Agenda and draft minutes

Audit Committee
Thursday, 31st January, 2019 2.00 pm

Venue: Council Chamber, Town Hall, St Nicholas Street, Scarborough, YO11 2HG

Contact: Sandip Mahajan  Democratic Services Officer

Items
No. Item

1.

DECLARATIONS OF INTEREST pdf icon PDF 43 KB

Members are reminded of the need to consider whether they have a disclosable pecuniary, prejudicial or other (personal) interest to declare in any items on this agenda.  Details of any interest must be declared at the start of the meeting or as soon as possible.  The attached form must be completed. Any advice required should ideally be sought before the day of the meeting.

 

Minutes:

There were no declarations of interest made.

2.

MINUTES pdf icon PDF 109 KB

To approve and sign as a correct record, the Minutes of the meeting held on 18 October 2018.

Minutes:

Resolved that the minutes of the meeting held on 18 October 2018 be approved as a correct record and signed by the Chairman, subject to an amendment (General Data Protection Regulation item) that there had only been one significant data breach (not two) and which was appropriately reported to the Information Commissioner’s Office. The other data item was simply a sizable subject access request.

3.

PUBLIC QUESTION TIME

Public questions of which due notice has been given and which are relevant to the business of the Audit Committee.

Minutes:

There were no public questions received although the Chair reported that two questions had been submitted for consideration by the Overview and Scrutiny Board concerning the Benchmark / Alpamare developments in Scarborough. In view of meeting timing, it was felt that responses to the questions could be best provided at the Audit Committee within a verbal update (item 13). The respondent was present and content with this approach.

4.

RESULTS OF CERTIFICATION WORK 2017-18 pdf icon PDF 637 KB

To consider the External Auditors’ report about the certification arrangements for specified claims and returns.

Minutes:

The External Auditor, Mark Kirkham, Mazars Ltd., reported on the results of grants (subsidies) certification work 2017-18. This concerned specific grants administered by the Council for which costs were reclaimable from the Department for Work and Pensions or administration returns were required, in this case only the Housing Benefit Subsidy return was required.

 

Reclaimable costs and returns were subject to the results of the certification work which checked the accuracy of payments made to claimants. He explained that errors were common for all councils given complexities and manual elements of the system.

 

However, the level of errors was tiny in amount and tiny in proportion to the size of the grant. Although this still required a ‘qualified’ view, he highlighted that this was an impressive performance.

 

Resolved - that the results of the grant certification work for 2017-18 be noted and staff be commended on the accuracy of their work.

 

5.

AUDIT PROGRESS REPORT pdf icon PDF 716 KB

To consider the External Auditors’ report on progress made in delivering their responsibilities to the Council, and on key emerging national issues and developments which may be of interest. 

Minutes:

The External Auditor, Mark Kirkham presented the latest Audit Progress Report dated January 2019 on the financial outlook and wider challenges facing local government plus other topical areas of interest including changes stemming from central government. The financial challenges were well known and the Council was well prepared to meet these.

 

The Director, Nick Edwards, highlighted three areas of interest in the report: housing and homelessness; financial resilience and commercial strategies.

 

He reported that housing & homelessness issues were increasing nationally. The Council has undertaken a recent peer review to test its approach and learn any lessons. The review outcomes had endorsed the Council’s work and a refreshed draft Housing and Homelessness Strategy would be considered by the Overview and Scrutiny Board at its meeting on 6 March 2019.

 

He explained that financial resilience was a new approach in its infancy developed by the Chartered Institute of Public Finance and Accountancy (CIPFA) whereby local authorities would be benchmarked using a resilience index. This followed the failure of Northamptonshire County Council but most authorities were struggling to meet the resilience test. Financial resilience was considered in more detail later in the meeting (item 9).

 

Nick Edwards referred to CIPFA’s caution that whilst councils needed to consider commercial investment opportunities this needed to be done with robust risk assessments, i.e. not becoming overly reliant on anticipated investment returns. He added that the Council also considered wider investment benefits, e.g. social value and regeneration opportunities.

 

He reported that the Council, as part of the area’s Local Resilience Forum, was working on post-Brexit planning & mitigating risks. He was leading on this supported by the Operations, Transport & Parks Manager, Paul Thompson.

 

Resolved - that the Audit Progress report be noted.

6.

AUDIT STRATEGY MEMORANDUM - 2018-19 pdf icon PDF 904 KB

To consider a report of the External Auditor summarising the external audit approach, highlighting significant audit risks and areas of key judgements.

