Agenda and draft minutes

Audit Committee
Thursday, 25th April, 2019 2.00 pm

No. Item


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.


There were no declarations of interest made.


Minutes pdf icon PDF 219 KB

To approve and sign as a correct record, the Minutes of the meeting held on 31 January 2019.


Resolved that the minutes of the meeting held on 31 January 2019, be approved as a correct record and signed by the Chairman.


Public Question Time

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


Under the Council’s Public Speaking Scheme, Alison Brown (local resident) had submitted the following statement and questions:


"In January's Audit Committee meeting minutes it was confirmed that 83.5% of the business rates owed by Alpamare UK Ltd to the Council would be "written off" as part of its Company Voluntary Agreement (CVA). It has been reported online that the sum written off is £107,000. Public money was used to fund the construction of the waterpark so it is not just a regular private company CVA situation.

1) Why did the Council allow such a significant amount of business rates debt arrears to accumulate without taking action?

2) Does the Committee agree that Alpamare's failure to pay this money results in the Borough's other taxpayers (business and residential) subsidising the waterpark once again?

3) The £9 million loan to fund construction of the waterpark was made by the Council to Benchmark Leisure Limited who selected Alpamare UK Ltd as its operator. Should the loan agreement have contained an undertaking and indemnity provisions whereby Benchmark would be liable for any unpaid debts of Alpamare due to the Council?"  

As a resident and council taxpayer, I am appalled that Alpamare has been able to use the CVA process to avoid paying its outstanding business rates.

Lisa Dixon (Director) gave the following responses, on behalf of Nick Edwards (Director and section 151 finance officer):


1)    The Council had taken positive action to recover the amount owed by Alpamare in business rates.  This included sending reminders, issuing final notices and a Magistrates Court summons for which a liability order was granted. Further debt recovery action would have included enforcement agents but this had been superseded by actions taken by the utility companies (largest creditors) to recover monies owed to them. She added that the Council took positive action against all non-payment of business rates which had resulted in 98% of 2018/19 debts being collected in-year.


2)    The Council did not subsidise the Water Park. The loan to Benchmark in respect of the Water Park development was on commercial terms with appropriate securities and guarantees in place protecting the Council. The CVA was a legally binding agreement for the company’s creditors to allow a proportion of debts to be paid back over time. The largest creditors of Alpamare were Benchmark and British Gas. The Council retained approximately 20% of all business rate income collected with the remainder being distributed to Government, North Yorkshire County Council and the Fire Authority. She added that it was also worth noting that the business rates would not have been payable to the Council unless the Water Park had been built. Since opening, over £160,000 had been paid to the Council in business rates.


3)    The loan agreement did not require an undertaking or indemnity provisions whereby Benchmark would be liable as it was a completely separate agreement between the Council and Benchmark.  It did not relate to liabilities of third parties to the Council, e.g. the Water Park operator’s liability  ...  view the full minutes text for item 3.


Audit Progress Report pdf icon PDF 705 KB

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


The External Auditor, Mark Kirkham presented the Audit Progress Report (April 2019) on work reviewing the Council’s controls, financial outlook and wider challenges facing local government. The report looked at other topical areas of interest including changes stemming from central government.


Extensive preliminary testing had taken place before the Council’s final Statement of Accounts (SOA). No issues had been identified but the ongoing objection relating to Whitby Harbour accounts remained. Further information had been received from the objector and checked with national archives. Legal advice would be considered. The process focussed on being robust so no timetable had been set for the final decision concerning the objection.


The progress report also included standard governance questions for the Council to consider and respond to and various links to national publications of interest for local governance.


The External Auditors had also offered to provide a short but comprehensive training session on local government finance and governance in relation to audit roles and assurance scrutiny etc. This would take place before the next meeting (25 July 2019) in the new Council year.


Resolved - that the Audit Progress report be noted and that the External

Auditors would deliver audit and governance training before the next meeting.


Audit Monitoring Report (Q4) pdf icon PDF 112 KB

To consider the report of the Chief Executive (reference 19/321).

Additional documents:


Shan Thistleton, Senior Audit and Corporate Fraud Officer presented the Internal Audit Monitoring report through to Quarter 4 (April 2018-March 2019) which outlined progress with internal audit and fraud work for the year.


She reported that the Audit Plan for 2018/19 had been completed by 31 March 2019 which was a good outcome.


The current status was that five reports had been issued in draft and were with management for consideration and comment.  None of these audits had any significant issues to report.


A further eight recent audits of services had taken place and the final reports issued, of which three were complete resulting in high assurance ratings for Accounts Payable, General Ledger and Treasury Management. Four audits had resulted in substantial assurance, which were for Tax Management (VAT), Local Taxation, the Open Air Theatre and Accounts Receivable. Moderate assurance had given to ICT Incident Management Trials but considerable work had been taking place between ICT and audit recently to address the issues identified


The second part of the report provided the annual assurance statement that all internal audit work had taken place to high professional standards. The final part of the report concerned progress checks on implementation of previous recommendations. Twenty-two of these recommendations had now been completed. Seven recommendations remained outstanding but good progress was being made working with service management and included four with ‘accepted’ risks.


