Agenda and minutes

            WELCOME

1.         The Chairman welcomed Mr Hugh Harvie and Mr Matthew Swann from KPMG to the meeting.

Minute of Meeting of the Audit Committee held on 10 November 2014 to be noted and signed by the Chairman. (Copy attached.)

MINUTE

2.         There had been circulated copies of the Minute of 10 November 2014.  With reference to paragraph 6, line 25, the text should have read “. . . representing a 12% gross return.”

            DECISION

            APPROVED for signature by the Chairman subject to the above amendment.

3.         With reference to paragraphs 6 and 7 of the Minute of 10 November 2014, Members requested that a report updating the Committee on the sale of surplus buildings and the use of capital receipts would be presented at its meeting in May 2015.

            DECISION

            AGREED that the Service Director Commercial Services provide a report updating the Committee on the sale of surplus buildings and the use of capital receipts to its meeting in May 2015.

4.         With reference to the decision at paragraph 10(b) of the Minute of 10 November 2014 regarding the business case for a new finance system, Members were advised that the recommendation was agreed by Council as part of the wider budget process and financial planning.

5.         With reference to the decision at paragraph 10(c) of the Minute of 10 November 2014, Members were advised that a report by the Chief Officer Audit and Risk on monitoring progress in line with the revised target completion dates would be presented to the Committee in May 2015.

6.         With reference to the decision at paragraph 12(b) of the Minute of 10 November 2014 regarding the Treasury Mid-Year Report 2014/15, Members were advised that the report was presented to Council on 20 November 2014 and revised indicators were approved.

DECISION

NOTED.

Consider report by Chief Financial Officer on the Council's draft Treasury Management Strategy 2015/16 for review and scrutiny prior to presentation for Council approval.   (Copy attached.)

            DRAFT TREASURY MANAGEMENT STRATEGY 2015/16

7.         There had been circulated copies of a report by the Chief Financial Officer on the Treasury Management Strategy for 2015/16.  Mr Robertson, Chief Financial Officer, explained that the report was to enable the Audit and Risk Committee to fulfil its scrutiny role in relation to Treasury Management activities and to present the proposed Strategy as attached at Appendix 1 to the report to the Audit and Risk Committee prior to Council approval.  The report explained that the Strategy was the framework which ensured the Council operated within prudent and affordable limits in compliance with the CIPFA Code.  Members noted that the Strategy was based on the Administration’s draft Financial Plans for 2015/16 onwards.  Mr Robertson detailed a number of significant changes from the 2014/15 Strategy, namely the removal of an allocation of £13m for Registered Social Landlord (RSL) on-lending within the other relevant capital expenditure amounts following the publication of new guidance relating to on-lending; the cross-referencing to the Council's overall Financial Strategy; the incorporation of reference to the Treasury Management Earmark Balance; and the ability to undertake treasury management for subsidiary companies.  Mr Robertson made reference to the Council’s involvement with Bridge Homes LLP, a Council-led affordable house building National Housing Trust Limited Liability Partnership with the Scottish Future’s Trust.  He further advised that a mid-year treasury management report and an annual treasury report, which also formed part of the overall treasury activity, would be presented separately to Council for monitoring purposes.  The Strategy listed the Treasury Management issues which were covered within the document and Members noted that Capita Asset Services continued to act as the Council's external Treasury Management advisors.  Mr Robertson further explained that the Council was required to operate a balanced budget, ensuring that money was available when required, including the funding of its Capital Plans and that as part of achieving these aims, the Financial Strategy set out the financing arrangements necessary to continue to invest in infrastructure through a sustainable Capital Programme.  This would be financed by £20.7m of loans charges per annum, reducing to £19.9m per annum from 2017/18.  The report explained how capital expenditure plans were financed by capital and revenue resources and that any shortfall in available resources resulted in a net financing need - the amount of money the Council would need to borrow to achieve the expenditure plans.  The figures for 2014/15 through to 2017/18 were detailed in the report.  Members noted the significant increase in the Capital Financing Requirement from 2014/15 to 2015/16 and were advised that this was driven by the shift in the estimated net financing need for the year mainly for the school building replacements.  Further details of this shift were contained in the report and were explained by the Chief Financial Officer.

