Agenda item

The purpose of this report is to give an opinion on the adequacy of Surrey County Council’s control environment as a contribution to the proper, economic, efficient and effective use of resources.  The report covers the audit work completed in the year from 1 April 2023 to 31 March 2024 in accordance with the Internal Audit Strategy for 2023/24.  A separate report on Counter Fraud work undertaken in 2023/24 forms part of this Committee agenda.

Witnesses:

David John, Audit Manager

Key points raised in the discussion:

1.    The Audit Manager introduced the report and explained that the annual opinion was a professional judgement he made with the Chief Internal Auditor, which considered where the lower areas of assurance were and how significant they were regarding the overall control environment. He noted that the distribution of the opinions over a four-year period looked consistent each year, there were more Reasonable Assurance opinions in 2023-24. The opinion of Reasonable Assurance had caveats as significant areas of concern had been flagged.

2.    The Audit Manager noted that in collaboration with the Interim Executive Director - Finance and Corporate Services, a limited package of audits on key financial systems regarding Unit4/MySurrey was agreed so as not to impede the implementation and for the situation to stabilise. The full set of audits to be undertaken in the 2024/25 plan, as well as follow-up audits. The several Partial Assurance opinions in the key financial systems was not surprising given the complexity of the new ERP system, that had been considered as had management's response to the positive direction of travel.

3.    The Audit Manager explained that another factor that influenced the overall opinion was the dilution in officer knowledge around key governance processes. Internal Audit undertook annual sampling of the key areas to ascertain officers’ understanding of those, it was found that officers were not as aware of key policies as they should be and that would be addressed going forward.

4.    The Audit Manager noted that five of the eight Partial Assurance opinions issued were in the CFLL Directorate. That had been accounted for in the 2024/25 plan and had been discussed with the Executive Director and her leadership team, follow-up audits would be undertaken.

5.    The Audit Manager highlighted the significant amounts of positive assurance given across the year, both Substantial and Reasonable Assurance; for example, Accounts Receivable - part of Unit4/MySurrey - received Reasonable Assurance.

6.    The Audit Manager highlighted that at the end of the year, there were 22 audits in progress from the 2023/24 plan, 11 were at draft report stage with management. At the end of May, 13 of those 22 were issued as finals, 5 of those 22 were in draft report stage and 4 were in field work but were well progressed.

7.    The Audit Manager noted that there was a breadth of audit coverage in the year outside of the key financial systems and additional requests for audit work were incorporated into the plan and any deferred work would be carried forward. He concluded that the green performance indicators were positive, the 90% target of ‘Audit Plan – completion to draft report stage’ had been exceeded. He highlighted the positive customer satisfaction feedback and was proud of his Team’s work.

8.    The Chairman noted the Partial Assurance opinion given to the Fuel Cards and asked whether it was a recurring problem. The Audit Manager noted that he did not believe it was a recurring problem, it would be reported in Quarter 1 in September. Anomalies had been identified by the audit because routine compliance monitoring had stopped, there was no evidence of fraud. The written policy was out of date compared to current practice and compliance had since been restored.

9.    The Chairman asked whether there was a major issue regarding the Accounts Payable audit.The Audit Manager noted that it would be reported in Quarter 1, it remained at Partial Assurance and that opinion was given because the controls were not as expected yet suppliers were being paid correctly.

10.  A Committee member referred to the Section 106 Payments audit given Partial Assurance, there were concerns over the Council’s management of the monies, the lack of ownership and timeliness. Asked whether there were recommendations for the relevant team to improve that performance. The Audit Manager noted that the system was audited at a time when there was management changeover. Since then, many of the problems were being addressed through new senior management which understood both the national and local challenges. The MIDAS system was being recommissioned and that would address the weaknesses.

11.  As a supplementary on the above, the Committee member noted that it had been a problem in her district. She asked whether the matter had been reviewed by the Communities, Environment and Highways Select Committee, as most of the money was spent on highways improvements for residents, so it was crucial that those could be delivered. The Audit Manager explained that a summary of audit reports of lower assurance was sent to the Committee’s Chairman and Vice-Chairman, as well as the chairman of the relevant select committee - which could follow that up - and the relevant Cabinet Members. He noted that he could share the summary of agreed actions from that audit to the Committee.

12.  A Committee member referred to the £9 million spent on capital projects in education that potentially could have been funded by Section 106 funds. He noted that it would be interesting to see if the select committee follows it up, especially around the proposals to replace the MIDAS system, to see if lessons learnt were being implemented.

13.  The Vice-Chairman referred to the EHC Needs Assessment Communication Protocol audit where six actions had been agreed with management, asked whether the Committee could see those actions. The Audit Manager would share those agreed actions with the Committee.

14.  A Committee member asked whether Internal Audit undertook work to assess the risk culture and whether that informed the audit plan. The Audit Manager noted that auditing culture was difficult, Internal Audit conducted cultural compliance audits which were deep dives into a team or service testing how managers and staff operated against key policies or activities. That could cover the approval of expenses and the holding of performance conversations, as well as spending control requirements. That learning and findings were used to inform the Corporate Leadership Team (CLT) and local management, and areas to look at elsewhere. Induction for new starters on policy implementation was crucial but varied across directorates, it was vital to understand where issues arise and why.

15.  A Committee member referred to the LiquidLogic Integrated Finance Technology (LIFT) audit, regarding the Single View of a Child programme in Children’s Services. He was surprised to see the findings that despite there being the LIFT system pilot scheme in place, it would no longer be supported by the vendor and there appeared to be significant control issues such as duplicate payments. He asked whether the Committee could see the eight actions agreed with management and noted that it would be interesting to see if the relevant select committee follows it up as the lessons learned from other implementations had not been implemented. The Audit Manager would share those agreed actions with the Committee.

RESOLVED:

1.    Noted the work undertaken and the performance of Internal Audit in 2023/24 and the resultant annual opinion of the Chief Internal Auditor;

2.    Determined that there were no matters that the Committee wished to consider for inclusion in the Council’s Annual Governance Statement; and

3.    Considered that the Council’s arrangements for internal audit had proved effective during 2023/24.

Actions/further information to be provided:

1.    A16/24 - The Audit Manager will provide the summaries of agreed actions by management regarding the following audits as requested by the Committee:

a)    Section 106 Payments

b)    Education, Health and Care Needs Assessments Communication Protocol

c)    LiquidLogic Integrated Finance Technology (LIFT)