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Internal Audit Review  Period: 1 APRIL 2006 to 2 JUNE 2006  Report by Head of Internal Audit and Risk Management     
SUMMARY  This report summarises the Final Reports issued since the date of the last meeting of this Committee, on 20 April 2006 together with other in formation relevant to the operation of the Internal Audit Section.      1. Introduction    1.1  Members should note that while the reports referred to in Section 2 are in summarised format, copies of all Final Audit reports are av ailable to them, following meetings of this Committee. Any Member wishing to have sight of any report is asked to make their request to myself.      2. Final Report Summaries  2.1 The following table lists material audits, finalised since the date of the last Audit and Standards Committee. Report summaries and relevant Action Plans are attached for consideration by Members:     REF. NO. DATE SUB ECT  06/031 19/05/06 Central Systems - Debtors    06/035 22/05/06 Central Systems – Community Charge    06/039 26/04/06 Central Systems – Treasury Management    07/01 24/05/06 Revenue Budgetary Control    07/002 25/05/06 Payroll Section: Information Processing  
3. 3.1                           3.2              4.  4.1            
Advisory and Other Direct Audit Activity  In addition to the activities outlined above matters, which have been the subject of a report and Action Plan, staff from the Intern al Audit Section have been involved in the following areas of activity:  Systems Development   Payroll/Personnel  PECOS (including representation on the Cross Service Procurement Group, and the e-Procurement Project Board.)  Oracle 11i Upgrade    Audit Certificates   N P P Caithness Project  Other   Galileo Development  In addition to the above, staff from the Se ction have been involved on a number of major reviews for two of the Boards, and in the capacity of Computer Audit Consultants for the Shetland Isles Council.    As part of the Council’s Inte rnet development staff from the Internal Audit Section have prepared guidance on the activities it undertakes, for inclusion in the Section on Service Management.    The Sections within this site includes the following:   Introduction  Who we are  Why do we exist  What do we do  How do we operate    Administrative Matters  Audit Development  As from 1 st  April 2006 staff in the Audit Sectio n has moved all its management and processing practices to a fully automated system. This will mean that in future all management information in respect of performance and reports on reviews being undertaken will be automatically be generated from this system. The implementation of this system, called Galileo will see the biggest change in the practice of auditing since the inception of the Audit Section, but will, because of its complexity involve a steep learning curve for all involved. It is pleasing to report however that after training both from the system supplier, and the in-house project developer, all staff are enthusiastically committed to this innovation.
   5. Internal Audit Activity Monitoring  It is the normal practice to include within this Review report a regular update on the performance of the Audit Section against the Tactical Plan for the year. However included with the papers for this meeting is my Annual Report to Members for the year 2005/2006, and as this report addresses the ma tter of performance against the Tactical Plan no additional information is included herewith.             RECOMMENDATION   Members are invited to consider the information outlined in this report, and discuss  with the Head of Internal Audit any matters of interest.      Signature: Designation: Head of Internal Audit and Risk Management Date: 2 June 2006
 Issue Date Draft Report 16/01/06 Final Report 19/05/06
