MINUTES OF A MEETING OF THE AUDIT COMMITTEE

HELD ON TUESDAY 29 MARCH 2011 FROM 7.00PM TO 9.15PM

Present:- Philip Mirfn (Chairman), Pauline Jorgensen (Vice Chairman), Barrie Pafman, Bob Pitfs and Beth Rowland

Also present:- Rupert Bamberger (Internal Audifor) Graham Ebers (Strategic Director Resources) (items 78-85) Azhar Ghose (Senior Solicitor) (items 78-83) Julie Holland (Principal Investigations Officer) Kevin Jacob (Principal Democratic Services Officer) Penny Knowles (Senior Internal Auditor) Muir Laurie (Business Assurance Manager) Susanne Nelson-Wehrmeyer (Head of Governance and Democrafic Services) (items 78- 83) Paul Ohsan Ellis (Principal Infernal Auditor) Claire Williams-Morris (Corporate Accountant) (items 78-84) Mark Allcock (Operations Direcfor Northgate) (items 78-85) lain Murray (Audit Commission Audif Manager) Phil Sharman (Audit Commission, District Auditor) Adam Swain (Principal Auditor Audif Commission)

PART l

78. MINUTES The Minutes of the meeting of the Committee held on 26 January 201 1 and the Minutes of the Extraordinary meeting of the Committee held on 22 February 201 1 were confirmed as a correct record and signed by the Chairman.

79. APOLOGIES An apology for absence was submitted from Councillor Mike Gore.

80. DECLARATION OF INTEREST There were no declarations of interest made.

81. PUBLIC QUESTION TIME There were no public questions

82. MEMBER QUESTION TIME There were no Member questions

83. POST MEETING ACTION SHEET & MATTERS ARISING The Committee considered the post meeting action sheet from the meeting of 26 January 201 1.

During the discussion of this item the following points were made:

o The Committee considered the Audit Committee's comments and questions relating to the Corporate Services Overview and Scrutiny Panel's report on the governance arrangements of local authority trading companies and the Executive's Trading and

Enterprises Sub Committee and the answers provided by the Head of Governance and Democratic Services and the Senior Solicitor. The Chair questioned where the liability sat and was informed that it rested with the Company. The Council had provided a financial guarantee of support to Wokingham Enterprises Limited, (WEL) and therefore ultimately the Council was liable for the value of that guarantee and could potentially be pursued by creditors if WEL defaulted; The Committee was informed by the Head of Governance and Democratic Services that WEL had been set up by the Council's legal Officers on the basis of instructions given to them and that operational matters were now within the remit of the Strategic Director Resources; A Member questioned whether there was a cap or limit on the value of transactions that could be entered into by WEL without further authorisation. The Committee was informed that there was an aggregate limit o f f I million after which authority would need to be sought through the Local Authority, (WBC). The limit could be altered by special resolution made at an Annual or Extraordinary General Meeting or via amendment of the company Business Plan; Members asked for clarification of the decision making mechanism that would be followed by WEL in seeking budgetary approvals. It was clarified by the Senior Solicitor that the power to establish WEL as a Local Authority Trading Company rested with Executive who in turn had delegated its powers and obligations to the Trading Enterprise Sub-committee, (TESC). TESC could make financial decisions relating to WEL within the limits of its financial authority above which full Council authority would have to be sought; The Strategic Director Resources commented that WEL had borrowed money from the Council in order to buy an asset. The company could only work within its own trading environment and had a responsibility to make sure its profit and loss account was not run at a loss. It was necessary for the WEL Board to remain vigilant and for TESC to be vigilant in turn; The Committee queried the controls put in place to limit WEL entering into forward commitments which could impact on the Council. The Strategic Director Resources commented that the Council's Chief Executive acted on behalf of TESC as the shareholder representative of the Council exercising the Council's 100% holding in WEL. Ultimately, this enabled the Council to exercise its shareholder powers and if necessary call an extraordinary general meeting to terminate the company or to consider such matters as the suspensionlreplacement of directors; Oversight was also maintained through the representation of Council Officers and elected Members on the WEL Board of Directors, the Joint Board and TESC; The Head of Governance and Democratic Services agreed to develop a generic governance checklist for local authority trading companies; Members questioned whether the Council's internal auditors were satisfied with the governance arrangements of WEL. The Business Assurance Manager commented that the department had not been asked to be involved, but that it could be added to the work programme if the Committee was so minded; It was clarified to the Committee by the Head of Governance and Democratic Services that the appointment of internal auditors was a matter for WEL to decide upon as an independent company; The Committee was informed that it was expected that WEL would be considering the list of remit documents which set out the detail of governance arrangements between the company and the Council on 31 March 201 1; Members sought reassurance that Officers who were Board Members could act independently. The Strategic Director Resources commented that the primary focus of the Chief Executive and other Officers was to act in the best interests of Wokingham

