HERTFORDSHIRE COUNTY COUNCIL

AUDIT COMMITTEE

FRIDAY 30 MARCH 2012 AT 10.00AM IN COMMITTEE ROOM B

LETTERS OF REPRESENTATION ON MANAGEMENT And oversight

of the hertfordshire county council (including

firefighters’ pension fund) and hertfordshire pension

fund accounts 2011/12

Report of the Director Resources and Performance

[Authors: Claire Cook, Assistant Director - Finance

Tel: 01992 555737

Patrick Towey, Head of Specialist Accounting

Tel: 01992 555148]

Executive Member:David Lloyd (Resources and Economic Well-Being)

1.Purpose of Report

1.1To respond to the Audit Commission’s requirements for assurances on the management and oversight of both the General and Pension Fund accounts.

2.Summary

2.1In accordance with International Accounting Standards the Audit Commission are required to on an annual basis to update their understanding of the management and processes for both the General and Pension Fund Accounts. The authority’s response is required to be signed by the Chairman of the Audit Committeein the case of the General Accounts,and jointly by both the Chairman of the Audit and Pensions Committees in the case of Pension Fund. The purpose of this letter is to provide assurances over the management and oversight of processes relating to the accounts.

3.Conclusion

3.1The draft letters of representation attached at Appendix Aand B set out the position in relation to management and oversight of the General and Pensions Fund accounts.

4.Suggested Resolution

4.1That the letters of representation to the Audit Commission are approved.

APPENDIX A:Draft Letter of Response to the Audit Commission - Understanding how the Audit Committee gains assurance from management

Penny Irwin Hertfordshire County Council

Audit Manager County Hall

Audit Commission Hertford SG13 8DE

3rd Floor

Eastbrook Fax : 01992 555505

Shaftesbury RoadTelephone: 01992 555601

CambridgeE-mail:

CB2 8BF Minicom: 01992 556611

Contact: Mike Parsons

Date: 30 March 2012

Dear Ms Irwin

Hertfordshire County Council (including Firefighters’ Pension Fund)

Audit 2011/12

Understanding how the Audit Committee gains assurance from management

Thank you for your letter dated 28 February 2012to me as Chairman of the Audit Committee, concerning your current work on the Council’s accounts for 2011/12.

In response to your request, I can provide you with the following assurances.

1 Oversight of management’s processes

1.1 Assessment that the financial statements may be materially misstated due to fraud or error (including the nature, extent and frequency of these assessments)

This risk is considered by the Audit Committee as part of its annual scrutiny of the accounts. Internal Audit audits and reports to the Committee annually the outcomes of its work on a number of systems and processes, particularly the main financial systems work including payroll, debtors, general ledger and creditors. The work undertaken to date provides assurance that the financial statements are not materially misstated.

1.2 Identifying and responding to risks of fraud

Internal Audit reports to the Committee on its annual planning process which includes a detailed risk assessment of the Council’s systems and arrangements, including explicit evaluation of the risk of fraud or other irregularity. Internal Audit reviews of each of the Council’s core financial systems, as well as those of significant corporate and service department systems, including procurement and contracting arrangements are aimed in part at testing for fraud, and at evaluating the effectiveness of controls aimed at minimising such activity. The quarterly report on audit plan progress now provides details of the specific levels of assurance on the systems and processes reviewed by Internal Audit as part of their annual plan. In addition Internal Audit’s anti-fraud work includes participation in the National Fraud initiative and investigation of potential data matches.

The Council's Anti-Fraud and Corruption Strategy has been endorsed by the Audit Committee; the Strategy sets out how the Council responds to suspected or detected fraud or corruption, and include the requirement on all Council employees and members that such suspicions be reported promptly to the Head of Assurance for investigation. The Council's Whistleblowing procedure, also endorsed by the Audit Committee, sets out how this reporting can be done in confidence, and is issued to all employees and members. In November 2011 the Council approved its Anti-Bribery policy which also brought together related policies across the County Council. The Council's website, HertsDirect, provides confidential means for members of the public to report suspected fraud direct to the Head of Assurance or, if they prefer, to the Audit Commission's national investigations manager.

Internal Audit is resourced to undertake investigations into suspected fraud, and has undertaken these in 2011/12 without adversely affecting its assurance role. Information on fraud investigations is included in the quarterly Internal Audit progress report to members.

1.3Communication to employees on business practice and ethics

The Council's Anti-Fraud and Corruption Strategy, endorsed by the Audit Committee, is clear and accessible to employees via the Council's intranet "Compass". Internal publicity on Compass is given to successfully investigated cases of fraud.

1.4Encouraging employees to report their concerns about fraud

The Council’s Whistleblowing policy is set out on Compass and all concerns notified have been investigated.

1.5Communication to those charged with governance on processes for identifying and responding to fraud

The Head of Assurance presents the annual Internal Audit Plan to the Audit Committee, and provides the Committee with the opportunity to scrutinise those elements of the Plan aimed at identifying and responding to the risks of fraud within the Council. The Committee has also been made aware of the Anti-Fraud and Corruption Strategy and the Anti-Bribery policy. In her Quarterly Report, the Head of Assurance provides an account to the Committee of work done to test anti-fraud controls and of investigations into suspected fraud.

