BERWICK-UPON-TWEED BOROUGH COUNCIL

ANNUAL INTERNAL

AUDIT REPORT

2006/07

Report Prepared by : Senior Auditor (Paul Hunter) Date of Issue : 18th April 2007 Date of Committee : 13th June 2007

CONTENTS

SECTION PAGE NO.

INTRODUCTION 2

Section 2: REVIEW OF INTERNAL CONTROL: 3

SIGNIFICANT ISSUES ARISING 2006/07

Section 3: CORPORATE GOVERNANCE REVIEW 9

Section 4: REVIEW OF AUDIT PERFORMANCE 11

Section 5: EXECUTIVE SUMMARIES 15

(1^st October – 31^st March 2007)

Section 6: BACKGROUND: 34

The Annual Reporting Process

Requirement for Internal Audit

How Internal Control is Reviewed

Introduction

The following report presents the work of internal audit during the year and covers the following:

Section 1 - Audit Opinion 2006/07

Service/Area	Type of Audit
Housing & Council Tax Benefits Administration	SBA
Accountancy	SBA
Car Parking	SBA
NNDR	SBA
Structures & Processes	Corporate Governance
Planning Applications	SBA
Procurement	SBA
Community focus / Service Delivery – Data Quality Assurance	Corporate Governance
Fraud Investigation Service (Benefits)	SBA
Payroll	KC
Creditors	KC
Treasury Management	KC
Asset Management	KC
Authorised Signatories – Orders/Invoices	P & R
Post Opening Procedures	P & R
Cash Office	P &R
Tourist Information Centres	P &R
Beadnell Bay Boat Launching Site	P &R

KEY: CG = Corporate Governance; KC = Key Control; P&R = Probity & Regularity;

SBA = System Based Audit

From the work undertaken during the year, Internal Audit (IA) has reached the opinion the above systems are operating soundly and that there were no fundamental breakdown of controls resulting in material discrepancy. It is considered that in general the systems and procedures are well established and working satisfactorily in practice.

However there are a number of issues identified that we wish to draw your attention too:

(1) Our system based audits of NNDR & Renovation Grants have identified risks in services where only one officer is required and as a result management need to closely monitor these services to ensure that the control environments remain secure.

(2) The lack of an audit trail of access rights for officers within TASK (financial) systems has again been highlighted through our system based & key control audits. Officer’s access rights can only be viewed on screen, no hardcopy can be produced and no audit trial of changes to permissions is generated by Task. It is therefore not possible for internal audit to give absolute assurance that the access rights for officers are in line with their appropriate responsibilities and duties. It should be noted that our software supplier has confirmed that this facility is available in their new system which the Council has planned to implement in financial year 2007/08.

In conclusion it is considered that satisfactory arrangements were implemented to ensure the effective, efficient and economic operation of the Council’s financial affairs. However, no system of control can provide absolute assurance against material misstatement or loss, nor can Internal Audit give that assurance; this statement, as it did in 2005/06, is intended to provide reasonable assurance only.

Section 2 - Review of Internal Control

The following section provides a summary of significant work or issues undertaken or identified during the year from which our audit opinion was derived.

2.1 System Based Audits / Key Control Audits

During 2006/07 six system based audits (SBA) were formally signed off by management (i.e. SBA – Renovation Grants, HB/CTB Administration, Accountancy, Car Parking, NNDR, Planning Applications & Procurement), executive summaries are shown at section 5. A total of 177 audit days were required to complete the above audits. As a result of checking the secure post opening arrangements for housing & council tax benefits, 3 of the above audit days were used to review the Council’s overall post opening operation. In addition a system based audit of our fraud investigation service was undertaken by Alnwick District Council acting as a critical friend, this was a reciprocal arrangement, whereby Alnwick’s fraud investigation service was audited by Berwick’s internal audit.

2.2 2006/07 Significant Areas Arising

2.2.1 Problems were identified within the NNDR service as a result of a special investigation and a system based audit, however actions were agreed with management during the year to rectify the identified risk areas. Continued adherence and review, by management, of the controls identified will ensure the control environment for this service is secure.

2.2.2 Achieving separation of duties is always an issue for small district Council’s, especially in service areas where only one officer is required e.g. NNDR, Renovation Grants, Debtors etc. System based audits of the NNDR & Renovation Grants services during 2006/07 have again highlighted these issues and recommendations were made by internal audit to secure the respective control environments of these two service areas. Actions agreed were; the introduction of a robust management checking regime; a review of permission levels/responsibilities granted to officers to ensure they are aligned to their duties; and the development of comprehensive operational procedures. These actions are fundamental to all service areas but increase in importance in service areas where only one officer is required.

It should be noted that none of the agreed actions contained within the Renovation Grants Action Plan have been implemented, therefore this service remains at risk. A further review of the service will be undertaken during 2007/08 to ensure the control environment is secure.

2.2.4 Recommendations Agreed:

Management have agreed the majority of the fundamental and significant recommendations made this year and responsibility and implementation dates are in place, as are IA monitoring arrangements (i.e. three monthly & six monthly reviews).

2.2.5 Fundamental/Significant Recommendations Not Agreed:

The recommendations not agreed by management and/or reasons/risk/s associated with non-implementation are noted below.

Car Parking:

(i) the establishment and monitoring of rotas and patrol routes for the inspection of car parks was not agreed as management considered it was not feasible due to the present level of cash collections.

(ii) the marking of parking bays within the grassed area of Castlegate car park was rejected by management, as they considered resources could be better utilised by identifying a long term parking solution in preparation for the expiry of the agreement with English Heritage in 2009. The effect of implementing this recommendation would have been to release car park attendants from their duties of parking cars on the grassed area and so increased the available enforcement time. The risks therefore are; (i) that non compliance with parking regulations could go undetected and therefore unpunished and (ii) revenue from enforcement action may not be maximised.

Renovation Grants:

(i) it was considered that within the current resources the service was unable to implement an independent periodic check by a senior officer to reconcile grant payments to approved applications. This issue is important as separation of duties is limited within this service and management controls therefore increase in importance. This issue is noted within the Audit Opinion.

