Agenda and minutes

Apologies were received from Catriona Ellis and Linda Pilkington.

No declarations of interest were declared initially.

Later in the meeting a matter was raised pertaining to St Olave’s’ School. At that point Councillors Stephen Wells and Robert Evans made declarations in that they both had interests in the Court of St Olave’s. 

The Head of Audit and Assurance declared an interest as a member of CIPFA.

The part 1 minutes of the meeting of the Audit Sub Committee held on 26^th February 2019, were agreed and signed as a correct record.

RESOLVED that the part 1 minutes of the meeting that was held on 26^th February 2019 be agreed and signed as a correct record.

In accordance with the Council’s Constitution, questions that are not specific to reports on the agenda must have been received in writing 10 working days before the date of the meeting. 

Questions specifically concerning reports on the agenda should be received within two working days of the publication date of the agenda. Please ensure that questions specifically regarding reports on the agenda are received by the Democratic Services Team by 5pm on 29th May 2019.

No questions were received.

CSD 19080

Members noted that the outstanding matter relating to insurance against cyber-attack had now been closed, but that the matter relating to the objection to the accounts was still outstanding. A Member expressed concern at the length of time that was being taken to close the accounts. It was noted that this was a matter for the previous external auditors (KPMG) to resolve. It was agreed that the Head of Audit and Assurance should seek an update regarding this matter from KPMG.

Members noted the update on the Civic Centre Accommodation Strategy that had been provided by the Senior Property Manager and the update concerning the anti-fraud and corruption policy.

As requested, a briefing concerning the rental arrears of community groups had been provided by the Head of Asset and Investment Management. Members had asked for additional data and this had been requested by the Committee Clerk and subsequently disseminated to the Committee via email.

RESOLVED that the Matters Outstanding report be noted and that the Head of Audit and Assurance should seek an update from KPMG regarding the outstanding issue of the objections to the accounts.

Ahead of the Audit Sub-Committee meeting scheduled for 4^th June, the following internal audit reports have now been published on the Council website:

1-Review of the Troubled Families Claim

2-Housing Benefit and Council Tax Reduction Scheme

3-Review of the Strategic Commissioning Audit

4-Review of the Adult’s Social Care Budget Management for 2018-2019

5-Review of the Children’s Social Care Budget Management for 2018-2019

6-Residential Care Audit for 2018-2019

7-Review of the Financial Strategy and Budget Compliance for 2018-2019

8-Payroll Expenses-2018-2019

9-Internal Audit of Treasury Management

10-Review of Arboricultural Services Audit for 2018-2019

11-Audit Review of Total Facilities Management

12-Review of Traffic and Road Safety Procurement Audit for 2018-2019    

The web link to the information briefing that shows the reports is:   

https://cds.bromley.gov.uk/ieListDocuments.aspx?CId=559&MId=6770&Ver=4

No questions had been received concerning the Audit reports that had been published on the Council website.

RESOLVED that the Audit reports published on the Council website be noted.

FSD 19062

The report reviewed the External Auditor’s Pension Fund Plan arrangements for 2018-19 and also reviewed the Audit Fee Letter for 2019/20. Members noted the significant risks set out in the plan.

It was explained that the indicative fee was based on certain assumptions which were detailed in the Audit Fee Letter. Fees would be reviewed and updated as necessary, within the parameters of the contract. The indicative fee for the main accounts was £91,689 and for the Pension Fund was £16,170. Hannah Lill, (Ernst & Young),  attended the Committee to present the report and the fee proposal. The Committee was pleased to note that the scale of audit fees remained the same as the previous year.

A Member  expressed concern that the report on the External Audit Pension Fund Plan had not been brought to his attention previously in his role as Chairman of the Pensions and Investment Sub-Committee.  He said that new rules were being brought in which would increase audit requirements and that in the future there could be additional issues concerning ‘Admitted Bodies’. These issues could potentially increase the cost of managing the Pension Fund. He asked if there was going to be an audit on governance with respect of the Pension Fund. Ms Lill responded in the affirmative but explained that the pension audit would not be undertaken in isolation. 

A Member asked about the audit of the LCIV (London Collective Investment Vehicle).  It was explained that an audit of the LCIV would take place, but this would be a separate audit. 

Ernst and Young (E&Y) had identified a possible risk in that the valuation of investments could sometimes be mis-stated. In some of these cases, E&Y had stated in their report that there may be occasions when they would require input from their own valuation specialists. A Member asked why this was necessary as LBB had their own Actuary. Ms Lill responded that generally speaking this would not be necessary—it would just be in the odd case when there may not be sufficient evidence provided, or where additional expertise was required.

In response to a question, Ms Lill explained the difference between ‘Performance Materiality’ and ‘Planning Materiality’. A Member referred to page 13 of the report from E&Y where it referred to ‘substantive tests of detail of transactions and amounts’. He asked what was the definition of ‘substantive’ in this context. Ms Lill answered that there were two different types of approaches that could be followed in the audit—a substantive approach and a ‘control’ approach. The ‘control’ approach would be more detailed, would require specialist IT input and would therefore be more expensive. 

The Planning Report set out the following financial parameters:

·  Planning Materiality--£9.67M

·  Performance Materiality--£7.2M

·  Audit Differences--£483,500

Members noted how Ernst and Young would respond to Significant Risks, and what the various areas of focus would be. Members were appraised on the timescale relating to communication and deliverables.

RESOLVED that:

1) The External Auditor’s arrangements for the Bromley Pension  ...  view the full minutes text for item 7.

FSD 19050

The report informed Members of recent audit activity across the Council and provided updates on matters that had arisen from the previous meeting of the Committee.

The overall objective of the Financial Strategy and Budget Compliance Audit was to review the key controls around the Council’s financial strategy and budget monitoring arrangements. Members noted that controls were in place and working well. Internal Audit had made three priority 2 recommendations to improve the framework of controls around the Financial Strategy and budget monitoring arrangements.

Members were appraised concerning the audit of Housing Benefit and the Council Tax Reduction Scheme. They were pleased to note that the audit opinion was ‘Substantial’. A priority one and a priority two recommendation had been made to improve controls.

However, the audit of Arboricultural Services revealed many defects, and four priority one recommendations had been raised, along with six priority two recommendations. The priority one recommendations related to:

·  Deficiencies in the payment process

·  A significant number of orders remained ‘open’ on the ‘Confirm’ system.

·  Deficiencies were identified in the way the contract was monitored

·  Defaults were not being processed correctly

The value of the defaults had been estimated at £6357.00 and it was recommended that the default amount be recovered in the final invoice payment. The audit opinion for Arboricultural Services was therefore ‘Limited’. The Head of Audit and Assurance explained that Arboricultural Services had lost the Service Manager in August 2018, and that one of the remaining officers had to step into the role at short notice on an interim basis, and probably with an inadequate hand over. In January 2019, two more officers left the service, and this was probably one of the main reasons why there had been so many difficulties. Additionally, the management of this contract had not been passed over to the Business Performance Management Team as had other ECS (Environment and Community Services) contracts. Members found this surprising and wondered why this was the case. It was anticipated that now a business performance framework was going to be used, with a corrective action plan adopted—that the situation would improve significantly.

It was noted that the service still had staffing issues, but recruitment was now underway to recruit a new officer.

The Chairman was disappointed to hear of further problems with an ECS contract, and was pleased to note that the contract would be monitored going forward by Sarah Foster’s team.

It had been mentioned that the new Arboricultural Service contract had commenced in April 2019. A Member wondered how a new contract could be negotiated when there were so many issues with the previous contract. It was explained that enough data relating to work undertaken and completed existed to enable this to be done.

A Member expressed concern that the contract had been allowed to drift along for so long without management control. He felt sorry for the Interim Service Manager and suggested that perhaps the Executive Director for Environmental and Community Services be asked to attend  ...  view the full minutes text for item 8.

FSD19048

The Head of Audit explained that the annual report was for Member information, its aim being to assist the Council in meeting the requirements of the Accounts and Audit Regulations 2015, which required the Council to undertake an effective internal audit to evaluate the effectiveness of its risk management, control and governance procedures.

The Head of Internal Audit and Assurance stated that Internal Audit had ensured that controls were operating in an efficient and effective manner, statutory and management requirements were being complied with, and records were completed and were accurate. He briefed Members on the number of audit days that had been allocated to each Department as well as the total number of planned tasks which was 55. He pointed out that in addition to the planned tasks for the year; some audit work had been carried forward from the previous year and completed. In addition, some unplanned anti-fraud work had also been undertaken. 

Members heard that the number of actual audit days for 2017/2018 was 824, this compared with 874 for 2018/2019. In consideration of 45 internal audit reviews for 2018/2019, 28 had been given a rating of ‘Substantial Assurance’ and 14 had been given a rating of ‘Limited Assurance’. In three cases, enough evidence was available to support grant claims requiring Internal Audit verification. Seventeen priority 1 recommendations had been implemented and 17 had been carried forward. Members were informed that there had been a total of 271 fraud referrals with 85 successful prosecutions.

A Member brought up the matter of Risk Registers and the need for training on Risk Management to be provided to new Councillors. Another Member commented that individual Members should be asked if they required the training or not. 

Members noted that Internal Audit was subject to a Quality Assurance and Improvement Programme that covered all aspects of internal audit activity. This consisted of an annual self-assessment of the service, and its compliance with the UK Public Sector Internal Audit Standards.

Under the requirements of the Public Sector Internal Audit Standards (PSIAS) there was a need for an external quality assessment of the service every 5 years. A peer review was carried out in March 2016 and concluded that the section generally conformed to the required standards.

Members were pleased to note that Internal Audit still generally conformed to the PSIAS.  There were no significant findings from Internal Audit’s Quality Assurance and Improvement Programme that required reporting to the Audit Sub-Committee or referred to in the Annual Governance Statement.

The Head of Audit and Assurance summarised the Annual Audit opinion. He stated that from the work undertaken during 2018/19, reasonable assurance was provided that there existed a sound system of internal control; this was designed to meet the Council’s objectives—the controls were applied consistently.  If weaknesses were identified, these were monitored by the Corporate Leadership Team and the Audit Sub Committee until any recommendations were implemented or discharged. Members noted that assurance could never be absolute.

There would now be a need  ...  view the full minutes text for item 9.

FSD19049

Members noted the Annual Governance Statement. Members heard that the Council had to approve an Annual Governance Statement (AGS). The purpose of the AGS was to review the effectiveness of the system of internal control. The AGS had to be drawn up to comply with The Accounts and Audit Regulations (England) 2015.

The AGS, after having been approved by the Audit Sub-Committee, would then need to be approved by the General Purposes and Licensing Committee. It would then be signed off by the Leader and by the Interim Chief Executive. The AGS explained how actions had been discharged and identified areas of significant concern. Members were informed that the Code of Corporate Governance had now been updated and had been agreed by the Director of Corporate Services.        

RESOLVED that

1) The Audit Sub Committee note and agree the Annual Governance Statement

2) The Audit Sub-Committee agree to the changes that had been made to the Council’s Code of Corporate Governance  

The next meeting of the Audit Sub-Committee is scheduled for 17^th October 2019.

Members noted that the next meeting of the Audit Sub-Committee was scheduled for 17^th October 2019

RESOLVED that the press and public be excluded during consideration of the items of business listed below as it was likely in view of the nature of the business to be transacted or the nature of the proceedings, that if members of the press and public were present, there would be disclosure to them of exempt information.

Members noted the Annual Fraud and Investigations Exempt Items report and commented on matters arising.

As this was a part 2 (Exempt Information) report, the full minutes for this item were recorded in the part 2 minutes.  

Members noted the exempt minutes of the meeting of the Audit Sub-Committee that was held on 26^th February 2019.

RESOLVED that the exempt minutes of the meeting held on 26^th February 2019, be agreed and signed as a correct record.