To introduce the external auditor’s Annual Governance Letter 2009 as an appendix to the Director of Resources report (to follow).

The Director of Resources presented a report which introduced the external auditor’s Annual Governance Report for 2009. The external auditor’s report set out

(a)               their opinion on the financial statements for 2008/09 approved by the Committee on 17 June 2008.

(b)               their opinion on the Council’s arrangements for securing value for money.

(c)               their recommendations for further improvements in the Council’s governance arrangements arising from their audit work.

Mrs L Cave and Mr T Tobin, representing the Audit Commission, attended the meeting to present the Annual Governance Report 2009.

Mrs Cave apologised for the lateness of the report. She informed the Committee that it was the Commission’s final report on her audit work for 2008/09. She drew Member’s attention to key messages which were all positive and were set out on pages 4 and 5 of the report.  With regard to the Financial Statements, Mrs Cave thanked the Director of Resources and his staff for their work on these matters. She stated that there were some issues but nothing of a fundamental nature had been identified and all had been satisfactorily resolved. Mrs Cave brought to Committee’s attention the significant reduction in the level of triviality for 2008/09 audit work that affected the report.  The previous year had a much higher level and so the issues raised would not necessarily have been reported under the former regulations governing their work on final accounts.  The issues that she had felt strongly about had been changed by management. She emphasised that the next steps were to formally consider the issues raised in the report and to agree the issues in the Financial Statement. In referring to page 7 and the errors in the Financial Statement, she was of the view that the writing off of debtors of around £500,000 was an issue which should be looked at more closely next year. In paragraph 8 another significant issue related to the non material insurance provision of £1.79 million. In the balance sheet £1 million of the total was in respect of insurance claims but £730,000 did not comply with the definition of a provision under accounting standards (FRS12). There were three other non material errors set out in Appendix 2 which had not been amended by management.

Mrs Cave made reference to the weaknesses in internal control most notably with regard to the authorisation of creditor payments and stressed that it was important that these are addressed.

With regard to teachers’ pension liabilities, paragraph 13 refers, although these had been excluded from Council accounts, the Council should be accruing for additional benefits such as added years as a liability. She stated that it was not likely to be material but should be included in the accounts next year.

Mrs Cave stressed the need for the Council to consider bringing forward the implementation of a new capital accounting system particularly with the International Financial Reporting Standards (IFRS) being operative next year.

 With regard to Value for Money, she informed the Committee that she would be issuing an unqualified conclusion stating that the Council had adequate arrangements to secure economy, efficiency and effectiveness in the use of resources. She referred to the draft letter of representation, Appendix 3 to the report, and suggested that a paragraph should be added stating that unadjusted errors remained so because management believe that the errors individually and collectively are immaterial. She stated that the Action Plan set out in Appendix 4 had been agreed by the Director of Resources and that it was gratifying that a consensus had been reached.

The Chairman made reference to the fact that Herefordshire Council’s pensions were controlled by Worcestershire County Council but that although this Council’s officers attended the meetings where pension matters were considered, the County Council precluded Member representation from this Council. Mr Tobin informed the Members that this was a national issue and that there were moves to address this problem.

The Vice-Chairman referred to page 8 of the report and noted the remedial action being taken and to concerns raised regarding the weaknesses in authorisation controls. He was not convinced that the weaknesses had been sorted out and suggested a report to the next meeting on the issue.

The Director of Resources informed the Committee that he could not agree that there was a serious systemic problem with regard to the creditors authorisation controls (CAC).  A clear email on this issue had been sent indicating payments would not be processed if an authorised signatory had not signed the document. The training issues with regard to the creditor authorisation controls formed part of financial training.  He also referred to IFRS and Herefordshire Connects, and informed the Committee that a date for the replacement of the CEDAR accountancy system had not yet been agreed.  The Director agreed to bring forward a report on creditor authorisation.

The Chief Internal Auditor informed Members that as part of the audit review, the creditors system was part of the review and that the processes with regard to the CAC’s were being monitored.

The Vice-Chairman stated that he was not content that departments should be relying on Internal Audit to deal with issues on CAC matters and that departments should addressing such problems beforehand. He further referred to the draft letter on page 17 and that he had been pressing for training in fraud and management. He made particular reference to the Police Authority training in this area and commended it.

The Chief Internal Auditor informed Members that although he had made Members Services aware of Police Authority training for Members in fraud and management, he would liaise with the Vice-Chairman and ensure that arrangements are made on this issue.

A Member expressed concern that there did not seem to be an overall picture on the current position on Council loans. The Director of Resources informed the Committee that there was a Treasury Management Strategy report at that year end which gave details of such matters. He would however provide the Committee with a briefing note as at the end of September.

RESOLVED: That

(i)           the Audit & Corporate Governance Committee agrees the

proposed action plan as set out in Appendix 4 of the Annual Governance report, in response to the recommendations contained in the Annual Governance Report for 2009;

(ii)         the Audit & Corporate Governance Committee approves the Draft Letter of Representation, Appendix 1 of the Annual Governance Report 2009 refers) for signature by the Chair of the Committee and the Director of Resources subject to the addition of a paragraph stating that errors which have not been adjusted because management believe that the errors individually and collectively are immaterial; and

(iii)       the Director of Resources to present a report to the Committee on creditor payment authorisation.