2.2.6 Agreed Actions:

Despite responsibilities and timescales for implementation of audit actions being agreed with management, we have had to invest a considerable amount of time and effort during 2006/07 to ensure management comply with the agreed action plans. This is considered an inefficient use of our limited audit resources. Management need to ensure that they plan and prioritise the necessary work within the day to day activities of their services, to ensure that timescales are adhered too.

It was intended that during 2006/07 agreed audit actions would be monitored by using the Council’s performance monitoring system (Covalent), this was not actioned; however this will be implemented during 2007/08.

2.3 Key Control Audits

The process of identifying, evaluating and managing key risks in order to establish key controls for each fundamental financial system was completed by 31^st March 2006 and all controls have been agreed and formally signed off by management.

The establishment of key controls enables IA to achieve greater audit coverage of the Council’s fundamental financial systems, so enabling Members, senior management & external audits/inspectors to gain assurance that the Council’s financial systems are operating as intended and the control environment is secure for the areas covered.

During 2006/07 four key control audits were formally signed off by management (KCA – Payroll, Creditors, Treasury Management & Asset Management). Management have agreed actions detailing responsibilities and timescales for implementation for all recommendations made. A total of 20.5 audit days were required to complete the above audits.

2.4 Regularity & Probity Audits

Audit coverage during the year also concluded that the cash office, tourist information centres and the charter market continue to operate well. Reports have been issued throughout the year detailing minor weaknesses and recommendations have been made to enhance improvement. In general systems and procedures in place at the Council establishments are satisfactory and working well.

The audit of the boat launching facility at Beadnell Bay uncovered a number of issues relating to the issuing of permits and control documents in place, these were reported to management and actions agreed and taken to rectify the problems.

2.5 Performance Management / Risk Management / Business Continuity

Performance Management: The Improvement & Projects Officer continues to develop processes and procedures to ensure that performance data is input into Covalent on a timely manner and to ensure that the data quality retained as evidence is of a standard required by the Council and the Audit Commission. In order to check the level of compliance a Data Quality Assurance Audit of a small sample of BVPI’s was undertaken by Internal Audit during March 2007 (see section 3 for observations and section 4 for executive summary). A total of 5 audit days were required to complete this audit,

Risk Management: Building on the work undertaken during 2005/06, Zurich Municipal facilitated risk management awareness sessions to all nominated responsible officers in the 1^st half of 2006/07 and followed this up with directorate risk management workshops in October 2006. Internal audit assisted the Borough Solicitor in establishing Operational Risk Registers for all service areas. These registers were checked and populated by the nominated responsible managers and contain the risks, any risk mitigation procedures/controls in place that reduce the risk to an acceptable level and an assessment of whether the risk currently exists. All operational risk registers have been input into the Covalent as has the Council’s strategic risk register.

As in previous years the Council’s have in place a comprehensive insurance arrangement, which to some extent mitigates operational risk/s in those areas covered by the arrangement.

All audits undertaken during 2006/07 have been subjected to checks to ensure operational risk registers and business continuity plans are in place, if not then appropriate recommendations have been made. Where risk registers and business continuity planning were in place IA have reviewed & assessed these as part of the audit process.

2.6 Statement on Internal Control (SIC)

The Accounts and Audit Regulations 2003 that came into force on 1^st April 2003 established requirements related to systems of internal control and the review and reporting of those systems. Accordingly, the Authority put in place a process for establishing, maintaining and reviewing the system of internal control and risk management.

The Head of Finance (Accountancy & Audit) & Senior Auditor developed a Review of Internal Control – Detailed Procedures document which supports the SIC. This document is well established now and requires senior managers to sign assurance statements for Governance issues, Prioritisation & Planning processes, Performance Management, Risk Management, Procurement Strategy, Project Management, Financial Controls, Human Resource issues and External Inspections. This document was formally signed off by senior managers and used to support the SIC for the 2005/06 annual accounts. The work carried out by internal audit was reported to Policy CS&R Committee. A total of 5 audit days was required to complete this work.

At the present time Internal Audit is coordinating and updating the Review document to evidence the 2006/07 SIC.

Within the SIC, Internal Audit has provided the Council with an opinion based upon the risk based plan coverage during the year. However, in addition to this plan, Internal Audit has and will continue to specifically assess the adequacy of the control and monitoring mechanisms adopted by the Corporate Management Team, the Corporate Risk Management Group, the Insurance Officer, the Health & Safety Officer and the Monitoring Officer, who has responsibility for reviewing and monitoring the Council’s Constitution.

Issues relevant to the 2006/07 SIC:

1. Strategic and operational risk registers have been uploaded on to the Council’s performance management system (i.e. Covalent) and training has been provided for Members and responsible officers, however there is a need to introduce a more robust monitoring system for operational risks. Risk management also needs to be further embedded into the day to day activities of the Council and its managers.

2. The improvement of the audit trail of access rights to TASK financials is still an issue, however this has been raised with the software provider and this issue will be rectified by the implementation of the new financial system which is planned for financial year 2007/08.

Section 3 - 3.1 Corporate Governance Review

The purpose of the Corporate Governance Review is to obtain an overview of the systems, processes and documentation in place to demonstrate compliance and good

practice in relation to the principals of Corporate Governance. The five areas of corporate governance are Community Focus, Service Delivery Arrangements (see section 2), Structures and Processes, Risk Management & Internal Control (see section 2) and Standards of Conduct. Two corporate governance audits have been undertaken during 2006/07 covering Structure and Processes and Community Focus/Service Delivery i.e. a Data Quality Assurance Audit.

3.1.1 Community Focus

A Data Quality Assurance Audit of Best Value Performance Indicators (BVPI’s) was undertaken during 2006/07. The BVPI’s were taken from a sample specifically identified as having either a large variance from previous figures or where there was cause to question whether evidence was held for the calculation. Recommendations were made for four of the BVPI’s s selected and responses have been received from management to address and rectified these issues.

3.1.2 Structure & Processes

An audit of the above was undertaken during 06/07. The following areas were reviewed:

There were 4 recommendations made and management agreed actions detailing responsibilities and timescales for implementation.

