Agenda item

(To receive a report by Lucy Pledge, Audit and Risk Manager, which provides the Committee with details of the audit work during the period 12 June to 31 August 2017 and advises on the progress with the 2017/18 plan)

Consideration was given to the Internal Audit progress report which provided details of the audit work during the period 12 June to 31 August 2017.  During this time, 13 final reports were issued including two school final reports.  Of these completed audits two received limited assurance (Accounts Payable and VAT) and the service area representatives would be attending this meeting to give updates on the action plans.

It was also reported that three consultancy reports had been issued including inclusion in Children's Services and early consultancy in relation to Heritage Services.  There were also seven reports at a draft stage as well as several audits in progress.

Work was still underway on the 2016/17 payroll report, and whilst this was being prioritised, the final report was expected at the November meeting of this Committee.

Members were provided with the opportunity to ask questions to the officers present in relation to the information contained within the report and some of the points raised during discussion included the following:

·         Disappointment was expressed at the lack of awareness for VAT matters in the wider Council and that recently penalties were being applied.  Members were advised that the authority used to have an exemplary relationship with HMRC, but since the implementation of Agresso a number of voluntary disclosures had been made.  However, the amount of penalties had been mitigated down to just over £12,000 from £30,000 due to the hard work of the VAT Officer by giving reasons of why the errors occurred and the systems being put in place for the future.

·         It was noted that the main disclosure resulting in a potential penalty had VAT on the purchase of some buses.  It was not a deliberate error.

·         There was also disappointment that the management response had been delayed due to annual leave.

·         Concerns were raised that work on the partial exemption calculations had not been completed since April 2015.  It was acknowledged that there had been a capacity issue as the priority had been elsewhere due to the Agresso implementation.  However, an additional temporary resource was joining the team, and there was confidence that this would deal with the issue and not have any material effect on the accounts.

·         In terms of Accounts Payable, it was noted that the authority had three years to reclaim VAT, and at April 2018 the three years would have expired.  There had been an issue with not being able to extract the information from Agresso relating to VAT recovery on mileage claims, but there was now a new programme which had been developed and should be in place by October 2017.  The only issue which would remain would be how to claim the retrospective VAT back.  Officers were currently working with HMRC to agree an acceptable methodology.

·         Officers had been working hard to put right all the issues with VAT.

·         It was clarified that the sampling which took place only covered 2016/17, even though problems had been identified since 2015. It had been determined that the sampling undertaken had been adequate to prove that issues existed.  Looking at the data for 2015/16 would only provide more evidence of the problems.  Officers knew what the issues were and were working to resolve them.

·         It was queried whether the recommendations from the two limited assurance reports had been accepted by management and if so, whether they would be actioned in accordance with the set timescales.  Members were advised that all recommendations had been accepted, however, none of the agreed completion dates had been reached at the time the report was written.

·         The actions for the accounts issues were due to be completed by the end of September, and they were scheduled to be completed by that date.

·         One of the biggest issues was around duplicate payment of invoices, new programmes were being put in place which would be able to identify and block duplicate payments before they were processed.

·         It was queried whether committee members could be given assurance that this would not be an ongoing issue.  Members were advised that the authority was not able to control the actions of suppliers and the way that they categorised invoices, but the controls which the Council had in place were as good as they could be.

·         Members were advised that these issues had been ongoing since April 2015.  It was noted that if there was an issue of duplicate payments with regular suppliers, then the payment could easily be recovered.

·         It was queried whether there was too much reliance on automated systems and what manual controls were in place.

·         It was hoped that the Council would keep within its credit terms.  Members were advised that currently, 90% of invoices were paid on time, and that there generally legitimate reason for the remaining figure, such as amounts needing to be changed.

·         It was queried how the issue of duplicate payments was first detected, and it was reported that it was combination of being detected by Serco as well as budget monitoring and a result of audit work.  It was considered that invoice payments were now monitored better than when they were carried out by Mouchel as more sophisticated systems had been introduced.

·         The overpayments totalled approximately £2.8m and so far £2.5m had been recovered, with £314,000 still to be recovered.

·         Additional staff costs incurred through these issues were being recharged to Serco, currently, this was between £11,000 - £12,000.

·         Members were satisfied that work was proceeding in the right direction to resolve issue, and the Committee would keep a watching brief on this.

RESOLVED

            That the outcomes of Internal Audit's work be noted.