Minutes for Audit and Risk Committee meeting, Sep 8 2009, 2.00PM official page

ABERDEEN, 8^th September 2009. - Minute of Meeting of the AUDIT AND RISK COMMITTEE.  Present:- Councillor Crockett, Convener; and Councillor Farquharson, Vice-Convener;  and Councillors Adam (substituting for Councillor Cooney), Cassie, Cormack (substituting for Lord Provost Peter Stephen), Donnelly, Greig (substituting for Councillor John Stewart), Hunter, McCaig (substituting for Councillor Wendy Stuart), McDonald, Penny, Reynolds, Robertson, Kevin Stewart and John West.

The Convener welcomed those in attendance to the inaugural meeting of the Audit and Risk Committee.

The Committee had before it a statement of business prepared by the Head of Democratic Services.

The Committee resolved:-

(i)                 in relation to item 2 (Risk Management Progress Update), to request that the Corporate Governance Risk Register be reported to the Committee before the end of the year;

(ii)               in relation to item 6 (RM-CC/SA/0708 - Allocation of Central Charges), to request the City Chamberlain to prepare the benchmarking information referred to for consideration by members in the lead up to the budget process;

(iii)             to delete item 8 (Audit SL-A/SA/0801 - Countryside Rangers Service - Shelter and Environment (South Area));

(iv)             to delete item 9 (C-CL/SA/0801 - Central Library - item 4.4.2); and

(v)               otherwise to note the statement.

The Committee had before it a report by Henderson Loggie, External Auditor, which detailed progress in relation to the External Audit operational plan for 2008/09.

The Committee resolved:-

(i)                 to instruct the City Chamberlain to further pursue those services holding up the follow-up reviews (Catering and Cleaning, South Payroll and School Lets) making them aware of the Committee’s displeasure at their non-compliance; and

(ii)               otherwise to note the report.

The Committee had before it the Housing Benefit and Council Tax Benefit Subsidy Management Letter for 2007/08 which had been prepared by the External Auditor.

The report explained that during the audit of the Housing Benefit (HB) and Council Tax Benefit (CTB) subsidy claim 2007/08 a number of errors and areas for improvement had been noted. The main purpose of the management letter was to formally raise those points which had been discussed with Council officers in January 2009 following completion of the audit. It was also intended to improve the preparation and audit processes for those involved in future reviews. The audit methodology was then explained.

The overall conclusion in regard to the 2007/08 subsidy claim was that the testing of 60 cases (20 rent rebate cases, 20 rent allowance cases and 20 CTB cases) had identified three isolated errors and eight systemic errors. The Council had undertaken testing of a further 160 cases and had identified a further 44 errors within those cases. A misclassification of old scheme cases of £935,298 had also been found, however there was no subsidy implication. It was highlighted that under the new methodology, information was provided to the Department for Works and Pensions (DWP), including extrapolations of errors. Those extrapolations ranged from £4,000 to £238,000 and were outlined in the qualification letter which was appended.

The report concluded that, subject to the observations in the qualification letter, the entries in the 2007/08 subsidy claim were fairly stated and in accordance with the related terms and conditions set by the DWP.

The report also appended the 2006/07 HB/CTB subsidy management letter action plan, which included a management update on progress that had been made against those points and highlighted that all of the recommendations had been implemented satisfactorily, with the exception of the point on Registered Social Landlords, where a further recommendation had been made for 2007/08.

Lastly, the report appended the action plan for 2007/08 which contained the External Auditor’s main findings and recommendations which had been identified during the 2007/08 subsidy claim audit.

The Committee resolved:-

(i)                 to note the content of the Housing Benefit and Council Tax Benefit Subsidy Management Letter for 2007/08; and

(ii)               to endorse the recommendations contained within the report.

With reference to Article 17 of the minute of meeting of the Continuous Improvement Committee of 2^nd June 2009, the Committee had before it a report by the External Auditor which provided an update on the progress that had been made by the Council in addressing the concerns raised in the Controller of Audit’s report on the property sales investigation.

