There were no apologies for absence.

There were no Substitute Members.

Councillor Vizzard indicated that he was attending the meeting as an observer having particular interest in the report of the Head of Internal Audit Partnership relating to the significant risk/control issue that had materialised in respect of the fundraising arrangements for the Museum East Wing redevelopment project.

The Chairman stated that, in his opinion, the report of the Head of Finance and Customer Services relating to the Audit Commission’s Annual Governance Report 2009/10 and the amended Statement of Accounts should be taken as an urgent item to enable recommendations to be made if necessary to the Council and the Accounts to be published by the deadline of 30 September.

Councillor Vizzard disclosed a personal interest in the report of the Head of Internal Audit Partnership relating to the fundraising arrangements for the East Wing redevelopment project by virtue of being an executive member of the Maidstone Museums’ Foundation.

There were no disclosures of lobbying.

RESOLVED:  That the items on the agenda be taken in public as proposed.

RESOLVED:  That the Minutes of the meeting held on 21 June 2010 be approved as a correct record and signed.

Minute 24 – Independent Member of the Audit Committee

In response to questions by a Member, the Director of Regeneration and Communities updated the Committee on the position with regard to the appointment of a non-voting Independent Member.  It was noted that the aim was to complete the recruitment process by December.

The Committee considered the report of the Head of Internal Audit Partnership outlining the implications of the announcement of the Government’s intention to seek legislation in this session of Parliament to abolish the Audit Commission from 2012.  It was noted that the announcement followed the decision in May 2010 to cease immediately any work by the Commission on Comprehensive Area Assessment, which included the Use of Resources process.  Since the Audit Commission currently provided the external audit of the Council’s accounts and the Value for Money opinion, alternative arrangements would have to be put in place at some point in the future.  In the meantime, the Council would need to be satisfied that any interim arrangements continued to provide the high quality audit service supplied by the Commission in the past.

Emily Hill of the Audit Commission updated the Committee on the current position regarding the abolition of the Commission and what was known of the future arrangements.  She explained that:-

·  The Audit Commission would be abolished from 2012, leaving the financial years 2009/10, 2010/11 and 2011/12 under the Commission’s current arrangements.  However, it was possible that there might be pilot arrangements for 2011/12 to enable Councils to appoint their own auditors.

·  Although the Audit Commission had ceased work on Comprehensive Area Assessment, including the Use of Resources process, it was still required to provide a Value for Money conclusion and a decision had yet to be made on the work that had to be done to give that opinion.

·  In future, the Council would be free to appoint its own external auditors and the Committee would need to consider its role in the tendering exercise and selection process and possible joint procurement options to achieve best value for money.

·  In relation to the Audit Commission’s wider responsibilities in terms of Comprehensive Area Assessment and the Use of Resources, these processes would have given some level of assurance over governance and performance so the Committee would have to consider whether it was satisfied that the Council’s own internal performance management systems provided the same level of assurance or whether peer reviews or other arrangements would be appropriate.

·  Notwithstanding the uncertainty at the moment, the effective audit of local public services would need to continue and the Audit Commission would seek to maintain high standards in the delivery of audit work and to ensure a smooth transition to the new arrangements.

In response to questions by Members, Ms Hill explained that now that the Audit Commission had ceased all Use of Resources assessment work, it would be a matter for the Committee to decide what level of assurance it required and from whom.  It was suggested that this could be the subject of discussion within the internal audit partnership.

With regard to audit fees, Ms Hill explained that the final position regarding the 2010/11 fees had yet to be confirmed.  Although there would be no Use of Resources assessment, the Audit Commission would still have to provide a Value for Money  ...  view the full minutes text for item 37.

The Committee considered the report of the Head of Internal Audit Partnership setting out details of the 36 projects included in the Internal Audit Operational Plan for 2010/11.  It was noted that:-

·  The planning process for this work would normally involve consultation with clients and a risk assessment of all potential projects.  The Internal Audit Operational Plan for 2010 had not been subject to the full planning process as the current financial year was considered to be a period of transition between the implementation of the four-way Internal Audit Partnership in April 2010 and the creation of the three year Strategic Audit Plan that would be put in place from 1 April 2011.

·  The interim Operational Plan for 2010 had been compiled in consultation with Heads of Service and included a number of projects carried forward from 2009/10, fundamental financial systems which were reviewed on an annual basis, projects which addressed issues or concerns raised by senior management and project areas which had not been subject to audit for three years or more.  It was considered that the process for compiling the Operational Plan for 2010 was reasonable for the transitional year.

