Councillor Derbyshire replaced Councillor Burtenshaw for this meeting. Apologies were received from Councillor Martins.

Absent without apologies - Councillor Grimston

There were no disclosures of interests

The minutes of the meeting held on 13th January 2010 were submitted and signed.

With effect from 1st April 2010 there would be a single Internal Audit Service covering Watford BC and Three Rivers DC. Internal Audit's Terms of Reference needed to be amended to reflect the changed circumstances. The Audit Manager presented a report asking the Committee to approve the revised Terms of Reference.

In response to a Member question about reporting arrangements, the Audit Manager confirmed that reports would be submitted to the relevant council. Reports only went to the Audit Committees if there was a particular problem. The Member referred to shared services functions such as ICT which would have to be looked at by both councils. It would also be necessary to see how arrangements fitted in with the Shared Services Committee.

The Head of Strategic Finance advised that reports to the Shared Services Joint Committee would relate more to operational matters. Reports relating specifically to Watford would be submitted just to this committee and not shared with Three Rivers.

The Audit Manager advised that the terms of reference had followed the CIPFA Code of Practice. Terms of Reference tended to be fairly standard across authorities although the form of words could vary.

The Chair referred to the provision for the Audit Manager to meet with the Committee in private if necessary and asked about the circumstances under which this provision might be used. It was explained that if, for example, the Audit Manager was put under undue pressure to change a report, he would be able to alert the Chair.

The Committee received a report covering the work undertaken by Internal Audit during the three months ended 28th February 2009. Details were set out in the appendices including:

1) The latest position on individual audits as at 28th February including cumulative time taken for the year compared to the time allocated in the annual audit plan.

2) Local performance measures to the same date.

3) Main issues arising from work undertaken.

The Audit Manager introduced the report and drew Members' attention to a number of specific issues:

During the last three months Internal Audit had been asked to carry out work to assist in the Planning and Development Value for Money project being undertaken by the Head of Strategic Finance. In order to accommodate this work it was recommended that the audit of Shared Services accounts be deleted from this year's audit plan.

It had also been planned to carry out audits on the new Revenues and Benefits systems (Council Tax, NNDR and Benefits) being introduced under Shared Services. This was in addition to working on the old systems to provide a complete year's cover. Delays in implementing the new systems had, however, made part of that work impractical.

The implementation of the new payroll service had continued to be monitored and advice given to HR on a range of issues such as the production of exception reports, which would contribute to the verification of monthly payroll payments. Whilst progress had been made and the way forward agreed, the expected levels of controls were not yet fully in place.

The Audit Manager had been gathering evidence for the risk management, fraud and corruption and internal control themes in preparation for the 2009/10 Use of Resources assessment currently being carried out by the external auditors.

He also referred to the National Fraud Initiative and advised that the latest data matching involved matching the Council Tax records with the Electoral Register.

In response to a question from a Member about when the Revenues & Benefits audits would take place the Audit Manager said that it would involve a two stage approach with some initial checks and controls early in 2010/11 followed by detailed testing later in the year.

Another Member asked whether the National Fraud Initiative had been carried out previously. The Audit Manager explained that the main NFI exercise took place every two years with the Council Tax/Electoral Registration matches in alternate years. He went on to say that there had been genuine legal concerns in the past about sharing electoral registration information. This situation had, however, now been clarified.

The Portfolio Holder advised that the Academy system had now been running for three to four weeks and whilst it was proving beneficial, the workload was huge. Even with temporary resources he had real concerns. The backlog had decreased from 600 to under 400 but there were 70/80 new cases to process each week.

A Member commented on the impact of the recession and unemployment which resulted in an increase in the number of benefits cases. Watford had a significant transient population and people from the EU, who tended to come to Watford rather than neighbouring authorities such as Three Rivers. The system process was complex and needed to operate properly and within timescales.

The Portfolio Holder referred to the emergency funding arrangements in place. He added that transaction times were reducing but it was important to match speed with accuracy.