Borough Council. The Committee was informed that one of the Officers, Keith Mackenzie Capital and Systems Accountant, was able to the exercise the statutory powers of the Council's Statutory Finance Officer and was therefore totally independent; In response to a question, the Head of Governance and Democratic Services commented that part of the original purpose behind the establishment of WEL was to create a potential investment vehicle for an outsider developer. Therefore it was possible that a third party might wish to take a stake in WEL in the future, but that the Council as the 100% shareholder would have responsibility and control over that process. The Strategic Director Resources commented that any sale would have to be supported by TESC which would direct the Council Chief Executive's use of the Council's casting shares;

0 Members of the Committee expressed concern regarding the level of expertise required of Board members appointed by TESC to the WEL board and the level of training and support they would be offered. The Head of Governance and Democratic Services commented that training for Council representatives on the Board of WEL was being considered of part of the overall Members' training bid and the Strategic Director Resources commented that it was appropriate for individuals to receive the necessary training to undertake their roles.

Following the discussion, a number of Members commented that in their opinion, the Committee had not received a sufficiently robust assurance to allay the concerns raised by the Committee. It was felt that this was unsatisfactory and disappointing and that written answers to outstanding issues set out below should be brought back to the Committee at its next meeting. In addition, the Chairman of TESC, Councillor Matt Deegan should be requested to attend.

RESOLVED That: 1) The Post Meeting Action Sheet be noted;

2) The following matters in connection to Wokingham Enterprise Limited and local authority trading companies be clarified and brought back to the next meeting;

a) A list of delegations and the lines of delegation between the Executive, the Trading and Enterprises Sub Committee and Wokingham Enterprise Limited and a list of what delegations the Chief Executive had in relation to the Council's trading companies;

b) Confirmation of the agreement of Wokingham Enterprise Limited's governance documents;

c) Production of generic governance checklist to be followed as part of the creation of future local authority trading companies;

d) The governance framework for the Council's other local authority trading company, Connect Community Care.

84. NEW STATEMENT OF ACCOUNTING POLICIES The Corporate Accountant presented the New Statement of Accounting Policies

During the discussion of this item the following points were made:

B Members noted that the Statement of Accounting Policies had been revised to ensure the Council's compliance with International Financial Reporting Standards,(lFRS) and

the new ClPFA Code of Practice on Local Authority Accounting in the United Kingdom. No local amendments had been made. It was clarified to the Committee by the Corporate Accountant that the Council's Annual Statement of Accounts 200912010, of which the Statement of Accounting Policies formed part, would reflect the revised IFRS requirements. As a result the financial statements would be presented differently to previous years and a number of changes made to restate the 200911 0 comparative figures in the 201011 1 accounts, for example, changes to the category and valuation of assets. The restated accounts would be brought back to the June meeting of the Committee;

r Councillor Jorgensen asked whether the move of some of the Borough's secondary schools to Academies would have an impact on the Statement of Accounts, as a discontinued opportunity. The Corporate Accountant commented that she would look into this; - Members of the Committee questioned how the effect of hazardous substances, (such as asbestos) might be taken into account within property asset value assumptions. It was confirmed to the Committee that if any of the Council's property assets did have such issues, these would have been taken account of as part of the valuation; The Committee was informed that the because of a change in the accounts and audit regulations, the Council's DRAFT Financial Statement of Accounts could be approved by the S151 officer in June, without the need for audit committee approval. The audit committee only need to approve the final audited accounts in September. The existing arrangements would be followed for 201 01201 1, but in following years the new process would be followed if the Committee was content. No concerns regarding this suggestion were expressed.