The report reminded members of the circumstances that had led to the Controller of Audit’s report on the property sales investigation in April 2008. The initial investigation by Internal Audit had identified:-

• evidence of procedural and administrative deficiencies and poor record keeping
• cases where accurate and relevant information had not been reported to elected members
• a lack of evidence to support the valuation at which properties had been sold
• cases where the Council might have achieved a better price - overall, depending on alternative scenarios, it appeared that there had been a potential loss of capital receipts which could be more than £5million

The report stated that the Council had responded quickly when those concerns had emerged and senior officers had taken remedial action for which they were accountable to elected members. Overall, the Controller of Audit’s report highlighted matters relating to scrutiny and organisational culture which were reflected in the report on Best Value and Community Planning at the Council which had been published in May 2008.

The report then set out the objectives of the follow-up review and the audit approach that had been taken. From the work carried out, in respect of controls, procedures and reporting on property disposals, the report concluded that good progress had been made in addressing the issues raised in the Controller of Audit’s report relating to the property sales investigation and the findings and recommendations made by the Accounts Commission had been addressed. The report cautioned that because of the economic environment which had existed in recent months and the period of time due process for disposals can take, there had not been a significant level of disposals in the period since the Controller of Audit’s report had been issued.

The report added that in 2007 the Council received an independent report identifying the actions that were necessary to deliver a comprehensive Asset Management Plan. The Council had been addressing the recommendations and had recently implemented a timeframe for completion of a list of key priorities. Officers had acknowledged the fundamental importance of embedding Asset Management corporately within the Council to be able to manage the property portfolio effectively.

In respect of the separate investigation into the disposal of certain tied houses to the tenants, the report stated that deficiencies in documentation supporting the tenancies had been identified such that the Council had been unable to dispute the Right to Buy application under the terms of the Housing (Scotland) Act 2001. As a result of the arrangements which had been in place over a number of years, the Council had suffered financial loss either through giving discounted rents when they were not appropriate, or through being obliged to sell properties at discounted prices when, if the Council had the appropriate documentation in place, the applications to buy could have been turned down.

The report made the following recommendations relating to tied properties, which were in addition to the action plan forming part of the Council’s own report on sales of tied housing:-

(1)          Services should have a procedure in place whereby a lack of an appropriate response within a reasonable period of time to an internal enquiry should be escalated within that service to a senior level.

(2)          The Council should clarify whether discounts continue to be given to former staff and that appropriate measures are in place to resist Right to Buy applications if the intention would be to retain those properties.

The Committee resolved:-

(i)                 to instruct each Director to report to their service committee in the next cycle on how many tied houses were still in existence, where they were located and with a statement explaining the justification for being tied houses, and request that the Finance and Resources Committee take a corporate overview by producing a corporate register for reporting back to the Audit and Risk Committee thereafter; and

(ii)               otherwise to note the content of the report and endorse the recommendations contained therein.

With reference to Article 9 of the minute of meeting of the Scrutiny Panel of 8^th June 2009, the Committee had before it a report by the City Chamberlain which provided an update on progress in relation to the bank reconciliation process.

The report advised that since the last update to the Scrutiny Panel on 8^th June 2009, there had continued to be positive progress in relation to the bank reconciliation and the objective of maintaining the timely and robust clearance of items from the reconciliation to ensure that it was up-to-date within the timescales agreed for the process. The June reconciliations had been signed off and substantial work had been completed towards completing the July reconciliations which were due for completion at the end of August.

The report then provided an update on the automated bank reconciliation module. The preferred solution was to implement the Civica Bank reconciliation module, however it required to be tested including a review and update of the current processes and procedures used to capture income information.  A Project Manager had been appointed, who commenced on 1^st July 2009, and it had been agreed to undertake a pilot on the Debtors bank account tackling each process one by one.

