audit committee - meetings, agendas, and minutes

AUDIT COMMITTEEAUDIT COMMITTEEAUDIT COMMITTEEAUDIT COMMITTEE

10.00 AM

ON

MONDAYMONDAYMONDAYMONDAY

18 APRIL 201118 APRIL 201118 APRIL 201118 APRIL 2011

IN

MEETING ROOM 1 - SHIRE HALL,

GLOUCESTER

MEETING PAPERS

Public Document Pack

Audit Committee

Monday 18 April 2011 10.00 am

Meeting Room 1 - Shire Hall, Gloucester

AGENDA

Item CONTACT

1 Apologies for Absence Andrea Griffiths Tel: 01452 425006

2 Declaration of Interest

Please refer to note 1 at the end of the agenda

Andrea Griffiths Tel: 01452 425006

3 Minutes (Pages 1 - 8)

(a) To consider any issues arising from the meeting held on 24th January 2011.

(b) To confirm and sign the minutes as a correct record.

Andrea Griffiths Tel: 01452 425006

4 Internal Audit Plan (Pages 9 - 34) Mark Spilsbury Tel: 01452 426127

5 External Audit Progress Report (Pages 35 - 48) Peter Barber

6 Reports on actions taken in relation to key issues (Pages 49 - 60)

(a) Domiciliary Care – Contract re-negotiation and the monitoring of

care provision – Presented by Mark Branton (b) School Deficit Budgets – Presented by Jo Grills (c) Major Transport Contracts – Presented by Philip Williams

Jo Grills, Mark Branton, Philip Williams

7 Certification of Claims and Returns - Annual Report 2009/10 (Pages 61 - 72)

Peter Barber

8 Effectiveness of the Audit Committee (Pages 73 - 92) Mark Spilsbury Tel: 01452 426127

9 IFRS - Restatement of opening balances (Pages 93 - 112) Mark Spilsbury Tel: 01452 426127

10 Audit & Inspection of Local Authorities (Pages 113 - 124)

The full consultation report referred to within the report relating to this item

can be accessed at

http://www.communities.gov.uk/documents/localgovernment/pdf/1876169.pdf

Mark Spilsbury Tel: 01452 426127

11 Accounts & Audit Regulations (Pages 125 - 130)

For information purposes: The full regulations can be accessed at http://www.legislation.gov.uk/uksi/2011/817/made/data.pdf

Mark Spilsbury Tel: 01452 426127

12 Annual Report of the Audit Committee (Pages 131 - 132)

Annual Report of the Audit Committee as prepared by the Chairman, for agreement prior to presentation to County Council

Cllr Philip McLellan

13 Date of next meeting

The next meeting will be held on 28th June 2011

Cllr Philip McLellan

The Audit Committee

Cllr Ron Allen, Cllr John Burgess, Cllr Gerald Dee, Cllr Philip McLellan (Chair), Cllr Mike Sztymiak and Cllr Brian Tipper

NOTES

1. DECLARATIONS OF INTEREST – Members requiring advice or clarification about whether to make a declaration of interest are invited to contact the Monitoring Officer (Nigel Roberts�01452 425201/fax: 426790/e-mail: [email protected]) prior to the start of the meeting.

2. INSPECTION OF PAPERS AND GENERAL QUERIES - If you wish to inspect Minutes or Reports relating to any item on this agenda or have any other general queries about the meeting, please contact: Andrea Griffiths, Democratic Services Officer �:01452 425006/fax: 425850/e-mail:[email protected]

3. GENERAL ARRANGEMENTS (a) Will Members please sign the attendance list.

(b) Please note that substitution arrangements are in place.

EVACUATION PROCEDURE - in the event of the fire alarms sounding during the meeting please leave as directed in a calm and orderly manner and go to the assembly point which is outside the main entrance to Shire Hall in Westgate Street. Please remain there and await further instructions.

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AUDIT COMMITTEE

MINUTES of the meeting of the Audit Committee held on Monday 24th January, 2011 commencing at 10.00 am.

PRESENT MEMBERSHIP:

Cllr Ron Allen Cllr John Burgess Cllr Gerald Dee

Cllr Philip McLellan (Chair) Cllr Mike Sztymiak Cllr Brian Tipper

Substitutes:

1. APOLOGIES FOR ABSENCE

2. MEMBERSHIP The chairman wished to recognise the valuable contribution Councillor Glanfield had made to this committee, his valuable knowledge would be sadly missed. The chairman also welcomed Councillor Ron Allen to the meeting.

3. DECLARATIONS OF INTEREST BOTH CLLR BURGRESS AND CLLR DEE DECLARED A PERSONAL NON-PREJUDICIAL INTEREST IN RESPECT OF THEM RECEIVING A LOCAL GOVERNMENT PENSION FROM GLOUCESTERSHIRE COUNTY COUNCIL. Both the Chairman and Cllr Mike Sztymiak declared a personal non-prejudicial interest in respect of them being a member of the Pensions Committee. It was duly noted that Cllr Sztymiak was employed by Capita.

4. MINUTES All matters arising had been dealt with and communicated to members of the committee.

Resolved

THAT PAGE 1, MINUTE 38, READ AS “RECEIVING A LOCAL GOVERNMENT PENSION FROM GLOUCESTERSHIRE COUNTY COUNCIL” AND WITH THIS AMENDMENT THE MINUTES OF THE MEETING HELD ON 22 SEPTEMBER 2010 BE SIGNED AS A CORRECT RECORD BY THE CHAIRMAN.

5. ANNUAL AUDIT LETTER - 2009/10 - GLOUCESTERSHIRE COUNTY COUNCIL

Agenda Item 3

Page 1

Minutes subject to their acceptance as a correct record at the next meeting

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Martin Robinson presented this report that summarised the findings from the 2009/10 audit. It included messages arising from the audit of the council’s financial statements and the results of the work that had been undertaken to assess the Council’s arrangements to secure value for money in its use of resources. The Auditor had given an unqualified opinion on the accounts and an unqualified value for money opinion. It was noted that a decision was still awaited with regard to whether Local Authorities would be a preferred creditor in the Icelandic Banks situation. RESOLVED THAT the report be noted.

6. AUDIT COMMISSION PROGRESS REPORT Peter Barber presented the regular update report showing work to be undertaken by the Audit Commission in relation to the Council and progress made on Audits already been undertaken. RESOLVED That the report be noted.

7. AUDIT COMMISSION UPDATE ON PLANNING FOR AN AGEING POPULATION REPORT Peter Barber presented the report. It was evident that Gloucestershire would have an increasing older population which would place increased financial pressure on the medium term financial strategies of public sector bodies involved. He explained that the proportion of older residents living in the county was high and was expected to increase at a faster rate than the national average over the next 20 years.

Members agreed there was a risk to Gloucestershire’s public services and the task of balancing the growing demand for services against financial constraints would be difficult. The report highlighted a number of challenges that were fundamental to ensure the future service delivery, thus making it effective and affordable in Gloucestershire. It was noted that the report had been shared with the Primary Care Trust and other partners. Mark Spilsbury explained there was currently a £1.5 million overspend and every effort was being made to reduce the deficit. As such a review team was being established to look individual cases and care packages on offer. As part of the ongoing review process, different panels would be established to ensure

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robustness and that the appropriate packages would be offered to the people who needed them. The committee felt that the report should be discussed in more detail by providers of the service, so that an informed response could be collated. After some discussion it was agreed that the report would be referred the Health & Overview Scrutiny Committee who would report back to the September 2011 Audit Committee. RESOLVED (i) That the Committee noted the report (ii) That the report would be referred to the Health & Overview Scrutiny

Committee, to report on responses received from care providers. (iii) That a report on the responses be submitted to the September 2011

Audit Committee

8. COMPLIANCE WITH INTERNATIONAL AUDITING STANDARDS Mark Spilsbury presented the report, he explained that in order to comply with International Auditing Standards the Audit Commission was required to obtain an understanding of how those charged with governance (the Audit Committee) exercised oversight of management processes for identifying and reporting the risk of fraud and possible breaches of internal control in respect of the Council and Gloucestershire Pension Fund.

RESOLVED

(i) That the Committee noted the report (ii) That a response would be collated on behalf of the Chairman and

emailed to him for approval.

9. AUDIT PLAN 2010/11 Martin Robinson, Audit Commission, presented the reports which informed the Committee of the audit work to be undertaken for the 2010/11 financial year for Gloucestershire County Council, the Gloucestershire Pension Fund and the fee involved.

It was explained that because the 2010/11 audit was not yet complete, the audit

planning process for 2011/12, including the risk assessment would continue as the year progressed and the fees would be reviewed and updated as necessary.

The total indicative fee for the audit for 2010/11 was £242,000 which was 1.9per

cent above the scale fee. It was reported this was due to additional audit work associated with the small number of County Councils with integrated fire services.

RESOLVED

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THAT the reports be noted.

10. INTERNAL AUDIT MONITORING REPORT Mark Spilsbury presented this report that provided the Committee with an update on key findings emanating from Internal Audit reports issued since the last audit monitoring report to the Committee. Members scrutinised the report content in detail and after some discussion it was agreed that the committee would request reports on the three areas where limited assurance had been given.

RESOLVED That the Committee (i) Notes the key findings. (ii) Notes the actions proposed in relation to the audits reported. (iii) Notes the overall progress made against the plan. (iv) Notes the changes made to the plan. (v) School Deficit Budgets – Director, Learning and Development (CYP)

report back to the Audit Committee in April 2011 on the progress made in relation to the actions being taken

(vi) External Care for Older People & Income Collection - A senior officer from CACD report back to the Audit Committee in June 2011 on the progress made in relation to the actions being taken

11. REPORT ON ACTIONS TAKEN IN RELATION TO KEY ISSUES (a) Complex needs (Social Care) Budget – CYPD Andy Ray, Head of Children in Care gave a detailed presentation of the report’s findings. He explained that since his appointment in June 2010 the system had undergone a review process and any care placements made had to be authorised by himself or a delegated officer in his absence. Members were informed that different cost options were now available for different rationales, and as such all children in care were reviewed on a regular basis to ensure their needs were being met. It was reported that in 2009/10 there was an overspend of £7 million, however as such significant improvements had been made, this was somewhat of a success story and there was no longer an overspend. Members were informed that a profile was sent to all service providers for costing, Andy explained that this ensured an appropriate match for the child’s needs, as it was not possible to sit in an office and make an informed judgment on a child, when they had never met them, as sometimes there needs were more specific.

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A panel made up of approximately 13 members from across the services, reviewed cases on a regular basis to ensure quality of care and consistency in the approach used. As such it was reported that there was now a £500,000 under spend. RESOLVED

That the report be noted (b) Information Security Dave Badham, Head of ICT and Heather Forbes, Head of Information Management & Archives presented the report which detailed action and progress made since April 2010. In response to a question, members were informed that the appropriate safeguards would be installed on photo copier hard drives as standard. So when a copier was due to be disposed off the appropriate deletion programme would be applied to wipe the hard drive of all data. RESOLVED

That the report be noted

12. MEETING THE CHALLENGE Andrew McCartney gave a verbal report to the committee. Members were interested to know what affect Meeting the Challenge may have on the Audit Plan.

RESOLVED

(i) That a verbal report would be given at the June Committee meeting, regarding the affects of Meeting the Challenge on the Audit Plan

(ii) It was also agreed that a report detailing Corporate Risk & Governance would be presented at the June committee meeting.

13. TREASURY MANAGEMENT STRATEGY 2011/12 Mark Spilsbury, Head of Finance, explained that the council had adopted the CIPFA Code of Practice for Treasury Management in Public Services which required an annual strategy in advance of the year to be prepared. The report provided gave details of the borrowing and lending activities that may take place during 2011/12. It was duly noted that this was a prudent strategy to follow given the financial constraints.

The Committee noted the revised treatment of the Icelandic Bank impairments as

outlined in the report.

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RESOLVED

THAT the Committee noted the Treasury Management Strategy for 2011/12.

14. DATE OF NEXT MEETING The Committee noted that its next meeting would take place on 18 April 2011.

CHAIRPERSON

Meeting concluded at 12:20

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Audit Committee 24 January 2011

Topic

Action

Responsibility

Progress

1 PLANNING FOR AN

AGEING POPULATION

REPORT

The report be referred to the Health & Overview

Scrutiny Committee, to report on responses received

from care providers.

Elizabeth Power

To be included on September

2011 agenda.

2 COMPLIANCE WITH

INTERNATIONAL

AUDITING STANDARDS

That a response would be collated on behalf of the

Chairman and emailed to him for approval.

Stephen W

ood

Completed

3 INTERNAL AUDIT

MONITORING REPORT

School Deficit Budgets - CYP report back to the

Audit Committee in April 2011 on the progress made

in relation to the actions being taken

External Care for Older People & Income Collection

- CACD report back to the Audit Committee in June

2011 on the progress made in relation to the actions

being taken

Jo Grills

Mark Branton

April 2011 Agenda

June 2011 Agenda

4 MEETING THE

CHALLENGE

That a verbal report would be given at the June

Committee m

eeting, regarding the effects of meeting

the challenge against the Audit Plan

It was also agreed that a report detailing C

orporate

Risk & G

overnance would be presented at the June

committee m

eeting.

Andrew McCartney

Stephen W

ood

June 2011 Agenda

June 2011 Agenda

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Audit Committee

18th April 2011

Internal Audit Work Plan – 2011/12

SUMMARY

This report provides the Committee with details of the Internal Audit Plan for 2011/12. CONTEXT

The Internal Audit plan is submitted to the Committee for approval, in its capacity as the Audit Committee for the Authority. COMMENTARY The plan has been formulated taking account of the key business risks, and following discussion with and/or feedback from :-

• The Corporate Management Team;

• Strategic Finance Director;

• Other Directors;

• The Meeting the Challenge Team; and

• External Audit. ACTION

To consider and approve the Internal Audit plan for 2011/12.

Contact Officers: Mark Spilsbury – Head of Finance – Tel 01452 426127 Pam Jell – Audit / Fraud Manager – Tel 01452 425919 Theresa Mortimer – Audit / Risk Manager – Tel 01452 427013

Agenda Item 4

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Introduction

This report details the work planned for the Internal Audit service within Gloucestershire County Council in 2011/12. The starting point for the plan was to establish the key strategic priorities of the Council and prepare an outline plan, which ensures that we cover the key risks associated with the achievement of those priorities, and provide independent assurance that those risks are being controlled effectively. The Council’s priorities as detailed with the Council Strategy 2011 - 2014 are as follows:

♦ Getting our own house in order

o The overall savings delivered through Meeting the Challenge

o Total funds generated through sale of assets

♦ Protecting Vulnerable People

o The percentage of social care clients being given control of their own budgets

o A reduction in children returning into the Child Protection system for a second or subsequent time

♦ Supporting Active Communities

o Total funding provided to community groups through our small grants scheme o The number of buildings transferred to community ownership

♦ Building a Sustainable County

o The number of potholes and road defects repaired o The reduction in the amount of waste going into landfill o An increase in the renewable energy generated from the Council’s estate over

the lifetime of this strategy o The reduction in carbon emissions from Council buildings and transport

Many of the key systems and processes within the authority impact on a number, or indeed all of these priorities, therefore the plan has been developed to reflect these priorities and to enable Internal Audit to provide an independent, objective opinion to the Council on the effectiveness of the control environment, comprising risk management, control and governance, in their achievement. The annual plan also reflects national and local circumstances, and specifically takes account the views of:

• The Corporate Management Team;

• The Strategic Finance Director;

• Other Directors who were consulted as part of the formulation of the annual internal audit plan;

• The Meeting the Challenge Team; and

• External Audit.

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In terms of the key national and local factors which have been taken into account during the formulation of the plan, the key factors are:-

• The Meeting the Challenge agenda, and particularly the importance of ensuring that there are robust governance arrangements to ensure the effective delivery of the required MtC savings whilst minimising service implications;

• The need to continue with a high level of coverage of key financial systems, as dictated by International Accounting Standards, and relied upon by the External Auditors;

• The requirement under Risk Based Internal Auditing (RBIA) for internal audit to be strategically and operationally linked to business risk and assurance frameworks;

• Internal Audit certification requirements;

• High risk budget areas, particularly in the context of underlying budget pressures experienced in 2010/11 and forecast for 2011/12 onwards;

• Contractual arrangements, in the context of the increasing movement towards a commissioning authority with increased partnership working; and

• The need to publish a control assurance statement (Annual Governance Statement), as required by the Accounts and Audit Regulations 2003 and the CIPFA Code of Practice for Internal Audit 2006.

In accordance with these key factors, the audit plan, as set out in Appendix A, directs more resources in 2011/12 to certain high priority areas, particularly aimed at :-

• Ensuring that adequate governance arrangements are in place, particularly in relation to “Meeting the Challenge” projects.

• Building on the audit work undertaken in 2011/12, at the request of senior management within the Community and Adult Care Directorate, to ensure that high risk areas receive audit coverage in 2011/12, including the implementation of personal budgets, direct payments to adults, home care contracts and top up payments to adults. This input, together with follow up reviews of the external care budget and service user contributions, will ensure that the controls operating in these high risk areas are robust and effective, providing assurance, as requested, to senior managers within the Directorate;

• Undertaking a detailed review of partnerships, shared services and third party governance arrangements;

• Directing school audit resources to an examination of the processes in place within deficit schools which are designed to deliver on budget recovery plans, and an examination of additional payments to Headteachers;

• Continuing to provide information management and security consultancy, at the direct request of senior management;

• Continuing to audit major financial systems on a cyclical basis in accordance with an agreed strategic plan (Appendix C); and

• Providing adequate resources for the identification and/or investigation of areas of suspected fraud.

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It should be noted that Internal Audit work very closely with the External Auditors in accordance with a Joint Working Agreement, under which the External Auditors rely on the work of Internal Audit in certain key areas, particularly the key Financial systems audits, and any audits which help to inform their Value for Money opinion which, in the case of the planned audits for 2011/12 are likely to include the effectiveness of governance arrangements regarding the Meeting the Challenge projects and all of the Commissioning audits. The plan is intended to be flexible. Whilst we intend to complete the majority of audits outlined here, there may be circumstances where we will have to amend the programme, e.g. when a major irregularity investigation is required or a specific project becomes a matter of priority/risk, or audit findings warrant the investment of increased time.

In order to monitor performance in relation to the 2011/12 plan, all suggested amendments to the plan, in terms of new or deleted audits, will be reported to the Audit Committee within the regular internal audit monitoring reports.

The detailed plan for 2011/12 is attached at Appendix A, from which it can be seen that the plan will be delivered using 1804 chargeable days input by just over 10 fte staff.

The plan provided at Appendix A, excludes non-chargeable audit time such as time spent on administration and developing the internal audit service, and a contingency provision for unplanned items.

The planned audits are all linked in to the key risks of the authority as contained in the Strategic and Operational Risk Registers. The Strategic Risks are cross referenced as per the examples below:-

SRR1 Strategic Risk Register 1 Finance SRR3 Strategic Risk Register 3 Partnerships SRR6 Strategic Risk Register 6 MtC - Programme SRR10.1 Strategic Risk Register 10.1 Safeguarding - Adults SRR10.2 Strategic Risk Register 10.2 Safeguarding - Children Detailed terms of reference will be drawn up for every audit and will be agreed with appropriate management at the commencement of each of the audits. However, in summary, the main audit areas included within the plan are detailed by audit category in Appendix B. Finally, to ensure that key financial systems are audited at an appropriate frequency, as dictated by International Accounting Standards, and relied upon by the External Auditors, a rolling 5 year strategic plan for such systems has been produced, which is provided at Appendix C to this report.

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APPENDIX A – 2011/12 - Internal Audit Plan

No Audit Area Priority Days

Link to Strategic Risk Registers (SRR)

A Strategic Finance

1 Key controls documentation / review High 15 SRR1

2 Bank Reconciliations (Main Accounts and Pensions)

High 15 SRR1

3 Payroll High 29 SRR1

4 Debtors High 22 SSR1

5 Management of LGPS High 10 SRR1

6 VAT High 10 SRR1

7 Consolidated invoices High 29 SRR1

8 Monitoring arrangements for receipt of Government Grants

High 15 SRR1

145

B Governance 9 Compliance with Financial Regulations,

Accounting Instructions, Budget Rules or Key Corporate Policies following the implementation of the NOM

High 33 SRR1 and SRR2

10 Review of Governance arrangements in respect of Commissioning


11 Code of Ethics and Business Principles High 20 SRR2

12 MtC Projects – Effectiveness of Governance arrangements (including the achievement of financial targets)


13 Impact on controls of new ways of working, including LEAN reviews.

High 23 SRR2

14 CRB processes in high risk areas High 20 SRR2

173

C Commissioning 15 Residual waste project High 20 SRR11

16 Transport for Social Care (Children’s Services)

Medium 15 SRR1 and SRR10.2

17 Pupil Referral service Medium 15 SRR1 and SRR10.2

18 Gloucester Language Immersion Centre Medium 15 SRR1

19 Contracts – Landfill High 15 SRR11

20 Major contracts – Order St. Johns High 35 SRR1 and SRR6

21 Major contracts – Brandon Trust High 35 SRR1 and SRR6

22 Risk transfer and Insurance cover in major contracts


23 Fire PFI – Contract - £40m High 26 SRR1

24 Review of Traffic Light Tender High 17 SRR1

208

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No Audit Area Priority Days


D Service Delivery

25 Compliance with general social care best

practice- Social Work Taskforce- caseload management.