·  In practice working across the four partnership sites had been slow to develop due to the need to ensure uniformity of approach and the consistent use of information technology.  It was anticipated that working across the sites would increase during the second half of the current financial year and would be fully implemented in 2011/12.

In response to questions by Members, the Officers acknowledged that the high level of management input required due to the quick roll out of the new partnership arrangements had impacted on the implementation of the Plan, but the situation was being monitored.  They also explained the difference between the control of capital contracts and project management reviews.

RESOLVED:  That the content of the Internal Audit Operational Plan for 2010/11 be noted.

The Committee considered the report of the Head of Internal Audit Partnership setting out details of the significant risk/control issue that had arisen in respect of the fundraising arrangements for the Museum East Wing redevelopment project.  It was noted that:-

·  In January 2010 the Internal Audit Team had carried out a review of the adequacy of controls over the risks arising from the works to the East Wing at the Museum.  The audit had concentrated primarily on the security arrangements for the artefacts, but had also considered the arrangements for fundraising which was about to start in earnest at that time.  It was concluded that the security arrangements for the artefacts provided a substantial level of control assurance.

·  A follow up to the original audit was carried out in August 2010.  It was found that although the majority of the recommendations had been implemented, the level of fundraising had been disappointing and this had created the risk that some of the project objectives might not be achieved and that the Council might become responsible for meeting a higher level of funding than had been anticipated previously.  It was concluded that the control assurance provided by the fundraising arrangements gave only a limited level of assurance.

The Assistant Director of Regeneration and Cultural Services and the Museums and Heritage Manager attended the meeting to explain the background to the project and the fundraising programme, the current position and future fundraising activities.  It was noted that the cost of the project was £3.7m.  A grant of £2m had been secured from the Heritage Lottery Fund and the Council had allocated £400,000 of capital funding for the project, leaving a balance of £1.3m to be found from other sources.  To date, £170,000 had been secured either in donations received or pledges of financial support.  The current economic climate had had an adverse impact on the fundraising programme and this had implications for the Council in terms of funding the remaining cost of the project.

The Committee asked a number of questions of the Officers about the effectiveness of the project management arrangements in respect of the redevelopment of the East Wing, including the fundraising element; the potential mitigation of risk through the Capital Programme, including borrowing; and potential fundraising activities, including the sale of surplus artefacts and the establishment of a trust.

RESOLVED:  That the current position regarding the fundraising arrangements for the redevelopment of the East Wing at the Maidstone Museum be noted and that the Assistant Director of Regeneration and Cultural Services and the Museums and Heritage Manager be requested to report back to the Committee in January 2011 with a detailed update.

The Head of Revenues and Benefits presented the Maidstone and Tunbridge Wells Benefit Security Partnership Annual Report for 2009/10, the purpose of which was to outline the arrangements for the prevention and detection of Housing Benefit and Council Tax Benefit fraud that operated across the two Councils through the Benefit Fraud Partnership and to provide an update in terms of achievement against stated objectives.

The Head of Revenues and Benefits explained that the report included details of the background to the implementation of the shared service arrangements for the delivery of the counter fraud function in relation to Housing and Council Tax Benefit; the staffing structure and governance arrangements; the reduction in the cost of the service achieved through economies of scale; the procedures and practices in place to deter, prevent and detect benefit fraud and error; performance in relation to targets and outcomes; and the sanctions applied depending on the offence committed and the circumstances of the case.

It was noted that:-

·  Whilst the Benefit Fraud Team was unable to investigate all allegations of fraud, referrals were prioritised and sufficient staff resources held to respond positively to those cases requiring investigation.  All other cases were progressed either by referral to the Department for Work and Pensions, enquiry by the relevant benefits assessment team or a home visit.  At this time it was not felt necessary to seek an increase in the staffing level of the Fraud Team.

·  The governance arrangements were considered to be operating effectively with the overall service provision and decision making improved due to the wider shared knowledge introduced through the new structure.

·  The initial business case had projected an operational cost saving in year one of £80,717 on the 2008/09 combined budgets.  A saving of £88,032 had been achieved with an equivalent saving maintained in subsequent years.  The Partnership had been able to deliver the expected financial benefit and the current budget allocated was sufficient to maintain the delivery of the service.

·  A revised table had been circulated setting out details of the fraud/overpayments identified by the Benefit Fraud Team and the projected benefit payment reduction.  Whilst the overall performance of the service remained strong, the level of savings achieved during 2009/10 had been directly affected by the absence of two of the five investigators (maternity leave/long term sickness).