The report explained that the project was directed by a Project Board chaired by the City Chamberlain. Activities undertaken to date included a fact finding visit to East Ayrshire Council, which currently operated the automated bank reconciliation module, and engagement with Civica to agree training and system set up arrangements. The report detailed the decisions that had been made to date and the next steps. It was highlighted that the project had been running well and it was expected that the key dates would be met through early engagement with key stakeholders and ensuring that the framework for managing and controlling the project was in place. The report concluded that the Automated Bank Reconciliation Project Board would maintain overall responsibility for direction and management of the various strands of the project throughout the period.

The report recommended:-

that the Committee -

(a)              note the positive position that the bank reconciliations were in; and

(b)              note the progress and plan for implementation of the automated bank reconciliation module and agree that progress now be monitored and managed by the Project Board.

The City Chamberlain advised the Committee that the July reconciliations had been completed and signed off, and that the August reconciliations were on schedule.

The Committee resolved:-

(i)                 to approve the recommendations; and

(ii)               to request the City Chamberlain to report back on progress on a regular basis.

DECLARATION OF INTEREST

Prior to consideration of the following item of business, Mr James Guyan, Internal Audit Manager, left the meeting for the duration of the Committee’s deliberations by virtue of the fact that the business in question referred to his pay and conditions and that of his staff.

With reference to Article 10 of the minute of meeting of the Resources Management Committee of 16^th June 2009, the Committee had before it a report by the Director of Corporate Governance which discussed the pay and conditions of Internal Audit staff.

By way of background, the report explained that the Council’s Internal Audit function had had a number of vacancies for the last three to four years. Repeated attempts had been made to recruit to the vacant positions both locally and nationally. The work to deliver the Annual Audit Plan had been maintained by the use of agency staff, the extension of external audit work and the employment of a private sector accountancy firm.

The report highlighted that there had been an underspend in the Internal Audit budget in both 2007/08 and 2008/09 as a result of the recruitment difficulties, which had resulted in a reduction in the budget for 2009/10. Spend in 2007/08 saw Aberdeen City Council have the lowest cost for its Internal Audit function per £1million of net Council expenditure of all 32 Scottish local authorities.

The report stated that benchmarking had been carried out for the posts of Chief Auditor, Audit Manager and Internal Auditor across Scotland’s local authorities, other public sector bodies and the private sector in the North East of Scotland. The results, which were detailed in the report, indicated that Aberdeen City Council was not significantly out of step with the Scottish public sector, as a result of significant increases through the Equal Pay and Modernisation process.

The report went on to advise that it had previously been considered that stringent essential criteria within the person specification for Internal Auditor posts were restricting the options available for recruitment, however there were no essential qualifications required although applicants did require essential experience of internal auditing. The report underlined that the Internal Audit Manager had indicated that sixteen of the items that had been included within the Annual Internal Audit Plan would be “moderate” or “difficult” without additional resources or skills being made available.

The report emphasised that the provision of a skilled and resourced Internal Audit function was essential to the Council - not only was it a management tool for assurance and improvement but external audit required to place reliance on the work of Internal Audit in a number of key areas. It was absolutely necessary, therefore, to ensure the sustainable delivery of an adequate and skilled resource to deliver the Annual Internal Audit Plan.

The report concluded by setting out a number of options which were available to the Council and expanding on each option. These included (1) continuing with in-house delivery; (2) a co-sourced service; (3) outsourcing the service; and (4) pursuing a shared services option with other public sector partners. The report added that discussions were being held with staff and trade unions and an options appraisal was being carried out to assess each of the options, the output from which would be reported to the Committee.

The report recommended:-

that the Committee -

(a)              note the comparative budget, spend, salaries and required qualifications for Internal Auditors at Aberdeen City Council;

(b)              note the assessment of the Internal Audit Manager that a number of items included within the Annual Internal Audit Plan would be challenging to deliver without additional resources and skills being made available;

(c)               agree that officers progress an options appraisal with the involvement of staff and trade unions on the best value means of delivering the Internal Audit function; and

(d)              agree that a further report recommending the preferred option be submitted to the next meeting of the Committee.