Medium 22 SRR10.1

26 Implementation of Putting People First prog. High 35 SRR6

27 Direct Payments – Adults High 35 SRR1 and SRR10.1

28 Direct Payments – children with disabilities High 25 SRR1 and SRR10.2

29 Non payment of service user contributions/ write offs – Follow up

High 10 SRR1

30 Home Care Contracts High 23 SRR10.01

31 Top Up payments to Adults High 20 SRR1 and SRR10.1

32 External Care Review – Follow up High 20 SRR1 and SRR 10.1

33 School Deficit Budgets – Follow up High 5 SRR1

34 Capital receipts / disposal of properties High 18 SRR1 and SRR8

35 Concessionary Fares High 25 SRR1

36 BT Landlines Medium 15 SRR1

37 Discretionary payments to foster carers Medium 15 SRR1

38 Fire Workshops Medium 10 SRR!

39 Retained Firefighter fees Medium 14 SRR1

40 Mobile Phone Monitoring Usage Medium 5 SRR1

41 Supporting Active Communities – small grant scheme

Medium 12 SRR1

42 School audits

• Deficits schools

• Additional payments to Headteachers

High 83 SRR1

43 SEN Transport follow up review High 20 SRR1

412

E Partnerships/Shared Services 44 Review of Partnerships/Shared

Services/Third Party governance arrangements (including pooled budgets)


45 Information Management Shared Services (Children’s Services)


46 Management review of recycling credit claims from district councils (£3m) per annum

High 20 SRR11

73

F Corporate Value for Money Reviews 47 Appeals processes Medium 20 SRR2

20

G Internal Audit Certification 48 Carbon emissions data energy / fuel

emissions High 10 SRR12

49 Annual Governance Statement High 5 SRR2

50 Stroke Care Grant Medium 1 SRR1

51 Audit Certification Medium 10 SRR1

52 Former LSC Funding of Further Education Medium 10 SRR1

36

H Irregularity Work 53 Fraud investigation/detection (Contingency) High 120 SRR1

54 National Fraud Initiative High 56 SRR1

55 Fraud risk management High 15 SRR1

191

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Audit Area Priority Days


I Information Systems 56 BT Billing Data Network Service Medium 15 SRR8

SAP Specific

New Systems/Consultancy/Advice

57 Information Management /Security consultancy

High 50 SRR5

58 New projects (system acquisitions/implementation controls) – Integrated Children’s system

High 10 SRR8

59 ICT Consultancy, advice on risk and control Medium 30 SRR5 and SRR8

Technical Areas

60 Penetration testing, vulnerability scanning and internal health check.

High

20 SRR8

61 Transactional Website High 25 SRR8

62 Back up and restoration of systems applications, and data including ICT BCM arrangements

High 25 SRR8

63 Secure disposal of hardware/confidential waste


64 User Information Security Review High 20 SRR5

215

J Other

65 Provision of internal control/general advice Medium 48 SRR2

66 Audit Systems and processes review Medium 21 SRR2

67 Accounts and Audit Regulations Review of the Effectiveness of Internal Audit

High 10 SRR2

68 Audit Committee/Member reporting/CFO reporting/Planning / Head of Finance input

High 40 SRR2

69 External audit liaison High 7 SRR2

70 Internal Working Groups Medium 21 SRR2

71 External Auditing Groups Medium 9 SRR2

72 Benchmarking Medium 3

73 Recommendation Monitoring Medium 8

74 Contingency for unplanned and/or additional high priority/risk work and/or planned carry forward audits

High 164 SRR2

331

Total GCC Per Plan 1804

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APPENDIX B – Summary Scope for Main Audits

A Strategic Finance - 145 days Audits 1 to 8 1. Key controls documentation / review

The County Council’s external auditors are required to sign off the Annual Statement of Accounts. In order to do this they need to gain assurance that the financial information emanating from the main accounting system is accurate. Internal Audit will work with the Audit Commission on an annual basis to identify key financial systems where Internal Audit will provide the assurance that is required. Internal Audit will carry out walkthrough testing, in-house testing of manual controls, and testing of the effectiveness of the implementation of key controls. This allocation allows for Internal Audit to continue with this work in respect of both the 2010/11 accounts and the 2011/12 accounts. 2. Bank Reconciliations (Main Accounts and Pensions)

This is an audit of a key financial system. The balancing of accounting general ledger records to bank account statements must be undertaken at frequent and regular intervals in order to prove the integrity of financial systems. This audit will examine the bank reconciliation processes in operation to verify their accuracy, completeness, frequency and regularity. 3. Payroll

Staff costs make up a significant proportion of the County Council’s expenditure with over £400 million of staff related payments (42% of annual gross expenditure), including salaries, superannuation and national insurance payments, being made via the payroll system every year. As a result of the scale of payments made it is very important that this key financial system is audited on a regular basis. This audit will review a sample of the high risk processes that form part of the overall payroll system to ensure that risks are being identified and managed, and that adequate controls continue to operate in this very high risk area.

4. Debtors A key financial system, which controls the credit and cash income of the authority, to ensure that all income due is recognised, accounted for and collected in full and on a timely basis. The system is reviewed on a regular cyclical basis. This review will focus on ensuring that debtors are all raised on a timely basis and that there are robust follow up procedures for the collection of debt and adequate reporting of debts outstanding to the originating service areas and on the overall position to senior management.

5. Management of LGPS

The audit will utilise the assurance methodology produced by the County Auditors Network and endorsed by the Society of County Treasurers, which was designed to provide sources of assurance on the adequacy of governance and control arrangements in relation to fund management and custodian arrangements.

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Suitable sources of assurance will be obtained in order to provide adequate evidence to support the Statement on Internal Control in relation to the Pension Fund.

6. VAT

The County Council processes some £32m worth of VAT each year. It is essential that procedures for accounting for this are sound in order to minimise the risk of penalties and the Council’s tax liability. This audit will examine those processes.

7. Consolidated invoices The Council have contracts in place for advertising (Thirty Three), mobile phones (Vodafone), energy (West Mercia Supplies), agency staff (Comensura) and hotels (Capita). All of these bodies supply the Council with consolidated bills. This audit will review the system in place, in relation to a sample of these contracts, for authorisation and reconciliation of the invoices, and ensure that managers are able to understand and challenge charges made to their cost centres. 8. Monitoring Arrangements for receipt of Government Grants This audit will review the monitoring arrangements for the receipt of government grants ensuring that:

• a central register which identifies all sources of grant, the amounts and their expected frequencies is maintained;

• forecasting of expected levels of grant income, is accurate and complete;

• monitoring of the receipt of grant against the register and forecasts is undertaken; and

• that there is a formal procedure to follow up any discrepancies, trends, or unexpected patterns; including bringing such instances to the attention of senior finance managers.

B Governance - 173 days Audits 9 - 14 9. Compliance with Financial Regulations, Accounting Instructions, Budget Rules or

Key Corporate Policies following the implementation of the New Operating Model As the Council moves through a period of considerable change, with the implementation of the new operational model, the cessation of the traditional directorates, and downsizing in staff numbers, there is an increased risk that the underlying financial policies and procedures may not be adhered to. This review will test the level of compliance to these policies within the organisation. (The review of compliance in relation to commissioning will be undertaken as a separate piece of work, as detailed separately in this plan). This is a pure probity review which will undertake test checks to ensure that agreed control processes are being adhered to, particularly with regard to the ordering, receipt and payments of goods, and the authorisation of payroll changes, to ensure that rules and procedures set out in the accounting instructions covering these areas are being adhered too.

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10. Review of Governance arrangements in respect of Commissioning

Commissioning is the key vehicle through which to deliver timely quality services in a cost effective way. It is paramount that the Council procures all goods, works, and services in the most economic, efficient and effective way, and that the Council’s internal systems and processes that underpin sound procurement throughout the “procurement lifecycle” are robust, and have been disseminated/are accessible to all relevant staff. This review will look at the adequacy of the current internal arrangements, and planned arrangements under the new organisational model, i.e. regulatory governance, guidance, policies; documents etc, and undertake sample compliance testing to ascertain the level of adherence to these within the Council.

11. Code of Ethics and Business Principles

The purpose of a Code of Ethics and Business Principles is to give all stakeholders (i.e. Members, Staff, Volunteers, Third Parties) responsible for delivering services on behalf of the Council, guidance on how the Council and the public in general expects them to behave. If the Code is followed then the stakeholders should not find themselves in a situation where their conduct could create an impression of conflict of interest, pose a reputational risk to the Council or corruption in the minds of the public.

Compliance with the Code is an essential element in the Council’s success particularly during periods of significant change. This audit will review the adequacy of the guidance and frameworks in place and related mechanisms to manage and monitor ethical performance.

12. Meeting the Challenge Projects – Effectiveness of Governance arrangements (including the achievement of financial targets)

Following the issue of the financial settlement issued in January 2011, it is clear that GCC, in line with all other parts of the public sector, will experience significant reductions in funding levels going forward which will necessitate major changes to service delivery.

This is a challenge which involves the whole council and our partners across the public sector. To respond to this challenge, the 'Meeting the Challenge' programme was launched in September 2010 - a programme to change the way services are provided in Gloucestershire.

As Council resources become tighter, it is vital that we have effective portfolio, programme and project management in place, including robust financial monitoring and challenge, so that we can gain the most from our investment. It will also help to improve our capacity to manage change across the organisation and reduce the number of projects and programmes that fail.

The council has adopted the Office of Government Commerce approved Managing Successful Programmes (MSP) framework as the basis for our approach to programme and project management. A set of tools and guidance to help programme and project managers with their work have been developed.

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An approval process has been agreed for programmes and projects and the rules that programmes and projects need to adhere to are captured in eight minimum standards.

The purpose of this audit is to review the adequacy and effectiveness of the:

• Portfolio Office’s role in quality assuring MtC projects in terms of: § Milestones § Risks & issues § Project plans § Product documentation

• Current governance arrangements in place re: § Appropriate and robust management Information § Decision making § Adequate scrutiny

• Financial forecasting, costing and monitoring of MtC savings, ensuring that finance adopt an independent role in highlighting potential savings shortfalls as early as possible.

Following this review Internal Audit will make recommendations, as deemed appropriate, to enhance the existing arrangements, to enable the Council to efficiently and effectively achieve its MtC planned objectives. 13. Impact on controls of new ways of working, including LEAN reviews LEAN reviews, undertaken as part of the Meeting the Challenge Programme, concentrate on streamlining processes and procedures, eliminating unnecessary tasks and thereby delivering efficiencies. This allocation is to allow Internal Audit to input into these reviews to ensure that key controls are not taken out of systems which mitigate key risk exposures. 14. CRB processes in high risk areas Gloucestershire County Council employs around 17,000 staff. Getting the right staff in post is critical to the achievement of the Council’s strategic objectives. Vetting staff is a high-risk activity and, wherever appropriate, the risks should be minimised. Recruiting the “wrong” staff can involve exposure to various risks, particularly when working with the most vulnerable members of the community. These risks can be mitigated using a range of checks to vet the suitability of applicants and existing employees. This audit will review the effectiveness of the new CRB checking processes operating within the authority.

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C Commissioning - 208 days Audits 15 - 24 15. Residual Waste Project Gloucestershire County Council is engaged in procuring a major facility for the treatment of residual waste for the county for the next 25 years. Internal Audit will continue to review this former PFI project and challenge the processes and management as it moves through to the selection of the final tender stage and the signing of the contract. 16. Transport for Social Care (Children’s Services)

This audit will review transport arrangements for children in receipt of social care. It will not include Special Educational Needs (SEN) or Home to School transport. Currently the budget is held in the Children and Young People’s Directorate (CYPD). A mixture of voluntary drivers (through Cheltenham Voluntary Service) and taxis are used. The audit will include a review of the following:

• Whether there are any policies in place;

• How the services are procured;

• How transport is allocated;

• Whether the allocations are equitable; and

• How journeys are authorised.

17. Pupil Referral service GCC delegates funding to establishments who then use this to commission places and services for pupils. This can often be on a spot purchase basis rather than block purchasing and may result in poor value for money. This audit will review policies and procedures in place for commissioning and procurement to establish whether there is scope for GCC to procure more strategically, e.g. when pupils are excluded from school and/or educated by the Pupil Referral Service. 18. Gloucester Language Immersion Centre The project for the creation of a Language Immersion centre has been approved with funding from the DCSF (£5m), SWRDA (£780,850) and English Heritage (£180,850) and GCC Capital (£400,000). Once complete the centre will be operated by a newly constituted body formed by Gloucestershire Association of Secondary Heads (GASH), Gloucestershire Initial Teacher Training Partnership (GITEP), consortium of schools and colleges in the City of Gloucester (G15) and specialist Language Schools and International Awards Schools. This review will look at the risks to GCC associated with the project to ensure that they have been properly identified and are being appropriately managed. The review will include an examination of terms and conditions attached to grant funding.

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19. Contracts – Landfill

The County Council has a contract with Cory Environmental Gloucestershire Limited to provide waste management services at the two landfill sites. The contract value is in the region of £15m per annum. This audit will aim to confirm that the contractor is complying with the main terms and conditions of contract and that the payments made to them are correct.

20. Major contracts – Order of St. Johns The Gloucestershire Care Partnership (GCP) is a single purpose vehicle set up and funded by contributions from the Order of St John (OSJ) and the Bedford Pilgrims Housing Association (BPHA). The Partnership arrangement allows for OSJ to provide care under a sub let arrangement as it is to GCP that the County has let its former Elderly People’s Homes and with whom it has contracted the refurbishment of the properties under an agreed strategy. This review will look at the effectiveness of the current systems and processes in place for reconciling the financial payments for the provision of care under the terms of the contract.

21. Major contracts – Brandon Trust The Council currently contracts with Brandon Trust to provide care services to people with Learning Disabilities. It is a long term arrangement over the term of approximately 25 years, and payments made under the contract amount to approximately £11million per annum. This review will look at the effectiveness of the deliverables under the current contract in relation to the Council’s future business needs. 22. Risk transfer and Insurance cover in major contracts As the Council moves towards a commissioning model, it is imperative that the contractual arrangements consider and adequately reflect the risk transfer arrangements and insurance liabilities. This audit will review the following:

• To ascertain the level of Legal Services support in the development of the contract;

• To ascertain the level of input / consultation on specific clauses, indemnity limits, transfers of risk from the relevant experts;

• To review the amount of time given to experts to obtain their input prior to contracts being signed; and

• To ascertain the change management and monitoring arrangements relating to risk and insurance.

23. Fire PFI – Capital Build Contract - £40m In March 2008 Gloucestershire Fire & Rescue gained Government approval and outline funding approval through the Private Finance Initiative (PFI) to commence with a '£40 million project to build four new Community Fire Stations within Gloucester and Cheltenham and a Life Skills Centre. Following a lengthy bidding process, cabinet awarded Blue 3 (a consortium of contractors) with the Private Finance Initiative (PFI) contract.

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Following the recent final confirmation of the full award of the PFI credits, construction will take place during 2011 with the stations and Life Skills Centre planned to become operational between November 2011 and March 2012. This review will look at the contract monitoring arrangements during the construction phase of the project, and the proposed on-going monitoring arrangements. 24. Traffic Light Tender As a result of a complaint received by an unsuccessful tenderer into the evaluation process used for this tender, Internal Audit has been asked by senior management to undertake a review of the processes followed.

D Service Delivery - 412 days Audits 25 - 43 25. Compliance with general social care best practice – Social Work Taskforce –

caseload management The General Social Care Council Code of Practice for Employers of Social Care Workers sets down the responsibilities of employers in the regulation of social care workers. The code requires that employers adhere to the standards set out in their code, support social care workers in meeting their code and take appropriate action when workers do not meet expected standards of conduct. This review, included at the direct request of senior management within the Directorate, will look at the Council’s arrangements for compliance to the code. 26. Implementation of Putting People First Programme Putting People First is a nationwide change programme for adult social care which aims to give people more choice and control over their lives and will put them at the centre of the support services they require. This review will look at the effectiveness of the implementation of the PPF programme within the Council and how this is to be managed in the future as the initial programme team’s work comes to an end and the personalisation agenda is incorporated into the ongoing management of adult social care. 27. Direct Payments – Adults The aim of personal budgets is to give power to a person to decide the nature of their own support. Having a transparent allocation of money and the right to choose how this money is spent and managed is central to the personalisation agenda set out in the Putting People First national programme. The personal budget may be taken in the form of:

• A direct (cash) payment held directly by the person or where they lack capacity, by a suitable “person”;

• By way of an “account” held and managed by the Council in line with the person’s wishes to pay for community care services which are commissioned by the Council, or as an account placed with a third party (provider) and “called-off” by the user in direct negotiation with the provider; and

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• As a mixture of the above two.

This review will look at the effectiveness of the current governance, monitoring and risk management arrangements for direct payments, including an examination of the procedures in place which are designed to ensure that vulnerable adults are protected from potential financial mismanagement in this high risk area. 28. Direct Payments – Children with Disabilities A direct payment is money that the County Council gives to an individual to buy the services or equipment that they need following an assessment rather than providing or arranging the services or equipment. Parents of, or people with parental responsibility for, disabled children, are entitled to receive a direct payment for services to meet the child’s needs. The audit will review the decision making processes that are in place to agree and make direct payments for children with disabilities and how much of the decision making is or should be influenced by the parents. The audit will also examine whether the direct payments appear to be delivering value for money. 29. Non payment of service user contributions / write offs – Follow up

During 2010/11 we carried out a brief review to examine the area of non-payment of Service User Contributions as we had previously identified this as an area of risk. During the 2010/11 audit we concluded that there was a significant risk that not all income due from service users was being invoiced and collected. As a result we made two fundamental recommendations to address the weaknesses identified. As part of this year’s audit we will check that these recommendations have been fully implemented, the weaknesses addressed and identified increased income realised. 30. Home Care contracts The Council contracts with 14 external care providers under a Framework Agreement for domiciliary care services. These providers supply approximately 80% of the external domiciliary care service, and the Council also places “spot” contracts with up to as many as 55 other providers. This review will look at the adequacy of the current and future contract monitoring arrangements. 31. Top Up payments to Adults To undertake a review of the use of Local Authority “top ups” (the amount paid over and above the standard contract price), and extra payments for younger adults to ensure that these are being applied consistently and appropriately, and provide for best value.

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32. External Care Review Follow up The External Care Budget outturn for 2009/10 reported a £9.3 million overspend. During 2010/11 Internal Audit conducted a review of the reasons contributing to the current in-built budget problem, working with CACD management, and made a number of fundamental recommendations to strengthen further the control environment to address the weaknesses identified. Although significant improvements have been made, this follow-up review will look to establish whether all of the key recommendations made have now been fully addressed. The review will also examine the effectiveness going forward of the new panel procedures in financial monitoring arrangements. 33. School Deficit Budgets Follow up For 2010/11 there were 34 schools requiring Licensed Deficit Agreements (LDAs) totalling £5,044,000. The audit undertaken during 2010/11 examined the processes in place for identifying, monitoring and controlling school deficits, with particular reference to ensuring that all schools had entered into deficit agreements and had robust budget recovery plans in place. The audit also examined the monitoring and reporting arrangements in relation to recovery plans. As only limited assurance could be given over the control environment, the 2010/11 audit will be formally followed up during 2011/12 to ensure that the agreed recommendations have been implemented. 34. Capital receipts / disposal of properties During the course of the next four years it is planned that capital receipts in the order of £44m will be generated. Target receipts for 2011/12 are £10m. This audit will review the controls in the system for effecting such disposals, testing transactions on a sample basis, with the Authority’s disposal policy and legislative requirements. 35. Concessionary Fares The scheme introduced in 2006, provides free local bus travel for the over 60’s and eligible disabled people throughout England. In Gloucestershire, currently each district council operates a different scheme, which means eligibility varies from area to area. However, from April 2011, Gloucestershire County Council will take over the responsibility from the district councils to provide the concessionary fares service with a budget for 2011/12 of £5.9m. A concessionary fares policy is being prepared and a contract has been awarded with an external organisation to produce and issue the passes. This review will examine the arrangements for the management of the scheme and compliance with policy/eligibility criteria. It will also aim to provide assurance that the contract awarded to the external organisation has been let in compliance with EU Legislation and the Council’s Contract Standing Orders.

36. British Telecom landlines In 2010/11 Internal Audit reviewed payments made under the council’s mobile phone contract with Vodafone. This review will look at payments made to BT for landlines, it will include a review of charges made, monitoring of expenditure, reimbursement of private telephone call income and a review of the charging mechanism to see if this could be more cost effective.

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37. Discretionary Payments to foster carers The budget for discretionary payments to foster carers is in the region of £300,000. This audit will review the following areas:

• To ensure that there is a policy in place for making discretionary payments to foster carers;

• To ensure that payments made have not already been included in the fostering contracts and should therefore be borne by the foster carers;

• To ensure that the payments made are equitable;

• To establish the effectiveness of the authorisation of payment processes; and

• To establish the effectiveness of the budget management arrangements.

38. Fire & Rescue workshops The workshops are based in the Tri-Service building located at Waterwells. The Fleet presently consists of some 108 vehicles (69 Appliances and 39 vans and cars) plus 2 Hovercrafts, 2 Boats and 24 Contract Hire cars utilised personally by Uniformed Officers. The servicing of the appliance type vehicles is mainly undertaken in-house with the majority of the smaller vehicles serviced through the GCC contract with Ryder. This audit will review the:

• Control of stores;

• Ordering and receiving spares;

• Use of pool cars over hire cars;

• Use of demonstration vehicles;

• Emergency call out payments made to technicians;

• Use of the Fleet Management System (TRANMAN); and

• Purchasing & Sales of Fleet Vehicles.

39. Retained Fire-fighter fees Gloucestershire Fire & Rescue Service employs a group of 300 men and women who in addition to their normal jobs or careers, are on call in their free time or will respond to emergency calls from their place of employment. These individuals are paid a retaining fee of £2,116 to £2,821 per annum depending on experience, rank and length of time within the retained fire service. They are also paid for each incident attended and to attend the two hour weekly training sessions. The budget for the service is close to £2.4 m and this audit will review the arrangements for controlling how payments are made to the individuals within the retained fire service, and how performance / attendance is being monitored. 40. Mobile Phone Monitoring Usage Vodafone provide mobile phones for staff at GCC. Whilst the mobile phone policy allows staff to use their phones for private calls, they are required to reimburse the council for such usage. The Vodafone system allows Internal Audit to view reports of the most expensive calls made, the phones with the highest call charges and call charges incurred during evenings and weekends. Internal Audit use these reports to check compliance with policy.

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41. Supporting Active Communities – small grant scheme This audit will review the system of allocation and monitoring of this grant funding. 42. School audits In 2011/12 audit resources on school audits will be targeted at these two areas, with schools being selected for audit based on these criteria. The areas to be audited in relation to each area are summarised below:-

Deficit Schools

School deficit budgets are worsening both in terms of the number of schools setting deficit budgets as well as the cumulative value of deficit budgets set. Currently there are 51 schools in deficit.

In 2010/11 we reviewed how these deficits were monitored centrally and made recommendations to improve this process. This year as part of our regular programme of school audits we will focus on 20 schools in a deficit position reviewing the steps they are taking to address the situation at the school. In addition to individual reports to schools, which will be copied to CYPD Management, a composite report will be produced highlighting examples of best practice, for circulation to all schools in deficit positions.

Additional payments to Headteachers

Cases of additional payments being made to Headteachers will be identified centrally via payroll records. Where significant additional payments are identified, schools will be audited, with this area being covered. Discussions will take place at the schools to determine the reason for the additional payments and to ensure that the rules governing such payments, recently highlighted to schools, are being adhered to.

43. SEN Transport To undertake a follow up audit of procedures following an investigation into weaknesses identified in 2010/11.

E Partnership / Shared Services - 73 days Audits 44 - 46 44. Review of Partnerships/Shared Services/Third Party governance arrangements

(including the management of pooled budgets) The Council is now increasingly entering into a broad range of relationships across the public, private and third sectors. Many of these relationships will underpin the operations and future service delivery of the entire local authority. This way of working is much more than simply subcontracting or logistics management as services will be delivered in a completely different way. This raises a wide range of risks, opportunities and control issues, these include:

• Human resource issues;

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• Cultural differences;

• Communications between all parties;

• Technology;

• Funding arrangements and good financial management;

• Liability issues (including insurable risk);

• Crisis management;

• Assets (including intellectual assets);

• The impact on the control environment and potential gaps in obtaining the relevant assurances;

• Performance and risk management processes and attitudes;

• Legality and compliance; and

• Information management and security. This audit will review the adequacy of the governance frameworks that have been put in place i.e. clearly defined governance documents including delegated authorities and clearly defined roles and responsibilities in respect of key areas such as performance, financial and risk management arrangements. 45. Information Management Shared Services (Children’s Services) GCC works in partnership with the NHS. One of the areas that has been highlighted is record keeping across the partnership. Records need to be kept as evidence of decision making and service delivery and this includes appraisals and 121s. This audit will follow the trail of evidence and records that should be in place to support safe effective quality care. 46. Management review of recycling credit claims from district councils The six district councils (and to a much lesser extent – charitable organisations) receive payments from the County Council based on the amount of tonnage collected at the kerbside or from collection points, e.g. supermarket car parks and then sent to the recycling processing centres. For each tonne they will receive a payment of £47.17 costing the Council some £2.3m per annum. This audit will aim to provide assurance that the credits claimed by the organisations’ can be substantiated, and assess whether the checks made by the service to verify the numbers claimed are in place and operating effectively.

