BOROUGH OF POOLE

AUDIT COMMITTEE

6 OCTOBER 2010

The Meeting commenced at 7:00pm and concluded at 8:20pm

Present:

Councillor Gregory (Chairman)

Councillor Allen (Vice-Chairman)

Councillors Gillard, Godfrey, Mrs Haines and Mrs Stribley (for the Vacancy)

Also in Attendance:

Michelle Coplestone – Democratic Support Officer, Legal and Democratic Services, Borough of Poole (BoP)

Sam Harding – Audit Manager, Audit Commission

Simon Garlick – District Auditor, Audit Commission

Simon Milne – Management Auditor, Financial Services (BoP)

Ian Milner – Head of Audit and Management Assurance, Financial Services (BoP)

Adam Richens - Head of Accountancy, Financial Services (BoP)

Members of the Public Present: 1

AC19.10APOLOGIES FOR ABSENCE

No apologies for absence were received.

AC20.10DECLARATIONS OF INTEREST

No declarations of interest were made.

AC21.10MINUTES

RESOLVED that the Minutes of the Meeting held on 24 June 2010, having been previously circulated, be confirmed as a correct record and signed by the Chairman.

AC22.10MATTERS ARISING

AC13.10 Risk Management – Corporate Risk Register Quarterly Update

The Chairman referred to the restructure of the Audit and Management Assurance Team and details of the new structure were distributed to Members.

AC16.10 Annual Governance Statement 2009/10

The Chairman referred to the Comprehensive Area Assessment (CAA) and the District Auditor advised that he would provide an update later in the Meeting.

The Chairman referred to the Corporate Change Board and the Business Transformation Programme as the Committee had requested an informal session to explain how the areas related to one other. The Committee was advised that this would be added to the Forward Plan.

It was noted that Councillor Godfrey had requested to meet with the Auditors to gain a better understanding of Local Government Accountancy and that this Meeting had now taken place.

AC23.10AUDIT COMMISSION STATUS UPDATE

The District Auditor advised that the Audit Commission would be abolished with effect from 31 December 2012 and that a range of options were being considered for the future.

The Committee was advised that with the abolition of the Comprehensive Area Assessment (CAA) it was unclear on where Audit fees would be pitched. The levels of fees were still under discussion and would be reported to the Audit Committee at a future date. The abolition of the CAA and Use of Resources also meant that the Audit Commission could no longer provide the Council with a score judgement; however, it would continue to identify areas for improvement.

A Member suggested that if audit work was not being carried out as originally planned then the Council should receive a reduction in the Audit Commission’s fees. The Head of Audit and Management Assurance explained that the Council was not paying the Audit Commission’s invoices at present as it expected to see a reduction in fees.

RESOLVED thatthe update be noted.

AC24.10ANNUAL GOVERNANCE REPORT

The Chairman advised that following the postponement of the Audit Committee from 30 September 2010 to 6 October 2010, this item had already been considered.

Members of the Audit Committee had considered the Report individually and had approved the decisions contained in the Report on 30 September 2010, which were as follows:

  • To consider the matters raised in the Report before approving the Financial Statements,
  • To take note of the adjustments to the Financial Statements set out in the Report,
  • To take note of the misstatements in the Financial Statements, which had been identified but did not require amendment; and
  • To approve the Letter of Representation for the Council before the Audit Commission issued its opinion and conclusion.

It was noted that Members with queries had sought clarification from the Head of Audit and Management Assurance prior to approving the decisions detailed above.

RESOLVED that the decisions contained in the Report, as detailed above, be approved.

AC25.10RISK MANAGEMENT REPORT – CORPORATE RISK REGISTER QUARTERLY UPDATE

The Head of Audit and Management Assurance presented a report which provided an update on the latest revision of the Corporate Risk Register. The Report also summarised the progress on planned Risk Management Development work, including implementation of an Integrated Risk Management and Internal Audit System (IRMAS) and the associated review of the Council’s Risk Management Framework.

The Head of Audit and Management Assurance advised that details of how the Audit Plan was to be developed would be brought to a future Meeting along with details of what the Council saw as its risks and how those risks would be audited and managed.

A Member commented that the Dolphin Shopping Centre ought to be added as a risk as it was now up for sale. The owner had been investigating an expansion of the Town Centre Shopping Mall but could not complete it before its Grosvenor Shopping Centre Fund expired in 2014. The same Member asked what Grosvenor would do with the Council’s investment and explained that in view of the current financial state of the economy, it was necessary to ensure that the Council did not lose its investment.

The Chairman asked how large the overall Risk Register was? The Head of Audit and Management Assurance explained that Service Units could each have up to 40 risks; however, some risks were very low and were being monitored.

The Chairman commented that the presentation of the Corporate Risk Register was excellent as the main risks were clearly highlighted. He added that it would be of benefit to the Committee if it could take a closer look at the risks of one Service Unit in detail.

