Return to Agenda

Division(s):N/A

ITEM AU8

AUDIT COMMITTEE – 28 JULY 2006

INTERNAL AUDIT QUARTERLY REPORT

Report by Head of Finance & Procurement

  1. This report provides a summary of the progress of Internal Audit in delivering the 2006/07 Internal Audit Plan, and the current performance against the indicators agreed by the Audit Committee in November 2005. This report covers the period 1 April 2006 – 30 June 2006.

    2. Progress Against the Audit Plan

  2. Appendix 1 (download as .xls file) to this report lists all the assignments for 2006/07 and the quarters they are currently planned to be undertaken. The table attached as appendix 2 to this report, analyses the number of audit assignments by Directorate and then by quarter. In total, including two additional audits identified in quarter 1, there are 104 audit assignments to be completed, of which there are 15 where the work is planned to be undertaken throughout the year, for example Payroll and Creditors, or in more than one quarter, for example Risk Management.

  3. The quarterly plans are agreed with the Directors and Senior Managers, however it is inevitable that circumstance will arise that require changing the timetable. To minimise the impact of any changes on the completion of the audit plan, the planned activity for quarter 4 is currently lower than other quarters. These tables will be updated each quarter to reflect the changes for reporting to the Audit Committee.

  4. In quarter 1 there were originally 17 assignments planned, with a further 7 of the cross cutting assignments having planned activity in this quarter. Two new assignments have been added to quarter 1 (See ‘Variation to the Plan’ later in this report).

  5. Of the 26 audits planned, work has commenced on 20 of the audits. Six audits have been deferred to later quarters:

    • Payroll – Completing 05/06 work in this area so not appropriate to start 06/07 work

    • Recruitment and Selection – completing 05/06 work in this area so not appropriate to start 06/07 work

    • Children Social Care Budget – A review of this service is currently being undertaken by the Directorate. The audit activity will be deferred to later in the year and used to evaluate progress on implementing changes for that review.

    • Client Self Assessment – this project has not yet commenced in the Directorate

    • Project Link – the project is not yet at the business processing stage, therefore internal audit involvement is minimal.

    • E Procurement – the project is not yet at the stage where internal audit need to be involved.

  1. No audits have yet been completed, but exit meetings have been completed for seven of the audits, and draft reports are expected to be issued shortly.

  2. In addition to the planned activity, the majority of the outstanding work has now been completed from 2005/06. A contingency of 30 days was allocated for this work, and this has been exceeded by 8 days.

    3. Resources

  3. Three permanent members of staff all started during quarter 1 and in addition a temporary Senior Auditor also started. The team also welcomed back an Audit Manager who returned from maternity leave.

  4. The two remaining vacancies are going out to advert on Friday 21 July, and will be advertised for four weeks. Interviews will be planned for the beginning of September.

  5. The procurement of external services will be undertaken during quarter 2, and reported to the AWG and the Audit Committee in September.

  6. One member of staff has had significant sick absence during the quarter which is now impacting on performance and is requiring a review of the allocation of planned resource, which is likely to result in changes to the quarter 2 programme.

    7. Performance Monitoring

  7. The current performance against the agreed indicators can be summarised as follows:

    8. Elapsed time between start of the audit (opening meeting) and Exit Meeting.

  8. The target is no more than three times the allocated audit days. This has been achieved for the audits where the exit meeting has been completed, and is on target for the other audits where exit meetings have been planned.

    9. Elapsed Time for completion of audit work (exit meeting) to issue of draft report.

  9. The target of 15 days has not been achieved for the schools audits as a result of staff sickness. There is also a minor delay as we are finalising the changes to audit opinions that are presented in the reports. This is not expected to be an ongoing issue.

    10. Elapsed Time between issue of Draft report and issue of Final Report

  10. No draft reports have been issued, however it is anticipated that the delay to the school audits being issued will result in this target not being achieved as we are approaching the end of term, so schools will not respond until September. This is not expected to be an issue for other audits as the Auditors have agreed report turnaround times with the relevant staff.

