Agendas, reports and minutes

Minutes of Meeting of the Audit and Scrutiny Committee held in the Council Chamber, Council Headquarters, Glenurquhart Road, Inverness on Wednesday 27 March 2019 at 10.30am.

Present:
Mr G MacKenzie, Mr P Saggers, Mr G Adam, Mr R Balfour, Mr B Boyd, Mr R Bremner (by VC), Mr J Bruce, Miss J Campbell, Mrs H Carmichael, Mr A Christie, Mr G Cruickshank, Mrs M Davidson, Mr C Fraser, Mr L Fraser, Mr T Heggie, Mr D Louden, Mr S Mackie, Mr A Mackinnon (substitute), Mrs A MacLean, Mr D Macpherson, Mrs B McAllister, Mr H Morrison, and Ms M Smith.

Non-Members also present:
Mr A Henderson (by VC)
Mrs G Campbell-Sinclair
Mr R MacWilliam
Mrs T Robertson
Mr A Sinclair

Officials in Attendance:
Mrs D Manson, Chief Executive
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 T Urry, Head of Roads and Transport
Mr F Macdonald, Head of Property Services
Mr J Robertson, Programme Manager City Region Deal
Ms M Grigor, Finance Manager 
Mr S Carr, Corporate Performance Manager
Mr A Webster, Regeneration and Employment Team Leader
Mr J Campbell, Senior Auditor
Mrs L Dunn, Principal Administrator
Ms A Macrae, Committee Administrator

Also in attendance:
Ms J Boyd, Senior Manager, Audit, 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 J Barclay, Mr R Laird and Mrs M Paterson. 

2. Declarations of Interest
Foillseachaidhean Com-pàirt

The Committee NOTED the following declarations of interest:-

Item 3: Miss J Campbell, Mr A Christie, Mrs A Maclean, Mr R MacWilliam and Ms M Smith (non-financial)

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

Declarations of Interest – Ms J Campbell, as a member of the Inverness Townscape Heritage Project,  Mr A Christie as General Manager of Inverness, Badenoch and Strathspey Citizen’s Advice Bureau, Mrs A Maclean as a Director of Ross-shire Women’s Aid, Ms M Smith as Company Secretary and Board Member of Albyn Housing Society and Mr R MacWilliam as a member of the Inverness Townscape Heritage Project Grants Sub-Committee declared non-financial interests in this item but, having applied the test outlined in Paragraphs 5.2 and 5.3 of the Councillors’ Code of Conduct, concluded that their interests did not preclude them from taking part in the discussion.

There had been circulated Report No. AS/1/19 dated 18 March 2019 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. 

The Committee RESOLVED that, under Section 50A(4) of the Local Government (Scotland) Act 1973, the public be excluded from the meeting during discussion of the following final report: Item 3(a): Compliance with the Carbon Reduction Commitment Energy Efficiency Scheme (CRCEES) 2017-18, on the grounds that it involved the likely disclosure of exempt information as defined in Paragraph 1 of Part 1 of Schedule 7A of the Act 

(a)    Development & Infrastructure – Compliance with the Carbon Reduction
Commitment Energy Efficiency Scheme (CRCEES) 2017-18 (Limited Assurance)

The Committee NOTED that a review of scrutiny processes was being undertaken by the Chief Executive and a report would be submitted to a future meeting of the Committee.

Following detailed discussions, the Committee AGREED that a follow up report be submitted to the Committee at the appropriate time.

Thereafter, the Corporate Audit Manager presented the main Internal Audit Reviews and Progress Report during which she advised that it was anticipated a systems weaknesses report on the theft of petty cash would be presented to the Committee in June 2019.

In discussion, concern was expressed at the vacancies which existed in the Internal Audit Team and the impact on progress against the 2018/19 audit plan. The Chair provided an assurance that following discussions with the Budget leader he was confident that the recruitment process would move forward timeously. 

In response to a question, it was confirmed that the position around the requirement for additional staff resources for Corporate fraud activity and investigations was being monitored and the Chair had also discussed the matter with the Budget Leader. 

The final reports were then presented as follows:-   

(b)   Corporate Resources - Review of VAT Arrangements (Reasonable Assurance)

In discussion, Members raised the following main issues:-

• an assurance was sought and provided that all staff were regularly reminded of the importance of treating VAT correctly and that the VAT manual was kept up to date;
• confirmation was provided that the mileages of all Members and staff was being closely monitored by the Executive Leadership Team;
• a point in regard to the timescales for undertaking the wider sample of claims and for procedures to be reviewed if required; and
• confirmation was sought and provided that instructions had been issued to managers that only expense claims which had the relevant receipts attached should be approved.  It was confirmed this message would be reinforced to all budget holders.    

