Agenda and minutes

Audit & Accounts Committee - Friday, 26th July, 2019 10.00 am

Venue: The Dove Room, Moorlands House, Stockwell Street, Leek. View directions

Items
No. Item

9.

Declarations of interest

i. Disclosable Pecuniary Interests.

ii. Other Interests.

Minutes:

There were no declarations made.

10.

Minutes of the previous meeting pdf icon PDF 74 KB

Minutes:

RESOLVED – That the Minutes of the meeting of the Audit and Accounts Committee held on 14 June 2019 be APPROVED as a correct record and signed by the Chair.

11.

External Audit - Findings Report pdf icon PDF 660 KB

Minutes:

Grant Patterson – the Council’s Engagement Lead with External Auditors Grant Thornton – was able to present an unqualified opinion on the Council’s Financial Statements and Value For Money conclusion and anticipated that this would remain the case when final sign-off took place (estimated to be Tuesday 30 July 2019).

 

A Court of Appeal ruling that there was age discrimination in the Judges’ and Firefighters’ pension schemes where transitional protections were given to scheme members. This was referred to as the ‘McCloud judgement’ and had wide-reaching implications which included the Local Government Pension Scheme. An adjustment was found to be necessary in the Council’s Financial Statements, which had been done satisfactorily.

 

A further necessary adjustment related to the dissolution of the Ascent Housing scheme. The Council had impaired a Debenture it had with Your Housing based on its financial information as at 31 March 2019. The impairment should have been £447,500, rather than the £355,500 original value. This was seen as not material to the Financial Statements and did not alter the External Audit opinion.

 

The McCloud judgement had led to extra work being necessary. As a result, discussions were ongoing for an additional fee of £3,000. This would be overseen by PSAA. Also, a change to the authority’s structure had given rise to a re-statement in the 2017/18 primary financial statement. Additional procedures undertaken had led to further fees of £500.

12.

Annual Governance Statement pdf icon PDF 107 KB

Additional documents:

Minutes:

The Accounts and Audit Regulations 2015 required the Council to conduct a review at least once a year of the effectiveness of its system of internal control and approve a Annual Governance Statement (AGS). The AGS needed to be prepared in accordance with proper practices in relation to accounts and needed to be approved in advance of the Council approving the Statement of Accounts. ‘Proper practices in relation to accounts’ related to those accounting practices which were contained in a code of practice or other document which was identified for the purposes of this provision by regulations made by the Secretary of State. Such guidance was contained in the CIPFA / SOLACE framework and guidance on ‘Delivering Good Governance In Local Government’.

 

The Annual Governance Statement (Appendix 2) contained a new ‘Opinion’ statement which had been added to the previously published draft statement on the recommendation of the External Auditor:-

 

 “The review of the effectiveness of the governance framework arrangements continue to be fit for purpose and reasonable assurance can be given that the framework is operating adequately in practice. No review can provide absolute assurance; this statement is intended to provide reasonable assurance that there is an ongoing process for reviewing the governance framework and its operation in practice.

 

Whilst the governance framework is considered to be adequate, any issues deemed to be significant that need to be further addressed to further enhance the Council’s governance arrangements are outlined below with the actions to be taken.”

 

During the 2018/19 financial year one significant governance issue had been identified. This was detailed in the table below together with the action that was being taken to address the issue:-

 

Governance Issue

Action taken during 2018/19

Continuing Action

There has been a change in the operating model for the Council’s waste collection, fleet management, street cleansing and grounds maintenance services.

A new Teckal company has been established to deliver the services with waste collection and fleet management services transferred in July 2018. The overall financial and performance targets have been achieved for 2018/19.

The street cleansing and grounds maintenance services are expected to be transferred to the Teckal company in September 2018.

 

A correction to the above was made. The date in the ‘Continuing action column should read ‘2019’, not ‘2018’.

 

RESOLVED – That the Annual Governance Statement 2018/19 be APPROVED.

13.

Statement of Accounts pdf icon PDF 76 KB

Additional documents:

Minutes:

The Financial Statements had been prepared in accordance with CIPFA / LASAAC Code of Practice on Local Authority Accounting in the United Kingdom and based on International Financial Reporting Standards. They were required to present ‘a true and fair view’ of the financial position of the Council at the accounting date (period ending 31 March 2019).