AUDIT REPORT SUMMARY Report Title Debtors Report No. Type of Audit 06/031 Systems    1.  Introduction 1.1  The audit was undertaken as part of the annual plan for 2005/2006. 1.2  For the three months August to October 2005, 20,748 debtor invoices were raised with an associated income value of £9.3 million. 2. Review Objectives 2.1  To ensure that  corporate standards and procedures are in place and are complied with  local performance measures are produced and that benchmarking with other local authorities is undertaken  debtor invoices are properly raised and are issued promptly  credit notes and cancellations are properly controlled  incomplete invoices are reviewed and cleared regularly. 3. Main Findings 3.1  The main findings of the audit review are as follows:  There are numerous invoices raised with either no value at all (ref 5.2.2) or with a value of less than £20 (ref 5.2.3), but both being uneconomical to pursue in the event of non-payment  There are gaps in the sequence of debtor invoice numbers which cannot be accounted for as the audit tables are not active (ref 5.2.4)  One quarter of invoices do not include a date of supply (ref 5.2.5) and for those that did, only 30%  of invoices reviewed had been raised within the prescribed time limit (ref 5.2.6)  Two thirds of credit notes had no reason disclosed as to why the original invoice was being cancelled (ref 5.2.7)  The Council’s Policy on the pursuit of debt, specifically key action dates, is not being adhered to (ref 5.2.9). 4. Conclusion 4.1  Issues identified at previous audits were still found to be uncleared, these being: a significant number of invoices being raised for less than £20, gaps in debtor invoice numbers and no date of supply being recorded on invoices remain.  This audit also uncovered a number of nil value invoices being raised, incomplete invoices not being entirely cleared out and key trigger points for follow-up/addi tional action on debts not been actioned soon enough 4.2  The recording of why credit notes have been raised has not improved with two-thirds simply stating cancellation – this is already known, the reason why is not. One quarter in value terms, of all invoic es in dispute, about £107,000, have been in dispute since 2004 with the oldest dating from 1996 4.3  As a result of this audit, eleven recommendations are being made, three grade 1’s, two grade 2’s and six grade 3’s. All recommendations will be implemented by the end of October 2006
   Report No. 06/031
Prioritisation Grade Grade  Classifications (Risk assessment of 3 1 area of concern)  Grade Grade 4 2 Impact
 AUDIT REPORT ACTION PLAN  Report Title Debtors   IMPLEMENTATION AUDIT REPORT RESPONSIBLE TARGET USE REF. AREA OF CONCERN GRADE MANAGEMENT AGREED ACTION OFFICER DATE ONLY 5.2.1 Apart from collection rate statistics 3 There is no CIPFA benchmarking club in Income & 31 October Man no other performance measures Scotland and ongoing work is being recovery 2006 are produced. carried out to identify the best Manager measurement parameters. 5.2.2 Debtor Invoices are being raised 3 Investigate and if possible correct this Income & 30 Sept Reg with a nil monetary value. problem. recovery 2006 Manager 5.2.3 Significant numbers of regular 3 (a)  Remind users of the requirement Income & Completed Reg invoices are being raised for less not to issue invoices for less than recovery than the agreed minimum amount £20 Manager of £20. (b)  Review this guidance and issue further clarification if required. 30 June 2006 5.2.4 There are gaps in the sequence of 2 Oracle 11i may address this problem by Oracle 11i 31 July 2006 Org invoice numbers. changing the way in which the invoice Project Team numbers are generated. 5.2.5 A significant number of invoices are 1 Oracle 11i does not allow invoices to be Oracle Project Implemented Org raised without the date of supply issued without a date of supply Team noted with Accounts Receivable or on the face of the invoice.
 5.2.6 A large number of invoices are not 1 Remind users of this requirement raised within the 14 day time limit as set out in Financial Code 11.
Income & 31 May 2006 Reg recovery Manager
   Report No. 06/031  
 AUDIT REPORT ACTION PLAN  Report Title Debtors   REPORT REF. AREA OF CONCERN GRADE MANAGEMENT AGREED ACTION 5.2.7 Two-thirds of cr edit notes have no 3 Remind users of this requirement reason as to why they are being raised.