Members referred to the Open Air Theatre (OAT). Three of four recommendations had been accepted by service management but one was outside the service area and had received no management response to date. The audit concerned procurement exemptions. A response to contracts database recommendations was also outstanding. Due to staff issues there had been no response to either audit but assurance was given that work was evolving and the appropriate measures had been taken in relation to the staff involved.


RESOLVED - that the outcomes of the internal audit and fraud work carried out in 2018/19 be noted.



Annual Audit Plan 2019/20 pdf icon PDF 110 KB

To consider the report of the Chief Executive (attached).

Additional documents:


Lisa Dixon, Director presented the Internal Audit Plan for 2019/20 in the absence of the Internal Audit and Fraud Manager. She explained that along with the section 151 officer, Internal Audit and Fraud Manager, they had identified macro level risks for local government and micro level risks for the Council. They had aligned significant risks with Internal and External Audit work planning. The Internal Audit Plan sat adjacent to the Annual Governance Statement (AGS) which was also risk-based and ensured key controls were in place etc. Wider evolving work included reviewing corporate governance and policies across the Council. Working groups were in place for developing governance and ensuring the Constitution was ‘fit for purpose’ etc. An external ‘health check’ would also take place regarding the Council’s corporate governance as a whole. It was noted that the Internal Audit Plan was subject to change dependent on the Council’s emerging priorities and risks.


Resolved - that the Internal Audit plan for 2019/20 be endorsed and corporate governance updates be added as a standing item for the Audit Committee’s Work Programme.



Commercial Property Investment Strategy - Update

To consider a verbal report from the Director (Richard Bradley).


Richard Bradley, Commercial Director presented an update on progress with pursuing the Council’s Commercial Property Investment Strategy (CPIS) following the purchase of the Scarborough Travelodge premises in 2018.


He outlined the wider economic picture that nationally investment had significantly declined. This was due to a number of factors affecting confidence, in particular the uncertainty over the departure from the EU (‘Brexit’). In the North West, the decline had been particularly notable with 60% less investment. However, there were exceptions including the Yorkshire and Humber (Y&H) which had increased by 3%. This was probably down to the size and nature of specific investments, e.g. in the Y&H region investments tended to be smaller scale with investors more inclined to take a proportionate risk. Some investors were also waiting for the optimum moment.


The latest quarter (April-May 2019) nationally had seen an increase compared to the same quarter in 2018 although this was driven by certain sectors, e.g. storage facilities and distribution which were robust partly due to the uncertainties (manufacturers ‘stockpiling’ goods). Richard Bradley explained that interest had been explored in a recent opportunity in this growth sector but following consideration of covenant restrictions and potential risks, it was felt that the opportunity didn’t comply with the CPIS framework.


He relayed that numbers of investment enquiries to the Council had dropped. Members queried this impact given that strategic asset investment returns were designed to help maintain services etc. through income generation. They wondered if the CPIS needed reviewing and whether income targets would be met. Richard Bradley re-iterated that the current position would change and that the underlining strategic approach was still sound so good opportunities needed to be pursued as they arose. He added that the CPIS sought to achieve saving returns in the region of £600k by the end of 2021 and the Travelodge investment had yielded £328k, over 50% of the corporate target. He advocated keeping the CPIS under review and possibly broadening its scope. As well as the Council making investments, more consideration needed to be given to ‘stream 2’ i.e. the Council’s existing assets. Richard Bradley was confident that the Council would achieve the targets set in the CPIS.


Members referred to the review of the Local Enterprise Partnership (LEP) and needing to maximise opportunities. Richard Bradley confirmed that there was strong interest in the LEP and good working with partners. Several million pounds inward investment had been secured over the last year. Infrastructure projects often posed the highest risk so more focus might be needed for projects that were ready to commence. It was important for the Council to influence the LEP Board as a whole and ensure the Borough got a fair return.


Members noted investment market issues and supported the CPIS approach.


Resolved - that the report be noted. 


Scarborough Spa Stabilisation Scheme - Update

To consider a verbal report from the Director (Lisa Dixon).



Lisa Dixon, Director referred to the significance of the Scarborough Spa Stabilisation Scheme which was one of the Council’s major projects and involved considerable risk management. Risks were inevitable with a project of this size and complexity. Members were assured that that there had been no major issues to date other than notified compensation events in accordance with the contract’s terms and conditions. Good progress was being maintained with the project over 75% complete and on track to complete in late 2019.


A comprehensive report would shortly be considered at the Major Projects Board with the Environment Agency attending. Following this, a detailed report would be submitted to the next meeting of the Audit Committee. In the meantime, the Audit Committee’s Risk Champion (for coastal protection), Councillor David Chance would be kept informed of progress.


