To consider a summary provided for Herefordshire Council, of the internal audit work undertaken in 2012/13, and the overall internal audit opinion based on this work. 

The Head of Internal Audit reported that the timetable for the Annual Internal Audit Report had been brought forward, with this report submitted two months earlier than in the previous year.  The report provided the overall internal audit opinion, with commentary on internal audit activity and matters arising from the completion of the 2012/13 Annual Internal Audit Plan.  The principal points are summarised below.

 

Section 2 - Opinion

 

1.       The internal audit opinion was that ‘the Council has adequate and effective risk management, control and governance processes to manage the achievement of its objectives, except for those area highlighted as limited in Appendix 1.  In these areas agreed improvements are in place.’  The Head of Internal Audit advised that this was the same outcome as the previous year but there was a positive direction of travel in that there had been four areas highlighted as limited in 2012/13, compared to seven in 2011/12; he added that the areas highlighted in 2011/12 had also been more fundamental to the systems of control and governance.

 

Section 3 - Summary of Our Work and Significant Control Issues

 

2.       It was reported that many reviews graded the Council’s arrangements as ‘adequate assurance’, with ‘substantial assurance’ for Debtors, Treasury Management, Benefits (Council Tax and Housing), and NNDR and Council Tax Collection.  The four areas with significant control issues and ‘limited assurance’ were Data Protection, Legal Services, Income Collection - Industrial Lets, and Food Licensing.  It was noted that the issues in these areas had been reported to the Committee during the year.

 

3.       Attention was drawn to the statement that ‘the controls within the Adult Social Care function require strengthening to ensure that the system can meet its objectives in terms of the service it delivers and the financial resources being managed.’  It was reported that, although no explicit work had been undertaken as part of the Annual Internal Audit Plan, this comment was informed by assistance and guidance work undertaken by Internal Audit and from other sources.

 

Section 4 - Detailed Findings

 

4.       With a further report recently finalised for Creditors, it was reported that 22 audit reviews had been completed or were in draft, with seven reviews in progress.

 

5.       Referring to the graph showing the number and priority of audit recommendations (agenda page 31), the Head of Internal Audit reported that seven priority one (high priority) recommendations had been raised in 2012/13, with 29 priority two and 17 priority three recommendations.  In comparison, there had been 27 priority one recommendations in 2011/12.

 

6.       Referring to the results of follow up work on recommendations made in 2012/13, the Head of Internal Audit said that Internal Audit was satisfied that management had taken action where it was needed.

 

Section 5 - The Internal Audit Function

 

7.       This section set out the performance of the Internal Audit function and feedback from management.  Attention was drawn to the performance measure ‘Management responses received within 10 working days of draft issued’, with only 38% achieved.  The Head of Internal Audit reported this was causing a degree of frustration and had been identified to senior management at the Council; he added that prompt responses were not only important to ensure that outcomes could be presented to the Committee but also to provide reassurance that issues were being addressed in a timely manner.

 

8.       The Chairman did not consider the low level of management response to be acceptable and noted that the Committee would wish to know which managers had not responded within the required timescales.  He emphasised that managers had to engage fully with the audit process and the matter would need to be followed up after the meeting.  The Committee endorsed the Chairman’s comments.  It was recognised that staffing and workload were factors but management had to give sufficient priority to the draft reports. 

 

9.       In response to a question from a Committee Member, the Head of Internal Audit confirmed that the audits were phased throughout the year and explained the process for the delivery of draft reports.

 

10.     The Chief Officer: Finance and Commercial noted that, in addition to workload, some of the delay might be partly due to areas falling between Hoople and Council functions; this highlighted the need for further consideration to be given to the items included in the respective audit plans.  He added that the situation might be an early indicator that some elements of the organisation were not taking some of its key roles seriously and welcomed the reinforcement of the critical messages by the Committee.

 

11.     The Chairman of the General Overview and Scrutiny Committee said that there were parallels with the difficulties being experienced by the overview and scrutiny function in getting information from certain departments in the Council.  He recognised that there were capacity issues for officers, as they had to deal with increasing strains with diminishing resources.

 

12.     A Committee Member suggested that, unless there was a dramatic improvement in performance, the managers responsible should be named.  The Chairman added that the Committee needed to understand why they had not responded.

 

13.     The Head of Internal Audit commented that there were no concerns in terms of access to information, officers or any areas of the organisation.