2.Risk of fraud and breaches of internal control

The Audit Committee receives quarterly reports from the Head of Assurance on the progress of the Internal Audit planned work. These reports also include, if applicable, any breaches in control.

In her Internal Audit Annual Report, the Head of Assurance provides an account to the Committee of work done to test for breaches of internal control, and reports on management responses to these.

3.Awareness of actual, suspected or alleged fraud or breaches in internal control

Work continues to examine the results of the 2011/12 National Fraud Initiative; no frauds have been identified through this route to date. In addition in November 2011 the Head of Assurance reported on the investigation into a fraud investigation in relation to its Appointeeship role which has been reported to the police for investigation. The Head of Assurance maintains a fraud register of all such instances, which provides for the recording of the nature and extent of each suspected fraud, the way in which each case is resolved, and any wider corrective measures.

The Head of Assurance reports to the Audit Committee on the effectiveness of controls, including segregation of duties, operating within systems and processes across the authority in line with the annual programme of work. The governance framework for the authority comprises the systems and processes, and culture and values, by which the authority is directed and controlled, and its activities through which it accounts to, engages with and leads the community. The Audit Committee as part of its annual programme of work reviews the operation of effective governance across the organisation and actions in place to address any improvements that are required. None of the improvements in train relating to the 11/12 year relate specifically to fraud risks or issues.

4Compliance with relevant laws and regulations

The members of the Audit Committee, as members of the Council, approve the Councils Constitution and any changes to it (most recently 29 November 2012), in which the functions of Monitoring Officer are set out. It is the role of the Monitoring Officer to ensure that decisions are lawful and fair and, after consultation with the Head of Paid Service and Chief Finance Officer, to report to the Council (or Executive) if any proposals or decision would give rise to unlawfulness or maladministration.

Formal reports from Monitoring Officers to Council Meeting, at Hertfordshire County Council as elsewhere, are extremely rare. The Monitoring Officer discharges here responsibility by ensuring that Members, including the Audit Committee, are advised as soon as possible about potential unlawfulness or maladministration. There have been no significant issues of non-compliance in 2011/12 reported to the Audit Committee.

5Financial Statements are prepared on a going concern basis

The Governance arrangements of the authority include specific requirements for the financial management arrangements to conform to the governance requirements of the CIPFA Statement on the Role of the Chief Financial Officer (2010). The ongoing review of internal control by the Audit Committee includes arrangements in place for the financial management of the authority. This includes scrutiny of the robustness of estimates and the adequacy of reserves, as part of the annual budget cycle, together with ongoing monitoring and control of the budget and action necessary to address any variances.

6Awareness of any actual or potential litigation or claims that would affect the financial statements

The Chief Financial Officer is required, as part of the ongoing performance management and monitoring arrangements, to consider any material risks or issues which could impact on the financial statements and recommend that the authority makes appropriate provision against such risks. This would include any potential litigation or claims. As part of the 2011/12 closure of accounts the Cabinet will consider the increased risks in relation to the Municipal Mutual Insurance contingent liability. This is a result of legislative changes relating to the statute of limitations for employers liability claims and the potential for increase in exposure to these claims in common with other local authorities.

We trust that this answers your requests. If you require any further information, please do not hesitate to contact us.

Yours sincerely

S Quilty
Chairman
Hertfordshire CC Audit Committee
APPENDIX B:Draft Letter of Response to the Audit Commission - Understanding how the Audit Commission gains assurance from management

Ruth Pritchard-WoolesHertfordshire County Council

Audit Manager County Hall

Audit Commission Hertford SG13 8DP

3rdFloor

EastbrookFax : 01992 555505

Shaftesbury RoadTelephone: 01992 555601

CambridgeE-mail:

CB2 8BFMinicom: 01992 556611

Contact: Mike Parsons

Date30 March 2012

Dear Ms Pritchard-Wooles

Audit of Hertfordshire Local Government Pension Fund Financial Statements for the year end 31 March 2012

Understanding how the Audit Committee gains assurance from management

Thank you for your letters dated 25 Januaryto us as Chairmen of the Audit and Pensions Committees respectively, concerning your current work on the Hertfordshire Pension Fund accounts for 2011/12. As you suggested, we are providing you with a joint letter of reply.

In response to your request and further questions in appendix 1 of your letter, we can provide you with the following assurances.

1 Oversight of management’s processes

1.1 Assessment that the financial statements may be materially mis-stated due to fraud or error

This risk is considered by the Audit Committee as part of its annual scrutiny of the Pension Fund accounts. Internal Audit audits and reports to the Committee on the Pension Fund, assessing the controls designed to ensure the accuracy and propriety of the financial statements. This also deals with the risk of misstatement due to any organisational or management pressure to meet financial or operating targets.

As a result of this work during 2011/12, I anticipate that the Head of Assurance will report to the Committee that she does not consider that there is a significant risk of material misstatement in the financial statements due to fraud.