Minutes:

The External Auditor, Mark Kirkham presented the Audit Strategy Memorandum for 2018-19 which summarised the approach to auditing the Council, i.e. the audit work plan. This included consideration of significant audit risks and areas of key judgements & assumptions made. The significant risks remained the same as the previous year with no new risks identified.

 

The Strategy also covered how the Council’s use of resources was assessed as part of delivering a value for money opinion. It had still not been possible to conclude this as an outstanding objection from a local elector (resident) remained to the accounts for 2015/16, 2016/17 and 2017/18.

 

This had raised complex issues including legal which had been taking significant time to resolve such as accessing historical information and consulting national bodies as matters of potential wider interest had been raised. Council officers had provided all requested information concerning the objection so there was no delay due to the Council.

 

The elector had recently submitted a further issue with reference to what constituted Whitby Harbour land. The elector felt the Council had been mistaken in its interpretation of the harbour land. Further evidence had been requested from the elector. Mark Kirkham did not know if the elector had been given a timescale within which to submit their evidence. Subject to that, if the Auditor felt that all issues had been resolved then the final opinion could be issued. He had previously reported that subject to resolving the issues, he would be expecting to give an unqualified (satisfactory) opinion on the accounts with no material changes required.

 

Resolved - that the report be noted.

7.

ANNUAL AUDIT 2017/18 - UPDATE ON WHITBY HARBOUR ACCOUNTS

To consider a verbal report from the External Auditor on progress with resolving the Whitby Harbour accounts.

Minutes:

This item had been covered in detail through the Audit Strategy Memorandum discussion (item 6).

 

8.

AUDIT MONITORING REPORT (QUARTER 3) pdf icon PDF 110 KB

To consider a report of the Chief Executive (reference 19/35).

Additional documents:

Minutes:

The Audit and Fraud Manager, Alison Johnson presented the Internal Audit Monitoring report through to Quarter 3 (April-December 2018) which outlined progress with internal audit and fraud work for the year to date.

 

Five audits of services were underway / at draft stage which were Accounts Receivable; the Depot Capital Project; Enforcement; Open Air Theatre and Treasury Management. Two audits had recently been finalised for Tax Management (VAT) and Local Taxation.

 

Five audits had been fully completed with recommendations agreed. Three had resulted in either high or ‘substantial’ assurance opinions. These were Housing Benefits; Income and Payroll services.

 

One moderate assurance had been given for management of the Filey Brigg Caravan Park. However, this was due to the number of recommendations (nine) none of which raised significant concerns and most required actions had been completed. Members requested a written update on implementation of the remaining recommendations for the Caravan Park.

 

One audit had resulted in a limited assurance for the operation of Whitby Market which included outstanding recommendations from the last audit. The audit had since been complemented by the Regeneration Service undertaking a full review of operations and performance. Most audit recommendations had now been progressed with the remaining due to be actioned. 

 

Alison Johnson explained that every six months, progress was reported on outstanding actions to audit recommendations from previous years. There had been 37 recommendations outstanding from 2016-17 and 2017-18 of which 16 still remained. However, most service responses were positive with actions being progressed, in some cases actions/timetables had been revised in agreement with Internal Audit.

 

Full management feedback had not been received on the Contracts Database audit (six outstanding recommendations). Legal Services had suggested that the timetable might need revising to April 2019. Members expressed concern with the lack of feedback and queried whether the outstanding actions affected integrity of the database information.

 

The Director, Lisa Dixon explained that the database was in development when the audit was being undertaken and incorporated all key elements of contracts, e.g. deadlines, performance indicators. It was a big improvement on the paper-based approach as part of corporate modernisation. 

 

Members acknowledged the enhanced system but were still disappointed that service management feedback had not given on the audit findings. They requested that the Service Manager be invited to the next meeting to explain the lack of response to the Audit review.

 

Resolved - That the:

 

1.    Outcomes of the internal audit and fraud work carried out in the year to date for 2018/19 were noted.

 

2.    Service Manager responsible for the Contracts Database would be invited to the April 2019 meeting to explain the lack of response to the Audit review. 

 

3.    Audit and Fraud Manager was requested to provide a written update on implementation of the remaining recommendations for the Filey Brigg Caravan Park.

 

9.

REVIEW OF RESERVES AND FINANCIAL RESILIENCE pdf icon PDF 156 KB

To consider the report of the Director (Nick Edwards) (reference 19/xx).

