CIPFA - NW Risk & Governance GroupAnnual Development and Training

“Financial Resilience - An Innovative Role for Internal Audit…….”

8th March 2014

Steven Mair – Borough Treasurer

Jane Whyatt – Audit and Counter Fraud Manager

Financial Resilience:Innovative Approach for Internal Audit Our Story “…the Way we Were…”

Public Sector Financial Pressures

Our Journey

Measuring Financial Resilience

Internal Audit’s Contribution to Success

External Validation

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Oldham’s Story:The way we were….. 2006/2007

Audit Commission’s “Use of Resources” Report 2006/07:– Internal control scored 1 out of max 4– “…systems of internal control and arrangements to ensure probity

and propriety in the conduct of business deteriorated in 2006/07”.

Audit Commission particularly highlighted that:– Fundamental financial systems not reviewed by Internal Audit– Absent / infrequent core bank and other reconciliations– Fraud and corruption, and whistle-blowing policies not readily

available or appropriately communicated

3 statutory recommendations - urgent action required

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Oldham’s ResponseFinancial Transformation Programme

• Immediate Improvements instigated in 2008/09:– Statutory recommendations implemented– Further change programme developed

• Financial Transformation required to the Culture:– Managers to own their “financials”– Members’ to be engaged– Residents to see the benefits– “Silo” working does not deliver value for money

• Financial systems – “get the basics right….”

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The Financial Challenge Continues

• “Towards a Tipping Point”:– “…largest reduction in public spending reductions since the

1920s….”– “….reduce in real terms by 28% by 2014-15..” **

• Plus demand pressures:– increased demand from demographic changes– recession-led economic changes– uncertainty in local government financial planning re: changes

• Beyond 2014/15, it gets more challenging:– RSG reductions continue– Income is volatile/ CT raising restrictions

• Not changing is not an option …….

** Source: Grant Thornton, 2012

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Innovation???

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“Financial Resilience”: Key Criteria

• Key Indicators of Financial Performance– Benchmarked analysis using key indicators of financial health;

reserves, long term borrowing, liquidity, sickness

• Strategic Financial Planning:– Budgets to be set in the long term context of the MTFS– Responsive to uncertainties in the economy,

• Financial Governance:– Quality of financial governance and leadership is critical to meet

financial challenges and for sustainability.

• Financial Control:– Manage within their budgets and have robust challenge around

budget monitoring and that they can demonstrate VFM

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Financial Resilience:Role of Internal Audit

• Question: “What’s all this got to do with the Internal Audit Team?

• Answer: “it’s a no brainer…”

• Internal Audit is at the forefront of Oldham’s success and is leading change in some cases

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Financial ResilienceInternal Audit - Adding Value

Financial Governance::• Understand financial environment• Executive and Member engagement• Performance manage budgets• Accuracy of committee/cabinet

reporting

Strategic Financial Planning:• Focus of MTFP• Adequacy of planning assumptions• Scope of the MTFP and link to

annual plan• Review processes• Responsiveness of plan

Indicators of Financial Performance:•Liquidity•Borrowing•Workforce•Performance vs budget•Reserves

Financial Control:• Budget performance management• Performance vs savings plans• Key financial accounting systems• Finance department resourcing• IA arrangements• EA arrangements

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Oldham’s Innovative ApproachBut what have we done differently?

• Commercial Approach: – Successful business has tight financial management & control– Effective governance requires business and cultural change– Strong Finance Function essential to success– Getting the basics right

• Professionally collaborates to deliver cultural change:– …with the business….– …with Finance….– …with External Audit…– …with external colleagues..

• Professional independence supports the business

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Internal AuditEffective Collaboration…with the Business

• Embed sound governance into culture • Repositioning Oldham – align to change agenda• Be pro-active / support the business / risk manage• Communicate, listen and challenge professionally• Develop customer service, yet remain independent• Grasp opportunities to raise awareness and train• Internal control recommendations to accompany fraud

investigations• Comply technically….always!• Audit Committee – Independent Chair

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Internal AuditEffective Collaboration....with Finance

• Audit is pivotal to Financial Management transformation:– Strong professional collaboration across Finance– Key contribution in departmental transformation agenda– Job rotation / enlargement within & across teams & secondments– Staff benefits are significant

• Audit Managers lead projects & themes• Audit support the Final Accounts• Financial Systems Audits:

– Annual Interim and Final audits each year– Control issue resolution included in close down timetable– Continuous audits in key areas support monthly close-downs

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Internal AuditEffective Collaboration...with External Audit

• Monthly Audit Liaison meetings:– Revenue and capital outturn (monthly close-downs)– Results of continuous internal audit reviews– Council’s budgets and next steps– Emerging issues/risk– External Audit matters – AGS, Audit Committee reports– 2014 FAN Events – External Audit

