To consider the external auditors audit finding report for the year ended 31 March 2020.

The committee considered the external audit findings report for the year ended 31 March 2020.

Jon Roberts, engagement lead for Grant Thornton, presented the report and made the following key points: the report was being received later than usual due to issues around value for money; an initial external audit findings report had been provided to the committee in September 2020 and ‘The Audit Findings for Herefordshire’ document attached at appendix A to the report indicated original text in black font and new text in red font; it was reported that the council had proper arrangements in place in all areas considered, except for in relation to the governance over the capital programme and children’s services and a qualified conclusion was issued in respect of the value for money assessment; attention was drawn to the value for money sections and the significant risks identified which would be reflected in the external auditors annual plan 2020/21; a matter which had resulted in certificates of completion being withheld for a number of years had been addressed; and an overview was provided of the reasons for the proposed audit fee variations.

Questions and comments were invited from committee members and responses were provided, the principal points included:

1.           The additional explanations provided since the previous iteration were welcomed and it was suggested that a separate glossary would be helpful going forward.

2.           With reference made to the finding in the ‘Value for Money’ money section (agenda page 42) - ‘The Cabinet member for infrastructure and transport proposed that a progress review be brought back to Cabinet after six months.  Whilst the Council is working on implementing these recommendations, the six-month review suggested by Cabinet has not been achieved.’ - it was commented that the ‘Major contract performance update’ report had been considered by Cabinet on 29 July 2021 (minute 32 of 2021/22 refers), so the finding did not reflect the current situation.  The chairperson noted the position with reporting post balance sheet events and suggested that such reports needed to be specific about the date of publication, so that it was clear that subsequent events would not be reflected in the report.  Jon Roberts confirmed that the report commented on the adequacy of the arrangements for the financial year ended 31 March 2020.

3.           In response to a question about journal authorisation (agenda page 48), Jon Roberts explained the significance of journals and that the risk of management override of internal controls was included in every audit plan.  The chief finance officer confirmed that he was assured about the systems and processes in place but had undertaken to explore local amendments to Business World.  It was confirmed that this situation was encountered within other authorities who shared concern about customising financial software packages and the subsequent risk that that entailed.

4.           With reference made to the comment ‘We have continued our review of relevant documents up to the date of giving our report, and have identified one further significant risk where we needed to perform further work.’ (agenda page 39), Jon Roberts advised that the risk related to the legal judgement for children’s services.

5.           In response to a question about the role of the committee historically and going forward in terms of the capital programme and children’s services, the chairperson commented on the work to be undertaken by the auditors and the expectation that reports would be provided to the committee, and also potentially the views of the relevant scrutiny committees on the changes being made to governance within departmental structures.  With reference made to the internal report presented in January 2018 on ‘Capital project management and control internal audit progress update’ (minute 263 of 2018/19 refers), the chairperson suggested that the South West Audit Partnership be asked to revisit their report and to unpack why issues that had come to light were not noted at that time.  The chief finance officer reported that cabinet had agreed to the establishment of an improvement board (minute 32 of 2021/22 refers) and the terms of the scope of an investigation were being finalised.

6.           The cabinet member - finance, corporate services and planning said that there was frustration that points of concern had been brought to the attention of the auditors by the administration, and said that it had undertaken actions to investigate and seek a resolution.  Comments were also made about the need for auditors to add value, the limitations councillors faced in trying to access information themselves, and matters relating to expenditure not picked up in an internal audit report on the Hereford City Centre Transport Package (HCCTP) in 2016.

Jon Roberts outlined the differences in the approach of external and internal auditors, and commented that cashflow governance had been a feature of the value for money assessment in recent years and the evidence in 2019/20 was such that a qualified conclusion was issued.

The chairperson noted that, following the Code of Audit Practice 2020/21, there would be a revised approach to the value for money external audit work and suggested that committee members be provided with training on the changes.

Jacqui Gooding, internal audit manager for South West Audit Partnership, said that: there had been a number of audits in relation to the capital programme; an investigation report on Blueschool House had been provided to the committee; continuing work on the HCCTP would include a review of the recommendations and issues that were raised in relation to Blueschool House; and significant findings were reported to the committee.

7.           In response to a question from a committee member about contracts, particularly in relation to council estate, the chairperson suggested that a response be provided by the chief finance officer following the meeting.

8.           It was commented that the committee membership could change, there were substitutions at individual meetings, and the papers for each meeting could include hundreds of pages.  It was suggested that the internal and external auditors could provide a simple list of their concerns that the committee should perhaps concentrate on.  The chairperson acknowledged the challenges for new members to the committee and invited the auditors to consider whether this suggestion would be appropriate.

9.           The vice-chairperson noted that periodic reports on the progress of audit recommendations implementation were provided to the committee and it was questioned whether the tracking was falling down.  It was also noted that there were follow up audits on priority 1 and priority 2 recommendations.  Jacqui Gooding outlined the current arrangements and confirmed that priority 3 recommendations progress was based on self-assessment by relevant officers.  A committee member emphasised the need to ensure that systems and processes were effective.

Resolved:  That

a)      the report of the external auditor, attached at appendix A to the report, has been considered;

b)      interim reports on the work of the external auditor be provided to the committee;

c)      the chief finance officer request that the internal auditor be asked to revisit the earlier report on the Hereford City Centre Transport Package in order to identify any lessons to be learnt; and

d)      the following actions be recorded:

i.             the external auditor be asked to include appropriate glossaries in future reports for ease of understanding and to identify dates of publication clearly;

ii.           training be arranged for committee members on the changes to regulations, particularly in relation to the value for money audit; and

iii.          a briefing note on the management of council estate be provided to committee members.