Agenda item
Shared internal audit services
The council is seeking to make savings of an average of 40% in the provision of its support services, in response to the financial pressures that it faces. This report sets out a proposal to share internal audit services with the London Boroughs of Ealing and Hounslow which would enable an immediate saving on management costs to be achieved. Over time, the proposal would also deliver further financial savings through economies of scale and efficiencies and the opportunity to improve the service by facilitating more cross-borough working and sharing best practice, thus enhancing the resilience of the service.
Minutes:
Members considered a report that set out a proposal to share internal audit services with the London Boroughs of Ealing and Hounslow which would enable an immediate saving on management costs to be achieved. Conrad Hall (Chief Finance Officer) introduced the report. He emphasised that the need for shared internal audit services was partly in response to the financial pressures facing the Council and the need to make savings of an average of 40% in the provision of its support services. Initially the proposal would deliver some savings, but over time, the proposal would also deliver further financial savings through economies of scale and efficiencies and the opportunity to improve the service by facilitating more cross-borough working and sharing best practice, thus enhancing the resilience of the service.
The Chief Finance Officer outlined the significant importance of the service in providing an essential service to the organisation including providing responsive service to management whilst maintaining a degree of independence from day to day operations. He continued that a more significant consideration would be the resilience of the service as small teams lack the inherent resilience of larger teams. Additionally, there was a significant risk that substantial downsizing of the service would result in a model which he could no longer be confident of delivering high quality outcomes. In view of the above reasons, an alternative service delivery model had been examined, sharing services with Ealing and Hounslow, who already operated a shared internal audit service. Conrad Hall further emphasized that the scope of internal audit would not change under the proposals and that sharing services could, in future deliver efficiencies of scale and enable the council to drive out more costs. He further pointed out that although the service would be based in Ealing, there would always need to be a presence at Brent in order to provide the service.
After declaring his interest, Simon Lane (Head of Internal Audit) outlined the pros and cons of the shared service. The main drawback being the loss of control over the function. The method of delivery being determined by Head of Internal Audit (HIA) Ealing. This may not suit Brent. However, there would be a legal agreement underpinning the arrangement which would set out the expected standards and delivery and standards would be governed by the document. Further, he pointed out that there would be less Head of Audit time at Brent with one HIA spreading themselves across three boroughs, although this can be offset by having good senior staff in place in each authority. Some of the advantages included the immediate cost saving of the Head of Audit salary and the potential to spread management and contract costs over a larger team in future. However, some of the savings may be offset by increase in costs of travel between sites. There may also be some economies of scale in undertaking audits across three boroughs if other services were also shared.
In the ensuing discussions, members enquired as to whether this arrangement was a new phenomenon in London and if other Councils had entered into an arrangement for shared internal audit services. They also sought assurances that the proposed arrangement would protect the interests of the Council, that the head of audit would continue to be able to report to the Audit Committee, Chief Executive and Chief Finance Officer and that a direct access to the Head of Audit would be available. Cllr Davidson suggested that more shared services of all council services should be considered if a satisfactory business case existed.
Phil Johnstone (KPMG) informed members that shared internal audit services was a relatively common model across London in view of its benefits including financial and cost savings, specialism and economies of scale. In welcoming the proposal subject to the views expressed, members asked that the proposal be monitored and that the Chief Finance Officer report within one year of commencement, evaluating the effectiveness of the new arrangements.
RESOLVED:
(i) that the Audit Committee is supportive of the principle of the proposal;
(ii) that the Audit Committee considered it essential that a full and proper legal agreement was entered into to underpin the shared service arrangement to protect the Council's interests;
(iii) that the Audit Committee were reassured by officers that a satisfactory legal agreement would be entered into prior to commencement of the proposal, ensuring in particular that the arrangements for the head of audit to be able to report directly to the Audit Committee, Chief Executive and Chief Finance Officer would remain unchanged and that a direct access to the Head of Audit would be available;
(iv) that the Audit Committee noted that the audit plan for 2015/16 would be agreed prior to commencement of the proposal and that the annual governance statement and head of audit’s annual opinion for 2014/15 would need to be completed;
(v) that the Audit Committee agreed to receive a report within one year of commencement evaluating the effectiveness of the new arrangements;
(vi) that the Audit Committee noted that in due course there might be scope to consider adding other services into the arrangement, if a satisfactory business case existed.
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