The Committee resolved:-

(i)                 to approve the recommendations; and

(ii)               to request officers to raise the matter for consideration at the meeting of the Aberdeen City and Shire Shared Services Board on 2^nd October 2009.

EXEMPT INFORMATION

The Committee resolved in terms of Section 50(A)(4) of the Local Government (Scotland) Act 1973 to exclude the press and public from the meeting during consideration of the following items of business so as to avoid disclosure of exempt information of the class described in paragraph 1 of Schedule 7(A) of the Act.

DECLARATIONS OF INTERESTS

During the course of discussion on the following item of business the Convener declared an interest in relation to a specific aspect by virtue of his membership of a subsidiary of Langstane Housing Association. Councillor McDonald declared an interest by virtue of his position as the Council’s nominated representative on the Board of Langstane Housing Association. Councillor Cassie declared an interest as a tenant of Tenants First Housing Co-operative. None of the members referred to considered that the nature of their interests required them to leave the meeting.

The Committee had before it (1) a report by the Internal Audit Manager which appended recently completed audit reports on the services detailed below; and (2) management statements from the appropriate Directors in response to each of the completed reports.

SERVICE

TITLE

DATE ISSUED

Resources Management - Human Resources

Management Information

June 2009

Resources Management - Resources Development and Delivery

Hanover Street School Refurbishment

June 2009

Continuous Improvement - Service Design and Development

Education Software Licences

June 2009

Continuous Improvement - Service Design and Development

ICT Disaster Recovery

June 2009

Continuous Improvement - Customer Relations Management

Income Collection

July 2009

Continuous Improvement - Service Design and Development

Transformation Programme

July 2009

Strategic Leadership - Planning and Infrastructure

Affordable Housing

May 2009

Central - Culture and Learning

Crèche Services

June 2009

Central - Support Services

Kittybrewster Creditors

June 2009

The Committee resolved:-

(i)                 that in relation to Audit RM-HR/SA/0801 (HR Management Information), to commend the staff within Human Resources involved in the audit;

(ii)               that in relation to Audit RM-RDD/CT/0802 (Hanover Street School Refurbishment Contract):-

(a)          to request officers to report back on the use of Project Management guidelines across the Council and whether they were being complied with;

(b)          to request officers to investigate a contractual issue raised by Councillor Cormack relating to Ferryhill Primary School; and

(c)          to request that the report requested at (a) above also consider the use of Project Management techniques in use in the private sector, and to note that Gordon Edwards would raise this issue with Pihl in a scheduled meeting with them the following week;

(iii)             that in relation to Audit CI-SDD/SA/0704 (Education Software Licences):-

(a)               to instruct the Director of Education, Culture and Sport to intervene and take further steps to ensure that schools complied with the requests for information from Internal Audit, as this was a fundamental aspect of the Council’s operation; and

(b)               to commend the Internal Audit Manager for his patience in this area of work;

(iv)             that in relation to Audit CI-SDD/SA/0801 (ICT Disaster Recovery), to commend Internal Audit for their work in this area;

(v)               that in relation to Audit SL-PI/SA/0707 (Affordable Housing):-

(a)               to request the Internal Audit Manager to establish how many staff days had been spent on the audit from members of staff within Internal Audit, Planning and Infrastructure and the Office of the City Solicitor, and forward this information to Councillor Cassie; and

(b)               to request officers to clarify the latest position with the payment of £450,000 to Langstane Housing Association which was approved by the Resources Management Committee in February 2008;

(vi)             that in relation to Audit C-CL/SA/0805 (Crèche Services), to note with alarm the level of subsidy the crèche was operating with, in regard to income compared to expenditure, and request officers to report on other areas of service provision in a similar position to the service committees to consider; and

(vii)           otherwise to approve the issue of the Internal Audit reports and endorse the recommendations for improvements contained therein.

The Committee had before it a report by the Internal Audit Manager which advised of progress with the implementation of recommendations arising from selected audits.

