Agenda and minutes
Venue: Board Room 2 - Brent Civic Centre, Engineers Way, Wembley HA9 0FJ. View directions
Contact: Joe Kwateng, Democratic Services Officer 020 8937 1354, Email: joe.kwateng@brent.gov.uk
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Declarations of personal and prejudicial interests Members are invited to declare, at this stage of the meeting, any relevant financial or other interest in the items on this agenda. Minutes: 10. Shared internal audit services
Mr David Ewart (Independent Chair) declared that he used to be a director at Ealing Council and was in receipt of a pension from the Ealing Pension Fund. He also received a salary from Ealing Council on an agency basis as an employee of Mortlake Crematorium Board of which he is Treasurer. The Board has used Ealing Council’s Internal Audit to carry out audits of the Board’s returns.
Simon Lane declared that he would potentially be directly affected by the proposals contained in the report; shared internal audit services.
Steve Lucas (KPMG) declared that he was the audit manager for Ealing and Hounslow Councils.
The Committee were content that none of the above declarations prevented the individuals speaking in respect of the shared internal audit services report. |
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Deputations Minutes: None. |
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Minutes of the previous meeting PDF 82 KB Minutes: RESOLVED:-
that the minutes of the previous meeting held on 24 November 2014 be approved as an accurate record of the meeting subject to the following amendment; Phil Johnstone, Director at KPMG, asked that the minutes be corrected to reflect the comments he made at the last meeting [to the effect that he thought that Brent was well served by an experienced Chief Executive, and that the fact that the appointment was not permanent did not cause him to have concerns as appointed auditor. |
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Matters arising Minutes: National Fraud Initiative It was reported that Simon Lane (Head of Internal Audit) had circulated details of the composition of the group of authorities against which the Council was being compared.
Key Performance Indicators (KPI) – Social Care Members noted that the Operational Director, Social Care had not circulated the Key Performance Indicators (KPI) as agreed at the last meeting and asked that he be reminded to do so. |
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Certification of Grants and Returns PDF 67 KB
The Audit Commission requires its external auditors to prepare an annual report on the claims and returns it certifies for each client under the Audit Committee regime. This letter is KPMG‘s (external auditors) annual report for the certification work undertaken for 2013/14. Minutes: The Committee received a report from KPMG (external auditors) which set out the certification of work undertaken by KPMG for 2013/14. This was a requirement by the Audit Commission for the external auditors to prepare an annual report on the claims and returns it had certified for the Council. Steve Lucas (Audit Manager) introduced the report.
In relation to the HB subsidy claim, Steve Lucas identified that HB subsidy was a complex area and over 50% of councils have their claim qualified. He continued that for the Housing Benefit Subsidy claim, the Authority identified 83 cases referred to them by Brent Mental Health Service totaling £1,177,334. This had been misclassified within the claim but was later corrected and resulted in an increase of subsidy due to the Authority of £332,439.
Councillor Filson asked whether officers should be praised for identifying this underclaim. Phil Johnstone (KPMG) pointed out that officers were correcting their own errors.
As part of separate testing, KPMG tested the accuracy of 60 claims and identified 5 errors.. The errors either relating to classification on the claim or the amount paid to the claimant. These included incorrect non-dependent deductions made, an extended payment incorrectly awarded; and errors in the calculation of self-employed income. The Authority tested a further 80 cases and identified errors in 33 cases. This primarily concerned self employed cases where either an incorrect amount was used for expenses or there was no evidence to support the basis for the expense amount. This resulted in four overpayments, nine errors which did not change the value of the individual claims and 20 which would have resulted in underpayments based on the information on file. As a result of KPMG’s testing the Housing Benefit Subsidy claim was qualified with the total extrapolated error, based on the errors found approximately £100,000.
Members heard that the Authority had addressed two of the three recommendations made in 2012/13 relating to the housing benefit grant claim. The third recommendation on removing errors in rent and income figures used had not been addressed as there was a significant increase in the number of cases which could either not be evidenced or disagreed to the evidence available this year. The main area was self-employed income, including eligible deductions.
Andy Monkley (Subsidy and Policy Manager) was in attendance to answer queries on housing benefit subsidy. Andy Donald, Strategic Director R&G, was also present. Andy Monkley explained that this was the first time that the Council had identified that level of errors with self employed income assessment. Mr Monkley explained that the majority of errors related to a lack of audit trail for the calculations. He added that the department would carry out a review of procedures by the end of January 2015. . The review would involve a standard template for self employed cases; standard note entries as part of the documentation clarifying income and expenses; and training for senior officers. Andy Monkley undertook to submit the results ... view the full minutes text for item 5. |
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External audit progress report and technical update PDF 104 KB This report by KPMG provides the Audit Committee with an overview on progress in delivering KPMG’s responsibilities as the external auditors. The report flags up publications/articles that may be of interest to the Committee and also highlights technical issues which are currently having an impact in local government. Minutes: Members considered a report by KPMG which provided an overview on progress in delivering KPMG’s responsibilities as the external auditors. The report also flagged up publications/articles that may be of interest to the Committee and also highlighted technical issues which were currently having an impact in local government.
