Final Annual Audit Report 04-05
Description
SCOTTISH BORDERSCOUNCILAnnual Audit Report to Scottish Borders Council and the Controller of Audit2004 / 2005ContentsCONTENTS1 Summary 12 Introduction 33 Governance 54 Performance 115 Finance 166 Action Plan 31 Appendix 1 - Statutory Performance IndicatorsScottish Borders Council Scott-MoncrieffAnnual Report to the Members and the Controller of Audit2004/2005Summary1 SUMMARYGovernance • Scottish Borders Council’s audit committee has had a positive impact on the Council’soverall corporate governance framework and is largely able to deliver the auditcommittee principles set out in the CIPFA guidance and concur with most areas of bestpractice as outlined in the Smith Report• During 2004/2005 the Council has made progress in developing its risk managementarrangements. Significant work is being carried out by the Council in 2005/2006 todevelop a robust risk management system• Audit work has confirmed that controls operating during 2004/2005 within ScottishBorders Council were generally adequate to prevent and detect fraud and otherirregularitiesPerformance• The Council is driving improvements in its approach to performance management andplanning through a series of initiatives including the delivery of its ManagementDevelopment Programme, adoption of EFQM and implementation of PRINCE 2 projectmanagement disciplines. The Council is also in the process of adopting the OGCSuccessful Delivery Toolkit• Whilst significant work has been ...
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| Publié par | Seah |
| Nombre de lectures | 15 |
| Langue | English |
Extrait
SCOTTISH BORDERS COUNCIL
Annual Audit Report
to
Scottish Borders Council
and the
Controller of Audit
2004 / 2005
CONTENTS
1
2
3
4
5
6
Summary
Introduction
Governance
Performance
Finance
Action Plan
Appendix 1 - Statutory Performance Indicators
Scottish Borders Council Annual Report to the Members and the Controller of Audit 2004/2005
Contents
1
3
5
11
16
31
Scott-Moncrieff
Summary
1 SUMMARY Governance • Scottish act im ositive Borders Council’s audit committee has had a on the Council’s overall cor orate overnance framework and is lar el able to deliver the audit committee rinci les set out in the CIPFA uidance and concur with most areas of best practice as outlined in the Smith Report • risk mana ement in its ress in develo the Council has made ro Durin 2004/2005 arran ements. Si nificant work is bein carried out b the Council in 2005/2006 to develop a robust risk management system • Audit work has confirmed that controls o eratin durin 2004/2005 within Scottish Borders Council were enerall ade uate to revent and detect fraud and other irregularities
Performance • im rovements in its a roach The Council is drivin and to erformance mana ement lannin throu h a series of initiatives includin the deliver of its Mana ement Develo ment Pro ramme, ado tion of EFQM and im lementation of PRINCE 2 ro ect mana ement disci lines. The Council is also in the rocess of ado tin the OGC Successful Delivery Toolkit • the Council in relation to Communit nificant work has been carried out b Whilst si Plannin the Council must ensure that its communit lan is inte rated within the wider business lannin rocess of the Council. There is also a need to ensure that the Council’s a roach to Communit Plannin is clearl communicated to artner agencies and other relevant external stakeholders
Finance • to re ort that in 2004/2005 the Council com leased The Code of lied with are We Practice on Local Authority Accounting in Great Britain in all material aspects •fund surplus of £6.311 million in 2004/2005 compared The Authority achieved a general with a budget surplus of £5.903 million. The Council has an available general fund balance of £8.395 million at 31 March 2005. The Authority has achieved its medium term target level of reserves • Council held £8.718 million of earmarked balances at 31 March 2005 which The re resents a considerable increase on revious ears’ carr forward balances. This considerable increase rom ted audit concerns surroundin the Council’s abilit to deliver its 2004/2005 spending plans • The Council’s Roads si nificant ear of o eration and tradin o eration is in its second has delivered a sur lus of £0.449 million in 2004/2005 which has resulted in the STO achievin a cumulative sur lus of £0.535 million as at 31 March 2005. The service is ro ectin that it will meet the statutor tar et to breakeven over the course of the three year period to 31 March 2006 • work performed in 2004/2005 confirmed that the Council has a sound system of Audit bud etar control. The Council has made si nificant im rovement in this area over the course of our audit appointment • In overall terms we found the Council’s accountin s stems and internal financial controls to be largely operating effectively