8.         Members requested further information regarding the schedule of loans and it was agreed that the Chief Financial Officer would bring a report to the Audit and Risk Committee on capital debt to be financed  ...  view the full minutes text for item 6.

Consider strategy and plan overview report by KPMG on how they will deliver their external audit for Scottish Borders Council for the year ended 31 March 2015. (Copy attached)

EXTERNAL AUDIT SCOTTISH BORDERS COUNCIL AUDIT STRATEGY AND PLAN OVERVIEW 2014/15

10.                   There had been circulated copies of a report by KPMG, the Council's external auditors, on the Audit Strategy Review and Plan for year ending 31 March 2015.  Mr Harvie explained that KPMG's audit took into account the broad risk profile of Scottish Borders Council and included consideration of other areas of assurance such as Shared Risk Assessment (SRA).  The approach was risk-based and focussed on an understanding of the Council and the wider environment within which it operated and also reflected the expectations of Audit Scotland and its Code of Audit Practice, as detailed in the report.  Mr Harvie explained that the Council was responsible for financial statements which showed a true and fair view of its affairs and for establishing arrangements which ensured that fraud and other irregularity were prevented and detected; affairs were managed in accordance with proper standards of conduct; and that Best Value was achieved.  In terms of Revenue, the report noted that the financial outturn for 2013/14 showed an underspend of £451,000 against the final revised budget which was, in part, due to staff cost savings as a result of the interim management structure in place prior to the implementation of the new corporate management arrangements in April 2014.  Members noted that following appropriate action to deliver efficiency savings during the year, performance to date in 2014/15 indicated that the majority of savings were being delivered in line with the financial plan.  The Capital expenditure for 2013/14 showed an underspend of £2.3m due mainly to re-profiling of a number of projects amounting to £2.2m and project underspend of £100,000.

11.       With regard to significant risks, KPMG had identified two areas in the initial risk assessment for 2014/15, namely fraud risk from management override of controls and fraud risk from income recognition.  The report provided further details on how KPMG would continue to monitor these risks within its audit.  Other focus areas identified in the report included accounting for landfill sites and noted that there was a requirement for local authorities to adhere to IAS 37 Provisions.  The report noted that the Council had considered the future costs of landfill sites and relevant capital costs for their decommissioning of £1.2m at 31 March 2014.  The Council's future strategy in relation to landfill was still being determined therefore the costs of ongoing aftercare and monitoring costs following decommissioning had still to be identified.  Mr Harvie advised Members that although there were some changes to the Code of Practice which determined the way in which financial statements were prepared by the Council, he was of the opinion that the underlying accounting policies were expected to remain substantially consistent with the previous year.  With regard to the financial reporting for Charitable Trusts, it was noted that three new charitable entities had been registered and that they would be subject to audit along with existing Common Good Funds.  The report went on to detail the management responsibilities and  ...  view the full minutes text for item 7.

Consider a report by Chief Officer Audit & Risk on recent work carried out by Internal Audit, including the recommended audit actions agreed by Management to improve internal controls and governance arrangements, and internal audit work currently in progress.   (Copy attached)