Phil Johnstone (Director, KPMG) updated members on audit work completed for the 2013/14 financial year since the last Audit Committee meeting which covered certification of the Council’s Housing Benefit subsidy claim, issuing of Grant claim and return and a report on Teachers’ Pension return. Members heard that testing on contribution rates for other teachers in the sample did not identify any other errors. He continued that as part of KMPG’s detailed planning work in the next quarter, the risk assessment would be updated to determine the audit plans, highlighting the key risks for the Authority and the Pension Fund and that detailed annual plan would be presented to the Committee at its meeting in March 2015. Members heard that there were no audit concerns that needed to be raised in relation to the audit of the accounts or the VFM conclusion from the external auditor’s knowledge to date. He continued that the proposed audit fee for 2014/15 remained at £263,520 for the Authority’s audit and £21,000 for the Pension Fund with further substantial reductions of 20%-25% anticipated for 2015/16.
RESOLVED:
that the external audit progress report and the technical update be noted. |
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Treasury management strategy 2015/16 PDF 205 KB This report presents the draft Treasury Management Strategy for 2015/16 for consideration by the Committee. The final version of the Strategy, incorporating the views of the Committee, will be included in the budget report to be approved by the Council on 2 March 2015.
Minutes: The report presented the draft Treasury Management Strategy for 2015/16 for consideration by the Committee. The final version of the Strategy, incorporating the views of the Committee, would be included in the budget report to be approved by the Council on 2 March 2015.
Mick Bowden (Operational Director of Finance) introduced the report. He stated that the purpose of the Treasury Management Strategy (TMSS) was to set out the TMSS for 2015/16 and the Annual Investment Strategy for 2015/16 and central to both strategies was the successful identification, monitoring and control of risk. He drew members attention to table 1 of the report that showed that as at 30 November, 2014 the Authority’s had £432m of long and short-term debt and £142m of investments and the list of institutions which met the Council’s credit worthiness criteria.
Conrad Hall (Chief Finance Officer) informed members that the Council’s external interest budget for 2014/15 was £17.0m, with budgeted investment income of £0.6m with the minimum revenue provision (set aside for the repayment of debt) of £11.3m. He added that the setting of the capital financing budget for 2015/16 would form part of the overall budget decision to be taken by the Council on 2 March 2015.
RESOLVED:
that the draft Treasury Management Strategy 2015/16 be noted. |
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Internal audit progress report 2014/15 PDF 206 KB 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.
Additional documents: 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 ... view the full minutes text for item 8. |
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Corporate Risk register PDF 85 KB This report presents the council’s current Corporate Risk Register. An appendix to the report is attached.
Additional documents: Minutes: The Committee considered a report which presented the council’s current Corporate Risk Register. Simon Lane (Head of Audit and Investigations) in introducing the report informed members that a new Risk Management Group had been established, chaired by the Chief Finance Officer. The remit of the group was to promote best practice in risk management, review and challenge the content of the strategic risk register and to review key issues in respect of the operational risk registers. He drew members attention to the changes to the risk register since the Committee last met, attached as an appendix to the report.
Strategic risk, an overarching risk relating to the draft proposed budget for 2015/16 and 2016/17 and covering all council departments with individual risks on their own operational registers, had been added to the strategic register. This was to take account of the financial challenge which continued to present significant risks to the council in terms of continued delivery of services and managing change. The Chief Finance Officer corrected an error on the document: ownership of which should have been shown to be his responsibility.
In terms of operational risks, the following were noted; Adult Social Care - Risks concerning the failure to engage with key partners leading to additional cost pressures and the risk of fraud in direct payments were removed from the corporate register due to a residual score of 12 or less. Assistant Chief Executive Department and Regeneration and Growth Department – a number of new risks as set out in the report were added Environment and Neighbourhood – risk relating to failure of public realm contract was removed but the risk of service difficulties; reputational harm or failure during organisational change was added. Children and Young People – there were no updates.
Cllr Davidson highlighted the implications for the Council in a failure to comply with its legal obligations and queried why this risk was not given a higher rating due to the recent tribunal loss. Simon Lane pointed out that the risk being referred to related to consultation and that the employment tribunal risks were picked up within the legal and procurement operational register. Cllr Davidson suggested the risk score was not high enough. Conrad Hall undertook to review this. Attention was also drawn to the risk of the council’s inability to provide or provide enough school capacity through the schools capital programme which would constitute a breach of the council’s statutory duty. The risk of the failure to achieve delivery of customer services project was also highlighted.
RESOLVED:
That the contents of the Council’s updated Corporate Risk Register be noted.
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Shared internal audit services PDF 151 KB 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 ... view the full minutes text for item 10. |
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Any other urgent business Notice of items to be raised under this heading must be given in writing to the Democratic Services Manager or his representative before the meeting in accordance with Standing Order 64. Minutes: None. |
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Date of next meeting The next scheduled meeting of the Audit Committee is scheduled to be held on Tuersday, 24 March 2015 at 7.00pm Minutes: It was noted that the next meeting would take place on Tuesday, 24 March 2015 at 7.00pm.
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