 

Appended to the report was the Chief Finance Officer Review which was set out in a ‘frequently asked questions’ format which members found to be an improvement over previous versions.

 

Subject to gaining committee approval, the latest – hopefully final - Statement of Accounts was due to be signed off during the meeting. Any issues encountered after that point would be dealt with in liaison with the Chair.

 

The Statement of Accounts was signed by the Vice-Chair in the absence of the Chair.

 

RESOLVED – That the Council’s Statement of Accounts for 2018/19 be APPROVED. 

14.

Annual Treasury Management Report pdf icon PDF 74 KB

Additional documents:

Minutes:

The annual report was produced under the requirements of the Local Government Act 2003 to review treasury management activities for 2018/19.

 

The following areas were considered:-

 

·         The Treasury Management Strategy adopted in 2018/19 and the economic environment during the year;

·         The current treasury position, highlighting the Council’s borrowing and lending position at the year end;

·         The Council’s capital expenditure, overall borrowing need and borrowing outturn during 2018/19;

·         Performance measurements, which looked at the return achieved during the year by the Council on its overall investments;

·         The Council’s investment portfolio, which sets out for Members how and where the Council had invested its money during the year;

·         The interest yield for 2018/19; and

·         Compliance with Prudential Indicators, showing the outturn against those Indicators formally adopted in the 2018/19 Treasury Management Strategy Statement.

 

There had been an expectation for the Bank of England base rate to increase from 0.5% to 0.75% in May 2018. The increase actually took place in August 2018, leading to a gently rising trend in investment interest rates available in the market.

 

The Council’s debt and investment position at the beginning and end of the year was as follows:-

 

 

2017/18

2018/19

31st March 2018 Principal

Rate / Return

31st March 2019 Principal

Rate / Return

External Borrowing

 

 

 

 

  Fixed Rate Funding

£12,000,000

1.52%

£11,000,000

1.49%

  Variable Rate Funding

£0

-

£0

-

  Finance Lease Liabilities

£853,919

n/a

£0

-

Total Debt

£12,853,919

1.52%

£11,000,000

1.49%

Investments

 

 

 

 

  In-House

£5,612,771

0.38%

£7,611,662

0.72%*

  Debenture – Ascent LLP

£5,000,000

2.00%

£5,000,000

2.00%

  Loan Facility – Ascent LLP

£14,000,000

3.28%

£14,000,000

3.14%

Total Investments

£24,612,771

2.36%

£26,611,662

2.23%

                *Average investment interest rate in March

 

Capital expenditure was as follows:-

 

2018/19 Outturn

Total General Fund Capital Expenditure

£2,227,334

Resourced by:

 

   Capital reserve funding

£573,436

   Capital grants & contributions

£1,008,467

Unfinanced capital expenditure

(Underlying Need to Borrow)

£645,431

 

 

 

 

 

The Council’s underlying borrowing need, or Capital Financing Requirement (CFR) was not allowed to rise indefinitely. The overall CFR was shown below, with the borrowing position afterwards:-

 

 

 

2018/19 Projected Outturn (£)

Opening balance (1st April 2018)

16,471,688

Plus 2018/19 borrowing requirement

645,431

Less MRP

(33,472)

Less finance lease repayments*

(853,918)

Closing balance (31st March 2019)

16,229,729

            *All finance leases repaid in full during 2018/19

 

 

31 March 2019 Projected

(£)

31 March 2020 Forecast

(£)

31 March 2021 Forecast

(£)

Borrowing position

11,000,000

16,531,861

20,150,371

Capital Financing Requirement

16,229,729

18,069,779

21,604,180

Over / (under) borrowed

(5,229,729)

(1,537,918)

(1,453,809)

 

An average interest rate of 0.64% was achieved on its investments, comparing favourably with short-term market benchmarks:-

 

Comparator

Average Rate Q1

Average Rate Q2

Average Rate Q3

Average Rate Q4

Average 2017/18

SMDC Total

0.57%

0.66%

0.63%

0.69%

0.64%

SMDC Total Long-term (>364 days)

0.85%

0.85%

0.85%

0.98%

0.88%

SMDC Total Short-term (<364 days)

 

 

-

-

-

-

-

SMDC Total Short-term (instant access)

 

0.54%

0.64%

0.60%

0.65%

0.61%

 

 

 

 

 

 

 

Link Benchmarks

 

 

 

 

 

*LIBID 7 Day Rate

0.36%

0.51%

0.58%

0.57%

0.51%

*LIBID 3 Month Rate

0.55%

0.66%

0.74%

0.75%

0.68%

*LIBID 6 Month Rate

0.67%

0.76%

0.85%  ...  view the full minutes text for item 14.

