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									Report No.                      London Borough of Bromley                         Agenda
DR 09073
                                         PART 1 - PUBLIC
                                                                                  Item No.   6
                                          <Please select>


Decision Maker:         Audit Sub Committee

Date:                   16th June 2009
Decision Type:          Non-Urgent                Non-Executive             Non-Key

Title:                  INTERNAL AUDIT PROGRESS REPORT

Contact Officer:        Mark Gibson, Assistant Director Resources (Audit and Technical)
                        Tel: 020 8313 4295 E-mail: mark.gibson@bromley.gov.uk

Chief Officer:          Paul Dale, Director of Resouces and Deputy Chief Executive

Ward:                   All


1.      Reason for report

        This report informs Members of recent audit activity across the Council and provides updates on
        matters arising from the last Audit Sub Committee.

________________________________________________________________________________

2.      RECOMMENDATION(S)

     a. Note the report and comment upon matters arising from the internal audit progress
        report.

     b. Note the continuing achievements of the achievements of the counter fraud benefit
        partnership with Greenwich Council.

     c. Agree the Terms of Reference set out in Appendix E

     d. Agree the Escalation policy set out in Appendix F




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Corporate Policy
1.      Policy Status: Existing policy.
2. BBB Priority: Excellent Council.
________________________________________________________________________________
Financial
1.      Cost of proposal: N/A
2.      Ongoing costs: Recurring cost.
3.      Budget head/performance centre: Internal Audit
4.      Total current budget for this head: £862,400 including the benefit fraud partnership costs.
5.  Source of funding: N/A
________________________________________________________________________________
Staff
1.      Number of staff (current and additional): 12 FTE
2.  If from existing staff resources, number of staff hours: 380 days per quarter
________________________________________________________________________________
Legal
1.      Legal Requirement: Statutory requirement. Accounts and Audit Regs 2006
2.  Call-in: Call-in is not applicable.
________________________________________________________________________________
Customer Impact
1.  Estimated number of users/beneficiaries (current and projected): 180 including Chief Officers,
    Head Teachers/Governors
________________________________________________________________________________
Ward Councillor Views
1.      Have Ward Councillors been asked for comments? N/A.
2.      Summary of Ward Councillors comments: None




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3.    COMMENTARY

      3.1.   For the period April 2008 to March 2009 we issued 221 reports to either draft or final
             stage. This figure includes work that had to be completed in respect of the 2007/08
             plan, follow up reports, investigation reports, systems and probity audits. 90 % of last
             years plan has been completed          which is in line with the performance indicator
             requirement of 90%. At the time of writing this report most of the work in progress in
             respect of the 2008/09 plan was at draft report stage and work has already commenced
             on the 2009/10 plan.

      3.2.   87% of the audits have been completed within the budgeted time allowed against a
             performance indicator requirement of 90%. The feedback from clients has been very
             positive with an average score of 4.3 out of 5 against the target of 3.

      3.3.   One of the targets that has not been met is the two month elapse time between
             commencement of field work and issue of draft report. The performance indicator
             requires that 95% of the audits should be completed within two months of
             commencement of fieldwork whereas we have achieved only 76%. There are a number
             of reasons for this including awaiting information from clients, extending the original
             scope where there are major findings, auditors being asked to carry out ad hoc work
             including investigations, three auditors leaving before completion of some of audits that
             were in progress. This issue is of concern and as well as the appropriateness of the
             existing measure Internal audit management will be monitoring the position very closely
             as the year progresses to see if the turnaround times can be improved.

     3.4.    We had informed members previously that due to three vacancies arising we had
             bought into the framework agreement administered through the London Borough of
             Croydon who commission the work from Deloittes. The work related to audits in the
             2008/9 plan. Two audits on pensions and debtors have been completed with reports at
             draft stage. Three other reports remain as work in progress. Two of the three
             vacancies have recently been filled with both appointees now in post.

     3.5.    All the secondary schools have been audited and reported upon with some priority one
             findings at one of the schools. We have externally assessed all the primary schools
             against the requirement of the financial management standard with only school not
             meeting the standard. These matters are covered in the annual schools report that
             appears elsewhere on the agenda.

     3.6.    We have also carried out some investigations the results of which are reported
             elsewhere on the agenda, monitored the benefit fraud partnership and dealt with any
             fraud referrals as referred in part two of this agenda. The initial results of the National
             Fraud Initiative 2008 work are also reported in part 2 of this agenda.



