To update members on the progress of internal audit work and to bring to their attention any key internal control issues arising from work recently completed.  To enable the committee to monitor performance of the internal audit team against the approved plan.  To assure the committee that action is being taken on risk related issues identified by internal audit.

The Assistant Director and the Principal Auditor of South West Audit Partnership (SWAP) introduced the Report of Internal Audit Activity for 2021/22, as of 21 April 2022, with attention drawn to the following:

 

i.             Since the previous update (minute 68 of 25 January 2022 refers), twenty-seven audits had been completed, bringing the total to fifty-two.  Details of the audits completed, with the assurance ratings and audit objectives were provided at pages 183-185 of the agenda pack.

 

ii.            Three audits were at draft report stage and eight audits were in progress; the aim was to complete five of those in progress for the annual opinion 2021/22, with the other three rolled over to the next financial year.

 

iii.          Sixteen priority 2 actions had been agreed across the following audits: Pool Cars; Disaster Recovery (ICT); Green Homes Grant: Local Authority Test and Trace Support Payment Scheme Funding Grant Determination; and Hereford City Centre Transport Package (HCCTP).  Summaries of the priority 2 actions were provided at pages 186-189 of the agenda pack.

 

iv.          No High Corporate Risks had been identified to date.

 

v.           Five follow up audits had been completed, with one priority 2 action (Accounts Receivable - Debt Recovery Policy and Reporting Processes) and three priority 3 actions in progress.

 

vi.          Thematic findings were highlighted in relation to data quality, procedure document / policy, and coding of grant income and expenditure; for the latter, further work had been undertaken and all the actions had been completed.

 

vii.         Two changes had been made to the internal audit plan 2021/22, reflecting requests for additional audits in relation to: South Wye Transport Package LEP Settlement; and Revenue Grant Determination (Ring-fenced) Protect and Vaccinate Grant Determination.  Consequently, the following audits had been deferred into the internal audit plan 2022/23: Schools Thematic Audit; and Condition Funding Grant Determination.

 

viii.       The HCCTP Summary Report was included at Appendix 2, agenda pages 211-223.  It was noted that this was a Special Investigation and one priority 1 action, eight priority 2 actions, and one priority 3 action had been agreed.  The key findings were detailed on page 212 of the agenda pack and were summarised at the meeting.  The Investigation Findings - Control Weaknesses and Agreed Actions was included at Appendix 3, agenda pages 225 – 235.

 

In response to questions and comments from committee members:

 

1.           The Principal Auditor said that clarification could be provided to committee members on the current position with unspent grant funding in relation to the Green Homes Grant.  Later in the discussion, the Director of Resources and Assurance commented on challenges in relation to identifying appropriately qualified contractors to deliver the service and the households wanting to have such works carried out within the narrow timeframes involved.

 

2.           The Principal Auditor confirmed that the scope of the additional audit was around the South Wye Transport Package LEP Settlement arrangements and commented on two previous pieces of audit work on the project and related follow up audits.  Later in the meeting, the Director of Resources and Assurance commented on the need to reflect on the work that had been undertaken and to adjust the scope if necessary.  The Chairperson noted that the scope would be identified in the pipeline of audits in due course.

 

3.           In response to a comment about opportunities to identify issues at an earlier stage, the Chairperson expressed a concern about the focus on grant certifications and the amount of internal audit coverage for other areas of organisational activity.  The Assistant Director advised that Covid related grant funding criteria required additional internal audit work but it was anticipated that the levels of grant funding would reduce in 2022/23.  The Director of Resources and Assurance added that some funding included ‘new burdens’ which contributed to some of the council’s costs.  The Chairperson suggested that consideration be given to carrying forward any remaining internal audit budget into the new financial year to enable more work to be undertaken on those areas that had received less attention in recent times.

 

4.           The Principal Auditor said that further information could be provided to committee members in relation to the Oral Health Needs Assessment Plan advisory audit and the next steps; it was clarified that the advisory audit was a follow up of actions arising from another assurance process, rather than a SWAP audit.

 

5.           In terms of the audit on Pool Cars, the quantum of missing vehicle mileage sheets and recharges could be provided.