RESOLVED: That the Statement of Accounting Policies be approved by the Committee for use in completing the Council's 201011 1 Financial Statements.

85. UPDATE ON IT SERVICE The Strategic Director Resources provided an update on how the transformation of IT Services from Computer Centre to Northgate had progressed, and any issues that had arisen during transformation. Mark Allcock, Operations Director for Northgate attended the meeting and provided an update on the transfer from Northgate's perspective.

During the discussion of this item the following points were made:

The Chairman expressed disappointment that the Council Officer responsible for the management of the Northgate Contract had not been invited to the meeting as he felt it was important and appropriate for the Committee to ask questions about the performance of the contractor and how the contract was being managed;

e The Client side Manager commented that three months into the contract, his view was that the transfer of responsibility and service provision from the previous contractor to Northgate had been seamless. Levels of performance were meeting all of the assigned targets. The working relationship between Northgate and the Council was felt to be positive and constructive with a priority being supporting the IT aspects of the Council's Transformation Programme such Smart Working. Savings had been achieved as a results of Northgate's greater purchasing power;

0 Members questioned what lessons had been learnt from the handover. The Strategic Director Resources commented that the previous contract had been very historical and a number of lessons had been learnt as a result of the handover;

e Staff internet and email usage was monitored. The Information Governance Group, which included representation from the Council's Human Resources service was kept informed of general IT issues;

e Councillor Patman expressed disappointment that the update was only a verbal one and commented that he felt it was important for the Committee to receive supporting information. The Committee was reminded by the Business Assurance Manager that it was outside of its role to review in detail the key performance indicators of the company, but that it could follow up indentified adverse risk and actions to mitigate those risks. The Chairman commented that it was intended that any reporting would be on the basis of exception only; Councillor Patman referred to a recent incident in which a small number of the Council's computers had become exposed to a computer virus and sought reassurance that the controls in place were adequate. The Committee was informed of the circumstances behind the breach and the measures being taken to prevent a reoccurrence; Councillor Jorgensen asked the Operations Director Northgate whether he felt there were warts of the Council's IT infrastructure that could be reaarded as beina at risk. The committee was informed that there was infrastructure Gat would needto be replaced in due course and that a programme for replacement that reflected the overall priorities of the Transformation Programme was in place. One change in progress was the establishment of several remote data centres; The Strategic Director Resources outlined a number of specific performance indicators whereby Northgate was meeting its service targets. The number of incidents logged in the three months since the transfer of the service was consistent with the period prior to the transfer of the contract to Northgate;

e The Chairman referred to the monitoring of internet usage by Officers and any action arising from unacceptable use;

RESOLVED: That the update on the IT service be noted.

86. CORPORATE RISK REGISTER The Strategic Director Resources presented the Corporate Risk Register on behalf of the Legacy Operations Board who owned the risks contained within the register.

Prior to the presentation and discussion of the item, the Business Assurance Manager paid tribute to the work of Steve Brady, Principal Internal Auditor for his excellent work in developing and embedding the Corporate Risk Register within the Council over the previous three years. In future this aspect of the work of Business Assurance would be undertaken by Rupert Bamberger, lnternal Auditor who would responsible for liaison with the Council's Strategic Directors and the Legacy Operations Board.