F Corporate Value for Money Reviews - 20 days Audit 47 47. Appeals processes The Appeals process covers areas such as transport, SEN tribunals, Home to School transport etc. This audit will review the following:

• The robustness of the appeals process;

• The effectiveness of the decision making processes;

• How successful appeals are authorised; and

• Scope for minimising additional transport costs emanating from successful appeals.

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G Internal Audit Certification - 36 days Audits 48 - 52 48. Carbon emissions data energy / fuel emissions The Carbon Reduction Commitment Energy Efficiency Scheme (CRC EES) came into force in April 2010 and aims to significantly reduce UK carbon emissions not covered by other pieces of legislation. CRC EES is a mandatory carbon emissions reporting and pricing scheme to cover all organisations using more than 6,000MWh per year of electricity (equivalent to an annual electricity bill of about £500,000). Participants in the CRC EES will need to measure and report their carbon emissions annually following a specific set of measurement rules with the first annual report of emissions due in July 2011. Starting in 2012, participants will buy allowances from Government each year to cover their emissions in the previous year which means that organisations that decrease their emissions can lower their costs under the CRC EES. This audit will review the methodology used to collect the sources of data, assess its accuracy and confirm this is in line with the agreed set of measurement rules.

49. Annual Governance Statement This allocation is to produce the 2010/11 Annual Governance Statement to be included with the annual accounts. 50. Stroke Care Grant Each local authority in England was allocated grant for each of the three years 2008/09 to 2010/11, ring fenced for the purpose of providing support services to stroke survivors and their carers. The funding is to help support the implementation of the National Stroke Strategy, within which high quality social care is recognised to be of fundamental importance. The allocation to Gloucestershire for 2010 - 11 was £114,000 and in accordance with the Department of Health requirement the final statement prepared by the Local Authority (at the end of each financial year), requires certification as correct by the LA’s Internal Audit section.

51. Audit Certification

This allocation is to allow for the formal Internal Audit certification of grant expenditure which may be required during 2011/2012.

52. Former LSC Funding of Further Education This audit, to be undertaken at the year end, will examine whether adequate checking procedures have been implemented to meet national guidelines following the transfer of responsibilities in this area from the former Learning and Skills Council to GCC. The audit will particularly concentrate on guidance issued regarding checking expected to verify the accuracy of sixth form funding (SSF). This assurance will be used to support the Grant Return that has to be submitted to the Young Peoples Learning Agency (YPLA).

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H Irregularity work – 191 days Audits 53 - 55 53. Fraud investigation / detection (Contingency) In recent years Internal Audit has developed considerable expertise in investigating cases of suspected irregularity. This contingency has been set aside in order to allow time to conduct these investigations, without impacting on the remainder of the audit plan. It is difficult to predict the number and complexity of this work. This year we have reduced the allocation to this contingency, however based on past experience if there are no major investigations then we anticipate that this contingency will be sufficient to enable staff to carry out both the investigations and some fraud detection work, focusing resources on areas where the risk of fraud is high. However if a major investigation takes place then we may have to revise the overall plan. 54. National Fraud Initiative The NFI is a national data matching exercise that compares records (payroll, pensions, care home residents, blue badge holders, insurance and creditors) for a wide range of local authorities and public bodies under the auspices of the Audit Commission (AC). The exercise is biannual; data was collected in October 2010 and matches were received in late January. The matches are individually investigated, with the outcome of the investigation being reported back on the NFI website. This allocation is to enable as many of the high (and in some cases medium) matches to be investigated and the findings reported back to the AC, in the areas which are felt to have the highest probability of delivering benefits to GCC, i.e. private residential care home matches, payroll matches, pensions matches, creditors matches and insurance claimants matches. In addition this allocation allows for the provision of information to District Councils following up possible housing benefit fraud.

Any suspected fraudulent activity could result in criminal or disciplinary proceedings.

55. Fraud risk management Good governance requires that the Council assess its counter fraud arrangements and performance against professional guidance, best practice and the findings of its own reviews; it strengthens its systems and procedures in response. The CIPFA Better Governance Forum has issued a guide recommending actions to be taken to counter fraud and corruption within an organisation.

This allocation is to undertake a self assessment against the guidance and following this assessment, to direct its counter fraud audit resources accordingly.

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I Information Systems – 215 days Audits 56 - 64 56. BT Billing Data Network Service The data network support budget is in the region of £1,000,000 of which the BT circuits account for around 50%. As the Council reduces in size, it is important that the BT One Bill for the data network circuit is managed effectively by Capita (formerly Sungard). This audit will review the processes in place to monitor and manage the BT One Bill to ensure that we do not pay for circuits that have been ceased. 57. Information Management / Security consultancy Information security is an essential component in facilitating efficient and effective service delivery, and protecting the Council’s reputation. A successful information security programme includes:

• Developing and maintaining security policies, and supporting standards, procedures, and guidelines;

• Assigning roles and responsibilities;

• Managing information security incidents; and

• Raising awareness, and educating users and managers about information security.

Recognising this the Council’s Interim Chief Information Officer enlisted additional information security expertise and support from Internal Audit (Principal IT Auditor), to update the Council’s Information Security Policy to take account of changes introduced by the Government, and to develop a framework of supporting policies, standards, procedures and guidelines. These will provide a basis for delivering information security council-wide, and integrating information security in to day-to-day operations. 58. New projects (system acquisitions / implementation controls) – Integrated

Children’s system Successful systems acquisition and implementation projects must have appropriate arrangements in place for: oversight by the project board/committee, including effective risk management, cost management, planning and dependency management, reporting, change control, requirements definition and software testing and implementation. This time allocation is for audit to provide advice and guidance, to officers involved in new system replacement projects, including the new Integrated Children’s system, and to highlight to management any audit concerns identified during the implementation process. 59. ICT Consultancy, advice on risk and control In view of the very fast pace of change in the areas of Information Technology, Information Systems and Information Security and increasing demand for associated knowledge and skills, this allocation has been included to provide advice to business managers, audit management and other auditors regarding issues that arise throughout the year.

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60. Penetration testing, vulnerability scanning and internal health check

As the size and complexity of the network grows, vulnerability testing should be one element of the Council’s overall security testing strategy, to provide assurance about the security of the Council’s network, and ensure due care for the protection of the Council’s information and infrastructure. This audit will review the arrangements in place to ensure regular vulnerability testing is undertaken, and appropriate controls are in place for reporting, risk assessment, and remediation. 61. Transactional Website

The implementation of a transactional website is one of the cross cutting “Meeting the Challenge” projects. This audit allocation is to provide advice in relation to this website and to ensure that adequate consideration is given to the security implications regarding the implementation of such a system, particularly security and confidentiality of data input and access controls. 62. Back up and restoration of systems applications, and data including ICT BCM

arrangements Business continuity planning is intended to minimise disruption to business critical systems from the effects of major failures or disasters. The Council is due to lose its recovery site (Hucclecote Centre) which is currently used for the secure storage of backup media. Also, the removable media policy requires all RESTRICTED information stored on removable media to be encrypted (this would include that on backup tapes). Currently data on backup tapes isn’t encrypted but are informed that compensating physical controls are in place. The audit will review the effectiveness of the controls put in place to respond to a major incident following the loss of the recovery site. 63. Secure disposal of hardware/confidential waste There has been a lot of work recently to ensure that personal/sensitive information on removable media is encrypted. However a proportion of the assets currently being disposed will not have encryption, the Council does not encrypt information on PCs, and equally as important is the process for disposal of confidential paper waste. Therefore this audit would review processes for secure disposal of information (i.e. hardware and paper), and would include looking at the processes for:

• return of assets to Capita SIS;

• Capita SIS receipt and storage of returned assets, and processes for hand over to the third party contracted to dispose of the Council’s hardware assets;

• The third parties processes/assurance processes; and

• The processes within the Council for the disposal of confidential paper waste.

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64. User Information Security Review

Following the information security policy development and dissemination, and user education/awareness it is important to ascertain the extent to which users understand their responsibilities e.g.

• Do users understand the differences between unclassified, protect, restricted and handling requirements?

• How do they protect information at work?

• How do they protect information when working remotely?

• How do they secure email? Questions generally designed to assess the extent to which people take personal responsibility for data.

J Other - 331 days Audits 65 - 74 65. Provision of internal control/general advice This allocation allows auditors to facilitate the provision of advice which is regularly requested by officers within the authority, including school based staff. 66. Audit Systems and processes review To ensure the Internal Audit function continually improves the quality of the service provided to the Council (in compliance with regulatory requirements), it is essential that internal audit’s own operational systems and processes are operating efficiently and effectively. Although each audit review is unique, for most engagements the audit process is similar and normally consists of four stages: Planning, Fieldwork, Audit Report, and Follow-up Review. Client involvement is critical at each stage of the audit process. One of Internal Audit’s key objectives is to minimise the time spent on pure systems and process, to enable the audit resources to be spent on its core function which is to provide independent objective assurance to members and management that the key risks which are material to the achievement of the Council’s objectives are being adequately controlled. This allocation is to review the current systems and processes in operation and streamlining them where deemed appropriate. 67. Accounts and Audit Regulations Review of the Effectiveness of Internal Audit Regulation 4(2) of the Accounts and Audit Regulations 2003, as amended by the Accounts and Audit (Amendment) (England) Regulations 2006 states that internal audit should conform to ‘proper practices’ and it is advised that proper practice for internal audit is set out in the Code of Practice for internal audit in local government in the UK published in 2006 by the Chartered Institute of Public Finance and Accountancy (CIPFA).

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The current regulations require the council to annually review the effectiveness of its system of internal audit. Clarification has previously been sought on the meaning of the term ‘system of internal audit’, as opposed to a review of the effectiveness of the internal audit function. CLG now recognises the confusion and proposes to clarify the requirement by requiring an annual review of the effectiveness of internal audit. This allocation is to undertake a self assessment against the Code of Practice in order to comply with the Accounts and Audit Regulations. 68. Audit Committee/Member reporting/CFO reporting/ Head of Finance input

This allocation covers member reporting procedures, mainly to the Audit Committee, plan formulation and monitoring, and regular reporting to and meeting with, the Chief Financial Officer. In addition this allocation includes the input from the Head of Finance into the delivery of the audit plan for 2011/12. 69. External audit liaison The External Audit Manager, the Chief Internal Auditor and the Internal Audit Managers regularly meet to discuss plans and audit findings, to ensure that a “managed audit” approach is followed in relation to the provision of internal and external audit services. 70. Internal Working Groups

Internal Audit is frequently asked to nominate representatives for working groups. 71. External Audit Groups Attendance / work in relation to the Midland Counties Chief Internal Auditors Group, the County Council Audit Network (national group) and the Midland Contract Auditing Group. 72. Benchmarking This allocation is to enable Internal Audit to take part in the annual CIPFA Benchmarking exercise. 73. Recommendation Monitoring This allocation allows Internal Audit to monitor the progress with implementation of fundamental recommendations. 74. Contingency for unplanned and/or additional high priority/risk work and/or

unplanned carry forward audits This allocation is to allow for the completion of various 2010/11 audits, which require the odd day to finalise in 2011/12 and hence are not restated in the plan and to allow for any unplanned or unforeseen work arising.

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APPENDIX C – Key Financial and Assurance Systems – Strategic Plan

Frequency 2009/10 2010/11 2011/12 2012/13 ASSURANCE STATEMENT WORK AND CORE / KEY SYSTEMS

Annual Governance Statement and CIA opinion - production / evidence file

1 year � � � �

Key Corporate Financial Systems

Key Controls Documentation and Review 1 year � � � �

Payroll 2 years � �

Creditors (incl duplicate payments) 2 years � �

Debtors 2 years � �

Debtors Write Offs 3/4 years �

Payment of Staff Expenses 2 years � �

Treasury Management 2 years � �

VAT 3 years �

Main Accounting System 3 years �

Bank Reconciliation – main account 2 years �

Pension system 2 years � �

Pension Fund – External Fund Managers 1 year � � � �

Bank Reconciliation – Pensions Bank Account

2 years �

Management of the capital programme 2 years � � �

Revenue budget monitoring and reporting 2 years �

Cash Receipting 3 years �

Procurement 2 years � �

Compliance with Accounting Instructions, Standing Orders, etc.

1 year � � � �

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External Audit Progress Report Gloucestershire County Council

Audit 2010/11

Agenda Item 5

Page 35

The Audit Commission is an independent watchdog,

driving economy, efficiency and effectiveness in local

public services to deliver better outcomes for everyone.

Our work across local government, health, housing,

community safety and fire and rescue services means

that we have a unique perspective. We promote value for

money for taxpayers, auditing the £200 billion spent by

11,000 local public bodies.

As a force for improvement, we work in partnership

to assess local public services and make practical

recommendations for promoting a better quality of life

for local people.

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Audit Commission External Audit Progress Report 1

Contents

Introduction ........................................................................................................2

Audit update - Gloucestershire County Council .............................................3

Interim Audit..................................................................................................4

Value for money conclusion..........................................................................4

International Financial Reporting Standards.................................................5

Audit Fees 2011/12.......................................................................................5

Audit update - Extra fee.....................................................................................7

Audit update - Gloucestershire Pension Fund................................................8

Interim Audit..................................................................................................8

Audit Fees 2011/12.......................................................................................9

Other matters of interest .................................................................................10

Contact details .................................................................................................11

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Introduction

1 The purpose of this paper is to provide the Audit Committee with a

report on progress in delivering our responsibilities as your external auditors

for both Gloucestershire County Council and Gloucestershire Pension Fund.

2 Progress since the last meeting is highlighted in italics.

3 This update also seeks to highlight key emerging national issues and

developments which may be of interest to the Council.

Martin Robinson

District Auditor

March 2011

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Audit update - Gloucestershire County Council

4 The fee for the 2010/11 Gloucestershire County Council audit was

agreed at the April 2010 meeting of the Audit Committee. The table below

outlines the planned outputs and, where appropriate, progress against the

plan.

Table 1: Planned outputs 2010/11 (update as at 29 March 2011)

Report Planned draft

report date or

deadline

Comments/Progress

Audit Fee Letter 30 April 2010 Finalised - Audit fee agreed at the

April 2010 Audit Committee meeting.

Building our Future (Phase

II)

31 December

2010

Removed from plan.

Audit Plan 31 January

2011

Finalised - Plan and presented at

the January 2011 Audit Committee

meeting

Interim Audit

memorandum (if required)

31 March 2011 Interim work progressing. There are

no significant issues arising to date.

See paragraphs 5-7.

Annual governance report 30 September

2011

Opinion on the financial

statements and value for

money (VFM) conclusion

30 September

2011

Work on VFM conclusion is

progressing. See paragraphs 8-10

for further details of work required for

the value for money conclusion.

Use of Resources

assessment (Fire)

30 September

2011

Removed from plan - no longer

needed

Use of Resources

assessment (Fire)

30 September

2011

Removed from plan - no longer

needed

Final accounts

memorandum (if required)

31 October

2011

Annual Audit Letter 30 November

2011

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Interim Audit

5 We started our 2010/11 opinion pre-statements audit work in December

2010. We identified the key financial systems feeding material entries in the

accounts and ensured that we understood how the Council initiates

transactions, records them in the information system, processes them

through the system into the general ledger and then reports them in the

financial statements.

6 We then tested a number of the key controls within the financial

systems, relying on Internal Audit work where possible. Internal Audit report

their findings to the Audit Committee for consideration. They are currently

undertaking testing on the payroll controls operating over starters and

leavers, an area of weakness reported to the Audit Committee last year. We

will update the Audit Committee on the results of this work at the next

meeting in June 2011.

7 Our review of the systems and controls to date has confirmed that key

controls are working as intended. We have not identified any significant

areas of weakness that we need to bring to the Council's attention at this

stage.

Value for money conclusion

8 As reported previously, we will no longer give a scored use of resources

(UoR) assessment of the Council's value for money arrangements.

However, we have a continuing statutory responsibility to give a conclusion

on whether councils have proper arrangements for securing value for

money (VFM).

9 We will give our conclusion for 2010/11 on the arrangements to secure

economy, efficiency and effectiveness in relation to:

securing financial resilience – focusing on whether the Council is

managing its financial risks to secure a stable financial position for the

foreseeable future; and

challenging how the Council secures economy, efficiency and

effectiveness – focusing on whether the Council is prioritising its

resources within tighter budgets and improving productivity and

efficiency.

10 We started our review by assessing your financial management

arrangements against a series of risk indicators being used by all Audit

Commission auditors. This will be supplemented by work to assess the

basis of the Council's latest medium term financial strategy and 2011/12

budget. In particular, we will assess and challenge the reasonableness of

the assumptions included with the 2011/12 budget and the robustness of

your savings plans.

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International Financial Reporting Standards

11 We have agreed to carry out an early review of the International

Financial Reporting Standards (IFRS) restated Balance Sheet at the 1st

April 2009 and 31st March 2010 and the Comprehensive Income and

Expenditure Statement for 2009/10 ahead of the main 2010/11 opinion

audit.

12 Our work to date has focused on the 1 April 2009 Balance Sheet

restatement and we have concluded that the Council has accounted for all

material restatement issues. Officers have produced clear working papers to

support the move to IFRS.

13 Officers recognise that there is still further work required to produce the

2010/11 financial statements, including:

completing the restatement of the 31 March 2010 Balance sheet and

the 2009/10 Comprehensive Income and expenditure Statement.

producing IFRS compliant accounting policies for approval by members;

producing disclosure notes to support the restated accounts to be used

as comparators in preparation of the 2010/11 accounts, in particular a

note on segmental reporting;

producing a cash flow statement to support the restated figures from the

2009/10 accounts; and

ensuring that component accounting is considered and implemented as

part of the 2010/11 accounts.

14 We intend to undertake additional testing on the IFRS re-stated

accounts following receipt of the remaining statements in early April 2011.

Audit Fees 2011/12

15 The Audit Commission began the consultation on the proposed work

programmes and scales of fees for 2011/12 on 10 December 2010.

16 This is significantly later than planned as, in setting scales of fees for

2011/12, the Audit Commission Board has had to agree with Communities

and Local Government (CLG) how any costs associated with the proposed

abolition the Audit Commission would be funded.

17 CLG has now provided assurances to the Audit Commission's Board

that it will meet any liabilities which the Audit Commission cannot meet from

its own reserves.

18 CLG is also working with the Audit Commission to develop the best

option for the future of the Audit Commission's pension scheme, which

protects members' accrued rights and delivers best value for taxpayers,

while also avoiding potential liabilities being crystallised.

19 Based on these assurances, the Audit Commission believes it does not

need to provide for these costs in setting audit fees for 2011/12. The

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proposed work programmes and scales of fees for 2011/12 therefore reflect

the Audit Commission’s original three year programme to deliver cost cuts

of about £70 million (or 30 per cent) and to lower fees from 2011/12.

20 The Audit Commission proposes to set the scale fee for each audited

body for 2011/12, rather than providing a scale fee with fixed and variable

elements. The scale fee reflects proposed decreases in the total audit fee,

taking account of the new approach to local VFM audit work, as follows:

no increase in 2011/12 for inflation for scales of audit fees;

a reduction in scale fees at county councils of 10 per cent;

21 The scale fee for Gloucestershire County Council for 2011/12 is

£217,800. This fee is based on the planned 2010/11 fee (£242,000),

adjusted for the proposals summarised above.

22 In the light of the Secretary of State’s announcement regarding the

proposed abolition of the Audit Commission, we cannot say anything at this

stage about audit fees beyond 2011/12.

23 The Audit Commission, with other stakeholders, is working with CLG to

help it develop its proposals for a new local public audit framework. The new

audit arrangements and their implications for audit fees, the timetable for

implementing them and any transitional arrangements that may need to be

put in place have yet to be determined. The new arrangements will need to

be reflected in legislation, which CLG is planning to introduce in 2011.

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Audit update - Extra fee

24 During the year additional work may be undertaken to enable us to

discharge our statutory responsibilities or as a result of requests for advice

and assistance from the Council. The table below provides details on any

current extra fee work being undertaken at the Council.

Table 2: Extra fee work 2010/11 (update as at 29 March 2011)

Area Fee to

date

Comments/Progress

Residual Waste Project -

Audit involvement in the

procurement process to

provide assurance on

audit based risks.

£3,517 Following announcement to

withdraw government funding the

Council is reconsidering its

options. We held a meeting with

the project group in November

2010 with the next meeting

planned for the 8 April 2011.

IFRS restatement £0 We will work with your finance

staff in early 2011 to review the

restatement of your 2009/10

financial statements as opening

balances for the 2010/11

statements. There will be no

additional charge for this extra

audit work.

25 We would welcome the opportunity to discuss with you or your

colleagues any other possible opportunities for extra-fee advisory work. We

have particular strengths in the areas of efficiency improvement, economic

development and governance.

26 The Audit Commission has recently developed a fraud briefing product

based on its recent publication 'Protecting the Public Purse'. It provides an

individual report for the Council, taking your own data and comparing it with

suitable others. You will get a tailored report including findings and

recommendations that will be presented to a future meeting of the Audit

Committee. The cost of the review is £4,000.

27 This work has recently been completed at a London Borough who have

given us permission for their report to be shared with interested councils. If

you are interested in knowing more about this offering a flyer along with the

London Borough report is available from Peter Barber your Audit Manager.

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Audit update - Gloucestershire Pension Fund

28 The fee for the 2010/11 Gloucestershire Pension Fund audit was

agreed at the June 2010 meeting of the Audit Committee. The table below

outlines the planned outputs and, where appropriate, progress against the

plan.

Table 3: Planned outputs 2010/11 (update as at 29 March 2011)

Report Planned draft

report date

Comments/Progress

Audit Fee Letter 30 June 2010 Finalised - Audit fee agreed at

the April 2010 Audit Committee

meeting.

Audit Plan 31 January

2011

Finalised - Plan agreed and

presented at the January 2011

Audit Committee meeting

Interim Audit

memorandum (if

required)

31 March

2011

Interim work progressing. There

are no significant issues arising

to date. See paragraphs 29-31.

Annual governance

report

30 September

2011

Opinion on the

financial statements

30 September

2011

Final accounts

memorandum (if

required)

31 October

2011

Interim Audit

29 As with the main County Council audit, we commenced our 2010/11

interim opinion audit visit in December 2010.

30 Due to the nature of the pension fund we seek to gain most of our

assurance from the post-statement substantive testing.

31 Our review of the systems has not identified any significant areas of

weakness that we need to bring to the Council's attention.

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Audit Fees 2011/12

32 As with the main County Council audit, we are now in a position to

provide you with our proposed audit fee for the Pension Fund audit for

2011/12.

