Minutes of Meeting of the Audit and Scrutiny Committee held in the Council Chamber, Council Headquarters, Glenurquhart Road, Inverness on Thursday, 22 September 2011 at 3.20pm.
Present:
Mr D Bremner, Mr D Mackay, Mr R Greene, Dr A Sinclair, Mrs J Urquhart, Ms M Smith, Ms A MacLean, Mr P Cairns, Mr B Clark, Mr H Wood, Mr K MacLeod, Mr J Ford, Miss J Campbell, Mr L Fraser, Mr G Rimell
Non-Members also present:
Mr G Farlow, Dr D Alston, Mr B Gormley
Officials in Attendance:
Mr N Rose, Head of Internal Audit and Risk Management
Mr S Fraser, Joint Acting Head of Legal and Democratic Services
Mr R MacKenzie, Head of Support Services
Mr G McCaig, Head of Social Work Business Support
Mr R Guest, Head of Roads and Community Works
Miss D Sutherland, Principal Auditor
Mr C MacCallum, Payroll and Pensions Manager
Mr J Shepherd, ICT Strategy and Projects Manager
Ms C Gillies, Principal Improvement and e Procurement Officer
Ms L Lee, Acting Principal Administrator
Miss C Maragh, Administrative Assistant
Also in attendance:
Ms J Baird, Transitions Director, Highland NHS Scotland
Mrs P Tate, Senior Audit Manager, Audit Scotland
Ms G Menger, Senior Auditor (ICT), Audit Scotland
An asterisk in the margin denotes a recommendation to the Council.
All decisions with no marking in the margin are delegated to Committee.
Mr D Bremner in the Chair
1. Apologies for Absence
Apologies for absence were intimated on behalf of Mr D Fallows, Mr A Rhind, Mr J Rosie, Mr R Coghill, Mr T Prag Dr M E M Foxley, Mr J Gray, Mr A S Park and Mr R Pedersen.
2. Declarations of Interest
The Committee NOTED the following declaration of interest:-
Item 4 – Mr P Cairns (Non-financial)
3. Recess Powers
The Committee NOTED that the Recess Powers granted by the Council at its meeting on 23 June 2011 had not been exercised in relation to the business of the Audit and Scrutiny Committee.
4. Internal Audit Reviews and Progress Report
Declaration of Interest: Mr P Cairns declared a non-financial interest in this item on the grounds that a close relative was employed by the Council and cited as a Responsible Officer for one of the actions contained in the Education, Culture and Sport Service – Financial Irregularities Audit Action Plan – but, having applied the test outlined in Paragraphs 5.2 and 5.3, concluded that his interest did not preclude his involvement in the discussion.
There had been circulated Report No. AS-14-11 (862kb pdf) dated 12 September 2011 by the Head of Internal Audit and Risk Management which summarised the final reports issued since the date of the last meeting, together with details of work in progress and other information relevant to the operation of the Internal Audit Section.
In addition to the final reports, the Head of Internal Audit and Risk Management also drew attention to other work which being carried out by Internal Audit. Particular reference was made to the planned review by the Scrutiny Group of Housing Voids, with it being reported that this would not now be going ahead as it would duplicate work being undertaken by the Scottish Housing Regulator. An alternative scrutiny topic would now therefore be identified and put before the next Committee meeting for approval.
The final audit reports were presented as follows:-
(i) Social Work – Social Care Procurement and Financial Controls
The objectives of the review had been to ensure that there were proper arrangements in place for the procurement of services which complied with Contract Standing Orders, the Procurement Manual, the Social Work Commissioning policy and best practice which included the Scottish Procurement Policy Note 8/2010 (September 2010), that controls were in place to monitor activity and expenditure against contracts, to ensure that there was no "off contract" expenditure and to ensure that non-contract rates, (e.g. out of area placements or rates paid for specialist services), were appropriately authorised.
It was confirmed that, in terms of the main findings, the review of the two tendering exercises had found that both contracts had been awarded to the most economically advantageous bidder. For the Home Care tender in particular the process had been comprehensive and well planned.
Furthermore, the National Care standards had been used as part of the procurement process and included in contracts. There were also adequate arrangements in place to monitor service delivery against the contract specification. All of the out of area providers reviewed were approved providers. For the out of area providers reviewed, there were either existing contracts in place with the local authority in that area, or the use of the out of area provider had been approved at the Resource Allocation Panel (RAP).