During the discussion of this item the following points were made:

o The Business Assurance Manager indicated that a new Risk, Risk 15 - 'Planning policy documents prepared by the Council become subject to Judicial Review by interest groups such as Parish Councils, resident groups, developers and landowners etc' had been added following earlier discussions of the Corporate Risk register by the Legacy Operations Board. He apologised that this had been circulated separately.

e No risks had been closed during the period under consideration. o Strategic Directors or Legacy Operations Board representatives had amended the

wording of Risks I , 4, 8, 9, 10 and 13 in light of the Council's moves to a

commissioning based model and in light of the increasing pace in implementation of the Council's Transformation programme; No risks had been reassessed for impact, although 6 (Risks 2, 7,8,9, 13 and 14) had been reassessed for likelihood;

0 A positive development had been a reduction in uncertainty around the Council's finance settlement following the release of a two year settlement by Central Government; The Internal Auditor commented that the likelihood of a failure by the Council in meeting its safeguarding opportunities in respect of children, (Risk 7) had decreased as a result of improvements, whereas some uncertainty around the implementation of new structures, future funding and service delivery models in social care tended to influence increase the risk of failure of Council failing to meet its obligations in respect of vulnerable adults. However it was accepted that the impact of a failure in either example would be high; Councillor Jorgensen queried whether any consideration had been given to the potential risks to the Council associated with schools being granted Academy status. The Business Assurance Manager commented that this had not been explicitly looked at, but the Strategic Director Resources informed the Committee that the issues around Academies formed part of a wider picture of risk to the Council around the impact of legislative changes. The Chairman asked that the issue might be looked at by the Risk Management Group.

RESOLVED: That Audit Committee considered and commented upon the risks and mitigating actions of the Council's corporate risks as detailed in the Corporate Risk Register.

87. AM ASSESSMENT OF ENTERPRISE RISK MANAGEMENT The Internal Auditor presented an assessment of Enterprise Risk Management (ERM) to the Committee.

During the discussion the following points were made:

Members were reminded that effective Enterprise Risk Management was an integral part of the Council's control environment and helped to demonstrate sound governance and the effective use of resources. A Council wide established and shared understanding of risk management was crucial particularly during the current time of transition and change;

Q Business Assurance currently facilitated Enterprise Risk Management at the Council. However, following the subsequent implementation of key risk management actions, Business Assurance would reduce its involvement over the next 12-18 months. Some activity would be retained within Business Assurance;

o With regards to the section entitled 'Further possible improvements to the level of risk maturity' it was agreed that the word 'possible' should be removed;

0 The Committee considered actions which managers would be required to undertake; a The Chairman asked that Steve Brady, Principal Internal Auditor be thanked for his

work and the success that he had had in this area. Members agreed that the Chairman should write a formal letter of thanks;

o It was felt by the Committee that Enterprise Risk Management should form part of a managers' targetslappraisals rather than being seen as optional. The Business Assurance Manager commented that he could raise this issue with the Legacy Operations Board;

o The Business Assurance Manager commented that it might be informative and useful for a different member of the Risk Management Team to report back to the Committee and suggested that a middle manager might attend.

RESOLVED That:

1) the contents of the report be noted which provided an assessment of the current risk management arrangements in place against the initial brief of Business Assurance to implement an effective system of Enterprise Risk Management;

2) a transfer of risk management activity from Business Assurance to senior managers in service areas be recommended;

3) the additional resources required to maintain or improve the level of risk management activity without the current reliance on Business Assurance be noted;

4) the risk of senior management not committing resources to help maintain1 improve risk management within the organisation be noted; and

5) it was noted that the report was approved by Legacy Operations Board on 15 March 201 1.

88. AUDIT COMMISSION ANNUAL PLAN 201011 1 The District Auditor on behalf of the Audit Commission presented the Audit Commission Annual Plan 201011 1.

During the discussion the following points were made:

o The Committee's attention was drawn to page 61 of the Agenda which set out the planned fee of £258,800 that the Audit Commission had intended to charge for its services in 201012011. The Committee was informed that expected costs of additional audit work arising from the implementation of International Financial Reporting Standards had been fully rebated as this work was no longer to be undertaken by the Audit Commission; The Committee's attention looked at pages 64-65 of the Agenda which set out a list of additional risks that had been identified as being appropriate to the current opinion audit and the District Auditor's intended response. These included the transition to International Financial Reporting Standards, the valuation of fixed assets and the impact of the establishment of Wokingham Enterprise Limited on the Council's Group Accounts; The Committee was informed by the District Auditor that two Value for Money conclusion risks had been identified around medium term financial planning and the Council's Transformation Programme as set out on Agenda page 69. The Council was facing the challenge of increasing efficiency and prioritising further within the context of tighter budgets. The management and operation of the Transformation Programme and the delivery of its project based elements represented a significant risk to the Council, although the internal measures put in place to seek to mitigate these risks were acknowledged together with the ongoing nature of the Transformation Programme; Members were informed that whilst the fee for the Council's audit had been based on the minimum level of work required to deliver an ISA compliant audit, the Audit Commission would continue to work with the Council to identify actions which could be taken to reduce fees or limit the need for additional fees.