33 The scale fee for Gloucestershire Pension Fund for 2011/12 is £39,000,

this compares with a planned 2010/11 fee of £39,000.

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Other matters of interest

34 We have previously advised you of the proposal of the Secretary of

State for Communities and Local Government (CLG) to abolish the Audit

Commission.

35 The proposed abolition will be from 2012/13 at the earliest and is

subject to the passage of legislation. Ministers have said that the

Commission’s Audit Practice is to be transferred to the private sector.

36 This represents an exciting opportunity for us. We are already exploring

a number of potential options, including mutualisation as an employee

owned partnership. We expect the proposed move to the private sector,

independent of Government, will provide us with a groundbreaking

opportunity to continue to thrive and develop our practice.

37 Throughout this process we will remain committed to providing excellent

service to our clients.

38 To help Ministers as they consider the options for transferring the

practice to the private sector, we are developing plans to form a mutual

business. Neil Childs, Director of Audit and Head of the Trust Practice, says:

“Mutualisation would enable us to continue to offer you a distinctive

alternative to the big firms. We will continue to provide you with unrivalled

expertise in public audit and advisory services, focused on the challenges

you face, at competitive fees”.

39 We expect Ministers to make a decision in principle over the exact form

of the transfer of the audit practice to the private sector in 2011.

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Contact details

40 If you would like further information on any items in this briefing, please

feel free to contact either your District Auditor or Audit Manager.

41 Alternatively, all Audit Commission reports - and a wealth of other

material - can be found on our website: www.audit-commission.gov.uk

Martin Robinson, District Auditor

0844 798 3709

07799 478389

[email protected]

Peter Barber, Audit Manager

0844 798 8758

07970 245367

[email protected]

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1

Audit Committee

18th April 2011

Title of Report Monitoring the Provision of Domiciliary Care

Purpose of Report

To update the Committee on the work to be undertaken to re-let all of the Council’s contracts in this area and the interim measures taken by the Quality Assurance Team within the Community and Adult Care Directorate (CACD) to strengthen monitoring arrangements.

Recommendations

That the report is noted.

Officers

Mark Branton; Director of Strategic Commissioning and Performance; Tel (01452) 425105 e-mail: [email protected]

Main Report Contents

At the September 2010 Audit Committee it was agreed that Internal Audit will work alongside management within CACD, providing advice and guidance to strengthen the internal control environment for this area, and assist in the development of improved performance monitoring arrangements for implementation as part of the new contractual arrangements. Discussions took place soon after the Committee meeting between Internal Audit and Commissioning staff within CACD as to how these requirements would be addressed within what was at the time the presumed re-tendering of the contracts with effect from April 2011, with implementation between October and December 2011. The intention at the meeting was in part to base the contracting process on the outcome of discussions taking place at that time regarding the delivery of the CACD Cost Reduction Plan. However running concurrent with these discussions the Directorate has also been as part of REIP funded regional commissioning initiative which has been modelling an approach based on good practice both regionally and locally, which aims to:

• Enable a greater number of people to be maintained to live independently rather than access residential care;

• Support the approach through a “hub and spoke” model of extra care and virtual or community based extra care;

• Combine care and support provision into a single procurement process;

Agenda Item 6

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• Enable more frequent reviews of service provided and ensure enhanced monitoring of delivery and service outcomes;

• Reduce the requirement to use specialist services outside of the main contractual requirements.

The business case for this approach in outline form was used to underpin elements of the Meeting the Challenge savings projects with a combined potential impact of circa £8 million per annum. Clearly this is a considerable potential gain and one that will require both effective stakeholder engagement to ensure all partners can and will contribute to its delivery and time to develop the right procurement process to ensure all of the benefits are realised. This is particularly the case as the approach pursued will also need to enable the growth and utilisation of personal budgets. The detailed business case is intended to be signed off by mid April with an expected timescale of a report on the process to be followed to the Cabinet in October/November 2011, contracts awarded March/April 2012 and implementation from October 2012. Recognising that this timescale was longer than originally envisaged CACD have as an interim approach (albeit one that aspects of which we would expect to continue into the future) sought to develop the role of the Quality Assurance Team (QAT) and contract monitoring arrangements. The QAT have developed a programme that a) reviews the whole service provision of individual organisations b) collects and evaluates key performance indicators in 5 areas of service provision c) monitors business levels on a monthly basis. The service review programme is an annual rolling one in which all service providers will be subject to an in depth review that looks at all areas of the business commissioned by Gloucestershire County Council. Through the development of a quality assurance framework (QAF), the service review looks in depth at 7 key areas of service provision. The framework is continually evolving as the team develop their skills and expertise to enhance the framework to evidence and validate that the service is meeting both the essential standards of quality and safety and providing a service to the standards expected within the contract terms. At each review a number of local authority funded service users and staff files are audited. The seven key areas of the QAF are outlined below:- 1. Personalised Care, treatment and Support. This is split into 6 sub sections that ensure

care plans are generated from a comprehensive needs assessment, drawn up with each Service User, appropriately completed and provides the basis for the care to be delivered. That the Care Plan reflects the service users’ needs, goals and aspirations and is outcome focused and that carers ensure that the Service Users’ dignity is a priority.

2. Safeguarding. This is split into 7 sub sections that ensure a Safeguarding Policy and

procedure is in place which works within the GCC multi agency approach. It also includes measures such a code of conduct or professional boundaries policy is in place which addresses gifts, gratuities, will beneficiary and appropriate personal contact and that all staff have undertaken safeguarding training which is in accordance

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3

with the Gloucestershire model and that there is a whistle blowing policy in place and all staff are aware of their responsibility to raise concerns of bad practice.

3. Organisational Management and Staffing. This is split into 14 sub sections that includes validation that there is a clearly defined management structure in place which includes the lines of accountability and reflects the size of the agency; that there is a well managed staff rota which enables minimum disruption to the service; effective staff supervision is conducted including at least once a year one of the supervision meetings incorporating direct observation of the care worker providing care to a Service User. It also ensures that the manager is aware of their role and responsibility to work within CQC regulations and the Proprietor is aware of his/her responsibilities and displays the CQC registration certificate.

4. Quality Assurance and Service User Empowerment. This is split into 6 sub sections that demonstrate the provider can evidence the documents that are contained in the Service User Guide which is held in the service users’ homes and there is a documented process for consulting with Service Users and their carers about the care which includes at least one visit per year to all service users undertaken by a supervisor or manager, combined with a review of the Care Plan.

5. Medication. This is split into 3 sub sections that validates the organisation has a Medication Policy and Procedure that is in accordance with current legislation and adheres to GCC Policy. All Medication notes are up to date and match the details within the Care Plan and lastly that there is a clear protocol in place for any refusal by the Service User to take prescribed.

6. Health and Safety. This section is split into 4 sub sections. The organisation has to evidence that they have a health and safety policy is in place which addresses all elements of safe working practices. That there is a clear process in place for “no response” or “refused entry. That all staff are trained appropriately to use the equipment in situ, that the equipment conform to the risk assessment and care plan, that staff know to raise concerns in a timely manner when they have identified any concerns around the safety of equipment and lastly the organisation has a policy and procedure regarding cleanliness and infection control.

7. Specific Focus. This section details any CQC “compliance actions plans” that the Organisation is currently working on completing. It will also include information, observations and comments that the professionals will have contacted the QAT regarding the individual organisation.

Following the service review site visit and subsequent review report, the service provider will agree a performance improvement plan (PIP) with their assigned review officer. The PIP will clearly outline the requirements, actions and timescales the service provider will need to make to meet the standards of the QAF. Should any organisation fail to complete within the timescales agreed, the PIP will be escalated to the Quality Assurance Manager and at this point discussions with relevant stakeholders will be held and recommendations which could include the service being decommissioned will be made. In addition to this framework we have also enhanced the approach taken to more detailed contract monitoring albeit within very limited resources. The contract monitoring officers

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4

now collect desk top information to collate factors that will contribute to the provider performance. Each contracted provider submits KPI reports on a monthly basis. The indicators are divided into 5 areas:- 1. Total number of calls made in a period 2. Total number of missed calls

(Where the difference between 1 & 2 in percentage value gives a base line tolerance - anything above this figure will be investigated with the provider as to the reasons why.)

3. Complaints received, resolved or still outstanding. The team will monitor the numbers

and will complete spot audits to evidence themes or trends in complaints. 4. Number of staff recruited / resigned. If business is increasing, the number of staff

recruited should also increase in line with this figure including a management structure to accommodate all growth. Consistent resignation figures may not be investigated, anything over and above the organisations average will be.

5. Number of service users. This information is reconciled against CACD internal info

systems. Biannually, the contract monitoring team create a current service user report for each service provider to reconcile and identify inaccuracies for cases closed and hours commissioned. The returned information is forwarded to Operational teams to manage data entry.

Any concerns taken from the above KPI’s are escalated to the Quality Assurance Manager to take forward with the Service Provider and other relevant stakeholders. The QAT are also developing a risk rag (red, amber, green principle) register that takes a range of information from multiple sources. The original concept was based on information taken from CQC including the quality ratings, services falling into a poor rating immediately fell into “red”. With the change in legislation, CQC stopped awarding quality ratings in June 2010, thus the information used is still in a period of transition. Once the register is fully developed, information will be sorted into relevant sub sets that will determine a traffic light warning indicator. Any indicators that fall into “amber” will instigate an investigation as would red indicators where a review of the potential need for a suspension of all business will also be triggered. The senior Contracts Monitoring Officer investigates all complaints relating to contracted domiciliary care, where the complaint is upheld, the service provider will need to ensure that where applicable relevant actions and practice changes are managed into the service provision to an agreed timescale. Although the above actions do not address all of the issues previously raised by Internal Audit they do represent a significant improvement through the targeted and systematic use of the small group of people available. Other measures will be addressed through the revised contracting arrangements referred to. Recommendations

That the report is noted.

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Audit Committee

18th April 2011

Title of Report Actions taken in relations to key issues: School Deficit Budgets

Purpose of Report

To update the committee on actions taken in response to the GCC Internal Audit Report: Systems for Monitoring and Controlling School Deficit Budgets, October 2010

Recommendations

That the committee notes the report

Officers

Jo Grills Director of Learning and Development

1. Background

The number of schools in deficit rose from 25 at the end of 2008/09 (totalling £2.1m)

to 34 at the end of 2009/10 (totalling £3.1m). 50 schools are currently projecting

deficits on their Governors’ Budget Plan (totalling £4.9m)

It is the responsibility of Governors to set a balanced budget and, if the school is

forecasting a deficit, to take rapid and decisive action.

In October 2010, GCC Internal Audit published a report examining the council’s

process for identifying, monitoring and controlling school deficits. The report

recommended more robust monitoring of Recovery Plans and an increased level of

support and challenge.

Audit Recommendations included:

• Consideration of replacing the £10k threshold for a Licensed Deficit

Agreement (LDA) with an appropriate percentage figure that considers the

size of the school in relation to the school’s income

• Development of a more robust process for signing of Recovery Plans and

LDAs and for ongoing monitoring and challenge by all relevant local authority

officers, including HR

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• Consideration of increasing capacity from existing central resources and/or

making proposals to the Schools’ Forum to provide further funding for

increased support and challenge for schools

• Presentation of a structured report on schools’ deficits at every meeting of the

Schools’ Forum

2. Actions taken in response to Audit Recommendations:

2.1 Introduction of a new process

Officers have devised a rigorous process for dealing with schools’ deficit budgets

(see Appendix 1).

The most significant changes are:

• Monthly meetings of a Deficit Scrutiny Group of officers, chaired by the

Director of Learning and Development, and attended by key officers from the

Schools’ Finance Team, Targeted School Intervention and Human

Resources.

• Strengthening monitoring, challenge and support in shools where one of the

following applies:

o The deficit (planned or actual) is greater than 10% of its Governors’

Budget Plan (GBP) planned revenue income, or over £150,000

o The deficit is caused by a downward movement in the school’s

revenues balance that is greater than 10% of its GBP planned revenue

income or more than £150,000

• The requirement that all schools predicting a deficit budget submit a Recovery

Plan alongside their Governors’ Budget Plan

• Replacing the term “Licensed Deficit Agreement” with “Deficit Repayment

Agreement”

• Clarification of the intervention powers the local authority will employ if

governors refuse to submit a Recovery Plan or make inadequate progress in

implementing the Recovery Plan

2.2 Discussion at the Schools’ Forum on 26 January, 2011

The Forum endorsed the new process and agreed to support the allocation of

£500,000 to increase the challenge and support for schools in deficit. The Forum has

agreed to receive reports on school deficits at each of their meetings with effect from

2 March 2011

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2.3 Implementation of the new process

The new process has been publicised to schools but will not be fully operational

until the start of the new financial year. However, four meetings have already

taken place with headteachers and Chairs of Governors of schools who have

refused to submit a Recovery Plan. These have had an immediate impact, for

example the Chair of Governors of a large Secondary school had been unaware

of the school’s financial position and has since taken robust action. The Vice

Chair of Governors of a very small primary school had not been fully aware of the

financial impact of a decision to reduce the teaching load of the headteacher to

one day a week. This is now being addressed.

Project groups have been established where schools need increased support.

HR, Financial and Curriculum expertise have been made available.

Recommendations

That the committee notes the report

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Appendix 1

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Update on actions taken in relation to key recommendations made in the September 2011 audit report relating to Major Transport Contracts. Lead Officer: Nigel Riglar / Philip Williams Action taken by ITU as at 8th April 2011 (actions since September 2011 are shown in italics) 1. Measures Taken to Give Procurement the Right Management

Responsibility

• In September 2009 the ITU created a new management structure, including the appointment of a Procurement Manager and the departure of the Operations and Procurement Manager – no further action required.

• The appointment has given the unit a far greater focus and profile in relation to Procurement and compliance with regulations

• Procurement Manager has the authority to oversee all ITU Procurement activity with a view to early intervention to ensure full compliance and offer guidance in delivering procurement savings

2. Measures to Develop the Right Procurement Competencies

• Procurement working group formed in November 2009 to review all ITU Procurement activity – ITU, Strategic Procurement and Legal Services officers meet at least monthly to plan and review implementation of new procurement processes.

• ITU Procurement team attended EU Procurement Training funded by the SW RIEP – additional negotiation training held.

3. Steps to Improve Processes

• OJEU Notices published for all contracts over EU threshold (£156,442), and where several smaller contracts are being tendered and aggregated spend value exceeds threshold – being done

• Tenders are now out to the market for the prescribed minimum 40 day period – being done

• Revised Alcatel standstill notices introduced – being done

• OJEU contract award notices issued – being done

• Standing list of operators replaced by EU Open Tender Approach – being done

• Only contracts shown on contract programme are permitted to be let – being done

• Contracts programme monitored at weekly meetings on the ITU Information Centre – being done

• Desire to create framework contracts, working with Strategic Procurement/Legal to deliver – Specialist Transport framework introduced in March 2011 using the Due North e-procurement suite and supplier training carried out; Public Transport framework due to go live in May 2011, supplier training being arranged;

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• Frameworks offer: o Reduced volume of tendering and administration o Reduction in end to end lead times o Increased flexibility o Improved quality control o Strengthens the councils contracting position

• ITU supporting Strategic Procurement to implement Due North e-procurement suite. This will provide a clear audit trail for all procurement activates and prevent non-compliant procurement. – implemented March 2011.

• All ITU procurement processes mapped and displayed on ITU Procurement Information Centre. - finalising revised process maps for procurement through frameworks, including staff training sign off.

Background Summary (extract from Sept 2011 committee report)

The audit identified a number of concerns relating to non-compliance to EU legislation and Contract Standing Orders under the current tendering processes being operated within the ITU, especially where the individual contract is in excess of the EU procurement threshold for services (i.e. £156,442). In particular:

OJEU notices

In accordance with EU Legislation service contracts over the EU procurement threshold should be advertised in the Official Journal of European Union (OJEU). This is reinforced within the Council’s Contract Standing Orders which stipulates this will apply to such contracts over a value of £140,000.

Whilst for some high value contracts (e.g. Park & Ride services) a specific advert would be placed at the commencement of the procurement, a different approach is taken for the procurement of an operator to run the service on a more general route. For these contracts, the established practice is to rely on the publication of an annual generic notice within the OJEU rather than to submit a notice for each contract to be awarded when the individual contract falls due for renewal. It is considered that the generic annual notice is unlikely to fulfil the Council’s obligations under the new Regulations.

Tendering under a “Restricted” Procedure

For the contracts in excess of the threshold, the ITU use the “Restricted Procedure” and in this legislation places additional requirements on the Council by stipulating the minimum periods that must be allowed between specific stages of the process. We found that in practice a number of these requirements were not being followed:

1. A minimum period of 35 days should be allowed between when the Invitation to Tender is published (on GCC Website) to the deadline for the receipt of the Tender Submissions. The ITU only allows a maximum of 21 days for this part of the process.

2. A contract award notice should be published within the OJEU as soon as possible (but no later than 48 days) after the award of the contract. The ITU do not undertake this part of the process.

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New Remedies - “Ineffectiveness”

Once a contracting authority decides to whom it intends to award a contract, it then has to notify all of the bidders of its decision using “the most rapid means of communication practical”. This is the so called stand-still (Alcatel) period where bidders who have not been selected have an opportunity to raise complaints about the way the evaluation criteria have been applied.

A key change under the New Remedies effective from December 2009 is the ability to apply ‘ineffectiveness’ whereby the courts may set aside contracts which have been entered into up to six months after contract signature. This is considered particularly relevant where the alcatel requirements have not been adequately complied with.

Consequently, under the New Remedies regime the alcatel notice, what it contains, who it is served on and when it is served becomes increasingly important and must include more information up-front. In particular it should set out the reasons for the decision, the relative scores and the characteristics as well as the relative advantages of the winning bid.

Whilst the notice issued by the ITU makes some reference to the Quality Assessment that is included in the tendering process, the wording needs to be further strengthened as it does not make any reference to the:

• “Standstill Period” or when this period is expected to end or the date before which the authority will not enter into the contract.

• Characteristics/disadvantages of the respective unsuccessful operators bid when compared to the winning bid.

• Comparison scores. Note: ITU state that the initial advice they received from Legal Services was that this element was not required and as such was omitted.

Internal Audit Recommendation Given the number of concerns identified, it was decided to make one generic recommendation. This being that:

• The ITU work with Strategic Procurement / Legal Services to review and amend existing practice / administrative procedures to ensure compliance with EU legislation and GCC regulations.

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Certification of claims and returns - annual reportGloucestershire County Council

Audit 2009/10

Agenda Item 7

Page 61

The Audit Commission is an independent watchdog,

driving economy, efficiency and effectiveness in local

public services to deliver better outcomes for everyone.

Our work across local government, health, housing,

community safety and fire and rescue services means

that we have a unique perspective. We promote value for

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11,000 local public bodies.

As a force for improvement, we work in partnership

to assess local public services and make practical

recommendations for promoting a better quality of life

for local people.

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Contents

Summary.............................................................................................................2

Certification of claims....................................................................................2

Findings ........................................................................................................2

Certification fees ...........................................................................................3

Background ........................................................................................................4

Findings ..............................................................................................................5

Teachers' Pension Claim..............................................................................5

General Sure Start grant claim .....................................................................5

School-Centred Initial Teacher Training (SCITT) claim ................................6

Appendix 1 Summary of 2009/10 certified claims..........................................8

Appendix 2 Action plan ....................................................................................9

Audit Commission Certification of claims and returns - annual report 1

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Summary

Funding from government grant-paying departments is

an important income stream for the Council. The

Council needs to manage claiming this income

carefully. It needs to prove to the auditors that it has

met the conditions which attach to these grants.

This report summarises the findings from certifying

2009/10 claims. It includes the messages arising from

my assessment of your arrangements for preparing

claims and returns and information on claims that we

amended or qualified.

Certification of claims

1 Gloucestershire County Council receives more than £477 million of

grant funding from various grant paying departments. The grant paying

departments attach conditions to these grants. The Council must show that

it has met these conditions. If the Council cannot evidence this, the funding

can be at risk. It is therefore important the Council manages certification

work properly and can prove to us, as auditors the relevant conditions have

been met.

2 In 2009/10, my audit team certified four claims with a total value of

£58 million. Of these, we carried out no limited reviews of claims and a full

review of three claims. (Paragraph 9 explains the difference.) We amended

two claims for errors. Appendix 1 sets out a full summary.

Findings

3 I have concluded that Gloucestershire County Council has good

arrangements in place to compile complete, accurate and timely claims and

returns for audit certification.

4 I found several errors on the School Centred Initial Teacher Training

(SCITT) claim presented for audit. There was also an initial reluctance by

the accountancy firm that had prepared the claim for the Gloucestershire

Initial Teacher Education Partnership (GITEP) to amend the claim. Although

these amendments have now been made scope exists to clarify respective

roles and responsibilities to ensure a smoother audit in future years.


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Certification fees

5 The fees I charged for grant certification work in 2009/10 were £14,954

against an estimated fee of £15,800.

Table 1: Breakdown of certification fees

Grant 2008/09 2009/10

Teachers Pensions return £3,027 £6,038

General sure start grant claim £1,999 £3,573

School centred initial teacher training

claim

£3,493 £5,343

Land stabilisation claim £1,090 £0


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Background

6 The Council claims money for specific activities from grant paying

departments. As this is significant to the Council’s income it is important that

this is managed properly. In particular this means:

an acceptable control environment over each claim and return; and

ensuring the Council can evidence that it has met the conditions

attached to each claim.

7 I am required by section 28 of the Audit Commission Act 1998 to certify

some claims and returns for grants or subsidies paid by the government

departments and public bodies to Gloucestershire County Council. I charge

a fee to cover the full cost of certifying claims. The fee depends on the work

required to certify each claim or return.

8 The Council is responsible for compiling grant claims and returns

following the requirements and timescale set by the grant paying

departments.

9 The key features of the current arrangements are as follows.

For claims and returns below £125,000 the Commission does not certify

arrangements.

For claims and returns between £125,000 and £500,000, auditors

undertake limited tests to agree form entries to underlying records, but

do not undertake any testing of eligibility of expenditure.

For claims and returns over £500,000 auditors assess the control

environment for the preparation of the claim or return to decide whether

they can place reliance on it. Where reliance is placed on the control

environment, auditors undertake limited tests to agree from entries to

underlying records but do not undertake any testing of the eligibility of

expenditure or data. Where reliance cannot be placed on the control

environment, auditors undertake all the tests in the certification

instruction and use their assessment of the control environment to

inform decisions on the testing required. This means the audit fees for

certification work are reduced if the control environment is strong.

For claims spanning over more than one year, the financial limits above

relate to the amount claimed over the entire life of the claim and testing

is applied accordingly. The approach impacts on the grants work we

carry out, placing more emphasis on the high value claims.


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Findings

10 This section summarises the finding of the certification work carried out

for each of the three claims.

Teachers' Pension Claim

11 The value of this claim was more than £500,000. Therefore we

assessed the control environment for the preparation of the return to decide

whether we could place reliance on it.

12 We assessed that we were able to place only limited reliance on the

control environment because of:

weaknesses noted over starters and leavers on the Council payroll; and

an area of weakness on the reliance placed on payroll information

provided by the independent payroll providers.

