Lancashire Combined Fire Authority
Audit Committee
Tuesday, 29 November 2022, at 10.00 am in the Main Conference Room, Service Headquarters, Fulwood.
MINUTES
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PRESENT: |
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Councillors
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J Shedwick (Chair)
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N Hennessy (Vice-Chair)
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S Clarke
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M Dad
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F Jackson
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A Kay
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J Singleton
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Officers |
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K Mattinson, Director of Corporate Services (LFRS) J Meadows, Head of Finance (LFRS) D Brooks, Principal Member Services Officer (LFRS) L Barr, Member Services Officer (LFRS) |
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In attendance
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G Jones, External Audit, Grant Thornton H Stevenson, External Audit, Grant Thornton A Dalecki, Internal Audit, Lancashire County Council L Rix, Internal Audit, Lancashire County Council K Wilkie, Fire Brigades Union
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11/22 |
Apologies for Absence
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None received.
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12/22 |
Disclosure of Pecuniary and Non-Pecuniary Interests
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None received.
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13/22 |
Minutes of the Previous Meeting
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RESOLVED: - That the Minutes of the last meeting held on 05 July 2022 be confirmed as a correct record and signed by the Chair.
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14/22 |
External Audit - Letter of Representation
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As part of the year-end process the Authority was required to sign a letter of representation. This letter confirmed that the Authority had disclosed all relevant information in its accounts for the year in question and that all issues which should have been brought to the attention of the auditors had been.
The Treasurer confirmed he would sign the letter, as there were no issues which he felt required disclosure.
RESOLVED: - That the Audit Committee authorised the signing of the letter by the Chair of the Committee.
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15/22 |
External Audit - Audit Findings Report
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Georgia Jones, Key Audit Partner presented the Audit Findings report to the Committee.
Under the statutory Code of Audit Practice for Local Government bodies the Authority’s external auditors, Grant Thornton were required to issue a report to those charged with governance summarising the conclusions from their audit work.
Georgia Jones advised that at the time of writing the report the audit work was substantially complete and there were no matters of which they were aware that would require modification of the audit opinion or material change to the financial statements, subject to outstanding matters listed below:- · responses from the pension fund auditor to gain assurance on underpinning controls and supporting data for the pension fund net liability; · receipt of management representation letter; · review of the final set of financial statements; and · final quality procedures.
There were two recommendations relating to Oracle password configuration set out on page 20 of the report (page 38 of the agenda pack), and the Self-authorisation of journals set out on page 21 of the report (page 39 of the agenda pack: -
1. “We identified a weakness in Oracle password configuration. The password length is set to 6 characters and does not include a minimum password length of 8 characters as per leading practices.”
Members were informed that it related to the existing finance system which was being replaced in December and, as such it was not proposed to amend this within the existing system.
2. “Our risk assessment of journal controls noted that there are no automated controls on the finance system to prevent members of finance staff approving their own journals. Whilst our audit work on journals so far has not identified any significant issues as a result of this weakness in internal controls, we recommend the authority establishes an authorisation control to reduce the risk of financial reporting fraud and /or error in future."
The response to this was consistent with previous responses “We have considered the recommendation. We believe our financial monitoring processes are sufficient to identify if such an instance occurred. Neither ourselves, nor internal and external audit, have discovered any instances of error or reporting fraud that the implementation of this would have prevented. Hence, given the size of our finance team, we do not feel that introducing further controls is practical or proportionate to the risk.”
There were several disclosures and misclassification changes required, as set out on page 22 (page 40 of the agenda pack), and three adjusted misstatements, as set out on page 23 (page 41 of the agenda pack), the majority of which were identified by the Authority during the audit process.
There was one adjusted misstatement as set out on page 23 (page 41 of the agenda pack), which related to the treatment of potential future costs of claims relating to pensionable allowances, and specifically treating it as a creditor as opposed to a provision. Given it was below the Service’s materiality threshold, the Treasurer had not amended the accounts to reflect that.
Georgia Jones drew the Members attention to Page 36 which detailed independence and ethics which disclosed the following:
“The Authority took on a Chief Accountant on April 18, 2022. In May the Authority advised Grant Thornton that this individual was registered as a benched contractor for Grant Thornton. After Internal consultation, it was determined that as the individual was considered an officer of the Authority, this would be determined as a breach of FRC 2.53.
We can confirm that as a benched contractor the individual has not worked on any assignments for Grant Thornton and the audit team have not had any communication with them as part of the delivery of the audit. We further mitigated any threat however by removal of the individual from the bench, effective July 13 2022.
We do not consider that there has been a compromise to independence. However, this is a breach of FRC 2.53 and therefore reportable to the Financial Reporting Council (FRC).
We confirm that we have implemented policies and procedures to meet the requirements of the Financial Reporting Council’s Ethical Standard as we as a firm, and each covered person, confirm that we are independent and are able to express an objective opinion on the financial statements.
