Minutes of Meeting of the Audit and Standards Committee held in Committee Room 2, Glenurquhart Road, Inverness on Thursday 4 December 2003 at 10.30 a.m.
Mr D W Briggs, Mr W Fernie, Mr A Mackay, Mr M Macmillan, Mr R J Lyon, Mrs S Slimon, Mr W Clark.
Non-Members also Present:
Mr A I MacDonald, Mr G M Smith, Mrs I McCallum, Mrs G McCreath.
Officials in attendance:
Mr A Geddes, Director of Finance
Mr G Munro, Head of Internal Audit and Risk Management
Mr P Maylin, Income and Recovery Manager
Mr C MacCallum, Payroll & Pensions Manager
Mr D Moreton, Auditor, Internal Audit
Miss J MacLennan, Principal Administrator, Corporate Services
Mr M Vogan, Administrative Assistant, Corporate Services
Also in attendance:
Ms M Bruce, Senior Audit Manager, Audit Scotland
Mrs S Shiels, Computer Auditor, Audit Scotland
Mr D W Briggs in the Chair
1. Apology for Absence
An apology for absence was intimated on behalf of Mr I MacDonald.
2. Minutes of Meeting – 9 October 2003
There had been circulated for information the approved Minutes of the Meeting of the Committee held on Thursday, 9 October 2003 – which were NOTED – subject to the following:-
(i) Members Expenses Claim Forms – it was NOTED that individual Members Expenses Claim Forms were not open to public scrutiny – other than for a 15 day period in line with the statutory Closure of Accounts procedures; and
(ii) External Audit Reviews – the Senior Audit Manager, Audit Scotland, referred to correspondence which had been received from the Director of Corporate Services in relation to the factual inaccuracies in a report which she had submitted to the meeting of the Committee on 28th August 2003. She advised that, whilst it was acknowledged that her report had been inaccurate in stating that ‘voluntary retirals had increased with the introduction of the ‘rule of 85’, the factual accuracy of the contents of the draft report had been confirmed with the Assistant Pensions Manager prior to finalisation. Also, it had been stated that the objective of the study had been to assess the Council’s progress in implementing the recommendations included within the Accounts Commission’s "Bye now, pay later?" report which had focused on Scottish Councils management of early retirement from the Local Government Pension Scheme and, as a result, the position in relation to total retirements had not been included as the national study had focused solely on early retirements.
The Committee NOTED the position.
3. Internal Audit Reviews
There had been circulated Report No. AS-19-03 dated 24th November 2003 by the Head of Internal Audit and Risk Management which summarised the Final Reports issued since 9th October 2003, together with other information relevant to the operation of the Internal Audit Section.
Speaking to the report, the Head of Internal Audit and Risk Management highlighted seven reviews which had been undertaken since the date of the last meeting as follows:-
(i) Motor Insurance Claims - noted that the main conclusions of the review had been that the production and distribution of detailed procedure notes covering all aspects of accident reporting, insurance claims and staff responsibilities would ensure harmonisation and more efficient administration of motor insurance claims in all Areas. Also closer monitoring of drivers and disciplinary action where procedures were not being followed would ensure that accidents were reported promptly;
(ii) Rosemarkie and Fortrose Caravan Parks – noted that there had been a failure to properly raise charges from Season 2001 at the Caravan Parks which had resulted in a position whereby debts had not been raised against the Camping and Caravanning Club in the Council’s records and reflected an incorrect position in Fortrose Common Good Fund annual accounts. In order to resolve the situation, and conclude the relevant correspondence, these and any future cases would be dealt with by the Property & Architectural Services section;
(iii) IS Client Contract Monitoring – noted that the current IS Client Finance Policy did not provide Council users of ICT services with adequate information as there were currently three charging models in use which led to a lack of transparency and understanding on how charges were derived. There was clearly scope for considerable improvement to the policy, method and transparency of charges to the IS Client and Council Services and this would be pursued;
(iv) Verification of Performance Indicators – noted that the systems for the collection of the performance indicator data by Services and the onward submission of the data to the Performance Analyst had improved significantly from the position in the previous year. The production of an Internal Guide and the increased prominence given to this within the Finance Service had made a significant contribution to this improvement but there was still a need for Services to adhere to the information in the Guide in order to ensure that their performance indicators were prepared in accordance with the definitions prescribed by Audit Scotland in their annual direction;
(v) Fraud Investigation Team – noted that the main findings of the review had been that delays had been occurring between referrals being received and investigations beginning and cases not being reviewed by management to ensure compliance with policy and guidance. Also, management information regarding the number of referrals and progress with investigations was lacking. Apart from these findings, there had been few problems with the administration of the Highland Investigation Team;
(vi) Bank Reconciliations – noted that, following the agreed Action Plan contained in the report of March 2001, all bank reconciliations were now completed within 6-8 weeks of the month end although there was still an absence of system documentation for the performance of bank reconciliations. The absence of comprehensive guidance documentation for completing such an important and complex task was an omission which could have serious consequences in the event of prolonged staff absences and this would be pursued; and
(vii) Community Learning and Leisure – noted that, from an investigation undertaken, it had been found that a summertime employee had incorrectly remained on the Council payroll despite only having been employed for five weeks in July/August 2002. A number of interviews had taken place between the former employee and Council staff and the amount in question had been refunded. However, it was considered that a case of fraud had been committed against the Council and the case had been reported to the Police under the terms of the Fraud policy. In addition, staff from the Payroll section were currently considering various options to improve the internal controls within the distribution of payroll advice notes in order to alleviate this problem in future. Following discussion on this item, it was agreed that a copy of the full report should be sent to all Members of the Committee following the meeting for consideration.
The Committee otherwise NOTED the final reports issued since 9th October 2003, together with other information relevant to the operation of the Internal Audit Section.