Scottish Borders Council Annual Report to the Members and the Controller of Audit 2004/2005
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Summary
Conclusion This re ort concludes the 2004/2005 audit of Scottish Borders Council. We have erformed our audit in accordance with the Code of Practice and Statement of Res onsibilities ublished b Audit Scotland. Sub ect to the weaknesses identified in this re ort we are satisfied that Scottish Borders Council has ro erl dischar ed its duties in accordance with the Statement of Responsibilities This re ort has been discussed and a reed with the Director of Cor orate Resources and has been re ared for the sole use of the Council, the Controller of Audit and Audit Scotland We would like to thank all members of Scottish Borders Council mana ement and staff who have been involved in our work for their co-o eration and assistance durin our visits
Scott-Moncrieff 30 September 2005
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2.2
Introduction
2 INTRODUCTION 2.1 Audit Framework The Accounts Commission for Scotland is a statutory independent body which, through the audit process, promotes the highest standards of financial stewardship and public accountability in local authorities and assists them in achieving value for money. Audit Scotland is an independent statutory body that provides the Accounts Commission with the services required to carry out their statutory functions. Audit Scotland has prepared a Code of Audit Practice, which sets out the way in which auditors should carry out their functions, and a Statement of Responsibilities which explains where the responsibilities of the auditor begin and end. The Accounts Commission has appointed Scott-Moncrieff as auditors of Scottish Borders Council for the 5 year period 2001/2002 to 2005/2006. Responsibilities of Scottish Borders Council The Council is accountable to the public for the conduct of public business and the stewardship of funds under its control. The Council is therefore responsible for: • proper corporate governance arrangements Establishing • proper accounting records Maintaining • the financial statements Preparing • assets Safeguarding • Taking reasonable steps for the prevention and detection of fraud and other irregularities • its affairs to secure the economic, efficient and effective use of resources Managing • statutory performance indicators Publishing • arrangements to secure best value Making Responsibilities of Auditors Our responsibilities as external auditors to the Council, which are significantly greater than those of auditors in the private sector, are derived from statute (principally the Local Government (Scotland) Act 1973) and from the Code of Audit Practice. Our work can be classified under the following three headings: performance audit, governance audit and financial audit. The main objective for each of these areas is summarised below.
2.3
Audit Area Governance Audit
Audit Objective To review and report on the Council’s corporate governance arrangements in relation to: • prevention and detection of fraud and The corruption • Standards of conduct, accountability and openness •The Council’s financial position •Council’s review of its systems of internal The financial control, including risk management
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Audit Reporting We have prepared the following detailed audit reports during 2004/2005: • Governance Arrangements Corporate • of Internal Financial Control Statement • management report financial statements and accounting systems Interim Following the Public Pound report • This annual report summarises all of our work during the year and highlights the key issues we have identified under the headings of governance, performance and finance. The action plan in section 6 details all of the significant recommendations we have made with regard to the findings in this report, along with management’s responses.
2.4
Introduction
Audit Area Performance Audit
Financial Audit
Audit Objective To review and report on the Council’s arrangements for: • Managing its performance and for securing economy, efficiency and effectiveness in its use of resources • recording and publishing Collecting, performance information To provide an opinion on the financial statements and any related grant claims.
