Meeting documents
Governance Committee
Tuesday, 30th June, 2009
| Place: | Wheel Room, Civic Centre, West Paddock, Leyland PR25 1DH |
| Present: | Councillor Mr G O'Hare (in the chairman) Councillor Mr A F Ogilvie |
| In attendance: | Corporate Directors (Policy & Neighbourhoods)(John Dakin) and (Resources)(Mike Nuttall), Heads of Shared Assurance Services (Garry Barclay), Corporate Governance (Maureen Wood) and Shared Financial Services (Susan Guinness), Internal Audit Manager (Clare Ware), Senior Democratic Services Officer (Andy Houlker) and the Cabinet member for Finance & Resources (Councillor S M Robinson) Also representatives from the council?s External Auditors (Audit Commission) Fiona Blatcher and Gareth Winstanley |
| Public attendance: | 2 |
| Other Officers: | Councillors Mrs L M Williams (arrived 4.10pm) and S M Robinson and one officer |
| Item | Description/Resolution | Status | Action | |
|---|---|---|---|---|
| OPEN ITEMS | ||||
| 1 |
Apologies for Absence Apologies for absence were received on behalf of Councillors Mrs A A Ball and J G Demack. At this point the chairman (Councillor G O'Hare) informed the meeting that regrettably Councillor Owen had resigned from the committee. |
Noted | ||
| 2 |
Declarations of Interest Councillor Ogilvie stated that as the Cabinet Deputy for Regeneration and Planning (Planning and Economic Development) he would not take part in any discussion concerning that portfolio. |
Noted | ||
| 3 |
Draft Forward Plan 2009/10 Draft Forward Plan attached The committee considered its draft Forward Plan. The external auditor informed the meeting that the Annual Audit & Inspection Letter and the Use of Resources/Data Quality Report were now anticipated to be presented in January 2010. In view of this the chairman (Councillor O'Hare) suggested that in view of the heavy workloads in the New Year, it might be appropriate for an additional meeting in late November/early December 2009. In line with the committee's terms of reference it was suggested that the review of the council's Constitution be included in the Forward Plan and scheduled for March 2010. The chairman commented on the late availability of the papers for this meeting. Whilst understanding and sympathetic to the reasons that had contributed to this, he stated that in future the papers needed to be available when the agenda was initially published. He also asked for agreement for the meetings to commence at 6.00pm rather than 4.00pm. RESOLVED: 1. that the committee's draft Forward Plan be amended in line with the discussion; 2. that future meetings of the Governance Committee commence at 6.00pm; and 3. that should it be felt necessary, an additional meeting of the Governance Committee be held in late November/early December 2009. |
Agreed | Senior Democratic Services Officer |
|
| 4 |
External Audit Audit Fees Letter 2009/10 Supplementary Audit Opinion Plan for 2008/09 Audit Fees Letter 2009-10 attached Audit Opinion Plan 2008-09 attached a) Audit Fees Letter 2009/10 The chairman welcomed the Audit Commission?s Engagement Lead/Senior Audit Manager (Fiona Blatcher) and Audit Manager (Gareth Winstanley) who addressed the committee and responded to comments and enquiries. As in previous years the plan set out the proposed work programme for 2009/10 based on the Audit Commission?s risk-based approach to audit planning. The audit areas included financial statements, use of resources/VFM conclusion and certification of grant claims and returns. The plan identified the key risks as shared services, financial pressures and international financial reporting standards and explained how the external auditor planned to address these. Based on this council?s overall low risk, scale and turnover, the Audit Commission's fee for 2009/10 was ?97,714 (2.8% below the scale fee level) and the planned outputs were identified in Appendix 2. The committee asked about work to reduce the identified key risks and was informed for example that work around the council?s shared services arrangement had helped inform the Audit Opinion Plan and such additional work resulted in an increased fee. Similarly it questioned whether there was a potential conflict of interest with this council and the shared services arrangement both being audited by the same external auditor. This was not felt to be the case, indeed it was considered to be advantageous that almost the same audit teams were used for both. The committee also sought clarification that the fee for certifying grant claims would actually be ?18000 and not just an estimate. The Audit Commission commented this involved a lot work and was always an estimate at this stage. However, if there were any changes they would come back and discuss further. It was discussed and noted that the fees letter took account of extra work arising from the Icelandic banks. On balance the committee did not feel that the reported external auditor fee for 2009/10 was excessive. RESOLVED: that the Audit