2.5 As can be seen from the above table the budgeted deficit for 2004/05 was £222,739 (revised at half year to £218,640). The actual deficit however was £103,000, which represents a reduction of over £100,000 in the budgeted figure.

2.6 The income and expenditure relating to the actual operation are generally in line with the budgeted figures however there is a large reduction in the uncontrolled budget (overheads). In previous years the charges have been based upon historical figures, however for 2004/05 these figures have been adjusted to reflect the true costs and in future the true costs will continue to be used.

Conclusion

2.7 The service is subsidised by the Council and based upon the figures for 2004/05, which reflect true costs, the subsidy will be in the region of £100,000.

2.8 At present only vehicles are charged and foot passengers travel free.

Approximate number of vehicles annually – 390,000

Approximate number of foot passengers annually – 1.5M

2.9 If a practical method of charging foot passengers even a nominal sum could be found, the service could break even or possibly make a profit.

3 Bereavement Services

3.1 The budget for Bereavement Services provides for burial services and the maintenance of 12 cemeteries and 11 closed churchyards together with the provision of a crematorium service including maintenance of the site and buildings. The crematorium was built in 1961 and handles all cremations on the island. The council also deal with approximately 95% of the burials, the others being handled by Funeral Directors with their own private cemeteries.

Figures in accounts

	Budget 2004/05	Revised 2004/05	Actual 2004/05	Previous Year 2003/04
Income	786,659	787,909	706,000	-
Expenditure	683,738	717,683	866,000	-
Surplus/Deficit	102,921	70,226	(160,000)	(253,000)

Revised figures

	Budget 2004/05	Revised 2004/05	Actual 2004/05	Previous Year 2003/04
Income	786,659	787,909	706,000	-
Expenditure	683,738	717,683	787,000	-
Surplus/Deficit	102,921	70,226	(81,000)	6,000

3.2 The figures shown in the draft final accounts were incorrect and have been revised as detailed in the table above. The revised figures show an overall deficit of £81,000 for the year 2004/05.

3.3 The service was budgeted to make a surplus of £70,000 and the reasons for the difference between the budgeted and actual figures are set out below.

Income

3.4 Income is down by approximately £81,000 on the budget. This is due to a lower than average number of cremations during the year down from 1497 the previous year to 1369 and burial figures down from 257 to 223.

3.5 As budgeted income is based on the previous years figures the resultant loss has occurred. This reduction in income due to lower numbers of deaths on the Island has been reported in the County Press.

Expenditure

3.6 Expenditure is up by approximately £70,000 on the budget. This is due in main to alterations in the way overheads are recharged to be in line with Best Value Accounting Code of Practice (BVACOP). The revised method of recharging will continue in future years.

Conclusion

3.7 Based on previous years figures the reduction in income is likely to be a one off and had income been in line with the yearly average the service would have broken even.

4 Leisure Centres

4.1 These budgets relate to the running costs of sporting facilities at The Heights, Medina Leisure Centre, The Waterside Pool, Rew Valley and Westridge Squash Courts. These facilities offer an extensive and varied programme intended to provide interest and opportunities for all groups and individuals within the community, and leisure facilities for visitors.

4.2 Medina Leisure Centre and Rew Valley are Dual –Use facilities shared with the local school to an agreed schedule of use, and are subject to separate management agreements. Rew Valley was taken over during the financial year and together with Westridge was not included in the draft final accounts. The revised figures are set out in the second table below.

	Budget 2004/05	Revised 2004/05	Actual 2004/05	Previous Year 2003/04
Income	1,441,785	1,408,644	1,352,000	-
Expenditure	2,757,584	2,190,450	2,559,000	-
Surplus/Deficit	(1,315,799)	(781,806)	(1,207,000)	-

Revised figures including Rew Valley and Westridge Squash Courts.

	Budget 2004/05	Revised 2004/05	Actual 2004/05	Previous Year 2003/04
Income	1,441,785	1,408,644	1,379,737	-
Expenditure	2,757,584	2,190,450	2,649,526	-
Surplus/Deficit	(1,315,799)	(781,806)	(1,269,789)	-

Figures for the previous year were not provided for comparison due to changes in the apportionment of management and administration costs (BVACOP). These charges account for the increase in the actual expenditure over the revised budget figure.