Minutes:

The Corporate Finance Manager, Kerry Metcalfe presented the report on review of reserves and financial resilience. She explained that this covered how the Council managed financial risk, governance arrangements in place and ensuring robust and appropriate levels of reserves.

 

She referred to financial resilience and CIPFA’s new index which sought to use information requested from councils for benchmarking how financially robust each council was individually and comparatively. CIPFA was raising the profile of financial sustainability following the issuing of a section114 spending control notice from Northamptonshire County Council.

 

The index took into account various factors such as levels of reserves, reliance on (diminishing) direct funding from central government etc. which would allow financial ‘alerts’ to be raised. However, there were risks that the performance indicators could be misleading if not considered in context, e.g. no recognition of links between using capital investment to generate more robust revenue. The Council had capital development reserves which included £14.1million earmarked for approved capital schemes, i.e. might appear to be diminishing reserves but would be released for planned growth. Furthermore the Council had a strong record in achieving savings etc. These flaws in CIPFA’s methodology could make the Council look less resilient than it actually was.

 

Kerry Metcalfe referred to the £2.5million balance in the General Fund Reserve which was at an optimum level although placed the Council relatively low on CIPFA’s index in terms of reserves as a proportion of revenue budget. However, the Council was less reliant now on government funding than many other councils. 

 

The five corporate reserves, as detailed in the report, were also at good levels with the Investment Fund benefiting from a top-up from the Pension Reserve which had spare resource.

 

The Government was undertaking a ‘Fair Funding’ review which it had been hoped would allow better support for coastal, rural, deprived areas etc. However, consultation papers proposed taking deprivation assessments take of the funding formula which would significantly impact upon the Council as would proposed full business rate baselines for local growth which would yield less growth return for the Council. There was a risk that these factors would result in a lower funding settlement. In view of this uncertainty, £0.5million had been added to reserves as a contingency.

 

Members queried what the External Auditor’s view was on local reserves and resilience. Mark Kirkham explained that an audit opinion could only be given robustly after all relevant information had been considered. However, he added that the picture given tallied with his provisional views.

 

Members noted the levels of reserves as robust and that there could be potential to reduce some levels. They queried what funding sources would be used to top-up reserves. They were informed that annual reviews allowed for effective budgeting of reserves and any necessary replenishing.

 

Members requested that the report was circulated to all Council members for information.

 

Resolved - that the outcome of the review of reserves, assessment of financial resilience and predetermined reserve ranges to be maintained in line with levels set  ...  view the full minutes text for item 9.

10.

KEY RELATIONSHIPS - FINANCIAL STANDING pdf icon PDF 171 KB

To consider the report of the Director (Nick Edwards) (reference 19/19).

Minutes:

The Accountancy Manager, Neil Hughes, presented the report on the financial position and stability of key relationship partners.

 

The Council was required to monitor the financial performance (accounts) and financial standing of its key contracts & partnerships. This allowed the Council to identify where any major partners were not managing finances adequately, risks of contract or partnership activities failing and whether the Council might need to provide additional financial contributions to support the relationship. Operational performance was reviewed separately through service level agreements.

 

The report gave a brief background to each organisation, relationship with the Council including any financial support, any other matters of interest with an assessment of its financial position, prospects & any potential Council support required including need for the Council to take over operational management.

 

The relevant organisations were:

 

·         Scarborough Museums Trust (SMT)

o   Forecast direct grant support of £517k to SMT for 2018-19

o   Saving of £100k proposed for Council’s draft budget 2019-20

o   SMT in merger talks with Creative Industries Centre Trust (CIC) with mutual financial benefits expected  

o   No financial or other issues expected (impacting upon the Council)

 

·         Creative Industries Centre Trust Limited (CIC)

o   No financial involvement from Council, CIC expected to break even,

o   No financial or other issues expected (impacting upon the Council)

 

·         North Yorkshire Procurement Partnership

o   Partnership of the Council and Selby & Ryedale District Councils

o   Robust reserves and funding arrangements

o   Selby due to leave the Partnership which is likely to then cease (possible informal partnership with Ryedale & Craven Districts)

 

·         North Yorkshire Building Control Partnership

o   Good financial performance accumulating in robust reserves, £178k

o   Coupled with improving construction / housing sector activity

o   Based on the current picture, no financial support requests forecast

 

·         SIV Enterprises Ltd / SEL (part of Sheffield International Venues Ltd)

o   SEL manage three facilities/sites, mixed performance

o   Some Council funding through a service level agreement (SLA)

o   No financial risk to the Council as the parent company of SEL would need to cover any financial shortfalls

o   Main risks to Council would be needing to provide operational management of sites if SEL were unable to or requests for additional SLA funding

