Agenda item

Assurance Lincolnshire will present their progress report and this agenda will also include the Council’s management response.

 

The Internal Auditor presented the report. The report set out the purpose of the regular progress reports, which was to update the status of external audit and progress against the internal audit plan. The summary of the work completed was around issues that impacted on the Head of Internal Audit’s annual opinion.

 

The report included the performance dashboard, which included the 22% of work that internal audit had undertaken, as well as updates on internal audit activity where the concerns had been raised on the conduct of Officers.

 

Assurance Lincolnshire had been the Council’s Internal Auditors since April 2022. The Head of Internal Audit report that concerns had been raised with the Head of Paid Service in June 2023 regarding interactions and conduct between the Audit Team and Council Officer’s.

 

She added that, in August 2023, an audit had taken place on an element of governance delivery. During the assignment, it was her opinion that the behaviour observed resulted in a material breach to the Audit Charter which had been signed upon the contract in April 2022. At this point, the termination clause in the contract was activated for internal audit services.

 

On the 29 August 2023, Internal Audit met with the Head of Paid Service and issued the termination notice of 30 days.

 

One Member queried whether it was common for issues to arise and whether problems had occurred with any other of the auditor’s clients. 

 

It was confirmed that Assurance Lincolnshire had over 40 clients and these issues had not occurred with any other clients.

 

Concern was raised around accounts payable in respect of the debtors report and the issues identified on basic internal control assurance.

 

It was queried as to how the scoping of the Internal Auditor’s work had taken place and whether future internal audit work may require more in depth investigating.

 

The Head of Internal Audit explained that, in her opinion, due to the lack of liaison between Internal Auditors and the Council, audits were not scheduled in and therefore no scoping work had taken place. 

 

Internal Audit raised concerns of inaccuracies within the Officer’s management response to the debtor report. The management response stated that no actions were needed and the audit did not identify any fraud or error, this demonstrated to Internal Audit that Officers had a lack of understanding on the role and function of the impartial, qualified auditors. Internal Auditors would not base a risk rating on the amount of work required to address a tested fail or whether errors and omissions were found at that stage.

 

 

It was highlighted that South Kesteven District Council seemed to have one of the smaller internal audit plans in Lincolnshire. In the Internal Auditor’s opinion, the Council had a high issue of low assurance opinions across the control environment.

 

One Member requested the results of other Internal Audit’s that Assurance Lincolnshire had carried out.

 

Including the whistleblowing audit and the work that Assurance Lincolnshire had undertaken through 2022/23, the Head of Internal Audit reported her estimate that the Council was approximately 40% negative assurance across the control environment that internal audit had tested.

 

It was queried as to whether Assurance Lincolnshire had experienced staffing changes during the contract with the Council, as prior to this, the Council was receiving substantial assurance on internal audits.

 

Assurance Lincolnshire confirmed that staffing changes occurred in January 2023. The previous Internal Audit Manager had several roles vacant and was provided with support in order to deliver as best as possible.

 

One Member noted that the executive summary mentioned credit notes of £826,000 being issued between April 2022 and February 2023, which represented 17.4% of invoice demands. It was queried as to whether this was a matter of a concern.

 

Assurance Lincolnshire clarified that two other District Council’s had credit notes percentage of 1-2%.

 

A query was raised in relation to the percentage of audits with low assurance, it was further questioned as to what the percentage of low assurance would be from other District Councils.

 

It was clarified that South Kesteven District Council was an outlier on the percentage of low assurance, it was much lower for other Assurance Lincolnshire clients.

 

The Assistant Director of Finance (Deputy S151 Officer) had carried out further analysis on credit notes. Examples were provided of credit notes that had been raised, which included invoices raised for an incorrect amount which were credited and then re-raised, inclusion of VAT in error and re-raised, incorrect purchase numbers, incorrect planning references. Out of the £950,000 of credit notes raised in the year, £822,000 had replacement invoices raised for them as a result of clerical errors.

 

Members asked Assurance Lincolnshire to describe their experience of working with the Authority and whether the concerns mainly sat within process and procedures or wider, cultural issues.

 

The Audit Manager and Senior Auditors held the majority of the contract with the Officers. It was emphasised, from the perspective of Assurance Lincolnshire, that there had been a lack of engagement and liaison with Officer’s and concern was raised that Officers had a lack of understanding of the role of Internal Audit.

 

One Member noted that the overdue high priority actions had received comments of ‘response not received’. It was queried as to why this had been the case.

 

Internal Audit had run a tracker process and communicated with specific Officer’s within the Council and tracked all of their recommendations. A shorter period of time for a response was given for Officers in regard to the action relating to the debtors report. 

 

The Deputy Chief Executive (S151 Officer) clarified that management responses were included within the reports provided by Internal Audit. Assurance Lincolnshire had attended a CMT meeting on 19 April 2023, where a draft plan was discussed.

 

It was confirmed that the debtors report was agreed on the 21 July 2023, Internal Audit sent a spreadsheet on 24 July 2023 to Council Officers, which did not include any of the debtors’ actions. The spreadsheet was returned to Internal Audit at the end of August 2023. On the 1 September 2023, an email was sent back and missed by an Officer that included the debtors’ actions.

