Agendas, reports and minutes

Minutes of Meeting of the Audit and Scrutiny Committee held in the Council Chamber, Council Headquarters, Glenurquhart Road, Inverness on Thursday, 20 September 2018 at 10.30am.

Present:

Mr G Mackenzie, Mr P Saggers, Mr G Adam, Mr R Balfour, Mrs J Barclay, Mr B Boyd, Mr R Bremner (by VC), Mr J Bruce, Miss J Campbell, Mr A Christie, Mr G Cruickshank, Mrs M Davidson, Mr C Fraser, Mr L Fraser, Mr T Heggie, Mr D Louden, Mr S Mackie, Mrs A Maclean , Mr D Macpherson, Mrs B McAllister, Ms L Munro (substitute), Ms P Munro (substitute), Mrs M Paterson

Non-Members also present:

Mr B Lobban, Mr D Mackay

Officials in Attendance:

Mr D Yule, Depute Chief Executive/Director of Corporate Resources
Mr S Black, Director of Development & Infrastructure
Ms E Johnston, Corporate Audit & Performance Manager
Miss D Sutherland, Corporate Audit Manager
Mr E Foster, Head of Corporate Finance & Commercialism
Mr S Fraser, Head of Corporate Governance
Ms S Campbell, Head of Children’s Services
Mr A Maguire, Head of Development & Regeneration
Mr S Carr, Corporate Performance Manager
Ms S McKandie, Benefits & Welfare Manager
Mr M Bailey, Project Manager
Mr E Boyd, Energy & Sustainability Manager
Mr M Mitchell, Finance Manager
Mrs L Dunn, Principal Administrator
Ms A Macrae, Committee Administrator

Also in attendance:

Mr J Boyd, Senior Manager, Grant Thornton

An asterisk in the margin denotes a recommendation to the Council. 

All decisions with no marking in the margin are delegated to Committee.

Mr G Mackenzie in the Chair

1. Apologies for Absence
Leisgeulan

Apologies for absence were intimated on behalf of Mrs H Carmichael, Mr R Laird, Ms M Smith and Mrs K Stephens.

2. Declarations of Interest
Foillseachaidhean Com-pàirt

There were no declarations of interest.

3. Recess Powers
Cumhachdan Fosaidh

The Committee NOTED that the Recess Powers granted by the Council at its meeting on 28 June 2018 had not been exercised in relation to the business of this Committee.

At this point, the Chair paid tribute to Mr R Laird for his thoughtful, incisive and inclusive approach during his time as Chair and looked forward to his participation in the Committee going forward.

4. Good News Stories
Naidheachdan Matha

Having expressed congratulations, the Committee NOTED that Mrs Yvonne Holmes, Assistant Auditor, had become a Chartered Internal Auditor (CMIIA) with the Chartered Institute of Internal Auditors following successful completion of her final exams.

5. Internal Audit Reviews and Progress Report
Ath-bhreithneachaidhean In-sgrùdaidh agus Aithisg Adhartais

There had been circulated Report No. AS/11/18 dated 11 September 2018 by the Corporate Audit Manager which summarised the final reports issued since the date of the last meeting, together with details of work in progress and other information relevant to the operation of the Internal Audit Section listed below.

The Chair advised that due to a resignation a vacancy would arise in the Internal Audit Team later in the year and therefore it was important for pressure to continue to be exerted to have the Team fully staffed going forward. 

• Care & Learning – Review of the Administration and Payments in Respect of Fostering Adoption and Kinship Care (Substantial Assurance)

In discussion, clarification was sought and provided as to the reason why two debtor invoices issued to recover overpayments had been written off. It was explained the most likely reason was to avoid any financial hardship to the carers depending on their personal financial circumstances and therefore any impact on the children within their care. In response, it was suggested that in addition to the process around overpayments there were wider issues in terms of the adequacy of payments and the demand for foster carers that required to be considered. The Chair provided an assurance that both these matters would be investigated by the Service.

An update was then provided on the ongoing Lean review and measures included in the action plan to reduce the number of overpayments and identify any potential issues at an earlier stage including the introduction of a quarterly reporting system for foster and adoption payments.

Following on from the above, concern was expressed at the additional workload created for staff as a result of technical issues arising from how the Integra and CareFirst systems interfaced.  In response, it was confirmed that a wider piece of work was being undertaken by ICT and Wipro to review how the separate systems in use across the Council interacted and this specific issue would be picked up as part of that review.      

• Care & Learning – Review of School Funds (Reasonable Assurance)

In discussion, it was suggested that the word ‘guidance’ should be replaced with ‘instructions’ in the information to be issued to schools to reinforce the point that this was mandatory.