The Committee asked a number of questions of the Officers relating to the apportionment of costs between the two authorities; the availability of data to enable a comparison to be made of landlord/tenant benefit fraud; and the potential to improve the service provided.  Having received replies to its questions, the Committee:-

RESOLVED:  That the progress and effectiveness of the Benefit Fraud Partnership in addressing the risk of Housing Benefit and Council Tax Benefit fraud during 2009/10, as outlined in the Annual Report attached as an Appendix to the report of the Director of Regeneration and Communities, be noted and that the Benefit Fraud Team be thanked for its work in this regard.

The Director of Change, Planning and the Environment attended the meeting accompanied by the Head of Business Improvement to explain the changes which had been made to roles and responsibilities to provide a substantial level of control assurance in respect of the management of minor and major projects.  The Chairman emphasised that Members needed to be reassured that lessons had been learned from the way in which projects had been managed in the past and that there was continuity of responsibility.  It was noted that project sponsors had been appointed at Chief Executive/Director level to oversee the delivery of specific projects and to ensure continuity.

The Committee asked a number of questions of the Officers relating to the management of the Museum East Wing redevelopment project and, in particular, the fundraising arrangements.  The Head of Internal Audit Partnership reminded the Committee that the control of capital contracts would be the subject of an internal audit review in 2010/11.

RESOLVED:  That the changes which have been made to the project management process be noted.

The Director of Regeneration and Communities sought Members’ views on a suggested future work programme for the Audit Committee.  She explained that the role and remit of the Committee had changed significantly over the last year.  It was therefore considered appropriate for the Committee to have a formal future work programme to enable it to discharge its duties effectively.  In addition, the Cabinet had requested that the Audit Committee undertake a review to establish the cost of the Business Transformation Team over the last three years and the savings identified and delivered, categorised by service area.  The review would include work undertaken for the Mid-Kent Improvement Partnership as well as Maidstone specific projects.  Local Government Improvement and Development had been commissioned to review the Audit Committees of all four MKIP Councils.  The outcome of the review would be reported to the November meeting of the Committee and it was proposed that any recommendations arising from the review be incorporated into the future work programme.

RESOLVED:

1.  That agreement be given to the development of a formal future work programme for the Audit Committee.

2.  That the items set out in the draft future work programme circulated at the meeting be endorsed and that Members be requested to submit other topics for inclusion in the programme to the Director of Regeneration and Communities.

3.  That a Sub-Group of the Audit Committee be established to undertake a review of Business Transformation and Mid-Kent Improvement Partnership costs and savings.

4.  That a report on the outcome of the Business Transformation and MKIP review be submitted to the next meeting of the Committee.

5.  That the recommendations arising from the Local Government Improvement and Development review of the Audit Committee be incorporated into the Committee’s future work programme.

The Committee considered the report of the Head of Finance and Customer Services concerning the audit of the Statement of Accounts for 2009/10 and the Audit Commission’s Annual Governance Report.  The Head of Finance and Customer Services drew the Committee’s attention to a number of changes which had been made to the Accounts in the period between their first submission to Members and the External Auditor’s Report and to an amendment which had been made to paragraph 30 of the Accounts since the agenda was published.  This related to post balance sheet events and, specifically, the treatment of the pension figures.  It was noted that:-

·  A number of misstatements had been identified during the course of the audit, and the Officers had made the necessary adjustments.  The more significant of these amendments were listed in Appendix 2 to the Annual Governance Report, but the figure relating to the adjustment in valuation of the Leisure Centre should be amended to read £729,000.

·  The five recommendations arising from the audit were essentially of a technical nature and would be addressed by the Officers.

·  Subject to agreement on a number of minor issues, the Audit Commission planned to issue an audit report which included an unqualified opinion that the financial statements presented fairly the financial position of the Authority along with an unqualified Value for Money conclusion that the Council had adequate arrangements in place to secure economy, efficiency and effectiveness in its use of resources.

The Committee asked a number of questions of the Officers relating to the implications for decision making of fixed assets being over valued in the Accounts; the implications of the introduction of International Financial Reporting Standards; the action being taken to strengthen capacity in the Finance Section; and the need to involve external audit at an early stage in the discussions on the accounting implications of unusual and/or complex transactions.

RESOLVED:

1.  That the Audit Commission’s Annual Governance Report 2009/10, attached as Appendix A to the report of the Head of Finance and Customer Services and as amended at the meeting, be approved.

2.  That the amended Statement of Accounts, attached as Appendix B to the report of the Head of Finance and Customer Services and as amended at the meeting, be approved.

6.30 p.m. to 8.20 p.m.