As a result of the audit, 7 recommendations had been made: 1 at Priority Grade 2 and 6 at Priority Grade 3 – all of which had been accepted by management and were due to be implemented by 30 September 2011.
In response to queries, Members were advised that an action tracking process had been put in place by Internal Audit to ensure that agreed actions were implemented. In response to suggestions that a formal check list be introduced for award of contracts (the audit having found an instance where paperwork providing assurance with regard to health and safety had not been requested), Members were advised that this would be implemented in future. An assurance was also given that, although copies of the relevant paperwork had not been obtained, health and safety requirements had been met.
(ii) TEC Services – Stores System
The objectives of the review had been to ensure that there were appropriate arrangements in place for the ordering, payment and issue of goods from TECS Stores, write-offs were properly calculated and authorised in line with Council policy and any sale of obsolete or damaged stock was carried out in accordance with Council policy, that the system accurately reflected stock held in the Stores, efficient and effective arrangements were in place in the TECS Stores System to provide best value, and the TECS Stores System had adequate internal controls and satisfactory audit trails.
It was confirmed that, in terms of the main findings, there were a number of areas which were found to be operating satisfactorily as set out in the report. Annual stock checks took place at each store visited and therefore there was assurance that the system was checked and updated on an annual basis to ensure it accurately reflected stock held in the Stores. Furthermore, there were efficient and effective arrangements in place in the TECS Stores System to provide best value. Also, the introduction of the new Stores computer system (Elite) would allow the Stores and Purchasing Manager to provide Services with more detailed goods usage information so that this could be managed more effectively and efficiently and provide best value for the Council.
In all, 14 recommendations had been made – 6 at Grade 2 and 8 at Grade 3 – all of which were due to be resolved by November 2011.
In response to questions raised, an assurance was given that discrepancies identified in recording of stock were generally minor and could often relate to individual interpretations as to descriptions of similar items, such as protective clothing of different sizes. Procedures would be tightened in this regard. Managers were aware that Services were responsible for stock checking and that this was not part of the audit process.
Concerns were also raised that, as stock control was carried out by each individual Service, the Committee was unable to check whether this activity was being carried out effectively across all parts of the Council. Members were advised that reports were available in this regard if required and an assurance was given that stock was adequately controlled. Any further concerns could be raised with the individual Service Committee.
(iii) Finance Service / TEC Services – Administration of Fuel Cards
The objectives of the review had been to ensure that there were clear and concise policies and procedures in place to govern the operation of the fuel card scheme and that they were adhered to by all members of staff; fuel cards were only issued to authorised vehicles or staff; fuel card usage was monitored efficiently and effectively and prompt action was taken to investigate and address any anomalies and variances identified; monthly payments were reconciled accurately and timeously and recharges were made to the correct account.
The main findings of the audit included that: there was no strategic policy which set out the arrangements for the issue, use and transaction monitoring of fuel cards within the Council; there had been four occasions (15%) where non-Budget Holders had requested new fuel cards; officers could request their own fuel cards without these being authorised by a more senior officer; and the central register of active fuel cards was incomplete, inaccurate and out of date. Monthly fuel card charges were reconciled and recharged to the appropriate cost centre on a timely and accurate basis.
In all, six areas of concern have been identified; 1 at Priority Grade 1 and 5 at Priority Grade 2. The majority of actions had been completed with two to be completed by 30 September 2011. There would also be a detailed follow-up audit review as a Grade 1 area of concern had been highlighted.
In response to queries raised, the Head of Roads and Community Works explained that: where drivers used a fuel card to purchase both petrol and diesel, the former would normally be for small tools rather than a second vehicle; vehicle log books were a paper-based system - this did not link directly with the fuel management system; recording mileage and fuel consumption was not always straightforward as not all fuel was purchased using fuel cards, some was obtained direct from Council depots - the recording systems for the two purchasing systems were incompatible and the data had to be reconciled manually; speed limiters had been fitted to a number of vehicles during a trial period - over the testing period the limiters had proved to be effective in saving fuel; and, fuel cards for hire cars could not be linked to specific vehicles as a different car was used each time.
Responsibility for fuel purchase now lay with the Procurement Unit; new processes for monitoring fuel cards and tighter controls had been introduced. There was no evidence of the cards having been misused.
