The purpose of this report is to seek the Audit and Governance Committee’s approval of the Annual Internal Audit Plan for 2013/14.

The Head of Internal Audit presented the draft Annual Internal Audit Plan for 2013/14, the principal points are summarised below:

1.       Planning for 2013/14 had been brought forward, with the draft audit plan submitted for consideration two months earlier than the previous year.

2.       The audit plan was a risk based plan that took account of the Council’s risks, key issues and objectives, including the Medium Term Financial Plan.

3.       The proposed programme of audit work had been informed by discussions with senior management across the Council and through assessment by the Internal Audit Service.  The programme and resource allocation would need to remain flexible and responsive to accommodate any emerging issues during the year.

4.       Discussions had been held with the Chief Officer: Finance & Commercial and the management of Hoople over possible changes to the Internal Audit arrangements to reflect the distinct organisational status of Hoople; this could lead to the removal of certain audits from the Council’s audit plan, with the work instead being performed as part of Hoople’s own internal audit arrangements.

5.       For those functions that had received less than ‘adequate assurance’ grading during 2012/13, Internal Audit would undertake follow up reviews during 2013/14 to assess the Council’s progress in implementing the audit recommendations.

In response to a question from the Chairman, the Head of Internal Audit confirmed that discussions were on-going in respect of paragraph 4. above and that any consequential amendments to the audit plan would submitted to the Committee for approval.  If no change was agreed, however, the Internal Audit Plan as presented to the Committee would be delivered.

A Committee Member commented that the public and the press had concerns about transparency, particularly in relation to organisations like Hoople, and changes to audit arrangements would be perceived negatively. 

Another Committee Member noted that it would be unusual for a local authority to undertake audits in relation to day-to-day activities of an entirely separate company.  Furthermore, it was felt that the Council should not spend part of the audit fee on monitoring and micro-managing Hoople’s operational environment.

A Committee Member questioned whether Hoople, as a sole provider which had not yet been tested in the market, should necessarily be considered in the same way as a stand-alone entity.

The Head of Internal Audit said that the audit model should reflect the situation on the ground in terms of the client side (Council) and contractor side (Hoople), irrespective of any shareholding position.  In response to concerns expressed by some Committee Members, the Head of Internal Audit said that any revised audit arrangements should enhance transparency, as Hoople would need to provide explicit assurance to the Council about the operation of controls for the relevant areas.

Councillor PD Price, who was a Council appointed non-executive director on the Board of Directors of Hoople, commented on:

i.        the background to the formation of Hoople, including the intention to retain as many jobs in Herefordshire as possible and the potential for additional partners in the future;

ii.       the financial challenges facing the public sector and the need to scale services accordingly;

iii.      the Service Level Agreements between the Council and Hoople, he emphasised that it was for Hoople to determine its own working practices;

iv.      the Board of Directors included independent non-executive directors and it had its own Audit Committee;

v.       the Managing Director was prepared to provide the Committee with the assurances it required; and

vi.      the need for a mature and transparent relationship, rather than debates through the media.

A Committee Member said that nobody wanted to see duplication in the process of auditing but the authority should not underestimate public anxieties about Hoople and other companies and it had to ensure that public money was spent in the most transparent way.

The Chief Officer: Finance & Commercial said that it was essential that the auditing model was appropriate and different ways of working would be tested.

RESOLVED:  That the Annual Internal Audit Plan 2013/14 be approved.