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									 Internal Audit Report




ExDRA

Internal Audit Report – Walton Halls Barn Feasibility Study


May 2006
 Internal Audit Report




Contents
 1  Executive Summary ................................................................................................................ 1
 2  Background ............................................................................................................................. 1
 3  Scope and Objectives............................................................................................................. 1
 4  Audit Approach ....................................................................................................................... 1
 5  Conclusion............................................................................................................................... 2
 6  Acknowledgement .................................................................................................................. 2
 7  High priority recommendations............................................................................................. 3
 Appendix A – Detailed summary of audit findings ...................................................................... 7
 Appendix B – Key risks addressed ............................................................................................. 15
 Appendix C – Priority Ratings ..................................................................................................... 16




 Audit visit completed                                                                                               6 March 2006

 First draft report issued                                                                                           2 May 2006

 Final Management responses received                                                                                 19 May 2006

 Final report issued                                                                                                 30 May 2006

 Presented to Audit Committee                                                                                        19 Sept 2006

We have prepared this report solely for the use of management. We believe that it would
not be appropriate for it, or extracts from it, to be made available to third parties. If such a
third party were to obtain a copy, in whole or in part, without our prior consent, we would not
accept any responsibility for any reliance that they might place upon it.
1   Executive Summary
    At the request of the National Audit Office an audit has been performed on the
    adequacy of the project documentation in place for the Walton Hall Barns Feasibility
    Study.

    A number of serious concerns have been noted, eleven in total, on the failure of
    project management procedures from the initial application phase through to the
    payment of the final claim.

    A high priority recommendation has been raised in relation to the deficiencies noted
    in the adherence to the stated project management procedures these are noted in
    detail in appendix A.


2   Background
    For each audit we identify and critically evaluate the controls in place and highlight
    in our report those potential weaknesses that become apparent as a result of our
    work. We obtain comments from appropriate staff for each weakness identified and
    ask management to provide action plans that detail the likely timescale for
    implementation of our recommendations.

    The audit of Walton Hall Barns Feasibility Study was undertaken during March
    2006.

3   Scope and Objectives
    The scope and objectives of the review were to ensure that ExDRA has followed
    the stated project management procedures and has an adequate framework in
    place to provide assurance over their delegated authority.

4   Audit Approach
    Our approach was to:

       •   Discuss with relevant personnel and develop an understanding of the
           processes and procedures established by ExDRA to achieve compliance
           with the funding agreement;
       •   Document and evaluate whether the associated systems and procedures are
           appropriately designed to achieve the organisation’s objectives for the
           system. This includes comparison of the controls in place against those that
           we would expect to find;
       •   Ascertain staff awareness of their roles and responsibilities under the ExDRA
           funding agreement; and


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       •   Determine whether the system is effective through testing, where
           appropriate, that the controls are operating in practice, and if not establish
           the likely impact of the weakness in control.

    In carrying out this audit work standard quality assurance procedures have been
    applied to ensure compliance with Government Internal Audit Standards (GIAS).

5   Conclusion
    In our opinion, on the basis of the work that we have performed, we consider that
    the arrangements in place at ExDRA are inadequate to meet the requirements of
    EEDA’s delegated authority. Our review has identified a number of deficiencies in
    the adherence to the stated project management procedures that management will
    need to address in order to strengthen the control environment of the Agency.
    Refer to section seven of the report for the high priority recommendation.

6   Acknowledgement
    We wish to thank the ExDRA staff for their co-operation during this review, and in
    particular Martin Woodrow.




