Agenda and minutes

Apologies for absence were received from Councillor Hunter.

Members are asked to declare any interests they may have in the business to be discussed.

No declarations of interest were made.

The Minutes of the previous meeting of the Audit and Risk Committee held on 28 June 2017 have been circulated, and Members will be asked to confirm them as a correct record.

RESOLVED:

That the minutes of the meeting of the Audit and Risk Committee held on 28 June 2017 be confirmed as a correct record.

The External Auditor submits the ISA 260 Report to Those Charged with Governance, a report which summarises the key findings of the 2016/17 audit of Leicester City Council, the Auditor’s assessment of the Council’s arrangements to secure value for money (VFM), and the requirement for Members to authorise the Director of Finance to sign the letter of representation to KPMG from the Council.

The Audit and Risk Committee are asked to note the report and approve the letter of representation.

Details of the Annual Governance Report will be circulated to Members of the Committee as soon as they are available.

Representatives of the External Auditor, KPMG, presented the Annual Governance Report, known as the ISO 260 Report to Those Charged with Governance.  This included the key findings arising from the audit of Leicester City Council’s financial statements for the year ended 31st March 2017, along with the Auditor’s assessment of the Council’s arrangements to secure value for money (VFM) in its use of resources. 

Members also were advised of the requirement for them to authorise the Director of Finance to sign the letter of representation to KPMG from the Council in connection with the audit of the Council’s financial statements.

Members were reminded that this report had been circulated separately to the agenda prior to the meeting.

John Cornett, Director at KPMG LLP (UK), introduced the report, explaining that KPMG intended to issue an unqualified opinion on the Council’s financial statements for the year ended 31 March 2017.   

Mr Cornett then made the following comments:

·           The conclusion that the Council had proper arrangements in place to secure VFM did not mean that this had been achieved;

·           The matters listed on the second page of the report as outstanding were normal at this stage;

·           The report highlighted a significant audit risk due to significant changes in pension liability, due to the Triennial Valuation of the Local Government Pension Scheme;

·           New rules had been introduced by the Chartered Institute of Public Finance and Accountancy (CIPFA) which gave auditors flexibility in how they presented income and expenditure statements.  As those for 2016/17 therefore had been prepared in a new format, the income and expenditure statements from 2015/16 had been reorganised, to enable comparisons between that year and 2016/17 to be made;

·           Draft financial statements for the year 2017/18 had been produced to a high standard.  The help and support of the City Council’s Finance team with this had been appreciated;

·           A risk regarding the introduction of a new financial ledger was that the 2015 Council Audit Regulations now required the Council’s accounts to be produced by the end of May each year and audited by the end of July.  This change in dates could make it difficult to prepare the accounts in time for presentation to the Committee in the summer of 2018;

·           Attention was drawn to the recommendation made to address that the authority did not perform a periodic check of users’ access rights to systems in order to ensure that access privileges were appropriate;

·           A qualified opinion had been given in the report’s conclusion about VFM due to the findings of the inspection by the Office for Standards in Education (Ofsted) of Looked After Children services.  However, in view of the improvements made in those services and the outcome of Ofsted’s re-inspection earlier in 2017, this qualification could be lifted;

·           In 2016/17 two Councillors did not return their annual related party declarations. One of these was no longer a Councillor and the other had not returned an annual statement for at least three years;

·           Ongoing action plans were in place in  ...  view the full minutes text for item 22.

The Director of Finance submits a report to the Audit and Risk Committee for approval of the Council’s Annual Governance Statement for the financial year 2016-17. The Committee is recommended to approve the report.

The Director of Finance submitted a report seeking approval of the Council’s Annual Governance Statement for the financial year 2016 – 2017.

Members were reminded that the format of the statement was mostly prescribed by the principles of the Chartered Institute of Public Finance and Accountancy and Society of Local Authority Chief Executives’ framework “Delivering Good Governance in Local Government”.

The Committee queried whether any Members’ travel expenses recently had been reduced due to them not using the cheapest form of travel available.  Officers advised that they were unaware of this situation arising, but would enquire whether it had happened.

RESOLVED:

That the Annual Governance Statement 2016 – 2017 be approved as detailed within the report.

The Director of Finance submits a report which gives details of the Accounts and Audit (England) Regulations 2015 which require that the Council present its audited Statement of Accounts for 2016/17 by the 30^th September 2017. The Committee is recommended to approve the accounts, and approve a letter of management representation.

The Director of Finance submitted a report presenting the Council’s audited Statement of Accounts for 2016/17, as required under the Accounts and Audit (England) Regulations 2015.  These regulations also required those charged with governance, (in the Council’s case, the Audit and Risk Committee), to approve a letter of management representation.

Members were reminded that draft management accounts had been presented to the Special Meeting of the Overview Select Committee held on 22 June 2017.  Some amendments had been made to these during the audit period, but they were minor changes, being presentational errors or alternations to prior year figures to ensure they could be compared on a like-for-like basis.  None of the changes resulted in a change to the overall level of balances.  A briefing had been offered to Councillors to help them familiarise themselves with the accounts and to highlight the changes made.

Some Members suggested that higher pay rises for employees would have kept the Council’s pay bill at its 2012/13 level.  However, some Members suggested that the cumulative effect of pay rises over that period would have increased the Council’s pay bill to more than its 2012/13 level.  It was noted that the Council offered better rates of pay than some employers, through the Living Wage, but it was suggested that problems with staff retention could arise if concerns about pay levels were not addressed. 