Prioritisation Grade Grade ( C R l is a k s  s a i s f s i e c s a s t m io en n t s   of 3 1 area of concern)  Grade Grade 4 2 Impact
 5.2.8 Incomplete invoices are not being 3 Institute monthly investigation and Income & 31 July 2006 Org cleared out of the system promptly. resolution recovery Manager 5.2.9 Outstanding debt is not being 1 Review procedures, issue new guidance Income & 30 Sep 2006 Reg pursued in line with the agreed and monitor recovery procedures. Manager 5.2.10 Active duplicate customer 3 Procedures are in place to stop this Income & Pro references continue to remain on happening. recovery accounts Receivable. Manager 31 May 2006 (a)  remind staff of duty of care (b)  Start Monthly Monitoring 31 Jul 2006
5.2.11 There is a sign ificant amount of 2 Review procedure as part of 5.2.9 above Income & 30 Sep 2006 Pro disputed debt that is over two recovery years old. Manager   
 Issue Date Draft Report 08/03/06 Final Report 22/05/06
AUDIT REPORT SUMMARY Report Title Community Charge Report No. Type of Audit 06/035 Follow Up    1.  Introduction 1.1  The audit was undertaken as part of the annual plan for 2005/2006. 1.2  The Community Charge ceased to exist in March 1993, but there is still a grand total of £9.7 million due to the Highland Council in respect of outstanding debt for all years. This however has been fully provided for by way of bad debt provision. 1.3  This follow up audit was undertaken to review the steps taken to recover the outstanding debt since the problems reported in August 2002 when some letters were unfortunately sent to deceased persons. 2. Review Objectives 2.1  To determine what progress has been made in verifying the information on the Radius database. 2.2  To determine what level of debt has been written off and the level of debt still outstanding. 2.3  To determine the level of debt being collected and how the payments are recorded and monitored. 2.4  To ensure that the pursuit of debt is economical and demonstrates value for money. 2.5  To ensure that Members are kept informed of the debt position. 3. Main Findings 3.1  It was found that there are a number of debt s outstanding on the Radius system with over 10,000 accounts having a balance due of £10 or less. 3.2  As a result of priority being given to Council Tax and the information on Radius not having been up kept up to date for a pe riod between 1996 and 2000, less recovery work has been undertaken in the pursuit of Community Charge debt than for the current local taxation regime. However, measures have recently been agreed to remedy this. 4. Conclusion 4.1  There has been very little proactive work done on recovering Community Charge debt since August 2002. There have been a number of reasons for this, not least the clear prioritisation on Council Tax since 1993. The individual Community Charge records on the now largely inactive Radius computer system require in each case to be checked in detail before further enforcement action against defaulters can take place. However, there are now plans to verify the data and to allocate more staff time to collect the outstanding debt. 4.2  It is disappointing to note that the data cl eansing exercise has not been concluded, in view of the fact that in 2002 it was reported to the Resources Committee that work had commenced on this task. 4.3  Two recommendations have been made, one at priority grade 1 and one at priority grade 3, both of which will be addressed on an ongoing basis.
REPORT REF. AREA OF CONCERN 5.2.1 There are a considerable number of small balances outstanding.  
There is very little proactive work being done in the pursuit of outstanding Community Charge debt, although there are plans to do more in the near future.
IMPLEMENTATION AUDIT  RESPONSIBLE TARGET USE GRADE MANAGEMENT AGREED ACTION OFFICER DATE ONLY 3 The smallest of the individual debts will IRneccoomveer y and Ongoing Pro now be written off.  Manager In accounting terms all Community Charge debt has fully provided for. Any subsequent payments are a bonus, and larger sums will continue to be pursued.   Increased proactive recovery work, Income and Ongoing subject to reliability of historic Recovery Community Charge records (Community Manager Charges Registration Officer no longer in post), and value for money considerations. There will also be monitoring of the impact upon Council Tax recoveries.   