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7     High priority recommendations
Ref   Issue/Risk                                  Recommendations                               Management Response/Action
                                                                                                Plan
1     The specific review of the Walton Hall      Whilst this particular project is historic,   It is important to understand the
                                                                                                background to this exceptional application.
      Barns feasibility study has highlighted     we strongly recommend that ExDRA
      11 issues within the project                review the level of accountability and        EEDA’s Rural Executive first drew this
                                                                                                project to the attention of the Appraising
      management cycle from the initial           delegated authority within the Agency         Officer at the Centre for Environment &
      application through to the final            and formally report back to EEDA.             Rural Affairs (“CERA”) at the very end of
      payment of the project (refer to                                                          2004. At that time CERA, based at Writtle
                                                                                                College, was contracted by ExDRA to
      appendix A for the specific points).        The report will need to provide               provide administration services for the
                                                  assurance to EEDA that an                     Rural Renaissance Fund in Essex. This
      There is a risk that if ExDRA do not        appropriate level of approval is sought       was an arrangement inherited from
                                                                                                ExDRA’s predecessor “accountable body”
      follow the stated project management        at all stages of a project and that the
                                                                                                for Rural Renaissance funding in Essex,
      procedures inappropriate projects may       necessary evidence and degree of              the Essex Economic Partnership (“the
      be funded with public funds and the         rigour will be demonstrated in all            EEP”). It is our understanding that EEDA’s
      necessary level of evidence to support      aspects of project management.                Rural Executive had been in discussion
                                                                                                with the applicants for some while before
      claims and payments made may not                                                          then and had encouraged them to apply to
      be evident from the project file. There                                                   the Rural Renaissance Fund for funding to
      may also be reputational risks for the                                                    support the feasibility study (the
                                                                                                                                       th
                                                                                                applicant’s fundraising plan dated 20
      parties involved if it is discovered that                                                 January 2005 stated that “a good
      there has been an inappropriate use                                                       relationship has already been established
      of public funds.                                                                          with EEDA staff”).
                                                                                                On 6th January, in anticipation of EEDA
                                                                                                being in a position to ring fence £50k of
                                                                                                additional funding for this project (ExDRA
                                                                                                having already allocated its original Rural
                                                                                                Renaissance Fund budget for the year to
                                                                                                March 2005), CERA’s Appraising Officer

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Ref   Issue/Risk        Recommendations   Management Response/Action
                                          Plan
                                          e-mailed the applicant’s completed Initial
                                          Application Form to an independent panel
                                          for appraisal.

                                          On 17th January EEDA’s Rural Executive
                                          confirmed that EEDA had indeed allocated
                                          an extra £50k of Rural Renaissance
                                          funding to this project. The Appraising
                                          Officer at CERA received the last of the
                                          comments of the appraisal panel on 24th
                                          January and prepared, on ExDRA’s
                                          behalf, an offer letter which purported to
                                          include all the safeguards required by the
                                          panel members. This letter was sent out
                                          by ExDRA to the applicant on 4th
                                          February.
                                          With the benefit of hindsight we feel
                                          that this project was rushed through
                                          far too quickly owing to pressure to get
                                          the monies “out of the door” by 31st
                                          March. It is clear that CERA did not meet
                                          all their obligations under their Service
                                          Level Agreement with ExDRA. In
                                          particular CERA did not fulfil the
                                          requirements of them to “undertake a
                                          technical check on the application forms to
                                          ensure complete and sufficient detail is
                                          provided and liaise with bidders where
                                          information is incomplete or missing” and
                                          to “check all claims for funding and alert
                                          the EEP of any discrepancies or non-
                                          claimable expenditure”.
                                          None of this abrogates ExDRA’s own
                                          responsibility, as “accountable body”, for
                                          managing the fund and it is acknowledged

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Internal Audit Report
Ref   Issue/Risk        Recommendations   Management Response/Action
                                          Plan
                                          that additional management scrutiny
                                          should have been applied. At this very
                                          busy time of the year (and particularly so
                                          since ExDRA was in its first 6 months of
                                          operation) too much latitude was given to
                                          CERA, working with EEDA’s Rural
                                          Executive, to run with this project and to
                                          ensure that the stated project
                                          management procedures were being
                                          complied with.