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3 GOVERNANCE
3.1 3.1.1
3.1.2
Governance
Corporate Governance Framework Governance Arrangements The Code of Audit Practice gives the external auditor a responsibility to review and, where appropriate, report findings on the audited body's corporate governance arrangements. In discharging this responsibility we carried out a review of the Council's governance structure during 2004/2005. This review included consideration of the Council’s risk management arrangements, codes of conduct and procedures for the prevention and detection of fraud and irregularity. Our work in this area concluded that whilst the Council’s corporate governance arrangements are fairly robust a number of areas with scope for improvement were identified which, if addressed, would bring the Council’s corporate governance regime in line with best practice. These issues were brought to the attention of Council officials and elected members through the issue of our interim management report on corporate governance arrangements. The report contained an agreed action plan which committed the Council to addressing each audit issue within an agreed timescale. The key findings from this work are outlined below. Audit Committee Principles We assessed the effectiveness of the Council’s audit committee using the CIPFA publication ‘Audit Committee Principles in Local Authorities in Scotland A Guidance Note’. The guidance note identifies three fundamental principles which local government audit committees should aspire to and provides guidance on how these principles can be delivered in practice. During the course of our work we also made reference to principles set out in the relatively recent “Smith Report. The Smith Report was designed to assist company boards in making suitable arrangements for their audit committees and to assist directors serving on audit committees in carrying out their role. As part of the recently revised Combined Code on Corporate Governance it is directed at Companies listed on the London Stock Exchange however its principles are widely regarded as best practice and are recognised throughout all sectors as the benchmark to which audit committees should aspire. We concluded that Scottish Borders Council’s audit committee is largely able to deliver the audit committee principles set out in the CIPFA guidance and concur with most areas of best practice as outlined in the Smith Report. It is our opinion that the audit committee has had a positive impact on the Council’s overall corporate governance framework. In particular the audit committee has demonstrated the following key strengths: •committee is comprised of five experienced elected members and two non audit The elected members who were specifically selected for their financial skills and audit committee/corporate governance experience. All elected and non elected members appear to work together effectively to allow the Council's audit committee to provide a robust forum for audit scrutiny and review. The elected members are able to put their political views to one side and view the reports of auditors and Council officials in an objective manner. The non elected members bring experience of the private sector corporate governance model which has assisted the Council in shaping its audit committee arrangements • The audit committee is attended by the Chief Executive of the Council on a regular basis. The Chief Executive provides regular presentations to the audit committee on key issues such as structural change and strategic direction which provides audit committee members with useful contextual information to aid their consideration of internal and external audit recommendations • audit committee has developed good working relations with council officials and The auditors. This has allowed the audit committee to become fully engaged with auditors and officials in discussing issues arising from both internal and external audit reports
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3.1.3
Governance
• audit committee has demonstrated a real interest in following through progress The made by the Council in addressing audit recommendations. An example of this is the audit committee's continual monitoring of the Council's progress in developing its risk management arrangements which has been the subject of audit concern over the last three years • audit committee has raised the profile of internal audit amongst senior officials The within the Council. Officials are aware that internal audit reports are reviewed and commented on by elected members and senior officials at audit committee meetings. On occasions the audit committee has requested representations from Council officials who have failed to implement high priority audit recommendations within agreed timescales. This ensures senior officials give due consideration to internal audit issues before responding to draft internal audit findings Our review of the Council’s audit committee arrangements also identified the following areas with scope for improvement: • the audit committee takes an active interest in the risk management Whilst arrangements of the Council it is not in a position to provide independent assurance on these arrangements as the Council’s risk management framework is still under development •audit committee did not meet with the external and internal auditors during the year The without the presence of management. It is generally regarded as good practice for audit committees to meet with internal and external audit at least once during the annual cycle of meetings in the absence of other officials to discuss issues of a confidential or sensitive nature. (However since our interim review the audit committee has scheduled regular private meetings with both internal and external auditors) • Over the last 12 months the audit committee has received presentations from Council officials on financial and risk management issues. The Council also secured the services of Sir Robert Smith, the author of the Smith Report, to present on best practice audit committee arrangements. This initiative is a particular example of good practice and has undoubtedly