During discussion, Members advocated the installation of vehicle tracking systems in all vehicles, to allow closer scrutiny and control of vehicle use. In response, the Head of Roads and Community Works advised that a previous cost-benefit analysis of tracking systems had indicated that the business case could not be justified. However, the proposal was currently being re-examined and a report would be submitted to a future TEC Services Committee meeting.
(iv) Education, Culture and Sport – Phoenix e1 System
The objectives of the review had been to ensure that adequate controls were in place for physical and logical access of the Phoenix e1 System, the application in terms of input, processing, output, audit trail, back-up and business continuity; and license support and maintenance arrangements.
The main findings of the audit included that: user access was restricted via user names/passwords and different job role access privileges; the annual check of pupil and staff contact details helped to ensure that data within the system was complete and up to date; and that although a draft Agreement for the Provision of Phoenix e¹ Application and Services did exist, it had yet to be signed off.
In all, 9 recommendations had been made – 3 at Grade 2 and 6 at Grade 3 – all of which were due to implemented by the end of March 2012.
Members were advised that there had been major transitions of significant data (35,000 records) to the web-based system. The audit had been requested by the Service to help ensure this was progressed correctly and in compliance with data protection legislation. Tighter controls were now in place for the removal of old data. A sub-group within the Service focusing on management and information security had been established to oversee the management of the action plan.
(v) Education, Culture and Sport – Financial Irregularities
The objective of the review had been to investigate allegations of financial irregularities to ascertain whether these could be substantiated.
The main findings of the audit included that: authorisation of purchase orders and payment of invoices was the responsibility of an Accounting Technician within the establishment’s support staff; of the thirty-six purchases identified for scrutiny during the investigation, only six (17%) transactions had been processed through Pecos, the Council’s official ordering system; a mobile phone and a Blackberry purchased for two members of staff had not followed the Council’s procedures; five instances where invoices were paid relating to accommodation provided on weekends had been identified; no inventory was maintained for the establishment, nor was a register of keyholders for the building maintained, both of which were breaches of Financial Regulations; and an analysis of budgets revealed a number of questionable purchases for further investigation which showed that significant purchases had been made immediately prior to the financial year end.
In all, there had been 9 recommendations arising from the report - all of which had been accepted by management. Seven of the recommendations had been classified at Grade 2 with the remaining two recommendations being Grade 3. Eight actions had already been completed and the final recommendation was due to be implemented by 30 September 2011.
Members were advised that Police and disciplinary processes, in particular appeals, were lengthy procedures. It had therefore taken some time to bring this report to the Committee. It was emphasised that what had occurred was an unfortunate and isolated incident and that procedures had now been implemented to prevent any such incidents occurring in future. As part of this, the Council’s “Whistle-blowing” procedures would be reviewed and promoted.
In recognising the serious nature of this issue, Members were of the view that a reminder should be issued to the managers of their responsibilities and the requirement to comply with financial regulations should be reinforced. This was a serious incident, but it had been dealt with well.
Appreciation having been extended to Head of Internal Audit and Risk Management and his team, the Committee NOTED:-
i. the current work of the Internal Audit Section as detailed in the report
and the final reports issued since the date of the last meeting;
ii. that a check list would be introduced for use by senior Social Work staff to
ensure all aspects of tenders/contracts awarded were in place (e.g. Health
and Safety verification);
iii. that a report would be brought to a future meeting of the TECS
Committee revisiting the business case for installation of tracking systems in
Council vehicles; and
iv. that a proposal would be brought to the November meeting regarding an
alternative Scrutiny Working Group review to replace the planned review of
Housing Voids.
5. The Bribery Act 2010
There had been circulated Joint Report No. AS-15-11 (47kb pdf) dated 6 September 2011 by the Head of Internal Audit and Risk Management and Joint Acting Head of Legal Services which summarised the key issues arising from the Bribery Act 2010, the implications for the Highland Council and the Council’s response in mitigating the risk of bribery.
The Bribery Act 2010 consolidated the criminal law both in the United Kingdom and abroad. Offences carried significant penalties for individuals and organisations. With regards to the organisational risk, Members were advised that the Council had adequate procedural arrangements in place to prevent bribery. The guidance to the Act put forward six principles of good procedures, and emphasised the need for top level commitment to sound procedures and communication of the relevant procedures to employees and others. In conclusion and in recognising that the risks faced change over time, it was recommended that many of the policies be subjected to regular reviews to improve on the relevant safeguards.
The Committee NOTED the:-
i. key issues arising from the Bribery Act 2010;
ii. implications for the Highland Council; and
iii. various actions taken to mitigate the risk of bribery.