                                          Throughout Appendix A of this report we
                                          have highlighted with the words
                                          TRAINING NEED wherever we recognise
                                          that the observations made by EEDA are
                                          well-founded. Albeit that CERA’s
                                          involvement is now at an end (all ExDRA’s
                                          project management has now been
                                          brought in-house), follow-up training will
                                          be applied before the end of July 2006 so
                                          as to ensure that, as far as is possible,
                                          ExDRA staff are fully equipped to ensure
                                          full compliance in future. All the issues
                                          raised in this report will themselves be
                                          disseminated (as a case study) widely
                                          throughout the organisation so that the
                                          lessons are embedded.

                                          To conclude, although we feel that this
                                          was an exceptional project, the errors
                                          and omissions highlighted in this
                                          report demonstrate that it is now
                                          appropriate to revisit the Company’s
                                          initial procedures and practices and to
                                          instil additional checks and balances

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Internal Audit Report
Ref   Issue/Risk        Recommendations   Management Response/Action
                                          Plan
                                          that will ensure that the Company
                                          becomes (and remains) fully compliant
                                          with general legislation, published
                                          codes of conduct and the specific
                                          requirements of all funding bodies and
                                          partner organisations.
                                          In particular, we are fully committed to
                                          reviewing the levels of accountability
                                          and delegated authority within the
                                          Company by the end of July 2006.

                                          Finally, we would assure EEDA that
                                          this report carries the full
                                          endorsement of ExDRA’s Audit, Risk
                                          & Remuneration Committee, itself a
                                          newly formed sub-committee of the
                                          Board with the following specific remit
                                          in relation to risk and compliance:
                                          a) to consider all risks, financial and
                                              otherwise, significant to the
                                              fulfilment of the Company’s
                                              objectives, and in particular to keep
                                              under review the effectiveness of
                                              the Company’s internal control
                                              systems and programme Risk
                                              Registers;
                                          b) to advise the Board on compliance
                                              matters relating to general
                                              legislation, published codes of
                                              conduct and specific contractual
                                              requirements.




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Internal Audit Report
Appendix A – Detailed summary of audit findings
Ref                               Audit Observation                                                 Management Comment
 1    There is no evidence that the financial information contained within the      It is acknowledged that this has not been evidenced by
      application form has been checked.                                            CERA’s Appraising Officer on the Initial Application Form.
                                                                                    However, her Strategic Appraisal Report does include a
                                                                                    value for money assessment and the percentage of match
                                                                                    funding has been calculated.
                                                                                    TRAINING NEED
 2    The Appraisal sections of the Initial Application Form has not been           It is acknowledged that the following three appraisal sections
      completed. However, there is a copy of a Strategic Appraisal Report on file   in the Initial Application Form, namely State Aid, Option
      completed by the Appraising Officer which addresses:
                                                                                    Assessment and Risk Assessment, have not been
                                                                                    addressed in the CERA Appraising Officer’s Strategic
                 •   Project description;
                                                                                    Appraisal Report.
                 •   Strategic Fit;
                 •   Equality and Diversity;                                        TRAINING NEED
                 •   Value for Money;
                 •   Comment; and
                 •   Recommendation.

      However, the following appraisal sections from the Initial Application Form
      have not been addressed:
                • State Aid;
                • Option Assessment;
                • Risk Assessment.

 3    There is no evidence on file of background checks having been made on the     It would appear that CERA placed undue reliance on EEDA’s
      applicant.                                                                    Rural Executive’s knowledge of the applicant thereby
                                                                                    obviating the need for independent background checks. It is
                                                                                    acknowledged that this was an oversight.
                                                                                    TRAINING NEED


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Internal Audit Report
     4     A Review Group panel member states in his e-mail approving the project that      It is acknowledged that the Review Group panel member’s
           “I accept your recommendation and will support it as it is a feasibility study   comments were not adequately addressed by CERA’s
           but could we have some more clarification on the project management costs.
                                                                                            Appraising Officer.
           These do seem very high.” 1
                                                                                            TRAINING NEED

           The project management costs are not subsequently clarified with the
           applicant, nor is it checked with the approval panel whether they wish to
           continue with the approval of the project before project management costs
           are clarified.

