Joint Audit Committee – Wednesday 28 September 2022

Joint Audit Committee

Meeting Minutes

 

Date:            Wednesday 28 September 2022

 

Time:           1300hrs

         

Location:     Microsoft Teams

 

 

Committee Members:

Melvyn Neate (MN)                        Chair

Liz Mackenzie (LM)                       Vice-chair

Peter Lloyd (PL)

Katherine Pears (KP)

Gordon Manickam (GM)

 

In Attendance:

Donna Jones (DJ)                        Police & Crime Commissioner, HC

Richard Croucher (RC)                Chief Finance Officer, HC

Andrew Lowe (AL)                       Chief Finance Officer, OPCC

Jason Kenny (JK)                        Chief Executive, OPCC

Andrea Tompkins (AT)                 Head of Corporate Insights, HC

Ace Dann (AD)                            Strategic Risk Manager, HC

Karen Shaw (KS)                         Chief Internal Auditor, OPCC & HC

John Newton (JN)                        Deputy Corporate Accounting Manager, HC

Sarah Devaney (SD)                    External Auditor, E&Y

Karen Williams (KW)                    Staff Officer to Richard Croucher, HC

 

 

Declaration of Interests (Item 1)

There were no declarations of interest.

 

Apologies (Item 2)

Olivia Pinkney                              Chief Constable, HC

Ben Snuggs                                 Acting Chief Constable, HC

Lucy Hutson                                 Acting Deputy Chief Constable, HC

Mike Lattanzio                              Chief Information Officer, HC & TVP

Kevin Suter                                  External Auditor, E&Y

Jane Goddard                              PA to Richard Croucher, HC (minutes transcribed)

 

565. Chair’s Report (Item 3)

The Chair advised there was nothing to report for this session.

 

566. Minutes, Matters Arising and Action Log (Item 4)

Minutes from the previous meeting were agreed as accurate.

 

Action Log

Updates were provided on the three outstanding actions:

 

• 99 – The request for a future training session on the Professional Standards Department has been added to the training list. Action closed.
• 100 – AL confirmed the agenda for the confidential JAC meeting can be published on the OPCC website. Action closed.
• 101 – Wording of section 3.3.1 of the OPCC Annual Governance Statement 2021-2022 was confirmed to be correct. AL is happy this forms part of the PCC’s remit.  Action closed.

 

567. Statement of Accounts (Item 5)

Introduction provided by the two Chief Finance Officers and AL advised that the statement of accounts was the subject of yesterday’s training session.  Due to the outstanding valuations, we are not in a position to sign off the accounts today but SD can update on the current status.  AL and RC thanked all involved for their hard work during this process.

 

SD highlighted some of the key areas in the report.  The original planning report was presented in May and the approach has not changed, however the values have increased slightly.  SD explained this is due to using the final year-end figures, which were not available at the planning stage

There have been no changes to the risk assessment throughout the audit procedures.  Work has been completed around inappropriate capitalisation of revenue and there are no findings to report to the JAC.

Property, plant and equipment (PPE) valuation was an area that was still outstanding, however the final pieces of information have now been received and testing should conclude this week.  This will then require review and sign off at the appropriate level.

In relation to the IAS19 pension accounting, the outstanding area is in relation to the assurances received from the audit team who perform the work.  Four pieces of information were outstanding, however three have now been received and the final part continues to be chased and it is hoped to conclude this week.

 

SD commented on the audit adjustments we had identified as currently uncorrected.  We have agreed with management that they will be corrected.  This is due to timing differences with preparation and receipt of accounts and is not cause for concern.

 

As a final point, no risks were identified in May with regards to the value for money planning and this has remained unchanged.

 

Question from MN with reference to the data analytics performed and whether there were any interesting findings from this exercise.  SD advised there was nothing unusual that could not be corroborated or understood as part of normal business for HC or the OPCC.

 

MN raised two items from yesterday’s training session as points for further discussion.  Firstly, on page 18 of the pack, under police service indirect employer costs, there was an overspend of £1.88m.  RC explained a significant proportion of that budget is from ill-health retirements (IHR).  The force pays a charge when individuals leave the organisation in this way, which is twice their salary.  HC appears to have higher costs in this area in comparison to other forces and a new role is being introduced, similar to one in TVP, to review IHR opportunities, such as redeployment.  The role would fund itself through IHR savings and would make good use of skills and identify opportunities for individuals to remain in the organization.

