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Contents

Page
Executive Summary / 3
Introduction / 3
Background / 3
Conclusions / 4
Strengths / 5
Areas for Improvement / 6
Findings and Recommendations / 7
Report Status
Draft Report Issued
10.02.14
Final Report Issued
05.03.14 / Draft Report Distribution / Final Report Distribution
Rob Salmon, Chief Accountant - Corporate Finance / Rob Salmon, Chief Accountant - Corporate Finance
Phil Keeling, Finance Manager - Place / Phil Keeling, Finance Manager - Place
Lee Assiter, Finance Partner – People / Lee Assiter, Finance Partner – People
Andy Burns, Director of Finance and Resources

Executive Summary

Introduction

This report summarises the results of an Internal Audit review of the systems, controls and risks relating to the Revenue Budgetary Control system of Staffordshire County Council. The review was carried out as part of the 2013/14 Strategic Internal Audit Plan.

The findings of the audit review have been derived from:

  • discussions with key staff from within Corporate Finance and Place/People Finance Teams.
  • discussions with selected budget holders.
  • an examination of relevant documentation including the Medium Term Financial Strategy (MTFS), Council Strategic Plan, Financial Regulations, Quarterly Monitoring Reports to Cabinet, Budget Holder Reports, Budget Setting Guidance Notes and related documents.
  • sample testing of virements, budget uploads and Accountability Statement returns.

I wish to place on record my thanks to all staff who provided assistance during the review.

Background

Staffordshire County Council operates a system of devolved budgetary control. Responsibility for monitoring and managing budgets is delegated to those who exercise decision making at service level, within the overall budget framework established by the Authority’s Chief Finance Officer (Director of Finance and Resources).

The Council’s net approved revenue budget for 2013/14 is £521.569m, as set out in its 2013/18 Medium Term Financial Strategy (MTFS). The MTFS also provides budget forecasts for each of the subsequent four financial years based on the latest estimates. Over the five year period covered by the MTFS, the Council has produced a budget which is described as being balanced in 2013/14, with the potential for headroom in 2017/18. However, there is additional work to be done to ensure that further savings are identified in 2014/15 and 2015/16. It is noted in the 2013/18 MTFS that pressures arising from funding reductions and the current economic climate mean that the position in the later years of the MTFS is reliant upon savings plans being delivered, spending pressures being contained and future grant levels. At the time of audit, (period six), the Council was predicting a £9.8 million overspend for the financial year, which is equivalent to 1.9% of the council’s overall service spending. The majority of this projection is caused by the growth of demand forsocial care from adults and children – an issue shared by Councils across the country, and encountered during audit testing. The Council state that there is a financial plan in place to address the issues surrounding the escalating care bill, but acknowledge that there are risks attached to this plan. The identification of additional expenditure during 2013/14 serves to highlight how the budget can be vulnerable to pressure in these areas. It is likely that these pressures will be factors in future years, and will weigh heavily in the setting and monitoring of future budgets.

The final Local Government Finance Settlement was announced on 4 February 2013 and showed a reduction in Staffordshire’s spending power of 2.2%. This is the first year of the new funding system created as a result of the Local Government Resources Review and it will see local authorities keeping some of the business rates generated in their areas.

This changing external environment and public funding cuts has resulted in public sector bodies like the County Council having to undertake fundamental re-assessments of the services that can be provided within the available funding in future and how these can be most effectively yet efficiently delivered.

The 2012/13 Internal Audit Budgetary Control Report identified six areas for improvement. Of these only one has been partially implemented (Accountability Statements). Two recommendations have not been implemented (Scheme of Delegation and Guidance) although it is acknowledged that the agreed implementation date for the latter is March 2014. The remaining three recommendations have been withdrawn as follows:-

  • Two recommendations were made regarding the feasibility of improving the budget reporting mechanism and enabling supporting documentation to be attached to virements within SAP. The review of SAP (as part of the 2013/14 Core + review of back office services) concluded that the existing SAP system would be retained but any changes would require significant investment, the funding for which is not available. For this reason these recommendations have been withdrawn. However, residual risks remain if the tools available to support budget monitoring/virements are not suitable for the purpose. Budget variances may not be identified, explained or addressed in a timely manner and transactions which are not readily explicable, limit the usefulness of SAP and slow down SAP users. There is also a risk that if the officer who performed a virement transaction is not available to explain the transfer, the completeness and accuracy of budget movements will not be verifiable.
  • It was recommended that consideration be given to close accounting periods within SAP to prevent transactions being posted back to previous periods. In 2013/14, the Principal Accountant stated that postings cannot be made to previous periods once they have been closed by Corporate Accounts (the day after the period end date). This has been accepted.

The recommendations resulting from the 2013/14 audit are summarised in the table below:

High / Medium / Low / Total
0 / 0 / 5 / 5

Conclusions

The audit review has concluded that the budgetary control systems and processes operating within Staffordshire County Council are sufficient and warrant an overall audit opinion of Substantial assurance.