4.3 Local Authority Leisure Centres throughout the country are subsidised. The Heights, Medina Leisure Centre and Waterside Pool are compared to other facilities through benchmarking via the Association for Public Service Excellence (APSE). Facilities of a similar size are grouped together and Performance Indicators such as ‘subsidy per head’, ‘staff costs’ etc are compared. The facilities on the Isle of Wight compare favourably with others in their group, often being in the top quartile.

Conclusion

4.4 The Isle of Wight Leisure Centres compare favourably with those run by other Local Authorities.

5 Seasonal Sites

5.1 These budgets relate to 16 separate cost centres such as Browns Golf Course, Shanklin Lift, Puckpool Park etc. They support the provision of valuable leisure and recreational facilities for both residents and visitors. Ryde Harbour is included under seasonal sites whereas all other harbours and pontoons come under Coastal Management.

	Budget 2004/05	Revised 2004/05	Actual 2004/05	Previous Year 2003/04
Income	660,416*		655,493	-
Expenditure	555,352*		1,030,798	-
Surplus/Deficit	105,064*		(375,305)	-

* Budget figures are service costs only and do not include capital and central charges

Figures for the previous year were not provided for comparison due to changes in the apportionment of management and administration costs (BVACOP).

5.2 The deficit of £375,305 for the year 2004/05 is misleading as the capital recharges for Appley Play Area and Puckpool Park have been charged to Leisure Services in error. The total sum charged for these two areas is £101,680, which would reduce the deficit to £273,625. This will be corrected in future years.

5.3 For future reference 7 of the cost centres included in the year 2004/05 are no longer run by Leisure Services (eg Road Trains, Seaclose Amusements etc). This will result in a further reduction of the deficit from 2005/06. As a guide the saving for 2004/05 would have been £118,330 had these cost centres not been run by the Council during the year.

Conclusion

5.4 In future the subsidy for Seasonal Sites should be considerably lower than the £375,305 posted. Based on current figures the subsidy should be in the region of £155,000.

6 Harbours and Coastal

6.1 These budgets include the harbours at Newport and Ventnor, Folly Moorings and Whitegates Pontoon. Apart from staffing budgets the most significant cost is for Contractors services including dredging the harbour area. Other costs include management fees for income collection at Folly Moorings and harbour repair and maintenance at each of the locations.

6.2 Income is derived mainly from moorings and pontoons provided for leisure craft. Newport Harbour also receives income from commercial use of the quay through the warehouses and stores adjacent to the harbour. This commercial income has reduced as various buildings were put into alternative use or demolished. Examples include Jubilee Stores, the Classic Boat Museum and the site now occupied by the Whitbread hotel and pub. The fees for Folly Moorings offset a significant part of the deficit for Newport Harbour.

	Budget 2004/05	Revised 2004/05	Actual 2004/05	Previous Year 2003/04
Income	158,035	232,644	188,000	-
Expenditure	288,766	354,705	319,000	-
Surplus/Deficit	(130,731)	(122,061)	(131,000)	(91,000)

6.3 The above harbours and pontoons are run by Coastal Management as they were considered to be either commercial harbours or as in the case of Ventnor Haven, part of coastal defences. Ryde Harbour however was considered to be a leisure facility and is run by Leisure Services.

6.4 When preparing the figures for the individual trading accounts Ryde Harbour was included in the figures above as it is a Harbour and also in the figures for Seasonal Sites as it is run by Leisure Services.

6.5 If the figures for Ryde Harbour are left in Seasonal Sites the above figures would be reduced as follows.

	Budget 2004/05	Revised 2004/05	Actual 2004/05	Previous Year 2003/04
Income	115,725	189,137	134,872	-
Expenditure	178,358	252,853	229,137	-
Surplus/Deficit	(62,633)	(63,716)	(94,265)	(91,000)

Conclusion

6.6 In relation to Trading Operations consideration should be given to including Ryde Harbour in the Harbours and Coastal section, as all the harbours are now mainly leisure based.

6.7 2004/05 was the first full year for Ventnor Haven and subsequently income was quite small, however in future years this should increase as boat owners become more aware and with proposed additional marketing.