The Head of Strategic Finance advised that, whilst the backlog was getting shorter, it was made up of a greater number of newer applications; 100 had come in on the previous Friday alone.

The Chair asked about the position with regard to Payroll, especially bearing in mind the problems which had occurred in the past. He had noticed that there had been a delay in issuing the last payslips.

The Audit Manager responded that an audit of the new payroll was being carried out by Deloitte's. He had carried out an audit of the previous CHRIS system and had highlighted a number of control issues which needed to be introduced.

The Portfolio Holder added that the new system worked well in terms of basic pay but a few problems had arisen with the payment of allowances. They had been quite tough on the new service and had already implemented a change to the team, including a change of manager. There had, however, been quite a few issues to deal with, not least being the changes in pay structures resulting from the job evaluation exercise.

The Committee approved the Internal Audit Service and Work Plans on an annual basis. This year the plans covered both Watford BC and Three Rivers DC following the implementation of Shared Services and would require the approval of both councils' Audit Committees.

The Audit Manager introduced the report and drew Members' attention to the key service priorities for 2010/2011 and the work programme which indicated the days allocated to each council.

In response to a Member question about the term "Touchpaper", the Audit Manager explained that this referred to the Customer Service Centre call logging system. In response to a further point from Richard Lawson about the length of time allocated for some of the audits, he said that as this was the first year of shared services, the times might need to be amended and he would report back as necessary.

The Head of Strategic Finance advised the committee of the 10% cost savings achieved through shared service and the fact that Shared Services now had one of the lowest audit costs in Hertfordshire.

A Member referred to the staffing arrangements - two full time and 2 part time posts - and asked about additional purchased support. The Audit Manager advised that additional support would be obtained from Deloitte's but that he would be managing it directly. Three Rivers internal audit service had previously been provided by Deloitte's; buying in specialist support would cost £40k whereas the previous cost of providing a general audit service to Three Rivers had been £69K.

The Member asked if the Audit Manager would be attending shared services meetings. The Audit Manager said that he would not be attending these meetings as his line of reporting was to the Audit Committees. Any questions on audit work should be referred to the Director of Resources and Corporate Governance at Three Rivers DC and to the Head of Strategic Finance at Watford.

The Chair had agreed that this report could be received late. This report was late because the Audit Commission required confirmation that the report had been considered by the Audit Committee prior to 31 March 2010. The Head of Strategic Finance explained that had also been waiting for management comments to come back, which were now included in the actions.

The Committee was asked to approve the 2008/2009 grant report and Management responses to the Action Plan.

Richard Lawson introduced the report and drew members' attention to the detailed findings referred to in Section 2. One claim had been qualified this year - the Housing & Council Tax Benefit Claim. The qualification was due to inconsistent evidence to support assessments and use of incorrect figures to calculate the assessments in council tax and rent allowance and errors in reconciling benefits granted to benefits paid (this was a common problem in many local authorities and obviously was unsatisfactory).

The Head of Strategic Finance advised that, with regard to the Housing revenue Account Subsidy claim, the issue had now been escalated up to him to try and resolve with the District Auditor. The issue related purely to submitting the claim through a Government Grant gateway/ portal which kept rejecting Watford's claim. This situation had been with District Audit for resolution for the past six months.

A Member expressed grave concerns about the Housing and Council Tax Benefit claim where the situation would potentially result in the withholding of a significant amount of money until the Auditor signed it off. Richard Lawson explained that, where they issued a qualification, they did not refuse to sign off but extrapolated the error and recommended a reduction to the claim as a consequence.

The Head of Strategic Finance reminded Members that the situation had been reported to the previous meeting. He was continuing to work on producing evidence to reduce the amount to be withheld and had been in discussion with the Department of Works and Pensions about doing more sample checking to support the overall claim.

The Audit Manager spoke about the difficulties in reconciling the two systems; claims and amounts paid. The Chair commented that this situation had now continued for two years and it was important to get it rectified.

A member proposed and it was AGREED that the committee resolved to recognise that the situation was not satisfactory and that officers be requested to provide a report to the next meeting.