ITEM EX17

EXECUTIVE – 20 JULY 2004

INTERIM STATEMENT ON INTERNAL CONTROL 2003/04

Report by Head of Finance and Solicitor to the Council

1. The Accounts and Audit Regulations 2003 place a requirement on authorities to include a statement on its whole system of internal control as part of the Statement of Accounts. Internal control and risk management are increasingly recognised as important elements of good corporate governance. The scope of internal control spans the whole range of the Council’s activities and includes controls designed to ensure that:

• the Council’s policies are put into practice,
• its values are met and laws and regulations are complied with,
• required processes are adhered to,
• financial statements and other published information are accurate and reliable,
• human, financial and other resources are managed efficiently and effectively and
• high quality services are delivered.

2. The Regulations place a requirement on the Council to conduct at least an annual review of the effectiveness of its internal controls and identify areas where improvements can be made. A statement may be produced for 2003/04 in interim form, covering work in progress towards producing the full statement in future years.
3. This report proposes an Interim Statement on Internal Control (SIC) for 2003/04. It advises on the work undertaken to produce the interim statement and looks at how production of the full statement for 2004/05 onwards should be coordinated.

Interim Statement for 2003/04

4. The proposed SIC is included at Annex A (download as .doc file). A working group of senior officers, led by the Head of Legal Services, has coordinated the drafting. The format of the Statement follows the CIPFA Guidance produced in March 2004. In compiling the document, the working group has drawn on the work undertaken on Corporate Governance and action plans for improvements under the Comprehensive Performance Assessment (CPA).
5. As part of drawing up the Interim SIC, Directorates were asked to provide a statement concerning their own assessment of their directorates’ financial control environment. This work has identified key areas for improvement in 2004/05 to enable assurance to be provided for the full Statement in 2004/05.
6. The Interim SIC identifies a number of areas for improvement including the Chief Internal Auditor’s assessment of those systems considered to be of highest control. It also highlights the view of the District Auditor in relation to the Authority’s internal control. He has expressed concern in general about the Authority’s control environment and in particular about the processes in place within income and assessment in Social & Health Care.
7. An action plan to address control weaknesses is an important part of the interim SIC. The actions identified are largely the same as those required to improve the Governance of the Council and to improve our auditor score judgements for the CPA and as such are key actions for the Council. Progress against these key actions will be reported to the Best Value Committee on a regular basis.
8. Once approved by the Executive, the Interim SIC will be signed by the Leader of the Council and Chief Executive. It will then be incorporated into the Statement of Accounts for 2003/04 for formal approval by the Best Value Committee, whose responsibility this is under the Council’s Constitution. The Committee have already (on 23 June) endorsed an earlier draft so far as it relates to the functions of the Committee. The draft now attached differs from that presented to the Committee only in respect of the additional paragraph on a "Protocol for Managing Risks and Opportunities" in section 3(c) and the final attestation.

Production of the SIC for 2004/05

9. A full SIC is required for 2004/05, by which time we need to ensure that we have undertaken the full review process on internal control and assurance gathering. This includes determining principal risks to achieving our organisational objectives, identifying and evaluating key controls to manage these risks, obtaining senior manager and internal/external auditor assurances on the effectiveness of key controls and identification and planned improvements for weaknesses.
10. The officer working group is currently reviewing arrangements for future production of the SIC to ensure we fully comply with the requirements and will report back to the Best Value Committee throughout the year as to progress.

RECOMMENDATION

11. The Executive is RECOMMENDED to approve the draft Interim Statement on Internal Control 2003/04 for incorporation in the Annual Statement of Accounts.

CHRIS GRAY
Head of Finance

PETER CLARK
Solicitor to the Council & Head of Legal Services

Background Papers:
CIPFA Guidance: The Statement on Internal Control in Local Government – Meeting the Requirements of the Accounts and Audit Regulations 2003 (March 2004)
Code of Practice for Internal Audit in Local Government in the United Kingdom, CIPFA 2003

Contact Officer: Peter Clark Tel 01865 815363

June 2004

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