(b)   Corporate Resources - Review of VAT Arrangements (Reasonable Assurance)
    
In discussion, Members raised the following main issues:-

• an assurance was sought and provided that all staff were regularly reminded of the importance of treating VAT correctly and that the VAT manual was kept up to date;
• confirmation was provided that the mileages of all Members and staff was being closely monitored by the Executive Leadership Team;
• a point in regard to the timescales for undertaking the wider sample of claims and for procedures to be reviewed if required; and
• confirmation was sought and provided that instructions had been issued to managers that only expense claims which had the relevant receipts attached should be approved.  It was confirmed this message would be reinforced to all budget holders.    

(c)   Community Services – Winter Maintenance  (Reasonable Assurance) 

In discussion, Members raised the following key issues:-

• the Council’s winter maintenance drivers be commended on operating lifeline services during unsociable hours in severe weather conditions and continue to be encouraged to use their initiative for the safety of the public;
• the need to reduce driver error across the organisation in relation to the width of salt spread through tool box talks;
• concern that salt usage in Skye was 18% higher than the expected usage, and in terms of this being a high priority action an assurance was provided this would be monitored on a weekly basis during the 2019/20 winter season; 
• conditions could be extremely localised and so it was inevitable there would be some areas where more salt was used than anticipated;
• the fact three areas had not responded to audit queries was a matter of concern and the need for this to be addressed by the Service going forward; 
• an assurance was sought and provided that ongoing improvements to the Council’s salt storage facilities were being progressed as a priority to maximise supplies and reduce costs;
• the need for the actions set out in the report to be reviewed periodically through the Service’s internal management structure. The Head of Roads provided an assurance that the audit recommendations would be considered at her monthly management team meetings; 
• it should be recognised that operating procedures could be placed under pressure in severe weather conditions;
• a caveat that staff were also sometimes under pressure to respond positively to requests from Members to treat routes not included in winter maintenance plans; and
• in general this was an excellent report taking into account the winter maintenance service had been significantly over budget due to the severity of the winter season which had been the subject of the audit.

(d)   Community Services – Review of the arrangements for the procurement and payment of Homeless Services – Follow Up  (Limited Assurance)   

In response to a question, the Head of Housing explained the audit had related to the fact the Service was on the point of not complying with the procurement regulations rather than around the principles and rationale for Supported Specialist Accommodation. 

Thereafter, Members raised the following main issues:-

• an explanation was sought and provided on the changing policy field which had led to the decision to continue with the existing arrangements for Supported Specialist Accommodation and to include it as an extension to the existing Framework Agreement for Housing Support;
• the potential for Supported Specialist Accommodation to be tendered in smaller lots on the basis the potential bidders in Highland tended to be geographically based;
• the importance of Members being involved in any policy review around homeless services. The Head of Housing provided an assurance that a Policy Development Group was being arranged on housing issues and that reports on this specific issue would be brought to the Care, Learning and Housing Committee; and
• confidence that the findings and recommendations of the audit had been accepted and measures put in place by the Service to ensure they were resolved.

(e)   Development & Infrastructure - Inverness and Highland City Region Deal(Limited Assurance) 

The Director of Development & Infrastructure advised that a report would be submitted to the Environment, Development and Infrastructure (EDI) Committee in May 2019 recommending a number of changes in respect of Member scrutiny. In future, reports to the EDI Committee would be on the main agenda rather than on the bulletin, and the Member Scrutiny Group would be formally organised and minuted by Committee Services, and also include an option for Audit and Scrutiny Committee Members to attend the Group. It should be noted that no additional administrative resource had been made available to the Programme Manager in relation to the City Region Deal and this had been reflected in the findings of the audit. It should be recognised the City Region Deal was delivering a range of successful projects across the Highlands. He had been notified by the UK and Scottish Governments of a best practice event for City Region Deals to be held in August 2019, as they evolved across Scotland. 

The Chair indicated that he welcomed the involvement of the Audit and Scrutiny  Committee in the Member Scrutiny Group on the basis that attendance should be restricted to a small number of Members who could then be regular contributors to the process. It was also his intention to request that a follow up report on this item be presented to the Committee at the appropriate time. 

In discussion, it was highlighted that good progress was being made with the delivery of a range of successful major projects within the City Region Deal which represented a major capital boost to the Highlands. However, this was the highest profile project in the Highlands involving significant levels of public expenditure and it was important therefore for the Council as the accountable body to improve the background workings and processes immediately and for Members and the public to have confidence in those processes.  it was proposed therefore that an early meeting be arranged involving the Leader, Group Leaders, Chair and Vice Chair of the Committee, to discuss the governance of the City Region Deal going forward.  

