Agenda item

To receive the Interim Audit Report from KPMG.

The Interim Chief Finance Officer, Michael Hudson gave an overview of the interim audit findings, he explained that KPMG have carried out interim audit testing of processes and controls to inform the 2010/11 audit opinions in relation to the Council’s statement of accounts and value for money conclusions.  As part of that audit KPMG have sought to place reliance on internal audit’s findings.

Rachael Tonkin, Manager, KPMG updated the Committee on the key findings of the report.  The review of the Council’s general control environment was completed in March 2011. The review of IT control environment is on-going and due to finish shortly.

• Organisation Control Environment – effective overall, no specific areas for further improvement.
• IT Control Environment – review is still on-going, work suggests that KPMG will be unable to rely fully on the Council’s IT controls. Issues identified in last years report have been addressed and this has been noted but these improvements have not yet fully addressed all underlying issues.  Detailed feedback will be given through the Report to those charged with governance 2010/11 in September.
• Controls over Key Financial Systems – overall the majority of key financial systems are sound, some weaknesses were noted and recommendations provided.  Some additional substantive work will occur at year end in some areas.
• Review of Internal Audit – Full reliance was given on internal audit’s work on key financial systems, however this was not the case for internal audit’s IT work where additional significant testing is taking place.
• Accounts Production Process – The Council’s overall process for the preparation of the financial statements is sound.  The Council has implemented all of the recommendations in ISA 260 Report 2009/10 relating to the financial statements.
• IFRS Re-statement – the transition to IFRS accounts has generally gone well.

Members of the Committee sought clarification on a number of points including;

Accounts production ‘significant challenges’ - Rachael Tonkin explained that there was a lot more work to be undertaken when producing IFRS accounts.  Michael Hudson made clear that this was the first time that the accounts had been produced in this way.  The interpretation of CIPFA guidance would perhaps not be the same as that of KPMG and clarification would be sought.

‘Alter our audit strategy’ - Rachael Tonkin explained that significant additional testing would take place during the audit of the financial accounts.  This would have implications on the amount of work KPMG would need to undertake and have an effect on the fee.  Options have been discussed with Finance staff and KPMG would work closely with them to minimise costs.

User Access, SAP - Members questioned whether there were still issues.  It was reported that the number of access users had significantly reduced but not enough for KPMG to issue a full assurance.  Michael Hudson accepted that there was need for improvement.  The advice given will be taken and the recommendations made will be a top priority for the finance team.

Assurance was sought that ‘bolt ons’ and ‘add ons’ to SAP would not be used.  It was explained that the ERP system could integrate with a number of systems and that many systems had been inherited.  Michael Hudson would seek confirmation and report back to the Committee.

Members sought reassurance from KPMG that the audit work was on schedule to inform the final report.  Rachael Tonkin reported to the Committee that the audit work was broadly on track, being only slightly behind on the IT audit work but this should be back on track within the week.  Planning discussions for 2011/12 were already taking place.

Michael Hudson re-iterated again that changes within the internal audit team had no reflection on the IT audit, the internal audit report had been written prior to the Head of Internal Audit leaving.

Cllr John Brady, Cabinet Member for Finance, Performance and Risk, stated that there were a number of very positive points and that this was an interim report. Darren Gilbert, Senior Manager, KPMG described that in the 2009/10 report there were 18 high risks, the interim report details a very different picture.   The Chairman concluded that whilst there were still issues a considerable amount of progress had been made, he re-iterated that the interim report is work in progress.  He thanked Rachael Tonkin and Darren Gilbert from KPMG for their report and input.

Resolved:

That the report containing the interim audit findings was noted.