13 As a result, we undertook tests to agree form entries to underlying

records and added testing of the eligibility of expenditure and data.

14 Errors were noted during the certification work. These included:

failing to include pay arrears as pensionable pay in pension

calculations, by an independent payroll provider for one individual; and

failing to include General Teaching Council fees as part of pensionable

pay calculations by schools with independent payroll providers.

Findings

15 The errors were agreed and amended by the Council.

16 Supporting working papers were found to be comprehensive.

General Sure Start grant claim

17 The value of this claim was more than £500,000. Therefore we

assessed the control environment for the preparation of the return to decide

whether we could place reliance on it.

18 We assessed that we were able to place only limited reliance on the

control environment because of:

comparisons of figures in the claim highlighted significant variances

over the previous year, as well as new expenditure in areas where none

had previously been incurred (for example Achievement for all and

AHDC capital block).

19 As a result, we undertook tests to agree form entries to underlying

records, and added testing of the eligibility of expenditure and data.


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Findings

20 No errors were noted during our certification work.

21 Working papers were found to be clear and well presented.

School-Centred Initial Teacher Training (SCITT) claim

22 For 2009/10 this was a three-part claim consisting of an Audit Grant

Report (AGR), SCITT annual accounts and Employment-Based Initial

Teacher Training (EBITT) annual accounts. This claim is managed and

prepared by the Gloucestershire Initial Teacher Education Partnership

based at St Peter's High School.

23 The total value of the claim was more than £500,000. We were required

to assess the control environment, to decide whether we could place

reliance on it. We assessed that we were only able to place limited reliance

on the control environment because of:

the claim was compiled using SAGE, a stand-alone system independent

of the Council's financial systems. This system is not tested by us as

part of our annual audit of the Council's accounts, so we have no

assurance over the effectiveness of the controls performing within it;

and

a new manager took overrunning the Gloucestershire Initial Teacher

Education Partnership in March 2010. It was her first year of

involvement in preparing the claim.

24 Because of the above, we undertook substantive testing of the claim.

Audit Grant Report

25 Errors noted during certifying the Audit Grant Report (AGR) were as

follows.

Trainee registration numbers were overstated for the Graduate Teacher

Programme and the Overseas Trained Teacher Programme because of

an administrative error.

Capital spending was overstated because of revenue items being

wrongly treated as capital.

Access to Learning brought forward balance, funding received in year

and expenditure in year were overstated.

Funding received for the Overseas Teacher Training Programme were

presented wrongly on the AGR.

Allocated funds in year for EBITT capital support funding were

understated.

26 There was initial reluctance by the accountancy firm that had prepared

the AGR for GITEP to amend the wrong treatment of revenue items despite

agreeing the treatment was wrong. It was subsequently agreed amend all

errors found during the audit.


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School-Centred Initial Teacher Training (SCITT) annual accounts

27 The Audit Commission was only required to certify the Statement of

Income and Expenditure of the annual accounts.

28 Errors noted during certifying the Statement of Income and Expenditure

were as follows.

Standard support diploma income was overstated and expenditure was

understated.

There was a year-end balance on the suspense account.

The 'other' category of expenditure was overstated and 'other supplies

and services' was understated. This related to the year-end balance on

the suspense account.

One of the notes to the Statement of Income and Expenditure did not

agree to the face of the statement.

29 The errors were agreed and amended.

Employment-Based Initial Teacher Training (EBITT) annual accounts

30 The Audit Commission was required to certify the Statement of Income

and Expenditure for the EBITT annual accounts for the first time in 2009/10.

However, because of concerns raised with the Training and Development

Agency for Schools (TDA) by several EBITT providers, the TDA confirmed

that, for 2009/10 only it would accept unaudited accounts. Therefore the

Audit Commission did not certify the Statement of Income and Expenditure

for the EBITT accounts for 2009/10.

Findings

31 As set out above a significant number of errors were identified during

our audit. The following recommendations have been made.

Recommendations

R1 Time needs to be factored into the work programme to ensure audit

queries and amendments can be addressed.

R2 Before presenting for audit ensure the claim has been reviewed for

accuracy and reasonableness.

Recommendation


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Appendix 1 Summary of 2009/10 certified claims

Table 2: Claims and returns above £500,000

Claim Value £ Adequate control

environment

Amended Qualification

letter

Teachers pension

return

£38,724k Limited because of payroll

weakness and year-on-year

variations

Yes No

General Sure Start

grant

£17,389k Limited because of year-on-

year variations

No No

School-centred

Initial Teacher

training (SCITT)

£1,992k No, because of stand-alone

ledger and errors found in

prior year.

Yes No


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Appendix 2 Action plan

Recommendations

Recommendation 1

Time needs to be factored into the work programme to ensure audit queries and amendments can

be addressed.

Responsibility John Kear, Financial Accounting Manager

Priority Medium

Date 30 June 2011

Comments The St. Peter's Governing body will be asked to review the report and

recommendations to agree the necessary actions required by the

Gloucestershire Initial Teacher Education Partnership.

Recommendation 2

Before presenting for audit ensure the claim has been reviewed for accuracy and reasonableness.

Responsibility John Kear, Financial Accounting Manager

Priority Medium

Date 30 June 2011

Comments The St. Peter's Governing body will be asked to review the report and

recommendations to agree the necessary actions required by the

Gloucestershire Initial Teacher Education Partnership.


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Page 72

Audit Committee

18th April 2011

REVIEW OF THE EFFECTIVENESS OF THE AUDIT COMMITTEE

1. Purpose of Report

1.1 To advise members of the outcome of the review, undertaken by the Head of Finance responsible for the Internal Audit function, in conjunction with the Chair of the Audit Committee and the two Internal Audit Managers, into the effectiveness of the Audit Committee.

1.2 To seek the approval of the Committee to the self assessment and Action Plan emanating from the review.

2. Recommendation

2.1 To approve the self assessment at Appendix 2 and the Action Plan at Appendix 1, designed to address the improvement points identified by the assessment.

3. Background

3.1 This review has been undertaken in accordance with best practice and to respond to a recommendation made by the External Auditors that such a review should be undertaken.

3.2 The Audit Committee forms an integral part of the County Council’s overall governance framework and is an important source of assurance in respect of the County Council’s arrangements for managing risk, maintaining an effective control environment, and reporting on financial performance. Guidance issued by the Chartered Institute of Public Finance and Accountancy (CIPFA) recommends that audit committees should periodically undertake a formal review of their own effectiveness to ensure that they are continuing to properly fulfil their responsibilities.

3.3 The review has used the CIPFA Toolkit for Local Authority Audit Committees to undertake a self assessment of existing arrangements, against recommended best practice.

3.4 The review has concluded that the Audit Committee is continuing to fulfil the majority of the best practice requirements set out by CIPFA, as detailed in Appendix 2. However the review did identify a number of improvement points which are addressed in the Action Plan at Appendix 1.

Contact Officers:

Mark Spilsbury – Head of Finance - Tel: 01452 426127 Pam Jell – Audit / Fraud Manager - Tel: 01452 425919 Theresa Mortimer – Audit / Risk Manager - Tel: 01452 427013

Agenda Item 8

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Appendix 1

REVIEW OF THE EFFECTIVENESS OF THE AUDIT COMMITTEE – ACTION PLAN

No. Improvement Point Proposed Action

1. The current Annual Governance Statement does not include a description of the audit committee’s establishment and activities.

To include a description of the Audit Committee’s establishment and activities in the 2010/2011 AGS.

2. Are there any outstanding training needs for members of the Audit Committee?

Training has been provided to the Audit Committee on Risk Management and Treasury Management and a survey of training requirements undertaken as part of this self assessment did not identify any gaps.

3. The induction process for new members of the Committee could be improved.

The Head of Finance responsible for Internal Audit to develop an induction pack relating to the Audit Committees specific roles and responsibilities for distribution to current members and new members from June 2011 onwards.

4. Some members of the Committee are also on Scrutiny which is not strictly in accordance with CIPFA guidelines.

Officers advice is that, given that no members of the Committee are members of the Executive, this is not an improvement point which requires further action.

5. There is a need to ensure that the Annual Governance Statement continues to be considered separately from the accounts.

The Section 151 Officer always presents the AGS separately from the accounts and this process will continue.

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4

Appendix 1

No. Improvement Point Proposed Action

6. The Audit Committee needs to ensure that “Actions to Counter Fraud and Corruption” are being implemented.

The Head of Finance responsible for Internal Audit to ensure actions to counter fraud and corruption are covered in the annual Internal Audit report. For significant frauds appropriate officers are required to attend at the Audit Committee to explain what they have done to mitigate a future occurrence.

7. Does the Audit Committee receive the information it wishes to receive from Internal Audit?

No gaps were identified by the survey of members undertaken as part of this self assessment.

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Appendix 2

Audit Committee self-assessment checklist April 2011

ESTABLISHMENT, OPERATION AND DUTIES

Role and remit

Priority Issue

Yes Partial No N/A Comments/Action

1 Does the audit committee have written terms of reference?

ü Constitution Issue 13 – December 2009. Amended 07.06.10.

1 Do the terms of reference cover the core functions of an audit committee as identified in the CIPFA guidance?

ü CIPFA - Audit Committees – Practical Guidance for Local Authorities – 2005

1 Are the terms of reference approved by the Council and reviewed periodically?

ü Review and update considered as part of the review of the Constitution in December 2009 – amended 07.06.10. Changes to the terms of reference were agreed by Council on 24.02.10 to include the responsibility for ‘the implementation and undertake monitoring of the Council’s treasury management policies and practices’.

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Appendix 2

Priority Issue


1 Has the audit committee been provided with sufficient membership, authority and resources to perform its role effectively and independently?

ü The Audit Committee is a Council appointed Committee comprising 6 members as per the Council’s Constitution. No member of the Audit Committee is a member of the Executive. However one member sits on the Budget and Performance Overview and Scrutiny Committee, one member sits on the Community Safety Overview and Scrutiny Committee, and one member sits on the Health, Community and Care Overview and Scrutiny Committee and on the Overview and Scrutiny Management Committee. The Chair of the Audit Committee does not sit on any of the Scrutiny Committees. Guidance refers to: ‘Membership’- independent from Executive and Scrutiny. ‘Authority’ - able to challenge the authority’s Executive on relevant issues and to be able to report on significant issues without interference. Source – “CIPFA - A Toolkit for Local Authorities Audit Committees 2006”.

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Appendix 2

Priority Issue


1 Can the audit committee access other committees and full council as necessary?

ü Constitution – Audit Committee may report to any Council or external body. In consultation with the Overview and Scrutiny Management Committee it will annually report on its work to full Council. The Audit Committee does produce an Annual Report and, at times, refers audit reports onto other Scrutiny Committees.

1 Does the authority’s Annual Governance Statement (AGS) include a description of the audit committee’s establishment and activities?

ü Proposed Action: To include a description of the audit committee’s establishment and activities in the 2010/2011 AGS

2 Does the audit committee periodically assess its own effectiveness?

ü Review undertaken of current audit committee effectiveness during February 2011 by using the CIPFA Guide – Audit Committees: Practical Guidance for Local Authorities - 2005 and CIPFA’s Toolkit for Local Authority Audit Committees - 2006.

2 Does the audit committee make a formal annual report on its work and performance during the year to full council?

ü Last annual report to Council - 19.05.2010

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Appendix 2

Priority Issue


Membership, induction and training

1 Has the membership of the audit committee been formally agreed and a quorum set?

ü Constitution- Audit Committee comprises of 6 members – nominations on membership approved by Council. A meeting cannot take place unless the greater of three, or one quarter of the whole number of its members who have voting rights are present.

1 Is the chair independent of the executive function?

ü Independent of Executive and Scrutiny

1 Has the audit committee chair previous knowledge of, or received appropriate training on, financial and risk management, accounting concepts and standards, and the regulatory regime?

ü Risk Management training provided to Audit Committee on 23rd September 2009. Proposed Action: To seek views from members of the Audit Committee on whether there are any outstanding areas of training required.

1 Are new audit committee members provided with an appropriate induction?

ü Corporate induction is provided by Legal and Democratic Services Proposed Action – Head of Finance to develop an induction pack relating to the audit committees specific roles and responsibilities for distribution to current members and new members from June 2011 onwards.

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Appendix 2

Priority Issue


1 Have all members’ skills and experiences been assessed and training given for identified gaps?

ü Proposed Action: To obtain members views as detailed above.

1 Has each member declared his or her business interests?

ü “Declaration of Interests” is a standing agenda item for each committee meeting.

2 Are members sufficiently independent of the other key committees of the council?

ü No members of the Audit Committee are members of the Executive. Proposed Action: To obtain Members views re membership of Scrutiny Committees. Officer advice is that there is sufficient independence given that the Chair of the Audit Committee does not sit on any Scrutiny Committees.

Meetings

1 Does the audit committee meet regularly?

ü Quarterly meetings are held each financial year in line with CIPFA Guidance – Audit Committees Practical Guidance for Local Authorities 2005. In the current year meetings were held/are arranged for 24th Jan 2011, 18th April 2011, 28th June 2011, 26th September 2011

1 Do the terms of reference set out the frequency of meetings?

ü Whilst not explicitly recorded, meetings are scheduled in accordance with business and governance needs and are in line with CIPFA’s guidance as detailed above.

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0

Appendix 2

Priority Issue


1 Does the audit committee calendar meet the authority’s business needs, governance needs and the financial calendar?

ü

1 Are members attending meetings on a regular basis and if not, is appropriate action taken?

ü

1 Are meetings free and open without political influences being displayed?

ü

1 Does the authority’s S151 officer or deputy attend all meetings?

ü

1 Does the audit committee have the benefit of attendance of appropriate officers at its meetings?

ü S151 Officer and/or the Head of Finance (Financial Accounting and Audit) attend all meetings. The External Auditor and/or the External Audit Manager also attend at all meetings. In addition, the responsibilities of the Committee include the ability to require relevant Directors / Heads of Service to attend the Committee as deemed appropriate to discuss any audit, risk management or governance issues where further clarification is required as to actions being taken to manage significant risks.

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Appendix 2

INTERNAL CONTROL

Priority Issue


1 Does the audit committee consider the findings of the annual review of the effectiveness of the system of internal control (as required by the Accounts & Audit Regulations) including the review of the effectiveness of the system of internal audit?

ü • Annual review – Audit Commission – Use of Resources 2008/09 KLOE 2.4 – ‘does the organisation manage its risks and maintain a sound system of internal control’ (now ceased) 27th April 2009.

• Review of effectiveness of Internal Audit in compliance with CIPFA Code of Practice for Internal Audit in Local Government in the UK 2006. Considered by Audit Committee 30th June 2009.

• 2009/2010 – Triennial review of Internal Audit undertaken by Audit Commission presented to Audit Committee 25th January 2010.

• Annual Governance Statement 2009/10 presented to Audit Committee on 29th June 2010.

• Annual Governance Report 2010/11 will be presented to the Audit Committee in June 2011 picking up some of the additions identified earlier in this self assessment.

1 Does the audit committee have responsibility for review and approval of the AGS and does it consider it separately from the accounts?

ü AGS forms part of Statement of Accounts. Proposed Action – to be considered separately from 2010/2011.

1 Does the audit committee consider how meaningful the AGS is?

ü Proposed Action – to be considered separately from 2010/2011.

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Appendix 2

Priority Issue


1 Does the audit committee satisfy itself that the system of internal control has operated effectively throughout the reporting period?

ü Reporting on adequacy of risk management and internal controls via Internal Audit monitoring reports.

1 Has the audit committee considered how it integrates with other committees that may have responsibility for risk management?

ü The Lead Cabinet Member for Finance is responsible for risk management. The Audit Committee has responsibility for Risk Management and the S151 officer and/or the Head of Finance (Financial Accounting and Audit), who have line management responsibility for Risk Management, attend the meetings of the Audit Committee.

1 Has the audit committee (with delegated responsibility) or the full council adopted “Managing the Risk of Fraud – Actions to Counter Fraud and Corruption?”

ü • To undertake managing the risk of fraud risk assessment is included within internal audit plan 2010/2011.

• Anti fraud and corruption policy and strategy.

• Fraud response plan

• Code of conduct – includes whistle blowing Proposed Action : See below

1 Does the audit committee ensure that the “Actions to Counter Fraud and Corruption” are being implemented?

ü Proposed Action: S151/Head of Finance (Financial Accounting and Audit) to ensure actions to counter fraud and corruption are covered in the annual internal audit report. For significant frauds appropriate officers are required to attend at the Audit Committee to explain what they have done to mitigate a future occurrence?

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Appendix 2

Priority Issue


2 Is the audit committee made aware of the role of risk management in the preparation of the internal audit plan?

ü Risk Based Internal Auditing (RBIA) undertaken – all audits (included in the audit plan) are linked to the key risks facing the Council. This is clearly highlighted in the Internal Audit Annual Plan which is reported to the Audit Committee every April.

2 Does the audit committee review the authority’s strategic risk register at least annually?

ü Forms part of the Annual Risk Management report – 29th June 2010.

2 Does the audit committee monitor how the authority assesses its risk?

ü Annual reports on Risk Management activity. GCC’s risk management principles and processes training provided to Audit Committee on 23rd Sept 2009.

2 Do the audit committee’s terms of reference include oversight of the risk management process?

ü “To monitor the arrangements for the identification, monitoring and control of strategic and operational risk within the Council”.

FINANCIAL REPORTING AND REGULATORY MATTERS

1 Is the audit committee’s role in the consideration and/or approval of the annual accounts clearly defined?

ü Constitution – “To review and approve the annual Statement of Accounts” and “to receive and consider external audit reports including the Annual Audit Letter and Governance Report”. “To monitor management’s response to the external auditor’s findings and the implementation of external audit recommendations.”

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Appendix 2

Priority Issue


1 Does the audit committee consider specifically:

• the suitability of accounting policies and treatments

• major judgements made

• large write-offs

• changes in accounting treatment

• the reasonableness of accounting estimates

• the narrative aspects of reporting?

ü These items are considered as part of the Annual Statement of Accounts which are presented in detail to the Audit Committee by the S151 Officer or Head of Finance (Financial Accounting and Audit).

1 Is an audit committee meeting scheduled to receive the external auditor’s report to those charged with governance including a discussion of proposed adjustments to the accounts and other issues arising from the audit?

ü Governance report considered by Audit Committee annually. 2009/2010 report – considered 22nd September 2010.

1 Does the audit committee review management’s letter of representation?

ü

2 Does the audit committee annually review the accounting policies of the authority?

ü These are considered as part of the Annual Statement of Accounts which are presented in detail to the Audit Committee by the S151 Officer or Head of Finance (Financial Accounting and Audit).

2 Does the audit committee gain an understanding of management’s procedures for preparing the authority’s annual accounts?

ü Included within the detailed Statement of Accounts

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Appendix 2

Priority Issue


2 Does the audit committee have a mechanism to keep it aware of topical legal and regulatory issues, for example by receiving circulars and through training?

ü Annual reports highlight key legislative changes in relation to Internal Audit, Risk Management, Financial Management and Treasury Management. Chair of Audit Committee now has direct access to CIPFA’s Better Governance Forum Audit Committee briefings as from February 2011.

INTERNAL AUDIT

1 Does the audit committee approve, annually and in detail, the internal audit strategic and annual plans including consideration of whether the scope of internal audit work addresses the authority’s significant risks?

ü Annual Internal Audit Plan which is linked to the strategic risks of the Council is approved in April of each year. 2010/2011 plan approved 26th April 2010. 2011/12 plan being considered by the Audit Committee in April 2011.

1 Does internal audit have an appropriate reporting line to the audit committee?

ü Constitution – the Head of Finance (Financial Accounting and Audit), as the CIA, has the right of Independent access to the Committee and its Chair.

1 Does the audit committee receive periodic reports from the internal audit service including an annual report from the Head of Internal Audit?

ü Internal Audit Plan monitoring reports provided in September and January of each financial year. Annual report provided in June of each year.

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Appendix 2

Priority Issue


1 Are follow-up audits by internal audit monitored by the audit committee and does the committee consider the adequacy of implementation of recommendations?

ü Where fundamental recommendations are made the following applies:-

• Internal Audit monitors progress to date on actions taken to manage the risk exposure.

• Depending upon the level of risk exposure a “follow up” audit will be included in the following years internal audit plan.

Where limited assurance opinions are given on an audit deemed to be of strategic importance the reports are given to Directorate Risk Champions to ensure the risks highlighted by Internal Audit are placed on relevant risk registers. The monitoring of the implementation of the recommendations are then undertaken by the relevant manager as part of the risk management monitoring and reporting process. For all significant limited assurance audits a report is received back from appropriate management at the next appropriate Audit Committee to provide assurance to the Committee that adequate action has been taken.

1 Does the audit committee hold periodic private discussions with the Head of Internal Audit (HIA)?

ü Currently discussions are held with the S151 Officer and Head of Finance (Financial Accounting and Audit) (HIA).

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Appendix 2

Priority Issue


1 Is there appropriate cooperation between the internal and external auditors?

ü Joint working agreements with the current Council’s External Auditor exist. Triennial review of Internal Audit undertaken by the External Auditors in 2009/2010 and presented to the Audit Committee on 25th Jan 2010 stating “we can plan to place reliance on Internal Audit work that is directly relevant to our Code of Practice and grant claim responsibilities”.

1 Does the audit committee review the adequacy of internal audit staffing and other resources?

ü Review via approval of the Annual Audit Plan, KPIs for Internal Audit, review of the report on the effectiveness of the system of Internal Audit and review of External Audit reviews on Internal Audit.

1 Has the audit committee evaluated whether its internal audit service complies with CIPFA’s Code of Practice for Internal audit in Local Government in the United Kingdom?

ü Triennial review of Internal Audit undertaken by the External Auditors in 2009/2010 and presented to the Audit Committee on 25th Jan 2010. Internal audit self assessment undertaken and presented to the Audit Committee annually as part of the annual report on Internal Audit 27th June 2008.

2 Are internal audit performance measures monitored by the audit committee?

ü Client / customer feedback forms obtained following every audit. Results are reported to the Audit Committee annually as part of the Annual Internal Audit report – 29th June 2010.

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Appendix 2

Priority Issue


2 Has the audit committee considered the information it wishes to receive from internal audit?

ü Proposed Action: To receive Members views on the information currently provided and on any perceived gaps.

EXTERNAL AUDIT

1 Do the external auditors present and discuss their audit plans and strategy with the audit committee (recognising the statutory duties of external audit)?

ü Separate plan reports for GCC and the Pension Fund are submitted annually to the Audit Committee together with regular update reports. Such reports presented to the Committee by the District Auditor or Audit Manager.

1 Does the audit committee hold periodic private discussions with the external auditor?

ü Two meetings were held with the External Auditor during 2010/11. Such meetings can be held as required.

1 Does the audit committee review the external auditor’s annual report to those charged with governance?

ü External Auditors Annual Audit Letter 2009/10 considered by audit committee - 24th January 2011. Annual Governance Report 2009/2010 – GCC and Gloucestershire Pension Fund considered by audit committee - 22nd Sept 2010.