Further comments, included the need to review the current system to provide more support to the smaller rural schools in relation to banking procedures.  The Head of Children’s Services advised that some of these issues would be addressed in the long term through the Sustainable Education Programme which was considering the administrative support provided to schools.  In the short term she would arrange for the issues raised in respect of rural schools to be considered in more detail.

Thereafter, concern was expressed at the significant number of schools which as at May 2018 had not submitted their audited accounts for review within the required timescale. In response, Members were advised that currently there were only two schools yet to submit audited accounts and there were valid reasons for the delay. Instructions had recently been issued to all schools in relation to the requirements for accounts to be audited and returned on time and staff would continue to follow up on this matter. If there were particular concerns in relation to individual schools there was also the option for audit staff to go out and visit those schools.

The Committee AGREED the word ‘guidance’ be replaced with ‘instructions’ in the information issued to schools.

• Corporate Resources – Use of Purchase Cards (Reasonable Assurance)

In discussion, Members raised the following key issues:-

• clarification was sought and provided on the timescale for issuing the updated User Reference Guidance for purchase cards.
• the fact a quarter of the 20 cards sampled were not compliant with the policy was a serious matter particularly given the level of overall expenditure involved;
• concern that cards could be applied for and obtained without the knowledge of a senior manager in the Service and that not all cardholders required a card and the need for early action to be taken to address these matters;
• the proposed sanction of removing purchase cards from those cardholders not following procedures was not considered to be sufficient;
• concern at the average level of spend on each card and the fact there was no higher level of scrutiny of card purchases to ensure the purchases were necessary for Service delivery. The proposed action that card holders should enter a narrative for each purchase was not considered to be sufficient to address this issue and there was a need for more in depth scrutiny of this matter;
• cardholders should be required to formally acknowledge that they had received and read the User Guide and would comply with the policy; 
• it was suggested that the word ‘guidance’ should be replaced with ‘instructions’ in the User Guide to be issued to card holders, officers and card controllers. The Finance Manager confirmed that this would be taken forward;
• concern at the level of unclaimed VAT being lost to the Council, the fact it was not realistic to expect the full amount to be recovered and at the additional workload involved for staff and the need for early action to be taken to ensure that the relevant receipts were in place in future; and                  
• in terms of value for money, the potential for the card provider to be paid commission to reclaim VAT on behalf of the Council be investigated.       

The Chair requested that in view of the range of concerns expressed by Members a follow up report be submitted to the Committee at the appropriate time.

The Committee AGREED that a follow up report be submitted to the Committee and that the potential for the card provider to reclaim VAT on behalf of the Council be investigated

• Corporate Resources – Review of IT Controls Surrounding Payments to Creditors (Reasonable Assurance)

The Chair reported that the Corporate Audit Manager had confirmed that a list of acronyms would be provided to accompany future reports.

Members commented that in terms of the system limitations and compatibility highlighted in the report it had been confirmed earlier in the meeting that a review was being undertaken by ICT and Wipro in relation to this issue.  In addition, clarification was sought on who controlled the generic user names which had the highest level of access, confirmation being provided that this was the Head of Corporate Finance and Commercialism’s responsibility.

• Corporate Resources – Review of ICT Projects (Reasonable Assurance)

In discussion, there was a request that on completion of the review of the Project Management Policy, further training sessions be arranged for Members. It was also requested that to improve scrutiny, future ICT project update reports to Members include information on the percentage of project completed and percentage of project spend. 

The Committee AGREED that further training sessions be arranged for Members and that future ICT project update reports to Members include information on the percentage of project completed and percentage of project spend.  

• Development & Infrastructure – Affordable Housing (Substantial Assurance)

In discussion, the positive audit report of ‘substantial assurance’ was welcomed as a good news story and the relevant staff commended on the audit opinion achieved. In terms of the action plan, it was suggested that the annual capital project report to Local Committees was inadequate and there was a need for further discussions as to how the Housing Team could report more on housing developments within their areas to ensure local Members were fully informed.  It was confirmed the intention was to formally report to Local Committees on the developments completed in the financial year and the proposed programme for future years. 

Thereafter, it was highlighted that in some areas the infrastructure was not in place to allow for more house building, with specific reference to the Dingwall and Seaforth ward. Further points raised included the potential to speed up the process for the compulsory purchase of derelict properties in the area, the opportunities for more land to be allocated for housing and for any planning constraints in this regard to be considered. In response, it was reported there had been positive discussions with the Scottish Government in relation to funding for additional infrastructure costs. The Housing Development Team worked closely with Planning colleagues to push forward housing developments and traffic modelling was being undertaken in this area. The reality was that there was a limitation of economically deliverable land in the Highlands and this was the challenge going forward.

