PAPER C

 

 

Committee :   AUDIT COMMITTEE

 

Date :              25 MAY 2006

 

Title :               INTERNAL AUDIT OUTCOMES REPORT

 

Report of :      CHIEF INTERNAL AUDITOR

 

 

PURPOSE

 

1.                  This report is to provide the Committee with a summary of Internal Audit activity completed since the last report to the Committee in January 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:

 

v                 The Committee should monitor Internal Audit’s performance, both in terms of the quality and quantity of its work;

 

v                 The Committee should satisfy itself that Internal Audit has devoted its attention to the appropriate issues;

 

v                 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;

 

v                 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 A are reports and synopses of significant audit work completed since the January 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 – ext 3683

 

 

APPENDIX A

 

A:  AUDIT SERVICES REPORT – MAIN ACCOUNTING  2005-06

 

EXECUTIVE SUMMARY

 

1.                  INTRODUCTION

 

1.1             The current audit of the Council’s Main Accounting System was carried out as part of the 2005-06 Audit Plan. The Financial Services Section carries out the administration of the system and there have been no significant changes to the main accounting or feeder systems since the last audit carried out in 2004.

 

1.2             The system supports the production of the Published Financial Statements as well as facilitating day to day financial and budgetary control over the Council’s operations.

 

During the last complete financial year the Council Budget was approximately Ł158M and the system dealt with 830,000 transactions from 8843 different cost centres and produced over 33,000 management reports.

 

2.                  OBJECTIVES

 

2.1             To provide assurance to management that the Council’s Main Accounting System is operating in accordance with existing controls and that they are adequate to ensure the integrity of the Authority’s Financial Accounting System.

 

3.                  SIGNIFICANT FINDINGS

 

3.1             We established fourteen key control objectives based upon the “system based auditing control matrices” published by CIPFA.  Where appropriate officers were interviewed and tests carried out to confirm that policies and procedures exist and also that they are complied with to enable the objectives to be met.

 

3.2             As one would expect with a long standing stable system such as this and a low turnover of key staff, very few problems were found, with twelve of the fourteen key control objectives being found satisfactory. Findings relating to the other two objectives are as follows.

 

3.3             A random selection of cost centre codes was chosen from the balance sheet and checked against the source documents for accuracy. It was noted that the cost centre for the Magistrates Court Grant had a brought forward balance of Ł21,259.83 but the function had been transferred to the Hampshire and Isle of Wight Magistrates Court Committee in 2004 and has not been used since. We have recommended that this balance is cleared from the accounts and all other balances are reviewed to ensure they are valid.

 

3.4             The other finding related to authorised personnel updating and amending the financial system. At present leavers names remain on the system unless the relevant line manager advises the support staff. This is not a serious problem as leavers names are removed immediately from Oracle by IT and if they cannot first access the main system they cannot subsequently access the financial system. It does mean that names remain on the system long after they have left which clogs up the system.  Previously Human Resources provided a quarterly report to support staff listing all leavers enabling them to clear the system. We have recommended that consideration is given to re-introducing this list.

 

3.5             During the review one of the tests related to budgets and whether they are based upon   realistic assumptions. The area chosen was selected at random and following tests was found to be satisfactory. However from other reports and reviews carried out during the year it is clear that not all budgets are developed based on volumes of activity rather than cash figures rolled forward.

 

3.6             CPA requirements are such that in future marks will be lost if budgets are not based on volumes of activity and this must be borne in mind when assessing future budgets.                  

 

4.                  OVERALL CONCLUSION

 

4.1             Assurance can be given to management that the Council’s Main Accounting System is operating effectively and that the controls currently in place are sound and are operating satisfactorily.

 

5.                  ACKNOWLEDGEMENTS

 

5.1             I would like to take this opportunity to thank all Financial Services staff for their co-operation and assistance in carrying out this audit review.

