Agenda item

This report includes a number of documents produced by the Audit Commission in their role as the Council’s external auditors.

The Committee gave consideration to a report produced by the Audit Commission in their role as the Council’s auditors.  Paul Vijloen Audit Manager set out the purpose of this progress report which was to brief the Audit Committee on work currently being planned or undertaken by the Audit Commission.  He added that the Commission had finalised the interim audit, agreed the accompanying report and were in the process of finalising the action plan with officers. The Audit Manager gave an outline of the contents of the interim report which included material financial systems, detailed review of the IT control environment, testing on selected systems, early substantive testing and review of early revised IFRS financial statements and working papers.

In drawing members’ attention to the results of his testing as set out in appendix 1 to the report, Paul Vijloen stated that the systems had operated as documented and that there were no major weaknesses in the design of the systems that would lead to a material error in the financial statements, except in the following areas:

(i)         controls over journals did not operate as documented throughout the         year;

(ii)        evidence to support authorisation of payment or BACS payments were not always retained or approved in accordance with the Council's written procedures;

(iii)       the introduction of the new Oracle system during the year resulting in the need; and

(iv)       reconciliations between the council tax and NNDR systems, bank accounts and cash receipting systems which were in progress throughout the year due to the transition to the new Oracle system. These reconciliations were finalised at the year end.

Paul Viljoen undertook to perform additional substantive testing where he was not able to gain the planned controls assurance including the general ledger (journals), accounts payable and accounts receivable systems. He continued that the fee for the additional work would be offset against audit efficiencies gained as a result of a more centralised and efficient accounts systems. He undertook to keep this under review at the final audit visit.  Although he did not identify major weaknesses, he drew members’ attention to recommendation R5 as set out in the appendix to the report.  He continued that in his view the Council had complied with International Financial reporting Standards (IFRS) without significant weaknesses and that errors identified had already been brought to the attention of management to be resolved.

The Audit manager pointed out that the Council was yet to complete its IFRS restatement work or provide supporting documentation in respect of school leases, its asset valuation and group undertakings including the consolidation of Brent Housing Partnership (BHP).  Consequently, he had been unable to review these areas as part of the early testing, as previously planned and agreed with the Council.  This would now form part of his final audit visit.  

Councillor Choudhary enquired about the merits of the new Oracle system in view of its installation expense and the problems that had resulted from its use.  The Director responded that the Oracle system experienced initial teething problems which had been resolved and had proved to be more efficient.  He added that the current system was more superior to the previous one which involved maintaining several systems with the associated inherent problems in maintaining several systems.  Andrea White, District Auditor added that despite its initial difficulties, efficiencies had been noted in the use of the Oracle system.

In responding to the outstanding issues on IFRS restatement, the Director informed the Committee that the council had no direct control over the actions of the governing bodies of schools and whilst every effort was being made to support those schools and obtain the relevant information from them, the situation was far from perfect.  The Chair pointed out that there was no indication on timescale and status of recommendations made by the Commission.  Paul Vijloen clarified that the Audit Commission had passed on the details including timescales and status of each recommendation to the relevant Deputy Director and an agreed action had been put in place.

In reference to the audit fee for 2011/12 of £439,200, Andrea White, District Auditor stated that the fee did not include inflationary increase in 2011/12 and reflected a cut in scale fees and a further cut of 3% for local authorities, police and fire rescue authorities.  She continued that variations in her fee scale would only occur where there her assessments of audit risk and complexity were significantly different from those identified in which case she would issue a separate audit plan detailing the risks identified and discuss the situation including detailed project specification with the Director of Finance and Corporate Services.

The Chair enquired as to the future of the Audit Commission and requested an update with timescales.  Andrea White informed the Committee that the Department of Communities and Local Government (DCLG) had commenced consultation on the future of the Audit Commission which would close on 30 June 2011.  In addition the DCLG had written to all Local and County Authority Chief Executives setting out practices and recommending outsourcing of audit functions.  She added that details of the scheme were yet to be fleshed out and it was likely that the Audit Commission would form a company with a strategic partner and put in a bid to the DCLG.  Members noted that the current contracts would end in 2012 and that the new outsourcing arrangements would commence from 2013.  Clive Heaphy undertook to circulate the draft response by the Audit Commission to all members of the Committee prior to its submission to the DCLG.

In response to a query by Councillor Choudhary on how the District Auditor arrived at her fees, Andrea White clarified that the fee scale was set by the Audit Commission in accordance with audit risks and having allowed for a 10% reduction for all Councils.  This advice was echoed by Clive Heaphy who added that the Audit Commission was under limited flexibility to change the scale of fees under the current regime.

RESOLVED:

that the report be noted.