 

Question from MN regarding 16B – debtors & creditors – and why numbers have

nearly doubled from last year.  JN states the largest single contributing factor is the same for both and is a result of the collection fund adjustment, which was posted in the last week or so, as mentioned in external audit.  This year the collection of the adjustment fund was material, whereas last year it was immaterial.  This means we are comparing last year, with no collection fund adjustments, to this year with collection fund adjustments, which explains the large variance between the two years.

 

Question from MN on the subject of reserves, with regards to how they are derived, whether they are specific or discretionary and what judgements are made when deciding on the levels?  AL responded that overall it is discretionary, however it would be expected, as part of good financial management to have a minimum level of general fund reserves set aside.  Some exist for specific purposes, such as the estate or equipment purchases and others will have been in place prior to the current PCC.

 

DJ acknowledges we do have quite a large reserve, however this correlates with the size of our force.  Reassurance provided by RC that both he and the Chief Constable are very involved in how the reserves are used and they are not being held to the detriment of providing a policing service.  The reserves are targeted at improving future service delivery and we do anticipate needing to spend those sums of money in the next 2-3 years.  DJ reinforced that it can only be used for one-off costs and not for a long-term commitment, such as staffing.

 

PL sought further clarification of how the adjustment fund collection works.  JN advised it is to do with the timings of the collection authorities (district and boroughs) and then paying over the precept to the police authority.  Once the information is collected, it is not received until after the draft accounts are published.  DJ explained that when the budget is provided it is an estimation of what the collection rate will be, predicted by RC and AL, which may lead to higher or lower amounts than expected.

 

Question from LM regarding financial sustainability and whether the auditors are content with what has been written about the assessment of future budgets.  Response from SD that this is reviewed as part of the value for money aspect, to consider whether arrangements the CC and PCC have in place are financially sustainable, or whether there will be a future risk.  From the work performed, it has been concluded there are appropriate arrangements and processes in place.

 

Comment from PL regarding the likely doubling of external audit fees as mentioned at the last meeting and whether any decisions had been made.  RC advised the fees are set out within the report and the proposed fee for 2021-22 is the same as 2020-21.  There is an intention from the Redmond Review to properly review what is the right amount of money we should expect to pay in the current market and the PSAA will make sure they share that advice, recognising the pressures on the Audit industry at the moment.  RC is of the opinion that the amount we are paying is very reasonable for the services received.  The discontent comes from having a lower contracted amount.  RC acknowledged that it is very possible we will see a significant additional pressure on fees for 2023

 

Final comments from MN and thanks to all involved for putting these accounts together.  Accepting these are not signed off yet, they look like a good and clean set of accounts.  MN also commented on the large number of pages relating to the accounts and noted that the need to apply accounting standards was a contributing factor, even though some of the regulations are not applicable to the public sector, which creates a lot of additional work.  AL shares MN’s frustrations and noted there has national discussion and lobbying about simplifying the accounts and it is hoped there will be some progress in the next 12-18 months, as real action is required in this area.

 

568. Internal Audit – Annual Audit Report (Item 6)

Introduction from KS and reminder that it is a requirement of the Public Sector Internal Audit Standards to produce this annual report.  This consists of three aspects – the work we conduct directly, the shared arrangements with HCC and HIOWFRS, and the collaborations with TVP around ICT and information management.  This opinion is based on those three aspects.  Audit standards also allow reliance to be placed on other sources of assurance, including the work we have conducted, the work E&Y have conducted and TVP internal auditors.

KS highlighted this is in a different format to previous reports, with assignment reports featuring in the confidential session to follow.
 

569. Annual Audit Opinion (Item 7)

         

Overview of the report provided by KS.  Overall, section 4 shows there continues to be a reasonable assurance rating of the risk management, control and governance process.  KS is content there is a sound control environment for the majority of elements reviewed, further details of which are provided in section 5.