Internal Audit Action Plan

 

Title of Report: Main Accounting

Date Final Report issued:  27th January 2006

 

 

Main Findings

Possible Consequences

Action Required

Priority

Responsibility

Target Date

The cost centre for the Magistrates Court Grant shows a brought forward balance of Ł21,259.83. The cost centre is no longer used as the function was transferred to Hants/IOW LA in 2004. 

Incorrect reporting in statutory accounts

Clear balance from Magistrates Court Grant cost centre.

 

Check all balances to ensure that they are valid

2

 

 

2

Accounting Technician

 

 

All Service Accountants

April 2006

 

 

April 2006

Quarterly leavers report no longer issued to finance by Human Resources, which means some leavers names remain on the FIDO system.

FIDO system clogged up with leavers names.

Consider requesting Human Resources to re-introduce the quarterly leavers report.

2

System Support Team Leader

April 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 determined by establishment.

 

B: AUDIT SERVICES REPORT – COUNCIL TAX

 

EXECUTIVE SUMMARY

 

1.                  INTRODUCTION

 

1.1             This audit was carried out as part of the 2005-06 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 operating effectively within the Council Tax system.

 

1.2             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.

 

2.                  SUMMARY OF SIGNIFICANT FINDINGS

 

2.1             It was recognised by the Recovery Section that the performance of the bailiff used by the authority for the recovery of NNDR and Council Tax had become unacceptable during the year. Subsequently a second bailiff had been appointed. The performance of both firms is now at an acceptable standard.

 

2.2             Previous Internal Audit reports have identified a lack of Business Continuity Planning as a key risk for the revenues service. Recently the Principal Systems Officer attended a seminar hosted by the Corporate Business Continuity Officer. Actions need to continue to ensure that a plan is in place either by the end of the year or early in 2006-07.

 

2.3             Council Tax collection rates for 2004-05 were 98.6% as compared to an average of all authorities in England of 96.6% and a Unitary Authority average of 95.8%. A collection rate of 98.6% is the fifth highest of all Unitary Authorities.

 

2.4             The target collection rate for 2005-06 is 98.2%, the collection rate as at the end of January 2006 was 97.2% as compared to 96.58% for the same period last year.

 

2.5             Following the 2004-05 Audit report the recommendation made to review all discounts granted in respect of Single persons, disabled relief etc was carried out.

 

3.                  OVERALL CONCLUSION

 

3.1             The systems used by Council Tax staff are well established with sound control procedures. Performance is monitored and regularly reported. All recommendations made in the 2004-05 audit report have been implemented. The collection rates as reported by the Office of the Deputy Prime Minister are amongst the highest in the country and as such staff should be congratulated.

 

3.2             No recommendations have been made as a result of this audit as areas for concern such as Business Continuity Planning are appreciated by the section and actions are underway to minimise the risks.

 

4.                  ACKNOWLEDGEMENTS

 

4.1             I would like to take this opportunity to thank all Council Tax staff for their co-operation and assistance in carrying out this review.

 

C:  AUDIT SERVICES REPORT

 

HOUSING BENEFITS

 

EXECUTIVE SUMMARY

 

1.                  INTRODUCTION

 

1.1             The audit was carried out as part of the 2005/06 Audit Plan. The plan was developed using a risk based approach with Housing and Council Tax Benefits ranking as A on a scale of A-D, A being the highest risk category.

 

1.2             The majority of Housing and Council Tax Benefit funding is reclaimed from the Government. The amounts included in the budget for 2005/06 for Housing Benefits and Council Tax Benefit is Ł33 million and Ł10 million respectively. The number of claimants is in the region of 13,500.

 

2.                  OBJECTIVES

 

2.1             To provide assurance to management that the Council’s Housing Benefit and Council Tax Benefit System is operating in accordance with management’s prescribed controls and that the control system ensures that claimants are paid accurately and promptly, that payments are legitimate and appropriate, and the system as a whole is operating in a proper, economic efficient and effective manner.