 

·         Sports and Leisure Management Ltd (SLM)

o   SLM manage facilities/sites, acceptable performance, no concerns

o   Some Council funding, no financial risk to the Council

o   Main risks to Council would be needing to provide operational management of sites if SLM were unable to

 

·         YORhub

o   Construction and other frameworks management organisation founded by the Council and three other authorities

o   No Council funding but responsible for 25% losses if YORhub failed

o   Robust reserves threshold of £750k exceeded with Council gaining £125k of surplus in 2018-19, no funding requests expected

 

Members queried any staff impact due to the expected termination of the formal North Yorkshire Procurement Partnership with Selby District Council leaving. They were informed that there would be no direct impact and work was already going on supporting Craven District Council.

 

Members queried the sizable financial returns and activity of  ...  view the full minutes text for item 10.

11.

BUILDING SECURITY

To consider a verbal report from the Director (Nick Edwards) on progress with building security.

Minutes:

The ICT Manager, Greg Harper, gave the latest update on progress made with the Smart Access Control technology project for improving secure access to the Council’s buildings.  He had previously given details of the project aims and content to the Audit Committee in July and October 2018.

 

Staff and members would be able to access Scarborough Town Hall, and, subsequently, Dean Road Depot buildings and associated car parks using smart technology which would be centrally controlled. Visitors with pre-booked appointments would also be able to print temporary identification (ID) badges and be met and accompanied into the buildings by officers who they were meeting.

 

There had been some delay due to contract negotiations but work was progressing swiftly. Since mid-January 2019, contractors had been on-site, installing network points, cables and the server etc. Door controllers were in place for half the doors with the rest to be completed from early February 2019. The new software system was being configured, as were new badge and printer systems. The focus of the current work was on the Town Hall office spaces, with planning for the civic reception and front door foyer areas also progressing swiftly.

 

The broad timetable was for installation, configuration and testing work at the Town Hall to be completed and Smart Pass ID badges to be produced for Members and officers during March 2019. It was intended that following successful reconfiguration of the Town Hall civic reception and front door foyer areas, the Town Hall front doors would be opened during April 2019.  The Dean Road Depot solution would be implemented later in 2019, in line with the overall Dean Road works project plan.

 

In response to questions, he explained that delivery arrangements would be considered taking into account external and internal door access. The project team were liaising with Print Plus on this.

 

Greg Harper added that three members (Building Security Champion, ICT Portfolio Holder and Audit Committee Chair) had been invited on a guided tour of the building to see the works in place and being progressed. He was happy to arrange tours for any other members upon request.

 

Resolved - that the report be noted. 

12.

RISK MANAGEMENT - SERVICE RISK REGISTER (DIRECTOR LISA DIXON) pdf icon PDF 124 KB

To consider the report of the Director (Lisa Dixon) (reference 19/32).

Additional documents:

Minutes:

The Director, Lisa Dixon, presented the Service Risk Register for her Directorate. There were service risk registers for all four directorates which the three Directors and Chief Executive individually presented.

 

Robust risk management was important as part of good governance including use of tools such as the risk matrix to help deliver corporate priorities.

 

The matrix was on an A-E likelihood scale of an event occurring, with A being ‘very low likelihood’ through to E as the highest likelihood of ‘almost certain’. The matrix also had a 1-5 impact scale should an event occur with 1 being ‘low impact’ through to 5 as the highest impact of being a ‘disaster’.

 

Lisa Dixon explained that risk management as part of good governance was also supported through a dedicated Corporate Projects Advisor role who led on developing robust governance and acted as the Senior Risk Information Owner (SIRO).

 

Some risks were in service risk registers as well as the Corporate Risk Register. The example of protecting resources was given, e.g. legal staff skills meant that the provision of external income supported the employment of more specialist solicitors rather than a small team of more general practitioners leading to a better service for the Council.

 

The Director added that an evolving column had been added to the Risk Register of ‘insurable risk’. Some risks could be insured against whilst for other risks the Council ‘self-insured’ and this information needed to be captured so effective financial planning could be made.

 

She explained that the current risk management system was a manual tool but in due course the Council would be looking towards dynamic software which would be more efficient and useful.