The Monitoring Officer has confirmed that the constitution is lawful, up to date and fit for purpose and that decision making has been lawful, efficient, transparent and accountable throughout 2006/07. A review of the protocol for member and officer relationship was undertaken during 2006 and agreed by full Council. It replaces the original protocol adopted 4-5 years ago and has built on good practice elsewhere. This document sets out the different roles which members and officers play and what each group can expect of the other both, collectively and as individuals. The protocol is available on the Council’s Intranet.

During the course of our audits the financial procedure rules of the Council have been reviewed and updated where appropriate and if required additional operational procedure rules drafted.

3.1.3 Standards of Conduct

As reported within the Interim Internal Audit Report, Internal Audit reviewed and updated the Council’s Anti-Fraud & Corruption Strategy in the 1^st quarter of 2006/07. This document now includes the Council’s policy on the Proceeds of Crime Act 2002 (Anti-Money Laundering) and the Housing & Council Tax Benefit Anti-Fraud Policy and Strategy as well as the Officer Code of Conduct. The Strategy is available to all staff and members via the Council’s Intranet.

Reminders were sent from the Chief Executive, on 9^th May & 24^th October 2006, to all staff with regard to officer’s responsibilities in declaring offers of Hospitality. Whistleblowing

IA continues to act as the custodians of the Council’s Whistleblowing Policy. This is an important area and the Council has in place formal monitoring and reporting arrangements. IA reviewed the Policy during the 1^st quarter of 2006/07 against a good practice policy pack purchased from Public Concern at Work, who are an independent authority on public interest whistleblowing.

The Council continues to subscribe to the Public Concern at Work helpline which provides staff with a free confidential helpline, as recommended by such bodies as the Financial Service Authority and the Committee on Standards of Public Life. This enables staff to raise any whistleblowing concern constructively and safely.

To raise staff awareness and trust of the whistleblowing avenues, posters have been positioned throughout the Council Offices providing details of how to raise a concern if an employee can not raise the concern with their manager or if they have and it has not worked out.

special Investigations

Audit resources were diverted from the audit plan during September and October 2006 to undertake an investigation in to potential irregularities. A total of 20 audit days were required to complete the investigation which resulted in disciplinary action against an officer.

Section 4 - Audit Performance

4.1 Ensuring Quality

All our work is undertaken in accordance with the Code of Practice for Internal Audit in Local Government and the Local Government Internal Audit Manual produced by CIPFA.

Our work is planned using a risk based methodology and our audits are undertaken using the system based auditing approach. This method ensures we focus on key controls within systems and evaluate those to see that they meet the control objectives of management and the auditor. This enables the section to produce high quality reports to management and helps in the continuous improvement of systems & development of internal controls.

We have and continue to work closely with our External Auditors (EA) i.e. Deloittes. We have worked with them and management to develop key controls for all main financial systems so that EA can rely heavily on our work on the key financial systems, allowing greater reliance to be placed on our work and gain assurance that the main financial systems are operating as intended. Such assurances contribute to EA’s “sign off” of the Council’s Accounts and contribute to their ‘conclusions’ on the financial aspects of financial governance.

As part of IA’s commitment to ensuring the highest professional standards and to achieve continuous improvement in the quality of our work, a customer satisfaction survey (CSS) has been developed. The survey requests managers to provide an assessment ranging from 5 (for excellent) to 1 (for poor) on all aspects of IA’s work in line with the CIPFA Code of Practice for IA. The target set for 2006/07 was an overall rating of 4; the section achieved an actual rating of 4.5 for the year. The above results are used to determine areas for improvement and inform a continuous personal development training programme for Internal Audit staff.

A new Code of Practice was introduced for 2006 and it is a requirement that we comment on our compliance with the Code. The table below details the 11 Standards within the Code, although work is still to be completed on measuring our service provision against all of the individual elements contained within each Standard, assurance can be given to management and Members that we do comply with the main requirements of the Code of Practice.

A detailed comparison, to establish our compliance with the Code, is to be undertaken during the first half of this financial year. Actions and timescales will be agreed for any areas of non-compliance and entered onto an Action Plan to monitor progress. The result of this exercise will be reported to management and members in our Interim Internal Audit Report for 2007/08.

CIPFA Code area

Standard 1 – Scope of Audit

Standard 2 – Independence

Standard 3 – Ethics for Internal Auditors

Standard 4 – Audit Committees

Standard 5 – Relationships

Standard 6 – Staffing, Training & Continuing Professional Development

Standard 7 – Audit Strategy and Planning

Standard 8 – Undertaking Audit Work

Standard 9 – Due Professional Care

Standard 10 – Reporting

Standard 11 – Performance, Quality and Effectiveness

An annual client questionnaire was sent at the end of the year to determine management’s overall satisfaction with the IA service and to gauge understanding of the role of the service and its functions. More specifically output will be used to assist IA in understanding and improving its relationships with other departments, developing its Strategic & Annual Plans, targeting specific areas of audit process for improvement & developing services in line with management’s expectations. Out of 7 returns received 3 managers rate our service as good and 4 as excellent. I have reproduced below some of the comments made by managers on the questionnaire in relation to what we do well and what we could improve on:

4.2 Analysis of Performance Issues – Local Performance Indicators (LPI’s)

A total of 28 audit days were used to undertake unplanned work during 2006/07, against a contingency for unallocated work of 25 days. A breakdown of the unplanned work carried out in 2006/07 is shown below:

LPI’s measure the efficiency and effectiveness of the IA service. Listed below is how we have performed:

Target 90%

Actual: 96% (this is a slight reduction of 2% on 05/06, but is still above our target)

Actual 70% (this is a reduction of 23% on 05/06 performance)

Reasons for the reduction are detailed earlier in the report at 2.2.6. This will be reviewed as part of the use of resources review during 2007/08

EXECUTIVE SUMMARIES

NNDR AUDIT

Internal audit can offer limited assurance with regard to the control environment for NNDR. In order to secure the control environment a robust management checking regime needs to be formalised for all areas of the service. Management also need to review the duties and permission levels of the NNDR Assistant to ensure there is a satisfactory separation of duties and comprehensive procedure notes should be formalised for all areas to ensure an effective and consistent approach is taken throughout the NNDR process. This should incorporate guidance for regular inspection visits (i.e. a minimum annual visit to confirm property status). In addition a business continuity plan and a document retention policy need to be in place for the service.