 

3.                  SUMMARY OF SIGNIFICANT FINDINGS

 

3.1             Whilst a Business Continuity plan was not in place at the time of the audit a detailed working document is to be made available to the Business Continuity Officer by the 31/03/2006.

 

3.2             There was no suitable reconciliation in respect of the transfer of un-recovered benefit debt between the SX3 Housing Benefit System and the Corporate debtor ledger. Action has now been taken to rectify this.

 

3.3             We found that the audit trail through the overpayments documentation is unsatisfactory in that the identified amounts of overpayments are not consistent with the administrative penalty agreements this could lead to the Council being open to challenge and potential reputational damage.

 

4.                  OVERALL CONCLUSION

 

4.1             There were 14 recommendations made all have been agreed by management. With the exception of the three listed above the remainder were minor administrative issues.

 

 

Internal Audit Action Plan

 

Title of Report: Housing and Council Tax Benefit                                                                   Date Final Report issued:  31/03/2006

 

 

Finding

Reference

Main Findings

Possible Consequences

Recommend-ation

Reference

Action Required

Priority

Responsibility

Target Date

1.3

There is not a detailed Business Continuity Plan in place.

Failure to maintain a satisfactory level of customer service.

1.5

That a detailed business continuity plan is formulated, completed and approved.

1

 

 

 

The Revenues and Benefits Operational Manager

 

30/04/2006

2.6

The door between the post room and the adjoining room is left open at all times.

Unauthorised personnel could gain entry and post could go missing.

2.9

 

The door between the post room and the adjoining room should be locked during the post opening process and the door between the adjoining room and the corridor should be secured at all times possibly with a keypad entry system

N/A

N/A

This Recommendation has been implemented

2.10

Some post completion targets were unrealistic

Unachievable targets which are not met give incorrect impression of failure which could affect staff morale.

2.12

Revise the procedure manual to include realistic targets

N/A

N/A

This Recommendation has been implemented

3.11

3.14

3.17

3.27

Administrative errors had been identified during the audit review

Incorrect data on benefit records held.

3.32

That the administrative errors are corrected.

3

Acting Senior Benefits Officer

Corrections implemented

3.28

No report is available to easily check the correctness of capital held and Audit Services were unable to satisfactorily test the data.

Errors may go undetected because of the lack of suitable exception reports

3.33

That Management in readiness for the introduction of the Corporate Writer maintain a list of required exception reports. 

3

The Revenues and Benefits Operational Manager

To be agreed with the ICT Manager

4.5

Incorrect classification of overpayment error

Incorrect subsidy claimed.

4.7

That the administrative records are corrected

3

Acting Senior Benefits Officer

 

31/03/2006

4.12

There is no link between the SX3 and Jbase systems therefore unable to reconcile cases transferred from Housing Benefits to Debtors.

Cases coded SD on SX3 and not entered on Jbase would be lost.

4.17

Produce monthly SX3 report listing all    cases coded SD and reconcile to the RO1 and RO2 reports produced by Jbase. 

1

Revenues Team Leader-Recovery

Implemented 17/01/2006

4.40

The administrative penalty agreement refers to figures quoted in the overpayment letter but in many cases these figures do not agree due to the time lapse between the documents.

As the agreement is signed by the claimant and the council it is a contract and is a legal document, which could be produced in court. It must therefore be accurate or the case could be dismissed leading to embarrassing reputational damage.

4.44

Ensure that the administrative penalty agreement is accurate and includes references to all relevant documentation.

1

Senior Investigation Officer

 

   31/03/2006

4.54

When a case is written off, the SX3 system is not updated. Cases still coded SD.

This implies that the debt is still being chased when in fact it has been written off

4.56

 

 

 

 

4.57

Customer Accounts to produce a report from Jbase for each batch of cases written off and forward to the overpayments team.

