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Interim Audit Report: Review of Council's Use of Resources

This report presents the findings of the interim audit of Wyre Forest District Council's use of resources, including financial reporting, management, standing, and internal control. It also highlights improvements made by the council and provides recommendations for further enhancement.

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Interim Audit Report: Review of Council's Use of Resources

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  1. INFRASTRUCTURE, GOVERNMENT AND HEALTHCARE 2005/06 Interim Memorandum Wyre Forest District Council September 2006 AUDIT

  2. Contents • Page Purpose and responsibilities 3 Use of resources – key lines of enquiry 4 Performance Indicators 2005/06 5 Systems of internal financial control 7 Audit of accounts 12 • Appendix 1 – Recommendations 13

  3. Purpose and responsibilities • Purpose • KPMG LLP is the appointed auditor of Wyre Forest District Council (“the Council”). Our audit is undertaken in accordance with the Audit Commission’s Code of Audit Practice (“the Code”). • Our work was carried out in accordance with the audit elements of the Audit and Inspection Plan 2006/07. This report records the significant issues arising from our interim audit work and covers the following areas: • review of the Council’s Best Value Performance Indicators; • review of the Council’s systems of internal control; and • considers the Council’s preparations for the 2005/06 statement of accounts. • We will issue a separate report following the completion of our main accounts audit visit. • Respective responsibilities • This report is addressed to the Council and has been prepared for the sole use of the Council. We take no responsibility to any member of staff acting in their individual capacities, or to third parties. The Audit Commission has issued a document entitled Statement of Responsibilities of Auditors and Audited Bodies. This summarises where the responsibilities of auditors begin and end and what is expected from the audited body. We draw your attention to this document. • External auditors do not act as a substitute for the audited body’s own responsibility for putting in place proper arrangements to ensure that public business is conducted in accordance with the law and proper standards, and that public money is safeguarded and properly accounted for, and used economically, efficiently and effectively.

  4. Use of resources – key lines of enquiry (KLOE) • The Council was scored as “adequate performance” in our 2005 Use of Resources work as reported in March 2006. • As highlighted in the adjacent chart, this is consistent when benchmarked against the majority of all District Councils. The work on the 2005 Use of Resources was determined by the extent to which the Council had embedded procedures in place to satisfy the KLOEs, which covered: • financial reporting; • financial management; • financial standing; • internal control; and • value for money. • Since our review, the Council has taken steps to address a number of key issues. During our interim review we have been able to identify that the Council has made positive progress in embedding controls and policies to enhance the internal control environment, for example the Statement on Internal Control has been reviewed as a separate document to the financial statements. • The Council’s progress across all areas will be reviewed later this year in accordance with the updated criteria produced by the Audit Commission. • * WFDC’s category

  5. Performance Indicators 2005/06 • Improved performance (continued) • BV2b - Promote race equality • This indicator moved from the median to top quartile. The Council’s score increased by 33% to 77%. This exceed the Council’s 55% target. • BV 166 - Percentage score against the Environmental Health best practice checklist • This indicator has moved from the median to top quartile. The percentage score increased by 10.6% to 96.6%. This exceeded the Council’s 2005/06 target by 6.6%. • BV157 - progression towards e-Government • This target moved from 72% to 98.5%. The Council’s target being 100%. The Government’s national target was for all Council’s to achieve 100% compliance with this indicator by December 2005 • BV156 - ensuring public buildings are accessible to the disabled • This indicator increased by 19% to 83%. The Council’s target being 90%. The Council has now failed to meet its target under this indicator for two successive years. This indicator is a good measure of the Council’s compliance with the Disabled Discriminations Act, and as a result the Council will need to address this performance during 2006/07. • BV79(ii) - Percentage of housing benefit overpayments recovered compared to the total amount of debt outstanding • This indicator increased by 27% to 55%, the target being 33%. • The Council’s performance for the year for monitored performance indicators (‘PIs’) has shown that 56% of PIs have improved. The table below compares the Council’s performance for those indicators where data is available in 2004/05 and 2005/06. The key issues to note are: • Performance indicator movements from 2004/05 and 2005/06 • Improved performance • BV11b - Percentage of top earners from a minority ethnic background. • This indicator moved from the bottom quartile in 2004/05 to the top quartile in 2005/06. • BV91 - Percentage of the population served by kerbside recycling collection. • This indicator moved from the bottom to median quartile. The percentage increased by 9.2% to 90.6%. This is however 4% short of the Council’s 95% target.