6. Highland Council Pension Fund - Monitoring of Retirements
There had been circulated Report No. AS-16-11 (227kb pdf) dated 2 August 2011 by the Depute Chief Executive and Director of Finance which provided information relating to retirements from the Highland Council Pension Fund for the year ended 31 March 2011.
The Payroll and Pensions Manager drew attention to the main points in the report, including the number and types of retirals in the previous financial year. There had been more retirals than anticipated, largely due to redundancies made by a number of employers within the fund, in particular following restructuring by Comhairle nan Eilean Siar, the Northern Joint Police Board and Skills Development Scotland.
Having expressed concern that increasing pressure on Council staff could result in an increase in ill-health retirals, the Committee otherwise NOTED the report.
7. Audit Scotland National Reports
There had been circulated Report No. AS-17-11 (81kb pdf) dated 5 September 2011 by the Head of Internal Audit and Risk Management which provided details of the National Reports issued by Audit Scotland and the action taken within the Council to address the report findings.
The Committee NOTED the action being taken by the respective Committees to address Audit Scotland’s National Reports.
8. International Standard on Auditing 260 (ISA260)
There had been circulated Report AS-18-11 (399kb pdf) dated 21 September 2011 prepared by the Council’s External Auditors (Audit Scotland) which provided details of the matters arising from the audit of the Council’s financial statements for 2010/11 that require reporting under ISA 260.
During a summary of the report, it was highlighted that the Independent Auditor’s Report for 2010/11 was unqualified. Work on the financial statements was now concluded and once final adjustments had been made the audit certificate would be signed. Members’ attention was brought to one unadjusted error which related to an overstatement of debtors amounting to £324,000. However, as this was immaterial to the accounts, Audit Scotland had agreed that the accounts did not require to be adjusted in this respect. The formal letter from the Depute Chief Executive & Director of Finance acknowledging managerial responsibility for the preparation of the financial statements had been received. It was anticipated that the accounts would be signed off prior to the 30 September deadline.
An assurance was given that there were no weaknesses in the Council’s accounting and internal Control Systems which could adversely affect the ability to report financial and other relevant data.
Members were advised that the Government’s uprating of pensions in June 2010, in line with Consumer Prices Index rather than the Retail Price Index, had resulted in a substantial reduction in employee costs since 2009/10. In this respect, a past service gain of £82.9M had accrued and had been reflected in the 2010/11 financial statements.
In response to a query, it was explained that the pension contribution figures included in the accounts were based on actuarial estimates made in February 2011, (e.g. the longevity of the membership of the pension fund, how many retirements were expected, how may lump sums would be required, etc). It was inevitable that there would be a difference between these estimates and actual pension contributions paid. Whilst previous practice had been for the estimates to be provided by an actuary, discussions were now also held with finance officers, to ensure that local circumstances were taken account of. The Director of Finance had confirmed that he was satisfied with the actuarial assumptions that had been applied to the accounts.
At the time the accounts had been drawn up, estimates had also been required in respect of Equal Pay Compensation and Job Evaluation costs. An assurance was given that a contingency sum had been set aside to cover claims, if required. Audit Scotland was satisfied with this approach.
The Senior Audit Manager for Audit Scotland commented that changes in international financial reporting standards had made this a challenging year. She warmly thanked the Council’s staff for their hard work. Members commented that this was an excellent report, and requested that the Committee’s appreciation be passed on to staff.
The Committee NOTED the report to those charged with governance on the 2010/11 audit.
9. External Audit Reviews
There had been circulated Report No. AS-19-11 (746kb pdf) dated 6 September 2011 prepared by the Council’s External Auditors (Audit Scotland) which summarised the external audit reports issued since the last Audit and Scrutiny Committee.
The Senior Audit Manager for Audit Scotland advised that it was anticipated that the Annual Report to Members and the Controller of Audit would be issued at the end of October, and brought to the Committee. The Senior Audit Manager drew attention to the removal of one proposed audit as set out in the report.
The external audit reports were presented as follows:-
(i) Information Handling and Security (cultural aspects)
The intention of the audit was to check whether the recommendations made following the 08/09 audit of Information Handling and Security had been implemented. The current audit had found that the Council had taken forward a number of actions to improve information security, including awareness raising, encryption, and information management, but that further work was required in some areas as follows:
- clarification as to who was the owner of information, and who could make decisions about what was retained/deleted
- development of a framework, with secure and accurate boundaries, to make it clear where responsibilities lay (officers/Members/contractors/Fujitsu staff)
- clarification of records management functions – e.g. which records would be outsourced to an arm’s length organisation, what information needed to be archived and retained, particularly when paper recording systems were replaced by electronic ones
- development of operational procedures, particularly with regard to payment card security and building security.
