Annual Report and Opinion 2013/14 including Review of the Effectiveness of Internal Audit (Agenda item 11)
Report by Emma Hodds, Internal Audit Consortium Manager.
The Internal Audit Consortium Manager gave a detailed overview of the report. The new Public Sector Internal Audit Standards had replaced CIPFA’s Code of Practice for Internal Audit in Local Government in the UK (2006) and these were very similar to the old Code of Practice in terms of year end Internal Audit reporting requirements. The report also now contained conclusions of the Review of the Effectiveness of Internal Audit. This had previously been reported to the Audit Committee as a separate report; however, the view had been taken that these could be considered as one report as they were inextricably linked. The opportunity had been taken to do this as part of the launch of new report templates across the six authorities that were part of the consortium, with the view to ensuring consistency and streamlining the audit reporting process, whilst ensuring that best practice was met.
It was noted that when considering the report and its attached opinions, the statements made therein should be viewed as key items which needed to be used to inform the organisation’s Annual Governance Statement.
The Internal Audit Consortium Manager’s overall opinion was that the framework of governance, risk management and control at Breckland Council was deemed to be adequate. The Council had also received 3 good assurance levels on the conclusion of audits, indicating that there was a sound system of internal control designed to achieve the client’s objectives.
The interim opinion of the previous Internal Audit Consortium Manager as at 28 February 2014 had also been taken into account and this could be seen at Appendix 4 of the report.
On the basis of the audit work undertaken in 2013/14, the Audit Committee approved the Annual Audit Plan for 2013/14, which encompassed 19 audits totalling 232.5 days of work. Due to amendments to the plan in year, which had been discussed with Senior Management and reported to the Audit Committee in the Progress reports provided in year, the actual work delivered was 17 audits, totalling 209.5 days. In addition to the Annual Audit Plan, the Audit Management Team had been requested to carry out a final review of the REV Active project and grants claim work; although this piece of work had been undertaken in Quarter 1 of 2014/15, the claims applied to the calendar year – January to December 2013, and the final few months of the claim in 2014. The work conducted here involved 10 days of extra input from the Audit Management Team. The Audit Committee had received regular updates from the Team on the project and at the meeting on 13 June 2014 received the closure report which also contained the final audit review of the project.
In relation to the follow up of management actions, to ensure that they had been effectively implemented, the position at year end was that 6 high priority recommendations remained outstanding, 4 of these had been carried forward from previous financial years, 2 of which had been raised during 2013/14. Detailed information in relation to follow up had been reported previously on the agenda; however, Members were asked to note that the implementation of internal audit recommendations had not been as active as in previous years, with 42 recommendations remaining outstanding at year end and a further 14 which would require attention in the new financial year.
All 51 audit recommendations that had been raised on conclusion of audits had been accepted by management. Implementation of high priority recommendations had improved on the performance reported in the previous year (up to 65% this year); however, there were still a number outstanding at year end and targets were not being met. More commentary on this had bee provided in the report.
Further to the comments above regarding the implementation of high priority recommendations the following issues were significant enough for disclosure within the Annual Governance Statement (AGS).
Outstanding high priority recommendations carried forward from 2012/13 – one in relation to Asset Management and three in relation to Procurement. In addition two outstanding high priority recommendations from 2013/14 – one in relation to building control decisions and one in relation to the monitoring of performance for the Choice Base Letting scheme.
In arriving at the overall opinion, reliance had been placed on third party assurances provided by West Suffolk Internal Audit Section. Protocols were in place to enable this in so much as all audit work programmes had been shared with the Audit Management Team before the start of the audit and the Team were also provided with the summary working papers and draft report on conclusion of the work and the final report had also been provided. This approach enabled the Audit Management Team to have input into the scope of the audit to ensure that all pertinent areas had been covered; it also enabled the Team to review in detail the work that had been undertaken and to be in agreement with the conclusions that had been reached and the recommendations that had been raised. This was the second financial year during which these arrangements had been in place, lessons had been learnt from the first year and a robust scope agreed this year, ensuring that no top up testing would be required and reliance could be placed on the outcomes of the work.
Section 5 of the report, the Annual Review of the Effectiveness of Internal Audit, used to be presented to the Audit Committee as a separate report, but as previously mentioned, the view had been taken that these could be considered as one report as they were inextricably linked. Full compliance had been recorded in relation to the Definition of Internal Auditing, Code of Ethics and Performance Standards. Partial compliance had been recorded in relation to the final area of Attribute Standards whereby there was a requirement for an external assessment to be completed by 31 March 2018; a report would be brought back to the Committee at a future meeting to address this.