6.8 The harbours themselves will not generate sufficient income to cover their costs and whilst the deficit may reduce with an increased income from Ventnor Haven the council will have to continue to subsidise them

B. FUTURE LIABILITIES INVOLVED IN OPERATING LEASES

Prior to the introduction of the Prudential Code for capital financing on 1^st April 2004, there were very limited capital financing resources available to finance capital expenditure outside the national priority service blocks of Education, Social Services and Housing. Therefore, to enable the acquisition of assets out-with the priority service blocks such as vehicles, ICT equipment and pay and display machines, operating leases were used as the principal means of obtaining the use of such assets.

Operating leases essentially are a form of renting an asset for a period prescribed in the lease agreement. Ownership of the asset remains with the lessor and as such, for accounting purposes, the annual leasing charge is treated as revenue expenditure rather than capital expenditure. At the end of the lease period, the lessor has the power to determine how the asset may be disposed of. Depending on the condition of the asset, the lessor may allow the lessee (the Council) to dispose of the asset to a third party in return for a proportion of the value realised at point of sale. Alternatively, the lessor may choose to dispose of the asset himself and can require the lessee to deliver the asset to a location on the mainland to facilitate the disposal. What is not allowed under an operating lease is for the council to purchase the asset direct from the lessor. This is a restriction imposed by law.

The annual financial commitment for leases in existence at 31^st March 2005 is shown in the table below. From this it can be seen that the financial burden of operating leases reduces over time as lease agreements expire.

Year	2005/06	2006/07	2007/08	2008/09	2009/10	2010/11
No. Leases	51	41	35	30	24	11
Payments	£511,842	£421,979	£398,508	£284,142	£220,849	£186,587

Year	2011/12	2012/13	2013/14	2014/15	2015/16	2016/17
No. Leases	10	7	4	3	2	1
Payments	184,095	£154,803	£115,530	£38,013	£22,555	£9,005

TOTAL COMMITMENT 2005/06 – 2016/17 - £2,556,913

Since the introduction of the Prudential Code, the Council is now free to consider alternatives to operating leases when seeking to acquire the use of assets. The Council uses a Lease Broker to assist in determining the financing option that will deliver the best value for money when procuring assets. The system operates as follows:

1. The council identifies the need for the acquisition of an asset that could potentially be capitalised and passes the details to the Lease Broker.

2. The Lease Broker will then obtain quotations from companies in the leasing market offering both operating leases and finance leases.

3. The Lease Broker then compares the costs of the various financing options including using the council’s own capital resources.

4. The comparison is made using an investment appraisal technique called discounted cash flow. This technique compares the impact of the differing cash flows of each option against the notional investment interest foregone for the council. In this way the full financial cost of the various options is computed and compared. The output of the discounted cash flow exercise is a Net Present Value (NPV) for each option.

5. The option with the lowest NPV offers the best value for money and is the option that the Council will pursue.

Thus, the approach being pursued since the inception of the Prudential Code does not rule out the possibility of new operating leases being entered into.

Early termination of operating leases involves incurring significant financial penalties. Even with Public Works Loans Board (PWLB) interest rates being as low as they are, it would not provide value for money to prematurely terminate operating leases and retain existing assets through another financing option.

C. UNDERSPENDS IN THE CAPITAL PROGRAMME

1 Background.

1.1 At the Full Council meeting on 29 July 2005 it was agreed that the Internal Audit Programme be amended to ensure that the Audit Committee could consider a report on three items, one of which was the under-spends in the capital programme for 2004/05. A summary of capital expenditure for 2004/05 included in the final accounts shows an under-spend of £11.2 million on a budget of £38.8 million – 28.86%.

