PURPOSE
1.
This
report is to provide the Committee with a summary of Internal Audit activity
completed since the last outcomes report to the Committee in September 2006.
2.
The
Committee is invited to note the contents of the report and to seek
clarification of any issues arising from audits undertaken.
BACKGROUND
3.
In
keeping with good corporate governance practice, a Committee of elected members
should have oversight of the activities of the Internal Audit Service for the
following purposes:
·
The
Committee should monitor Internal Audit’s performance, both in terms of the
quality and quantity of its work;
·
The
Committee should satisfy itself that Internal Audit has devoted its attention
to the appropriate issues;
·
The
Committee should consider the results of Internal Audit reviews to ensure that
any significant findings are addressed, including control weaknesses and to
ascertain whether, in the opinion of the Chief Internal Auditor, adequate and
satisfactory responses have been given by the Authority’s management;
·
The
Committee should recommend, if necessary, that further attention should be
given to some of the issues raised;
4.
To
facilitate this process, attached as Appendix 1, are reports of significant
audit work completed since the September 2006 report to the Audit Committee.
FINANCIAL, LEGAL, CRIME AND DISORDER IMPLICATIONS
There are no significant financial or legal
implications of this report, given that it is a progress report on the Internal
Audit function. The Committee is reminded that the Council is required by
statute (the Accounts and Audit Regulations) to have an adequate and effective
Internal Audit function.
RELEVANT PLANS, POLICIES, STRATEGIES AND PERFORMANCE
INDICATORS
None.
CONSULTATION PROCESSES
None.
BACKGROUND PAPERS USED IN THE PREPARATION OF THIS
REPORT
Audit project files held by G Richardson.
APPENDICES ATTACHED
Appendix 1 – Audit reports completed since September
2006.
Contact Point:
Ged Richardson, ( 823683, Email:
[email protected]
APPENDIX 1
A. ELECTORAL SERVICES
1. EXECUTIVE SUMMARY
1.1 Introduction
This audit was
carried out as part of the 2006-07 Audit Plan. The purpose of the audit is to
provide assurance to Management that there are adequate controls and procedures
in place to meet the Electoral Services objectives.
Electoral Services is responsible for
the following:
·
Local council elections
·
Parliamentary elections
·
European elections
·
Referendums
·
Maintaining the electoral register
The nature of
Electoral Services is that the busiest periods are when an election is
occurring. As no election was taking
place at the time of this audit many areas were difficult to test first
hand. Subsequently, much of the testing
centred on discussions with staff members and observations of past
documentation.
Following a risk workshop, the areas
tested included the disposal of confidential waste, the selection of polling
premises’, IT security and compliance with legislation.
1.2 Summary of Findings
1.2.1 Management of risk is impressive in this
service area. There were no
significant areas of concern arising from this audit.
1.2.2 The controls over the maintenance of the electoral register
are prescribed by central government and are designed to maximise the voter
registrations. As a consequence they do
not adequately address the risk of inappropriate entries appearing on the
register.
1.2.3 An area of potential weakness was identified in the provision
of contingency premises’ for polling stations.
1.2.4 Four minor recommendations were made in total, relating to
the administrative function of the service. (See attached action plan.)
1.3 Overall Conclusion
Electoral
Services is run by a group of qualified and experienced employees who have
sought to ensure that their objectives are met. Due regard has been given to the risks faced by the service and
sufficient control measures have been embedded into their processes.
1.5 Acknowledgements
I would like to take this opportunity to
thank all of the staff in Electoral Services for their assistance throughout
the duration of this audit.
C. SCHOOL BANK
ACCOUNTS
1. EXECUTIVE SUMMARY
1.1 Introduction
This audit was
carried out as part of the 2006-07 Audit Plan. The purpose of the audit is to
provide assurance to Management that there are adequate controls and procedures
in place to ensure the appropriate usage of school bank accounts.
Schools can
elect to use a full cheque book account or an imprest account.
Imprest
accounts operate whereby Schools can opt to deposit a portion of their budget
into a bank account held with the Councils bankers, Natwest. Schools then submit reimbursement claims for
the amounts spent to reconcile the account back to the original deposit.