Performance of the Contractor throughout the year was discussed. Audit briefs should be issued to key clients at least 10 days before the fieldwork was due to start to ensure that they were well informed of the requirements of the audit. Performance in this area had been poor this year, with the issue of audit briefs varying between 1 and 31 days before the start date, with only 36% of these issued within the appropriate timeframe. In the majority of cases the Internal Audit Services Contractor was responsible for the short lead in times and improvement within this area was expected. There were a few occasions where information was requested from key clients but not released in a timely manner, these were issues across the Consortium and were not specific to Breckland. Discussions had already been held with the Internal Audit Services Contractor and a change of approach had been agreed to streamline the level of detail required in audit briefs (in line with the PSIAS requirements). Deadline dates were now given where information was needed and if it was not received, the audit brief would be issued without it. It was hoped that this would result in an improvement in performance in this area; this still followed best practice.
Once audits were underway, 11 of these had been completed on time or in advance of the agreed date, with only 3 over running (2 minimally). Performance in this area had greatly improved and it was expected that this upward trend would continue into the next financial year.
Performance in relation to the issue of draft reports upon the completion of fieldwork still remained poor, with performance deteriorating from the previous year and targets not being met. Only 6 of the 14 draft reports had been issued within the expected 10 working days. The late progression of audits to draft report had been largely due to the internal review progress and the clearance of review points, raised by either Mazars Managers or the Audit Management Team. The progressing of draft reports had also effected in the second half of the year as a result of the loss of key staff within Mazars at a busy point in the year and the knock on effect of the transfer of the staff from Deloitte to Mazars. Other reviewing managers had been brought in to attempt to mitigate the risk, but this had still had an impact on performance and improvements by the Contractor were expected.
Performance in progressing a draft report to a final report had significantly improved this year, with 86% of reports being finalised within 15 working days, and the average time only taking 9 working days. This indicated the improved response by management to audit reports.
Finally, post audit feedback had been requested on conclusion of each audit where an opinion had been awarded. The average score for feedback had remained consistent from the previous year with ‘good’ being the overall conclusion, this was above target. However, the response rate had been disappointing (this had not been specific to Breckland Council) with only 8 out of 14 requested responses being received. Response rates across the Consortium were not encouraging and work had been completed by the Audit Management Team to review and update the feedback form to make this more efficient and increase the likelihood of these being completed. The new feedback forms would be used for 2014/15 audits going forward.
Under section 5.3 of the report, the Effectiveness of the Head of Internal Audit (HIA) arrangements as measured against the CIPFA role of the HIA; this Statement set out the 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. The Principles were:
· Champion best practice in governance, objectively assessing the adequacy of governance and management of risks;
· Provide an objective and evidence based opinion on all aspects of governance, risk management and internal control;
· Undertake regular and open engagement across the Authority, particularly with the Management Team and the Audit Committee;
· Lead and direct an Internal Audit Service that was resourced to be fit for purpose; and
· Head of Internal Audit to be professionally qualified and suitably experienced.
On review of the 5 principles and in benchmarking against these it could be concluded that there was substantial compliance with the aspects associated with each Principle.
Partial compliance had been recorded in relation to awareness of Council activities and access to Senior Management, whereby informal process was in place and accessed could be inferred through the Audit Charter; however, it was felt that it would be worthwhile formalising these links to ensure timely awareness of new projects.
In relation to ensuring there were sufficient resources available to carry out satisfactory level of Internal Audit, there was resilience provided by the audit contractor to ensure that the necessary resource was available; however, the Audit Charter did not address the procedures to be followed in the event that the IACM considered the resources available were insufficient to perform the role effectively; however, this was not considered to be an issue as this had already been mitigated through the discussions held with the Assistant Director of Finance, the Management Team and the Audit Committee (if required) regarding the resources required to ensure delivery of internal audit activity; however, this would be formalised through the next update of the Audit Charter.
Councillor Nunn was pleased to note that 51 recommendations had been accepted but he felt that these reports had been ‘parked’ until next year. Members were informed that these would be included in the Progress Report in December.
1) the contents of the Annual Report and Opinion of the Internal Audit Consortium Manager be received and approved;
2) it be noted that, an adequate audit opinion had been given in relation to the framework of governance, risk management and control for the year ending 31 March;
3) it be noted that the opinions expressed together with significant matters arising from internal audit work contained within the report be given due consideration when developing and reviewing the Council’s Annual Governance Statement for 2013/14; and
4) the conclusions of the Review of the Effectiveness of Internal Audit be noted.
- Covering report for Annual Report (17 06 14), item 44/14 PDF 57 KB
- BRK Annual report and opinion (13 06 14), item 44/14 PDF 543 KB