1.2 The final accounts included a summary of Capital expenditure by service area as follows:-

Service Area	Revised Estimate	Actual Spend	Over/(under) Spend
	£000’s	£000’s	£000’s
Children and Family Services	16,620	9,785	(6,835)
Adult & Community Services	1,205	1,026	(179)
Housing Services	3,777	1,434	(2,343)
Environment & Transport	12,054	9,960	(2,094)
Resources	1,387	2,256	869
Fire & Public Protection	291	170	(121)
Economic Development, Tourism & Leisure	2,590	2,417	(173)
Other Services	913	564	(349)
Total Expenditure	38,837	27,612	(11,225)
The main areas of variance in the capital programme are as follows:- · Children’s Services - a delay in the commencement of a major scheme at Kitbridge Middle School and slippage on a number of other Primary and Middle Schools. · Housing - includes a delay in the major schemes at Oakfield. · Environment and Transport – principally Ryde St John’s bridge strengthening and the proposed Park and Ride scheme in Ryde. · Resources – the costs arising from the Accommodation Review will be financed from programmed asset sales during 2005/06.

2 Background Information

2.1 The capital programme for the last three years (2002/3 to 2004/05) has shown increasing under-spends as shown from the figures below :

Capital	2002/03	2003/04	2004/05
Budget £m	29.4	37.1	38.8
Actual £m	24.9	29.2	27.6
Under-spend £m	4.5	7.9	11.2
% Under-spend	15%	21%	29%

Table1

2.2 The figures for under-spends can be split into service areas as follows:-

Service	2002/03	2003/04	2004/05
Education & Community Development Housing, Social Services & Benefits	-1,082,793 -1,030,948	-5,616,456 -2,615,637	Children’s Services	-6,835,825
			Adult & community Services	-178,431
			Housing	-2,343,105
Environment & Transport	-1,850,615	-282,873	-2,093,870
Fire & Public Safety	-174,410	-68,702	-120,807
Resources	-56,288	934,043	869,418
Economic Dev, Tourism, Planning & Leisure	-295,305	-195,101	-173,816
Other Services			-348,248

	-4,490,359	-7,844,726	-11,224,684

Table 2

NB: Due to the re-structuring of the directorates during this period, these figures may not give an accurate comparison year on year for individual services, but are shown to indicate where the under-spends took place in each year.

2.3 Capital expenditure is managed within each directorate, with Financial Services carrying out an overall budget monitoring role. Financial Services staff look at the capital budget for a directorate as a whole, but do not monitor individual projects. A quarterly capital report is produced. Reports were made to the Directors Group during the year which highlighted the under-spend on capital expenditure.

2.4 A report to the Directors Group in October 2004 stated the capital programme for 2004/05 agreed by the Council in February 2004 showed an over-commitment on assumed resources of £1.3 million. However, the early indications were that there would be sufficient slippage from the Education programme to manage the over commitment through the financial year.

2.5 In February 2005 a report to the Directors Group stated that as at 31 December 2004 53.3% of the approved capital budget had been spent, but that with commitments this would increase to 72%. However, there was a caveat in that some of the committed expenditure would not be incurred until 2005/06.

2.6 In the Directors Group minutes for 10 March 2005, the Chief Financial Officer reported that

“ Capital slippage had now reached such a level that it might soon prejudice future supported borrowing approvals if not corrected.”

2.7 A further report was made to the Directors Group in March 2005 regarding the capital programme for 2005/06. In the report it was noted that

a. the over-commitment of £1.3 million reported in October 2004 had reduced to £0.6 million.

b. As at 31 March 2004 there was a total of £7.8million slippage in the capital programme.

c. There would be substantial slippage into 2005/06, of between £10 million and £13 million.

d. Failure to achieve spending programmes consistent with allocations of Supported Capital Expenditure (SCE), is likely to impact on the levels of SCE that could be achieved in respect of future years. It is therefore important that programmes are attained, and that alternative investment options be available should planned schemes fail to come to fruition. Slippage could be construed as a failure to meet financial targets.

Directors were asked to review the levels of slippage within their respective services.

2.8 High levels of capital slippage could be detrimental for the Council in several ways.

1. The failure to spend allocated capital could lead to funding approval being withdrawn for specific projects.

2. Reduction in future funding.

3. Doubts could arise as to the capacity of the Council to manage the level of capital works included in the budget

4. Projects that have been identified as important to the Councils Priorities, for example work needed to be done in the schools which may have an impact on the standards in schools, are delayed.