It was also NOTED that training for Members of the Committee, which was due to commence in Spring 2004, could also be provided for any other Member of the Council who wished to become involved.
4. External Audit Reviews
There had been circulated Report No. AS-20-03 dated 25th November 2003 by the Director of Finance which contained a report from the Council’s External Auditors (Audit Scotland). The report detailed the recommendations made in the activity reviewed and reported since the date of the last meeting. The Action Plan, which had been agreed by the relevant Service Manager, was also included within the report.
During a summary of the report, it was confirmed that, during an overview of the new Payroll System, it had been found that the arrangements in place for the migration of existing data to the new payroll system were generally satisfactory although there was scope for improvement. In particular, the acceptance of the data by the user department and their agreement that the new system should go live had not been adequately documented.
Following concerns expressed to the Project Team Leader that a security risk existed in that all Pensions and Audit staff had access to the Invalid Login screen which displayed details of incorrectly keyed passwords and the associated operator ids, a systems upgrade had now been applied which ensured that correctly keyed passwords were no longer displayed on the Invalid Login screen.
Areas of Good Practice included the development of a Migration Process Checklist, parallel running to ensure that the new system was operating properly prior to going live, production of a Systems Administration Manual and maintenance of a Risk Register which documented the main risks to the new system and how these were being addressed by the Council and Fujitsu Services.
Areas with Scope for Improvement included acceptance of data transferred to the new payroll by the user service not currently adequately documented, existing Payroll Service Description not updated until all payrolls had been migrated to the new payroll system, risks of granting supervisor access to ‘live’ payrolls to be assessed as a matter of urgency, no guidance on the setting of the pre-determined period after which the system prompts the user to change their password and control over operator ids to be improved.
The Action Plan which had been included in the report set out the agreed actions to be taken in response to the main recommendations, graded to show their relative priority, and the timescales within which the issues were to be addressed.
The Committee NOTED the contents of the report as circulated.
5. Exclusion of the Public
The Committee RESOLVED that, under Section 50A(4) of the Local Government (Scotland) Act 1973, the public should be excluded from the meeting for the following items on the grounds that they involved the likely disclosure of exempt information as defined in Paragraphs 1 & 6 of Part 1 of Schedule 7A of the Act.
6. Review of Internal Audit Staffing
There had been circulated to Members only Report No. AS/21/03 dated 13th November 2003 by the Director of Finance which confirmed that, at the meeting on 28th August 2003, the Strategic Internal Audit Plan for the years 2003/4 to 2006/7 which had been produced by the Head of Internal Audit and Risk Management had been approved. It had also been agreed that the Director of Finance should submit a report to a future meeting on the subject of staffing levels.
During a summary of the report, the Director confirmed that, although there was no specific statutory requirement in Scotland to require any Council to establish an internal audit function, the existence of the activity was absolutely essential in allowing him to fulfil his professional responsibility to the Council. In addition, the External Audit review of all Scottish Councils internal audit functions which had been carried out in 2001 had placed the audit service in the Highland Council in the second top group (out of five groups) and the staffing position within the middle group.
Continuing, he highlighted the fact that the Audit team not only dealt with the needs of the Council but also supported him in his role as Treasurer of the Police, Fire and Valuation Boards and the Eden Court Board. This work covered a wider range of activity than in any other local authority audit team in Scotland and consequently placed a higher demand on its resources. It was for each Council to take a view on the adequacy of the resources it provided to meet each of the various activities based on an assessment of risks and the professional responsibility of the Head of Internal Audit and Risk Management to advise the Council if it was considered that the level of resources limited the scope of fulfilling this role or prejudiced the ability to deliver an effective service. Although there was no absolute correct number of internal audit staff, it was felt that at present there was a limited ability within the current Audit team to undertake value for money work and to deal with the higher risks associated with the impact of decentralisation operated by the Council and he therefore supported the request for an additional member of staff as detailed in the report.
At this point, the Chairman advised that it had been brought to his attention that four members of the current team were shortly to leave the employment of the Council and he expressed the hope that recruitment procedures would be implemented as soon as possible in this respect.
Following discussion, and in noting that any recommendations in terms of staffing would require to be considered by both the Resources Committee and the Budget Working Group in the first instance, the Committee AGREED to recommend the creation of a post of Senior Auditor within the Internal Audit Section as detailed in the report.
7. Sundry Debt Write-Off
There had been circulated to Members only Report No. AS/22/03 dated 13th November 2003 by the Head of Internal Audit and Risk Management which provided details of a sundry debt write-off.
Speaking to the report, the Head of Internal Audit and Risk Management confirmed that, having thoroughly examined the circumstances surrounding this particular case, and having considered the actions of the various Council Services involved, it had been recommended that there should be no wholesale change to the current operating practices but there were a number of secondary issues which, if addressed, could improve the situation.
Specifically, the main issues which had been identified had been the lack of clear guidance for any Service raising invoices and the level of detail required on invoices (including the supporting documentation required to support legal action), the need for debt recovery procedures to be more clearly defined (particularly after Final Notice stage), the need to develop a standard format for instructing Legal Services and clarification regarding the relationship between vessel owners, their agents and the Council.
Following discussion, the Committee NOTED the terms of the report and the recommendation to continue with current procedures but with specific areas of improvement to be addressed by the various Services involved.
The Committee also AGREED that consideration should be given to including the following additional conditions within current procedures :-
(i) a limit to be placed on the level of credit available;
(ii) a requirement for the relevant paperwork on each case to be kept up-to-
date at all times; and
(iii) in the first instance, a requirement for contact details to be provided for a
person/company who would take responsibility for any credit facilities
extended to person(s) not resident in the country.
The meeting ended at 11.40am.