Agenda item

The Strategic Director of Resources presented the report. He presented the apologies of the Divisional Director – Risk and Assurance, who was unwell. He said that it was intended to do further work on the third option (the co-sourced model). Appendix 1 showed the scorings for the four options considered. The partnership model had achieved the highest score. The report referred to two existing partnerships, the Devon Partnership and the South West Audit Partnership (SWAP). He believed that a partnership would be able to deal with the complexity of the world in which local authorities now operated, while offering improved value for money. He noted the presence of Internal Audit staff in the public gallery, and acknowledged their apprehensions about restructuring. He believed that a partnership could allow the skills and experience of local staff to be used, while also allowing greater flexibility in the deployment of specialist staff. Value for money and resilience were two key issues.

He said that the present report summarised the first stage of the project, on which the Committee was invited to comment. It was important to have the right model in place for the next financial year. Cabinet would decide the level of financial resources to be allocated to the internal audit function, but would take into account the views of the Committee. SWAP used to be led by South Somerset District Council, but is now a Limited Company, so it was not certain whether or not entering into an arrangement with them would be subject to the procurement rules. The Devon Partnership was still local authority led.

Councillor Macrae said that knowledge and experience of local staff was very important, as was continuity. He cautioned against regarding this as a cost-saving exercise. It should be about extending the range of expertise available to the Council. The same areas of work were deferred repeatedly, which suggested that there was a lack of expertise in these areas.

Councillor Coombes agreed that the emphasis should be on increasing expertise when the issue was taken to Cabinet. However, he wondered why restructuring was being considered at all. The report implicitly ruled out the in-house option, without making it clear why change was necessary or desirable and what the objectives were. He thought the similarity in some of the scorings for different options raised suspicions about how accurate they were. The Strategic Director of Resources suggested the objectives were implicit in the scoring criteria. There were comments about the in-house service in the report.

John Barker said that he had had an ongoing dialogue with the Divisional Director – Risk and Assurance during the development of these options. A lot of detailed work had been done, which he believed should be made available to the Committee. At present, it was not clear what level of resources the Council was prepared to allocate to audit functions; the only figure available was the £381K given in the report as the budget for Internal Audit in 2013/14. More clarity should be sought about this. The Strategic Director of Resources pointed out that it was stated that staffing and budget would not change for the next three years.

Mr Barker reminded Members that he had previously recommended the adoption of a strategic audit plan for at least three years to replace the current annual plans. One of the key benefits of a partnership was the ability to share expertise; any partnership should maintain a register of expertise and endeavour to increase the range of expertise over time. He knew of other audit partnerships, such as the Southern Audit Partnership, and a partnership between Oxford and Buckinghamshire County Councils, with which Hertfordshire County Council was currently negotiating. These other partnerships could provide benchmarks, which could assist with negotiations with Cabinet about resources.

The Chair said that a significant change in the structure of Internal Audit was being proposed, and the Committee needed to be assured that the new arrangements were sound. He asked how many of the 9.5 full-time equivalent audit staff worked in the field. Members of audit staff explained that 6.5 were involved in front-line work. He asked what checks would be made on the financial status and directors of SWAP before an agreement was made with them.  The Divisional Director – Finance said that an appropriate range of checks would be carried out.

The Strategic Director of Resources said that there were issues of fit and scale that made some authorities possible partners and others not. There was no proposal for a partnership with Bristol, because their role and scale did not match those of B&NES. He was aware that North Somerset was at a similar stage in relation to future plans for Internal Audit as B&NES was, and they might make an appropriate partner.

Mr Hacket said that the external auditor did not have a view on the right model for internal audit arrangements, but just wanted to be satisfied that there was clarity about what services were required and by whom they were provided.

Councillor Coombes said that he still felt that a key stage had been missed from the process: that of identifying exactly what was wrong with the current arrangements.

Councillor Macrae suggested that increasing the in-house resource might not deliver the desired result. The Committee should make it clear that whatever arrangement was adopted, there should be no increase in risk to the Council and preferably a reduction in risk.

John Barker felt that having a bigger pool of auditors to draw on, as would happen in a partnership, must be a positive development. He suggested that arrangements needed to be put in place to prepare an inventory of existing skills and needs of current B&NES staff and of each potential partner so far identified, so as to identify any critical skill shortfalls that a preferred partnership may not be able to deliver.

The Strategic Director of Resources said the comments made by Members had been extremely useful. He had noted that, among others, issues of flexibility, resilience, continuity and retention of existing skills had been raised. He hoped that a more advance proposal would be presented at the September meeting of the Committee.

John Barker suggested that arrangements needed to be put in place to allow effective consultation with the Committee about this project during the three months before the September meeting, to ensure that all aspects were covered. The Chair said that he would liaise with the Strategic Director of Resources and the Cabinet and bring any significant issues to the attention of Members.

RESOLVED by 5 votes in favour and 1 against:

A)  To endorse in principle the partnership model of service delivery as the appropriate way forward for the Internal Audit Service in the medium to long term;

B)  To recommend to the Council to enter into a period of due diligence to assess whether a partnership model can be implemented within existing budgets and by or within the 2014/2015 financial year subject to the appropriate financial and legal checks and controls;

C)  That the Divisional Director reports back to the Corporate Audit Committee with regular updates to ensure it keeps up-to-date and comments on any parts of any implementation process as appropriate.