Full cheque
book schools receive a portion of funding into their accounts termly. This sum
is all non-salary funding. During the last term the remaining balance of
funding is sent so that they receive the full amount of their budget. Schools may choose from 9 approved banking
institutions to operate their account with.
The current number of schools operating an imprest account
is 39; and 26 are operating a full cheque book account. 4 have no bank account.
Documents
including imprest returns and bank statements for 2005-2006 and 2006-07 were
examined as part of this audit.
1.2 Summary of Findings
There were no
significant findings as a result of this audit. Two recommendations of an administrative nature have been made.
1.3 Overall Conclusion
There are
sound systems and procedures in place for use by schools for operating bank
accounts. The Financial Advisor
(Schools) performs a monitoring role which identifies any serious problems and
contacts the schools directly if problems arise.
1.5 Acknowledgements
I would like to take this opportunity to
thank all of the staff in Education Finance for their assistance throughout the
duration of this audit.
Internal
Audit Action Plan
Title of Report: SCHOOL BANK ACCOUNTS Date Final
Report issued: 31/10/06
|
Report Reference
|
Main Findings
|
Possible Consequences
|
Action Required
|
Priority
|
Responsibility
|
Target Date
|
|
7.1
|
Guidelines do not exist for everyday operation of an
imprest account.
|
Improper use of accounts.
|
Guidelines should be created and sent to all schools
using this system.
|
2
|
Service Manager – Children’s Services Finance
|
1/04/06
|
|
7.2
|
That the officer controlling year end imprest
certificates is not informed of changes to responsible officers.
|
Administrative delays and errors.
|
Upon receipt of a mandate detailing changes, Education
Finance are to ensure that the information is forwarded appropriately.
|
3
|
Service Manager- Children’s Services Finance
|
1/12/06
|
Priority
Rating: -
1
– Serious control weakness requiring immediate action.
2
- Control weakness requiring action within follow up period.
3
– Low priority control weakness requiring action within timescale
determined by establishment.
D. SCHOOL MUSIC SERVICE
1. EXECUTIVE
SUMMARY
1.1 Introduction
This audit was carried out as part of the 2006-07 Audit Plan. The
purpose of the audit is to provide assurance to Management that there are
adequate controls and procedures in place and that they are implemented
effectively by the School Music Service.
The School Music
Service currently provides weekly tuition to 2200 pupils in 65 primary, middle
and high schools and employs 30 staff. Pupils in receipt of free school meals
receive subsidised tuition. Additional subsidies are available for selected
instruments.
Instrumental
tuition in schools receives a substantial subsidy from the DfEs, the remaining
costs are usually funded by parents and individual schools.
Instrument hire is
available to a limited number of pupils for the first year directly from IWMS (IW
Music Service) in addition many schools have their own instruments that are
made available to pupils.
The audit was carried out by interviewing relevant officers and carrying out
testing on selected areas to determine the level of compliance with Council
policy and procedures.
1.2 Summary
of Significant Findings
There were no significant
findings as a result of this audit. Five minor recommendations have been made
to improve the effectiveness of financial monitoring.
1.3 Overall
Conclusion
There are no major areas of concern arising from this audit, all
recommendations made are of an administrative nature intended to improve
management information.
A survey by
the Department for Education and Skills in 2005 provided the following
benchmarks:
IWMS Average
·
% of pupils learning at KS2 21.43% 13%
·
% of primary schools receiving tuition 91.3% 76%
·
%of secondary
schools (Middle & High)
receiving music provision 100% 88%
·
Average Hourly charge to schools £9 - 19 £27.10
·
Percentage average income from DFES Music
Fund 51% 43%
From the above
it can be seen that significantly more children are in receipt of music tuition
than the national average and that all Middle / High schools and the majority
of primary schools receive tuition. The percentage of income received from
schools and families in 2005 was 25% this has been raised in 2006 to 41% and
the average hourly charge to schools for 2006 has been raised to £22.
1.5 Acknowledgements
I would like to take this opportunity to thank all staff involved in
School Music for their co-operation and assistance in carrying out this review.