Compliance with the above and the implementation of actions recommended within this report will strengthen control and give assurance that the overall control environment is secure.

Senior Management Comments (Head of Revenues & Benefits)

I can confirm that the audit findings are factually correct and that the audit was conducted in a fair and professional manner. It will take time to implement the recommendations, however full compliance will ensure we minimise the risks inherent in a service which is administered by a single officer.

1.3 Fundamental & Significant Issues

During this audit we identified 5 fundamental issues and 14 significant issues where management need to consider taking action in order to mitigate risk and enhance control.

Actions required to enhance control are listed below. Details of advisable issues (20) are contained within the final report at section 3, although not forming part of this executive summary these issues still merit attention and will enhance the control environment. Management’s comments and/or agreed actions relating to each recommendation are included within the risk analysis contained within the Final Report.

1.3.1 Fundamental Issues (Action that we consider essential to ensure the Council is not exposed to high risks i.e. basic, primary, elementary)

3.1 PROCEDURES

Observations - i) There are limited formal procedures notes for NNDR.

ii) The procedure notes which have been developed state that they have been included within the ACS on line manual, however inspection of the on line manual concluded that the procedures have not been submitted for inclusion.

iii) There is a Recovery strategy in place for Revenues & Benefits this covers the NNDR section. The strategy was inspected the strategy refers to the on – line manual for the stages of recovery. The on- line manual was inspected, it can be confirmed that a section for Issue of Reminders/ Final notices is available, however the procedures have not been adopted as the authorities.

Actions agreed – i) Comprehensive procedure notes will be formulised for all areas of NNDR; ii) Where the information provided on the on line manual is sufficient this will be adopted as the authorities’ procedures or adapted to reflect local procedures; iii) Where required additional procedures / guidance will be added to the on line for the authority &

v) The authorities own procedures / guidance will be reviewed and updated when appropriate. Head of Revenues & Benefits (HRB) / National Non-Domestic Rates Assistant (NNDRA) by 31.03.2008

3.7 SMALL BUSINESS RELIEF APPLICATIONS

Observations i) The application forms for Small Business Relief (SBR) are retained in the NNDR office in the order which they have been received / actioned on an open shelf, they are not filed or retained securely.

ii) Testing established that 8 accounts had SBR incorrectly applied.

iii) Compliance testing established that SBR applications are received and input by the NNDRA, no secondary checked is made and they are not independently authorised.

Actions agreed - i) SBR application forms received for 05/06 & 06/07 will be securely retained in the benefit filing cabinets.

SBR applications from 29.11.06 will be filed in order of property reference number. NNDRA, by 31.12.06.

ii) All SBR applications will be secondary checked by HRB/SRO for correctness of entitlement and the application forms will be reconciled to the 317 print (See 3.37). HRB / Senior Revenues Officer (SRO), immediate affect.

3.26 WARRANTS OF COMMITMENT

Observations There are no documented procedures for the issue and execution of warrants of commitment.

Actions agreed – i) Fully comprehensive procedures will be in place & issued for the issue and execution of warrants of commitment. These will be made available to all applicable officers. (HRB / NNDRA, by 31.03.06).

ii) Formal training will be provided for the NNDRA for the recovery procedure including the process of execution of warrants of commitment. (HRB, to arrange 1^st available course).

iii) Monthly reports will be run by the HRB to monitor the recovery process. (HRB, immediate affect).

iv) A monthly review meeting has been implemented to monitor & discuss appropriate recovery action on accounts and/ or any issues. (HRB, implemented 29.11.06).

3.32 BUSINESS CONTINUITY PLAN

Actions agreed - A business continuity plan will be compiled which identifies foreseeable events, which would adversely effect the service delivery.

The business continuity plan should be periodically tested. (HRB / Corporate, 31.03.08).

3.34 ACCESS CONTROLS

Observations - i) Access controls can be set up in accordance with the officer’s roles & responsibilities and the application enables user’s access permissions (menu items) to be tailored to their authorised activities. However due to the nature of the service, separation of duties is difficult to achieve and the NNDRA does have a greater level of access than is acceptable i.e. the post holder can (i) update parameters field.

Actions agreed - i) 1. NNDRA’s password permissions to be reviewed and subject to being able to alter in I World, the following removed: updating of parameter data, authorisation of refunds, authorisation of any transaction i.e. including discretionary, mandatory, SBR, Write on & offs, Transfer Receipt In & Out. (SRO / HRB, by 31.03.07.)

Agreed that Transfer Receipt In & Out transactions are to be performed by either the SRO or HRB and that the HRB will run print 317 on a daily basis for relief transactions i.e. mandatory, discretionary and small business. The HRB will check the relief’s granted are in line with the relief’s she has authorised. This print will be passed daily to the SRO to check totals are in balance with the RRV403 Control Account Summary. HRB / SRO, immediate affect.

2. Demands to be sorted by NNDRA, reasons to be annotated for non issue of demands, reasons checked and signed for by SRO. (NNDRA /SRO, immediate affect / on going).

1.3.2 Significant Issues (Action that we consider necessary to avoid exposure to significant risks i.e. major, important)

3.3 TRANSFERS BETWEEN ACCOUNTS

Observations - Inspection of transfers between accounts, established that the system records the officer who created the transfer, the system also retains the originating and receiving account. Notes can be added, however this was not annotated in most cases. There are no independent checks performed on transfers between accounts or any transfers made from suspense account.

Actions agreed - i) The ‘Notes’ area will be completed with a reason for the transfer in all cases; ii) & iii) Agreed that transfers in & out are to be undertaken by SRO or HRB.

(HRB / SRO, immediate affect).

3.4 REFUND REQUESTS

Observations - Refund requests are not always in writing. Telephone requests are accepted however no record is retained. Evidence retained of refund requests is inconsistent. The refund process is undertaken by the NNDRA, whom also undertakes NNDR valuation, liability, billing and recovery duties.

Documentation is not signed by an independent officer with regard to checking the reason for the refund. A Cheque Processing Form is used for refunds, this is completed by the NNDRA & authorised by the SRO, however compliance testing established that forms were not always authorised.

The refund procedures were inspected, these state that a note can be entered if desired; outlining the reason for refund if there is no documentary evidence available.