1 Does the audit committee ensure that officers are monitoring action taken to implement external audit recommendations?

Internal Audit review the External Auditors reports and where relevant will include a review of actions taken to address recommendations made, as part of Internal Audits risk based audit planning process. The S151 Officer ensures that all key points included in the AAL are adequately addressed.

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Appendix 2

Priority Issue


1 Are reports on the work of external audit and other inspection agencies presented to the committee, including the Audit Commission’s annual audit and inspection letter?

ü Audit Commission progress reports – April/June/Sept/January of each financial year. Annual Audit and Inspection Letter January of each year – 24th January 2011. Service specific reports, eg. Ofsted are considered by appropriate Scrutiny Committees.

1 Does the audit committee assess the performance of external audit?

ü When considering the reports of the District Auditor and questioning him.

1 Does the audit committee consider and approve the external audit fee?

ü Annually - 2010/2011fee was considered at the Committee meeting on 26th April 2010.

ADMINISTRATION

Agenda management

1 Does the audit committee have a designated secretary from Committee/Member Services?

ü Audit Committee is a formal committee of the Council and each meeting is serviced by staff from Democratic Services.

1 Are agenda papers circulated in advance of meetings to allow adequate preparation by audit committee members?

ü All papers are sent out in accordance with the Council’s Constitution - Part 4, procedural standing orders, Para 6. Agendas/papers are sent out where ever possible at least nine days before a meeting is held.

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0

Appendix 2

Priority Issue


2 Are outline agendas planned one year ahead to cover issues on a cyclical basis?

ü Yes, Standard reporting cycle.

2 Are inputs for Any Other Business formally requested in advance from committee members, relevant officers, internal and external audit?

ü Declaration of interests always made at meetings of the Committee.

Papers

1 Do reports to the audit committee communicate relevant information at the right frequency, time, and in a format that is effective?

ü Use of standard committee report template for internal audit reports which was agreed with the Audit Committee.

2 Does the audit committee issue guidelines and/or a proforma concerning the format and content of the papers to be presented?

ü Use of standard committee report templates.

Actions arising

1 Are minutes prepared and circulated promptly to the appropriate people?

ü Draft minutes circulated to officers for comment after each committee meeting. Minutes of meeting formally approved at the next meeting of the committee.

1 Is a report on matters arising made and minuted at the audit committee’s next meeting?

ü Yes at each meeting

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1

Appendix 2

Priority Issue


1 Do action points indicate who is to perform what and by when?

ü Minutes of meetings.

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2

Audit Committee

Date 18th April 2011

Title of Report: International Financial Reporting Standards (IFRS)

Purpose of Report: To provide an update on the transition to International Financial Reporting Standards (IFRS) based reporting.

To present IFRS compliant accounting policies and restated prior year comparative figures.

Recommendations: That the Committee notes:

• the content of the report.

• the restated comparative information (Appendix B).

• the accounting policies for the 2010/11 IFRS compliant accounting statements (Appendix D).

Officer (s) Contact: Mark Spilsbury – Head of Finance:-Financial Accounting & Audit 01452 426127. [email protected] John Kear – Finance Manager – 01452 426187 [email protected] Kathryn Oakey – Principal Accountant – 01452 426751 [email protected]

Key Risks Failure to meet the new requirements will result in a qualified audit opinion.

Agenda Item 9

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Summary In September 2008 a report was presented to the Audit Committee regarding the potential impact of IFRS. Update reports on the progress and approach to implementation followed in April 2009 and January 2010. Members also received an update presentation on IFRS in June 2010. This paper highlights the progress and latest developments of IFRS implementation, identifies the accounting policies to be adopted when preparing the 2010/11 financial statements, and for the first time presents IFRS compliant restated balance sheets for 2008/9 and 2009/10. Background and Introduction Previous financial statements have been produced under accounting policies based on UK GAAP, however the 2007 budget announced that from the first year of the Comprehensive Spending Review (CSR07), these documents should be prepared using IFRS as adapted for the public sector. This was subsequently amended by the 2008 budget meaning that the full adoption of IFRS for Local Government would not take place until 2010/11, including the restatement of 2009/10 comparatives. Consequently, from 2010/11 local authorities are required to prepare their accounts using International Financial Reporting Standards (IFRS), as interpreted for the public sector in the Code of Practice on Local Authority Accounting 2010/11 (issued by the Chartered Institute of Public Finance and Accountancy) (CIPFA). IFRS Financial Statements & Polices The first time adoption of IFRS requires the restatement of the opening and closing balance sheets as if they had been prepared under IFRS, and the restating of the accounting policies to bring them into line with the requirements of IFRS. Therefore, the Audit Committee is being asked to note the restated accounts, the new opening balances to the 2010/11 current year accounts and the changes to the accounting policies. Restatement of Financial Statements The CIPFA code gives guidance on the figures to include within the financial statements and how they should be presented. First time adoption requires restatement of the balance sheet as at 1st April 2009, (the closing balance for the 2008/09 accounts). The approved and audited balance sheets for 2008/09 and 2009/10 are shown at Appendix A. The restated statements are provided at Appendix B. Although only the restated balance sheet is presented in this report, all the statements in the 2009/10 accounts are also being restated. The Audit Commission has reviewed the restated balance sheet for 2008/09 and has concluded that the Council has accounted for all material restatement issues, with officers producing clear working papers to support the move to IFRS. By the time the Committee meets, the 2009/10 comprehensive income and expenditure statement and balance sheet will have been reviewed by the Audit Commission. An update on the outcome will be given at the meeting.

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Due to a two month delay in the publication of CIPFA’s guidance on preparing the accounts, the complexities of restating the statements, and difficulties reflecting the changes on the main financial system the timetable for restating the primary statements has slipped. Many authorities are experiencing similar problems and delays. However, given that the restatements are now complete, subject to audit review, the authority remains on course to implement IFRS within the required timeframe. When comparing original and restated balance sheet figures one of the most important features for the Committee to note is that usable general fund and earmarked reserves do not change. The total General Fund and Earmarked Reserves figures for 2009/10 remain at £11.750m and £88.767m respectively, giving a combined figure of £100.517m. This figure is consistent with the approved statement of accounts reported last year, and in the MTFS presented to County Council on 16th February 2011. Changes in the treatment of grants and contributions, from receipts in advance to earmarked reserves, results in the authority’s “Useable Reserves” moving from £100.517m to £161.246m, however this is merely a “presentational” change and does not generate additional “useable” reserves for the authority. The movement can be summarised as follows: Reconcilaition of Useable Reserves

£’000

Approved Reserves as at 31st March 2010:

General Fund Balance 11,750

Earmarked Reserves 88,767

100,517

Adjustments for IFRS implementation:

Grants & Contributions 60,729

Restated Reserves as at 31st March 2010 161,246

The reason that the Council’s usable reserves are not affected is that although IFRS requires changes, many UK standards have been based on IFRS, so many requirements are unchanged. There are differences, which require a great deal of work and effort, but for many transactions, there is little or no change. Appendix C identifies the main changes from UK GAAP to IFRS. Total reserves have changed on the balance sheet and this is as a result of:

• A new government grant reserve. Under the IFRS treatment both revenue and capital grants are accounted for on an accruals basis and recognised immediately in the Comprehensive Income and Expenditure Statement when they are received. Where grant remains unspent at year end and there are no conditions or stipulations attached to the grant, or conditions or stipulations have either been met or are deemed to be going to be met, it is now transferred into this reserve. (Previously a creditor or receipts in advance would have been used.)

• A new Short Term Accumulating Compensated Absences Reserve. This holds the accrual that we calculate for the accounts, based on the assumption that any leave entitlement and other benefits held at year end represents a cost to the Council. (Previously this would not have been recognised in the accounts.)

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• The Capital Adjustment Account Reserve and the Revaluation Reserve have changed. This has occurred due to a change in the classification of some assets and the valuation methodology used, and also due to the impact of IAS 17, leases, which has meant a number of leases have been removed from our fixed asset register.

Other changes to note within the top section of the balance sheet are that:

• Fixed Assets are now classified as Property, Plant and Equipment;

• There are new categories for Assets Held for Sale, and Investment Properties;

• Cash now includes cash equivalents;

• Provisions are now split between short and longer term;

• Government Grant and Contributions Deferred have been removed. Accounting Policy Changes The adoption of IFRS has resulted in a number of changes to accounting policies. The table below shows the accounting policies that have been changed, and Appendix D shows the new accounting policy to be adopted.

Accounting Policy New or Amended

General Principles Amended

Provisions Amended

Government Grants and Contributions Amended

Property, Plant and Equipment (Previously Fixed Assets)

Amended

Leases Amended

Employee Benefits New

Investment Properties New

Cash and Cash Equivalents New

The key changes to these policies are detailed below:

• Provisions – this is a small classification change requiring us to now split provisions between short and long term;

• Government Grants and Contributions – Grants are now recognised immediately, and any unspent at year end are transferred to reverses (where there are no conditions or stipulations outstanding). Previously capital grants were amortised to the Income and Expenditure Account over the life of the asset, and revenue grants were shown as Receipts in Advance where they could be carried into the new financial year

• Property, Plant and Equipment – The main change is the introduction of componentisation, meaning that material parts of an asset are depreciated at different rates depending on their useful life.

• Leases – these are classified as Finance or Operating. All Finance Leases must now be held on the balance sheet regardless of whether we take ownership at the end of the lease term.

• Employee Benefits – Under IFRS we need to accrue for any benefits an employee may have at year end. Under this policy we have considered other benefits to employees; however the focus of the policy is related to leave entitlement not taken at year end. Mitigations are in place so this change does not impact on balances held by the Council.

• Investment Properties – although this is not a new policy we have not shown it in our accounts in recent years. Under IFRS there have been changes to

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the classification of what constitutes an Investment Property. As a result we have reviewed our properties held, and our policy states the new definition and that we have no Investment Properties.

• Cash and Cash Equivalents – Under IFRS short term deposits made could be classed as cash equivalents. We have therefore put in place a policy as to what we will treat as a cash equivalent.

Approving the Accounts Revised Accounts & Audit Regulations have recently been issued. One of the changes mean the statement of accounts no longer need to be approved by the Audit Committee in June. Instead the Strategic Finance Director (Section 151 Officer) will approve the accounts in June, with the Audit Committee being presented with the accounts for approval in September following the external audit. The move is designed to ensure members are not approving one set of figures that potentially will be subject to change as a result of the audit. The Strategic Finance Director still intends to present the accounts to the June Audit Committee for information.

Conclusions

The Council remains on course to implement IFRS within the required timeframe. Since the Council’s accounts now need to be prepared on an IFRS basis, the Committee is asked to note the restated accounts and accounting policies.

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Appendix A APPROVED & AUDITED BALANCE SHEETS

Restated

2008/09 2009/10

£’000 Notes £’000 £’000

476 Intangible assets 16 411

Tangible fixed assets

Operational assets

569,789 Land & Buildings 17 526,882

13,406 Vehicles, plant, furniture & equipment 17 15,306

284,258 Infrastructure assets 17 300,158

- Community assets - 842,346

Non-operational assets

42,277 Assets under construction 26,244

13,219 Surplus assets, held for disposal 17 16,655 42,899

923,425 885,656

11,195 Long-term investment 8,912

78 Long-term debtors 76

_______ _______

934,698 Total long-term assets 894,644

Current assets

668 Stocks and work in progress 856

- Landfill Allowance Trading Scheme 26 1,822

37,353 Debtors 27 42,048

4,893 Payments in advance 6,481

165,277 Short-term investments 95,110

10,499 Net cash in hand 7,089 153,406

1,153,388 Total assets 1,048,050

Current liabilities

-9,435 Borrowing and other liabilities repayable

on demand or within 12 months

11 & 31 -6,307

-75,945 Creditors -78,347

- Landfill Allowance Trading Scheme 26 -1,793

-8,307 Receipts in advance -11,300

-17,755 Government grant unapplied 34 -17,472 -115,219

1,041,946 Total assets less current liabilities 932,831

-375,511 Long-term borrowing and other liabilities 11 & 31 -334,645

-5,796 Provisions 32 -5,363

-2,543 Deferred liabilities 30 -2,634

-21,597 Capital contributions unapplied 33 -22,393

-91,281 Government grants deferred account 36 -109,260

-36,873 Capital contributions deferred account 35 -38,936

-440,212

Liability related to defined benefit

pension schemes

40

-756,854

______ _______

68,133 Total assets less liabilities -337,254

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Restated

2008/09 2009/10

£’000 Notes £’000 £’000

Reserves

299,045 Capital Adjustment Account 38 209,193

-5,988 Financial Instruments Adjustment

Account

25 -5,613

2,132 Collection Fund Adjustment Account 2,202

-203 Available for sale revaluation reserve 7

109,713 Fixed Assets Revaluation Reserve 37,39a 113,225

-440,212 Pensions reserve 40 -756,854

- Usable capital receipts reserve 37,39 69

20,676 General Fund Balance 11,750

82,970 Earmarked Reserves 37 88,767

68,133 Total Reserves -337,254

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Appendix B

As at As at

31st March 31st March

2009 2010

878,996 Property Plant and Equipment 856,039

42,277 Assets under Construction 26,244

476 Intangible Assets 411

1,568 Assets held for Sale 1,568

41,128 Long Term Investments 20,245

78 Long Term Debtors 76

964,523 Long Term Assets 904,583

61,959 Short Term Investments 16,140

0 Landfill Allowance Trading Sceme 1,822

667 Inventories 855

43,295 Short Term Debtors 50,641

83,883 Cash and Cash Equivalents 74,727

189,804 Current Assets 144,185

0 Landfill Allowance Trading Sceme -1,793

-9,434 Short Term Borrowing -6,307

-63,952 Short Term Creditors -69,065

-3,701 Short Term Provisions -3,566

-1,393 Capital Grants Recepts in Advance -1,828

-10,809 Provision for Accumulated Absences -13,075

-89,289 Current Liabilities -95,634

-2,543 Deferred Liability -2,634

-2,095 Long Term Provisions -1,797

-375,512 Long Term Borrowing -334,645

-440,212 liability Related to Defined Benefir Pension Scheme -756,854

-820,362 Long Term Liabilities -1,095,930

244,676 Net Assets -142,796

Usable Reserves

0 Usable Capital Receipts Reserve 69

20,676 General Fund 11,750

142,277 Earmarked Reserves 149,496

Unusable Reserves

-10,809 Short Term Accumulated Absences Account -13,075

427,135 Capital Adjustment Account 355,812

109,667 Revaluation Reserve 113,408

2,133 Council Tax Collection Fund Adjustment Account 2,203

-203 Available for Sale Revaulation Reserve 7

-5,988 Financial Instrument Adjustment Account -5,612

-440,212 Defined Pension Fund Reserve -756,854

244,676 Total Reserves -142,796

Restated IFRS

Balance Sheet

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Appendix C

Overview of main changes from UK GAAP to IFRS

Significant IFRS changes Substantially the same

Financial Statements New statements and amended layouts.

More flexibility – details can be in the

statements or the notes, terminology can

be amended; and the order of the

statements can be changed to suit the

authority

New formats consistent with those

used in the SORP where this is

possible and helpful

Purchase of goods and

services

None Everything

Salaries and Pensions Untaken holiday pay and similar items

accrued for at year end

Everything else

Government Grants and

Contributions

Capital grants recognised immediately

(unless there are conditions) rather than

being deferred and matched to

expenditure

Only the same for capital grants if

there are conditions

Property, Plant and

Equipment (Fixed Assets)

More emphasis on component accounting

than under UK GAAP.

Impairments taken initially to the

Revaluation Reserve rather than Income

and Expenditure – like revaluation losses.

New class of ‘assets held for sale’

Everything else. Expenditure that

can be capitalised under IFRS

remains unchanged.

PFI Assets bought on to the balance sheet

where the authority controls the asset.

Changes made in SORP 2009 – no

change for 2010/11

Leases

90% ‘test’ to separate finance and

operating leases removed.

Property leases classified and accounted

for as separate leases of land and

buildings.

Need to access whether other

arrangements containing the substance of

a lease.

Everything else. IFRS retains the

concept of the finance

lease/operating lease distinction,

and the tests carried out to classify

leases are substantially the same.

Financial Instruments

None – IFRS is identical to UK GAAP Everything

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Appendix D

Statement of Accounting Policies General Principles The Statement of Accounts summarises the Councils transactions for the 2010/11 financial year and its position at the year-end of 31 March 2011. The accounts have been prepared in accordance with the Code of Practice on Local Council Accounting in the United Kingdom 2010/11: Based on International Reporting Standards issued by the Chartered Institute of Public Finance and Accountancy (CIPFA) (referred to as “the CODE” in the following notes) and the Accounts and Audit Regulations 2003, as amended. The accounting convention adopted in the Statement of Accounts is principally historical cost, modified by the revaluation of certain categories of non-current assets and financial instruments. Accruals of Income and Expenditure Activity is accounted for in the year that it takes place, not simply when cash payments are made or received. Such sums due or payable at year-end are included as debtors and creditors and are estimated where the exact amount is not known. Exceptionally, in some cases actual payments are brought into account as they arise rather than being strictly apportioned between financial years e.g. electricity and gas charges. The effect on income and expenditure account is not material. Non cheque book schools are accounted for on a cash basis. Cash and Cash Equivalents Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24 hours. Cash equivalents are highly liquid investments that are readily converted to known amounts of cash within a short timescale and are available to meet short term cash commitments. Those investments that will mature within three months from the date of acquisition are treated as cash equivalents. Prior Period Adjustments / Changes in Accounting Policies As a result of the conversion of the accounts to IFRS a number of new accounting policies and amendments to existing accounting policies have been necessary. This has resulted in a number of prior period adjustments. This is shown in the reconciliation in note x. Charges to Revenue for Non-Current Assets Services, support services and trading accounts are debited with the following amounts to record the cost of holding non-current assets during the year:

• depreciation attributable to the assets used by the relevant service

• revaluation and impairment losses on assets used by the service where there are no accumulated gains in the Revaluation Reserve against which the losses can be written off

• amortisation of intangible non-current assets attributable to the service.

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The Council is not required to raise council tax to fund depreciation, revaluation and impairment losses or amortisations. However, it is required to make an annual contribution from revenue towards the reduction in its overall borrowing requirement. Depreciation, revaluation and impairment losses and amortisations are therefore replaced by the contribution in the General Fund Balance (MRP), by way of an adjusting transaction with the Capital Adjustment Account in the Movement in Reserves Statement for the difference between the two. Employee Benefits Benefits Payable During Employment Short-term employee benefits are those due to be settled within 12 months of the year-end. They include such benefits as wages and salaries, paid annual leave and paid sick leave, bonuses and non-monetary benefits for current employees and are recognised as an expense for services in the year in which employees render service to the Council. An accrual is made for the cost of holiday entitlements earned by employees but not taken before the year-end which employees can carry forward into the next financial year. The accrual is made at the wage and salary rates applicable in the following accounting year, being the period in which the employee takes the benefit. The accrual is charged to Surplus or Deficit on the Provision of Services, but then reversed out through the Movement in Reserves Statement so that holiday benefits are charged to revenue in the financial year in which the holiday absence occurs. Termination Benefits Termination benefits are amounts payable as a result of a decision by the Council to terminate an officer’s employment before the normal retirement date or an officer’s decision to accept voluntary redundancy and are charged on an accruals basis to the Non Distributed Costs line in the Comprehensive Income and Expenditure Statement when the Council is demonstrably committed to the termination of the employment of an officer or group of officers or making an offer to encourage voluntary redundancy. Where termination benefits involve the enhancement of pensions, statutory provisions require the General Fund balance to be charged with the amount payable by the Council to the pension fund or pensioner in the year, not the amount calculated according to the relevant accounting standards. In the Movement in Reserves Statement, appropriations are required to and from the Pensions Reserve to remove the notional debits and credits for pension enhancement termination benefits and replace them with debits for the cash paid to the pension fund and pensioners and any such amounts payable but unpaid at the year-end. Post Employment Benefits As part of the terms and conditions of employment of its officers and other employees, the Council offers retirement benefits. Although these benefits will not actually be payable until the employee retires, the Council has a commitment to make the payments that need to be disclosed at the time that employees earn their future entitlement. Employees of the Council are members of four separate pension schemes:

• The Local Government Pensions Scheme,

• The Firefighters Pensions Scheme,

• The New Firefighters Pension Scheme, and

• The Teachers’ Pension Scheme. Local Government Pension Scheme The Gloucestershire Local Government Pension Scheme for civilian employees is administered by Gloucestershire County Council. The assets of the scheme are

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separately held in a Committee administered fund acting as trustees – it is a statutory scheme, administered in accordance with the Local Government Pension Scheme Regulations 1997 and 2007/2008, as amended. A separate annual audit is carried out by the Audit Commission. The scheme is contracted out of the State Second Pension and is a funded, defined benefit, final salary scheme, meaning that Gloucestershire County Council and employees pay contributions into a fund, calculated at a level intended to balance the pension liabilities with investment assets. Retirement benefits are determined independently of the investment of the scheme and employers have obligations to make contributions where assets are insufficient to meet employee benefits. Firefighter’s Pension Scheme The two Firefighter schemes are unfunded defined benefit final salary schemes administered by Gloucestershire County Council, meaning that there are no assets built up to meet the pension liabilities and cash has to be generated to meet actual pension payments as they eventually fall due. Annual pension costs are met from defined employee contributions and charges to the Fire and Rescue Service revenue account. Teachers The Teachers Pension Scheme (TPS) is an unfunded, multi-employer pension scheme. However, Gloucestershire County Council is unable to identify its share of the underlying assets and liabilities of the scheme. In compliance with the CODE, the Council is reporting the Scheme as if it were a defined-contribution scheme. Financial Instruments A Financial Instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another. The term financial instrument covers both financial assets and liabilities. All financial instruments held by the Council are reviewed in accordance with the CODE. Arrangements to establish the subsequent carrying value and recognition of any gains and losses, and accounting entries are made as applicable. All adjustments are detailed in the consolidated notes to the accounts. Government Grants and Contributions Revenue grants received are credited to the Income and Expenditure Account and matched with expenditure. They are accounted for on an accruals basis and recognised in the accounts when the conditions for their receipt have been complied with, and there is reasonable assurance that the grant or contribution will be received. Grants received to cover general expenditure are credited to the foot of the Income and Expenditure Account. Monies advanced as grants and contributions for which conditions have not been satisfied are carried in the Balance Sheet as creditors. When conditions are satisfied, the grant or contribution is credited to the relevant service line or Taxation and Non-Specific Grant Income (non-ringfenced revenue grants and all capital grants) in the Comprehensive Income and Expenditure Statement. Where capital grants are credited to the Comprehensive Income and expenditure Statement, they are reversed out of the General Fund Balance in the Movement in Reserves Statement. Where the grant has yet to be used to finance capital expenditure, it is posted to the Capital Grants Unapplied reserve. Where it has been applied, it is posted to the Capital Adjustment Account. Amounts in the Capital

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Grants Unapplied reserve are transferred to the Capital Adjustment Account once they have been applied to fund capital expenditure.