Internal
Audit Action Plan
Title of Report: School Music Service Date final Report issued: 9th October 2006
|
Main Findings
|
Possible Consequences
|
Action Required
|
Priority
|
Responsibility
|
Target Date
|
|
Schools are responsible for checking the eligibility of
pupils for subsidised tuition. No independent checks are carried out by the
School Music Service.
|
Possible reduction in income due to the service.
|
Consider the cost effectiveness of carrying out
independent verification of subsidised tuition
|
2
|
Acting Head of Music Service
|
31 December 2006
|
|
There is no clear audit trail between time sheets
submitted by peripatetic teachers and invoices charged to schools.
|
Risk of incorrect payments.
|
Ensure teachers only complete the current form and that
all information is entered including location and time involved.
|
2
|
Acting Head of Music Service
|
31 December 2006
|
|
There are currently inadequate checks of Music Service
Instruments held by music teachers.
|
Loss of equipment
|
The service will carry out a full stock take of
instruments held and teachers will be required to verify on an annual basis
instruments held.
|
2
|
Acting Head of Music Service
|
31 March 2007
|
|
Music teachers do not routinely inform the service of
pupils who have ceased tuition.
|
Incorrect charges made
|
Teachers will be required to complete a list of pupils
taught for each term
|
2
|
Acting Head of Music Service
|
31 October 2006
|
|
There is no reconciliation of income received to the
Financial Management System
|
Income is incorrectly coded or not received
|
Regular reconciliation of income received to FIDO
|
2
|
Acting Head of Music Service
|
31 October 2006
|
Priority
Rating: -
1
– Serious control weakness requiring immediate action.
2
- Control weakness requiring action within follow up period.
3
– Low priority control weakness requiring action within timescale agreed
N.B Failure to implement recommendations by the target date
will be reported to the Audit and Performance Committee. Evidence of
compliance by the target date will be required; however, notification by email
will be adequate.
E. COLLECTION OF
INCOME AT THE CREMATORIUM
1. Introduction
1.1 It was discovered that
a group of three funeral directors working for the umbrella company Dignity had
not paid any of their bills for cremations since July 2005. The amount owing from these three companies
was £161,892 made up as follows:-
Financial year 2005-06 - £108,701
2006-07 to end of July - £53,191
1.2 An investigation
was carried out to discover the circumstances surrounding this debt and to put
in place procedures to prevent anything similar occurring in the future.
2 Background
2.1 The BACS
electronic money transfer system for payment of invoices by the funeral
directors was introduced in July 2005 and at about the same time the
Bereavement Services Manager died unexpectedly at the age of only 49. The Assistant
Manager filled the position as Acting Manager and his previous position was not
filled until November 2005 and then on a temporary basis as there was some
debate at the time as to whether the crematorium would be sold off. The financial accountant responsible for
bereavement services at that time was also on long term sickness leave.
2.2 It was subsequently
noted by the Bereavement Services Manager that the income received for
bereavement services did not match the expected income based upon the numbers
of cremations/funerals that were being carried out. He raised this concern with the Head of Consumer Protection.
2.3
A meeting was arranged between the Acting Bereavement Services
Manager, the Assistant Manager, Budget Accountant and Senior Accounting
Technician to try and reconcile the figures. During the meeting it was
discovered that Dignity were not paying their cremation bills.
3. Findings
3.1 The fundamental cause
of the non-collection of income arose from a significant change in the way
income is collected and the flow of financial information resulting from that
change.
Old System
3.2 Although numbers
fluctuate considerably the crematorium handles around 1400 cremations a year.
There are twelve funeral directors on the Isle of Wight and before BACS was
introduced in July 2005 payments were made directly to the crematorium by
cheque. At the end of the week each funeral director was sent a Statement
listing the cremations carried out for them that week. Staff at the crematorium would fill in a
receipt in a duplicate receipt book each time a cremation was carried out and
these receipts were attached to the back of the statements.
3.3 The Statements were
sent to the local offices of the funeral directors and they paid the
crematorium directly by cheque. Staff were therefore able to monitor the
payments as they were received and would chase any outstanding debts.