Resolved - that the detailed report on progress with the Scarborough Spa Stabilisation Scheme be deferred to the Audit Committee’s meeting in July 2019.


Building Security - Update

To consider a verbal report from the Director (Nick Edwards).


The ICT Manager, Greg Harper, gave an update on progress made with the Smart Access Control technology project for enhancing secure access to the Council’s buildings. 


He reported that Phase 1 of the system was successfully launched on 9 April 2019. The Town Hall and King Street offices were now only accessible by Members, staff and partners using a new smart pass. Access to the Town Hall for pass holders was through the upper car park side door or Print Plus entrance. Since the April launch, over 18,000 successful uses of the passes had been made. Temporary passes had just been issued twelve times by the ICT Service Desk for people who had not brought in their passes.


Some remedial work to remove old door furniture and make good was ongoing. The primary objective of the project was to improve safeguarding and security, e.g. to remove digital numeric pads. An additional benefit had been achieved allowing staff to use council printers and copiers using their new pass rather than typing in a PIN code. Feedback on the new system had been very positive particularly for the simplified printing capability.


Liaison with Internal Audit had begun to ensure access permissions were regularly reviewed to ensure the system remained properly controlled.


Work was ongoing to enable management at Dean Road Depot to service their smart passes and integrate with a vehicle barrier which would be installed later in 2019 as part of the Depot modernisation scheme.


Greg Harper reported that the project was now focusing on Phase 2 to reconfigure the Town Hall front door foyer and Civic Reception area to allow pre-booked visitors a self-service facility when they arrived at the foyer, with the public etc. continuing to go through Customer First.


He added that the Civic area, including democratic areas of the Town Hall, were Listed so any works had to be appropriate to the surroundings. Project staff had worked with the Council’s Conservation Officer on the foyer layout to ensure no damage or detriment to the internal structure. The general layout of the foyer had been agreed in principle and the hardware was ready to be ordered, delivery took around three weeks. Internal CCTV was being improved in Customer First and the Civic area (foyer and corridor) with options to extend into the rooms off the Mayoral corridor. 


Greg Harper concluded that the project team was liaising with suppliers to agree a deployment schedule. Dates for the completion of Phase 2 would then be communicated to customers. The front doors of the Town Hall would then be re-opened.


Some members expressed concern that a fully automated reception was unusual for a local authority and that some human presence might be preferable. Greg Harper acknowledged this and added that all options had been considered and the effectiveness of self-service systems elsewhere. The proposed approach was challenging but would be monitored. Essentially it was for pre-booked visitors and the public etc. would still access services through Customer First.


Resolved -  ...  view the full minutes text for item 9.


Annual Governance Statement 2018/19 pdf icon PDF 109 KB

To consider the report of the Director (Lisa Dixon) (attached).


Additional documents:


Lisa Dixon, Director presented the Annual Governance Statement (AGS) 2018/19 which formed a key part of the Council’s Statement of Accounts. The AGS aimed to provide assurance that the Council had robust systems and controls in place to manage its decision-making and services providing value for money etc. The AGS would be complemented by the wider ongoing review of corporate governance which was referred to under the Annual Audit Plan. The AGS was also underpinned by a more detailed Local Code of Corporate Governance.


She explained that an officer working group reviewed the range of risks faced by the Council and mitigation actions etc. Some risks were ongoing such as major projects and financial pressures. The main new risk was the Corporate Property Investment Strategy.


Members referred to capital spending, e.g. for major projects, and the governance underpinning this had been updated. They were informed that this had last been updated 18 months ago so would be reviewed.


Resolved - That the:


1.    Governance of capital spending for projects etc. be reviewed.


2.    Annual Governance Statement be endorsed to form part of the Statement of Accounts 2018/19.


3.    Draft Local Code of Corporate Governance be recommended to Council for approval.



Work Programme pdf icon PDF 62 KB

To consider the attached Audit Committee Work Programme (reference 19/089).


The Committee considered its Work Programme for 2019/20. Members noted wide concerns across councils in the region over value for money and other issues relating to Welcome to Yorkshire which was due to undertake its own investigation. The Council would review its own position following conclusion of those investigations. Lisa Dixon, Director explained that she understood the £150k was a hosting fee paid to the French organisers of the Tour de France (as the parent of the Tour de Yorkshire).


The Chair noted that due diligence had taken place but it would be useful to review the Council’s relationship and value for money etc. at the next meeting. He added that the Leader and Chief Executive had been attending meetings with other councils in the region at which the issues concerning Welcome to Yorkshire had been discussed. All relevant information needed to be considered and in the public domain as would be the case with any partnership working of the Council.


Resolved - that the Audit Committee’s Work Programme for 2019/20 be approved as presented subject to the addition of the following: ongoing review of corporate governance be added as a standing item; governance of capital spending be considered at a future meeting; and the Council’s relationship with Welcome to Yorkshire and value for money be considered at the next meeting in July 2019; and an informal training session on audit and governance from the External Auditor before the next meeting.