15.

Treasury Management Update pdf icon PDF 68 KB

Additional documents:

Minutes:

The Council adopted the CIPFA Code of Practice on Treasury Management in February 2010, a requirement of which was to produce at least 1 mid-year operational report. This update gave the picture as at 30 June 2019.

 

The main headlines included:-

 

·         Capital expenditure in 2018/19 totalled £2.2million. Capital expenditure was funded in a large part via capital grants and reserves, the remainder had created a borrowing requirement of £645,000;

 

·         Total debt at 31st March 2019 amounted to £11million, which all related to loans from other Local Authorities as the finance lease arrangements had all been repaid during the year.  There was an underspend of £83,000 against borrowing costs as the budget included an expectation that borrowing would be required to fund general fund capital activities and the Ascent Loan balance would be fully funded through external borrowing. Instead the new general fund borrowing requirement of £636,000 along with £3million of the Ascent Loan balance was funded through internal borrowing;

 

·         The average daily investment during 2018/19 was £8.9million invested with a total of 6 institutions, yielding £56,700 in investment income. There was a shortfall against the investment income budget of £16,880 owing to the continuing and increased internal borrowing;

 

·         £540,130 interest income was earned from the debenture and loan balances held with Ascent.  The debenture interest was on target against the budget. There was a small shortfall of £6,500 against the loan budget as the rate on the day of the refinanced tranche 1 was slightly lower than estimated at budget setting;

 

·         The average return achieved by the Council on its investment portfolio for the year was 0.64% which compared favourably to short-term industry benchmarks;

 

·         Year-end investments totalled £26.6million (including £19million held with Ascent), all internally managed by the Council’s Treasury Management Team;

 

·         The outturn against treasury and prudential indicators as set within the Treasury Strategy 2018/19 was shown in Annex B.

 

The forecast increase for the Bank of England base rate to 1.0% had been moved back to the quarter ending September 2020.

 

The ongoing dissolution of the Ascent joint housing venture meant that the Council was now working with Your Housing on repayment of the original Loan and Debenture from Ascent and the completion of a new loan agreement.

 

Members were advised that Council investments were always made with Banks and Financial Institutions in order to be ‘risk averse’, but were looking at investing further to increase its property portfolio.

 

RESOLVED – That the Treasury Management position as at 30 June 2019 be NOTED.

 

16.

Internal Audit - Progress report pdf icon PDF 68 KB

Additional documents:

Minutes:

The purpose of the report was to summarise the findings of the remaining audits undertaken by the Council’s Internal Audit service for the 2018/19 financial year.

 

A total of 8 audits had been completed between 1 May 2019 and 30 June 2019, with 7 ‘satisfactory’ assurances and 1 ‘substantial’ assurance. Details of each were appended to the report.

 

All recommendations made had been agreed and had been implemented where due.

 

RESOLVED – That the report be NOTED.

17.

Internal Audit - Annual report pdf icon PDF 92 KB

Additional documents:

Minutes:

Produced under the requirements of the Accounts and Audit Regulations 2015, the report summarised year end performance for 2018/19. The information was tabulated as follows:-

 

Summary Year End Information for 2018/19

2017/18

Percentage of Audit Plan completed (performance against annual plan)

92%

92%

Number of recommendations made

244

258

Percentage of recommendations agreed with Service Managers

100%

100%

Percentage of recommendations due implemented within agreed timescale

100%

98%

 

The 92% completion figure for 2018/19 meant that 3 audits had been rolled over to the 2019/20 Audit Plan.

 

In accordance with the Public Sector Internal Audit Standards, the Audit Manager was to deliver an annual internal audit opinion to conclude on the overall adequacy and effectiveness of the Council’s framework of governance, risk management and control. Internal Audit could only provide reasonable and not absolute assurance of adequacy and effectiveness.