           There is no clarification from the project on file, only an e-mail from EEDA’s
           Rural Executive, sent after the offer letter was sent to the applicants, which
           states “The costs do seem high at the moment – but it is not unusual for this
           to be so as no other partners would be forthcoming at this early stage.” 2

     5     The invoices provided to support the claim are not the original invoices. They   It is acknowledged that the original invoices were not
           would appear to be scanned in copies of invoices.                                provided at the time. However, with the exception of those
                                                                                            for the community consultation, the marketing survey and the
                                                                                            Defra bats license (see 7 below), the originals have now
                                                                                            been received and verified.
                                                                                            TRAINING NEED
     6     It is not clear the amount that is being claimed/paid on invoice ref 1016;       It is acknowledged that invoice ref 1016 is hand-written and
                                                                                            is only partially supported by supporting receipts.
                                                                                            TRAINING NEED
     7     Estimated expenses were given on the Claim Form for the following invoices:      It is acknowledged that there was a significant delay in
                                                                                            chasing up those invoices which were estimated on the claim
                        •   Community Consultation (£4,700)                                 form. This was in part at least due to the transfer in


1
    E-mail dated 7 January 2005 entitled “Fw: ERRF Living Naze Bid”
2
    E-mail dated 21 February 2005 entitled “RE: Living Naze Project”

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               •   Surveyors Fees – IJP Conservation Building (£3,525)              administrative responsibilities from CERA to ExDRA as from
               •   Surveyors Fees – Dudley Smith (£840);                            1st April 2005 and there being no dedicated officer in place at
               •   Marketing – EETB survey (£1,733);                                ExDRA until August 2005.
               •   Marketing – website and brochure (£4,113) (The total amount
                                                                                    TRAINING NEED
                   for this line is for £4,879, but includes three invoices which
                   total £766); and                                                 With regard to the invoices that are still outstanding it was
               •   Environmental – Defra bats licence (£1,500).                     understood at the time that the following pieces of work
                                                                                    couldn’t be carried out until after 31st March 2005:
    There is no evidence on file that the organisations who had submitted           1. the community consultation – est. cost £4,700; and
    estimates were contacted until receipt of an e-mail from the National Audit     2. the issuing of a Defra bats licence - est. cost £1,500
    Office on 13 January 2006. The following invoices were received by ExDRA        (the community consultation was carried out in October - the
    on 18 January 2006:                                                             applicants are chasing the invoice - and the bats licence
               • IJP Building Conservation ltd (£3,525);                            cannot be obtained until planning permission is granted).
               • Dudley Smith Partnership (£705)
                                                                                    The project file will only be closed once these items of
               • Silk Pearce (£4,026.72);
                                                                                    paperwork are received from the applicant (or, in the case of
               • Chris Vine (£490)
                                                                                    the latter, we are advised that planning agreement has not
    Invoices are therefore outstanding for the Community Consultation the EETB      been granted by Tendring DC).
    Survey, and the bats licence.                                                   The applicants now believe that they will not be invoiced for
                                                                                    the marketing survey carried out by the East of England
                                                                                    Tourist Board (estimated cost £1,733); it would appear that
                                                                                    the EETB has either overlooked or waived the recharge of
                                                                                    this to the applicant.

                                                                                    It should be recognised that the omission of these invoices
                                                                                    did not affect the issuing of the grant because there was
                                                                                    already sufficient supporting paperwork (constituting the
                                                                                    required leverage of 100% of the amount claimed) in support
                                                                                    of the £50k grant issued.