              Report            Title                                   Dept     No of Priority
                                                                                 One’s
              Number
              ACS/040/02/2008   Review of Emergency Accommodation and   ACS &    1
                                Rents                                   RD
              RD/062/01/2008    Review of Mobile Phones                 RD       1
              CYP/001/02/2008   Review of Early Years                   CYP      2
              CYP/S10/01/2008   Secondary School                        CYP      5
              CYP/P15/01/2008   Primary School                          CYP      2
              RD/002/01/2008    Cash and Banking                        CYP      2

                                                        3
 Review of Emergency Accommodation and Rents

3.7.    A review of the above resulted in a number of recommendations including one priority
        one on the Rent accounts side that is administered through the Resources Directorate.
        There were significant problems with the reconciliation of Rent accounts at 2007/08
        year end close down. The Head of Finance therefore requested that additional to the
        weekly cash reconciliation between rent accounts and ORACLE the overall
        reconciliation of the Tenants Rent Account be done quarterly by the Rent Accounts
        team and submitted to the Senior Accountant for quality assurance.

3.8.    Rent account reconciliations to the ledger account have not been carried out by the
        finance team at the end of each quarter for 2008/09. A reconciliation completed on
        27/07/08 had not yet been verified by Finance; quarter two was completed 9th
        December and had been reconciled and checked to ORACLE; the identified difference
        of £78,069.73 had been returned to Rent Accounts to be resolved but is still
        outstanding. As at 23/02/09 Rent Account staff confirmed that the difference was still
        outstanding and may be due to loss of data from the Access database. The
        reconciliation for quarter 3 was work in progress at the time of the audit. Since the
        finalisation of the report, year end reconciliation has been ongoing and the identified a
        difference is £37,000 to be resolved.

3.9.    The 9/12/08 reconciled used the rent account value rather than the ORACLE balance
        for the 2007/08 brought forward balance, raising concerns that the format of the
        quarterly reconciliation is not clearly documented. The external auditors regard
        reconciliation of the rent account as a key control.

3.10    In addition to the priority one there were nine other lower priority recommendations in
        respect of orders, procedures, file documentation, trigger controls and input of
        information onto the rent accounting system, communication of information between
        sections on former tenant arrears and cancellation notices. This has resulted in a
        limited assurance opinion.

 Review of Mobile Phones

3.11    At the last cycle of this committee we reported that a draft audit report had highlighted a
        number of findings that needed to be addressed including the A Mobile
        Telecommunications policy should be agreed and implemented which clearly outlines
        the responsibilities of Officers and mobile phone users. The policy should include:

        • Criteria which should be met before a mobile phone is provided and documentary
        evidence that a business need for provision of mobile phone has been established.
        • Guidance on acceptable use of business mobile phone
        • Procedure for Lost or stolen phones
        • Procedure for retrieval & reallocation of mobile phones for leavers
        • Procedure to ensure security of the phone
        • Procedure in relation to repayment of private calls
        • Procedure in relation to use and reimbursement of pay as you go mobile phones
        • Monitoring of Fraud and Abuse
        • Health & Safety



                                             4
3.12     Once approved the policy should be communicated to all mobile phone users via
         departmental management structure. Acceptance of the terms and conditions with in
         the Mobile telecommunication policy should be sought from all mobile phone users.


3.13     We can confirm that the Procurement Section have now cleared all mobile phones that
         had previously unidentified users. Management are currently drawing up a procedure.
         In total 195 users were suspended as a result of this exercise. There were 10 other
         lower priority rated recommendations on matters covering pay as you go, mobile
         contract, list of mobile users, private usage, purchasing of phones, coding of
         expenditure and business need assessments. This has resulted in a limited assurance
         opinion.

Early Years

3.14     This audit review highlighted a number of weaknesses including two priority one
         recommendations. At the time of the audit we could find no evidence of any monitoring
         visits having taken place. From our audit visits to a sample of providers, we found that
         providers' knowledge and experience of administration and financial procedures is wide
         ranging and at one setting we found weaknesses in documentation, recording and lack
         of reconciliations.

3.15     The other priority one was in respect of a sample of payments made to each of our
         selected settings for the period Sept 2007 - Oct 2008. For one setting there was one
         overpayment for £2,544.32 for the Spring 2008 term. This was only noticed because
         the text on the AP2 payment forms for that period showed the advance and subsequent
         payments made. As a result we have recommended that other payments and the
         payment process be reviewed for potential overpayments. These overpayments have
         subsequently been deducted from the next periods’ payments

  3.16   There were seven other lower rated priority recommendations covering identity
         documents, benchmarking, management responsibility for each setting, parental
         declarations and the need for new contracts. This has resulted in a limited assurance
         opinion.