Actions agreed - i) In cases where a refund has been requested via telephone a notepad entry will be made on the system.

ii) Supporting documentation for refunds will be passed to the SRO for verification.

The reason for refund to be annotated within I world. (Reasons within the drop down menus ‘Internal recording system’ to be used)

The supporting documentation & screen prints, to reflect the original credit, should be retained within the refund file. (NNDRA, immediate affect).

iv) The ‘Cheque processing form’ for refunds will be authorised in all cases. (SRO, immediate & on going).

3.9 PROPERTY VISITS

Observations - i) Discussion with the NNDRA established that there are no set frequencies for visits. Visits are recorded on an ‘Officer Visiting log’; however a general area is often stated and the outcome of the visit is not recorded.

ii) During 05/06 empty property visits were registered on a spreadsheet for a LPI, however during the audit it was established that this had lapsed;

iii) Inspection screens are available within the I-World system but are not utilized & iv) Compliance testing of 11 properties with empty indicators set, established that in 7 cases there were no documented visits.

Actions Agreed - i) Bi-annual recorded visits will take place, the date, inspector and result should be annotated.

Empty relief will not be applied until the relevant property has been inspected.

Where a property is empty for a short interim period and unable to inspect (i.e. 1 - 2 weeks), authorisation must be obtained by SRO /HRB.

ii) All empty properties will incur a minimum annual visit to confirm the property status.

iii) Feasibility of I World inspection & visit suite to be assessed.

If feasible the ‘Inspection’ screens will be utilized, to fully record a visit and the outcome. (HRB / SRO/NNDRA, by 31.03.07).

iv) SRO to look at report side of system, for suitability of monitoring of property visits. (SRO, by 31.03.07).

3.10 EXEMPTIONS

Observations - A random sample of 10 properties exempt from empty property rates was selected. Compliance testing established that there was no evidence to support empty industrial or listed buildings. The NNDRA confirmed that the status would be confirmed with the planning department; however there is no evidence or notepad record of the confirmation.

Actions agreed - i) A new form to be designed which will incorporate that on completion of the exemption ‘void for less than 3 months’, there should be written notification from the ratepayer stating the property remains vacated.

ii) Planning department confirmation for listed building’s relief will be annotated on the notepad facility and an electronic copy be collected from planning and retained.

iii) Agreed – Combine with (i). (HRB / NNDRA, by 31.03.07)

3.11 PART OCCUPATION

Observations - In 4/5 sample cases for partly occupied properties there was no application in writing from the ratepayer. Discussion with the NNDRA established that a telephone call is accepted, the NNDRA will visit the property to establish the area which is unoccupied. However neither the telephone request from the ratepayer or the visit is annotated within notepad. As applications are not on file there is no evidence to support the dates the part occupation is applied to the account.

Actions agreed - i) Written applications will be retained on the file from the ratepayer for partly occupied properties & ii) Where the ratepayer advises of changes via telephone the information will be fully recorded within notepad. (NNDRA, immediate affect).

3.12 MANDATORY & DISCRETIONARY RELIEF

Observations - Compliance testing of a random sample of 10 mandatory charity relief cases established; (i) In 5 cases there was no supporting print from the Charity Commissions central register for charities; ii) In 3 cases charity relief had been approved at CS&R in 2003, the dates which the charity relief was granted was 1.4.03 – 31.3.04, there is no evidence within the rate relief file or on the system notepad that a review has taken place. From a random sample of 10 discretionary cases it was established that in 6 cases a review date had lapsed, there is no evidence within the rate relief file or on the system notepad that a review has taken place & iii) There is no formulised procedural guidance for the application of mandatory & discretionary relief’s.

Actions agreed - i) There will be adequate documentary evidence of the charity status, held on file e.g. print from the Charity Commissions central register for charities. (NNDRA, immediate affect).

ii) Annual reviews will be undertaken to confirm the exemption is still applicable to the property. (NNDRA, 01.11.07 and annually thereafter).

iii) Locally adopted procedural guidance for the application of mandatory & discretionary relief’s will be formulised and made available to all applicable officers. (HRB, by 31.03.07).

3.15 NEW & AMENDED PROPERTIES

Observations -i) There are no procedures for identifying new and amended properties; ii) Reports from planning detailing new & amended properties are held in a filing tray, observation of the forms established that there is limited recording of visits and the outcome of the visit is not detailed & iii) Inspection of the visiting record established that there is no regularity of visits.

Actions agreed - i) There will be formulized procedures for identifying new and amended properties.(see 3.1). (HRB / NNDRA, by 31.03.08).

ii) Planning reports will be filed; visits will be fully recorded with date, time, officer and outcome of the visit within I - World. (NNDRA, by 31.03.07).

iii) New & amended properties which have been reported by the planning department will be monitored by regular recorded visits. (NNDRA, by 31.03.07).

3.18 RECOVERY

Observations - i) The NNDRA has access to the system to amend ratepayer’s records, to action recovery and dispatch reminders; ii) there were no reminders run in July & August 2006; iii) the right to pay by installments is not loss if payments are not received within 7 days of the reminder (iv) the notepad facility is not always used to record details of telephone conversations/agreements etc. (v) reminders are repeatedly issued i.e. 9 out of 11 cases tested (vi) recovery is not always progressed to issue of summons and Liability Order and debts are not always passéd to the bailiffs on a timely basis.

Actions agreed - i) NNDRA to annotate reasons on pre list for any reminders not issued to the ratepayer, annotated pre-list to be inspected by SRO. Control sheet to be formulised to show accounts selected /inspected by NNDRA & checked by SRO. (NNDRA / SRO, by 31.03.07).

ii) Reminders will be run on a monthly basis, except during billing/ year end / staff on leave due to practicalities. (SRO, immediate affect).

iii) a. Where payments are not received in the 7 day period the right to pay by instalments will be cancelled and the annual charge will become due. (Except where authorised by HRB).

b. 7 day parameter to be examined within I-World, to allow for different payment methods.

c. Assess accounts where ratepayers use reminders as payment method and address by enforcing point (iiia see above). (NNDRA / HRB, immediate effect).

iv) The notepad facility for the recovery process will be fully utilized; all telephone conversations and agreements will be fully recorded. (NNDRA, immediate affect).

v) See (iii)

vi) Where a liability order is granted referral to the bailiff will be timely. (NNDRA, immediate affect).