INTERNAL AUDIT WORK 2014/15

13.       With reference to paragraph 17 of the Minute of 23 September 2014, there had been circulated copies of a report by the Chief Officer Audit and Risk providing the Audit and Risk Committee with details of the recent work carried out by Internal Audit, the recommended audit actions agreed by Management to improve internal controls and governance arrangements and other internal audit work currently in progress.  The work Internal Audit had carried out in the period from 30 August to 19 December 2014 was detailed in the report.  During that period, a total of 10 final internal audit reports had been issued on Communications; Overtime; Earlston High School; Eyemouth High School; Hawick High School; LEADER Grant Funding Compliance; European Fisheries Fund Grant Funding Compliance; Homecare; St Ronan's Residential Home and Tweeddale Day Service; and Flood Risk and Coastal Management.  There were 11 recommendations made (no Priority 1 [High Risk], 1 Priority 2 [Medium Risk] and 10 Priority 3 [Low Risk]) specific to 4 of the reports and management had agreed to implement the recommendations in all cases.  The report detailed the work in progress to deliver the Internal Audit Annual Plan for 2014/15.  Members noted that there were a further 20 audits which had been assigned or were at various stages of completion and that the findings from these would be reported at a future meeting.  The Chief Officer Audit and Risk confirmed that findings from recent audits would be taken into account to inform future audit plans.  Members requested clarification on a number of points and officers provided additional detail.  In respect of Arm's Length External Organisations (ALEOs), Members were advised that it was likely that an ALEO's governance arrangements would be included as part of work carried out by Audit and Risk but that no details had yet been determined for the Care Company ALEO.  Mr Robertson advised that Scottish Borders Council would provide services such as Finance, Payroll, HR, IT, Audit and Risk for a transitional 2 year period to the Care Company ALEO and thereafter, any arrangements would be part of a contract.  Mr Harvie, KPMG, confirmed that ALEOs would also be covered in reports by the external auditors.  Members were advised that ALEOs would be responsible for establishing their own governance arrangements including audit and that the Council would be responsible for monitoring the service provision.  It was further noted that, in terms of the Care Company ALEO, the Care Inspectorate also had an external scrutiny and inspection role.

DECISION

NOTED the final reports issued in the period from 30 August to 19 December 2014 and acknowledged satisfaction with the recommended audit actions agreed by Management to improve internal controls and governance arrangements.

Consider report by Chief Officer Audit & Risk on the outcomes of the Risk Management Review including the recommendations for improvement to refine the risk management arrangements at the Council to ensure their ongoing effectiveness, and the revised Corporate Risk Management Policy.    (Copy attached.)

RISK MANAGEMENT REVIEW AND REVISED POLICY STATEMENT

14.       There had been circulated copies of a report by the Chief Officer Audit and Risk providing the Audit and Risk Committee with details of the outcomes from the Risk Management Review and seeking agreement to recommend the revised Risk Management Policy to Council for approval.  The report explained that the previous review of the Council's management of risk arrangements had been undertaken in 2011 and that the Risk Management Policy had been in operation since September of that year.  Good practice determined a need for a review of the current policy, processes and strategy that underpinned the Council's risk management arrangements and this work commenced in March 2014.  The report detailed the outcomes of that review as well as recommending improvements to refine the risk management arrangements to ensure their ongoing effectiveness.  These improvement actions covered areas such as Policy; Procedures and Strategy; Alignment with Business Planning process; Training; Facilitated workshops; Future use of Covalent; Roles and Responsibilities; and Reporting.  The Appendix to the report laid out the Risk Management Policy Statement and Members noted that this would be supported by the revised Strategy, processes and training programme.  Discussion followed regarding the Council's Waste Management process and any potential financial risk to the Council under the present scheme.  Mr Robertson explained that the commercial contract had been agreed according to the Council's Waste Management Strategy.  Further negotiations for financial closure of the project would be presented to Council for agreement or, if so determined, the Waste Management Strategy would be revisited.  The project was part of the Council's Risk Register and the risks were therefore set out at each stage of development.  In terms of the Risk Management Policy Statement, Members requested that two amendments were made to this document.  These were that the words " . . . and will report to Elected Members on these risks." be added at the end of the paragraph entitled Roles and Responsibilities – Corporate Management Team; and that the process by which risk management  would be applied within programme and project management be more explicitly included in the Statement within the first paragraph on page 3.  It was agreed that the revised Statement be circulated to the Audit and Risk Committee prior to it being presented to Council.

15.       Members discussed Covalent and the way in which it was used by officers to assist in risk management and reporting within departments and services.  Following discussion, it was agreed that the Chief Executive, Depute Chief Executive People, Depute Chief Executive Place, Service Director Strategy and Policy, Corporate Transformation and Services Director and the Chief Financial Officer attend the next meeting of the Audit and Risk Committee in order to provide Members with information on the use of Covalent and the Corporate Risk Register and also to identify senior officers to attend future Audit and Risk Committee meetings as determined by the Members to outline the risks within their departments/ services.

            DECISION

(a)        ACKNOWLEDGED that it was  ...  view the full minutes text for item 9.