 

Upon receipt of the report the overpayments team to alter codes on SX3 and mark the report accordingly and file the reports in date order as evidence.

2

 

 

 

 

2

Payments and Customer Accounts Manager

 

Revenues Team Leader-Recovery

31/03/2006

 

 

 

 

31/03/2006

5.0

 

 

 

Payments are currently made by cheque in respect of Housing Benefit Court Recovery costs.

Failure to take advantage of efficiency savings.

5.2

That the Revenues Team Leader in conjunction with the Income and Payments Manager implements the e-procurement card system if appropriate.

4

Payments and Customer Accounts Manager

Revenues Team Leader-Recovery

30/04/2006

6.0

Some targets listed in the procedure manual and the targets provided on the monthly performance data distributed to staff differ.

Inconsistency of target reporting.

6.9

That the performance targets in the procedure manual reflect the targets currently used in the monthly reports distributed to staff.

4

Acting Senior Benefits Officer

30/04/2006

6.5

Incorrect debtor figure used

BVPI amendment

6.7

That the correct debtor figure is used for 2005-06

4

Acting Senior Benefits Officer

April 2006

9.3

The general ledger code has a mixture of source data

Failure to save administrative time

9.3

That a general ledger code is created in respect of the journal led items not related to the electronic data transfer.

4

Louise Brading

30/04/2006

11.2

The process of investigating prior year un-presented cheques is still on going

Incomplete up to date records.

12.3

That the exercise of investigating and resolving prior year un-presented cheques is completed.

 

3

Acting Senior Benefits Officer

30/09/2006

 

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 determined by establishment.

4 - Other -Systems related matters, value for money, administrative.

 

 

D:  AUDIT SERVICES REPORT – PARTNERSHIPS - ACCOUNTABLE BODY

 

EXECUTIVE SUMMARY

 

1.                  INTRODUCTION

 

1.1             This audit was carried out following a request from the Business Management  Programme Lead as a result of a qualification to the grant claim for the 2004-05 Sure Start Local Programme, and the Single Regeneration Budget.  The purpose of the audit is to provide assurance to Management that there are adequate financial management controls and procedures in place and that they are operating effectively within the management of partnerships where the Council is the Accountable Body.

 

1.2             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.

 

2.                  SUMMARY OF SIGNIFICANT FINDINGS

 

2.1             There is a significant lack of understanding by some officers regarding the role of an Accountable Body and in fact in what instances the Council is the Accountable Body in respect of its partnership arrangements.

 

2.2             Shortcomings had been previously identified in the identification of Council Partners and a working group established with a remit to undertake an identification exercise. A questionnaire was circulated to all managers requiring details of all partnerships within their sphere of control. The questionnaire was based upon the Audit Commission publication : Governing Partnerships- bridging the accountability gap. Significant progress has been made and a register of partners has been created in draft.

 

2.3             The main area of concern arising as a result of this review was the lack of knowledge currently held within the Authority regarding the level of accountability of the Council in relation to partnerships it currently is involved with.

 

2.4             The Council is the Accountable Body for a number of schemes managed on behalf of government agencies eg SEEDA, GOSE and the DfES. The definition of Accountable Body often varies dependant upon the funding provider. However, in all cases the grant claims are subject to scrutiny by the Audit Commission. In those circumstances where the Council is the Accountable Body, the responsibility for internal control and proper financial management lies with the Council. In none of the situations identified during this audit does the Council carry out this responsibility effectively, and in many cases a lack of resources is a contributory factor to the role not being undertaken effectively.

 

2.5             Draft Standing Orders for Partnerships are being developed which will provide much needed guidance both for officers and employees of the partnering bodies.