3.19 SPECIAL ARRANGEMENT

Observations - 5 accounts of ratepayers who made a ‘special arrangement to pay’ were inspected; i) Discussion with the NNDRA established that arrangements are not confirmed in writing; ii) Inspection of the cases established the NNDRA makes the arrangement with the ratepayer; independent authorization was not obtained in any case; iii) In no case did the arrangement allow for the debt to be cleared within the financial year. The repayment timescales were from 18 months to 24 years. No account with a long term arrangement had evidence of being independently authorized by a senior officer.

iv) 1 account was entered as a special arrangement in March 2003, the debt remains outstanding for £291.96, and there are no notepad entries to reflect that the ratepayer has been contacted.

Actions agreed - i) Template letter to be designed for ‘special arrangement to pay’ and completed for all arrangements. (NNDRA, by 31.12.06); ii) HRB to authorise all ‘special arrangement to pay’. (Combine with 3.18 (iii)). (HRB, immediate affect).

iii) Where possible a ‘special arrangement to pay’, will ensure the debt can be cleared within the financial year, where the debt cannot be cleared within the financial year the repayment term should be assessed for cost effectiveness. (Combine with 3.18 (iii)). (HRB, immediate affect).

iv) Where the special arrangement is not upheld by the ratepayer the recovery process will be progressed. (HRB /NNDRA, immediate affect).

3.23 REFERRED TO BAILIFF

Observations -The NNDRA established that the Thorburns enforcement agency website can be checked for progress on cases, or the company can be contacted by telephone if required. However no record is maintained of progress checks nor is a fully comprehensive list held of all accounts sent to bailiff or accounts returned.

Compliance testing of 10 cases referred to bailiff established that in 6 cases no monies had been received. There are no notepad entries or system updates to show if the case had been returned by the bailiff, further action had not been initiated on the accounts to progress to committal or where appropriate to write off. In one case a debt of £7374.10 had been outstanding from 2002, referred to Thorburns in 2003, there were no notepad entries and no further actions on the account. Another case had £4372.12, outstanding from 2003 no payments and no further notepad entries.

Actions agreed - i) All accounts referred to the bailiff will be tracked on a regular basis and the enforcement stages within the NNDR system will be updated accordingly. (NNDRA, immediate& on going).

ii) When bailiff action has been unsuccessful, cases will be progressed to committal stage, where applicable or where appropriate written off. (HRB / NNDRA, immediate & on going).

Observations - i) There are no documented procedures or guidelines for recovery suppressions; ii) Suppressions can be actioned by all officers with access to the NNDR system; iii) Recovery suppressions are shown on the Pre-List, however the list is not retained by the NNDRA; iv) Discussion with the NNDRA established that suppressions are not independently checked. Compliance testing of 10 sample cases established only 1 case which stated suppression had been actioned on the advice of SRO & v) From the same sample it was established that in 7 cases there was no reason for the suppression. Only 2 cases had supporting documentary evidence.

Actions agreed - i) Clear guidelines will be formalized, issued & submitted for inclusion within the on line manual regarding when and how recovery suppressions may be used. (HRB, by 31.03.07).

ii) SRO to inspect I-World for availability of reports of recovery suppressions and report to HRB. Once the capabilities of the system have been assessed reports of recovery suppressions will be regularly produced. The report will be signed and dated to evidence that the application of the suppression has been reviewed by management. (HRB / SRO, by 31.01.07).

iii) Valid documented reasons for the suppression will be detailed within the notepad facility of I - World. (HRB / NNDRA, by 31.01.07).

3.31 DATA RETENTION POLICY

Actions agreed - i) The NNDR section will have a retention policy which specifies applicable documents and the required retention periods; this will not be implemented until the Corporate document retention policy is in place.

ii) The authority wide retention policy will be implemented. (HRB / Corporate, by 31.03.08).

3.33 RETENTION OF RECORDS

Observations - Files and records for NNDR are retained within the NNDR section. The documentation is retained either within files retained in an unlocked filing cabinet or within lever arch files on an open shelving unit. A clear desk policy is not currently in force.

Actions agreed - i) 1. NNDRA’s password permissions to be reviewed and subject to being able to alter in I World, the following removed: updating of parameter data, authorisation of refunds, authorisation of any transaction i.e. including discretionary, mandatory, SBR, Write on & offs, Transfer Receipt In & Out. (SRO / HRB, 31.03.07).

Agreed that Transfer Receipt In & Out transactions are to be performed by either the SRO or HRB and that the HRB will run print 317 on a daily basis for relief transactions i.e. mandatory, discretionary and small business. The HRB will check the relief’s granted are in line with the relief’s she has authorised. This print will be passed daily to the SRO to check totals are in balance with the RRV403 Control Account Summary. (SRO / HRB, immediate affect).

2. Demands to be sorted by NNDRA, reasons to be annotated for non issue of demands, reasons checked and signed for by SRO. (NNDRA / SRO, immediate & on going).

3.38 EXCEPTION REPORTS

Observations -There are a number of exceptions reports, these prints are available each day but are only printed on request, the HRB stated that the prints were not checked.

Actions agreed – Pre-worded stamp, to be ordered and used to mark all key source documents used to update the NNDR system. Stamp to incorporate a

section to sign & date to confirm that the data has been input and checked.

Exception reports will be checked each day and any exceptions dealt with promptly. Evidence of checks & actions will be retained on file. (Exception reports e.g. Calculation Exceptions, Billing Extract Exceptions, Direct Debit exceptions). (SRO, immediate affect).

EXECUTIVE SUMMARY – PLANNING APPLICATIONS AUDIT

Internal audit can offer limited assurance with regard to the control environment for Planning Applications. In order to improve the planning application process, management must endeavour to address the serious backlog of applications; until clearance of the backlog is achieved the performance on meeting the statutory deadlines will not improve and nor will the morale of the individual planning officers who are currently overwhelmed by the historic caseload.

A review of the registration process should be undertaken to identify areas which could be streamlined to ensure no initial delay is incurred which would in turn impact on achieving the statutory timescale.