• Development & Infrastructure – Compliance with the Carbon Reduction Commitment Energy Efficiency Scheme 2016-17 (Limited Assurance)

The Corporate Audit Manager reported that it had been agreed with the Chair that the audit report covering the reporting period 2017/18 would be submitted to the Committee in March 2019.

The Director of Development & Infrastructure apologised to the Committee for the audit opinion of limited assurance for the third year running, and provided an assurance that this would not be repeated going forward. In terms of the action plan, he reported that the two high level priorities had been completed and work was ongoing on the medium priorities, and it was the intention to complete the Lean review by the end of the year.  He advised that the complexity of the scheme was one reason why it was due to be abolished at the end of the current financial year and replaced with the Climate Change Levy.

In response to a question, it was confirmed that the spend on the allowances had exceeded the budget of £0.5m by £5,000.   The CRC allowances purchased in 2016/17 had been overestimated but it was reported these could be offset against the current year’s figures.

In discussion, Members expressed their disappointment with the audit report and the non-compliance with the main requirements of the scheme over a period of three years, and emphasised the importance of this not being repeated for a fourth year. The Leader undertook to write to the Director of Development and Infrastructure asking him to review the processes, management and scrutiny of this area of work.  It was also suggested that the complexities of the scheme should be recognised on this particular issue, reference being made to the range of good work the Team delivered.

The Committee AGREED that the Leader write to the Director of Development and Infrastructure on this matter.   

Thereafter, the Committee NOTED the Final Reports referred to in Section 3.1 to the report and:-

1. APPROVED the addition of an audit to the 2018/19 Audit Plan as detailed at Section 5.1; and
2. NOTED the current work of the Internal Audit Section.

6. Scottish Public Services Ombudsman (SPSO) Annual Report on the Scottish Welfare Fund Independent Review Service 2017/18
Ombudsman Seirbheis Phoblach na h-Alba Ath-sgrùdadh Neo-eisimeileach Maoin Sochair na h-Alba 2017/18

There had been circulated Report No. AS/12/18 dated 7 September 2018 by the Depute Chief Executive/Director of Corporate Resources.

The Committee commended the Council’s Teams for delivering an outstanding level of service to those most vulnerable in the community, and asked that Members appreciation of this work be communicated back to the relevant staff.  The Revenue and Customer Services Team was also commended on its contribution in proactively helping to shape the Scottish Welfare Fund, and for leading by example at a national level, for example through the introduction of a free phone number.  Members also recognised the importance of this work in maximising the incomes of those most in need and tackling poverty in the area.

Discussion then followed on how the Service Delivery Team raised awareness of the Scottish Welfare Fund and reached those most in need. It was explained that the Team was active with the CABx, third sector and a range of health, social work and education professionals who made referrals to the Team, and also was issuing key messages through the Council’s website and on social media.

The Committee NOTED:-

1. the Council’s outstanding 100% performance for processing SWF applications within the statutory timeframes;
2. that from 6,130 SWF applications received by the Highland;  Council, the SPSO received 17 valid requests for 2nd tier reviews (0.3%) and changed the Council’s decisions in seven cases (0.1%);
3. that nationally the SPSO changed 87% of Council decisions at 2nd tier review whilst the change rate for Highland was much lower at 41%. Also, that the SPSO changed 33.4% of their own decisions upon reconsideration;  
4. that the most common reason for changing a decision was that the new information became available after the original decision; and  
5. the pivotal role undertaken by Officers as per paragraph 11.3 within the report.

7. Regulation of Investigatory Powers (Scotland) Act 2000 (RIPSA)
Achd Riaghladh Chumhachdan Sgrùdaidh (Alba) 2000 (RIPSA)

There had been circulated Report No. AS/13/18 dated 12 September 2018 by the Head of Corporate Governance.

The Committee NOTED the Council continued to be a modest user of the powers and that a further report would be forthcoming to the March 2019 meeting.  

8. Six Monthly Review of Corporate Risks
Ath-sgrùdadh Sia Mìosail air Cunnartan Corporra

There had been circulated Report No. AS/14/18 dated 27 August 2018 by the Depute Chief Executive/Director of Corporate Resources.

During discussion an update was sought and provided on those actions which had not been completed by their target date, and in particular around workforce planning on which there should be strong focus given the importance of having the right workforce to deliver services within a diminishing budget. In addition, an update on progress with specific risks under CR7 ‘Climate Change’ and CR9 ‘Safe and Effective Property’ was provided in terms of the target completion dates as set out in the report.  

In response to a question, information was provided on the composition of the Member Budget Group which it had been established to progress both the revenue and capital budgets. It was reported that the Chair of the Group would be seeking to arrange a consultation and update session with the Opposition Groups in the near future.  

