Apologies were received from Councillor Sharpe, Portfolio for Finance.

There were no disclosures of interest.

The minutes of the meeting held on 25th June 2007 were submitted and signed

The Committee received the Ombudsman's Annual Letter for the year to 31st March 2007. Members noted the increase in the number of complaints made from 9 in 2005/6 to 22 in 2006/7. The largest proportion of these (10 in total) related to housing, of which 7 related to repairs to the housing stock. Of these, two had resulted in the Ombudsman agreeing to a local settlement between the Council and the complainant, whereby the Council acknowledged it was at fault and made an ex -gratia payment.

The Committee also received the response sent on behalf of the Council to the Ombudsman in relation to his comments on housing and in particular housing repairs issues.

The Ombudsman had agreed to 2 other local settlements during the course of the year: One in relation to a parking ticket, and wording on the ticket in relation to a right of appeal. The penalty was repaid and the wording on tickets had been amended to make the right to an appeal more explicit. The second related to a delay in informing the complainant that they needed to apply for permission to implement alterations on an extant planning permission.

The Ombudsman had not found any maladministration, nor had he issued any formal reports against the Council. Members noted that, by 31st March 2007, the Ombudsman had yet to reach a conclusion on 5 matters and that these would be reported in next year's Annual Letter. The Committee asked to be informed whether these matters also related to housing. A Member also asked whether the special report issued by the Ombudsman relating to complaints about telephone masts considered under the prior approval system had been drawn to the attention of the Planning Department. The Committee Services Manager agreed to follow up these queries and respond to Members by email.

The Committee received a report on the work undertaken by Internal Audit during the five months ended 31st August 2007. Details were set out in the appendices to the report.

The report included:

1) The latest position on individual audits as at 31st August including cumulative time taken for the year compared to the time allocated in the annual audit plan.

2) Local performance measures for first quarter (to enable comparison with the same period in previous years).

3) Main issues arising from work undertaken.

It was noted that there were no matters arising from the work completed to date that were likely to have a significant adverse impact on the effectiveness of the Council's control environment.

At the last meeting, Members had expressed concerns about controls in Payroll. It was noted that Internal Audit had not yet revisited this area as organisational changes were being made. An audit of the Payroll system would be carried out later in the year.

As the Committee had approved the original 2007/2008 Annual Audit Plan, approval was now being sought for the following actions taken by the Audit Manager:

a)As management of the Westfield Sports Centre had subsequently passed from the Council, a full audit of this facility was not carried out and it was not felt necessary to issue an audit report.

b)Time had been taken from the contingency allocation to review the following:

•Compliance with the new Payment Card Industry Data Security Standard (6 days).
•Follow up procedures for Environmental Grants (3 days).
•Controls in the recently introduced arrangements for charging for staff car parking (5 days).

A Member commented that the reduction in the number of sickness days per FTE was very encouraging. Another Member welcomed the improvement in the level of customer satisfaction.

The Chair commented on the Payroll issue and said that he was still waiting to receive his own P60. He asked when the audit was likely to be carried out. The Audit Manager responded that this was likely to happen later in the financial year and that an external advisor was currently carrying out an assessment of the service. The Director of Finance added that they were looking at how they might improve the existing service and at the possibility of forming a partnership with Dacorum as part of the Shared services programme. These were all options being looked at by the advisor.

The Chair said that he had spoken to the Managing Director following the last meeting and had been advised that a number of options were being considered. He added that he was anxious that the review was done properly and at reasonable cost.

The Audit Manager explained that there had been concerns about the lack of double checking in payroll and that the Head of H.R. had instructed that these now took place.

The Accounts and Audit (Amendment) (England) Regulations 2006 required the Council to conduct a review of the effectiveness of its system of internal audit at least once each year.

As part of the 2006/07 review, the Audit Manager had carried out an initial comparison of Internal Audit's operational policies and procedures with the expected standards as laid down in CIPFA's Code of Practice. The conclusion that there were no material areas of non-compliance was reported to the last meeting of this Committee in the Audit Manager's Annual Report.

A more detailed comparison exercise had now been completed and the outcome reported in Appendix A to the report. The Audit Manager explained that, where it was reported that there was no compliance, the item referred to did not necessarily apply to Watford Council. It was also noted that, as a result of the review process, some minor changes to procedures and policies had been made and the Internal Audit's Terms of Reference (reported at minute no AUD18 ) had been amended. The outcome was that the vast majority of the standards were now complied with.

The Director of Finance added that the Checklist showed the scope of what was expected and Watford's Internal Audit Team only comprised 4 officers; some of the issues were more relevant to much larger authorities.

It was noted that, whilst the review was being undertaken, but not as a direct consequence of the comparison exercise itself, it had been decided to change the format of Internal Audit reports. The aim was to give clearer emphasis in the reports on the impact (by way of risk) that control weaknesses may have on the Council's control environment and to give a more clearly defined audit trail.

The purpose, authority and responsibility of Internal Audit should be formally defined by the Council and should be consistent with the standards set out in the Chartered Institute of Public Finance's (CIPFA) Code of Practice for Internal Audit.

In November 2005 this Committee approved the current Terms of Reference which were based on guidance set out in CIPFA's 2003 Code of Practice.

The Committee was now being asked to approve new Terms of Reference, which incorporated minor changes in response to wording changes in the Accounts and Audit Regulations. They also included minor amendments identified when Internal Audit's operating procedures were compared to the new standards required by the 2006 Code of Practice.

The Chair questioned the paragraph under "resources" which stated that the Director of Finance could request specialists from other services. The Audit Manager explained that this was included in case a situation ever arose where specialist knowledge was required, for example, to carry out a fraud investigation.

A Member referred to provision for any shortfall in resources to be reported to the Director of Finance and should the resource not be available, for the consequences to be assessed and reported to the Audit Committee. He asked whether there was a quicker route for dealing with this situation.

The Director of Finance responded that this provision was a safeguard in the event of a disagreement between Internal Audit and herself and was part of maintaining the Audit Manager's independence. As the Audit Committee did not have a budget, if additional resources were required which the Director of Finance would not agree to, the Audit Manager had the option of taking the request to the Audit Committee and subsequently to Cabinet or Council.

In April 2004 Council Functions Committee approved the first Risk Management Strategy. Since that time, the Council had acquired experience in the management of risks and as a consequence had been able to identify areas for improvement in the Strategy. In addition, the Zurich Municipal health-check carried out last year suggested changes to the original version and the latest key lines of enquiry for use of resources assessment had indicated other issues which needed to be reflected in the Strategy.

The main change in the new version was the highlighting of key roles and responsibilities of Members and senior managers and the need to include partnership and project working in the risk management process. Implementation and adherence to the Strategy would continue to be monitored by the Risk Management Group and by Internal Audit.

A Member asked whether the risk register was now up and running.

The Director of Finance responded that, whilst the register was available on the Intranet, she did encounter difficulties in getting some services to update and evidence that they had reviewed them. The Risk Management Group was working on how to ensure that this was done. She added that, in general, risks did not change a great deal but there was a need to demonstrate that they were kept under review. It was also necessary to look at how the higher risk levels could be brought down. These had now been brought into the Quarterly Review process.

With the agreement of the Vice Chair, this report had been circulated after the publication of the agenda.

The Committee received the Audit Commission's Annual Governance report for 2006/07.

The Head of Finance introduced his report in which he outlined the key issues identified in the ISA260 report produced by the Council's external auditors. There were some minor adjustments to be made to the Statement of Accounts which would be done before they were finalised for signing off the following day.

He drew Members' attention to the reference in the Audit Commission Report under "Accounting Practices" about the way journals were processed in the financial management system. The reference gave the impression that journals were not authorised, which he stressed, was not he case. Journals could only be processed by authorised senior level officers and the system recorded which person had posted each journal. Requiring journals to be authorised by other individuals would add an unexpected overhead to the process. They had, instead, minimised the number of people who could process journals and in any event, significant mis-postings would be detected during budget monitoring.

The District Auditor then introduced her report by outlining the purpose and key messages of the document. She explained that some areas had moved on since the report was prepared. She stressed the need for them to receive all outstanding information, including adjustments and amendments as soon as possible.

The Audit Manager took the Committee through the Report. She drew Members' attention to the section on adjustments to financial statements and specifically to the items relating to the overstatement of both debtor and creditor balances.

She highlighted the fact that there were still some typing errors and inconsistencies to be rectified. She also referred to recommendation 5 in the section on "Accounting Practices" which related to the authorisation of journals and advised the Committee that it needed to be satisfied with the arrangements that officers had put in place. She explained that officers had indicated that they were not inclined to implement this recommendation and considered that they had adequate safeguards in place. The D.A. had suggested that they might introduce checks over and above a certain figure as they felt this was an area for potential weakness.

It was noted that the auditors were currently undertaking the Use of Resources Assessment and that their findings would be reported to the Audit Committee separately in the annual audit and inspection letter.

The District Auditor informed the Committee that the fees for the audit of the financial statements would exceed those quoted in their Audit Plan,
mainly because the scope of the work had changed requiring a lot more figures to be reviewed. This should be offset by reduced work on the Use of Resources. There was one new element to the fee for work on the Whole of Government Accounts return, which had not been costed previously.

A Member asked how Watford compared with other local authorities in terms of levels of criticism.

The District Auditor responded that performance had been varied this year. The 2006/07 accounts had had to be presented in a different format following changes to the SORP, which had been very challenging. Next year would be even more so with accounts having to be produced differently again. Some ground work would have to be done throughout the year.

A Member expressed concern about the number of fairly basic errors which had not been picked up even after they had been identified in the first draft. She said attention to detail was important. A Finance Officer explained that they did pay attention to detail but that they were still getting used to the new format.

In response to a further Member question, the District Auditor explained how, in terms of use of resources, they measured data quality.

A Member referred back to the issue relating to journals and the reference in the Report that there had been no improvement with regard to the transactions through the general ledger which were processed as journals and as such, not subject to independent review or authorisation. Officers, however, had indicated that there were adequate controls in place.

The Head of Finance responded that they could defend their view and were confident that they had the right processes in place. Officers were named in journals and the budget monitoring process highlighted any problems.

The Chair thanked the District Auditors for attending.