Strengths

  • A review of the corporate and departmental arrangements adopted by Staffordshire County Council in setting the budget for 2013/14 provides strong evidence that sound financial planning and effective financial management is at the heart of the County Council’s policy formulation and decision making processes. There is financial rigour at every stage, and financial discipline is generally viewed as being of critical importance throughout the organisation. At the highest level, the Council has enacted various Chief Officer/Member forums including the Innovations and Efficiencies Board and the Outcomes Board which effectively reviews, challenges and stress tests spending proposals and efficiencies. This process is supported by similar intensive dialogue within individual Portfolios when determining service priorities and responses to the challenging funding position.
  • The 2013/14 Budget and accompanying MTFS 2013/18 was considered and approved by Full Council on 15th February 2013, before the start of the new financial year and in good time.
  • The Council’s MTFS forward financial planning process can reasonably be described as being a model of good practice and provides a sound basis for establishing realistic and achievable financial forecasts which are closely aligned to its strategic service priorities. This results in the Council having a very robust assessment of its financial position in the current and coming years, and aids Chief Officers and Members in making informed choices and decisions.
  • Chief Officers and their staff work closely and very effectively with Members in agreeing strategic priorities, consulting relevant stakeholders and stress testing proposals for savings and efficiencies to ensure that these are deliverable and “free from optimism bias”.
  • Corporate Finance staff work closely and effectively with their finance colleagues in ensuring that services set local budgets within the MTFS control total for each service area and in ensuring that approved budgets for each cost centre are uploaded into the SAP financial system by the relevant deadline (27th March 2013). Testing found that all budgets were uploaded into SAP prior to the start of the financial year.
  • Well established and effective in-year budget monitoring and reporting arrangements are in place. Staff within Finance Teamswork to the deadlines set out in the Corporate Monitoring Timetable and provide timely and accurate monitoring information and commentary for quarterly reports to Cabinet.
  • Budget meetings between finance staff andbudget holders areheld regularly throughout the year and monitoring reports detailing the latest actual versus budget position are made available. Finance staff showed consistency with the organisation’s key value of being customer and citizen focussed by tailoring financial information to the individual requirements of budget holders and being responsive to budget holders’ needs. Finance staff subsequently utilise the results of the meetings with budget holders to identify any significant budget variations and these are built into quarterly submissions to Corporate Finance which form the basis for reports to Cabinet.
  • Clear and well documented financial procedures and regulations are available to all staff via the Council’s intranet. These are supplemented by additional instructions before the start of the new financial year from Corporate Finance to finance staff, for example in relation to the approach to uploading budgets into SAP and specific requirements to be complied with. The Financial Regulations were last revised in July 2011 and were issued with a Crystal Mark by the Plain English Campaign in recognition of their clarity.
  • The quality of financial monitoring reports to Cabinet is generally very good. A great deal of effort is made to ensure that the financial analysis and commentary is concise, meaningful and easy to understand. The use of a “thermometer” in representing progress towards achieving savings targets has been particularly well received and is considered to be a good example of the Council’s approach to financial reporting in seeking to present complex and voluminous data in an easy to understand format for lay people.

Areas for Improvement

The review of Staffordshire County Council’s budgetary systems and processes has identified five areas where low level recommendations have been made toincrease the quality and rigour of the budgetary control framework. In addition, one good practice recommendation has also been made.

Full details of all issues and recommendations are provided within the Findings and Recommendations section of the report (pages 7onwards refer).

A response to the recommendations contained in the report has been received from the Chief Accountant Corporate Finance and the Principal Accountant. Details of these have been included in the “Findings and Recommendations” section of the report. It is pleasing to note that all the recommendations have been accepted.