 

Following the CMT meeting, the Council went into a pre-election period ahead of the local elections held in May 2023. The draft plan was then considered by a new membership of the Governance and Audit Committee in June 2023. At the Governance and Audit Committee meeting in July 2023, Members emphasised the necessity for Assurance Lincolnshire to undertake the audits in the agreed plan within the remaining period of time.

 

It was suggested that Internal Audit had previously stated their resourcing issues which meant no guarantee could be made that the plan previously approved by the Committee, would be delivered within the remaining period of time.  

 

In terms of liaison meetings, the Deputy Chief Executive (S151 Officer) met with the Head of Internal Audit in April 2023. Liaison meetings had not taken place since that time due to the plan itself not being approved until June 2023. The Council had the expectation that a contracted service would reach out to the Council as the paying customer to organise the liaison meetings. This arrangement had not taken place.

 

Officer’s had accepted the issues outlined in the debtors report, a meeting had taken place with Council’s Officers with Internal Audit to discuss individual recommendations and for the Council’s assessment to provide further information and a broader discussion about the level of assurances provided by Assurance Lincolnshire. However, levels of assurance had not changed following the audit.

 

The Deputy Chief Executive (S151 Officer) raised concerns that the progress report was inaccurate in terms of some of the narrative written and Officers disagreed with certain commentary included. There were such significant inaccuracies that it was considered necessary to submit a management response report to the Internal Progress Report and this was available for Members to consider.

 

The Head of Service - Revenues, Benefits, Customer and Community reassured the Committee that they had a clear understanding of the role of the Council’s internal audit function. Email exchanges had taken place with a Senior Internal Auditor in advance of and during the audit, as well as meetings. An updated management response was sent to Assurance Lincolnshire on 10 July 2023. The final report was received on the 21 July. Meetings had taken place within the team to discuss and put into place activities against the 17 management actions: five were complete, eight were in progress and four were linked to the new unit 4 finance system, which would be implemented on the 1 April 2024.

 

The Assistant Director of Finance (Deputy S151 Officer) provided the Committee with further context of the progress report. The debtor’s report was agreed on the 21 July 2023, internal audit sent a spreadsheet on the 24 July which did not include any of the debtor’s actions. The spreadsheet was then returned to internal audit at the end of August 2023. On the 1 September 2023, an email was sent which included the debtor’s actions but was not sent to the responsible Officer.

 

One Member stated that they would expect timescales to be set out in a contract on the expectations of response times between the Council and Internal Audit. It was suggested that the contract and standards be revisited in future with the Audit Charter in terms of the client contractual relationship.

 

The Deputy Chief Executive (S151 Officer) confirmed that operating protocols were successful with the previous Internal Audit team prior to April 2022. The protocols established the working relationship between two parties and the expectations of reports being issued, management responses being received and meetings. The protocols were well established with the previous Internal Auditors.

 

It was confirmed that interim Internal Auditor arrangements were in place and would come into effect the day after Assurance Lincolnshire’s notice period ended. The Council was also going to the market and inviting other Internal Audit organisations to bid for the work to enable continuity beyond the interim arrangement.

 

The Chief Executive provided the Committee with reassurance that mediation meetings were put in place in an attempt to improve working relationships and improve protocols between the Council and Assurance Lincolnshire. Prior to the meeting taking place, the Chief Executive was issued with a notice of termination. An extension of the notice to 60 days was requested by the Chief Executive in order for work to be completed. Assurance Lincolnshire subsequently declined the extension due to staffing availability.

 

One Member suggested that the Internal Audit Plan be revisited with urgency to address current issues and compare audit plans to other authorities, prior to any scoping due to take place with future Internal Auditor’s.

 

Members were referred to the Audit Report, where it outlined five substantial assurances since September 2022 on the work of the Council based on the Audit Plan. The Committee was reassured that the new Internal Auditor’s would be delivering the full Audit Plan which is required for 2023/24 within a five-month period. 

 

It was clarified that revisiting or increasing the plan would be unreasonable for the new auditors to deliver within a five-month period. There had not been any feedback to suggest that the authority was being ‘under-audited’.

 

Concern was raised on key control testing assurances. It was suggested that this also be reviewed. 

 

The Committee noted the Council’s management response included within the agenda pack with regard to this item.

 

It was proposed, seconded and AGREED that the Governance and Audit Committee:

 

1.    Approved the scope and the budget of the Internal Audit Plan for 2024/25 and agreed for this to be added to the Work Programme.

 

2.    Agreed that the Internal Audit Plan for 2023/24 continues as approved by the Governance and Audit Committee in June 2023.

 

3.    Agreed to revisit the Internal Audit Charter.

 

Having been proposed and seconded, under Section 100 (a)(4) of the Local Government Act 1972, it was AGREED that the press and public be excluded from the meeting on the grounds that if they were to be present, exempt information could be disclosed to them as defined in the relevant paragraphs of schedule 12a of the Act.

 

The remainder of this item was considered in closed session.

 

It was proposed, seconded and AGREED that the Governance and Audit Committee:

1.    Undertakes a review of its Whistleblowing Policy.

2.    Requests that a re-investigation takes place by the Council’s External Auditors of the original Whistleblowing report, included the wider scope of the investigation agreed with the Chief Executive and Chairman of the Governance and Audit Committee

3.    Request that all Officers of the Council receive further training on the Whistleblowing Policy.