During further discussion, Members raised the following main points:-

• the fact a number of the actions set out in the audit report had already been completed was encouraging and that the target dates in March 2019 had or would be achieved on time;
• further information was sought and provided in regard to how the proposed revised governance arrangements would provide for more effective scrutiny going forward. This would include the sharing of more detailed information in relation to projects with the scrutiny groups;
• the proposed Members Scrutiny Group should have a broader membership for example Members with an expertise in finance and allow for substitutes;
• an explanation was sought and provided in relation to the relatively small percentage of the funding allocated for 2017/18 by the Scottish Government which had been drawn down/spent.  It was explained the estimate of spend at the start of the project had been too optimistic and this was in common with other City Deal projects. The rate of spend and forecasting had been improved and quarterly dashboard reports were submitted to the Programme Board;
• recognition there were challenges with profiling spend given the length of time it could take to get some of the projects started;
• if it could be demonstrated to the Scottish and UK Governments that effective scrutiny could be achieved at this stage then this would place the Council in a good position to secure a second phase of the Deal;
• confirmation was sought and provided that for Council projects a full business case would be provided to the EDI Committee, and summaries for those approved by partners due to the volume of material involved;
• confirmation was sought and provided that all documentation in relation to the City Region Deal was now up to date;
• the potential for budget monitoring summaries in respect of the City Region Deal to be submitted to Local Committees, reference being made to the challenges given that many of the projects were not geographically based;
• It was essential that the reporting and governance requirements set out by the Scottish Government were adhered with specific reference to the submission of returns and grant claims. An assurance was provide that all reporting of information was being done in accordance with the timings set out in the schedule received from the Scottish Government;  
• there should be legal agreements in place for projects with all partner organisations including High Life Highland; and
• additional resources should have been put in place at the outset to deliver the project given this was a significant and complex piece of work, the number of other bodies and partners involved, and the legislative requirements.

The Chair advised that from the debate Members could take assurance that matters had and would continue to move forward since the audit had been undertaken.  

The Committee AGREED that: (i) an early meeting be arranged involving the Leader, Group Leaders, Chair and Vice Chair of the Committee, to discuss the governance of the City Region Deal going forward, and (ii) a follow up report be submitted to the Committee at the appropriate time.

(f)   Development & Infrastructure - Inverness Townscape Heritage Project (Reasonable Assurance)

During discussion, confirmation was sought and provided that the anticipated level of private sector investment would be attracted by the end of the Project, and that details of the specific figures to date could be circulated to Members if required. Further comments related to the importance of having the relevant paperwork and evidence in place in respect of the Project, as highlighted in the audit recommendations. 

In conclusion of this item, the Chair thanked the Internal Audit Team for their hard work in relation to each of the final reports.

Thereafter, the Committee:-

i.    NOTED the Final Reports referred to in Section 3.1 of the report;
ii.   NOTED the current work of the Internal Audit Section; and 
iii.  APPROVED the amendments to the 2018/19 plan. 

4. Internal Audit Plan 2019/20                                                                   
Plana In-Sgrùdaidh 2019/20

There had been circulated Report No. AS/2/19 dated 19 March 2019 by the Corporate Audit Manager. 

The Committee APPROVED the Internal Audit Plan for 2019/20.

5. Review of Audit & Scrutiny Committee Governance            
Ath-sgrùdadh Riaghlaidh na Comataidh Sgrùdaidh – Fios air ais mu Shuirbhidh nam Ball

There had been circulated Report No. AS/3/19 dated 18 February 2019 by the Depute Chief Executive/Director of Corporate Resources. 

The Chair highlighted a number of issues arising from the consultation undertaken with Members to date and the approach set out at Appendix 4 to the report. The feedback received from Members was that a Committee of up to 16 members would provide for more focus and improved scrutiny. There had been support for the appointment of lay members, however he suggested this should be on a consultative basis and without voting rights. He expressed the view that where reports advised there was no or limited assurance that should be the trigger point for the Committee to consider forming a sub group to assess in more depth progress and outcomes. He recognised that a key focus was on Member training and improving uptake, and one of the principal aims going forward was to develop online and other types of training and to review the appropriate time and location of training sessions to better suit Members’ needs.