 

3.                  OVERALL CONCLUSION

 

3.1             There are many examples of effective partnership and partnering arrangements within the Council, eg the  Education Construction Partnering Scheme. However, in situations were the Council is the Accountable Body for funding received from external sources there is sometimes a lack of understanding relating to the role and responsibilities of an Accountable Body. It is recommended that the Council identify all arrangements were we are the Accountable Body and carries out a full review of the requirements for each individual scheme. Where required, until separate Standing Orders for Partnerships are approved, the Council’s Standing Orders and Financial Procedure rules should be applied to each partner and effective and comprehensive monitoring is required to ensure these regulations are being complied with.  Because of the increasing number of partnership arrangements, resources need to be identified to ensure that this part of the Council’s functions can be delivered effectively.

 

Internal Audit Action Plan

 

Title of Report: Accountable Body / Partnerships                           

Date draft Report issued:  6 March 2006

 

Main Findings

Possible Consequences

Action Required

Priority

Responsibility

Programme Lead

Target Date

1.    There is currently no comprehensive record of Partnerships entered into by the IWC were the Council is the Accountable Body.

Risk that if partners are not applying appropriate financial controls further qualifications of accounts will be received and the Council risks losing funding and may be required to fund these partnerships from the Council Tax.

An exercise should be carried out immediately to identify all instances of the Council acting as the Accountable Body

 

1

 

Assistant Chief Executive

 

External Governance

 

30 April 2006

2.    The requirements and definition of Accountable Body is dependant upon the funding Body.

Inadequate monitoring of financial control or conversely irrelevant monitoring.

For each instance the individual requirements of the funding body are identified and applied.

 

1

 

Assistant Chief Executive

 

External Governance

 

31 May 2006 for identification of requirements

3.    Partnership Standing Orders / Best Practice Guide to be developed for use by Council Officers and Partners.

Lack of clear guidance will result in further qualifications of grant claims and increases the risk of a loss of funding.

Continue development of guidance and present for approval at earliest possible opportunity.

 

1

 

Assistant Chief Executive

 

External Governance

 

30 April 2006

4.    Partnership Standing Orders are applied to all new arrangements, and the requirements of an Accountable body are understood and implemented prior to the any future agreements.

 

The Council will enter into further arrangements without considering the possible consequences.

Before the Council enters into any new arrangements the implications must be clearly understood and appropriate action taken.

 

1

 

Assistant Chief Executive

 

External Governance

 

Future agreements.

 

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.

 

 

E:  AUDIT SERVICES REPORT – BANKLINE 2005-06

 

EXECUTIVE SUMMARY

 

1.                  INTRODUCTION

 

1.1             The current review of the Council’s Bankline system was carried out as part of the 2005-06 Audit Plan. The Financial Services Section carry out the administration of this system and there have been no significant changes to the system since the last review carried out in 2005.

 

1.2             Part of Treasury Management’s role is to invest on a temporary basis surplus funds held in the main account to recognised financial institutions such as Banks, Building Societies and Local Authorities to produce the maximum return. The system used for these transactions is Bankline, which is also used for a number of other specific types of payment such as :-

 

Foreign payments

Precepts as they have to be paid on specific days

Payments to the Inland Revenue

Payments to Teachers Pensions

Employee pension lump sums

 

1.3             The purpose of this audit is to confirm that effective controls and procedures are in place around the Bankline system to prevent mis-appropriation of Council funds and to ensure that all transactions are carried out in strict accordance with Council policy.

 

2.                  SUMMARY OF SIGNIFICANT FINDINGS

 

2.1             The Bankline system is a direct link to the Council’s bankers National Westminster. The system has been in place for a number of years and is well established with a sound control framework in place.

 

2.2             Testing was carried out to confirm that when temporary advances are made the Treasury Management’s policies are adhered to. Checks included officer authorisation, calculation of interest, independent officer checks, reconciliation to bank statements and repayment of advances and interest back to the relevant codes in FIDO.

 

2.3             A random sample of other payments was tested to confirm that all payments had been checked, authorised and allocated to the correct cost centres. Payments were checked back to FIDO.