Further, we have complied with the requirements of the National Audit Office’s Auditor Guidance Note 01 issued in May 2020 which sets out supplementary guidance on ethical requirements for auditors of local public bodies.”
An audit fee of £40.8k had been agreed as part of the Audit Plan. The final fee would be confirmed once the audit was complete.
The Director of Corporate Services advised that the deadline for the accountants approving the audit had been brought forward for next year and that he felt the revised deadline would be extremely challenging for the Authority. He emphasised that, overall, it was a positive report given that it had been a challenging year, as it would be next year.
The Chairman agreed that the report was very positive and thanked Georgia Jones for being forthright.
RESOLVED: - That the Committee: -
i) Noted and endorsed the matters raised in the report; ii) Noted the anticipated “unmodified” audit opinion on the financial statements; iii) Noted that the auditors had not yet completed all of their value for money work and so were not in a position to issue a report on that.
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16/22 |
Internal Audit Monitoring Report
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The Internal Auditors produced a summary of progress against the annual plan for each Audit Committee meeting, setting out progress to date and any significant findings. The report for the period up to 09 November 2022 was presented by Laura Rix.
To date, 18.25 days had been spent this financial year on completion of the 2022/23 plan, equating to 26% of the total planned audit activity of 70 days. The table in the report showed the current status of all audit work.
No areas of concern came to attention in conducting the assurance work to date that required bringing to the attention of committee members.
RESOLVED: - That the Committee noted and endorsed the report.
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17/22 |
Statement of Accounts 2021/22
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The Chair welcomed the Service’s new Head of Finance, Jacquie Meadows to the meeting.
The Director of Corporate Services presented the report to the meeting. The report presented the Statement of accounts for the financial year ended 31 March 2022 which included the Authority’s 25% share of the North West Fire Control accounts. The Committee considered the Statement of Accounts as presented.
The following sections summarised the details contained within the core statements:-
Narrative Report
The report set out the financial context in which the Combined Fire Authority operated and provided an overview of the financial year 2021/22 as well as details of future plans.
Comprehensive Income & Expenditure Account
The statement confirmed the accounting cost in the year of providing services. It was a summary of the resources that had been generated and consumed in providing services and managing the Authority during the last year. It included all day-to-day expenses and related income on an accrual’s basis, as well as transactions measuring the value of fixed assets actually consumed and the real projected value of retirement benefits earned by employees in the year.
The main points to note were:-
In order to aid understanding the following table showed the comparison between the revenue budget position, as reported to Resources Committee, and the Total Comprehensive Income and Expenditure figure set out above:-
Movement in Reserves Statement
This statement showed the movement in the year on the different reserves held by the authority, analysed into:-
· Usable Reserves – those that the Authority might use to provide services or reduce local taxation, subject to the need to maintain a prudent level of reserves and statutory limitations on their use. · Unusable Reserves – those included reserves that held unrealised gains and losses (e.g., the revaluation reserve), where amounts would only become available to provide services if the assets were sold; and reserves that held timing differences between accounting basis and funding basis under regulations.
The main points were:-
Balance Sheet
The Balance Sheet showed the value as the Balance Sheet date of the assets and liabilities recognised by the Authority. The net assets of the Authority (assets less liabilities) were matched by the reserves held by the Authority.
The main points to note were:-
The Director of Corporate Services explained that the Service’s net worth was in excess of £100m (excluding the firefighter pension scheme liability).
Cash Flow Statement
The cash flow statement showed the changes in cash and cash equivalents of the Authority during the reporting period. The statement showed how the Authority generated and used cash and cash equivalents by classifying cash flows as operating, investing and financing activities.
The main points to note were:-
Signing of the Draft Statement of Accounts
The unaudited Statement of Accounts were signed by the Treasurer on 5 August 2022 to certify that they presented a true and fair view of the financial position of the Authority as at 31 March 2022.
Subsequently, the full set of accounts were submitted for audit to Grant Thornton.
The Statement of Accounts had now been updated to reflect the changes identified during the audit and had been included in the revised statement of accounts.
Approval and Signing of the Accounts
As all changes requested by Grant Thornton had been made to the accounts. The Treasurer to the Fire Authority and the Chair of the Audit Committee were therefore required to approve the revised accounts by signing off the Statement of Responsibilities and the Balance Sheet.
County Councillor Shedwick highlighted that the report showed that a number of personnel had received pay and benefits of over £50,000. The Director of Corporate Services explained that the number of personnel that received over £50,000 went up marginally every year due to the annual pay rise. However, the significant rise this year was due to the Service’s considerable input into the Covid-19 vaccination programme and the cost of paying personnel. The government grant offset the cost although it had pushed some employees into the threshold and it reflected the work of the staff that went above and beyond their contractual obligations to provide support during the pandemic.
In response to a request from County Councillor Hennessy for an explanation of Contingent Liability, the Director of Corporate Services stated that a Contingent Liability was a potential liability which could occur in the future and would have an implication for the Service. It was reflected in a Contingent Liability note rather than as an estimate in the accounts with the liabilities, noted on page 122/123 of the report, relating to pensions.