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Internal Audit Report
     8     The following terms and conditions have been attached to the payment of the         It is acknowledged that evidence of progress towards
           grant:                                                                              planning permission was not provided to CERA prior to
                                                                                               payment. The applicants are of the view that it may take until
           The balance of the grant will be paid “provided that the following documentary      August 2006 before it is known whether or not planning
           evidence is also supplied at the same time:                                         permission has been granted by Tendring DC.
                      • Registration documents and constitution demonstrating the
                          creation of a not-for-profit organisation;                           It is further acknowledged that receipted invoices for
                      • Evidence of planning permission or progress towards planning
                                                                                               professional fees were not provided to CERA at that time.
                          permission;
                      • Receipted invoices for professional fees, to include timesheets        However, they have now been received and verified.
                          for any in-kind contributions;
                      • A summary report demonstrating how biodiversity will be                It is also acknowledged that registration documents
                          improved by this project including assurances that the project       demonstrating the creation of a not-for-profit organisation
                          will not be detrimental to the environment;                          were not supplied to CERA at that time although draft
                      • Copies of all other reports and studies produced during this           Memorandum and Articles of Association were provided.
                          phase.”                                                              The applicants have now advised that they are awaiting the
                                                                                               outcome of their planning application before they apply to
          A copy of the feasibility study was submitted with the Claim Form and
                                                                                               Companies House for the not-for-profit organisation to be
          contained:
                                                                                               incorporated.
                      • An update on the position in relation to planning permission 3 .
                          However there is no documentation in relation to the
                                                                                               It is acknowledged that enquiries should have been made by
                          submission to Tendring District Council for planning
                          permission. We understand from a conversation with the               CERA’s Appraising Officer into all of these omissions. Either
                          planning officer at Tendring District Council that the revised       the paperwork should have been obtained from by the
                          planning application is being heard in May 2006;                     applicant or the terms and conditions attaching to the
                      • Timesheets for DW Eagle and DW Rampling and copies of                  payment of the grant should have been varied.
                          invoices for professional fees. However, the invoices provided       TRAINING NEED
                          to support the claim are not the original invoices or certificated
                          copies of the invoices received;
                      • Copies of the following reports and studies produced to
                          support the feasibility study:

3
    Living Naze Feasibility Report, Section 2 Planning Permission, page 2

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Internal Audit Report
                       o   Living Naze, Transport Statement produced by
                           Intermodal Transportation;
                       o   Memorandum and Articles of Association, drafted by
                           Birketts Solicitors;
                       o   Barn Owl & Bat Survey, prepared by Chris Vine;
                       o   Ecological Assessment of land adjacent to Walton Hall,
                           prepared by McKenna Environmental Limited;
                       o   The Living Naze Visitor Centre Initial Feasibility Study,
                           produced by WWT Wetlands Advisory Service;
                       o   Concept Script, produced by Derek Nice, Sarner
                           International and David Page;
                       o   Building Control and Design, prepared by IJP Building
                           Conservation Ltd, Shore Engineering and the Carbon
                           Trust.
                       o   Community Consultation Plan,
                       o   Marketing Strategy, prepared by Doreen L Macintyre;
                           and
                       o   East of England Tourist Board Survey;

     There are no copies of “registration documents and constitution
     demonstrating the creation of a not-for-profit organisation” as requested by
     the Offer Letter.

 9   There is a completion report on file. However, it is noted that:                  It is acknowledged that this was not picked up, primarily due
                • There are a number of discrepancies between the Completion           to the transfer in administrative responsibilities from CERA to
                   Report and the Initial Application Form and Claim Form as
                                                                                       ExDRA as from 1st April 2005 and, subsequently, there being
                   follows:
                                                                                       no dedicated officer in place at ExDRA until August 2005.
                                                                                       TRAINING NEED
                     Output               Completion Report Initial Application
                                          (“original forecast Form                     It is also acknowledged that the EEDA Activity leader’s
                                          from offer letter”)                          comments are missing from the completion report. It was, at
                     Private sector       62,516              £108,123                 the time, unclear whether these should have been added


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Internal Audit Report
              funding generated                                               when the completion report was submitted or only once all
              (£)                                                             the outstanding paperwork had been received. These
                                                                              comments will now be added.
              Output               Completion Report Claim and                TRAINING NEED
                                   (“actual outputs  Monitoring Form
                                   achieved”)        (“actual outputs
                                                     achieved by this
                                                     project to date”)
              Private sector
              funding generated    £73,942              £127,500
              (£)