 

Lisa Dixon referred to the six risks, of twenty-one risks on the register, which scored ‘red’, i.e. high risks needing effective mitigation actions. Five of these had relevant mitigation actions which would reduce risk. The sixth action (major incident at a large event at the OAT) had been mitigated against but retained inherent risk by way of its nature.

The six high risks, which had various mitigation actions, were:

CPS1 - Lack of specialist resource to manage and monitor major projects.

G2 - Continued financial pressure resulting in inability to deliver services;

G7 - Difficulty to recruit and retain appropriate staff.

G10 - Failure to meet requirements of General Data Protection Regulations

OVM2 - Major incident arising at a large event

PAM1 - Loss of income when Local Land Charges function transfers to Land Registry (not proportionate to retained workload)

 

She gave examples of some risks and actions:

 

CPS1 - Lack of specialist resource to effectively manage and monitor major projects. These were part of the Council’s ambitious capital programme such as creating coastal defences. Specialist legal advice was supporting this work. 

 

CPS2 - Constitution becomes out of date and does not reflect processes. A Constitution Working Group had been created to carry out a review of the Constitution.

 

ERM1 - Failure to provide adequate Cemetery Provision within the Borough. This was a  ...  view the full minutes text for item 12.

13.

ALPAMARE WATERPARK AND RISK ASSURANCE

To consider a verbal report from the Director (Nick Edwards) on the Alpamare Waterpark scheme and risk assurance.

Minutes:

The Director, Nick Edwards, gave a verbal update concerning the aims, plans, works and progress of the Sands Development which included the Water Park. This was to provide assurance that the Council continued to ensure that the developer would deliver the original aims and that effective risk assurance monitoring was in place to manage any issues. He added that he was happy to speak to any members direct who were interested.

 

Members were informed that a member of the public had submitted two questions, originally to the Overview and Scrutiny Board, but in view of meeting timings, the Audit Committee was in a better position to receive these questions and update on all issues. This was acceptable to the resident who was present.

 

The questions submitted were:

 

a) Following the news of a winding up petition being filed against Alpamare UK Limited would the Overview and Scrutiny (O&S) Board be investigating the implications for the repayment of the £9million publicly funded loan to Benchmark Leisure?

 

b) Despite featuring on Alpamare's website and publicity map of the waterpark since July 2016, the wellness spa has still not been completed and opened. There have been a series of delays to Benchmark Leisure's timetable for the North Bay multiplex cinema, restaurants, apartments complex (originally scheduled for autumn 2018, then Easter 2019, now spring 2020). The latest planning application has fewer cinema screens & restaurants but more private apartments. Would the O&S Board be investigating whether, if Benchmark could not complete a small wellness spa in 2.5 years, they could realistically build the cinema, restaurants, apartments complex in one year? 

 

A map of the Sands development was displayed on screen and Nick Edwards referred to a detailed timeline (attached to the minutes) covering the full history of the origins of the development to the present day.

 

Origins and aims of the Sands development

·         Original development agreement with Benchmark Leisure completed in 2002 and provided for the development of an area known as the Sands located at North Bay, Scarborough, update focused on 2009 onwards

·         Fifty-five acres of land for development as a major tourist destination for the Yorkshire coast providing a range of tourist attractions, commercial development and accommodation  ‘Principal visitor attraction’ component, primarily Open Air Theatre (OAT) and Waterpark

·         Parallel complementary development around Peasholm area

 

Phased development

·         Number of development phases (Cabinet/Council approval for each stage as appropriate)

·         Payment to the Council for land value on  each completed phase of development

·         Land value based on £100k per acre or £1million for first phase  

·         First phase delivered - development of apartments/flats (some sold/rented), commercial units (some sold/rented)

·         Surplus receipts from the first phase (£3.25million) funded OAT development

 

Change of Benchmark ownership (2011)

·         Owner of Benchmark changed, re-focused phased development stages to concentrate on delivery of the Waterpark first then the rest of the development site

 

Waterpark funding and main loan conditions

·         Full Council approved the main loan sum of £9million to Benchmark for the development of the Waterpark. 

·         Benchmark invested another £5million  ...  view the full minutes text for item 13.

14.

WORK PROGRAMME pdf icon PDF 58 KB

To consider the Audit Committee’s Work Programme (reference 19/25).

Minutes:

The Committee considered its current Work Programme for 2018/19.

 

RESOLVED - that the Audit Committee’s Work Programme for 2018/19 be approved as presented.

15.

Sands Timeline appendix to item 13 (Alpamare Waterpark and Risk Assurance) pdf icon PDF 84 KB