 

It is noted that one of the most important factors of the report is how it is responded to, in terms of the delivery of the management actions.  Progress is closely scrutinized, with regular reports received on any overdue actions and KS remains confident in the process.  There was also no fraud or irregularity to draw attention to.

Thanks passed from MN and an acknowledgement of the good response from management to internal audit reports

 

Question from PL with regards to a comment on page 5 of the report, which states

“a further ICT review was requested by ICT management but did not take place”.  Further details sought as to why this review was requested and why it did not take place.  In response, KS is not aware of specific reasons and believes Neil Shovell felt comfortable about the work that had been already undertaken but is happy to clarify.
ACTION 102: KS to ascertain from Neil Shovell why the further ICT review was requested and why it did not take place.

 

570. Internal Audit Progress Report (Item 8)

 

Update provided on the current position of this year’s plan and it was confirmed that

the 2021/22 plans have now been finalised.  In terms of 2022/23, all the audits

assigned to quarter 1 and quarter 2 are in progress and quarter 3 audits are being

allocated across the team.  It was noted there have been delays in finalising some

of the reports, due to sickness.

 

High level summary of management actions provided.  Question from MN about the

overdue OPCC safeguarding action and what this refers to.  It was confirmed this

relates to training for staff and volunteers and was delayed by the recruitment of the

new Senior Business Manager.  DJ advised the current Head of Business has

reviewed this action in the interim and the safeguarding lead has been appointed

and progress has been made.

 

LM asked for a view on capacity and resourcing levels in the team, noting the competitive nature of the market.  Is there confidence there will be enough resilience to deliver the plans for the rest of the year?  KS recognises this as a significant risk, which is being closely monitored and will be escalated should concerns increase.  Steps are being taken to mitigate this, looking at future capacity and addressing how we can compete against private sector markets.  KS confirmed that at this stage in the year there is confidence we have the resource to deliver the plans, however is mindful this could change

571.    Treasury Management (Item 9)

 

Presented by AL and reflects 2021-2022, however it is noted the markets have changed considerably over the course of the last week.

 

An overview of the borrowing position and maturity was discussed.  In summary, there is £29.7m outstanding at an average rate of 4.3% interest.  AL explained that the option to repay our debts early is constantly being explored, however market conditions have not always favoured this approach.  AL is in discussions with Treasury Advisors, Arlingclose, and this position is regularly monitored.

 

DJ raised that due to increased interest rates, there is a balance to be made between borrowing and using the opportunity to lend money to generate income.  Treasury Advisors are reviewing the risks and assessing the ratings of those organisations we lend to, in order to ensure this is managed in a controlled way.
Question as to whether there is any discretion as to how flexible we can be in terms of abiding by the advice given by Arlingclose.  DJ advised there is discretion and in this situation, a discussion would take place between AL and DJ to ensure both were comfortable with the arrangement. DJ summarised that it is about maximising and taking the opportunities we can, without exposing public money to too much risk.

Discussion around the risk of inflation, using example of gas and electricity prices.  This is being monitored by DJ, RC & AL and the importance of being aware of the risks, opportunities and changing developments was highlighted.  DJ updated that the risk was raised during last year’s budget setting for this year, built in at 4%.  Some of this year’s underspend has also been placed in the inflation reserve.

 

Question from PL to clarify whether the PWLB loans are variable or fixed rate.  DJ confirmed they are fixed at the point we borrow and this rate will remain for the term, however they do fluctuate in line with the Bank of England base rate.  It is noted that our loans were borrowed a number of years ago, so will be different to today’s rates.

 

Clarity sought by PL in relation to paragraph 6.6 of the outturn report and the wording of the PCC strategy to “maintain borrowing and investments below their underlying levels”.  DJ explained this referred to our headroom borrowing limit and external auditors need to ensure we are not setting that too high as a proportion of income.

 

Question from GM regarding paying back the PWLB loans and whether there is any value in doing this in the current circumstances.  DJ agreed we should not be repaying them at the moment if they are cheap but notes there is only a short opportunity to review the situation.  DJ further updated on plans to generate income, such as reviewing opportunities around effective use of the police estate and ACRO.

 

The public session closed at 1410hrs