Secondary School

3.17     There were five priority ones in respect of an audit of a secondary school. It was found
         that a report submitted to finance governors had some anomalies and therefore we
         recommended that future reports should be clear and encompass all information such
         as salaries, that it should clearly demonstrate that capital expenditure is met by capital
         income and should be shown separately and that certain income and expenditure
         needed adjustments.

3.18     At the time of the audit it was also found that reports extracted from the system did not
         contain up to date information e.g. three months salaries had not been updated, there
         was a need for code adjustments, invoicing for consultancy work at other schools was
         not prompt and capital expenditure could not easily be matched to related capital
         receipts. A recommendation was consequently made to rectify this situation.

3.19     It was also found at various periods in November 2008, December 2008 and January
         2009, the school had been overdrawn by sums ranging from £11,494 to £178,883. This
         indicated a cash flow problem arising from a failure to invoice and collect sums due
         from other schools for consultancy work. The college has assured us that this has been
         rectified and that the account has not been overdrawn from January 2009.

                                              5
3.20   At the time of the audit it was ascertained that the school had debts totalling about
       £169,000 of which over £104,000 related to consultancy work performed for other
       schools. It was also found that there were no control accounts in respect of each school
       that could easily identify expenditure incurred and income received from each school.
       The college has assured us that debts will be collected promptly and control accounts
       set up immediately.

3.21   As a result of the above findings we have had to inform the school that they were not
       compliant with the financial management standard at the time of the audit. The college
       would need to rectify the above findings in order to be compliant.

3.22   There were 12 other lesser priority findings covering raising of orders, obtaining quotes,
       roll over of contracts, bank reconciliations, asset register, prompt submission of data to
       the authority, an approved scheme of delegation, need for whistle blowing policy, cash
       flow statements to be produced, benchmarking, updating the finance manual and
       auditing of the voluntary fund.

3.23   As a result of our audit we have given a limited assurance opinion. The school has
       given a positive response to our report and agreed to an interim audit in mid June
       2009.

Primary School

3.24   As a result of our external assessment we have assessed a primary school as not
       having met the finance management standard. The school appointed a new head
       teacher in September 2008 who subsequently identified a number of issues in relation
       to the finances. There were 12 recommendations including two priority ones in respect
       of budgeting and a lack of a scheme of financial delegation. The new Head Teacher
       and Senior Admin Officer were unable to find supporting documentation for the 2008
       budget or 3 year budget. The Schools' Finance Team (SFT) have not received the 3
       year budget from the school. SFT have identified that the year end position of a
       £27,672 surplus is actually forecast as a £90,000 deficit.

3.25   There was no comprehensive scheme of delegation. It was recommended that a
       manual template customised to the requirements of the school, should be approved by
       the Governing Body and put in place as soon as possible.

3.26   There were 10 other lower priority recommendations on a CRB check, updating the
       finance manual, adopting a whistle blowing policy, completion of governor
       competencies, updating staff competencies, staffing structure, renewal of contracts,
       lettings policy, updating schools meals records, updating the asset register and raising
       orders. We have agreed with the school that it will be reassessed in quarter 4 of this
       financial year.

Cash and Banking

3.27   The audit covered petty cash accounts in detail this year and two priority 1
       recommendations were made relating to petty cash controls in CYP Department. These
       related to bank reconciliations not being performed correctly with discrepancies
       identified on re-performance and year end reconciliations including incorrect figures for
       the bank balance with no counter-signature on the year end reconciliation. The above
       all contravene Financial Regulations.

3.28   Issues with reconciliations of petty cash accounts were found in other service areas in
       addition to this.

                                            6
Duplicate Payments

3.29   At the last meeting of this cycle we indicated that internal audit had identified just under
       £70,000 of potential duplicate payments. To date £56,000 have been confirmed as
       duplicate and been recovered by the Accounts Payable (AP) Team.

Peer Review

3.30   Members were aware that we were being peer reviewed by Heads of Audit for Bexley
       and Brighton and Hove City Council. Our peer review by Bexley is now finalised and
       this appears under the annual report elsewhere on the agenda. One of the
       recommendations is that consolidated terms of reference should be submitted to Audit
       Sub Committee. This is now attached as Appendix E.

3.31   We have completed the peer review for Brighton and Hove Council and made a
       number of recommendations that have been accepted for implementation. We have
       also completed a peer review for London Borough of Greenwich’s internal audit section
       and made a number of recommendations. Responses are awaited.



