Annual Review of the Effectiveness of Internal Audit for 2012-13 (Agenda item 10)
Report of the Head of Internal Audit.
The Internal Audit Consortium Manager presented the report which primarily sought to confirm that proper arrangements had been made to comply with the statutory requirements and to present evidence to Members that the system of Internal Audit at Breckland Council was effective, and that the assurances provided in the Internal Audit Annual Report and Opinion could be relied on and used to inform the Council’s Annual Governance Statement.
The Accounts and Audit Regulations 2011 stated that a Council the size of Breckland must undertake an annual review of the effectiveness of its internal audit function, and that this review be undertaken by the same body that reviewed the effectiveness of the system of internal control.
Internal Audit working practices were required to comply with CIPFA’s Code of Practice although these arrangements were set to change from 2013/14 and be replaced by new consolidated Public Sector Internal Audit Standards (PSIAS).
The existing working practices predominately met much of the newly introduced PSIAS requirements although there would also be an obligation to arrange for an external assessment of the effectiveness of internal audit at least once every five years.
Internal Audit operated in an 8 point quality assurance, a summary of review outcomes had been attached at Appendix 1 of the report.
Appendix 2 of the report highlighted the additional requirements specified by the PSIAS in relation to future external assessments of the effectiveness of Internal Audit.
The next element, complying with CIPFA’s Code of Practice for Internal Audit, had confirmed that full compliance had been achieved in relation to 11 key criteria.
Complying with CIPFA’s Statement on the role of the Head of Internal Audit set out 5 principles that defined the core activities and behaviours that applied to the role of the Head of Internal Audit, and the organisational arrangements to support them. Each principle had associated requirements (59 in total); however, 2 of these principles did not apply but the remaining 57 elements had been found to be satisfactory.
Referring to the quality standards applied to the Internal Audit Service, 98.8% of audit recommendations had been achieved against a target of 90%; however, the percentage of high priority recommendations implemented had fallen from 44% to 20% - only two out of the ten high priority recommendations had been completed. The other main aspect of this work were the timescales for completing audits which had been far from satisfactory over the course of the year. It had been established that audit fieldwork had been late for a number of reasons and these had been highlighted at paragraph 3 on page 83 of the agenda. As far as the cause of the lengthy timeframes between draft and final audit reports was concerned, delays had been due to either late receipt of management responses, or problems associated with agreeing the form that the management response should take. The Internal Audit Consortium Manager explained that a number of meetings had been held with Deloittes to ensure that the Audit Plan was completed on time, and moreover, a workshop between the Audit Management Team and Deloittes had been organised in July 2013 to explore how improvements to working practices and performance could be obtained. Section 151 Officers had also been invited to this workshop to contribute to the proceedings.
Strengthening the Council’s Systems of Internal Control was also highlighted and the work had confirmed that assurance levels for individual audits carried out in 2012/13 had been predominantly positive with 10% receiving a good assurance and 70% an adequate assurance. The remaining 20% of assurances had been split between limited at 15% and unsatisfactory at 5%. Procurement had identified that previously adequate working practices had deteriorated to an unsatisfactory level culminating in the raising of 10 recommendations, comprising 5 high, 4 medium and 1 low priority ratings to address control weakness found. On the basis of target dates set for the implementation of these agreed actions, it was further noted that the 8 recommendations to be completed before year end were still found to be outstanding. The year end review of audit recommendations also indicated that when comparing the last 6 months of this financial year with the same period last year, the number of recommendations had risen from 65 to 73, whilst the number of completed and/or superceded recommendations had dropped from 53.8% to 49.3%. In addition, the number of completed high priority recommendations as mentioned above had fallen to an unacceptable level of 20%.
Improving Service Delivery and Adding Value was also confirmed in terms of interaction with other Internal Audit Service providers, i.e. West Suffolk Partnership and Audit Lincolnshire. There was then reference made to Hold Harmless letters prepared by Deloittes to release their ARP Governance audit report to St Edmundsbury, Forest Heath and East Cambridgeshire Councils. The letters were in the process of being circulated to the relevant officers for signing.
Another element highlighted was External Audit’s Reliance on Internal Audit’s Work. It had since been agreed that an Audit Joint Working Protocol would be presented to the Audit Committee meeting in September. It was also noted that the Internal Audit Consortium Manager had been preparing written submissions to Ernst & Young regarding the Council’s response to the Risk and Fraud and the Effectiveness of Internal Audit, details of which had also been copied to the Assistant Director of Finance.
In relation to the support that Internal Audit provided to the Audit Committee, it was acknowledged that induction training had been undertaken in February. It was further recognised that the Annual Report of the Audit Committee was currently under preparation in consultation with the Chairman of the Audit Committee and would be presented for Members’ consideration at the next meeting in June.
Mr Stevens raised concerns about the management’s response to the outstanding high priority recommendations and asked what work went on to ensure these recommendations were actioned. The Deputy Chief Executive explained that a new process was being put in place; all audit recommendations would be added to a monthly tracker and discussed at the Corporate Management Team meetings. The Assistant Director of Finance said that the reasons for not completing them in the designated target times could be found in the next report which would provide some additional explanation for the Committee.
The Vice-Chairman asked if these recommendations would be added to the Corporate Risk Register. Members were informed that these would be tracked through another element of the Council’s Performance System.
Mrs Jolly raised concerns about the external risk mentioned on page 104 of the agenda and asked if there was a risk that the Authority could be in breach of the Council’s Contract Standing Orders. Members were informed that this would be dealt with in the next report on the agenda.
There was also some discussion concerning Appendix 2 to the report, relating to a new requirement for 5-yearly external audit assessments of the effectiveness of Internal Audit. Mr Ludlow asked if Internal Audit expected Ernst & Young to undertake the external review. The Internal Audit Consortium Manager advised that whoever was assigned to that role would have to be competent in two areas as per the new Public Sector Internal Audit Standards. The S151 Officer, the Chief Executive or an appointed external body satisfying laid down competency criteria could be called upon to carry out this work. However, effectiveness work currently undertaken by Ernst & Young did not constitute an appropriate external assessment.
Mr Ludlow questioned the level of commitment within the authority to implement outstanding audit recommendations. Mr Ludlow also felt that the Audit Committee should be involved in reviewing the awarding of the new Internal Audit Services contract after the Committee was informed that the contract was due to expire in September 2014. The Internal Audit Consortium Manager explained that Section 151 Officers were participating in this process, as well as being invited to explore issues with the current contractor’s performance and measures required to improve this at the forthcoming workshop in July. Mr Ludlow felt that there could be an issue between the style of Deloittes and the management of Breckland Council. He thought it appropriate, as a Committee, to scrutinise this contract.
RESOLVED that the findings of the review and the evidence gathered in support of the effectiveness of the Internal Audit Service be noted and be taken into consideration when receiving the Head of Internal Audit’s Annual Report and Opinion, and the Council’s Annual Governance Statement.
- BRK Annual Effectiveness Committee Report (27 05 13), item 22. PDF 80 KB
- BRK Annual Review of IA Effectiveness - App 1 (27 05 13), item 22. PDF 103 KB
- Appendix 2 - Externally assessing internal audit, item 22. PDF 46 KB