    11. % of Internal Audit Planned Activity delivered against that planned to be achieved for the period.

  11. The specific quarter 1 plan (not including the cross cutting audits) represents 21% of the total activity, and currently 19% has been started. This difference represents two audits. Whilst there is some slippage, this was expected as two additional audits have been introduced in the quarter. There has also been a significant resource change in this quarter, including four new staff, so there has been a learning curve for these staff that has resulted in some delays occurring, but it is not expected to be an on going issue.

    12. Hours charged to audits compared to budgets

  12. In addition to the overrun on the completion of the 2005/06 work, four current assignments have gone over the allocated budget. In total 21 additional days have been spent. However, this is mainly due to new staff familiarising themselves with the Council and our processes, so the majority of the overruns can be attributed to training and development. There is one audit where additional resource had to be allocated as in addition to the routine audit, concerns had been raised so a special investigation was also undertaken. Where this is not the case, increased supervision has been put in place to improve performance.

  13. At this stage is not appropriate to report on the other indicators, as no reports have yet been issued.

    14. Variations to the Audit Plan

  14. There are two variations to the original Internal Audit Plan that require the approval of the Audit Committee. These are additions to the plan each with a budget of 10 days being met from the contingency built into the original plan. Both variations have been agreed by the Head of Finance and Procurement. The rationale for the variations are as follows:

    15. Directorate

    Audit Activity

    Rationale

    E&E

    Registration Service Income Systems

    The Head of the Registration Service requested Internal Audit review the adequacy of controls in their income systems, as she is concerned the current information she is getting does not provide her with the assurance she requires. The service collects approximately £1Million a year.

    The audit will review the adequacy and effectiveness of the controls in the income systems in particular focussing of the mitigation of risks relating to fraud, inaccurate recording in the accounts and robustness of management information.

    SCS

    Payments to Order of St. John

    A special investigation has been requested by the Head of Finance & Procurement to review the processes for processing payments to the Order of St John, following the raising and subsequent cancellation of a substantial debtor invoice that was incorrect. In addition to reviewing the processes, the audit will also undertake verification testing on a sample of transactions in 2005/06 and 2006/07 to consider accuracy and appriateness.

    Special Investigation

  15. There are currently nine special investigations being undertaken, two of which are carried forward from 2005/06. Of these five relate to possible fraud, the others relate to weakness in internal control. There has been a significant increase in the number of incidents being reported, which is encouraging as staff are raising concerns and detecting issues. Whilst internal audit are not directly involved in investigating all these cases, we do maintain an overview, and will be considering the internal control issues resulting from each investigation.

  16. There is no indication that any of the cases represent significant fraud, or material loss to the Council, but they are minor opportunistic incidents. The Council does however take these matters very seriously and by investigating all cases is demonstrating a zero tolerance to fraud.

  17. Once the investigations have been concluded, any internal control issues identified will be reported to the Audit Working Group.

    18. Other Issues

  18. One of the key areas of weakness in compliance with the CIPFA Code of Practice was that the reporting lines of the Head of Internal Audit and in particular the right to report independently was not explicit. This has now been addressed, and a protocol has been agreed and signed by Senior Officers. At the same time the Terms of Reference for Internal Audit have been reviewed and updated to reflect changes in personnel and to the staffing structure. These are attached to the protocol as annex 1. Both documents have been attached as appendix 3 (download as .pdf file) to this report, to be noted by the Audit Committee and for the Terms of Reference to be approved.

    19. Conclusion

  19. Satisfactory progress is being made against the 2006/07 plan, and there are no major issues or concerns to report at this stage.

    20. RECOMMENDATIONS

  20. The Committee is RECOMMENDED to:

          1. note the report;

          2. approve the variations to the Internal Audit Plan;

          3. note the Head of Internal Audit Protocol; and

          4. approve the Internal Audit Terms of Reference.

SUE SCANE
Head of Finance & Procurement

Background Papers: None

Contact Officer: Ian Dyson, Assistant Head of Finance (Audit), Tel: (01865) 815440

July 2006

Return to TOP