 

Based on the work undertaken by Internal Audit during the year and the resultant assurance opinions and the implementation by management of the recommendations agreed, and also comments made by our external auditors,

Internal Audit could provide reasonable assurance that the Council’s governance arrangements including risk management and systems of internal control were operating adequately and effectively.

 

RESOLVED

 

1.    That the Audit Service’s 2018/19 year end performance information be NOTED; and

2.    That the opinion on the overall adequacy and effectiveness of the Council’s internal control environment be NOTED.

18.

Annual Review of the Effectiveness of Internal Audit pdf icon PDF 81 KB

Additional documents:

Minutes:

The Accounts and Audit Regulations 2015 required the Council to conduct a review each year of the effectiveness of the system of internal control, the findings to be considered by a committee or by members of the authority meeting as a whole.

 

The most recent independent external quality review undertaken in 2016/17 concluded that the internal audit provision within the Council complied with the expectations of the Public Sector Internal Audit Standards (PSIAS). An update of the self assessment of compliance with the latest PSIAS (March 2017) and Local Government Action Note (LGAN) and Action Plan had been undertaken by the Audit Manager. In addition, other qualitative and quantitative factors had been taken into consideration when determining the effectiveness of Internal Audit.

 

Overall, the review showed that Internal Audit was effective and conformed sufficiently with the requirements of PSIAS / LGAN to ensure that the opinion given in the Annual Report could be relied upon for assurance purposes when considering the Annual Governance Statement 2018/19.

 

Appended to the report was the Action Plan for 2018/19 and the Quality Assurance & Improvement Programme (QAIP).

 

RESOLVED – That the report, including the Quality Assurance & Improvement Programme and the fact that Internal Audit was operating effectively and could be relied upon when considering the Annual Governance Statement for 2018/19 be NOTED.

19.

Review of the Effectiveness of the Audit & Accounts Committee inc. Terms of Reference pdf icon PDF 72 KB

Additional documents:

Minutes:

The annual review was undertaken as a ‘best practice’ part of the assurance process.

 

A skills and knowledge framework self-assessment had previously been conducted in August 2016, leading to changes to the structure and Terms of Reference of the committee in order to enhance existing arrangements and fill knowledge gaps.

 

Appended to the report were:-

 

1.    Audit & Accounts Committee self-assessment of good practice 2018/19;

2.    Assessment tool for evaluating the effectiveness of the committee; and

3.    Terms of Reference – Audit & Accounts Committee.

 

The amendments to the Terms of Reference were itemised as follows:-

 

·         Under ‘Governance, risk and control’ – paragraph 1, the wording was amended to “To review the council’s corporate governance arrangements against the good governance framework, including the ethical framework and consider the local code of governance.”;

·         Under ‘Internal Audit’ – a new paragraph (6) – “To consider any impairments to independence or objectivity arising from additional roles or responsibilities outside of internal auditing of the head of internal audit. To approve and periodically review safeguards to limit such impairments.”;

·         Under ‘Internal Audit’ – a new paragraph (13) – “To provide free and unfettered access to the audit committee chair for the head of internal audit, including the opportunity for a private meeting with the committee.”.

·         Under ‘External Audit’ – a new paragraph (1) – “To support the independence of external audit through consideration of the external auditor’s annual assessment of its independence and review of any issues raised by PSAA or the authority’s auditor panel as appropriate.”.

 

Following the recent passing away of one of the Independent Persons (Mr. Barry Steans) the Council was looking to recruit a replacement. When this was done, a ‘Skills and knowledge framework self-assessment’ would be conducted to fill any gaps.

 

RESOLVED

1.    That the annual review of the effectiveness of the Audit & Accounts Committee be APPROVED. 

2.    That the committee MAKE AN APPROPRIATE RECOMMENDATION TO COUNCIL should any amendments to the Audit & Accounts Committee’s Terms of Reference be considered appropriate.

20.

Work Programme pdf icon PDF 72 KB

Minutes:

The Committee considered the Work Programme for the 2019/20 municipal Year.

 

A member request was made for information on various fraud cases that had occurred elsewhere to be provided.

 

RESOLVED – That the Work Programme for 2019/20 be APPROVED, with the addition of an item on fraud as requested above.