMMEND TO FULL COUNCIL - That

 

(1)  the actual prudential and treasury indicators for 2018/19 contained in the report be approved;

 

(2)  the treasury management report for 2018/19 be noted; and;

 

(3)  the treasury activity during 2018/19, which has generated interest receipts of £754,000 (1.25%). Budget £480,000 (1.14%) be noted.

 

151.

Counter-Fraud Report 2018/19 pdf icon PDF 349 KB

To be presented by Stephen Pearse, Internal Audit Manager.

Additional documents:

Minutes:

            The Internal Audit Manager introduced his report and gave an overview of the contents. He explained that a report had been taken to the Overview Select Committee in December 2018 that highlighted the extraordinary work that had been completed by Arun’s Housing Fraud Investigator in stopping fraudulent activity taking place in Council owned properties.

 

He then confirmed to the Committee that 77 accounts had, had the Council Tax Single Person Discount, removed in 2018 which resulted in re-billing of approximately £66k.

 

The Committee

     

      RESOLVED - That

 

(1)  the Counter Fraud Report be noted; and;

 

(2)  the Counter-Fraud work performed by the Council in 2018/19 be endorsed.

 

152.

Internal Audit Annual Report & Opinion 2018/19 pdf icon PDF 347 KB

Reports to be presented by Stephen Pearse, Internal Audit Manager.

Additional documents:

Minutes:

The Internal Audit Manager presented his report to the Committee and provided an overview of its contents. He highlighted that it was a requirement that Internal Audit was subject to an external assessment. It was advised that the Head of Business Services at Wealden District Council would be completing this review for Arun and a report would be brought before the Committee in November 2019.

 

The Committee

 

      RESOLVED - That

 

(1)  the report the Internal Audit Annual Report & Opinion 2018/19 be noted; and;

 

(2)  the work carried out by Internal Audit in 2018/19 be endorsed.

 

153.

Progress against the Audit Plan pdf icon PDF 344 KB

The Committee is required to oversee the provision of an adequate and effective internal audit service. Part of this process is to monitor delivery of progress against the Audit Plan and to receive summaries of reports issued.

Additional documents:

Minutes:

The Committee received and noted the Progress Report Against the Annual Audit Plan as had been approved by the Committee prior to the start of the financial year.

 

The Internal Audit Manager explained that key control checks were completed on the main financial systems annually.  In response to Member questions he also advised of the main areas of work that had been conducted or were under way this year.

 

Councillor Chapman raised the point that it was vital to keep the Council’s own internal audit team resourced in house and to not be reliant on a third party to complete the work required.

 

154.

Work Plan review 2019/20 pdf icon PDF 621 KB

The Internal Auditor Manager will update the Committee on any changes to the rolling Work Plan for 2019/20. 

 

 

Minutes:

The Internal Audit Manager presented to the Committee its updated work programme for 2019/20. The Group Head of Corporate Support confirmed that Treasury Management Training for Members would be held on 21 November 2019.

 

The Committee

 

            RESOLVED

 

            That it’s Work Programme 2019/20 be approved.