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Area Based Grant Area Based Grant (ABG) is a general grant allocated by central government directly to local authorities as additional revenue funding. ABG is non-ringfenced and is credited to Taxation and Non-Specific Grant Income in the Comprehensive Income and Expenditure Statement. Inventories and Work in Progress All stocks recognised in the Balance Sheet are held at the lower of historical cost and net realisable value with the exception of road salt which is held at current market value. Certain stocks have not been valued (e.g. office stationery). Externally chargeable work in progress has been valued at the current time cost incurred at the Balance Sheet date. Investment Property Investment properties are those that are used solely to earn rentals and/or for capital Appreciation. The definition is not met if the property is used in any way to facilitate the delivery of services or production of goods or is held for sale. The Council do not hold any investment properties. Jointly Controlled Operations and Jointly Controlled Assets Jointly controlled operations are activities undertaken by the Council in conjunction with other venturers that involve the use of the assets and resources of the venturers rather than the establishment of a separate entity. The Council recognises on its Balance Sheet the assets that it controls and the liabilities that it incurs and debits and credits the Comprehensive Income and Expenditure Statement with the expenditure its incurs and the share of income it earns from the activity of the operation. Jointly controlled assets are items of property, plant or equipment that are jointly controlled by the Council and other venturers, with the assets being used to obtain benefits for the venturers. The joint venture does not involve the establishment of a separate entity. The Council accounts for only its share of the jointly controlled assets, the liabilities and expenses that it incurs on its own behalf or jointly with others in respect of its interest in the joint venture and income that it earns from the venture. Leases The Balance Sheet does not include the value of vehicles and equipment held under operating leases since they do not pass into the ownership of the Council. Annual lease rentals have been charged to service revenue accounts. Information on rentals paid to lessors together with details of outstanding liability is shown in Note x. Leases are classified as finance leases where the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the property, plant or equipment from the lessor to the lessee. All other leases are classified as operating leases. Where a lease covers both land and buildings, the land and buildings elements are considered separately for classification. Arrangements that do not have the legal status of a lease but convey a right to use an asset in return for payment are accounted for under this policy where fulfilment of the arrangement is dependent on the use of specific assets.

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The Council as Lessee Finance Leases Property, plant and equipment held under finance leases is recognised on the Balance Sheet at the commencement of the lease at its fair value measured at the lease’s inception (or the present value of the minimum lease payments, if lower). The asset recognised is matched by a liability for the obligation to pay the lessor. Initial direct costs of the Council are added to the carrying amount of the asset. Premiums paid on entry into a lease are applied to writing down the lease liability. Contingent rents are charged as expenses in the periods in which they are incurred. Lease payments are apportioned between:

• a charge for the acquisition of the interest in the property, plant or equipment – applied to write down the lease liability, and

• a finance charge (debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement).

Property, Plant and Equipment recognised under finance leases is accounted for using the policies applied generally to such assets, subject to depreciation being charged over the lease term if this is shorter than the asset’s estimated useful life (where ownership of the asset does not transfer to the Council at the end of the lease period). The Council is not required to raise council tax to cover depreciation or revaluation and impairment losses arising on leased assets. Instead, a prudent annual contribution is made from revenue funds towards the deemed capital investment in accordance with statutory requirements. Depreciation and revaluation and impairment losses are therefore substituted by a revenue contribution in the General Fund Balance, by way of an adjusting transaction with the Capital Adjustment Account in the Movement in Reserves Statement for the difference between the two. Operating Leases The Council identified two leases that met the criteria of a finance lease, however the joint value came to only £123,000 which is below our trivial amount therefore it has been agreed not to reclassify the leases. The Council as Lessor Finance Leases Where the Council grants a finance lease over a property or an item of plant or equipment, the relevant asset is written out of the Balance Sheet as a disposal. At the commencement of the lease, the carrying amount of the asset in the Balance Sheet (whether Property, Plant and Equipment or Assets Held for Sale) is written off to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement as part of the gain or loss on disposal. A gain, representing the Council’s net investment in the lease, is credited to the same line in the Comprehensive Income and Expenditure Statement also as part of the gain or loss on disposal (ie netted off against the carrying value of the asset at the time of disposal), matched by a lease (long-term debtor) asset in the Balance Sheet. Lease rentals receivable are apportioned between:

• a charge for the acquisition of the interest in the property – applied to write down the lease debtor (together with any premiums received), and

• finance income (credited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement).

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The gain credited to the Comprehensive Income and Expenditure Statement on disposal is not permitted by statute to increase the General Fund Balance and is required to be treated as a capital receipt. Where a premium has been received, this is posted out of the General Fund Balance to the Capital Receipts Reserve in the Movement in Reserves Statement. Where the amount due in relation to the lease asset is to be settled by the payment of rentals in future financial years, this is posted out of the General Fund Balance to [the Deferred Capital Receipts Reserve (England and Wales) or Capital Receipts Reserve (Scotland)] in the Movement in Reserves Statement. [When the future rentals are received, the element for the capital receipt for the disposal of the asset is used to write down the lease debtor. At this point, the deferred capital receipts are transferred to the Capital Receipts Reserve (England and Wales).] The written-off value of disposals is not a charge against council tax, as the cost of non-current assets is fully provided for under separate arrangements for capital financing. Amounts are therefore appropriated to the Capital Adjustment Account from the General Fund Balance in the Movement in Reserves Statement. The Council did not find any finance leases where we are the lessor. Overheads and Support Service Costs These costs are charged to service areas using a variety of apportionment bases appropriate to the particular service provided, in accordance with the costing principles of the CIPFA Best Value Accounting Code of Practice 2010/11 (BVACOP). The two cost categories identified under BVACOP that are not charged out to service are Corporate and Democratic Core Costs, and Non Distributed Costs. These are accounted for under separate headings within the Income and Expenditure Account. Tangible Assets - Property, Plant and Equipment Assets that have physical substance and are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and that are expected to be used during more than one financial year are classified as Property, Plant and Equipment. Non-current assets are valued as recommended by CIPFA, and in accordance with the Statement of Asset Valuation Practice and Guidance Notes issued by the Royal Institute of Chartered Surveyors. Assets are classified into the groupings required by the code. The basis of valuation is explained in note x. Assets are assessed at year end as to whether there is any indication that an asset may be impaired. Impairment is caused either by a consumption of economic benefits or a general fall in prices. We have adjusted for impairment to reflect a general change in prices on our land and buildings non-current assets. Note x explains the assessment carried out and impact on the balance sheet. Upward revaluations are credited to the Revaluation Reserve. Where a downward revaluation occurs (an impairment) if this is due to a general change in property prices, the amount is debited to the Revaluation Reserve up to the value of previous accumulated revaluation gains. Any further devaluation below depreciated historic cost is charged to the Income and Expenditure Account. If the impairment loss is similar in nature to depreciation, e.g. as a result of physical damage, all the loss is charged to the Income and Expenditure Account. The Revaluation Reserve was created with a zero balance on the 31st March 2007.

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Expenditure that is not considered to add equivalent value to an asset is recognised in the Comprehensive Income and Expenditure Account. In the Comprehensive Income and Expenditure Account service revenue accounts are charged with depreciation on all operational assets (where appropriate) except land & assets held for sale, i.e. all tangible non-current assets used on the delivery of services. Depreciation on non-operational assets such as surplus property is charged to unapportionable central overheads. Assets under construction do not generate a charge. Depreciation charges and impairments do not have an effect on the amounts required to be raised from local taxation. The amounts included in the net cost of services in the Income and Expenditure Account are reversed by entries in the Capital Adjustment Account and the Statement of Movement on the General Fund Balance. The Revaluation Reserve shows the amount of the balance sheet value of non-current assets that has arisen from revaluations rather than from actual historic cost. The Capital Adjustment Account contains the entries that are necessary to reflect the departures from standard practice that need to be taken into account in determining the movement on the General Fund balance. Community Assets Community Assets are those that the council intends to hold in perpetuity, which have no determinable life and may have restrictions on their disposal. Such assets that the council holds are country parks. These are Barrow Wake Viewpoint, Kilkenny Viewpoint, Crickley Hill Country Park, Coaley Peak Viewpoint & Picnic Site and Coopers Hill Nature Reserve. The nature of the assets and their acquisition means that the assets have a nil valuation and do not appear on the balance sheet. Depreciation/Amortisation Assets, except land and assets held for sale, are being depreciated over their useful economic lives using the straight-line method over the following periods: Buildings Permanent up to 70 years Temporary 20-25 years Leased period of lease Infrastructure roads and street lighting 25 years bridges 120 years footpaths and footbridges 7 years vehicles, plant, furniture and equipment 5 –10 years Intangible assets are amortised over their useful economic lives using the straight-line method as shown below: Purchased Software Licences Up to 20 Years Internally developed Software Up to 10 Years Basis for Redemption of Debt The Council finances a proportion of its capital investment by raising loans. In accordance with the Local Authorities Capital Financing and Accounting Regulations 2003 as updated, the Income and Expenditure Account has been charged with an amount that is sufficient to redeem a specified statutory percentage of outstanding

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debt. The statutory figure is called the Minimum Revenue Provision (MRP). In accordance with the legislation the Council apply a 4% reducing balance for existing debt, and an asset life methodology for debt from 2008/09 whereby the charge is equal over the life of the asset (note x). Intangible Assets Intangible assets are non-financial non-current assets that do not have physical substance but are identifiable and are controlled by the entity through custody or legal rights. The Council’s intangible assets consist of purchased Software licences which are capitalised at cost, and internally developed software.. Internally generated assets such as software are capitalised where it is demonstrable that the project is technically feasible and is intended to be completed and the Council will be able to generate future economic benefits or deliver service potential by being able to sell or use the asset. Expenditure is capitalised where it can be measured reliably as attributable to the asset and is restricted to that incurred during the development phase (Research and expenditure can not be capitalised). Donated Assets Donated assets are assets transferred at nil value or acquired at less than fair value. The Council has identified one donated asset which is Kingsway Primary school during 2009-10, the conditions have been met therefore the asset has been recognised in the comprehensive Income & Expenditure Statement as Income for the restated accounts. After initial recognition, donated assets shall be revalued and depreciated in line with the Code. Private Finance Initiative (PFI) scheme PFI contracts are agreements to receive services, where the responsibility for making available the non-current assets needed to provide the services passes to the PFI contractor. The Council, in partnership with Avon Fire Council and Devon and Somerset Fire Council has invested in a PFI project to provide a Fire and Rescue Service training centre (see note x). The Government provides some revenue support to the project in the form of grants (PFI credits), and the three authorities finance the balance by making contributions from within their own resources. Originally the annual grant was received on a sliding scale, with a disproportionate amount being received in the first nine years of the contract. In order to spread the contributions more evenly over the life of the contract an equalisation fund is operated whereby surplus Government grants and Council contributions in the early years were invested and used to reduce contributions in the later years. From 1st April 2005 a new system of grant payment was introduced which makes equal instalments throughout the life of the contract. The fund was reviewed during 2005/06 and it was agreed that the three authorities reduce their funding by £90,000 per annum due to the estimated surplus in the final balance. The Council’s share of this fund (25%) is included in the Balance Sheet as a reserve; the other partner’s shares, Avon Fire Council (50%) and Devon and Somerset Fire Council (25%) are included as long-term liabilities.

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The provisions included in the CODE require PFI and similar contracts to be accounted for in accordance with IFRIC 12. As a result of this our share of the asset has been brought onto the balance sheet. Details are included in note x

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Provisions, Contingent Liabilities and Contingent Assets Provisions are established to cover known obligations or liabilities that are known to exist at the balance sheet date. In these instances, services have been charged expenditure in anticipation of the liability having been met. When payments are eventually made, they are charged to the provision carried in the Balance Sheet. Estimated settlements are reviewed at the end of each financial year and where it becomes less than probable that a transfer of economic benefits will now be required, or a lower settlement than anticipated is made, the provision is reversed and credited back to the relevant service. Details of provisions are shown in note x. A specific bad debt provision had been estimated by considering the probability of recovery of individual debtor invoices. The specific provision is based upon all known information about the debtor including financial position of the debtor, the age of the invoice and current credit control status of the invoice. In addition to the specific provision, a prudent general provision has been made to take into account the likelihood of bad debt arising as a result of the current economic conditions. Landfill Allowance Scheme (LATS) LATS, whether allocated by Defra or purchased from another waste disposal authority are recognised as current assets and are initially measured at fair value. LATS allocated by Defra are accounted for a government grant. After initial recognition, allowances are measured at the lower of cost and net realisable value. As landfill is used, a liability and an expense are recognised. Reserves In addition to its general revenue balances, the County Council has maintained specific reserves for future expenditure and to protect against unexpected events. Details are shown in note x. Certain reserves are kept to manage the accounting processes for tangible non-current assets and retirement benefits. These reserves do not represent usable resources to the Council, and are explained further in the appropriate policies and notes to the accounts. Revenue Expenditure Funded from Capital under Statute Expenditure incurred during the year that may be capitalised under statutory provisions but that does not result in the creation or enhancement of a non-current asset has been charged as expenditure to the relevant service in the Comprehensive Income and Expenditure Statement in the year. Where the Council has determined to meet the cost of this expenditure from existing capital resources or by borrowing, a transfer in the Movement in Reserves Statement from the General Fund Balance to the Capital Adjustment Account then reverses out the amounts charged so that there is no impact on the level of council tax. VAT VAT payable is included as an expense only to the extent that it is not recoverable from Her Majesty’s Revenue and Customs. VAT receivable is excluded from income.

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The audit and inspection of local authorities

Memorandum from the Department for Communities and Local Government

1. Summary and introduction

The Audit Commission was set up in 1983 to audit local authorities, to improve the quality of local audit and to promote and develop value for money studies. This role expanded over time to include audit of other organisations, such as local health bodies, and an increasing amount of inspection activity across the local government sector. In particular, from 2002 (2003 for district councils), the Commission was responsible for the system of Comprehensive Performance Assessment, which itself was replaced from April 2009 by the Comprehensive Area Assessment regime.

Following its establishment, the Audit Commission increased the professionalism and quality of local government audit, and its in-house audit practice continues to be well-respected. However, the Commission also became overly focused on reporting to central government and supporting Whitehall oversight of local bodies

The Government is clear that such centralised inspection and supervision is both an unnecessary burden on frontline services and is detrimental to the genuine local accountability that is essential if local services are to be efficient and meet the needs and aspirations of local communities.

Accordingly, on 25 June 2010, the Government instructed the Audit Commission and five other inspectorates to stop Comprehensive Area Assessments. On 13 August 2010, the Government announced plans to disband the Audit Commission. These decisions are part of a fundamental shift in power away from central government to councils and communities, overturning decades of increasing central government control.

This memorandum outlines how the Government is taking forward the establishment of a new, more localist, audit regime for local public bodies, and the underlying principles on which the Government believes any such regime should be based. Given the terms of reference for this inquiry, the memorandum largely addresses these issues from a local government perspective.

As Ministers have made clear to Parliament, the Government is developing proposals for a new local audit regime with the Audit Commission, the National Audit Office, the Financial Reporting Council, local government, audit firms and other interested parties. Close involvement of the Audit Commission in this work is essential to secure an effective transition, and the Department is grateful for the Commission’s constructive participation.

The Government will be seeking views widely on the proposals, and will want to have careful regard to the Select Committee’s report. A first

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consultation on the details of a new audit framework is planned for early in 2011, and the Government envisages that it may subsequently publish a draft Bill for pre-legislative scrutiny, ahead of the final introduction of legislation to Parliament. Following such consultation and scrutiny it is the Government’s intention to introduce the necessary legislation at the earliest opportunity.

As to the underlying principles, local bodies – councils and local health bodies - will continue to be subject to robust and efficient auditing that follows the established principles of public audit. Any new local audit regime will provide full and appropriate accountability, ensuring that local authorities are effectively accountable to local communities for their spending decisions. Local audits would thus continue to have the wide scope of public audit, covering the audit of financial statements, regularity, propriety, and value for money.

The Government considers that the current arrangements for local audit, whereby a single organisation - the Audit Commission - is the regulator, commissioner and provider of local audit services are inefficient and unnecessarily centralised. Accordingly, the Government intends to move the work of the Audit Commission’s in-house practice into the private sector. It will put in place new arrangements, with stringent safeguards to ensure independence, for councils to appoint their auditors, and for the appointment of auditors to local health bodies.

For the future, the Government envisages that the National Audit Office, given its role in providing Parliament with assurance on public spending, would have oversight of auditing standards; the professional accountancy bodies, as supervisory bodies under the oversight of the Financial Reporting Council, would maintain a register of firms and auditors that are eligible to undertake local public audit engagements; and quality assurance and monitoring of audits, under the Financial Reporting Council’s oversight, would be undertaken by the supervisory bodies and the Council’s Audit Inspection Unit (in the case of larger local bodies) .

The Audit Commission’s inspection activities will stop. In future, any central inspection will be focused on the most vulnerable, for example to help maintain high standards in children’s services and adult social care. Intervention will focus on cases of serious risk or failure. The Commission’s National Fraud Initiative should continue, and this Department is in discussions with a number of bodies that have expressed an interest in taking on the Initiative. The Audit Commission’s research activities, including its value for money studies, will cease. The National Audit Office’s value for money studies will be able, as they can currently, to cover activities of local bodies.

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2. The work of the Audit Commission

1. The Audit Commission was set up in 1983 as a self-funding, independent body to secure the audit of local authorities, promote and undertake value for money studies and to increase both the expertise of government auditors and the impact of external audit.

2. The Audit Commission’s role developed under successive governments until, at the time of the last General Election, it encompassed:

A) Audit of local authorities, NHS Trusts and other local bodies in England. A full list of bodies audited by the Commission is at Annex A.

B) Assessment and inspection of the performance of councils, fire and rescue services and housing association.

C) Research (including value for money studies), on a wide range of social and financial issues.

D) Assurance functions, including data-matching through the National Fraud Initiative and grant certification on behalf of Government Departments.

3. Audit of expenditure by local public bodies

The current local audit regime

3. The Audit Commission currently combines within one body the regulation and commissioning of public audit, as well as providing auditors for 70% of local bodies. The Government is committed to strengthening democratic accountability and decentralisation of decision making. As part of that, it is committed to developing a decentralised approach to the external audit of public bodies.

The Commission as Regulator

4. As regulator of the current local audit regime, the Commission sits alongside and partially overlaps the more extensive audit regulatory regime of the Companies Act audit sector. The Government considers that having a specific regulator for the local government sector and the local health sector is inefficient and risks duplication.

5. The Government therefore believes there should be a single regulatory regime for audit, covering the private sector and the local government and local health sectors. This single regime can be more readily tailored to local accountability – in the way that the commercial sector is tailored to shareholders – rather than accountability to central government, as is the case with the Commission.

6. However, the local audit regime cannot entirely replicate the private sector regime because of the need for accountability to Parliament and Government

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and the nature of the activities required to provide those assurances. It is also necessary for the audit of public bodies to follow the principles of public audit.

The Commission as Commissioner of Services

7. The Audit Commission currently appoints all auditors of the local bodies listed in Schedule 2 of the Audit Commission Act 1998 (as amended). However, the Government believes that, in the case of elected local bodies, centralised commissioning of audit services is fundamentally inconsistent with the concept of accountability to the electorate. Under the Government’s proposals, authorities would appoint their own auditors. However, the principle of auditor independence will be retained as a cornerstone of the new regime. In this respect, independence encompasses the methods of appointment of auditors, the financial relationship between auditors and audited body, discretion in the amount of work necessary, the ability to follow up recommendations, and free access to information.

The Commission as Audit Provider

8. The Audit Commission’s in-house audit practice provides auditors to 70% of local public bodies, with the remaining 30% of auditors employed by accountancy firms under contract to the Commission. The Commission sets fees for auditing work on a ‘post office pricing’ basis, whereby all principal authorities pay the same rates, which include a surcharge of around 20% to cover the costs of the Commission’s work. The direct commissioning of audit services by the local bodies should therefore reduce fees by removing the Commission’s overheads.

9. The in-house audit practice is well respected and has consistently done a good job. However, the Government does not believe that there is a rationale for the audit practice - the fifth largest provider of audit services in the UK – remaining in the public sector. The Government expects that the commissioning of audit services directly, and through a genuinely competitive process will be more efficient, effective and locally accountable than the current arrangements.

The proposed new audit regime

10. Subject to consultation and Parliamentary approval, the new regime will consist of:

Regulation – The Government expects regulation, monitoring and quality control to be undertaken one or more of the accountancy professional bodies, with independent oversight provided by the Financial Reporting Council and its operating bodies. The Financial Reporting Council would have direct responsibility for certain matters: for example its Audit Inspection Unit would carry out the monitoring of the largest public interest audits. The National Audit Office would provide the necessary oversight of auditing standards, including responsibility for developing and maintaining the audit codes and supporting guidance.

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Commissioning – auditors would be appointed by local bodies with appropriate stringent safeguards built into the audit framework to ensure audit independence is maintained. Competitive appointment will be from those licensed in accordance with the regulatory regime, bringing an end to centralised commissioning.

Provision - audit would be undertaken by private sector commercial firms, licensed by the regulator and appointed through a competitive process, charging commercial market rates.

11. The design principles underpinning the new local audit regime include maintaining audit standards and ensuring independence, competence and quality.

12. The Government expects that the scope of audit will cover:

regularity and propriety – the auditor would need to be satisfied regarding compliance with legal requirements and control mechanisms

financial statements – the auditor would give an opinion as to the whether accounting statements give a true and fair view of the financial position and of income and expenditure

value for money - the auditor would need to be satisfied as to whether there have been effective arrangements to secure economy, efficiency and effectiveness

financial resilience – the auditor would need to be satisfied as to whether there are any risks to the future financial sustainability and whether mitigation action taken.

The scope of audit would be set out in the audit codes and supporting guidance that would be developed and maintained by the National Audit Office.

13. Auditors would still consider matters in the public interest through public interest reports. They would be able to undertake, possibly as part of a wider team, further inspections, such as corporate governance inspections, where they considered this necessary to meet their public interest responsibilities. They could also carry out such inspections if requested to do so by the audited body, one of the continuing inspectorates or the Secretary of State. More generally, auditors would be able to undertake audit-related value for money investigations, with the agreement of the body.

14. To help ensure independence, the Government envisages that councils would be able to appoint the same audit firm for a fixed number of years, but they would not be able to reappoint the same responsible individual for successive periods. The new regime would ensure that members of public could still make representations to auditors.

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15. The Government is considering very carefully how to treat parish and town councils and other small bodies under the new framework, to ensure that a proportionate approach is adopted, perhaps similar to that which applies to small companies and charities.

Consultation

16. The Government intends to consult on the detail of the new local audit framework early in 2011. It also envisages that it may publish a draft bill to allow full scrutiny of the proposed legislative framework, ahead of final introduction of legislation in Parliament.

Transferring in-house audit work to the private sector

17. The Government is working with the Commission and other partners to develop and assess a range of options for the transfer the work of the Commission’s in-house audit practice to the private sector. In assessing options, it will seek to secure strong value for money for taxpayers, including local taxpayers. The Government would be happy to see a mutual set up by existing Audit Commission staff, if this proves to be appropriate and practical.

Timetable

18. The Government has stated that reforms to the local audit regime are likely to take effect from 2012/13. However, it will take account of the views expressed by the Select Committee and responses to the planned consultation on the new local audit framework and will review the implementation timetable in the light of these views.