Findings and Recommendations

No / Risk / Risk / Risk Level / Recommendation / Management Response
1. / Schemes of Delegation
Directorate Schemes of Delegation appear to have been produced and uploaded to the Intranet on an ad hoc basis. Schemes do not reflect the current Portfolio structure and the information contained within these documents was also found to be out of date. / If budget responsibilities are not clearly laid down, officers may not be appropriately aware of their powers of delegated authority. / Low / Schemes of sub-delegation should be produced and maintained for all directorates. These documents should be kept in consistent areas of the intranet or on the same page for ease of access. This should ensure relevant staff have immediate access to documentation confirming their delegated budgetary responsibilities. / The recommendation has been accepted but ought to be directed and managed by the Corporate Governance Working Group.
Responsible: Jon Waller
Job Title: Head of Financial Strategy and Support
Completion: 31/03/15
Internal Audit Comment – The responsible officer should ensure that the matter is directed to the Corporate Governance Working Group
2. / Accountability Statements
Accountability statements are used as a control measure by the County Council. Budget holders at the Senior Leadership and Wider Leadership levels are required to sign a statement which acknowledges their responsibility and accountability for their areas.
The above is currently a process which is generally performed at the beginning of the financial year. However, staff movements can create situations where sections of the budget are not singed off by a relevant post holder during the year.
In addition to the above, inconsistences (amounting to £1.808m) were identified between the values recorded on the Accountability Statements and the figures in the MTFS (approved by the Council). The reason for these differences was unclear. / The control mechanism of the accountability process may fail to operate if the system does not keep pace with staff movements and budget values being signed for are not accurate. / Low / (1) Controls should be put in place to ensure the amounts signed by budget holders in their Accountability Statements actually reflect the budgets approved by members.
(2) Consideration should be given to monitoring staff movements during the year with a view to issuing relevant accountability statements as soon as changes are resolved. / (1) Controls are already in place to ensure that totals on the accountability letters agree to the MTFS and there is a new tracking system to show how much has been signed off.
(2) The MTFS has to be a snapshot of the organisation at a point in time, occasionally the organisation decides to change its structure for the coming year, after the MTFS has been agreed. Therefore the accountability letters are amended to reflect the new structure, in line with commissioners’ expectations and in discussions with the relevant service finance staff.
Responsible:Rachel Spain
Job Title: Principal Accountant
Completion:n/a
3. / SAP Budget upload
Approved budgets should be loaded onto SAP on an accurate and prompt basis by Corporate Accounting. However, discussions with the Accountant (Children’s services) indicated that the MTFS control budget,as managed by Corporate Finance, had not been updated in line with service level budget splits. To rectify this, the Accountant performed a virement to ensure the budget matches the MTFS and reverses thisamendment after the budget has been uploaded (and Plan Version 2 is made available). / Budgets may be incorrectly loaded onto SAP, which could lead to inappropriate decision-making.
Inefficient use of staff time. / Low / MTFS control budgets managed by Corporate Finance should be kept in line with service level budgets before being finalised. / It is service accountants’ responsibility to check the budget model and to inform Corporate Finance if services or the SAP hierarchy are not in line.
Responsible: Service accountants
Job Title:
Completion: 31/03/15
Internal Audit Comment – Noted. However, Service Accountants (including the Accountant Children’s Services) will need to be made aware of this requirement.
4. / Budget reporting timetable
Corporate Accounting produced a Budget monitoring timetable for 2013/14, which was distributed to portfolio finance teams in March 2013. Upon inspection the dates for the Cabinet Quarter 1 report process were incorrect. It is however acknowledged that as the dates were only out by one day, it is unlikely that there was any adverse impact on meeting the required Cabinet deadline. / Inaccuracies within the budget monitoring timetable may result in reporting deadlines being missed. / Good Practice / The Corporate Budget reporting timetable should be checked for accuracy prior to distribution. This will help to ensure that Cabinet deadlines are met. / This point of good practice has been noted.
Responsible:Rachel Spain
Job Title:Principal Accountant
Completion: 31/03/15
5. / Budget monitoring reports
The following issues were identified in relation to budget monitoring:-
  • Housing Support (People) – It was not always clear from the working papers, how the forecast figures (in the Housing Support budget monitoring report) have been derived from SAP. As a result, it was difficult to confirm the accuracy of the figures being reported.
In addition,the above reportshave not always been produced on a quarterly basis in line with the Wellbeing budget monitoring reports provided to the senior leadership. It is however, acknowledged that the budget realignment exercise (completed by the Accountant during the year) may have impacted on the completion of this task.
  • Corporate Support – The figures contained in quarterly budget monitoring reports to Cabinet and those to the senior leadership team may differ because the information may be derived from SAP at different moments in time.
/ The information contained within budget monitoring reports may be inaccurate resulting in inappropriate decisions being made.
Budget variances are bot be promptly detected thus delaying corrective action being taken.
Timing differences may impact on the decision making process. / Low /
  • Housing Support (People) - The working papers (to the Housing Support budget monitoring report) should also be modified to show how forecasts are produced using the actual spend figures in SAP.
In addition,Budget monitoring reports should be produced on a regular basis (at least quarterly)to support the production of the Wellbeing report to the senior leadership team.
  • Corporate Support - Controls should be put in place to ensure reports are adjusted for any timing differences and that information relating to the same period is reported on a consistent basis.
/ The recommendation has been accepted
Responsible:
Joanna McCloy
Job Title:
Accountant
Completion: 31/03/15
The recommendation has been accepted
Responsible:
Andy Edwards
Job Title:
Senior Accountant
Completion: 31/03/15
6. / Guidance Documentation
The Council’s intranet provides access to guidance such as the Financial Regulations and the Financial Management guide “Excellent Financial Management in Staffordshire”. It was found that the latter document contained processes and terminology which is currently out of date.
A similar situation was identified in the 2012/13 audit report. It is however, acknowledged that the recommendation is not due to have been implemented until March 2014. / There is a risk that users may be mislead by out of date guidance and subsequently errors may be made due to these inaccuracies. / Low / Guidance documentation should be reviewed and updated in terms of processes and terminology. / Agreed
Responsible: Liz Hutchieson
Job Title: Senior Accountant
Completion: March 2014

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