Escalation Policy

3.32   The peer review also touched upon escalation policies in relation to non
       implementation of audit recommendations. A draft escalation policy for responding, non
       agreement to recommendations and non implementation of agreed recommendations
       is attached as appendix F for this committee’s approval.

Previous Priority One Recommendations

3.33   The latest list of outstanding priority one recommendations is shown in Appendix A
       Since our last report to Audit Sub Committee there has been ongoing activity by
       management to implement these. Appendix A shows 24 priority ones. 13 have been
       implemented since the last report to this committee. The ones where we are satisfied
       that based on evidence and explanations implementation has been achieved are the
       primary school (2) that has now passed the FMSiS standard, the Ice Rink investigation
       (1), review of pensions (3), ITIL (1), contract and partnerships (3) under part 2 of this
       agenda, telecommunications (1), review of carers (1) and creditors (1). There have
       been 13 new recommendations since the last cycle that are expanded upon above and
       elsewhere on the agenda.

3.34   At the last meeting of this cycle members had asked for specific updates on two reports
       with outstanding priority ones.

3.35   Creditors cheque control- a previous audit indicated that some payments to staff were
       being paid via creditors rather than through payroll. A full creditors audit recently
       completed indicated that there were no further payments made to staff since this issue
       was highlighted to management. The recommendation has therefore been
       implemented.

3.36   VOIP (Voice Over Internet Protocol) – Telecommunications Strategy Document is now
       at draft stage.




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Housing Benefit

3.37   Since the inception of the partnership in April 2002, through to May 2009, the Council
       has successfully prosecuted 189 claimants to date for benefit fraud; issued 200 court
       summonses; given 73 formal cautions; and administered 193 penalties. The full details
       and appendices on trends are shown in appendices B, C and D. The Members have
       previously requested extrapolated figures for the year. On this occasion this has not
       been undertaken because there is only two months data to project. However certain
       trend lines have been included.

3.38   For 2008/09 the partnership successfully prosecuted 37 claimants for fraud, issued 49
       administrative penalties totalling £26,558 and given 10 formal cautions. In total 622
       new cases of alleged benefit fraud were referred to the fraud team including 124
       through the fraud hotline. 458 interviews were conducted for the last financial year and
       178 clients were also visited. £45,439 of administrative penalties and legal costs were
       collected in 2008/09. The partnership has also pursued recoveries of overpayment
       through the assets held by convicted fraudsters using if necessary the Proceeds of
       Crime Act. At least two have been successful with others pending.

3.39   It should also be noted that £1,080,292 was identified as fraudulent overpayments in
       2009/10 of which 40% is recoverable in rebate. A further £309,550 of this has been
       recovered over the year.

Risk Management

3.40   Since the last report to Members risk management has collated evidence and provided
       input to the Audit Commission’s new Comprehensive Area Assessment for the theme
       ‘Governing the Business’ under the key lines of enquiry ‘Does the organisation promote
       and demonstrate the principles and values of good governance?’ and ‘Does the
       organisation manage its risks and maintain a sound system of internal control?’ We are
       currently responding to the external auditors’ initial request for additional information /
       evidence.

3.41   Risk Management Group has co-ordinated this year’s review of the Annual Governance
       Statement which forms part of the annual report and accounts for 2008/09. The Annual
       Governance Statement replaced the Statement on Internal Control in 2007/08 and is
       now the formal statement that recognises, records and publishes an authorities
       governance arrangements. The assurance gathering process includes a full review of
       the risk register, the completion of a detailed checklist, and the signing of assurance
       statements by the Assistant Directors and Chief Officers. The Annual Governance
       Statement is signed off by the Chief Executive and the Leader of the Council.



3.42   As the risk register is still being updated a full report will be provided at the next
       meeting. We have made some minor amendments to the underlying linked risks on the
       corporate risk register which is now reported as part of the quarterly ‘Are we on track?’
       performance monitoring report (see Appendix G). Work continues on improving the
       presentation.

3.43   Meetings have been held with the Partnership Officers’ Group to establish a risk
       register for the Local Strategic Partnership and for each of the thematic partnerships.
       As part of this work a free training session has been organised with our insurers Zurich
       Municipal.
                                              8
4.   POLICY IMPLICATIONS

     None

5.   FINANCIAL IMPLICATIONS

     Some of the findings identified in the audit reports mentioned above will have financial
     implications.

6.   LEGAL IMPLICATIONS

     None

7.   PERSONNEL IMPLICATIONS

     None



     Non-Applicable Sections:      [List non-applicable sections here]
     Background Documents:         None
     (Access via Contact
     Officer)




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