enhanced the skills of each committee member. However there is still a need to build on this positive work and deliver a regular programme of training and guidance to ensure audit committee responsibilities continue to be discharged in the most effective manner Risk Management Arrangements An important feature of a robust system of internal control is a developed and integrated approach to risk management. Effective risk management will deliver an appropriate balance between risk and control, more effective decision making, better use of limited resources and greater innovation. Our 2003/2004 review of Scottish Borders Council’s corporate governance arrangements identified that whilst the Council had made some progress in developing its approach to risk management, considerable work was still required to enable the Council to implement and operate an effective risk management framework. In 2004/2005 we concluded that whilst the Council had made some progress in developing its risk management arrangements, significant work was still required to develop a robust risk management system. In particular, we identified the following areas in our 2004/2005 report on the Council’s corporate governance arrangements which were deemed to be of a high priority nature: • The Risk Management Group is responsible for managing the delivery of the Council’s risk management framework. Whilst an action plan governing this activity did exist this was out of date and did not reflect the key milestones and timescales by which the Council’s risk management strategy will be delivered. Management agreed to establish a detailed action plan which identifies how each stage of its risk management framework will be delivered, the associated timescale and the individual responsible for delivering
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3.1.4
3.2
Governance
each key milestone. It was also agreed that progress against the plan would be reported to the audit committee and corporate management team on a regular basis to provide elected members and senior management with the opportunity to measure the Group’s effectiveness in delivering the risk management strategy of the Council • The Council had not identified those risks of greatest strategic importance nor had it fully identified and evaluated the controls in place to manage each significant risk. The Council is therefore not in a position to demonstrate that it has a fundamental understanding of the key risks which threaten its ability to meet its strategic objectives. Management agreed that the Council would complete a corporate risk analysis as a matter of priority and ensure the controls in place to manage its significant risks are identified and evaluated. Management also agreed that where controls are not deemed to be effective then specific and prioritised action plans for remedial work will be established Since the issue of our corporate governance report we are aware that the Council has made significant progress in developing its risk management arrangements. It has delivered a number of risk workshops across a range of Council services to identify those issues which have potential to disrupt Council business at both an operational and strategic level. The Council is also in the process of implementing a risk management system which will capture the information derived from each risk workshop and allow the Council to monitor and control its risk profile on an ongoing basis. During the early stages of our 2005/2006 audit work we will consider the action taken by the Council in this area and assess the impact this is having on the Council’s overall framework of internal control. Codes of Conduct Propriety requires that public business is conducted with fairness and integrity. This includes avoiding personal gain from public business, being even-handed in the appointment of staff, letting contracts based on open competition and avoiding waste and extravagance. In 2004/2005, our work in this area included a review of the arrangements for adopting and reviewing standing orders, financial instructions and schemes of delegation and complying with national and local Codes of Conduct. We also considered controls over registers of interests and disposal of assets. Overall we concluded that controls at Scottish Borders Council were generally sound in relation to standards of conduct, in particular the Council’s arrangements for dealing with Members complaints has been praised by the Standards Commission for Scotland and promoted by them as good practice. Our 2004/2005 report on the Council’s corporate governance arrangements did note that improvements are required in the way the Council administers its Councillors Register of Interests. The Ethical Standards in Public Life etc (Scotland) Act 2000 led to the issue of a specific Code of Conduct for Councillors which came into effect on 1 May 2003. As part of the Councillor’s Code of conduct, members are required to register interests. The Standards Commission, established under the Act, is responsible for ensuring that the standards of ethical conduct are maintained across local authorities. To aid with the interpretation of the Councillor’s Code of Conduct they issued guidance notes for local authorities. The guidance requires that the register of interests be available for inspection electronically and that this be implemented by 31 August 2003. While Scottish Borders Council maintains a register of member’s interests this was not available for inspection on an electronic basis due to the Council undertaking a major redevelopment of its website. Management have subsequently made arrangements for this information to be published on the Council’s web site.
Internal Audit The resources prescribed by The Accounts Commission for our external audit assume that the internal audit function performs work on which we can place reliance. In order to determine whether such reliance could be placed, we reviewed the Authority's internal audit service. The review was performed in accordance with the Code of Audit Practice and Statement of Auditing Standard 500 and concluded that the internal audit service provided to the Authority was effective.