During discussion, Members raised the following main points:-

• support for the Committee to become more focused on outcomes and to comprise a membership of up to 16 and for sub groups to be established with Members taking a particular interest in certain aspects of the work;
• the establishment of sub groups early in the audit process would provide the opportunity for any issues including overspends to be considered in more depth and addressed more proactively;
• the need to avoid duplication and to set clear parameters in terms of the work of the Strategic Committees/Re-design Board/Budget Monitoring Group and the role and remit of the Audit and Scrutiny Committee;
• the potential for the review of governance to be a standing item on the agenda going forward with a view to achieving continual improvement;
• concern that Members did not currently have the level of training to be fully confident in their ability to scrutinise outcomes;
• while supporting the move towards the Committee being more outcome focused, the consideration of processes and procedures should also continue to be a priority;
• the need to consider and review the level and type of information the Committee required to achieve effective governance, for example project plans;
• the potential for the Committee to be divided into two groups whereby one group would continue to scrutinise the processes through the work of the Internal Audit Team with the other focusing on considering the outcomes of Council policies;
• it was essential that officers when formulating new policies set out the anticipated outcomes and timescales, to enable the Committee to consider whether these outcomes had been achieved;
• a smaller more focused Committee would enable Members to increase the of level understanding of the role of auditors which it was suggested would improve the quality of its scrutiny and the ability to channel improvement within Services and across the Council to deliver the best outcomes and value for the public purse;
• there should be an awareness that so much time might be spent on monitoring processes, this might impinge on the ability of staff to deliver projects and outcomes;
• a greater awareness of scrutiny and good governance and a higher profile for the work of the Committee could act as a spur for staff in terms of improving service delivery across the organisation;
• senior Members of the Council should be encouraged to attend the Committee so that they were aware of the issues being identified within Services; and
• the potential to share audit and scrutiny services and resources and deliver shared outcomes with partner organisations in future.

In conclusion, the Chair advised that the governance proposals would continue to be developed taking into account Members comments and considerations. Wider discussions would also be held with Group Leaders, Strategic Chairs, and other appropriate parties. Thereafter, a further report on the review of the Committee’s governance would be brought to a future meeting setting out more concrete proposals.

The Committee NOTED the feedback from the Member Consultation exercise and AGREED that a further report on the review of the Committee’s governance be brought to a future meeting taking into account the points raised by Members in discussion.

6. The National Fraud Initiative in Scotland 2016/17                             
Iomairt Nàiseanta Foille ann an Alba 2016/17

There had been circulated Report No. AS/4/19 dated 15 March 2019 by the Corporate Audit Manager.  

The Committee NOTED the Audit Scotland report, the results for the Highland Council and the associated commentary.

7. Six-Monthly Review of Corporate Risks 
Ath-sgrùdadh Sia-Mìosail de Chunnartan Corporra

There had been circulated Report No. AS/5/19 dated 18 March 2019 by the Depute Chief Executive/Director of Corporate Resources. 

During discussion, Members raised the following issues:-

• the Highland Partnership Agreement for the delivery of Adult Services which was in the process of being re-negotiated and should be included on the Corporate Risk Register. It was confirmed the Executive Leadership Team would be asked to consider the inclusion of this item on the Corporate Risk Register; 
• an explanation was sought and provided in relation to the RAG status assigned to CR1.2 and CR1.4 under the heading of Financial Sustainability; and
• a request that a specific target date be set for CR9.7: Fire Safety with a view to the remaining actions being completed as soon as possible. 

The Committee NOTED:-

i.    NOTED the Corporate Risk Register provided at Appendix 1 to the report;
ii.   NOTED the risk profile at Appendix 2 to the report; 
iii.  NOTED that six monthly reviews of the Corporate Risk Register would continue to be reported each March and September to the Audit and Scrutiny Committee; 
iv.  NOTED that the annual review of the Council’s Risk Management Strategy and associated guidance had been completed with only minor grammatical changes required;
v.   AGREED that the Executive Leadership Team be asked to consider the inclusion of the re-negotiation of the Highland Partnership Agreement for Adult Services on the Corporate Risk Register; and
vi.  AGREED to request that a specific target date be set for CR9.7: Fire Safety with a view to the remaining actions being completed as soon as possible.

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

There had been circulated external audit report prepared by the Council’s External Auditors (Grant Thornton) issued since the last Audit and Scrutiny Committee as follows:-

a)    Highland Council – External Audit Plan for the financial year ending 31 March 2019. 

During a summary of the report, the overarching principles of the audit, the audit approach and materiality, the risk based methodology and the wider scope audit were highlighted, along with information on the key audit deliverables and the audit team, and independence, fraud, respective responsibilities and communication of audit matters to those charged with governance.  In addition, following discussions with management on audit fees it had been agreed that base fee would apply.  

In discussion, a point was raised in regard to the potential for establishing a sub-group of the Committee to consider the audited accounts to improve scrutiny going forward.   

The Committee:-

i.    NOTED the Highland Council – External Audit Plan for the financial year ending 31 March 2019; and
ii.   AGREED to consider the potential for establishing a sub-group of the Committee to scrutinise the audited accounts in advance of submission to the full Committee.   
 
The meeting ended at 3.10 pm.