Members requested that consideration be given to how they could gain a level of understanding that would enable them to engage fully with the papers presented for consideration.  John Cornett, Director at KPMG LLP (UK), (the Council’s external auditors), explained that, as the acceptance of the accounts was a one-off activity each year, officers and external auditors aimed to build understanding and assurance during the year.  Councillors were not expected to scrutinise each line of the accounts, but they needed to be able to recognise the Council from the information and accounts provided.  It therefore was suggested that consideration could be given to this could be addressed in the future operation of the Committee.

It was suggested that more detailed information was needed on complaints received, as there could be significant variations in numbers received and procedures across Council services.  For example, it could be expected that more complaints would be received in services such as Adult Social Care, and some services had a two-stage complaints procedure while others had a three-stage procedure.  In reply, officers advised that some statutory procedures, such as those relating to complaints about adults’ or children’s services, differed to the Council’s internal procedures.

In response to a query, it was noted that the figures given for the Collection Fund Adjustment Account showed a credit balance.  The Council was required to estimate in January each year what Council Tax income would be for the following financial year and this had been underestimated.  The Collection Fund Account showed an overall year-end surplus for 2016/17 of £8.8million, but this included money collected on behalf of the Fire Authority.

RESOLVED:

1)  ...  view the full minutes text for item 24.

The Director of Finance submits the Internal Audit Annual Report and Opinion for the financial year 2016-17. The Committee is recommended to receive and approve the contents of the report, and note the recommendations.

The Director of Finance submitted the Internal Audit Annual Report and Opinion for the financial year 2016-17. 

Particular attention was drawn to the confirmation that the outcomes of the self-assessment of the function’s effectiveness review, conducted by the former Head of Internal Audit and Risk Management, and reviewed by the Head of Assurance Services at Leicestershire County Council, indicated that reliance could be put on the opinions expressed.  These had been used to inform the authority’s Annual Governance Statement.

RESOLVED:

1)    That the Internal Audit Annual Report and Opinion for the financial year 2016-17 be noted;

2)    That it be noted that, for the year ended 31 March 2017, an internal audit opinion of ‘substantial assurance’ has been given in relation to the overall adequacy and effectiveness of the Authority’s control environment;

3)    That it be noted that the individual assignment opinions expressed, together with significant matters arising from internal audit work, (see minute 27, “Internal Audit Update Report 2016-17”, below), have been given due consideration when developing and reviewing the Authority’s Annual Governance Statement for 2016-17, (see minute 23, “Annual Governance Statement 2016-2017”, above); and

4)    That the conclusions of the self-assessment of the internal audit function’s effectiveness be noted.

AGENDA

MEMBERS OF THE PUBLIC TO NOTE

Under the law, the Committee is entitled to consider certain items in private where in the circumstances the public interest in maintaining the matter exempt from publication outweighs the public interest in disclosing the information.  Members of the public will be asked to leave the meeting when such items are discussed.

The Committee is recommended to consider the following report in private on the grounds that it will contain ‘exempt’ information as defined by the Local Government (Access to Information) Act 1985, as amended, and consequently makes the following resolution:-

“that the press and public be excluded during consideration of the following report in accordance with the provisions of Section 100A(4) of the Local Government Act 1972, as amended, because it involves the likely disclosure of 'exempt' information, as defined in the Paragraph detailed below of Part 1 of Schedule 12A of the Act, and taking all the circumstances into account, it is considered that the public interest in maintaining the information as exempt outweighs the public interest in disclosing the information.”

Paragraph 3

Information relating to the financial or business affairs of any particular person (including the authority holding that information)

APPENDIX B1         INTERNAL AUDIT UPDATE REPORT – 2016/17

This report concerns the strength of internal controls in the City Council’s financial and management processes and includes references to material weaknesses and areas thereby vulnerable to fraud or other irregularity.  It is considered that the public interest in maintaining the exemption outweighs the public interest in disclosing the information.

RESOLVED:

            that the press and public be excluded during consideration of the following item in accordance with the provisions of Section 100A(4) of the Local Government Act 1972, as amended, because it involves the likely disclosure of exempt information, as defined in the paragraph detailed below of Part 1 of Schedule 12A of the Act, and that the public interest in maintaining the exemption outweighs the public interest in disclosing the information.

Paragraph 3

Information relating to the financial or business affairs of any particular person (including the authority holding that information)

The Director of Finance submits the Internal Audit Update Report 2016-17. The Audit & Risk Committee is recommended to receive the report and note the key issues identified.

The Director of Finance submitted the Internal Audit Update Report 2016-17, which summarised Internal Audit work completed during the 2016-17 financial year.

Members noted that audits were ranked by level of assurance and noted how levels of assurance were assessed.  From this, it also was noted that the majority of issues that arose were with externally procured systems, (particularly smaller ones).  Where these involved the security of the system, specially trained staff undertook penetration tests, which included trying to hack in to systems.

The Committee was advised that some issues had arisen relating to the finances of some schools.  A significant proportion of these had been found to have arisen due to governance issues at the schools concerned.

RESOLVED:

1)    That the report be noted; and

2)    That the Director of Finance be asked to provide information to members of the Committee further explaining assurance levels, this information to include examples of partial assurance.

The meeting closed at 7.03 pm