Agenda item

Internal Audit Outturn Report 2018/19

Report of the County Treasurer


The interim Chief Internal Auditor introduced this report that contained the annual opinion for the year, along with the Audit Plan, from an internal audit perspective.  Internal Audit is required by professional standards to deliver an annual internal audit opinion and to report to the Committee.  This work is timed to feed into the Annual Governance Statement that would be produced in July.  The report contained the opinion; a summary of the work that supported that opinion and a statement on conformance with PSIAS and the Local Government Application Note (LGAN), highlighting any areas of non-conformance.


The 2018/2019 Plan was approved by this Committee on 13 June 2018.  From time to time, additional audits were added to the Plan and some were removed or deferred.  However, a target of 90% of the Audit Plan being delivered is set by the Internal Audit Service, and 96% of the Plan had been achieved. The methodology behind the setting out of an opinion was set out in the report.  For all audit work a “substantial”, “adequate” or “limited” assurance was given.  Substantial and adequate opinions were positive opinions, whilst a limited assurance was a negative opinion where improvements were needed to the control environment.  A high-level summary of the work undertaken was categorised into High Risk Auditable Areas; Main Financial Systems; Systems Audits; Compliance Reviews; Financial Management in Maintained Schools including payroll arrangements and Special Investigations/Fraud and Corruption Related Work is done.  This all culminated to give an annual assurance opinion for the year.  All Limited Assurance opinions are brought to the Audit and Standards Committee together with the Top Ten Risk Areas and Special Investigations where there was a financial loss of over £10,000.


This year the Top Ten Risks had focussed on the financial pressures faced by the Council and work around Care Director and support given on the Adult and Children’s Financial Services review programme.  The audit opinions were summarised on page 159 of the agenda pack.  There was one Limited Assurance review – Home and Community Care Contract Review, to be discussed later under Part II of the agenda.  Further details were given on areas for improvement in the public part of the report.  As part of the opinions, an Adequate Assurance may also contain one high level recommendation.  Further details were given of those reports relating to high risk auditable areas with an opinion of at least Adequate and where there was a high level recommendation being made. 


The main financial systems work was described.  With the exception of one case, all financial systems had been given Substantial Assurance.  Sales to cash was given a Limited Assurance opinion and this would be discussed further under Part II of the agenda.


For other assurance reviews, details were given of other Limited Assurance reviews.  Four had been shared with the Committee and a further four reviews would be shared with Members in due course.  The high-level risk areas and areas for improvement were given in paragraph 19 of the report. 


Details of compliance reviews were given in regard to probity type work such as comfort funds, Educational Endowment Funds and Register Offices.  Regarding the work undertaken in Register Offices Substantial Assurance had been given. 


In relation to schools’ audits, previously these had been split into compliance audits and a themed audit on payroll controls. This has now been combined for efficiency purposes into one piece of work.  There was one Limited Assurance opinion that came to light as part of the schools’ compliance programme. This related to poor controls over the income and banking arrangements, and payroll procedures, limited verification on the payroll expenditure and no audit of the School Fund.  Further details of the control issues raised when the auditors went out to the schools were detailed on pages 167/168 of the agenda pack, although none of these were high level issues.  In all cases positive responses were received to the recommendations and it was hoped that improvements would be made in all these areas.


The Special Investigations Work this was contained in Part II of the agenda.  This provides a summary of the work undertaken as part of our Counter Fraud Plan.  This year, fraud losses of £23,085 and in addition, as part of the National Fraud Initiative, £54,000 relating to payments made to care homes where the residents were deceased.  Discussions were taking place with the care homes to establish how this had occurred and to prevent reoccurrence.  The quantity of concerns referred to Internal Audit were comparable to the previous year, although the actual loss relating to referrals had increased.  It was not considered that the actual financial loss indicated that detected fraud was a significant problem to the Council. The overall score awarded for the fraud element of the Internal Audit Service’s work was given as 90% and there was no material effect on the control environment.


The overall opinion on the control environment for 2018/19 was awarded an adequate assurance.  This calculation was based on the fact that five out of the six audit categories were awarded a Pass (an opinion of at least “adequate” awarded for 90% or over of audit reviews/activity). The one category that was awarded a ‘Fail’ was the Other Systems Audit.  A chart detailing the audit opinions over the last five years was given on page 171 of the agenda pack.  In summary, in 2018/19 the Internal Audit Service had concentrated on the digital transformation programme and support to the Adult Social Care Pathway and key projects in the Adults and Children’s Financial Services Transformation Programme. Where High Level issues had been raised the Internal Audit Service will continue to work with staff to support the design and implementation of a robust control environment for 2019/20.  In relation to My Finance and MyHR, many of the recommendations made in 2018 had been acted upon and implemented.  Substantial assurance had been given to the My Finance Control Function.  My HR had continued to be a limited assurance opinion for 2018/19. However, three of the five high level recommendations had been implemented and mitigating controls had been put in place to reduce the two remaining high-level recommendations to a lower level.  The County Treasurer needs to  continue to liaise with the contractor to get information to obtain Assurance in respect of these two areas, or accept the risk going forward.


In relation to the payroll environment, this had been awarded an Adequate Assurance opinion (an improvement on last year).  There were also fewer payroll control weaknesses in schools.  In respect of the direction of travel for the financial systems reviews, there were a number of Substantial Assurance opinions, but a Limited Assurance opinion had been given in relation to Sales to Cash and Debt Recovery.  This would be given greater prominence this year as it was a High-Risk Area and would be reported back to the Committee when completed later in the year.  There was an increase in the number of Limited Assurance opinions given this year.   Whilst there were few system weaknesses the High-Level issues related to non-compliance with policy, best practice and procedures.  The other key themes related to the non-completion of key tasks, not doing these consistently or correctly along with poor record keeping and a lack of management checks.  This may be due to capacity issues.  Further reports tracking recommendations and key actions would be brought to the Committee during the year.


Key performance measures for the Internal Audit Service showed that the service had met its key performance target of more than 90% of reports being issued to draft report stage for both systems and compliance audits during 2018/19.  A table shown on page 173 of the agenda pack gave details of performance since 2016/17.


The report had to refer to compliance with the UK PSIAS standards that came into force on 1 April 2013.  The Internal Audit Team also had to have in place a quality assurance programme.  This had three main strands: the checking of audit reports before they went out; an annual self-assessment against the checklist of standards and every five years there was an external quality assessment.  All actions and improvements coming out of the external self-assessment had been reported to the Committee and all suggestions and recommendations have been completed.  The Internal Audit Service now undertakes an annual self-assessment and for the current year this has shown that 94% of the public sector internal audit standards were deemed to be fully in place.  There were four areas of non-conformance highlighted following the self-assessment that would not involve any further action being taken and details of actions taken were given in Appendix 3 of the report.


In conclusion the work undertaken by the Internal Audit Service during 2018/19 had been performed in accordance with PSIAS and there were no restrictions or impairments in scope or impairments in independence or objectivity during the year which prohibits the Chief Internal Auditor or the Service from delivering the annual audit opinion for 2018/19.


Members thanked the Chief Internal Auditor for her comprehensive report.


RESOLVED: The report was received.


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