 Issue Date Draft Report 18/04/05 Final Report 26/04/05
AUDIT REPORT SUMMARY Report Title Treasury Management Report No. Type of Audit 06/039 System    1.  Introduction 1.1  The audit was undertaken as part of the a nnual plan for 2005/2006. The net external borrowing position as at 31 March 2005 was £549.3m.  2. Review Objectives 2.1  To ensure that borrowing, le nding and investment transactions are in accordance with statutory powers and approved strategy. 2.2  To ensure that the annual borrowing requirements are properly estimated. 2.3  To ensure that borrowing, lending and inve stment transactions are properly controlled and performance monitored. 2.4  To ensure that income and expenditure from borrowing, lending and investment transactions is paid when due. 2.5  To ensure that transactions are correctly recorded in bank accounts, the financial ledger, and other subsidiary records (e.g. registers). 2.6  To ensure that adequate arrangements should be taken to safeguard the organisation’s assets. 2.7  To document loan charges procedures.  3. Main Findings 3.1  There were no findings requiring corrective action as a result of the audit review.  4. Conclusion 4.1  All of the above review objectives were examined (see 1.2) and were found to be satisfactory. The Treasury Se rvice of the Highland Council has good internal controls and procedures in place. Accordingly this report does not contain any action points for consideration.     
 Issue Date Draft Report 05/05/06 Final Report 24/05/06
AUDIT REPORT SUMMARY Report Title Revenue Budgetary Control Report No. Type of Audit 07/001 Systems    1.  Introduction 1.1  The audit was undertaken as part of the annual plan for 2005/2006. 1.2  The Revenue Budget for the Council for 2005/2006 was £468.9 million. 2. Review Objectives 2.1  To ensure that budget holders are aware of their responsibility in respect of monitoring and controlling their budget. 2.2  To ensure that budget holders are provided with guidance and assistance from Finance staff in respect of budget monitoring 2.3  To ensure that budgets are monitored on a monthly basis and reports are in sufficient detail to manage the budget 2.4  To ensure that budget monitoring reports are timely and accurate, and corrective action is taken in respect of adverse variances. 3. Main Findings 3.1  The results of the questionnaire highlighted a need for training, 51% stated they had received no training or guidance in interpreting financial information and 59% had received no training or guidance in the coding of expenditure. 3.2  Variances between budgeted expenditure and the estimated outturn are not always reported by narrative in the monitoring report. 3.3  Changes are made to budgets on a regular basis, eg when additional funding is received, but no explanation of these are provided in the report to Members. Also, changes which are made at Service level are not easily traced or explained. 4. Conclusion 4.1  Although the audit was performed during a period of transition from one Financial Ledger system to another there are some important messages which need to be retained and findings to be addressed. 4.2  In particular the fact that the majority of budget holders who responded to the questionnaire indicated that they had not received sufficient training or guidance must be a concern. A Corporate Finance Training Module has been developed and delivered to around 40 staff. It has been temporar ily suspended for the transitional period however it is hoped that the training will be combined with guidance on the implementation of Oracle 11i and will address this issue but this will need to be confirmed by budget holders. 4.3  It is also important to provide some consis tency and clarity regarding the treatment and reporting of variances and changes to budgets. 4.4  In total three recommendations have been made in this report, two at Priority Grade 3 and one at Priority Grade 2. All the agr eed actions will be implemented by October 2006.
   Report No.  07/001
Prioritisation Grade Grade Classifications (Risk assessment of 3 1 area of concern)  Grade Grade 4 2 Impact
 AUDIT REPORT ACTION PLAN  Report Title Revenue Budgetary Control   IMPLEMENTATION AUDIT REPORT RESPONSIBLE TARGET USE N GRADE MANAGEMENT AGREED ACTION OFFICER DATE ONLY REF. AREA OF CONCER 5.2.1 Although the roll-out of Oracle 11i 2 The Corporate Training Module will Head of October Per should address some of the training recommence once Oracle 11i has had a Accounting 2006 issues, the majority of the chance to bed in. The module deals with questionnaire respondents indicated reports and coding that they require more training on interpreting the monitoring reports and coding expenditure.  5.2.2 Variances are no t always explained 3 A value and percentage will be Head of October Pro with appropriate narrative in the established and all potential variances Accounting 2006 monthly monitoring reports, above this level will be reported on. presented to Committees.   5.2.3 Expenditure budgets reported in 3 A value and percentage will be Head of October Pro monthly monitoring reports are established and all budget changes Accounting 2006 changed from month to month above this level will be explained in the without explanation. narrative report.    
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