Management must introduce and maintain a robust checking system to ensure timely decisions are reached for applications and to guarantee that future backlogs will not arise.

Comprehensive procedure notes should be formalised for all areas of the application process to ensure an effective and consistent approach is applied throughout.

Compliance with the above and the implementation of actions recommended within this report will strengthen the process of planning applications and give assurance that the overall control environment for the area is secure.

Senior Management Comments (Director of Regeneration & Development)

The recommendations contained within this report will be included within the specific actions identified in the existing Development Control Improvement Plan. This will ensure that actions are taken as soon as possible.

1.3 Fundamental & Significant Issues

During this audit we identified 3 fundamental issues and 4 significant issues where management need to consider taking action in order to mitigate risk and enhance control.

Issues are listed below detailing the risk exposure, the recommendations we have made to address the risks and the actions required to enhance control.

Details of advisable issues (9) are contained within the risk analysis at section 3, although not forming part of the executive summary these issues still merit attention and will enhance the control environment. Management’s comments and/or agreed actions relating to each recommendation are included within the risk analysis.

1.3.1 Fundamental Issues (Action that we consider essential to ensure the Council is not exposed to high risks i.e. basic, primary, elementary)

3.2 BACKLOG OF PLANNING APPLICATIONS

Observations - The authority currently has a significant backlog of applications.

Action Agreed - i) An applications log is to be developed by the Acting Development Services Manager (ADSM) which will act as a checklist of actions taken on an application. (By ADSM, 31.03.07).

• The backlog of applications will be addressed by the application of prompt decisions. (By ADSM, 31.03.07, and continued on selection of PPO (Principal Planning Officer) /Development Services Manager (DSM)).

ii) The action plan developed to address the backlog, by the previous DSM through ‘Theme 6 – Planning (Leadership Team)’ will be actively progressed, by the ADSM 31.03.07

3.3 MANAGEMENT MONITORING

Observations • There is no evidence of management monitoring the progression of applications & there are currently no set management meetings with planning officers or Administration Assistants

Action Agreed – (i) A robust evidenced management checking system will be put in place for the key stages of an application to ensure timely progression to a decision;

(ii) Weekly meetings will take place to monitor individual caseload; (iii) Where a delay occurs in the process, the reasons will be detailed within the available system screens and addressed promptly & (iv) Regular admin team meetings will take place with the PPO. By ADSM, 31.03.07, and continued on selection of PPO/DSM

3.4 PROCEDURE MANUAL

Observations: A complete and up to date procedure manual is not in place.

Action Agreed - i) The ADSM to review development of procedure manual; ii) Relevant extracts from the authorities Constitution to be added & iii) Procedures will be reviewed annually and updated where applicable. By ADSM, 31.03.07, and continued on selection of PPO/DSM

1.3.2 Significant Issues (Action that we consider necessary to avoid exposure to significant risks i.e. major, important)

3.1 APPLICATION REGISTRATION PROCESS

Observations - i) The Planning Department work to a 3 day timescale for the registration process of a new planning application. Inspection established that the actual registration period ranged from 2 – 22 days.

Action Agreed - i) The registration process will be reviewed to identify any duplication or enhancement which could be implemented on receipt of report from Blackett Hart & Pratt; ii) Admin posts to be termed Technical Officers; (iii) The current Technical Officer will become Senior Technical Officer; iii) Management will monitor the registration stage of planning applications. Where significant delays occur the reasons will be examined and addressed to avoid similar future delays & (iv) The PPO role will have reduced caseload of only complex cases, allowing the management duties to be prominent within the role. By ADSM, 31.03.07, and continued on selection of PPO

3.10 DECISION NOTICES

Observations - In all cases a decision notice was held in hard copy on the file.

From our inspection of the system record of decision notices we were unable to ascertain whether all applicable parties had been issued with a decision notice.

Action Agreed - The requirement to save a copy to the document diary of all decision notices issued will be reinforced to all administration officers. This will ensure a full history of all decision notices issued is retained. By DRD / ADSM, Immediate.

3.13 STATUTORY START DATE

Observations - The incorrect statutory start date is currently being used to calculate the determination date and the case age in days.

Action Agreed - Clarification to be sought by DRD with ADSM as to correct statutory start date. The dates used by the system to calculate the statutory start date to be investigated for correctness. By DRD / ADSM, Immediate

3.14 PROPERTY VISITS

Observations – Site visits are not fully recorded.

Action Agreed – i) Pro forma worksheet to be developed for recording of site visits, to include core information

ii) Planning Officers to fully record the results of all site visits on a worksheet.

By DRD / ADSM, Immediate

The Council is aware and acknowledges the importance of procurement in delivering effective and efficient services; this is evidenced by the work that has been undertaken to update its procurement strategy (2007 – 2010), due to be approved by members on 28^th March 2007. It recognises the need for collaboration (joint working) through its membership of the North East Procurement Forum, North East Centre of Excellence & the North East Purchasing Organisation and the need to work in partnership with its suppliers to achieve better services for its citizens.

The strategy also recognises the importance of meeting the national procurement milestones and sets out how it will support the local economy and work with small & medium sized enterprises and the voluntary & community sector and acknowledges the need for fair trade and equality & diversity issues to be given consideration within the procurement process.

However there is no dedicated procurement resource and training is inadequate for both members and officers involved in the process. Effective executive and scrutiny member involvement is not apparent and this needs to be addressed and defined without delay. There is also a need to link procurement to the Council’s strategic objectives via the service planning process.

Finally there is a great deal of work to be done and commitment needed by members and senior management to ensure the proposals within the Procurement Strategy make a significant contribution to the effective and efficient delivery of services and help the Council to achieve its corporate priorities, detailed within its Corporate Strategy and Community Plan.

Senior Management Comments (Borough Solicitor)

I can only concur with the conclusions of the audit opinion outlined above. It is to be hoped that the staffing resource identified in the current restructure process can bring much needed progress in this area.

1.3 Fundamental & Significant Issues

During this audit we identified 2 fundamental issues and 1 significant issue where management need to consider taking action in order to mitigate risk and enhance control. These issues are listed below detailing the risk exposure, the recommendations we have made to address these risks and the actions required to enhance control.