3 Audit Findings

3.1 The three areas with the largest under-spends were looked at in greater detail: These were:

% of budget

Children’s Services -£6,835,825 41 %

Housing -£2,343,105 62%

Environment & Transport -£2,093,870 17%

3.2 Children’s Services:

3.2.1 The majority of capital expenditure under-spends within Children’s Services relates to Education, and specifically to the Schools Building Programme. This can be seen in table 3 below

Education & Community Development /Children’s Services: Capital Under-spends

	2002/03	2003/04	2004/05
Administration & Inspection	1,598,730	2,809,205	824’971
Previous Years Education Capital			-5,576
High Schools	228,517	647,575	959,889
Middle Schools	-336,490	1,563,641	3,165,775
Primary Schools	-186,134	733,023	1,498,595
Special Schools	-166,896	-168,164	373,422
Sub Total Education	1,137,727	5,585,280	6,817,076

Children & Family			18,748
Millennium Projects	-28,428	-17,703
Community Development Capital General	-26,326	48,879
	1,082,973	5,616,456	6,835,824

Table 3

3.2.2 In June 2003 a report was submitted to the Executive Committee seeking formal approval to the Council exploring the benefits of a partnering approach to contracting by means of a pilot scheme which would cover the Schools Building Programme from 2004/05 onwards. In table 3 it can be seen that capital under-spendings in Education and Community Development rose from £1,082,793 as at 31 March 2003 to £ 5,616,456 as at 31 March 2004.

3.2.3 The partnering approach is used to engage contractors to undertake around 10 to 12 projects per annum. In total it was anticipated that £3million per annum of work could be involved. The financial implications of partnering are that potentially it offers significant savings for the Council with an improvement overall of the outcome of building projects and the value for money they represent.

3.2.4 It is understood that between June 2003 and September 2004, (a period of 14 months) projects in the Education Capital programme were held so that they could form the basis of the first partnering programme.

3.2.5 A detailed list of capital expenditure in schools for 2004/05 was obtained, and all projects with an over/under spend in excess of £100,00 were looked at. These had a total under-spend of £5.4 million, of which :

Ø £2.4 million related to projects within the partnering arrangement. £2 million pounds of this under-spend was due to partnering delays – the selection, appointment and training of partners, and the slow start on projects by one of the Partners. The remaining £0.5 million slippage within the partnering projects was due to a variety of factors – changed priorities due to the possibility of a 3 tier system, problems acquiring buildings, the schools changing their requirements.

Ø £3 million slippage relates to projects outside the partnering arrangement. Of this £1.5 million relates to delays in a major scheme at Kitbridge Middle School. This scheme was planned to take place over three years, and was in two phases, but has now expanded to four phases. Delays have occurred due to the difficulty of acquiring land for the playing fields, and the ongoing difficulty of carrying out major works at the same time trying to ensure that the school can operate normally. Other factors causing slippage in the programme included gas main problems at Ryde High School (£126,000) .

3.2.6 The potential re-organisation for a three to a two tier school system, and the subsequent decision to retain middle schools also had a further delaying effect on the Schools Building Programme.

3.3 Housing

3.3.1 The under-spend on Housing Capital has risen over the last three years. One proposed housing scheme at Oakfield, Ryde, has been delayed for several years due to land contamination issues. Our budgeted expenditure was a contribution to a large development being joint-funded by the Housing Corporation (£7 million). There appear to have been problems with the Isle of Wight Housing Association (the relevant RSL) who were subsequently taken under supervision by the Housing Corporation which included making appointments to their Board. A revised scheme has now been produced with with South Wight and Medina Housing Associations for which official approval is expected in October 2005. It can be seen from table 4 that the Oakfield scheme has been a major factor in the capital under-spends.

	Oakfield Scheme	Disabled Facilities Grants	Other schemes	Total Under-Spend
2002/03	516,126 (57.5%)	212,647 (23.5 %)	169,907 (19 %)	898,680
2003/04	1,234,328 ( 84%)	107,003 ( 7.5%)	122,909 ( 8.5%)	1,464,240
2004/05	869, 328 ( 37%)	-52,226 (-2%)	1,526,003 (65%)	2,343,105

Table 4

3.3.2 It can be seen that while in 2002/03 and 2003/04 Under-Spends on the Oakfield scheme and Disabled Facilities Grants were the two major factors in the total overspend, in 2004/05 there were other schemes involved.