 

6.           The Director of Resources and Assurance acknowledged that the government was increasingly allocating money through grants and noted that this had implications for procurement, audit, and governance arrangements.  The Chief Executive added that some grants, such as levelling up opportunities, provided some funding to support the development of bids in certain circumstances.  The need for the council to invest further in the skills and expertise required was recognised.  Later in the discussion, a committee member suggested that consideration be given to the success criteria for the projects that the council intended to bid for, or received grant funding for, to ensure that there was an appropriate balance of effort and reward.

 

7.           The Director of Resources and Assurance explained that the asset portfolio did not feature in this report and the value of assets formed part of the annual accounts, adding that the General Scrutiny Committee had undertaken some scrutiny activity on elements of the asset management strategy (minute 25 of 10 August 2021 refers).

 

8.           The Director of Resources and Assurance said that a more in depth look at Disaster Recovery, particularly in the context of risk given recent global events, could be arranged for committee members.  The Chief Executive added that the Corporate Leadership Team was mindful of the need to take a more strategic perspective, to raise the profile of risk management across the organisation, and welcomed the committee’s interest in taking a closer look at some of the strategic risks.  The Chief Executive also provided an overview of engagement with cabinet members about risks.

 

9.           The Assistant Director advised that thematic findings were shared with the Corporate Leadership Team through the progress reports and some of the findings would feed into the pipeline of audits for the next financial year.

 

The HCCTP Summary Report was discussed in detail and the key points of the discussion included:

 

10.        A committee member said that concerns about expenditure in 2015/16 and 2016/17 had been raised with the then Section 151 officer, the cabinet member and the external auditor, and considered that recommendations on improving the management of capital projects should have been implemented at that time.  The Chairperson noted the mechanisms to initiate call-ins or other scrutiny activity and suggested that the member development group consider opportunities to enhance training for all members.  The Key Audit Partner advised that the matter of capital governance had been a consistent feature of external audit and internal audit reports.

 

11.        A committee member commented on the lessons arising from the findings of the HCCTP investigation, particularly given recurring thematic findings including those identified in the Blueschool House refurbishment investigation.  There was a brief discussion about the potential to highlight the findings that were distinct to the HCCTP investigation.

 

12.        In response to a question, the Director of Resources and Assurance confirmed that, in terms of deliverables, the HCCTP project was not concluded; reference was made to the Cabinet report on the development of the remaining elements (minute 23 of 22 July 2021 refers).

 

13.        The Director of Resources and Assurance provided an overview of the work of the Programme Management Office (PMO), and confirmed that all active capital projects were now included on the Verto project management solution and the system was also being rolled out to non-capital projects during the current financial year.  In response to comments about the need for further assurance, the Principal Auditor said that a further audit on the capital programme was envisaged to ensure that new processes were being embedded and the actions identified in the summary report were being implemented. 

 

14.        In response to comments from a committee member, the Key Audit Partner commented that SWAP was independent of the council and, although individual recommendations were not reviewed, external audit would consider the council’s overall response to risk and internal audit findings, and would look for signs of progress.  The Assistant Director confirmed that internal audit followed up on the actions associated with priority 1 and priority 2 findings, as reflected in the progress reports.

 

15.        In response to questions from a committee member about the ability of the new processes and system to manage the different elements and funding streams of capital projects, the Corporate Director – Economy and Environment provided an overview of the approach to the development of business cases, the involvement of designated senior responsible officers for each project, and the rigour being applied to delegations and approvals.

 

16.        With references made to the findings in terms of Service Order Coverage and Compensation Events, the Director for Resources and Assurance advised that the Contract Procedure Rules and the Financial Procedure Rules had been updated on an annual basis, and the next iterations would highlight the further changes that had been made to reflect the findings.

 

17.        In response to comments and questions about the weaknesses identified in terms of record keeping, the Corporate Director – Economy and Environment reported that cabinet member briefings with senior officers now involved the production of agenda and minutes to ensure that the formal advice provided and the decisions made were recorded properly.  The Chief Executive noted that the key findings reflected practices at the time and commented on the recent establishment of the PMO and on the improvements being made to scrutiny and governance arrangements.