RESOLVED: That the External Audit Plan for 20101201 1 be approved,

89. AUDIT COMMISSION AUDIT FEES The District Auditor on behalf of the Audit Commission presented the Audit Commission Audit Fees for the 20101201 1 financial year.

During the discussion the following points were made:

0 Members were informed that the indicative fee for 201 1/12 was £232,920 which compared to the planned external audit fee for 201011 1 of £258,800, Members were pleased to note the reduction;

o The Committee was informed that the Government had made it clear that the handover of responsibilities from the Audit Commission to local authorities should take place in a managed and scaled manner and that any opportunities for further savings and dividends arising from the process should be explored;

0 It was noted that the implementation of the International Financial Reporting Standards presented a significant change to the Council's accounting framework. It was believed that the key opinion risks faced by the Council included the incorporation of Connect Community Care Ltd, a wholly owned subsidiary of the Council. The Council's arrangements for managing Connect Community Care Ltd would be reviewed and specific procedures to establish whether the subsidiary company has been correctly accounted for in the Council's group financial statements would be carried out.

RESOLVED: That the revised audit fee for 201011 1 financial year be noted.

90. GOOD GOVERNANCE SURVEY The Committee considered the draft Good Governance Survey and noted that it would be launched at the beginning of April. The report was introduced by the Senior Internal Auditor.

During the discussion the following points were made:

The Good Governance Survey had been run in 2009 using the Audit Commission's template. This survey had produced some negative results and had not been well received by many Officers and Members. The survey had been considered too long and questions too ambiguous. The decision had been taken to design a Council specific survey;

0 The survey would run from 4-14 April. Results would be reported back to the Legacy Operations Board and the Audit Committee. They would be used to identify any improvements. The possibility of an Officer and Member working group to assist in taking forward any improvements was under consideration;

o The Committee examined the proposed draft questions; 0 The Chairman commented that it would be helpful if the survey results were presented

to both groups and the Business Assurance Manager undertook to establish the appropriateness of doing so;

RESOLVED That: 1) the survey be approved prior to its launch at the beginning of April 201 1;

2) the Audit Committee supports and assists in the promotion of this survey to encourage a high completion rate.

91. BUSINESS ASSURANCE INVESTIGATIONS PLAN 201 1112 The Principal lnvestigations Officer presented the Business Assurance lnvestigations Plan 201 1/12 to the Committee.

During the discussion the following points were made:

The lnvestigations Plan was designed to be a combination of reactive work and proactive fraud drives in order to maximise the amount of fraud and error detected. The Council had adopted a zero tolerance approach towards fraud; It was noted that the Key Performance Indicators that the lnvestigations team would be measured against had been expanded for 2011112 in order to ensure that the targets remained challenging and relevant; Members were informed of the implications of the Welfare Reform Bill; It was noted that if Corporate Fraud work was undertaken this would be reported to the Committee; It was suggested by the Chairman that the titles of KPl's 6 and 7 on page 112 of the Agenda should be slightly amended so that they described the TofalValue of Overpayments Detected and Tofal Benefit Sanctions applied; Opportunities for shared working with other public sector organisations were being investigated including providing an independent investigation service at a 'not-for- profit' daily rate; Members queried whether proactive work on Curriculum Vitae checks would cover employees employed through joint partnership arrangements. It was noted that recruitment fraud was a high risk for all employers; Members questioned whether part of the Investigation's Team workload covered checking the right to work of employees from outside the European Union. It was clarified that this did form part of the work load in terms of ensuring that appropriate checks were taken on employees who had limits on their rights to work of 18-24 months. The Principal lnternal Auditor commented that internal audit had confirmed that robust controls were in place and no problems had been identified; Another Member questioned whether full employment history checks were undertaken on new employees. The Principal Internal Auditor commented that the issue of accuracy and honesty in employment histories was recognised and appropriate checks were undertaken by Employee Services.