RESOLVED: - That the Committee approved the Statement of Accounts and authorised the Audit Committee Chairman to sign them.
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18/22 |
Risk Management
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The report highlighted actions taken in respect of corporate risk since the last Audit Committee meeting.
The latest review of the corporate risk register had identified one new risk which warranted consideration for inclusion on the corporate risk register:-
The Cyber Security The Cyber Security threat landscape had changed significantly which had been witnessed globally, regionally and across multiple emergency services and local authorities.
Best practice standards set by the National Cyber security Centre (NCSC) had adapted according to the change in the threat landscape, which meant it was far more challenging to remain compliant.
Government organisations were routinely and relentlessly targeted: of the 777 incidents managed by the National Cyber Security Centre between September 2020 and August 2021, around 40% were aimed at the public sector. This upward trend showed no signs of abating.
The Service had achieved the Cyber Essentials Plus certification, which had to be refreshed every 12 months. The next re certification involved the prompt replacement of aging hardware/software as well as bringing in scope remote working, Wi-Fi security as well as several other areas which had previously been out of scope. The e-mail systems had been fully refreshed and the Service would be migrating all mailboxes to 365 for even better security and feature enhancements.
A Cyber Security Strategy and subsequent options paper had been agreed, identifying areas requiring investment, such as next generation Firewalls. The Service had been aligning with the National Cyber Security Centre best practice security framework and would continue to do so as it developed. It was classed as high-risk due to the scale of attack and the potential impact of such attacks.
An updated corporate risk register was considered by Members with changes summarised in the report. The Director of Corporate Services highlighted the following key areas:-
Risk no. 3 – Insufficient staffing resources The position regarding the national pay award would continue to be monitored. IMT meetings would continue to be held to review the situation and on-going plans to minimise the risk. The number and location of potential appliances would be identified, and the internal and external communication plans would be developed.
Risk no. 26 – Increase in costs and administration associated with changes to pensions The Service continued to see extended lead times on the majority of items, as an example LGV fleet vehicle lead times for chassis deliveries was 12-18 months. Costs continued to increase reflecting inflation, with many items increasing at a much higher rate (energy being the most significant of these), where costs had more than doubled.
Risk no. 36 – Increase in pay costs Pay awards were separately set nationally for green and grey book staff and a 2% award has been estimated in the budget. A pay offer of 5% had been made by the employers in respect of grey book pay. The FBU had recommended that their members reject the offer, and, at the time of writing, the Service was awaiting the outcome of that. A pay offer of £1925 per FTE had been made by the employer in respect of green book pay. Unison had accepted the offer, however at the time of writing, Unite and GMB were awaiting the outcome of their consultations. Both of those offers significantly exceeded the budget provision and would therefore lead to significant cost pressures in the current and future years budget.
RESOLVED:- That the Audit Committee noted the actions taken and endorsed the revised corporate risk register.
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19/22 |
Contract Standing Orders - Proposed Amendments
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The Authority was a Contracting Authority for the purpose of the Public Contracts Regulations 2015 (PCR) and was required to comply with the procedures and award of contracts as set out in those regulations.
Under PCR 2015, “contracting authorities” means, “the state, regional or local authorities, bodies governed by public law or associations formed by one or more such authorities or one or more such bodies governed by public law and includes central government authorities”.
Where those regulations did not apply (for contract values below EU thresholds) the Authority had its own procedures in place in the form of Contract Standing Orders. These formed part of the Constitution along with Financial Regulations and the Scheme of Delegation.
These had been reviewed and updated to reflect current practices, align with the Service’s regional partners, enable resources to be better focused, and were reflective of the current financial and economic climate.
Members considered the amended Contract Standing Order thresholds and amendments highlighted in the report relating to goods, services, consultancy and works, which also reflected current external EU thresholds.
Please note ‘Find a Tender’ replaced OJEU for the UK as part of Brexit arrangements as set out within The Public Procurement (Amendments etc). (EU Exit) Regulations 2020.
FOR ALL GOODS & SERVICES & CONSULTANCY
FOR ALL WORKS
All Contracts above £25,000k must still be published as an opportunity on Contracts Finder and a Contract Award notice still to be completed.
Contracts Finder - GOV.UK (www.gov.uk)
In addition, it was also proposed to: -
Members noted these thresholds had already been discussed with the Chair and Vice-Chair of Resources Committee who were supportive of the proposal.
RESOLVED:- That the Audit Committee approved the amended Contract Standing Order thresholds as outlined in the report.
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20/22 |
Date of Next Meeting
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The next meeting of the Committee would be held on 28 March 2023 at 10:00am hours in the Main Conference Room at Lancashire Fire and Rescue Service Headquarters, Fulwood.
Further meeting dates were noted for 25 July 2023 and 26 September 2023 and agreed for 28 November 2023.
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M NOLAN
Clerk to CFA
LFRS HQ
Fulwood