The Committee resolved:-

to note that all items had been satisfactorily implemented.

The Committee had before it a report by the Internal Audit Manager which detailed a number of recommendations previously approved in audit reports issued the implementation of which was overdue.

The Committee then received updates from various officers in relation to the matters affecting their services and considered revised implementation dates where appropriate.

The Committee resolved:-

(i)                 to request the Internal Audit Manager to provide Councillor McDonald with accurate figures for the number of audit recommendations that had been cleared, were overdue and the resultant percentage in relation to the meetings in January 2008, June 2009 and September 2009, and copy the information to all other members of the Committee;

(ii)               that in relation to Audit C-SS/SA/0802 (Kittybrewster Creditors) - item 4.5.1, to note that consensus had been reached with the Internal Audit Manager and the item had therefore been completed;

(iii)             that in relation to Audit AW/RM-CC/0810 (Total (Consillium) Accounting) - item 3.10.1, to note that the item had been completed;

(iv)             that in relation to Audit CI-CRM/CA/0803 (Sundry Debtors):-

(a)          to note that item 4.1 had been completed on 19^th August 2009; and

(b)          to note that completion of item 4.4 was in hand by Finance Development;

(v)               that in relation to Audit CI-SDD/CR/0701 (ICT Network), to note that items 4.2.2 and 4.4.1 had been completed;

(vi)             that in relation to Audit CI-SDD/CR/0802 (ICT Disaster Recovery):-

(a)          to note that the Head of Service Design and Development would liaise with the Internal Audit Manager in regard to the completion of item 4.3.1(iv);

(b)          to note that items 4.4.1(i), (ii) and (iii) had been completed; and

(c)          to note that item 4.4.3 had been partially completed as it was still to be costed;

(vii)           that in relation to Audit C-SS/SA/0801 (Payroll Administration), to note that item 4.3 had almost been completed and would be completed shortly;

(viii)         that in relation to Audit N-SE/SA/0803 (Building Cleaning):-

(a)          to note that items 4.3.2(i) and 4.4.2(i), (ii) and (iii) had been completed;

(b)          to note in respect of items 4.2.1(i) and (ii) that a Facilities Training Co-ordinator had been appointed and to approve the revised implementation date of 31^st October 2009;

(c)          to approve the revised implementation date of 31^st October 2009 in respect of items 4.3.1(i) and (ii), 4.3.2(ii), 4.3.3(i) and (ii) and 4.4.1; and

(d)          to agree that item 4.4.3 be transferred to the Committee Business Statement;

(ix)             that in relation to Audit AW/IA/0812 (Year-end Stock-taking), to note that item 3.6.2 had been completed;

(x)               that in relation to Audit RM-CC/SA/0704 (Risk Management), to note the update from the City Chamberlain in respect of item 4.2.1(iii) to the effect that the work was in hand, with service risk registers to be reported to the service committees in due course;

(xi)             that in relation to Audit RM-CS/SA/0801 (Archives), to approve the revised implementation date of 31^st December 2009 in respect of items 4.1.1(ii) and (iii) and 4.1.3(i) and (ii);

(xii)           that in relation to Audit RM-RDD/CT/0701 (Hazlehead Changing Facilities Contract Audit), to note that the procurement process was ongoing in respect of item 4.1.1; and

(xiii)         that in relation to Audit RM-RDD/CT/0802 (Hanover Street School Refurbishment Contract):-

(a)          to approve the revised implementation date of 1^st February 2010 in respect of items 4.2.4.2(i) and 4.2.6(i); and

(b)          to note that a report would be submitted to the appropriate committee on the new procedure in respect of item 4.3.2(i).

The Convener highlighted that this had been Gordon Edwards’ first and last meeting of the Audit and Risk Committee prior to leaving the Council and his former role as Corporate Director for Resources Management, and thanked him for his contribution to the Committee and its various predecessors.

The Committee resolved:-

to concur with the remarks of the Convener.

- BARNEY CROCKETT, Convener.