Commission?s Engagement Lead/Senior Audit Manager and Audit Manager be thanked for their attendance and the committee formally receives the Audit Commission's Audit Fees Letter 2009/10. b) Audit Opinion Plan 2008/09 The Audit Commission?s Engagement Lead/Senior Audit Manager (Fiona Blatcher) and Audit Manager (Gareth Winstanley) then addressed the committee in respect of the Audit Opinion Plan 2008/09 and responded to comments and enquiries. The Audit Commission had produced its initial plan for 2008/09 in June 2008, in which it was required to specify the detailed risks needed to be considered as part of the opinion planning work. However, as the plan was produced at the start of the financial year it was not possible to specify those risks at that stage. The Audit Commission was now in a position to do this as part of its opinion audit. In this respect they had to - identify the risk of material misstatement in the council's accounts - plan audit procedures to address these risks - ensure that the audit complied with all relevant auditing standards The plan considered the following additional risks appropriate to the current opinion audit and gave an audit response - preparation of accounts by the Shared Financial Services function - impact of the current economic climate - impact of the council's investments in Icelandic Banks The plan covered the council?s financial statement; IFRV compliance, materiality but did not look to see if precisely correct. This had been the first year of the shared services arrangement and in respect of the Iceland banks work had been carried out to verify CIPFA advice had been followed. The committee asked how the external auditor identified the risk of material misstatement in the council?s accounts. This was carried out by a prescribed format, not looking at detail but was in the region of ?500,000 (but could be lower). This figure represented approximately 1% of the council?s gross expenditure. The committee also enquired and was informed there were no further identified specific risks to those outlined in the plan. RESOLVED: that the Audit Commission?s Engagement Lead/Senior Audit Manager and Audit Manager be thanked for their attendance and noted the Audit Opinion Plan. |
Agreed | ||
| 5 |
Internal Audit Annual Report 2008-2009 IA Annual Report attached The council?s Head of Shared Assurance Services (Garry Barclay) and Internal Audit Manager (Clare Ware) presented the report and responded to the committee?s enquiries. Internal Audit was now part of the shared services arrangement with Chorley Borough Council. The report represented - work undertaken from April 2008 to March 2009 - gave an audit opinion on the adequacy and effectiveness of the control environment in the council as a whole and following individual audit reviews - gave an appraisal of performance, including evaluation of the effectiveness of the council's 'system of internal audit' During the above period Internal Audit produced 26 reports the findings of which were; adequate controls (25) and substantial controls (1). It had also included two separate reports on treasury management, one of which was requested by the Corporate Director (Resources) to review the council's investments in the Icelandic Banks. During its consideration of the report the committee questioned the methodology adopted by Internal Audit. It also queried and noted the additional work arising from the Iceland banks position, the lines of management of the service such as not report to a Cabinet member and, its work associated with the council?s shared services arrangement. Clarification was also sought regarding the control ratings and key control issues identified for financial systems and general areas. In the former no control issues were identified yet they were for the latter?s topic items and it would be helpful if there was something compare this against. The committee welcomed the offer by the Audit Services Manager to provide further information on this. RESOLVED: that the Head of Shared Assurance Services and Internal Audit Manager be thanked for their attendance and the committee welcomes and accepts the Internal Audit Annual Report 2008/09. |
Agreed | Head of Shared Assurance Services, Audit Services Manager |
|
| 6 |