                           Completion Report         Initial Application
                                                     Form
              Original                               Private
                           Revenue        £62,516                  £108,123
              forecast –                             funding
              revenue      EEDA                      EEDA
                                          £50,000                  £50,000
                           Contribution              revenue
                           Total          £112,516   Total         £158,123

                            Completion Report        Claim and Monitoring
                                                     Form
              Actual
              expenditure Revenue          £73,942   Applicant’s £69,075
                                                     own
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                     – revenue                           resources
                                                         EEDA
                                   EEDA
                                                £50,000 funding to £50,000
                                   Contribution
                                                         date
                                   Total        £123,942 Total     £119,075

     There is evidence that the figures on the completion report have been
     checked but section g – EEDA Activity leader’s comments has not been
     completed.

10   It could be considered that not all of the expenditure on the project is         It is acknowledged that the rationale for sight clearance costs
     appropriate. The scope of the project was to produce a feasibility study which   is unclear and that the sub-contracted work is not evidenced.
     “will examine the potential for regeneration and provide a realistic, fully
     costed and appraised project”. The following points are noted:
                                                                                      It is also acknowledged that the rationale for a detailed
                 • There is an invoice on file for JW & FD Eagle (P1014) for “site
                                                                                      Concept Script is unclear.
                    clearance at Walton Hall Barns on behalf of Living Naze:
                                                                                      It is acknowledged that all these costs should have been
                                                                                      scrutinised by CERA’s Appraising Officer and enquiries
                    In kind works Eagle and Rampling – 5 days            2,000.00
                                                                                      made as to their appropriateness.
                    N A Baxter subcontract work, cutting and
                                                                                      TRAINING NEED
                            Heavy duty moving equipment – 10 days        2,900.00
                    Total                                               £4,900.00”

                    It is not clear why site clearance should be claimed as part of
                    the feasibility study. There is no invoice to support the work
                    sub-contracted to N A Baxter.

                •   There are two invoices for a total of £6,000 from David Page
                    for “six days scriptwriting, one day conference at New Holland”
                    (PL1006) and “Production of full provisional script for Living

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                   Naze as agreed.” (PL1024)

                   There is also an invoice from Derek Nice for £10,000 for
                   “artistic concept design on Living Naze Project to feasibility
                   stage, including engagement of scriptwriter and audio visual
                   artists, outline sketches and models and inception and
                   development of theme”.

                   The Concept Design section of the Feasibility Study contains:
                      o Concept Summary
                      o Interpretation Sketch & Key
                      o Interpretation Model
                      o Concept Script

    It is not clear why at the Feasibility Study stage of the project that a Concept
    Script is necessary.




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Appendix B – Key risks addressed

Key Risks covered by the review
         • The SREP Board are supplied with meaningful management information to
            make appropriate strategic and operational decisions
         • A robust project application process is in place
         • Projects are appraised against set criteria
         • Projects are approved against set criteria
         • Sufficient controls are in place to prevent any conflicts of interest arising
         • Grant payments are supported by appropriate evidence
         • Projects are monitored on the basis of risk
         • Project costs are monitored to prevent commitments being exceeded
         • Appropriate terms and conditions are issued to grant recipients
         • The accountable body has robust quality assurance procedures in place over
            the delegated scheme
         • Project outputs are accurately recorded and reported to EEDA




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Appendix C – Priority Ratings
The findings and recommendations are each allocated a priority level to assist
management with prioritising the action necessary to implement the recommendations.
   • High Priority – A significant weakness which if not addressed has the potential to
       undermine EEDA’s financial and operational management due to risk of serious
       error, irregularity or inefficiency;

   •   Medium Priority – Area where improvements in control are needed to further
       reduce the risk of undetected errors or irregularities occurring;

   •   Low Priority – Areas that have potential for improvement to comply with best
       practice guidance or to strengthen the overall control environment by building upon
       existing controls in place.




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