• Internal Audit Financial Systems audits:– Aligned with EA control objectives +/- local risks– Review interim audits as part of interim planning– EA participate in weekly audit team meetings

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Internal AuditEffective Collaboration…with 3rd Parties

• Finance and Audit judged as “best practice”:− CIPFA, LGA, other Local Authorities, benchmarking− DCLG using Oldham as exemplar evidence to raise national bar− External Audit report professional standard of Internal Audit

• Finance and Audit share Knowledge:− Raises governance and financial control standards− Shapes and promotes future public sector finance− 2013 CIPFA FAN Events and continuous advice to peers

• Professional Bodies seek support from Finance & Audit Team:

− 2014 on-going partnering with CIPFA

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Examples: Internal Audit’s ContributionTheme 2008/09 2013/14 Internal Audit Role

Indicators of Financial

Performance

Debtors out of control

Debtors reduced by 66%, further planned

Annual “receivables” audits, w/o processes, Audit-led

theme based review

Strategic Financial Planning

Budget in crisis, unplanned

overspends

2 year budget agreed in 2012, budgets always

balanced

Risk based, support over-spend, financial control and

training,

IA leads CFO’s risk assessment of reserves for

budget and MTFS

Financial Governance

IA Planning process under significant

development

Risk based Audit & Counter Fraud Plan approved by

Audit Committee quarterly.

Pro-active and risk based planning

Financial Governance

No reliance on Internal Audit

Full reliance on Internal Audit, team highly regarded.

21% increase in Final Reports since 2012/13

Financial Governance /

Financial Controls

Poor Financial Management

Rigorous financial management across a range

of complex issues

Audit embedded in transformation e.g. led Finance PM, drs, final accounts, SSTP, CTR

Financial Controls

No prompt payment scheme, PO

coverage < 50%

Prompt payments scheme - 90% coverage of POs

Planned audit reviews, financial systems focus

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Impact and Where we are now….Scale and Pace of Transformation in 4 Years

Financial Year

Submitted for

External Audit

Audit Opinion & Published Accounts

National Ranking

2008-09 30 June 2009, material errors End September 2009

Lower quartile performance

2009-10 27 May 2010, no material errors 31 August 2010 Top 6 Council &

1st Metropolitan Authority

2010-11 19 May 2011, no material errors 29 July 2011 1st Council (joint)

2011-12 3 May 2012, no material errors 25 June 2012 1st Local Government Body

2012-13 26 April 2012, no material errors 31 May 2013 1st Local Government Body

Ahead of > 40% of FTSE100

2013-14

(Planned)

22 April 2014, no material errors 28 May 2014 1st Local Government Body

Ahead of > 60% of FTSE100

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Scale and Pace of Transformation“World Class” 2015/16

• Transformation vehicle for cultural change• Audit support:

– Integrated Finance and HR system 2014– Self service to be implemented by 2015– Continuing close down timelines

• LEAN reviews continue for efficiency• Selling services to 3rd parties• Compete with the private sector• Future-proofed for anticipated changes

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Views of members and senior officers....

Leader of the Council, Jim McMahon:

“Strong corporate governance is the foundation of any successful council. Without this, little else can be achieved.”

Carolyn Wilkins, Chief Executive:

“The Finance Team in Oldham have driven significant improvement to governance and financial management across the Council. Members and Officers have clear and timely information and are able to  realistically plan the future rather than focusing on past outturn. This is essential to the success of the authority and the ability to play a strong active role in wider public service reform.”

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What our review bodies think...

Peer Review 24th October 2013: – “Financial management….highly effective, with a dramatic

improvement..”

DCLG 25th November 2013: – names Oldham as “best practice”– reports enhanced accountability to residents from earlier

publication of accounts– benefits of a future-focus rather than on the past

Audit Commission 12th December 2013: – only council to publish audited accounts in May since they

began collecting this information

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What the finance community thinks...

• CIPFA recognise the “… transformation programme which has delivered significant sustainable benefits in the form of improved financial rigour and long-term financial planning across the organisation…” Rob Whiteman – Chief Executive CIPFA

• “Congratulations to Oldham for being shortlisted for the Corporate Governance Award… The approach taken by Oldham, including clear communication of the Council’s priorities, allows us to effectively plan the annual audit well in advance of the year end.  Grant Thornton continues to be supportive of Oldham’s ambition and how it works to continuously improve.” Sarah Howard, Partner, Head of Public Sector Assurance, Grant Thornton

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Summary: Innovative Internal Audit is ....

Embedded in the culture

Supports the council agenda

Professionally collaborates to drive change

Technically and professionally compliant

Externally validated by a range of organisations:– DCLG, LGA, Audit Commission, CIPFA

Thank you and any questions?