Draft Annual Governance Statement 2009 Draft AGS covering report attached The council?s Head of Corporate Governance (Maureen Wood) presented the council?s Draft Annual Governance Statement (AGS) for 2008/09. The report provided assurance on the council?s standards of corporate governance spanning all the council?s priorities and covering all activities. It was a statutory requirement to conduct a review (at least once a year) of the effectiveness of the internal control environment and to publish a statement on the adequacy of the system with its annual accounts. The draft AGS document itself was contained within the council's Statement of Accounts 2008/09 (which was a later item on the agenda for discussion). During the discussion the committee questioned the impact partners could have on the council?s governance performance. It became apparent that the council?s performance could be adversely affected and it therefore needed to ensure this did not occur during relationships with partnership organisations. There were also enquiries around ethical governance and the way people were treated and the council?s ethical governance audit. It was felt the issue of residents? feedback on standards/ethics should be included in the on going review process. RESOLVED: the committee thanked the Head of Corporate Governance for her attendance and the following views/comments be expressed:- 1. the committee welcomes the report and approves the council?s Annual Governance Statement for 2008/09; 2. the committee recommends residents feedback on standards/ethics be included in the review process; and 3. the committee looks forward to receiving the action plan in six months. |
Agreed | Head of Corporate Governance |
|
| 7 |
Treasury Management Strategy a) Outturn for the year end 31 March 2009 b) Treasury Management Strategy ? update c) Debt repayment proposals a) Treasury Management - outturn for year end 31 March 2009 attached b&c) Treasury Management - strategy update & debt repayment proposals attached The Cabinet member for Finance & Resources (Councillor S M Robinson) addressed and responded to the committee?s enquiries. a) Outturn for the year end 31 March 2009 The report was a position statement and summarised the treasury activities of the council for 2008/09. A revised Treasury Management Strategy was approved on 5 November 2008. This contained revised limits on both the principal amounts invested and duration, dependant on the financial standing of institutions. Sector and country limits were also applied, in line with best practice. This combined with a significant fall in interest rates during the year had a detrimental effect on overall interest earned by the council. The report included the comparative treasury position as at 31 March 2008 and 2009 and commentary on investment in Icelandic Banks, borrowing requirement 2008/09, short and long term investments, and prudential indicators and compliance issues. Understandably the committee was particularly keen to understand the current position and implications on the council of the investments in Icelandic Banks. This was explained in some detail by the Cabinet member for Finance & Resources and Corporate Director (Resources) but at this stage these could only be estimated. Such as how confident was the council of realising its frozen investments in these banks. The council was as confident as it could be that its investments and those of other local authorities would receive preferential status. The committee wondered what (if any) impact variances in exchange rates might have on any potential returns. In respect of investment interest it was intrigued to note that government advice was that the council presented its accounts as if it still had the monies currently frozen in the Icelandic banks, which it might not receive. RESOLVED: that the Cabinet member for Finance & Resource be thanked for his attendance and the treasury management outturn report 2008/09 be noted. b) & c) Treasury Management Strategy update & Debt repayment proposals The council annually reviews and agrees its Treasury Management Strategy in accordance with the CIPFA Code of Practice on Treasury Management. The strategy was reviewed as a result of the unprecedented crisis in the financial markets during 2008/09. The outcome was an amended strategy containing a revised, and considerably more restrictive approved list of Financial Institutions and Investment Criteria (Appendix A to the report). In line with best practice, limits were put on both the principal amounts invested and duration dependent on the financial standing of institutions and sector and country limits also applied. Earlier this year following changes in the credit rating for Ireland, no further investments were made after the council's existing deposits matured. Irish financial institutions were removed from the approved list, Appendix B to the report. More recently the UK credit rating outlook has also been re-assessed by one of the rating agencies to negative from stable. However, a decision on whether it will lose its AAA credit rating status was not expected to be taken until after the next General Election. Therefore, at this stage, no change was proposed to the council?s investment criteria relating to UK institutions. The 2009/10 budget had assumed a rate of return on short-term investments of 1.00%. However the council was finding this difficult to achieve with restricted counterparties and the time limit for such deposits being very short (1 month). It was suggested that this maximum period be extended to up to 3 months for Tier 4 counterparty financial institutions. The report also identified