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3.3
Governance
A number of areas with scope for improvement were identified and an action plan was agreed with the Chief Internal Auditor to address these issues. The most significant issue to be addressed was the removal of non audit duties from the internal audit remit. Since our appointment as external auditors to Scottish Borders Council we have raised concerns over the internal audit service being responsible for petty cash administration, maintenance of the Council’s authorised signatory list and financial stationery. We did not regard this to be an appropriate use of internal audit resources as the service must be in a position to provide independent assurance on the adequacy of internal controls. By involving internal audit in the operation of an internal control there is a risk that their ability to provide an objective opinion on the Council’s internal control framework is diluted. Since our interim findings were reported we understand that these duties have now been transferred outwith the internal audit unit. Following our review, we made extensive use of internal audit findings and conclusions to avoid duplication of effort and ensure an efficient audit process. We placed particular reliance on internal audit reports in the following areas: • Monitoring and Control Budget • Information System Financial • Payroll • Housing and Council Tax Benefits Accounts Payable • • Reconciliation Bank • Stock Our systems work in the above areas was designed to complement the work performed by internal audit. Where necessary, for example where internal audit identified control weaknesses, we performed additional testing to satisfy ourselves that these weaknesses did not significantly increase the risk of material misstatements occurring in the annual accounts. Fraud, Irregularity and Corruption The integrity of public funds is at all times a matter of concern. As external auditors we are required to consider the arrangements made by management for the prevention and detection of fraud and irregularities. Our responsibilities in this area are addressed in a number of ways: • Our systems based audit approach to the major accounting systems is planned so as to provide a reasonable expectation of detecting material misstatements resulting from fraud or irregularity • focus on specific areas of high risk for potential fraud and irregularity and review the We control arrangements in place in these areas • review the local authority Technical Bulletins produced by Audit Scotland with We regard to fraud reports and ensure that the Authority has adequate arrangements in place to prevent similar frauds occurring • We examine the Standing Orders and Financial Regulations issued by the Authority to ensure that they deal adequately with fraud and corruption and provide a framework for exercising strong internal control As part of our 2004/2005 Corporate Governance review we assessed the Council’s arrangements for the prevention and detection of fraud, irregularity and corruption. We concluded that controls at Scottish Borders Council were generally adequate to prevent and detect fraud and other irregularities. The Council’s arrangements will also benefit from the
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3.4
3.4.1
Governance
Chief Executive’s recent appointment to the Board of the Scottish Business Crime Centre as it will provide the opportunity for the authority to share in best practice business crime prevention methods. A number of weaknesses were however identified and an action plan was agreed with management to ensure these weaknesses are addressed. The most significant weakness arising from this work was the Council’s failure to formalise its fraud response plan. We have commented on this issue on a number of occasions throughout our audit appointment. In our 2001/2002 report on corporate governance we noted that the detailed arrangements for the investigation of any fraud or irregularity were to be contained in a separate fraud and theft response plan. Our 2003/2004 corporate governance report noted that whilst the Council had agreed to have its plan finalised and approved by the end of May 2003 it was still in draft form in February 2004. Our 2004/2005 corporate governance report voiced disappointment that the plan was still waiting to be approved and highlighted that without a formal and widely communicated plan, there is a risk of the Council failing to react to fraudulent and irregular activity in the most effective and efficient manner. We are pleased to report that the Council’s fraud and theft response plan has now been incorporated in the Council’s fraud strategy which was approved by the Council’s Executive in August 2005.
National Fraud Initiative In 2004/2005 we considered the Council’s participation in the National Fraud Initiative in Scotland. The exercise forms part of the council’s audit and involves assistance from officers in Audit Scotland and the Audit Commission, who process the information collected for the exercise. Among other things, NFI aims to help identify and reduce fraud by bringing together data from councils, police and fire boards and other agencies, to help detect a wide range of frauds against the public sector. These include housing benefit fraud, occupational pension fraud and payroll fraud. If the exercise is approached appropriately and little or no such fraud is identified, assurances can be taken about internal arrangements for preventing and detecting fraud. The Council has a longstanding association with the NFI having participated in its pilot phase in 2000. Our responsibilities for assessing the Council’s arrangements to prevent and detect fraud and other irregularity include the requirement to ensure the Council has established arrangements to fulfil their requirements once the data matches are received and that these are adequately followed-up. The NFI 2004/2005 results (data matches) were distributed to councils on CD-Rom in late January 2005 and participating bodies are required to follow up the matches, as appropriate, and provide savings returns reporting progress made as at 31 May 2005, 30 September 2005 and 31 December 2005. We monitored the Council’s involvement in NFI 2004/2005 during the course of the audit. Interim Audit Review During our 2004/2005 review of the Council’s arrangements for the prevention and detection of fraud we met with key NFI contacts at the Council to establish the arrangements that the Council has in place to fulfil their requirements once the data matches are received. Overall we concluded that whilst the Council were fully aware of their obligations in relation to the NFI initiative a number of issues required to be resolved to ensure these obligations could be fully delivered in practice. These included the need to: • IdentifyCouncil and develop a timetable for taking the initiative key contacts within the forward • Assess the adequacy of staffing resources within the Fraud Investigation Team where the majority of investigations were planned to take place • a documented methodology for the sifting exercise and investigations that Establish followed
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