  6. Performance Indicators 2005/06 • Weakened performance • BV 109b – Percentage of minor planning application determined within 8 weeks • This indicator fell from 71.31% to 70.97%. The current year’s performance is 0.97% above the Council’s target. • BV 16 – Percentage of employees with a disability • This indicator fell from the median to bottom quartile. The percentage in 2004/05 being 2.02% and 2005/06 being 1.56%. The Council’s target is 3%. This indicator is sensitive to minor fluctuations in the Council’s staff turnover because of the low number of employees. • BV 79a – Percentage of cases for which the amount of benefit due was calculated correctly • This indicator has fallen from the median to bottom quartile. The 2005/06 percentage being 95.8% (2004/05: 98%). The Council’s target is 99%. • Failure to accurately process benefit claims has a number of implications for the Council, these include: • The Council may incur reductions in subsidy due to incorrect entry of data that may result in benefit overpayments; and • Incorrect processing may result in a delay in payments to the claimant and increase customer dissatisfaction.

  7. Systems of internal financial control • “It is the responsibility of the Council to develop and implement systems of internal financial control and to put in place proper arrangements to assess their adequacy and effectiveness.” (Source: Code of Audit Practice 2005). • We considered whether arrangements to ensure that the overall systems of internal financial control over the finance functions remain adequate and effective. We based this work on our cumulative knowledge of the operating arrangements in place at the Council and also a review of: • the work of Internal Audit; and • the overall governance and management arrangements in place at the Council. • Internal Audit • As part of the process of forming our opinion on the Council’s financial statements, we consider the Council’s systems of internal financial control. These are management’s mechanisms for obtaining assurance that major financial systems, for example, payroll or creditor payments meet their objectives. A vital element within the Council’s control environment is the operation of an effective Internal Audit function. • In order to avoid duplication of work and maximise the effectiveness of the Council’s total audit resource, we apply the Audit Commission’s Managed Audit concept, testing and placing reliance on the work of Internal Audit wherever possible. • Our review focused on two areas: • overall arrangements over Internal Audit; and • a detailed review of core financial systems. • Overall arrangements over Internal Audit • Our high level review assessed the Internal Audit function against a number of criteria, including, professional requirements, independence, objectivity and delivery.

  8. Systems of internal financial control • Internal Audit’s opinion on the Council’s internal control environment • The Financial Services Manager (Audit & Benefits) presented an opinion on the adequacy and effectiveness of the Council’s internal control environment to the Audit Committee in June 2006. This took into account those reviews that were in draft format at the year end. Overall the Council’s internal control environment was assessed as “adequate with reservations”. These reservations were based on the Internal Audit reviews where limited assurance was obtained on key systems, these included: • Financial services • Budgetary control; • Agresso application; and • NDR application. • Cultural, leisure and commercial services • Accounting and budgetary control. • Our review of individual Internal Audit files considered the impact of Internal Audit’s findings on our external audit approach. Overall, the weaknesses identified will require some additional substantive testing over key balances, however we would not expect any further work to be carried out by the Internal Audit function. • Delivery of the Internal Audit Plan 2005/06 • As the table below highlights, Internal Audit completed 85% of its 2005/06 Plan.

