Councillor Watkin replaced Councillor Martins for this meeting and Councillor Johnson replaced Councillor Mortimer.

The Chair stated that this would be the last meeting that the Interim Finance Manager would be attending. The Committee thanked him for his excellent support.

There were no disclosures of interest.

The minutes of the meeting held on 17th March 2010 were submitted and signed.

The Committee received the Audit Approach Memorandum from Grant Thornton for Watford Borough Council for the year ended 31 March 2010. Richard Lawson, Audit Manager of Grant Thornton attended in order to explain key aspects of the report.

Richard Lawson informed the meeting that the document detailed the strategy by which Grant Thornton would audit the Statement of Accounts working with Finance staff at the Council. He advised that any item considered material to the financial statement would be adjusted if required. He then noted the unresolved issues from the 2009-2010 ISA 260 Audit Report as detailed at item 2.2 of the report but advised that these were low/medium risk. He concluded by drawing the meeting's attention to the time table on Page 6 of the report which advised that the report would be presented to the Audit Committee at their meeting on 30 September 2010.

The Chair noted that International Financial Reporting Standards would not be used until the 2010/2011 accounts were required but that preparation was already in progress and would be reviewed by the auditors.

Richard Lawson advised that it was possible that IFRS issues could change but it was unlikely that these would be drastic.

The Committee received the report on the Annual Governance Statement.

The Head of Strategic Finance advised that this Statement must be considered by the Committee before its examination of the Statement of Accounts. He explained that the Annual Governance Statement demonstrated that the Council had put proper arrangements in place for the effective governance of its affairs. Appendix A of the report detailed how standards had been reached and the scope of the Council's responsibility. He drew the meeting's attention to the seven objectives as itemised on the poster at Appendix B and advised that these objectives should be held constantly in mind; Appendix C itemised how the previous year's objectives had been met.

The Head of Strategic Finance then referred the meeting to specific items within Appendix A. He noted that Performance Management systems had operated effectively and that a high standard of data quality was important for the Governance Statement. He then focused upon section 13 which highlighted significant governance issues and advised that changes in software had caused problems for the Revenues and Benefits Service. Watford had changed its software system and this had resulted in problems with end of year reconciliations. Once final reconciliations had been fully checked then the problems would not be repeated in the following year.

The Head of Strategic Finance advised that the Annual Governance Statement should be signed by the Mayor and Managing Director once the Committee were satisfied.

One Member asked whether the problems identified in Section 13.0 (Significant Governance Issues) could be solved.

The Head of Strategic Finance replied that this would be answered after Grant Thornton had completed the Audit. He added that auditors would be at the Council for 10 days commencing on 12 July 2010 when they would carry out ‘validation checks'. In reply to a further question from the Member, he stated that a new Head of Revenues and Benefits had been appointed who would be starting in the near future. As a specialist in ‘performance' he would focus upon increasing the capacity of staff in this service. The Head of Strategic Finance added that the current Revenue Manager was leaving but that interim support would probably be available until a replacement had been found.

In terms of staff capacity, the Head of Strategic Finance advised that due to potentially higher figures for unemployment, the case loads for Benefits Officers could increase and this could affect capacity.

The Portfolio Holder for Finance advised on Significant Governance Issues. He stated that the items concerning the Revenues and Benefits Service were currently under review. The Head of Human resources was continuing to make changes to procedures within the Northgate payroll system. With regard to ICT issues, the Portfolio Holder advised that an audit of hardware had been undertaken and a number of key pieces had been replaced. The help desk team was also under review and would be reorganised. He added that Business Continuity would result when hardware was sufficiently resilient. To this end, significant issues had been addressed and safeguards built in.

The Committee received a report of the Head of Strategic Finance and the Pre-Audit Statement of Accounts.

The Interim Finance Manager presented the report to the meeting and noted that the accounts showed an underspend of £158,000. He pointed out that the forecast at period 11 had predicted an underspend of £148,000 and advised that the £158,000 be transferred to the invest to save reserve.

The Officer explained salient parts of the report. He noted that the savings in Performance and Engagement reflected a vacant post during the year. He advised that the £200,000 overspend in Rent Allowances was related to the 2006/2007 accounts and that the £270,000 underperformance in Investment Interest resulted in part from unanticipated expenditure such as the former Woolworth's building and from reduced investment interest rates.

Transfers from reserves had reduced the overall total from £10,284,000 at 31 March 2009 to £9,113,000 at 31 March 2010; major transfers were detailed within Appendix 2. Provision had been made for losses in Housing Subsidy. It was noted that the 2008/2009 housing subsidy claim had been qualified and could potentially result in a claw back of Housing Subsidy of around £500,000. In addition the 2009/2010 claim had not, as yet, been submitted and the Interim Finance Manager advised that within the report there was a recommendation that £300,000 (around 1% of the total claim) be set aside as a protection against future claw-back of this claim. He added that in the case of claw-back, challenges would be made by officers to mitigate the amount as much as possible.

The Interim Finance Manager advised that there had been no requirement to draw on the General Fund Working Balance for 2009/10 which at 31 March 2010 stood at £1,696,000.

In respect of capital expenditure in 2009/10 there had been an underspend of £3,488,000 against a budget of £12,152,000 which mainly arose as a result of slippage the main reasons for which were included within the report.

In reply to a question from the Chair, the Service Based Accountant advised that Surplus Assets included land at Gammons Farm Close, Callowland and at the Bill Everett Centre. He explained that as a result of a tenancy agreement with Hertfordshire County Council, the Borough Council would receive 35% of the proceeds of sale of the Centre in the event of disposal of the site. He advised that this was a possibility in the future.

In response to a further question from the Chair the Accountant explained that the ‘Rent to Mortgage' item referred to an agreement between certain tenants of housing stock and represented a form of part-ownership. He advised that the Council would consequently be in receipt of a sum of money should the houses be sold. He added that some 15 or 16 homes in the Borough were subject to this agreement.

The Chair asked why the deficit figure of £6,716,000 in the Income and Expenditure Account for year ended 31 March 2010 was not seen on the General Fund Balance.

The Interim Finance Manger advised that an explanation could be determined from the table on page 51 of the Statement of Accounts. He advised that in accounting convention there were some items which were included as a proper charge to the Income and Expenditure Account but were taken out when calculating the overall charge in the General Fund Working Balance. The table detailed items which had been included in the Income and Expenditure Account but excluded when determining movement on the General Fund balance. Examples of such items included depreciation of fixed assets and pension fund adjustments for past employees. Council House Renovation grants were also excluded as they did not represent tangible assets gained. The true position was a break even position against the original budget after having transferred a surplus of £158,000 to the invest to save reserve as referred to above.

In reply to a question from the Strategic Finance Manager, the Interim Finance Manager stated that the Building Control account showed a similar deficit of £34,000 on chargeable work for 2009/10 in comparison with 2008/09 which showed a deficit of £111,000. Discussions were ongoing with officers from Three Rivers District Council with a view to seeking further efficiencies which would reduce the deficit further and move it to at least the break even position. .

One Member asked what levels of reserves were advisable for Watford Borough Council.

The Head of Strategic Finance replied that the budget had been set in January 2010 and levels of reserve had been included. For District Councils a reserve of 20% of expenditure was advisable. He added, however, that certain areas had the potential to be somewhat volatile. These included concessionary fares and benefits. He advised that Watford had some reserves on which it could draw and agreed that 20% was a reasonable requirement. Referring to the Housing Subsidy, he commented that this could also be a problem in terms of the maintenance of adequate reserves.

The interim Head of Finance advised that the Statement of Accounts was available to view on the Council's website.

The Audit Manager presented his report on the work of the Internal Audit Service for the year 2009/2010.

The Committee received a report of the Audit Manager explaining the new follow-up arrangements for Internal Audit's recommendations.

The Audit Manager advised that this new report would be presented on a quarterly basis and would in future detail outstanding recommendations brought forward from the lat report, those implemented since the last report and new ones which had subsequently been added in. He added that this process would strengthen governance arrangements and make Heads of Service more accountable. It was in use at Three Rivers Council.

One Member asked whether Three Rivers have a separate Audit.

The Audit Manager responded that the Internal Audit team performed the audits at both authorities under Shared Services. Separate reports would be produced.

A Member asked whether problems in the Benefits section would be resolved with the introduction of new leadership in this service.

The Head of Strategic Finance replied that workloads in Benefits had always been heavy but that good leadership would help with this problem. He added that this was a service which Internal Audit visited every year because it was seen as a high risk area.

The Committee received a report which considered evidence that Internal Audit had been effective over the previous year.

The Head of Strategic Finance advised that 39 audits had been carried out in 2009/2010. This amounted to 94.5% of the original audit plan thus exceeding the set target of 90%. He drew the meeting's attention to the report's conclusion which stated that all evidence supported the view that Internal Audit had been effective during 2009/2010.

The Portfolio Holder noted the status of Shared Services as a separate entity which produced its own sets of accounts. He advised that the Shared Services Committee was responsible for individual Service Plans and for allocating resources. He questioned whether there could be a need for Internal Audit to report not only to both Three Rivers and Watford councils but to Shared Services as well.

Officers agreed to discuss this with colleagues from Three Rivers.

The Audit Manager advised that reports on Shared Services would go to both authorities.

The Committee received a report providing a brief quarterly review of the Council's Treasury Management performance for 2009/2010 and arrangements up to the present time regarding investment strategy.

The Head of Strategic Finance advised that in 2009/2010 the Council had achieved an average rate of interest of 2% against a target of 2.2%. He explained that the Council had ‘de-risked' its portfolio by limiting investments to the six largest building societies. The Original Estimate, however, was not achieved due partly to a reduced rate of return and partly to a reduced average size of portfolio through the year. He added that recommendations for investment were: Security, Liquidity and Yield in that priority order. He advised that through investing in the Clydesdale Bank, some of this money had been loaned locally and was thus regenerating the local economy. The Co-operative Bank provided reasonable overnight facilities although the Nat West gave better security and a higher yield and would be increasingly used for short term deposits.

A Member commented that it was good to benefit local residents through investment in the Clydesdale Bank, and asked if the Council had considered ethical standards when selecting their banking partners.

The Head of Strategic Finance advised that the Council did not have the resources to investigate this issue.

The Committee received a report of the Fraud Manager informing Members of the work of Fraud Section for the financial year 2009/2010. The report also provided updates on developments for the financial year 2010/2011.

The Fraud Manager presented the report noting that there had been 40 sanctions within the year 2009/2010. He advised that the section had received 230 referrals, 72 of which had been on the fraud hotline. The section continued to perform data matching exercises including the National Fraud Initiative and the Housing Benefit Matching Service (HBMS). He advised, however, that as a result of staff leaving and the implementation of new software, no data had been received from HBMS since November 2009. He added that problems were compounded by the change in software systems within the Council. Procedures had been agreed between Revenue and Benefits and ICT to remedy the situation.

The Fraud Manager informed the meeting that since April 2010 a total of eight sanctions had been issued and that following the revised Anti Fraud and Corruption Strategy being approved in January 2010 all staff would receive training on the new policy in the Anti Fraud Corruption Policy.

In response to a question from a Member the Fraud Manager said that there were challenges inherent in the amalgamation of the Watford and Three Rivers Fraud sections. He advised that Three Rivers Council encompassed areas of deprivation but that problems in other, more affluent, areas were more complicated to deal with. He reported that there were three staff from Watford and two from Three Rivers dealing with an increased case load.

The Committee received a report on requests made under the Freedom of Information Act 2000.

A Member asked who compiled and managed Freedom of Information requests.
The Head of Strategic Finance advised that this was the remit of the Head of Legal and Property.

The Portfolio Holder advised that if a vexatious request were made this could result in a considerable amount of work and time in dealing with it. He added that many requests were as a result of information obtained through the media.