four outstanding loans from the Public Works Loans Board (PWLB). It was envisaged that as investments were currently earning less than 1.00% and it would be beneficial to repay three of these which attracted an average interest of 4.40%. It was currently anticipated this would result in a net annual saving of about ?80,000. The remaining loan was relatively short term and would be left to mature. Any decision to pursue this would need to be timed to take account of interest movements and after consultation with the Cabinet member for Finance & Resources. The timing would be determined so as to maximise the overall general fund saving. The committee enquired why the Cyldesdale Bank had been removed from the approved list and was informed that this was part of an overseas group and it along with the Irish institutions had been removed. The council had chosen to make safety its priority and had listed only UK institutions following the government?s nationalisation of certain UK banks. It enquired about the suggested change from a maximum period of one month to three months for investments. When the current strategy was adopted there was great uncertainty in the financial markets. The suggested change was not a carte blanc up to three months, the markets had become steadier and the council would assess the credit ratings. At present the council was now struggling to find banks to invest in and the interest rates for this longer period were more attractive and would help manage the situation. The committee recognised the need for officers to have the freedom to perform in conjunction with members setting constraints and control measures for the council to operate within. In response to a question about this period being further extended, for example, to a period of six months, the strategy was very much risk averse and at this time advice to the council was to make short term investments. The committee queried whether the council had borrowed monies which it had then subsequently invested and was informed this had not been done. The council had borrowed to fund expenditure (such as the capital programme). It was important to note with the current rates of interest that there was now an opportunity to repay some debt which would reduce the council?s current cash levels and subsequently generated future revenue savings. This was proposed when it would be most advantageous to the council. RESOLVED: that the Cabinet member for Finance & Resource be thanked for his attendance; and 1. the contents of the report and attached appendices be noted, and this include; a) the proposed amendments to the List of Financial institutions and Investment Criteria in the Treasury Management Strategy (as shown in Appendix B); and b) the proposed early repayment of the Public Works Loans Board (PWLB) debt (as detailed in Appendix C). (The meeting was adjourned at 6.05pm for a short break and re-convened at 6.13pm) |
Agreed | Corporate Director (Resources)Head of Shared Financial Services | |
| 8 |
South Ribble Borough Council Statement of Accounts 2008/09 SOA 2008/09 covering report attached SOA 2008/09 document attached The Cabinet member for Finance & Resources (Councillor S M Robinson) and the Head of Shared Financial Services (Susan Guinness) addressed and responded to the committee?s enquiries. The committee received a report along with the council?s draft and unaudited Statement of Accounts for the year ending 31 March 2009. The report also provided an update on the council?s overall financial position and financial strategy. Through the Annual Government?s Statement (AGS) it also reported on the efficiency of the internal control environment as set out on pages 12 to 19 of the Statement of Accounts (SOA). The committee's attention was drawn to the key issues in the report and the more significant variances/changes to the revenue budget. The council's actual net revenue expenditure for 2008/09 was ?15.084m which created a deficit to be funded from general reserves of ?0.146m. This compared with the approved revised budget which forecast an expected deficit of ?0.877m. The improvement (?0.731m) was principally due to lower Concessionary Travel costs (?0.307m), additional government grant funding (LABGI ?0.106m), and higher Housing Benefit Subsidy income (?0.192m). The committee noted and questioned the increase in the original capital budget allocation for 2008/09 from ?3.959m to ?4.396m and yet the actual expenditure had still only been ?3.414m. This was the second year the capital allocation had not been fully utilised. This was explained in some detail by the Cabinet member for Finance & Resources and Corporate Director (Resources) and the external auditor also confirmed this scenario was not uncommon with other local authorities. It was noted that the council currently had ?5.0m of frozen investments in the Icelandic banks Landsbanki and Heritable currently in administration. For accounting purposes, this had been