Agenda item

The Committee considered a report on progress made by the Council’s internal audit manager (KPMG) on their internal audit plan for 2022-23 for the period April 2022 to March 2023, which included a summary of the work that they had concluded since the previous report to Committee. 

The report had reviewed the design and effectiveness of:

(a)   budgetary controls for which KPMG had provided ‘partial assurance with improvements required’ (amber/red rating) in that regard;

(b)   controls over the general ledger for which KPMG had provided ‘significant assurance with minor improvement opportunities’ (amber/green rating);

(c)   controls over receipt and expenditure of s.106 contributions for which KPMG had provided ‘significant assurance with minor improvement opportunities’ (amber/green rating); and

(d)   controls around the preparation and posting of journals for which KPMG had provided ‘significant assurance with minor improvement opportunities’ (amber/green rating);

An additional review of the payroll budget discrepancy against the expected control environment had also been undertaken and KPMG had provided ‘partial assurance with improvements required’ (amber/red rating).

As part of their 2022-23 internal audit plan, KPMG had also followed up actions in previously audited areas and had prioritised looking at the 2021-22 reviews which had received ‘no assurance’ or ‘partial assurance with improvements required’, alongside a sample of reviews which received ‘significant assurance with minor improvement opportunities.

Following completion of all the programmed activities in the internal audit plan for 2022-23, KPMG had also produced their Head of Internal Audit Opinion for 2022-23, for which significant assurance with minor improvement opportunities had been given on the overall adequacy and effectiveness of the Council’s framework of governance, risk management and control.

In debating this item, the Committee raised the following points:

·       Concern over the auditor’s finding of a lack of clarity of the total number of employees across the Council, and the apparent lack of progress to resolve the issue.

·       Concern as to how the audit of Financial Controls: Payroll in October 2022, which received significant assurance contrasted with the additional audit review of Payroll Budget Discrepancy which received only partial assurance.  In response, Mr Crouch of KPMG confirmed that the two reviews were two separate pieces of work with very different scopes.  The Executive Head of Finance confirmed that the payroll discrepancy was on the budget not on the payroll itself. The scope of the October 2022 audit on payroll had focused entirely on the accuracy of the payroll which was reported as being compliant. The payroll discrepancy referred to the way numbers were budgeted for.  During the Future Guildford process, the piece of work undertaken to identify the savings and to reshape services took 2019-20 as the base budget, and working from that going forward, savings were identified and indicative budgets for services were established. At that point, there was a “broad-brush” approach to budgeting, rather than budgets being costed at individual member of staff level. In the meantime, the payroll itself increased in line with agreed pay increments, and cost of living pay awards.  The payroll discrepancy was first identified in 2021-22.  It was not clear why this had happened. There had not been a direct reconciliation between the number of people on the payroll and the number of people being costed into the budget. Measures to address the discrepancy were set out in the budget approved by the Council on 8 February 2023.  The Executive Head of Finance had adjusted capacity in the finance team to address these issues and to ensure that these reconciliations were implemented. Accountants would be working alongside frontline managers to ensure that those numbers going into the ledger were accurate and that we fully understand where we were with expenditure, in compliance with the Constitution. A revised budget would be submitted to the Council in July 2023, which would include a very clear strategy to address the £18 million deficit in the Medium-Term Financial Strategy over the next four years. 

·       Mr Crouch of KPMG confirmed that references made in their reports were comments at a point in time, so following completion of this work, they were satisfied that, through conversations with the finance team, and the Joint Strategic Director, their findings were being addressed and taken forward with agreed timelines for implementation.

·       It was suggested that this Committee should be updated as soon as possible on the progress being made with these actions.

·       Concern that the target dates agreed to implement the management actions were too long.

Having thanked the auditors and the Executive Head of Finance, the Committee

RESOLVED: That the Internal Audit Progress Report (April 2022 to March 2023), attached as Appendix 1 to the report submitted to the Committee, together with the key findings from the reviews undertaken since the last report to the Committee, be noted.

Reason:

To ensure good governance arrangements and internal control by undertaking an adequate level of audit coverage.