 

14.     Further to the report considered at the last meeting on Public Sector Internal Audit Standards (PSIAS) and Internal Audit Charter (minute 68 refers), the Committee was advised that a self-assessment had been undertaken of the Internal Audit function and the work performed in 2012/13 against the PSIAS.  As the PSIAS built upon existing standards, there were no fundamental issues but it was recognised that a few areas would need further work.  It was reported that discussions were being held with Hoople about job descriptions for the Internal Audit Team to ensure they were refreshed and suitable for the future.  It was also reported that new requirements included a Quality Assurance and Improvement Programme and an External Assessment of the internal audit function against the PSIAS once every five years; clarification would be needed about this assessment in the context of the Council’s outsourced arrangement.

 

Appendix 1 - Work Completed

 

15.     This appendix set out the grading, recommendations and status of reviews undertaken during the year.  Further to paragraph 4. above, it was noted that a report had been finalised for Creditors since agenda publication, with an ‘adequate assurance’ grading and four priority two recommendations.

 

The Chairman thanked the Head of Internal Audit for his clear and comprehensive report.  Questions and comments were invited from the Committee.

 

A Committee Member identified a number of issues, including:

 

i.        Referring to paragraph 10 of the covering report, it was noted that the challenges affecting Adult Social Care were broader than ‘local issues’.

 

ii.       The areas graded as ‘limited assurance’ involved potential major risks, both financial and reputational.

 

iii.      Matters covered in the report raised questions about levels of staffing and expertise in key areas within the organisation.

 

iv.      Referring to Section 4, it was questioned what happened to work that was ‘superseded’ by other activities.

 

v.       The summary of audit opinions suggested that systems were ‘good enough’ but there was a concern that particular areas of limited assurance could skew this perception.

 

vi.      It was questioned whether management feedback could be required ahead of any audit opinion being issued.

 

vii.     Concerns were expressed about matters that were actually for the management of Hoople to deal with but could affect the Council’s own compliance requirements.

 

In response, the Head of Internal Audit advised that: (iv.) where it was concluded that work should be deferred or cancelled, if matters had moved on or other activities had superseded it, Internal Audit would return to the issues as part of the next planning process and this would be reported to the Committee accordingly; (v.) although the authority should continue to strive for zero limited assurance gradings, the direction of travel in terms of audit opinions was positive; (vi.) the Internal Audit Service could not continue to deliver a high quality service without feedback and the Committee’s support was welcomed; and (vii.) the arrangements with Hoople worked well and were being improved, the need to update job descriptions was a legacy issue identified through the self-assessment.

 

In response to questions from Committee Members, the Head of Internal Audit advised that:

 

a.       It would be expected that changes that may be manifesting in key areas would be picked up in managerial metrics; Internal Audit examined the application and rigour of such metrics when undertaking audit reviews.  In terms of welfare reform, no work had been undertaken post implementation but Internal Audit had examined the plans that were put in place to prepare for the changes.

 

b.       It was not the role of Internal Audit to comment on legal advice that had been provided, the audit review of Legal Services was around governance, management performance and structure.  Nevertheless, it was acknowledged that weaknesses in processes and controls could have consequential impacts on service quality.

 

c.       Audit activity was adapted to support and engage with on-going corporate and managerial projects, such as Rising to the Challenge and Business Continuity, at particular points in time.

 

The Chief Officer: Finance and Commercial reported that, at Cabinet on 18 April 2013 (minute 90 refers), the ‘Rising to the Challenge’ programme had been closed, it had been superseded by ‘Root and Branch Reviews’.   He added that the delivery of budget savings was the critical issue for the Committee.

 

d.       Management had responded to the recommendations of the audit review of Income Collection - Industrial Lets and that outstanding rental charges had now been recovered. An explanation of the methodology for audit sampling was also provided.

 

e.       There was no correlation between the low level of management responses to draft reports and adverse audit opinions, some of the awaited responses were to positive reviews.  It was reported that, even where reports had not been finalised, dialogue would continue with management to ensure that action was being taken to address key findings.

 

f.       Reference to ‘Hot Topics’, in Appendix 1, related to issues and risks that had come to the attention of audit professionals from various sources, including the client base and professional bodies; an example was provided of an increasing type of fraud that finance teams needed to be aware of.

 

The Chairman noted that the authority had made some progress in terms of reducing the areas of limited assurance and action was being taken to strengthen those areas, nevertheless further work was needed to improve management response times to draft reports.

 

RESOLVED:  That

 

(a)     The report be noted; and

 

(b)     Managers be reminded of the need to engage fully with the audit process and to respond within the required timescales.