 

2.4             Following the testing we can confirm that the existing control framework is robust with only one area of concern. This relates to the recording and verification of the borrowers bank details prior to the transfer of the funds. At present the banking details of the borrowers are held on a ‘read only’ file. This file can only be amended by the Personal Assistant to the Assistant Chief Executive and if a new borrowers details need to be added there is no one who has access to amend the banking details in the PA’s absence. We have therefore recommended that a person be designated as cover for those periods when the PA is unavailable.

 

3.                  OVERALL CONCLUSION

 

3.1             The Bankline system for the investment of the Council’s surplus funds is well established with a sound control framework in place. The officers involved in the process have been in position for a number of years and are fully aware
of their responsibilities. Written procedures are in place and testing confirmed that these are being followed by staff.

 

3.2             Only one minor cause for concern was identified and a recommendation has been made to deal with this problem.

 

3.3             We are able to give assurance that the controls and procedures currently in place are sufficiently robust to acceptably minimise the risk of mis-appropriation of Council funds. 

 

4.                  ACKNOWLEDGEMENTS

 

4.1             I would like to take this opportunity to thank the Loans and Investment Technician for his co-operation and assistance in carrying out this review.

 

 

Internal Audit Action Plan

 

Title of Report: Bankline

Date Final Report issued:  17th March 2006

 

 

Main Findings

Possible Consequences

Action Required

Priority

Responsibility

Target Date

There is a ‘read only’ file for the borrowers banking details, which can only be amended by the PA to the CFO. There is no one who has access to make amendments in her absence.

Unable to put new borrowers banking details on the file or amend existing which in the long term would negate the robustness of the present system.  

Designate a person to cover the PA in her absence.

2

PA to Chief Financial Officer

June 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 determined by establishment.

 

F: AUDIT SERVICES REPORT – CHILDREN’S SERVICES FINANCE

 

EXECUTIVE SUMMARY

 

1.                  INTRODUCTION

 

1.1             The audit was carried out as part of the 2005-06 Audit Plan. The plan was developed using a risk based approach with Children’s Services Finance being scored as a D on a scale of A - D with A being considered the highest risk.

 

1.2             A risk workshop was held with two Auditors, an Insurance and Risk Officer, the Service Manager and members of the Finance Team. At this workshop the main objectives of the service were established and the key risks were identified and scored for impact and likelihood. A Risk Register was produced that listed all 61 current risks identified; this register is attached to the report. 15 key risks were then identified and these were scored for impact and likelihood. The resultant scores are also attached.

 

1.3             Following the workshop an audit programme was developed that considered the risks facing the section identified at the workshop and included testing of management, supervision and control issues. This approach was used to ensure the audit covered the management of identified risks and operational procedures.

 

2.                  OBJECTIVES

 

2.1             To provide assurance to management that the Children’s Services Finance Team is aware of their risks and are developing and implementing effective control measures.

 

3.                  OVERALL CONCLUSION

 

3.1             The Finance Team provide a support function for the Children’s Service Directorate and the Schools. Their work relies on receiving accurate and timely information from Schools, Central Government, and other sections within the Children’s Services Directorate. The team have to work within prescribed time limits, and need to have the necessary skills to do the job. The risks identified at the workshop reflect these issues. However only 3 of the key risks scored highly, with 8 of the 15 scoring 4 or less.  It is recognised that the team are controlling the risks to the best of their abilities within the resources available to them, and that the higher scoring risks are those which are reliant on input from external sources.

 

3.2             The following actions should be taken to improve the management of the risks identified;

 

Ř      Competency matrices should be developed and used to help identify training needs for the section.

 

Ř      It is recommended that the section look at the records held and the systems used and prioritise the importance of the information; investigate to see if there are any practical ways of keeping back up copies, or check to see if it is already being done elsewhere.

 

4.                  ACKNOWLEDGEMENTS

 

I would like to take this opportunity to thank the Finance Team for their assistance in carrying out this audit.