RESOLVED: That 2011112 lnvestigations Plan be approved

92. BUSINESS ASSURANCE INTERNAL AUDIT PLAN QUARTER 1 2011112 The Committee considered the Business Assurance Internal Audit Plan Quarter 1 201 1112.

During the discussion the following points were made:

e The Committee were informed that the audit on Transformation Commissioning Strategy Project would be undertaken in Quarter 2. Members requested that an audit on the governance arrangements for local authority trading companies including Wokingham Enterprise Limited and Connect Community Care be undertaken during Quarter 1;

r Members expressed ongoing concern regarding the governance arrangements of the Council's local authority trading companies and felt that further clarity was necessary around delegation;

0 Members asked a number of questions regarding the Legal Shared Service. The Chairman questioned who would own the redundancy costs, and what provision would be made to cover these should an ex Reading Borough Council or Royal Borough of Windsor and Maidenhead employee be transferred into the shared legal services and be made redundant, due to their role no longer being required. He also questioned whether the Council would be insisting that those joining the Wokingham team would be required to meet the same standards as those currently employed (for example qualifications) in addition to matters such as Criminal Records Bureaus checks. It was agreed that the Head of Governance and Democratic Services would be asked to respond in writing;

s Members were informed that from 1 April the Business Assurance Manager would become the Director of Business Assurance and Democratic Services for one year and the Head of Governance and Democratic Services would become the Director of Legal and Electoral Services for one year, remaining as the Council's Monitoring Officer. The Committee was also informed of internal changes within the Business Assurance and Investigations Teams.

RESOLVED: That the Internal Audit Plan Quarter 1 (IAP Q1) 201 1112 be approved subject to replacement of the audit on Transformation Commissioning Strategy Project, which has been moved to Quarter 2, with an audit on the governance arrangements for local authority trading companies including Wokingham Enterprise Limited and Connect Community Care.

These are the Minutes of a Meefing of the Audif Commiffee

I f you need help in understanding fhis document or if you would like a copy of if in large prinf please contact one of our Team Support Officers.

MINUTES OF A MEETING OF THE AUDIT COMMITTEE

HELD ON THURSDAY 19 MAY 2011

DURING THE ADJOURNMENT OF THE ANNUAL COUNCIL MEETING

Present:- Alisfair Corrie, Barrie Pafman, Bob Piffs and Paul Swaddle

1. ELECTION OF CHAIRMAN FOR THE 201112012 MUNICIPAL YEAR

RESOLVED: That Philip Mirfin be elected Chairman of the Committee for the 201 112012 municipal year.

RESOLVED: That Barrie Patman be appointed Vice-Chairman of the Committee for the 201 112012 municipal year.

3. APOLOGIES Apologies for absence were received from Councillors Philip Mirfin and Beth Rowland

4. DECLARATION OF INTEREST There were no declarations of interest.

These are fhe Minufes of a Meeting of the Audif Commiffee

If you need help in undersfanding this document or if you would like a copy of if in large prinf please contact one of our Team Support Officers.

MEETING ACTION SHEET

AUDIT COMMITTEE 29 MARCH 201 1

The following are actions required arising from decisions made at the above meeting:

/ Subject I Consideration of the Item from I Minute I Decision / Action Required I Person 1 Deadline 1

Local Authority Trading Companies

Enterprise Risk Management - Steve Brady

Service Audit

of Enterprise Risk

in this area. Members agreed

would be helpful if the survey Governance Survey results were presented to both groups. It was noted that an update would also be provided to the Committee at its June

cover these should an ex RBC or RBWM employee be transferred into the shared legal services and be made redundant, due to their role no longer being required. He also questioned whether the Council would be insisting that those joining the Wokingham team would be required to meet the same standards as those currently employed (for example qualifications) in addition to matters such as Criminal

Governance and Democratic Services would be asked to