Details of advisable issues (5) are also contained within the risk analysis at section 3, although not forming part of the executive summary these issues still merit attention and will enhance the control environment. Management’s comments relating to each recommendation are included within the risk analysis and actions agreed are contained with the Action Plan

1.3.1 Fundamental Issues (Action that we consider essential to ensure the Council is not exposed to high risks i.e. basic, primary, elementary)

Actions agreed: The service planning process for 2008/09 will be updated to include the requirement for service-specific procurement actions to be included within the plans to ensure that the Council’s Procurement Strategy is clearly aligned with the Council’s strategic priorities, including the Community Plan priorities. Chief Executive by 31^st August 2007.

Actions required: As a matter of urgency this Council needs to address the lack of dedicated resources made available for the procurement process. It is recommended that the responsibility for procurement should rest at Director level and consideration is given to approving monies to provide a dedicated procurement resource.

(b) Key officers & members involved in the procurement process should receive the appropriate procurement training without delay.

(c) All relevant members and officers should receive appropriate procurement training before the procurement strategy is approved on 28^th March 2007.

Borough Solicitor by 30^th June 2007.

1.3.2 Significant Issues (Action that we consider necessary to avoid exposure to significant risks i.e. major, important)

2. Role & Responsibilities of Members – Strategic direction

Actions agreed: The role of members in terms of procurement will be formally identified and proper reporting arrangements put in place once the Procurement Strategy has been implemented. Borough Solicitor by 31^st December 2007.

Internal audit can offer significant assurance that the authority’s processes and documentation meet the principles of corporate governance.

However In order to ensure accountability and clarity in the authority’s business and ensure service delivery is monitored by Member’s, the strategic and corporate functions of Member’s should be included within their roles and functions at Article 2 of the Constitution together with their role and responsibilities in relation to monitoring service delivery. Member’s responsibilities in relation to the strategic leadership of the Council also need to be reinforced.

Senior Management Comments (Borough Solicitor/Chief Executive)

Borough Solicitor: The revised Member and Officer protocol should address the significant issues. It should then be simply a matter of transposing some of the highlights from this protocol, which will form part of the Constitution in any event, into Article 2 – 2.03, if this is still considered necessary.

Chief Executive: I am pleased with the recommendations make in conjunction with the roles and responsibilities of Members, as it is important to clarify the roles here.

1.3 Fundamental & Significant Issues

During this audit we identified no fundamental issues and two significant issues where management need to consider taking action in order to mitigate risk and enhance control.

These issues are listed below detailing the risk exposure, the recommendations we have made to address these risks and the actions required to enhance control.

Details of advisable issues (2) are also contained within the risk analysis at section 3, although not forming part of the executive summary these issues still merit attention and will enhance the control environment. Management’s comments and/or agreed actions relating to each recommendation will be included within the risk analysis contained within the Final Report.

1.3.1 Fundamental Issues (Action that we consider essential to ensure the Council is not exposed to high risks i.e. basic, primary, elementary)

None

1.3.2 Significant Issues (Action that we consider necessary to avoid exposure to significant risks i.e. major, important)

1. Roles & Responsibilities of Members – Strategic & Corporate functions

Observation: In relation to the above the Chief Executive stated that it remains an issue of engagement, but they are in place, although some reinforcement might be helpful. Within the Constitution the roles & functions of Councillors are set out at Article 2 – 2.03, there is a reference to strategic direction which states “All councillors will collectively be the ultimate policy-makers and carry out a number of strategic and corporate functions”.

There is no reference to what the strategic & corporate functions are.

Risk: There will be no accountability, clarity or order to the authority’s business.

Integrity can not be demonstrated i.e. proper balance of powers and authority.

Observation: Within the Constitution there is no reference to member’s roles or responsibilities in relation to the monitoring of service delivery. However annual service plans are produced for all service areas which are formally approved by members. From quarter two of 2006/07, service delivery will be monitored via the Council’s performance management software. Quarterly performance monitoring reports will be produced for Corporate Management Team, detailing performance against the Best Value Performance Indicator’s & Local Performance Indicator’s.

Risk: Improved or deteriorated performance will not be highlighted, monitored or managed.

The Action Plan will be used in the future as part of our follow-up procedures to monitor progress with implementation and compliance with the actions agreed. The first review will take place three months after the release of the final report. A further review after six months will be undertaken if necessary and any non-compliance issue will be reported to Corporate Team for their consideration.

BACKGROUND

The Annual Reporting Process: Management is responsible for the system of internal control and should set in place policies and procedures to help ensure that the system is functioning correctly. On behalf of the Head of Finance (Accountancy & Audit), Internal Audit review, appraise and report on the efficiency, effectiveness and economy of financial and other management controls. This report is the culmination of the work during the course of the year and seeks to:

Requirement for Internal Audit: There is a requirement under various statutes for a continuous and effective internal audit of all the Authority’s systems of internal control. This role is complemented by initiatives aimed at promoting effective corporate governance, such as the Audit Commission’s emphasis on risk management in their Code of Audit Practice and the joint CIPFA/SOLACE framework of corporate governance.

In 2006, CIPFA published a revised Code of Practice for Internal Audit in Local Government in the UK. The Code reflects changes arising from the amendments to the Accounts and Audit Regulations 2006 and a practice relating to corporate governance that further emphasises the importance of internal audit to the proper management of organisations. It more closely aligns practice with current approaches for auditors, particularly in respect of developments in risk management and the impact on planning internal audit activity.

How Internal Control is Reviewed: Internal Audit continues to embrace the risk assessment approach to audit. During the course of the year the risk assessment of the Authority has been continually updated and used to form the basis of Internal Audit’s operational plan for the coming year. The review process draws on key indicators of risks to the organisation and attempts to ensure that suitable audit time and resources are devoted to review the more significant areas.

For the purpose of prioritising each service, risk areas have been identified and recorded under three broad headings, namely - service importance, vulnerability & the control environment. Factors used within these broad headings for the risk assessment include:

The audit plan contains a contingency provision that is utilised during the year in response to unforeseen work demands that arise. This risk based approach to audit planning, results in a comprehensive range of audits that are undertaken during the course of the year to support the overall opinion on the control environment. Examples include: