Agenda item

Report of the Head of Strategic Finance and Grant Thornton, the External Auditor

Attached are five reports from the Council’s External Auditor, Grant Thornton. The reports cover the following issues:

• Audit Progress Report January 2012
• Annual Audit Letter 2010/2011
• Review of Arrangements for Securing Financial Resilience
• Certification Work  Report 2010/2011
• Audit Plan 2011/2012

Richard Lawson of Grant Thornton introduced the reports and gave apologies from Paul Dossett. He introduced his colleague Gurpreet Dulay who would be the main contact for shared services audits.

Richard Lawson introduced the report on the review of arrangements for securing financial resilience. The four areas that were considered were Key Indicators of Performance, Strategic Financial Planning, Financial Governance and Financial Control. These areas were rated as red, amber or green (RAG rated) and he reported that of the four areas, two were rated as green and two were rated as amber. He advised that there was a good track record of financial management and they were pleased with how the service prioritisation programme had been carried out.

He informed the Committee that there were some issues in shared services that needed to be resolved to ensure that financial governance and financial control were given a green rating.

Richard Lawson then introduced the report on Certification in 2010/11. Grant Thornton only qualified one claim in 2010/11 which related to National Non-Domestic Rates (NNDR). There were no errors in housing benefit claims which was very positive. He advised that there were only a few areas to work on.

Richard Lawson advised the Committee that the Annual Audit Letter was a summary of all the audit work in 2010/11.

GurpreetDulay introduced the Audit Plan report. He explained the roles of the team at Grant Thornton. He advised that the Audit Plan covered the opinions of the financial statements as well as looking at the Council’s VAT work and fraud initiatives. The IT Audit Manager at Grant Thornton was monitoring the implementation of the IT Strategic Review. The Audit Plan also covered the value for money arrangements to ensure there were proper arrangements for financial resilience and considered economy, efficiency and effectiveness including asset management.

GurpreetDulay informed the Committee that the audit fees for 2011/12 would be £114,000 down from £120,000 in 2010/11.

The Chair invited the Head of Strategic Finance to give his comments on the reports.

The Head of Strategic Finance commented that overall he felt the reports were quite positive particularly given the economic environment.

The Head of Strategic Finance highlighted the report on financial resilience and drew Members’ attention to paragraph 3.3.1 which highlighted the main features. The Council had been given a green rating for overall client financial planning processes and amber for the operational systems. He explained that the Finance team were closing new financial management and payroll systems in addition to the new revenues and benefits system. The work had been undertaken by new staff and the systems and staff had therefore been unfamiliar. He felt that amber was very credible in these circumstances. He referred the Committee to pages 53 and 54 of the report which showed the Council’s responses to the recommendations.

The Head of Strategic Finance referred to the report on the certification of grant claims. He said that he was pleased with the Council’s performance. Regarding the issue with NNDR he said that the Council did gain approval for this retrospectively.

The Head of Strategic Finance commented that the Audit Letter was not without criticism but he did not believe the issues would recur in 2011/12.

The Chair invited Members’ questions and comments.

A Councillor said that he welcomed the report and he gave his congratulations to the Head of Strategic Finance and the Finance team for the positive progress.

The Councillor asked for more information about the other income streams referred to on pages 67 and 81. He also asked how significant the issues with IT were and when they would need to be resolved by to avoid a major impact. He commented that it was disappointing that sickness was still an issue.

Richard Lawson responded that regarding income streams the finance digest was very good but there was not enough information provided about commercial rents. The information tended to be retrospective rather than giving targets for the year. Regarding IT, he reported that Grant Thornton’s IT Audit Manager reviewed the progress on a monthly basis. It did not lead to a qualified audit opinion and it would continue to appear on the Annual Governance Statement to monitor progress.

The Head of Strategic Finance agreed with Richard Lawson regarding the income streams. He added that he chaired a strategic income group which looked at improving income figures for Leadership Team and Budget Panel. The shortfall was picked up in period 8 and a better system would have picked it up earlier. Budget Panel had agreed to look at income in more detail in 2012/13.

The Portfolio Holder for Finance and Shared Services added that one of Cabinet’s objectives to officers was to validate the income position earlier. There had been meetings with the Parking Manager to ensure that the predictions for the parking fund were accurate. With regard to employee sickness, he reminded the Committee that in 2003/4 this was in excess of 17 days per person and prior to that it had not been monitored.  They were keeping the pressure on to reduce the level to 8 days. As far as IT was concerned, the service was subject to severe auditing, especially in infrastructure and a replacement programme was in place. Various options, including outsourcing, were being considered.

A Councillor referred to the Council’s responses to the recommendations and asked why the final one was not going to be adopted.

Richard Lawson said that the response was fair and it would not be practical to have this relationship with the finance function but as auditors it was their duty to recommend the best possible practice.

The Portfolio Holder for Finance and Shared Services said that a political decision had been made by the Council and Three Rivers District Council not to burden Shared Services with additional external organisations. The model in place had provided buy-in from staff who were against outsourcing. He added that they had been careful to ensure that the governance arrangements were in place.

A Councillor noted that scrutiny was carrying out a review of the delivery of Council services.

The Portfolio Holder for Finance and Shared Services said that he would be very interested in this review and to give evidence to the Task Group. He expressed his concern about sharing services with another council with a very different culture to Watford. He noted the different governance models pursued by Watford and ThreeRivers and said that it had not been an easy process. Should any further services be shared he would prefer the lead authority model as this would be less bureaucratic to implement.  He added that the Audit Committee may also be interested in the findings of the scrutiny review.

A Councillor, who was not an appointed member of the Committee, asked why Grant Thornton’s fees had reduced. Richard Lawson explained that the fee levels were set by the Audit Commission and could not be challenged unless they could show a local authority was a much higher risk than average.

The Portfolio Holder for Finance and Shared Services added that he wished to formally thank the finance staff for the work they had done on the annual accounts. He was aware that implementing the International Financial Reporting Standards had not been easy and he wanted to thank the Head of Finance Shared Services and the Finance Manager (DR) in particular for their extremely good work.

RESOLVED –

that the reports be noted