1.2 Identifying and responding to risks of fraud

The Director of Resources and Performance takes reasonable steps for the prevention and detection of fraud. The Pension Fund’s assets are held in custody by an independent custodian, and investment managers appointed by the pension committee manage these assets on behalf of the Fund. Reasonable controls have been certified by an appropriate auditor.

In addition, Internal Audit reports to the Audit Committee on its annual planning process, in which Internal Audit undertakes a detailed risk assessment of the Council's systems and arrangements, including an explicit evaluation of the risk of fraud or other irregularity. Administration of the Pension Fund is operated through the Council’s core financial systems, and

Internal Audit's reviews of each of these are aimed in part at testing for fraud, and at evaluating the effectiveness of controls, including segregation of duties, aimed at minimising such activity. In addition, Internal Audit's anti-fraud work covering the Pension Fund includesparticipation in the National Fraud Initiative and investigation of potential data matches which may indicate overpayment or, occasionally, fraud.

The Council's Anti-Fraud and Corruption Strategy has been endorsed by the Audit Committee; the Strategy sets out how the Council responds to suspected or detected fraud or corruption, and include the requirement on all Council employees and members that such suspicions be reported promptly to the Head of Assurance for investigation. The Council's Whistleblowing procedure, also endorsed by the Audit Committee, sets out how this reporting can be done in confidence, and is issued to all employees and members. The Council's website, HertsDirect, provides confidential means for members of the public to report suspected fraud direct to the Head of Assurance or, if they prefer, to the Audit Commission's national investigations manager.

Internal Audit is resourced to undertake investigations into suspected fraud, and has undertaken a number of these in 2011/12 without adversely affecting its assurance role.

1.3Communication to employees on business practice and ethics

The Pension Fund has published a Communication Policy Statement which explains how it communicates with employers and representatives of employers, Scheme members and prospective Scheme members. This is set out within the Pension Fund’s 2010/11 Annual Statement of Accounts, and may be found at the following website

The Council’s Code of Conduct, available on the Council’s Intranet, sets out clearly the standards expected of its employees including the high standards required in respect working with public funds and complying with Anti-Bribery laws.

1.4Communication to those charged with governance on processes for identifying and responding to fraud

The Head of Assurance presents the annual Internal Audit Plan to the Audit Committee, and provides the Committee with the opportunity to scrutinise those elements of the Plan aimed at identifying and responding to the risks of fraud, including those within the Pension Fund. The Committee has also been made aware of the Anti-Fraud and Corruption Strategy. In her Annual Report, the Head of Assurance provides an account to the Committee of work done to test anti-fraud controls and of investigations into suspected fraud.

2.Risk of fraud and breaches of internal control

The Pensions Committee receives quarterly reports from the Director of Resources and Performance on the performance of the Pension Fund against both the Investment and Administration Strategies. These reports also include, if applicable, any breaches in control.

In her Internal Audit Annual Report, the Head of Assurance provides an account to the Committee of work done to test for breaches of internal control, and reports on management responses to these.

3.Compliance with relevant laws and regulations

The members of the Audit Committee, as members of the Council, approve the Councils Constitution and any changes to it (most recently 29 November 2012), in which the functions of Monitoring Officer are set out. It is the role of the Monitoring Officer to ensure that decisions are lawful and fair and, after consultation with the Head of Paid Service and Chief Finance Officer, to report to the Council (or Executive) if any proposals or decision would give rise to unlawfulness or maladministration.

Formal reports from Monitoring Officers to Council Meeting, at Hertfordshire County Council as elsewhere, are extremely rare. The Monitoring Officer discharges here responsibility by ensuring that Members, including the Audit Committee, are advised as soon as possible about potential unlawfulness or maladministration. There have been no significant issues of non-compliance in 2011/12 reported to the Audit Committee.

4.Awareness of actual, potential litigation or claims that would affect the financial statements

The Chief Financial Officer is required, as part of the ongoing performance management and monitoring arrangements, to consider any material risks or issues which could impact on the financial statements and recommend that the authority makes appropriate provision against such risks. This would include any potential litigation or claims. There are no actual, potential litigation or claims that would affect the financial statements for the Pension Fund.

5.Financial Statements are prepared on a going concern basis

The Governance arrangements of the authority include specific requirements for the financial management arrangements to conform to the governance requirements of the CIPFA Statement on the Role of the Chief Financial Officer (2010). The ongoing review of internal control by the Audit Committee includes arrangements in place for the financial management of the authority. This includes scrutiny of the robustness of estimates and the adequacy of reserves, as part of the annual budget cycle, together with ongoing monitoring and control of the budget and action necessary to address any variances

6.Awareness of any instances of actual, suspected or alleged fraud during the period 1 April 2011 – 31 March 2012 within the pension fund

Work continues to examine the results of the 2011/12 National Fraud Initiative; no frauds have been identified through this rout to date. The Head of Assurance maintains a fraud register of all such instances, which provides for the recording of the nature and extent of each suspected fraud, the way in which each case is resolved, and any wider corrective measures.

The Director of Resources and Performance takes reasonable steps for the prevention and detection of fraud. The Pension Fund’s assets are held in custody by an independent custodian, where reasonable controls have been certified by an appropriate auditor.