dealt with in accordance with guidance issued by the Chartered Institute of Public Finance and Accountancy?s Local Authority Accounting Panel (Bulletin 82, published in May 2009). There was considerable discussion to understand the accounting presentation and the current prospects for recovering the frozen deposits. It was noted that further information would be reported to future meetings of the committee as it became available. The committee noted that the Building (Local Authority Charges) Regulations 1998 require Building Regulations Control Services to recover their costs over a three year rolling period. South Ribble had failed to do this over the three year period to March 2009, with a deficit of ?0.069m being returned in 2008/9. The current economic climate with the slowing of the property market and developments had significantly reduced the level of income from Building Control fees. Similar experiences were being reported by other local authorities across the country. It was noted that the Council?s Head of Planning and Housing was trying to address this issue whilst maintaining the skills needed for when the economy recovered. The committee appreciated that this service competed with the private sector but questioned why there was a target for this service to breakeven if there appeared to be no penalty if it failed to do so. It understood this would now be an area the external auditor would pick up as part of the audit process. The chairman informed the meeting that he had been advised of an amendment to the figures relating to Loans and Receivables on page 41 of the SOA. Any decision would be subject to these figures being amended in the published unaudited SOA. The level of the council's general reserve was noted as currently ?3.3m whilst the council had a policy of aiming to maintain the reserve at around ?1.5m (10% of annual net revenue expenditure). Whilst accepting the level needed to be looked at, the Cabinet member expressed caution about reducing this figure in view of uncertainties in the next two years. The committee was referred to Appendix F which indicated a forecast revenue budget funding gap over the next 4 years (which included producing efficiencies of ?2.3m in 2009/10). It was agreed that this was going to be extremely challenging for an organisation with a net budget of ?15m. In response to a question from the chairman, the committee was advised that there was a difference in the council's budget figures (c?15m) compared to ?16.812m (page 20 of the Income and Expenditure Account) because the latter included necessary accounting adjustments that were then subsequently reversed out of the accounts so they had no impact on the level of council tax paid by residents. There was a suggestion that Appendix B (Significant Budget Variances in 2008/09) would be easier to read/follow if it had included a cross reference system to assist the understanding of amounts through the report/SOA. The committee was informed that the covering report aimed to help, but additional information could be considered. It was explained that, given the need to comply with accounting standards and guidance, the difficulty of making the accounts more accessible and understandable to the public was not just experienced by South Ribble, but was an issue recognised nationally. It was anticipated to become even harder with the introduction of the International Financial Reporting Standards (IFRS). In response to an enquiry the meeting discussed and noted the council?s collection rates from both residents (council tax) and businesses (national non-domestic rates) as outlined in Appendix C of the report. The committee referred to Appendix D to the report and questioned the forecast amounts for the Single Status/Equal Pay reserve (-?32,000). It was accepted that the figures should be a zero. The Cabinet member took this opportunity to thank the staff in the council?s financial services team who had carried out a tremendous job in producing the council?s Statement of Accounts 2008/09 in line with the very tight deadline. RESOLVED: 1. That subject to the commented amendments the contents of the report and appendices be noted; 2. That the budget variances for 2008/9 as listed at Appendix B be noted; 3. That the budget items listed at Appendix E to be carried forward to 2009/10 be approved; 4. That the financing of the Capital Programme for 2008/9 and the carry forward of expenditure to 2009/10 as outlined in the report be approved; 5. That the retention of reserves at Appendix D together with the proposed contributions to and withdrawals from these reserves as detailed within the Statement of Accounts, in accordance with the policy as set out in the report, be endorsed; and 6. That the Statement of Accounts (SOA) for 2008/09 which incorporated the Annual Governance Statement (AGS) be approved. |
Agreed | Corporate Director (Resources)Head of Shared Financial Services | |
(The meeting finished at 7.16pm)