 

18.        The Cabinet Member - Infrastructure and Transport said that, upon becoming a cabinet member, scant detail had been provided on the HCCTP and that there had been concerns about officer capacity and the extent of responsibility given to Balfour Beatty Living Places (BBLP) to run the project.  It was commented that councillors and members of the public had raised issues about various aspects of the project.  In response to a question about the role of internal audit, the Principal Auditor explained that SWAP had been commissioned to undertake three pieces of work, the first in 2016 on financial accounting, the second in 2020 to provide a briefing paper, and the third being the special investigation.  The Director for Resources and Assurance said that it had been an uphill struggle to get to this point and the council had undertaken to review delegated decision making.  In response to a further question from the cabinet member, the Principal Auditor explained that any significant risks identified that were beyond the scope of commissioned work would be raised with officers but the initial work on financial accounting had not identified evidence to suggest there were any other concerns at that point.  The Key Audit Partner drew attention to the Audit Findings for Herefordshire Council for the year ended 31 March 2020 (minute 16 of 30 July 2021 refers) and the comment ‘In light of the concerns raised over the contractual arrangements and the findings identified from the internal investigations, we have concluded that the Council does not have appropriate arrangements in place over its capital programme. Our vfm conclusion will therefore be qualified in this respect.’  In response to a question from a committee member, the Key Audit Partner confirmed that issues highlighted around the capital programme had been a feature of the external audits in previous years and had been reported to the committee.

 

19.        A committee member considered that the matter should have been escalated further in view of the public interest, more than one priority 1 action could have been identified, assurance was needed that communications between officers and cabinet members would be put in place for future projects, and better outcomes should be expected.  The Chief Executive commented on the background to the special investigation, the findings had been set out clearly in the executive summary, and the value of councillors having inquiring minds.  It was noted that the council was acting upon the recommendations and was putting assurance in place to deliver projects with confidence and openness.

 

20.        In response to a question, it was reported that Aecom had been commissioned to verify the costs which had been incurred and the compensatory payments that had been made.

 

21.        The Cabinet Member - Infrastructure and Transport outlined key points in the timeline, emphasising that questions about the management of the project had been asked soon after the formation of the administration.

 

The committee considered and agreed the following resolution and actions.  During the discussion, the Chairperson commented on the importance of the scope of internal audit work being identified in the pipeline of audits going forward.

 

Resolved: That

 

a)           The performance against the approved plan has been reviewed;

 

b)      The assurances and recommendations given in the report have been reviewed;

 

c)      The Corporate Fraud Update be noted;

 

d)      The Hereford City Centre Transport Package Special Investigation Summary Report be noted;

 

e)      It be recommended to the relevant scrutiny committee that, as part of its work programming, consideration be given to the success criteria for the projects that the council intends to bid for or receives grant funding for.

 

f)       It be recommended to the Section 151 officer that further audit work be undertaken on the capital programme to ensure that new processes were being embedded and the actions identified in the progress report were being implemented in terms of other projects.

 

Action(s):

 

Action 154:     In view of the ongoing work on grant certification, the Section 151 officer consider the potential to carry forward any remaining internal audit budget into the new financial year to enable other work to be undertaken.

 

Action 155:     Further information be provided to committee members on unspent grant funding in relation to the Green Homes Grant.

 

Action 156:     Further information be provided to committee members in relation to the Oral Health Needs Assessment Plan advisory audit and the next steps.

 

Action 157:     Further information be provided on the quantum of missing vehicle mileage sheets and recharges in relation to the audit on Pool Cars.

 

Action 158:     The Section 151 officer and the Chairperson consider the most appropriate means for committee members to explore issues around Disaster Recovery and related risks in greater depth.

 

[Note: ICT business continuity and cyber security resilience was discussed further during the Work Programme Update, with an assurance requested in the form of a briefing note initially.]

 

Action 159:     The member development team be invited to consider opportunities to enhance training for all members on raising concerns with statutory officers and on initiating call-ins and other scrutiny activity.

 

Action 160:     Further information be provided to committee members on the timeline for moving non-capital items onto the Verto system.

 

Action 161:     The findings in relation to the Blueschool House refurbishment investigation be recirculated to councillors.