The Head of Audit and Management Assurance explained that with the introduction of the IRMAS all information was now held in one place and that it was necessary to ensure that the Audit Plan was informed by the overall risks to the Council.

A Member commented that the Corporate Risk Register would be more legible if it was provided on an A3 document.

A Member advised that the Committee had previously requested six monthly update reports on the Twin Sails Bridge Contract in order to be kept informed of progress and the spend to date. The Head of Audit and Management Assurance explained that an Audit of the Twin Sails Bridge was due to commence shortly and that an opinion would be given on the assurance of controls.

The Chairman explained that the Economy Overview and Scrutiny Committee was monitoring the progress of the Twin Sails Bridge.

RESOLVED that

(i)Members note the updated Corporate Risk Register; and

(ii)Members note progress on the implementation of the Integrated Risk Management and Internal Audit System.

AC26.10ANNUAL WHISTLE BLOWING REPORT 2009/10

The Head of Audit Management and Assurance presented a Report which provided a summary of the number, nature and outcome of Whistle-Blowing referrals investigated throughout 2009/10. The Report also asked Members to consider and approve the proposed changes to the Council’s Whistle-Blowing Policy in relation to Members use of the Policy.

Members were advised that a total of four Whistle-Blowing referrals were investigated by the Borough during the last Financial Year (April 2009-March 2010).

The Head of Audit and Management Assurance explained that the Council’s Whistle-Blowing Policy had been reviewed by the Chief Finance Officer, the Monitoring Officer and the Head of Human Resources to provide clarity on Members’ use of the Policy to raise concerns. The Report clarified that Members would not be protected from anonymity under the Policy and that anonymity could not be protected in the event of a criminal prosecution.

It was noted that Members of the Council could refer Whistle-Blowing concerns in accordance with the Policy on behalf of themselves or their constituents if asked to do so by a third party. However, Members could not rely on the use of the Policy as an alternative to raising questions or concerns that should be managed through the democratic processes of the Council, e.g., Overview and Scrutiny Committees, Call-in procedures or the Standards Committee.

The Chairman noted that there had been a decrease in the number of Whistle-Blowing referrals received.

A discussion ensued with regard as to whom Whistle-Blowing referrals should be made. The Head of Audit Management and Assurance advised that Audit received referrals, as did Service Unit Heads and Strategic Directors. There was no specific route to make a referral as not everyone would be comfortable taking concerns directly to Audit and therefore individuals could raise any concerns with whoever they had confidence in, e.g., Line Manager. A formal disclosure could also be made to one of the Statutory Officers (Monitoring Officer, Head of Financial Services or the Chief Executive).

A Member asked for clarification as to what was happening in light of the Council now having a smaller team of Strategic Directors? The Committee was advised that the Chief Executive was overseeing Financial Services and Legal and Democratic Services, Andrew Flockhart was overseeing Human Resources and ICT and Jim Bright was overseeing Asset Management and Property Services.

RESOLVED that

(i)Members note the number, nature and outcome of Whistle-Blowing referrals investigated during 2009/10; and

(ii)Members approve the proposed changes to the Council’s Whistle-Blowing Policy in relation to Members’ use of the Policy.

AC27.10TREASURY MANAGEMENT UPDATE – REVIEW OF QUARTER 1 2010/11

The Head of Accountancy presented a Report which set out details of the activity of the Council’s Treasury Management function for Quarter 1 of 2010/11.

Key points were summarised as follows:-

2010/11 Borrowing

  • The Council had an underlying need to borrow significant funds in order to finance its Capital Programme.
  • The Council had previously reduced its Public Works Loans Board (PWLB) debt portfolio by prematurely replaying £14M of its external debt over the previous 2 years – this enabled the Council to mitigate a period of particularly high counterparty risk on its investments and provided the bases of a need to rebalance the Council’s debt profile.
  • Actual interest paid on external loans in the first quarter was as per the Budget.
  • The Council has borrowed £10m from PWLB on the 14 September 2010 – enabling the Council to progress the rebalancing of its debt profile as well as recognising the lower perception of counterparty risk following the completion of the European Strength Tests.

In response to a question, the Head of Accountancy explained that the last Treasury Management Report related to Financial Year 2009/10 and that the Council had prematurely repaid £5M to the PWLB during 2009/10 in order to reduce its overall investment risks. The Chairman asked that the Head of Accountancy send Members clarification of how repayments were made following the Meeting.

Investments

  • In the first quarter of Financial Year 2010/11 interest of £54,652 had been accrued compared to a budget for the period of £59,420.
  • Actual interest received during the quarter was slightly lower than expected due to the average balance being approximately £2M lower than expected. Balances were lower than anticipated due to the impact of Government cuts on the value and timing of Grant payments. This would also have an impact in the remainder of the year.