4. Oversight and inspection of local authority performance

Background

19. Inspection and assessment have played an increasing role in the governance of public bodies, including local authorities. From April 2009, the main programme of inspection and assessment for local authorities was the Comprehensive Area Assessment, which attempted to provide an overall picture of how councils and their partners were delivering services and outcomes for local people.

20. However, inspection and assessment placed costly burdens on local service providers and made them focus on reporting to central government rather than delivering the services their citizens wanted. For this reason, the Comprehensive Area Assessment was abolished in June 2010.

21. The Government is decentralising power in many areas of local authorities’ work, including education, health, and housing. In November 2010, this Department announced the end to the strategic housing inspections previously carried out by the Audit Commission. The Department of Health also announced the ending of annual performance assessments of councils under

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the Care Quality Commission’s current framework, while Ofsted announced, in December 2010, the phasing out of the annual children’s services assessment.

Increasing local accountability

22. Local government performance has improved over a number of years, and local authorities are well placed to deliver services that local people want, independent of central control. The Government wants to free up local authorities to enable them to be innovative in the delivery of services, rather than merely seeking to raise performance against centrally established criteria to achieve good inspection results. Local authorities will have the freedom to deliver services in ways that meet local needs, and will be accountable for those services to their electorates. These principles are key elements of localism.

23. The Government is committed to increasing transparency across Whitehall and local authorities and will make data more readily available to the citizen to allow them to hold politicians and public bodies to account. The Secretary of State has called upon councils to increase transparency and openness by publishing information on senior salaries, councillor allowances and all spending over £500. These are first steps, but the Government is considering other types of data that should be more accessible, such as council minutes and papers, performance data, food hygiene reports and licensing applications. Greater transparency will help root out overspending and waste in local government.

24. A key part of the change will be putting information into the public domain in an accessible and readily comparable format so people have access to the information they need to judge the performance of their local service providers, and hold them to account. National government will still have a role to play in aggregating data of national importance, or to allow accountability to Parliament, but it is for local authorities to provide local residents with the data they need.

25. This Department is putting together the single data list of all the data that central government requires from local government. The principal aim is to reduce the burden of data collection on local government, but all of the data is being assessed to ensure that it needs to be aggregated at the national level. The exercise will provide a transparent catalogue of all data that central government collects from local government.

26. The Government is also committed to creating a new ‘right to data’ to empower citizens to request access to government-held datasets if they feel they need more information. The Government fully supports the work being done by local government as part of the Place Based Productivity Programme to develop effective benchmarking tools to allow citizens to compare their local council's performance against others.

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Future of inspection and the role of Inspectorates

27. Approaches to inspection and assessment of local authorities are being developed across Government in the light of the decentralisation and localism agenda. Key principles include independence from the service providers and accountability for the most vulnerable. The benefits of inspection must outweigh the costs, including those of the inspected body. Those local service inspectorates that remain must provide credible judgements for the public and have a clearly defined purpose which focuses on public protection. The sharing of information by inspectorates can help identify where service failures in one part of an authority are linked to broader questions about the authority’s capacity to manage its overall corporate responsibilities effectively.

28. The Department for Education is working with Ofsted, which is making changes to its inspection arrangements to reduce costs and burdens, re-focus on key priorities and ensure they are proportionate. The statutory duty on Ofsted to publish an annual rating for children’s services will be repealed as soon as a suitable legislative slot is identified. Details of future changes to safeguarding and children’s social care inspection, and early years and childcare inspection reforms will be informed by the results of the reviews carried out by Professor Eileen Munro and Dame Clare Tickell. Extensive reforms to schools inspection are already underway.

29. The Department of Health has agreed a new approach to the assessment and inspection of councils. The annual assessment of councils as commissioners of adult social care has been discontinued, and the Care Quality Commission will no longer publish information about council performance. This new approach will see a shift towards more sector-led assessment, with councils taking greater responsibility for driving improvement. The Care Quality Commission will retain the ability to respond to concerns about council services by carrying out inspections. The Department of Health will continue to work with the Care Quality Commission and local government organisations to develop the detail of the new approach.

5. Research

30. The Audit Commission has undertaken research (including value for money studies) and produced national reports on a range of issues of interest to its customers. In 2008-2009 it produced twenty-three national reports including Tougher at the Top, about the role of local authority Chief Executives, WellDisposed, about how councils are responding to the challenge of reducing the amount of waste sent to landfill and Risk and Return, about how the collapse of banks in Iceland affected English local authorities.

31. However, local government and others outside of central Government are well-placed to decide when and where research should be undertaken. The Government expects that value for money will remain an important component of local audit. The National Audit Office, using its existing powers, will be able, when reporting to Parliament on the activities of central government

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departments, to directly examine the impact of policies administered by local bodies. This will contribute to parliamentary accountability, as well as providing useful insights for local communities.

32. It will also be possible for an auditor to undertake value for money studies connected to audit work, with the agreement of the audited body. In addition, the National Audit Office would be able to identify wider issues of concern about local bodies’ use of resources in general, should such issues be identified by the audit process.

6. Assurance functions

National Fraud Initiative

33. The National Fraud Initiative (NFI) is a data matching exercise, which is run under the Audit Commission’s statutory data matching powers. The NFI works within a strong legal framework, including the Data Protection Act 1998, which is designed to protect individuals' personal data.

34. The NFI plays an important role in protecting the public purse against fraud. For example, fraudsters often target different organisations at the same time, using the same fraudulent identities. The NFI combats this threat by comparing or ‘matching’ information held by different organisations and within organisations to identify anomalies that indicate potentially fraudulent claims and overpayments.

35. A key strength of the NFI is that it brings together a wide range of bodies in tackling fraud. It helps individual organisations go beyond what they could do acting alone. The last NFI exercise in 2008/09 processed some 8,000 datasets from 1,300 organisations, including 100 from the private sector; It helped trace £215m in fraud, error and overpayments bringing the total detected since it started in 1996 to £664m

36. The Government is currently considering how the function might be delivered in the new audit environment and is discussing this with other bodies that have an interest in ensuring its future. In the meantime the 2010-11 exercise is continuing as normal.

Grant certification

37. Under section 28 of the Audit Commission Act 1998, the Audit Commission makes arrangements for certifying claims and returns in respect of grants or subsidies from Government Departments. Auditors also certify other financial returns such contributions payable to the national non domestic rating pool, and the Commission provides significant technical guidance, advice, tools and system support for auditors.

38. Certification work is separate from audit and is a form of assurance engagement designed to provide assurance for the accounting officers of the

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grant paying bodies and contribute to the assurance sought by the National Audit Office when auditing grant-paying bodies.

39. It is the Commission, rather than its appointed auditors, that has the responsibility for making certification arrangements. In discharging this function the Commission works with each of the grant paying bodies to develop certification instructions specific to each grant scheme, and which must be followed by auditors appointed by the Commission. It also provides technical guidance, advice and tools to auditors and the grant paying bodies to ensure a consistent approach.

40. In future, the Government envisages that grant certification will be undertaken by the external auditor. The certification arrangements will continue to be proportionate to the amount of the claim and the auditors’ assessment of the control environment involved.

7. Conclusion

41. In conclusion, the Government has already removed burdens on local authorities and is committed to reducing further central Government control and monitoring. It is disbanding the Audit Commission and refocusing audit on helping local people to hold councils and local public bodies to account for local spending decisions.

42. The Government is working with a wide range of partners to design a new local audit regime, and prepare the in-house practice for transfer to the private sector, wind down the Commission and transfer any residual functions that are to be retained. The primary legislation necessary to make these changes will be introduced at the earliest opportunity. In the meantime, the Government will consult on its proposals for a new audit regime and will consider whether a draft bill would be helpful as a means of achieving early scrutiny of legislation.

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Annex A

List of bodies to which the Audit Commission appoints auditors

A local authority A joint authority The Greater London Authority A functional body The London Pensions Fund Authority The London Waste and Recycling Board A parish meeting of a parish not having a separate parish council A committee of a local authority, including a joint committee of two or more such authorities The Council of the Isles of Scilly Any Charter Trustees constituted under section 246 of the Local Government Act 1972A Health Service Body prepared under paragraph 3(1) of Schedule 15 to the National Health Service Act 2006 A port health authority The Broads Authority A national park authority A conservation board established by order under section 86 of the Countryside and Rights of Way Act 2000 A police authority established under section 3 of the Police Act 1996 A fire and rescue authority constituted by a scheme under Section 2 of the Fire and Rescue Services Act 2004 or a scheme to which section 4 of that Act applies An authority established for an area in England by an order under section 207 of the Local Government and Public Involvement in Health Act 2007 (joint waste authorities)A licensing planning committee An internal drainage board A local probation board established under section 4 of the Criminal Justice and Court Services Act A probation trust (other than a Welsh probation trust as defined in paragraph 13(6) of Schedule 1 to the Offender Management Act 2007 An economic prosperity board established under section 88 of the Local Democracy, Economic Development and Construction Act 2009 A combined authority established under section 103 of that Act The accounts of the collection fund of the Common Council and the accounts of the City fundThe accounts relating to the superannuation fund maintained and administered by the Common Council under the Local Government Pension Scheme Regulations 1995Passenger Transport Executive

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EXPLANATORY MEMORANDUM TO

THE ACCOUNTS AND AUDIT (ENGLAND) REGULATIONS 2011

2011 No. 817

1. This explanatory memorandum has been prepared by the Department for

Communities and Local Government and is laid before Parliament by

Command of Her Majesty.

2. Purpose of the instrument

2.1 The instrument is a revision and consolidation of regulations which

contain provisions on financial management, annual accounts and audit

procedures applying to local authorities and a number of other public bodies

who must be audited in accordance with the Audit Commission Act 1998

(‘relevant bodies’).

3. Matters of special interest to the Joint Committee on Statutory

Instruments

3.1 There has been a breach of the 21 day rule. The Department has had

problems with email correspondence. The email box to which consultation

responses had to be sent ceased functioning for a week at the end of the

consultation period (which is when most of the responses are

sent).Consultation responses were either sent back to the senders by the

Department’s email system and so were not received, or, even when they were

delivered to the Department’s email system, they were irrecoverable from the

email system. Nearly all consultation responses are sent by email these days.

3.2 As a result, the Department had to email all consultees and put a notice

on its website extending the consultation period for 4 days, and supply an

alternative email box for responses. Any consultees who had responded during

the period when the email system was not working were asked to resend their

responses. The timetable therefore had to be extended to give consultees a

proper chance to make their representations.

3.2 The date on which the regulations come into force cannot be extended,

because the changes are to have effect for the audit year 2010-11, which ends

on 31 March 2011. The bodies affected by these regulations have all been

consulted on the draft regulations, and so the changes in the law are being

anticipated by them.

4. Legislative Context

4.1 These regulations, made under the Audit Commission Act 1998, are

updated periodically to ensure that the requirements relating to the financial

management, annual accounts and audit procedures applying to relevant

bodies are appropriate for current practice.

Agenda Item 11

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5. Territorial Extent and Application

5.1 This instrument applies to England only.

6. European Convention on Human Rights

6.1 As the instrument is subject to negative resolution procedure and does

not amend primary legislation, no statement is required.

7. Policy background

What is being done and why

7.1 The regulations incorporate a number of amendments to the previous

regulations designed to take account of new developments and to apply the

Government policies of lifting burdens and increasing transparency to the

subjects covered by the regulations.

7.2 The definition of “smaller relevant body” is being amended to bring

more bodies within that category. The threshold of annual income or

expenditure (whichever is the higher) is being raised from £1 million to £6.5

million, but subject to an overriding requirement that no body which has the

freedoms given by the prudential system of capital controls (under Part 1 of

the Local Government Act 2003) can be a smaller relevant body. The

prudential system places responsibility on authorities to determine for

themselves the amount they can borrow, without central government approval.

Status as a smaller relevant body means that the body is subject to less onerous

accounting and audit requirements. Almost a hundred bodies are expected to

benefit from the change, mainly large parish councils, internal drainage boards

and joint committees.

7.3 The procedure for approving and publishing statements of accounts is

being amended for the larger relevant bodies to align it more closely with the

procedures applying to companies. The change will mean that members of the

body will be asked to approve the annual accounts after, rather than before, the

findings of the audit are known. This will mean they are better placed to make

an informed decision. This change has been recommended by professional

accountancy and audit organisations. It has not been possible to apply the

same change to smaller relevant bodies for procedural reasons connected with

the limited assurance audit regime that applies to them. But for these bodies it

is made clear that the approval members are required by the regulations to

give to their annual accounts is for the purpose of submission to the auditors,

rather than a final approval.

7.4 Regulation 17, which applies to Passenger Transport Executives

(PTEs), has been amended to facilitate their move to accounts based on

International Financial Reporting Standards (IFRS) on the same timetable as

their parent Integrated Transport Authorities and local government in general.

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The first IFRS based accounts will be prepared for 2010-11. This change is

made at the request of the PTEs.

7.5 The regulations no longer provide that failure to comply with any of

the regulations should constitute a criminal offence; previous regulations had

identified several of the regulations in this way. This change is in line with

Government policy to abolish obsolete or unnecessary criminal offences. It is

considered more appropriate, as a safeguard for compliance, to rely on duties

placed on the officers of authorities and the powers of auditors to report to the

public and to take action in the civil courts. This is in practice how the

regulations have been enforced in the past.

7.6 New requirements have been added for the larger bodies to place their

accounts and public notices on their websites.

Consolidation

7.7 The aim of the consolidation has been to make the regulations easier to

understand. They have been restructured to separate out provisions on the

annual accounts applying to smaller and larger relevant bodies. The

intertwining of different requirements affecting the two categories added to the

complexity of the regulations previously.

7.8 We have also taken the opportunity to simplify parts of the text of the

regulations which the numerous amendments over a period of years have

made difficult to follow. Spent provisions have been removed, and references

to statutory bodies updated.

8. Consultation outcome

8.1 In accordance with the consultation duty under the Audit Commission

Act 1998 we consulted with the Audit Commission, the Local Government

Association, London Councils, the National Association of Local Councils

(NALC), the Association of Drainage Authorities (ADA), the Chartered

Institute of Public Finance and Accountancy (CIPFA) and the Institute of

Chartered Accountants in England and Wales (ICAEW). We also notified all

principal local authorities of the consultation and invited responses from any

other organisations or persons interested.

8.2 The consultation period originally ran for a six week period from 24

January 2011. Subsequently this was extended to 8 March 2011 for the reason

explained in paragraph 3.1 above. A six week period was adopted in

accordance with the informal agreement with the Local Government

Association that consultation periods for technical material of this type need

not exceed six weeks. The changes proposed in the consultation reflected

extensive discussions with the key professional and representative

organisations before it was issued. The consultation paper included a draft of

the proposed regulations. The paper is available at:

http://www.communities.gov.uk/documents/localgovernment/pdf/1824755.pdf

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8.3 We received replies from 152 organisations or persons, including 5 of

the statutory consultees, 106 principal authorities, 28 parish councils or other

smaller bodies and 13 other persons or organisations. The responses were

overwhelmingly in favour of the changes proposed. The main issues raised in

the responses are discussed in the following paragraphs.

8.4 There was general support for the increase of the threshold for smaller

relevant bodies from £1 million to £6.5 million. The draft regulations

proposed that this change should take effect for the 2010-11 accounts. This

was supported by organisations representing the bodies affected (NALC and

ADA) and principal authorities concerned with joint committees affected. The

latter were particularly concerned that the change should apply for 2010-11, to

avoid the need to prepare accounts on an IFRS basis for such relatively small

bodies. However, the Audit Commission, supported by the ICAEW,

recommended that the change should be deferred by a year, so that it first

applied to the 2011-12 accounts. They justified this by significant practical

issues that, in their view, a change for 2010-11 would raise for the audited

bodies, the Commission and auditors. Accounts preparation and audit planning

would have been undertaken before the regulations were made, and a change

in the audit requirements might require the Commission to make new audit

appointments. In the Government’s view introducing the increased threshold

for 2010-11 would be manageable for the audited bodies affected (and they

have the option under the regulations to continue with larger body accounting

statements if they wish). The Government accepts that action may be needed

by the Commission to make new audit appointments, which may mean audits

are delayed for the first year of the change. The Government also accepts that

auditors may have undertaken work on the 2010-11 audits that would be

unnecessary with the change in status of the affected bodies and that this work

will have to be paid for. But the Government, having accepted that an increase

in the threshold was warranted, would find it difficult to justify requiring the

bodies affected to prepare accounts and receive audits at the higher level for a

further year, with the administrative burden and expense that this would entail.

The Government has decided therefore not to amend the regulations to defer

the implementation of the higher threshold.

8.5 The draft regulations proposed to require authorities to use their “best

endeavours” to publish their accounts by 30 September, and, for the smaller

bodies, to approve their accounts by 30 June. There was a general consensus,

supported by the Audit Commission, CIPFA and NALC, that this wording was

likely to lead to uncertainty and disputes, and a preference for a more definite

statement of the time limit. The Government has therefore amended the

wording to say that the bodies “must” comply with the time limits.

8.6 Three other changes have been made to the regulations in response to

points made in the consultation responses:

The requirement to produce a statement on internal control in

regulation 4(3) has been replaced with a duty to produce an annual

governance statement. This brings the regulations into line with current

professional guidance and general practice in local government.

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Some minor changes have been made to the provisions on internal

audit in regulation 6. Bodies are now required to “undertake”, rather

than “maintain”, an adequate and effective internal audit. A right of

access is now given to “documents and records” rather than

“documents of the body which relate to its accounting and other

records”. The new wording better reflects the current understanding of

the nature of internal audit and the items to which it needs access.

The arrangements for providing access each year for 20 working days

to a body’s accounts and supporting documents have been amended for

the smaller bodies. The consultation draft proposed that for most of

them access was available throughout the 20 days at a place and at

hours notified by public advertisement, but for the smallest access was

to be available after giving reasonable notice. In the final regulations

the arrangements for the smallest bodies have been extended to all the

smaller bodies. This lifts a burden on these bodies without prejudicing

the rights of the public.

8.7 A number of other recommendations were made in the consultation

responses. Suggestions were made for changes to the remuneration disclosures

required under regulation 7 and to the wider framework of public rights in

relation to the audit. In both cases it would not have been appropriate to make

changes in the current regulations. However, the suggested changes to the

remuneration disclosures will be considered for inclusion in future

amendments to the regulations, when they can be the subject of specific

consultation. Recommendations on changes to the wider framework would

require changes in primary legislation and can be considered in the preparation

of proposals for the arrangements to follow the disbanding of the Audit

Commission.

9. Guidance

9.1 No statutory guidance will be issued on the regulations. But, following

past practice with the Accounts and Audit Regulations, it is intended to issue a

circular letter to explain the changes made.

10. Impact

10.1 There is no impact on business, charities or voluntary bodies.

10.2 The impact on the public sector is to reduce burdens on almost 100

local public bodies by raising the threshold below which bodies are classed as

smaller relevant bodies (see paragraph 7.2 above).

10.3 An Impact Assessment has not been prepared for this instrument.

11. Regulating small business

11.1 The legislation does not apply to small business.

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12. Monitoring & review

12.1 The regulations will be reviewed as part of the preparation of the new

framework for local government audit to be introduced when the Audit

Commission is disbanded.

13. Contact

Graham Fletcher at the Department for Communities and Local Government

Tel: 0303 44 41740 or email: [email protected] can

answer any queries regarding the instrument.

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County Council – AGENDA ITEM

ANNUAL REPORT OF THE AUDIT COMMITTEE

A. MEMBERSHIP – Councillor Ron Allen has replaced Councillor Stephen

Glanfield on the committee as of January 2011. The Committee noted the sad death of Councillor Glanfield. The Committee welcomed Martin Robinson, the new District Auditor, who replaced Steve Malyn.

B. ANNUAL STATEMENT OF ACCOUNTS 2009/10 and ANNUAL

GOVERNANCE REPORT - The Committee has approved and signed the Annual Statement of Accounts for 2009/10 and received the Annual Governance report from the Audit Commission. The accounts received an unqualified audit opinion. The report provided a summary of the work undertaken during the audit of the Council’s accounts.

The Committee has also considered and approved the Letter of Representation which sets out the written confirmation that the Council had undertaken proper responsibility in relation to its financial activities.

C. EXTERNAL AUDIT REPORTS – The Committee has considered the Audit Commission Report on Planning for an Ageing Population. It is evident that Gloucestershire will have an increasing older population which will place increased financial pressure on the medium term financial strategies of public sector bodies involved. The proportion of older residents living in the county is high and is expected to increase at a faster rate than the national average over the next 20 years.

The committee agrees there is a risk to Gloucestershire’s public services and the task of balancing the growing demand for services against financial constraints will be difficult. The report highlighted a number of challenges that were fundamental to ensure the future service delivery, thus making it effective and affordable in Gloucestershire. The external care budget was overspending at the time of the audit and every effort is being made to reduce the deficit. As such, a review team as been established to look individual cases and care packages on offer. Also as part of the ongoing review process, different panels have been established to ensure robustness and that the appropriate packages are being offered to the people who need them.

The committee felt that the report should be discussed in more detail by providers of the service, so that an informed response could be collated. The report has been shared with the Primary Care Trust and other partners and

FOR INFORMATION AND

MEMBERS’ QUESTIONS

Agenda Item 12

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County Council – AGENDA ITEM

has been referred to the Health & Overview Scrutiny Committee who will report back to the September 2011 Audit Committee.

D. INTERNAL AUDIT – Members received reports on Internal Audit reviews and accepted progress made on recommendations contained in Internal and External Audit reports on the following areas of council business;

• Regulating Internet Usage

• Complex Needs (Social Care) Budget

• Information Security

• School Deficit Budgets

• Domiciliary Care – Contract re-negotiation

• Major Transport Contracts

The Audit Committee played a full part in advising on the Internal Audit Plan, whilst seeking to prioritise major areas of risk to the Council such as major contracts.

Regular progress reports on work undertaken by Internal Audit were also received by the Committee including the Internal Audit Compliance with the CIPFA Code of Practice.

E. TREASURY MANAGEMENT STRATEGY 2011/12 - The council has adopted the CIPFA Code of Practice for Treasury Management in Public Services which requires an annual strategy in advance of the year to be prepared. Members were advised of the borrowing and lending activities that may take place during 2011/12. The committee felt this was a prudent strategy to follow given the financial constraints.

F. INTERNATIONAL FINANCIAL REPORTING STANDARDS - the committee

has received reports on the progress in implementing the new accounting requirements necessary under IFRS. The new 2010/11 accounts will be prepared in accordance with these standards.

G. THE ABOLITION OF THE AUDIT COMMISSION – The Committee has

received regular updates during the year on the implications of the Government’s proposal to abolish the Audit Commission which will require the Council to appoint its own auditors in due course.

H. EFFECTIVENESS OF THE AUDIT COMMITTEE – The Committee has

conducted a self-audit of its own effectiveness using best practice guidance issued by CIPFA. As a result a number of minor improvements in practice are being introduced.

PHILIP MCLELLAN

CHAIRMAN

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audit committee - meetings, agendas, and minutes

Documents