3.3.3 Two other large schemes were delayed waiting for planning permission which was not granted during 2004/05. These were

Riboleau Street – Rented Accommodation £300,000

MHA Reed Street, Ryde £194,000

In addition there were six other schemes showing under-spends of between £100,000 and £120,000 totalling £658,500. Of these, one scheme has been withdrawn, one is on hold because of difficulties with land acquisition, and for two others Housing Corporation approval is still required.

3.4 Environment and Transport

3.4.1 The majority of capital expenditure under-spends within Environment and Transport relates to Roads and Transport. This can be seen in table 5 below

	2002/03	2003/04	2004/05
Roads & Transport	2,192,858 (118.5%)	800,226 (282.9%)	1,719,999 (82%)
Waste Disposal	105,825 (5.7%)	77,760 (27.5%)	64,294 (3%)
Coast Protection	-453,693 (-24.5%)	-595,113 (-210.4%)	309,577 (15%)
Harbours	5,625 (0.3%)

Total	1,850,615	282,873	2,093,870

Table 5

3.4.2 The level of under-spends dipped in 2003/04, rising again in 2004/05, but not reaching the level of 2002/03.

3.4.3 In 2004/05 there were several schemes where the under-spends were in excess of £100,000:

Scheme	Under-Spent	Reasons Given
Cycleways & Cycle Parking	£112,861
Clarence Road, Wroxall	£110,068	Problems with British Telecom
Traffic Quiet Cells -Ryde Part 2	£117,589
Dover Street Ryde	£182,129
Ventnor Coastal Stabilisation Scheme	£212,742
Park & Ride, Ryde	£295,775	Negotiations with Network Rail
Ryde St Johns Bridge	£695,998	Negotiations with Network Rail
Longlands Shute Bembridge	£181,624

Table 6

3.4.4 Other reasons for smaller amounts of slippage include retention amounts, which are held for six months, and negotiations with residents / land owners.

3.4.5 It is understood that 3 schemes from 2004/05 did not go out to tender until 2005/06, and that there are currently at least 10 2005/06 schemes awaiting a decision from management to go out to tender. It is possible therefore that delays in approving schemes and inviting tenders could also be a factor in the capital slippage.

3.4.6 The Council has to produce an annual progress report on the Local Transport Plan, specifying divergences from planned spend and delivery. In addition for large schemes, quarterly returns have to be made. The results can effect the level of funding for future years, and can lead to funding being withdrawn for some schemes if they have not been started in the appropriate year.

D. NEWPORT MARKET

The audit was carried out as part of the 2005-06 Audit Plan.

The overall objective of the audit was to provide assurance to management that the internal control system, and the objectives of the service are being met and operating satisfactorily.

Only partial assurance can be given that the internal control system is operating satisfactorily.

Significant findings were that the internal control system was not operating in accordance with financial procedures

v Official receipts were not always being issued in accordance with Financial Procedures.

v Lack of internal control revolving around administrative checks

v Invoice/s had not been raised in respect of stallage arrears

v A risk assessment had not been carried out for the Market Superintendent.

We have made 8 recommendations for improvement all of which have been accepted by management.

E. ANTI-CORRUPTION ARRANGEMENTS IN PLANNING SERVICES

As part of the Council’s Anti-Fraud Corruption Strategy an audit was undertaken of areas that nationally have been seen to be vulnerable to corrupt behaviour. The generic title given to such areas by the Audit Commission is the “granting of permissions”. The granting of planning consent and the enforcement of Building Regulations fall within this definition.

The objective of this review was to evaluate the adequacy and effectiveness of risk mitigation strategies to minimise the risk of corrupt behaviour occurring. The audit was carried out as part of the 2004-05 Audit Plan.

Significant findings were that:

v The Corporate process involving staff declaration of interests had not been followed.

v Possible lack of awareness amongst staff involving Gifts and Hospitality rules.

v There were issues surrounding the processes relating to the Risk 2003 database.

We made 4 recommendations for control improvements that were accepted by anagement.

F. HUMAN RESOURCES

The audit was carried out as part of the 2004-05 Audit Plan agreed by the Audit Committee on 29th July 2004. The objective of this audit was to establish the extent to which Human Resources are aware of their risks and are developing and implementing effective control measures to manage risks.