Non Investment Income

  • The budgeted net income receivable for 2010/11 from non-investment sources was £748,000. However, the projected income for the year had fallen to £443,000.
  • This was mainly because the Housing Revenue Account (HRA) interest payable to the General Fund was statutorily linked to the average London Interbank Bid Rate (LIBID). At the time the Budget was produced it was anticipated that Base Rates would increase during the year and this would lead to an increase in LIBID. However, the economy had not recovered as quickly as anticipated, which has led to rates staying lower for longer than expected, thus reducing the projected HRA interest payable to the General Fund by £296,000.

Reference was made to Section 8.2 of the Report, which detailed the risk that a counter party would default. It was noted that the Council was predominantly investing in AA- organisations.

In response to a question, the Head of Accountancy advised that Santander UK, although incorporated within the UK, had a parent company which was domiciled in Spain. As such the use of this organisation was being restricted to a call account only.

RESOLVED that

(i)Members note the reported activity of the Treasury Management function for Quarter 1 of 2010/11; and

(ii)The Head of Accountancy circulate to Members details regarding the Council prematurely repaying £5M to the PWLB in Financial Year 2009/10 to reduce its overall investment risks.

AC28.10ANNUAL GOVERNANCE STATEMENT ACTION PLAN 2009/10

The Head of Audit and Management Assurance presented the Annual Governance Statement Action Plan 2009/10 to the Audit Committee for consideration.

Members were reminded that the Annual Governance Statement (AGS) had been presented to them at Audit Committee on 24 June 2010. The AGS had identified four significant governance issues which required further attention and stated that relevant actions to address these would be incorporated into an AGS Action Plan. The Action Plan was attached to the Report as Appendix A.

The Chairman referred to Issue 3, Performance Management and Business Planning (2007/08), as detailed in the Action Plan and advised that a more detailed explanation of this governance issue was required. He requested that more clarity on the issues be provided in future.

The Head of Audit and Management Assurance explained that the following governance issues were being undertaken by Strategic Directorate:-Arrangements for working with Partners, Performance Management and Business Planning and Information Governance and Data Management. The Head of Management and Assurance advised that he was undertaking Governance Issue 2, Risk Management.

The Committee was informed that some areas of the Action Plan were important in terms of governance; however, they were not critical and related to compliance with regard to having the Statement of Accounts signed off.

A Member asked if the AGS Action Plan should form part of the Corporate Risk Register? The Committee was advised that there was a separate Risk Register in place for Partnerships.

It was noted that the target dates for dealing with the four governance issues were set for December 2010. Therefore, it would be appropriate to provide more clarity on the issues at the next meeting of the Audit Committee in February 2011.

RESOLVED that

(i)Members note the Annual Governance Statement 2009/10 Action Plan and progress to date against the significant governance issues; and

(ii)more clarity on the governance issues be provided in the Action Plan for the next Meeting.

AC29.10REVIEW OF ANTI-FRAUD AND CORRUPTION ARRANGEMENTS

The Management Auditor presented a Report which informed Members of the review of the Council’s arrangements for the prevention, detection and investigation of fraud and corruption.

Members were advised that the risk of fraud had increased due to the current economic climate and that awareness of potential fraud and corruption was important.

The Management Auditor advised that the Council had a number of arrangements in place to prevent and detect fraud and corruption, as detailed in the Anti-Fraud and Corruption Strategy. The Strategy also outlined the Council’s response to suspected cases of fraud and corruption. In addition, the Benefit Investigations Section was a dedicated and professionally accredited team of Counter Fraud Investigators, all of whom had been designated as ‘Authorised Officers’ to investigate benefit offences.

The Committee was advised that one key area for development was to match current fraud and corruption policies with best practice.

Members were then asked to consider the Action Plan attached to the Report as Appendix A.

A Member asked if there was a Policy in place to allow residents to report the illegal practice of tenants sub-letting Council Houses? The Committee was advised that there was no formal process in place but that it was important that residents were aware of the issue. The focus on illegal sub-letting was being driven by the Government and the Council had received some funding to take further action. It was noted that Poole Housing Partnership Ltd (PHP) had issued a poster campaign to encourage residents to report fraud.

In response to a question, the Committee was advised that Action 10 of the Action Plan – ‘Consider training for an accredited financial investigator’ related to housing benefits and that a financial investigator could be employed in-house on an ‘as and when needed’ basis.

RESOLVED that Members note the Audit and Management Assurance Section’s Review of the Council’s Anti-Fraud and Corruption Arrangements.

AC30.10FORWARD PLAN

The Committee considered the ‘Forward Plan 2010/11’ and asked that an informal session on how the Corporate Change Board related to the Business Transformation Programme be added to the Forward Plan for April 2011.