  9. Systems of internal financial control • Internal Audit - File review • In accordance with the managed audit process we reviewed the work undertaken by Internal Audit on each of the core financial systems, to determine the: • level of coverage of the key high level controls for each system and the adequacy of sample sizes tested; • clarity of working papers and adequacy of the communication of audit issues; and • the adequacy of quality control and management review. • We have reviewed Internal Audit’s work on the Council’s core financial systems, for example budgetary control, payroll, and revenues and benefits. Our work involved reviews of the individual working papers and findings of Internal Audit supported by our own walkthrough testing of the key systems to corroborate Internal Audit’s findings of the key controls in operation. • We noted that the level of testing, whilst adequate, varied between reviews. The level of testing performed being adjusted for the respective risk associated with each review. We understand that the Financial Services Manager (Audit & Benefits) agrees the level of testing for all reviews prior to any work commencing. • Based on our reviews of the above systems, and discussions with the Financial Services Manager (Audit and Benefits) over the key findings from the reviews, we have concluded that we are able to place reliance on Internal Audit’s work on the core systems for our opinion purposes. • Recommendation 1: Internal Audit • Internal Audit should give consideration to documenting the rationale for the level of testing to be performed.

  10. Systems of internal financial control • Risk Management (continued) • set out the arrangements for obtaining assurance on the effectiveness of key controls across all areas of principal risk; • evaluate the assurance across all areas of principal risk; • identify positive assurances and areas where there are gaps in controls and/or assurances; • put in place plans to take corrective action where gaps have been identified in relation to principal risks; and • maintain dynamic risk management arrangements including a well founded risk register. • The Statement on Internal Control • For the 2005/06 financial year the Cabinet has approved the Statement on Internal Control (SIC) as a separate exercise to the financial statements as a method of improving the Council’s governance arrangements. The Council’s processes for preparing the SIC incorporates the findings of Internal Audit and an annual review by the Corporate Management Team, which identified risk management as a key area for further development. • A SIC, if used appropriately, can be a tool to manage key areas of risk and to further embed a culture of risk management within an organisation. A risk assessment performed by the Council and the associated assurances to manage those risks is used to drive the internal audit plan and forms the detail within the SIC. Recommendation 2: Risk management Wyre Forest District Council, the Council should continue to develop its risk management procedures and identification of risks. The Council should consider implementing an assurance framework to monitor key risks. • Risk Management • An effective mechanism to monitor risks is through the use of an Assurance Framework. This provides a simple but comprehensive method for the effective and focused management of the principal risks to meeting Council’s objectives. It also provides a structure for the evidence to support the Statement on Internal Control. This simplifies Member reporting and the prioritisation of action plans, which, in turn, allow for more effective performance management. • The key processes in establishing an Assurance Framework identify that Council’s should: • establish the principal objectives as identified in the Corporate Plan; • identify the principal risks that may threaten the achievement of these objectives; • identify and evaluate the design of key controls intended to manage these principal risks, underpinned by core controls assurance standards; • An assurance framework example is shown overleaf.

  11. Example Assurance Framework

  12. Audit of accounts 2005/06 • The Council has a closedown timetable in place to ensure that the 2005/06 Statement of Accounts are approved by Members by the statutory deadline of 30 June 2006, one month earlier than the previous year. Our audit commenced on 10 July 2006. In order to facilitate an effective and timely audit we issued and discussed a schedule of our working paper requirements to the Council in April 2006. • We are engaged in regular meetings with the Council’s finance team which allows us to monitor the Council’s closedown processes and ability to meet our working paper requirements. To date the Council remains on track to meet its internal and external deadlines. We shall continue to liaise with the Council’s finance department in the lead up to the final accounts audit to ensure the Council remains on target with its closedown timetable and production of supporting working papers. • We shall comment on the Council’s 2005/06 Statement of Accounts on the conclusion of our audit later this year.

  13. Appendix 1 – Recommendations This has already been implemented following discussions with KPMG The Council is currently assessing its capacity for developing risk management and an assurance framework and will be bringing forward proposals for implementation in 2007/08

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