Agenda item
Internal audit progress report 2014/15
This report provides an update on progress against the internal audit plan for the period 1st April 2014 to 31st December 2014. The report also provides a summary of counter fraud work for 2014/15.
An appendix to the report is attached.
Minutes:
Members considered a report which provided an update on progress against the internal audit plan for the period 1 April 2014 to 31 December 2014 together with a summary of counter fraud work for 2014/15. As resolved at a previous meeting, members agreed to receive clarifications from senior officers from departments which received limited assurance internal audit reports. The Committee welcomed Andy Donald (Strategic Director of Regeneration and Growth) and Richard Barrett (Operational Director of Property and Projects).
Simon Lane (Head of Internal Audit) reported on the main areas of weaknesses and key issues in respect of income from the Melting Pot, Civic Centre underground car park and Library Café. He explained that the performance of Europa (the contractor) in respect of the reported gross profit margins were not being monitored or benchmarked against any industry average/target margins and that discrepancies were found in the reported financial figures provided by the contractor. He continued that there was a lack of evidence to support the reported income and expenditure information being provided by Europa and an absence of an action plan to address the cumulative net loss with no basis provided by the contractor for the £20,000 profit projections for 2015/16. Further, that Europa were not maintaining separate accounts for hospitality and the café, which carried different profit share arrangements, therefore an accurate assessment of the council’s entitlement could not be made.
Andy Donald acknowledged the weaknesses identified in the audit and stated that he had engaged with Europa in a wider review prior to the commencement of the audit which had helped to inform the client side in particular, the catering side and the car park. Richard Barrett added that as a result of the engagement, Europa had agreed to a separation of financial figures to enable transparency and a potential variation to the contract which previously allowed Europa to recover their costs quicker than expected. In respect of gross profit margin Richard Barrett informed members that monthly monitoring had been agreed as was industry wide benchmarking. He added that as part of the monthly review process, discrepancies, when found, were being flagged up by the Performance Manager.
In the discussion that followed, members queried why the department did not identify the anomalies through robust monitoring of the contract with Europa. Members also questioned as to whether there was a robust business plan and whether any other options were considered before the contract with Europa was entered into including an understanding of the Europa’s operations. Concerns were also expressed about the discrepancies referred to in the audit and officers were asked to quantify the level.
Members also expressed concern that the amortisation of plant and other capital costs had been determined by the contractor without reference to officers, and that officers had not sought to challenge this. The Operational Director acknowledged the concern and agreed that this should have happened, but pointed out that the effect of this would be to increase the profit share to the council in future years. The operational director undertook to check the terms of the contract in relation to the charging of capital expenditure. Expenditure relating to the fit out of the library café had not been anticipated when the contract was drafted.
Miyako Graham (Audit Manager, Mazars) confirmed that the level of discrepancies in relation to the monthly monitoring sheets was of low value. Richard Barrett informed members that alternative models where being examined. He reiterated that the contract with Europa would be re-examined and that benchmarking of their costs had been sought. Andy Donald echoed the responses adding that the contract would be fundamentally restructured to ensure that the concerns expressed in the audit were addressed.
The Chief Finance Officer added that it was not necessarily wrong to seek to let commercially sophisticated contracts such as with Europa, incorporating as it does profit share and other mechanisms. However, without the officers in place with the commercial expertise to manage these, such contracts were inherently high risk, and in this case where contract monitoring was as weak as it was the results would always be highly unsatisfactory.
The Committee also received senior officers from Children and Young People: Gail Tolley (Strategic Director), Graham Genoni (Operational Director) and Neil McDonald (Head of Localities and CWD) to the meeting.
Simon Lane summarised the key findings of the audit of the No Recourse to Public Funds audit. The audit related to the provision of support for those children and families with children who are unable to access the normal range of welfare benefits due to their immigration status. The main issues from the audit related to a lack of a formally defined operational policy and procedure document, a lack of audit trail including evidence of approval for payments and issues concerning the recharge from housing options. and tracking of the client’s status and a number of errors in the sample testing. Members heard that the budget for NRPF in 2013/14 of £520,000 was underspend by £138k and for 2014/15, although the service budget had remained at £520k the projected year-end forecast based on current families being provided with a NRPF service was £673k - a projected overspend of £153,000. He then drew members’ attention to the recommendations made to the department to address the key findings as set out in the report.
Gail Tolley informed the Committee that the projected overspend was in response to an exponential increase in demand which was not peculiar to Brent. She continued that a new team was in place and addressing the findings of the internal audit with robust policies and procedures already in place and which would be documented and consolidated into local NRPF procedures. She added that the department was in discussion with housing services on how to take these forward as well as to manage the budget effectively. Graham Genoni added that the current procedures in place were fairly robust to ensure that the concerns identified in the audit were addressed. In order to prevent overpayments occurring again, NRPF cases were being held in the Care Planning and Locality teams were now being jointly allocated to the NRPF team in order to ensure payments were monitored and status tracked accordingly. The NRPF team undertook regular payment checks to ensure that all payments approved to be made have actually been made in a complete and timely manner. Any discrepancies were being followed up with the Finance team and a copy of the checks undertaken should be retained by the NRPF team. Neil McDonald outlined some of the measures put in place to address the audit findings including bi-monthly reviews and added that in order to bring costs down, accommodation was being made available in the West Midlands areas. He continued that the payment to the ‘overpaid’ mother was terminated with immediate effect and that the mother was now being pursued for repayment by the Audit and Investigation team.
Gail Tolley advised members that the actual level of spend in Brent, compared with other similar authorities, was relatively low due to the efforts made by the team to contain costs.
Members enquired of the Chief Finance Officer about the budgetary pressures. Conrad Hall replied that a key issue was the level of control, and that the audit had shown that this was limited, with sample checks indicating a high level of cases where payments had been made without appropriate documentation.
Simon Lane then provided a routine update on progress against the internal audit plan for the period 1 April to 31 December 2014. Members heard that 677 days had been delivered of a total of 1,200 representing 56%. There were 80 projects on the current plan (excluding follow up and advisory work). 41 of the projects had been completed to draft or final stage and that 32 those had an audit opinion associated with them; 24 substantial, 7 limited and 1 full assurance rating. The other projects were grant certifications which did not have an assurance rating attached. He reported that in relation to the Audit Plan for 2015/16, he had commenced preliminary meetings with a number of strategic directors which would be concluded by mid January. As the proposed audit plan would be submitted to committee in March, he requested members to provide him with any areas of concern for consideration for inclusion in the plan prior to 31 January 2015.
In respect of internal fraud Simon Lane reported that since the last meeting, four cases had been closed in which fraud was identified. These resulted in: one dismissal at disciplinary for claiming benefit when not entitled whilst working (for a school); two resignations prior to hearings for misuse of council property and one warning for non-adherence to policy. He continued that on housing tenancy fraud 36 social housing tenancies were identified and 3 applications were cancelled for housing and 2 families had their property size reduced following investigations. These property size reductions related to applications for housing where applicants overstate their true need. Members also heard that since the previous meeting, a further five cases of fraud had been identified. These related to a pension fraud valued at £5,200, three SPD frauds with a combined value of £2,000 and a home loss grant fraud of £5,300. Members noted that the Audit and investigations team had recently completed an SPD proactive exercise which had generated some £220,000 in additional council tax debt.
RESOLVED:
that the progress made in achieving the 2014/15 Internal Audit Plan, the review of fraud work and the limited assurance reports as set out in appendix 1 be noted.
Supporting documents:
- Internal Audit Progress Report 2014-15 - Cover Report, item 8. PDF 206 KB
- Internal Audit Progress Report appendix 1, item 8. PDF 235 KB