New
System
3.4 Following
the introduction of BACS in July 2005 the majority of funeral directors opted
to pay by this method. The crematorium send a Statement at the end of every
month to each funeral director listing the cremations carried out for them
during the month. Attached to the Statement is a separate receipt for each
cremation
3.5 A
copy of the Summary of Statements is sent to the cash office in Sandown and
they check payments received against the summary. They do not monitor whether
or not payments are received only that those that are received are the same as
on the summary.
3.6 Staff
at the crematorium do not monitor the receipt of payments either as they are
not aware of when payments are received at the cash office. They have access to
WebFIDO however no one has been comprehensively trained in its use.
3.7 Since
the debt was discovered the system has been changed and a Summary of Statements
is now sent to the budget accountant who sends out an official invoice. The
crematorium also sends out individual statements and receipts to each funeral
director.
Consequences
3.8
Following the system change, no special monitoring of payments
received was carried out by bereavement services staff. As a result, the fact that those funeral
directors working for Dignity were not paying was not immediately identified.
The financial accountant responsible for this area was on long term sick leave
at that time and subsequently it was not picked up through routine budget
monitoring either.
3.9
A discussion was held with the accountant at the head office
of Dignity and it is apparent that the change over to the BACS method of
payment caused the problem at their end.
3.10
Up to July 2005 the crematorium sent statements with receipts
attached to all the local funeral directors offices. This was done on a weekly
basis and payments were made by cheque
by the local offices.
3.11
From July 2005 when we changed to the BACS system the
crematorium sent out the statements and receipts to the local offices as usual
but monthly instead of weekly. As the payments had to be made by BACS, the
statements were sent to the head office of Dignity for processing. Because the
paperwork was headed “Statement” and not “Invoice” they were not paid as
accountants require a proper invoice.
3.12 Following a
restructuring in accountancy, the error was discovered and the Senior
Accounting Technician responsible for bereavement services now issues official
invoices using the corporate debtors system which incorporates a recovery
profile.
3.13 Discussions were held
with the Senior Accounting Technician who confirmed that he now receives a
summary of statements from the crematorium and that he sends out an official
invoice to each funeral director. A monthly summary of invoices is compiled
detailing the batch number with spaces for signatures and dates to certify
amounts as correct.
3.14
The budget accountant also confirmed that the outstanding debt
will be settled by Dignity.
3.15 As noted above the
crematorium are still sending out statements to the funeral directors. This is
not good practise as sending invoices and statements from different places that
arrive at different times looks unprofessional and could also lead to bills
being paid twice.
3.16 It has been agreed that
in future the crematorium will send the statements to the budget accountant and
he will attach them to the relevant invoice. To avoid confusion the statements
are to be renamed “Invoice Details” and the receipts written out by the
crematorium will no longer be sent out.
3.17 The budget accountant
will provide further training on WebFIDO to the relevant staff at the
crematorium in order that they can monitor the receipt of income. Once he is
satisfied that the new system is working satisfactorily, consideration should
be given to connecting the Jbase debtors system to the crematorium in order
that they can issue their own invoices.
This will ensure that any outstanding debts are chased and also enable
them to monitor when payments are received.
3.18 Details of the costs
involved in connecting the Jbase system to the crematorium are as follows:
For Connection:
X2 Business
Broadband - £200 set up, £21.99 per month for 2mb link (will accommodate
several users)
Per Concurrent User:
£500 for one
Citrix Box (machine in County Hall to connect to giving same access as County
Hall)
£55 for AppGate license
£55 for Crypto card
4 Conclusions
4.1 The procedures for
collecting income at the crematorium have been strengthened by the budget
accountant issuing invoices through the debtors system. This incorporates a recovery profile and automatically
issues reminders at set periods leading on to court action when necessary.
4.2 It is clear from our
investigation that the problem over the outstanding payments arose through a
combination of factors
Moving to the BACS
method for the collection of payments
·
The untimely death of the Bereavement Services Manager
·
The financial accountant being on long term sick leave
·
The use of the word Statement instead of Invoice on
documentation sent out by the crematorium.
4.3 A number of
recommendations have been made, some of which have already been implemented,
which will provide a more robust framework of controls around the collection of
income for the crematorium and these are set out in the Action Plan.