As part of the audit process Risk Assessment Templates were completed with Human Resources. These document the current controls implemented by the section to manage the risk and planned actions to improve the management of risks. These planned actions include:

· People Management Standards document to be introduced which includes expected standards to be achieved, good practise etc. together with training on the document,

· Periodic reminders that policies are available on the intranet and that training on the policies is also available,

· Review and update the guidance on recruitment,

· Random sampling of recent recruitment documentation to ensure adherence to guidance

· Business continuity planning

· Transference of PIPS to dotnet

· Trainee HR officer to learn how to produce reports from PIPS

Assurance can be given to management that

· overall the objectives of the service are being met and that current risk mitigation strategies are operating satisfactorily and,

that the planned actions once implemented will improve the management of risk and increase the likelihood of the achievement of objectives.

G. CORPORATE SERVICES DEPARTMENT – RISK MANAGEMENT ARRANGEMENTS

The audit was carried out as part of the 2004-05 Audit Plan agreed by the Audit Committee on 29 July 2004. The overall objective was to provide assurance to management that the Council’s Risk Management procedures within the Corporate Services Directorate are operating in accordance with management control arrangements. The audit was carried out by interviewing relevant officers and carrying out testing on selected areas to determine the level of compliance with Council policies and procedures.

Risk Management at the IW Council is in its early stages. During a relatively short period of time significant steps have been taken to embed risk management in the service units of the Corporate Services Directorate.

The objective of this audit was to establish the extent to which control measures have been adopted, implemented and monitored in respect of risks identified in service risk registers.

All services had made some effort to comply with the risk requirements of service planning, however in some units the risk identification and scoring have been undertaken independently by the Head of Service with little or no input from staff. The understanding of the risk management process by the officers interviewed varied considerably with some having only a tenuous grasp of the procedures involved. The standard of scoring also varied considerably with, in some cases low scores being given to high level risks.

It is the intention that in future audits we will be looking for;

· The service objectives should be used as a starting point when identifying risks as it is imperative that all risks should be traced back through their service objective to a corporate objective.

· Training on risk management has in the past been given to Officers at Head of Service level. It is essential that this training is cascaded down to those people who have been assigned the risks in order that they can fully understand the process and appreciate the importance of their role.

· Processes need to be in place to ensure all relevant risks are included and given appropriate scores.

· It is also recommended that officers to whom a risk has been assigned have procedures in place for the monitoring of the effectiveness of control measures.

· The behaviour of assigned risks and the performance of control measures should be included in either the DRP process or at regular meetings with officers and managers.

· Risk Champions have been nominated and are to be responsible for looking after risk registers in their service areas using the RISK 2003 database. Part of this process should include the right to challenge either the wording or the scoring of the risk if they consider either to be inappropriate.

· Scoring must in future include a score for the inherent risk which is the likelihood and impact of that risk occurring without the current controls in place. This is necessary because it indicates the importance of the controls currently in place when comparing the inherent risk assessment score with the current risk assessment score.

· The Audit Commission will expect to see regular reviews of the Statement of Internal Control during the currency of the year. A significant contribution to this would be a review of risk registers.

· The development of risk registers must be given a higher priority within service planning and appropriate resources are allocated to or identified by individual services to ensure that registers are both relevant and comprehensive so that they can be used as a relevant management tool.

	Budget 2004/05	Revised 2004/05	Actual 2004/05	Previous Year 2003/04
Income	362,206	399,000	403,000	395,000
Expenditure	584,945	617,640	506,000	606,000
Surplus/Deficit	(222,739)	(218,640)	(103,000)	(211,000)

PURPOSE

APPENDIX A

TRADING OPERATIONS IN DEFICIT

INTRODUCTION

1 Following the Council Meeting held on 29 July 2005 we were asked to review those Trading Operations in deficit for the year 2004/05.

1.1 The five Trading Operations reviewed together with their reported deficits were as follows:-

1.2 This is the first year that these figures have been prepared as a memorandum to the accounts and a number of errors have been noted in the figures presented. These will be corrected prior to the publication of the final accounts.

DETAILED FINDINGS

2 Cowes Floating Bridge