Work on the above was progressing.
(ii) Assurance on Internal Controls
The Council’s level of internal controls within the main financial systems was satisfactory. Measures were in place to address any matters that had arisen in the course of the audit and managers were aware of their responsibilities in this regard. An action plan was therefore not required.
(iii) Improving Public Sector Procurement – Follow Up
Since 2009, Audit Scotland had each year published a report on ‘Improving Public Sector Purchasing’. In addition, Scotland Excel had carried out a Procurement Capability Assessment (PCA) in 2009 which ranked and scored Scottish Councils’ capabilities in this regard - Highland Council had been placed 4th in Scotland. The Assessment had been repeated in 2010, and whilst the Council’s score had increased, its ranking had fallen to seventh due to other Councils improving at a faster rate.
Overall, the Council and the Corporate Procurement Unit were making good progress in improving the Council’s capabilities, procurement strategies and meeting the targets contained in its operational plan. No action plan was required as Audit Scotland was satisfied that the Council was doing all it could with regard to procurement.
In response to a query, it was explained that the procurement unit was not involved in the procurement of capital contracts as this was undertaken by TEC and the Housing and Property Services’ respective capital units. Members highlighted the importance of supporting local businesses in the current economic climate, and requested that this be borne in mind alongside the need for the Council to minimise purchase costs. It being understood that the Council’s procurement procedures could better accommodate such measures, Members requested that information on the Council’s progress be reported to a future meeting.
An assurance having been given that the Procurement Unit would incorporate new EU procurement regulations into the Council’s practices as and when required, the Committee NOTED the external audit reports and the progress made to date on delivery of the 2010/11 audit plan.
10. NHS Highland Audit Review - Adult Community Care Joint Working Arrangements
There had been circulated Report No. AS-20-11 (1144kb pdf) dated 7 September 2011 by the Director of Social Work which introduced an audit of joint working arrangements in services for adults which had been commissioned by NHS Highland and undertaken by Deloitte. The report had previously been considered at a meeting of the Joint Leadership and Performance Group.
Background information on the audit was provided by the Transitions Director during which it was confirmed that the audit had commenced prior to the proposals to plan for the integration of services. However, it had been agreed that the audit should continue as it would provide valuable information for a baseline against which to measure the improvements gained through integration.
Specifically, the remit of the audit had been to examine adult community care working arrangements, to report findings and to make recommendations. In this regard, findings in relation to six objectives had been classified as high risk with a further eight objectives having been categorised as medium risk. These issues were to be addressed within the planning for integration process with a deadline of 1 April 2012.
It was further reported that the final objective, relating to governance, had been ranked as low risk but included the need to improve on the follow-up of actions agreed at the Joint Community Care Management Team and the Joint Leadership and Performance Group. In this respect, an action tracker was to be initiated for each group to ensure that actions were progressed.
Members welcomed the report and recognised the importance of the findings, and requested that a report be brought to a future meeting on progress made against the actions points, to allow scrutiny. In response to Member questions as to how any financial savings resulting from the integration would be divided between the Council and the NHS, the Transitions Director advised that this information, together with performance indicators for improved care, would be part of the commissioning documents which were currently being developed under Planning for Integration.
Members referred to recent discussions at the Council’s TECS Committee relating to improving partnership working with regard to community transport, and sought information as to how sharing arrangements were progressing in respect of Council and NHS transport. The Transitions Director gave an assurance that transport sharing had been recognised an area of concern to people. Efficiencies within the NHS, between services, were being investigated. The issue as it related to Council/NHS integration would be developed under Phase 2, after April 2012.
The Committee:-
i. NOTED the issues arising from the NHS Highland audit of joint working
arrangements in services for adults and that these were being addressed as
part of the current work towards the integration of services;
ii. AGREED that a report be brought to a future meeting on the progress
made in regard to the audit recommendations, the report also to include
how any financial savings arising from joint working would be split between
the Highland Council and NHS Highland; and
iii. NOTED that work was ongoing to improve community transport
arrangements.
The meeting ended at 4.50pm.