Thereafter, it was queried whether a wish list had been compiled in terms of equivalent replacements for the range of existing European programmes given the loss of funding to the Highlands as a result of BREXIT. It was confirmed that a response from the relevant officer would be provided directly to Mr D Louden on this matter.

 The Committee NOTED the:-

1. Corporate Risk Register provided at Appendix 1 and the risk profile at Appendix 2 to the report;
2. that six monthly reviews of the Corporate Risk Register would continue to be reported each March and September to the Audit and Scrutiny Committee.

9. Scottish Public Service Ombudsman            
Cùisean Ombudsman Sheirbheisean Poblach na h-Alba

a. Annual Report of Scottish Public Service Ombudsman (SPSO) Cases determined in 2017/18
Aithisg Bhliadhnail de Chùisean Ombudsman Seirbheis Phoblach na h-Alba air an dearbhadh ann an 2017/18

There had been circulated Report No. AS/15/18 dated 10 September 2018 by the Chief Executive.

The Committee NOTED the outcomes of the SPSO cases which demonstrated an improvement overall in the Council’s performance and the actions that had been taken in response to the Ombudsman’s recommendations.

b. Cases Received by the Council Update Report
Cùisean air am Faotainn leis a’ Chomhairle Giblean Aithisg Ùrachaidh

There had been circulated Report No. AS/16/18 dated 3 September 2018 by the Chief Executive.

The Committee NOTED the outcomes of the SPSO cases and the actions that had been taken in response to the Ombudsman’s recommendations.

10. Audited Accounts 2017/18
Cunntasan Sgrùdaichte 2017/18

There had been circulated Report No AS/17/18 dated 11 September 2018 by the Depute Chief Executive/Director of Corporate Resources.

Members congratulated the Finance Team for their hard work and on achieving an unqualified set of accounts.  

The Committee APPROVED the audited accounts for signature.

11. External Audit Reports       
Aithisgean Sgrùdaidh bhon Taobh A-muigh

The following summarises the external audit reports prepared by the Council’s External Auditors (Grant Thornton) issued since the last Audit and Scrutiny Committee:-

(a) Annual Report 2017/18 to Elected Members and the Controller of Audit 

(b) Letter of Representation

During a presentation on the Annual Audit Report the approach adopted was summarised and, in terms of Key Messages, it was confirmed that the Audit Report on the Council’s 2017/18 financial statements had been unqualified.  This was also the same position for the two charitable trusts administered by the Council.

Key messages included information on issues in relation to the audit of financial statements, financial management, financial sustainability, pension scheme, governance and transparency and value for money.

In this regard, thanks were conveyed to the Depute Chief Executive and Director of Corporate Services and his staff for their help during the audit process. 

In discussion, Members welcomed the strategic and useful nature of the External Audit report and its recognition of the significant financial challenges facing the Council. In terms of the recommendation around strategic leadership, while it was recognised this was a period of transition for the Council in relation to senior management posts, a new Chief Executive had been appointed and further appointments would follow. There was also a continued day to day focus on the challenges facing the Council from Members and officials.

In response to a question, it was confirmed that in terms of the Council being a going concern and managing public expectations, the Member Budget Team was considering a communication strategy by which key messages could be placed in the public domain on the financial challenges facing the Council and the proposals to address those challenges.

Discussion then followed on the Highland Pension Fund and issues around the current investment strategy and ethical debates in relation to the types of investments. It was suggested there was a need to consider the potential for a more innovative approach to be taken so that the Fund was used to invest in infrastructure which would stimulate the Highland economy whilst ensuring the return to the Pension Fund was not to the detriment of other types of investments and that the interests of Fund members was protected.

In regard to the suggestion of using the Pension Fund to invest in infrastructure such as housing, the Depute Chief Executive and Director of Corporate Resources explained that this already happened, albeit through property companies, which generated a rate of return on investment of approximately 10% but the Council could borrow to invest in infrastructure at a rate of approximately 3-4%.  Therefore, it would be cheaper for the Council to borrow to finance such a development than to utilise the Pension Fund.  However, he reminded the Committee that Members had a fiduciary duty to the scheme members to get the best return on investment.  He stressed that the Pension Fund was not a free investment resource which could be utilised; investments had to deliver the best financial return for the fund.  He further highlighted that any potential loss on investments could impact on the level of Employer fund contributions having to be increased which would be an additional cost to the Council revenue budget.

Thereafter, and having thanked the External Auditor for the work undertaken, the Committee NOTED the terms of the report and APPROVED the Letter of Representation for signature.

The meeting ended at 12.30pm.