Agenda and draft minutes

To elect a Chair of the Committee for the 2023/24 Municipal Year

The Democratic Services Manager opened the meeting and invited nominations for the appointment of Chair of the Audit and Governance Committee for the year 2023/24.

Councillor Graham Morgan, seconded by Councillor Mike Wharton nominated Councillor Tricia O’Brien

RESOLVED – That Councillor Tricia O’Brien be appointed the Chair of the Audit and Governance Committee for 2023/24.

Councillor Tricia O’Brien

(in the Chair)

To appoint a Vice-Chair of the Committee for the 2023/24 Municipal Year

Councillor Graham Morgan, seconded by Councillor Mike Wharton nominated Councillor Derek Long for the position of Vice-Chair of the Committee.

RESOLVED – That in his absence, Councillor Derek Long be appointed Vice-Chair of the Audit and Governance Committee for 2023/24.

Apologies for absence was received from Councillor Derek Long and Councillor Brian Spencer.

There were no declarations of interest submitted.

To approve the Minutes of the last meeting held on 25 January 2022.

The Minutes of the previous meeting held on 25 January 2023 were approved as an accurate record.

To consider a report of the Head of Internal Audit

The Committee considered a report of the Head of Internal Audit that provided an update on the Internal Audit Plan and Charter for 2023-24. The report detailed the plan of internal audit activity for the year, reflective of previous years, and but with flexiblity to adapt and respond to particular needs that may arise during the course of the year.

The report also included information on the assurance mapping exercise that would support more effective planning and provide a broader view of the assurance process, beyond Internal Audit work.

The Internal Audit Charter set out how the Internal Audit Team would operate with other sections within the organisation and standards for auditors.

Members raised the following issues:-

·       Clarification was sought on references in the report to resource challenges connected to staff absences. It was confirmed that the Audit Team comprised six members, so any absences could impact on the delivery of the Audit Plan. A resource had been secured via a secondment from another Council that had the additional benefit of sharing knowledge and experience. Despite the resourcing challenge, a substantial amount of work had been completed.

·       Further information was sought on the completion of the assurance mapping process, including how much collaboration had taken place within the organisation, how the areas of importance had been identified and how this linked to the Corporate Risk Register, and what role the Executive Leadership Team had in the process. In response it was stated that as this was the first time this exercise had been undertaken the Audit Team had taken the lead but that future exercises would have greater involvement from other parts of the organisation The key areas for assurance had been selected to minimise their dependency on the risk register so that it would remain relevant regardless of the changing risk profile, although it was anticipated that there would be natural synergies. It was confirmed that the Executive Leadership Team had been fully briefed and supported the process.

RESOLVED - That

(a)  the Internal Audit Plan 2023-24 (Appendix 2) be noted and approved; and

(b)  the Internal Audit Charter 2023-24 (Appendix 4) be noted and approved.

To consider a report of the Head of Internal Audit

The Committee considered a report of the Head of Internal Audit that provided the Audit Annual Report and Opinion 2022-23 for both the Combined Authority and Merseytravel, summarising the Internal Audit Team’s review of the systems of governance, risk management and internal control.

The headline opinions were that the Combined Authority’s approach was adequate with a good capacity for improvement rating, and for Merseytravel that it was less than adequate with a good capacity for improvement rating. The latter was based on findings from two internal reports that had been issued during the year with audit opinions of major organisational risk, but that assurance had been provided that there had been significant improvement since the findings were identified.

Members raised the following issues:-

·       Given the linkages between the two organisations, further explanation for the differing audit opinions was sought. In response, it was clarified that the Combined Authority and Merseytravel were two distinct statutory entities, and had to be treated as such for the purposes of auditing. In respect of the services and audits in question, they also had a provider and client relationship, with Merseytravel being the provider in this case, hence the judgement sitting with them.

·       There were recommendations referenced in the report related to 2017-18 activity, and clarification was sought on what there were any recommendations not implemented that would be relevant to 2023-24. In response it was confirmed that the Audit Team would monitor the implementation of recommendations and would continue to do so where they were relevant. Progress had been made in reducing the quantum of historic recommendations.

·       A focus on Net Zero and Combined Authority procurement was suggested as an area of focus for future audit activity, given the scale of the challenge and its importance.

RESOLVED – That the Audit Annual Report and Head of Internal Audit Opinion for 2022-23 be noted.

To consider a report of the Head of Internal Audit

The Committee considered the report of the Head of Internal Audit which provided update on Internal Audit Update activity since January 2023, including information due to have been considered at the inquorate March 2023 meeting.

Highlighted for the Committee were the following:-

·       significant volume of work completed, despite absences and resourcing pressures;

·       completion of the Annual Governance Review, identifying areas of good practice and areas for improvement;

·       overall improvement in last in audit outcomes during the previous 12 months.

Members raised the following issues:-

·       Further information was sought on how external assessments or peer reviews were conducted. In response it was confirmed that the previous assessment was completed in 2021by CIPFA, following a procurement exercise. The approach that had been taken was one of a number of  possible approaches used across the sector. The independent assessment option chosen had made minimal findings and the associated actions had been closed. The next exercise was due in 2026 but annual self-assessments were undertaken to keep abreast of changing requirements and best practice.

·       The Chair sought further information on the payroll errors referenced in the report. In response it was reported that Internal Audit had been invited to review systems following the discovery of a fraudulent request to change bank details. Controls in place at the time had not been sufficiently robust but due to quick action it was possible to recover the money and there had been a positive response from the payroll team to Implement improvements to controls in advance of formal audit findings.

RESOLVED – That Internal Audit update be noted.

To consider a report of the Head of Internal Audit

The Committee considered the report of the Risk Management Update summarising the work being done to continue to embed risk management into the organisation.

The following issues were highlighted for the Committee:

·       The Corporate Risk Register has been reviewed and revised by the Executive Leadership Team, with risk scores changed due to improved controls, with a focus on refreshing actions to reflect improvements in controls;

·       good progress being made in embedding departmental risk registers.

The Chair welcomed the focus on environment risks during the coming year.

RESOLVED – That the Risk Management Update be noted.

To consider a report of the Executive Director for Corporate Services

The Committee considered a report of the Assistant Director of Finance that provided the Committee with an update on the Audit Strategy Memorandum that detailed the approach to be taken by external auditors Mazars for the audit of the Combined Authority and Merseytravel’s financial statements for 2023/23. The report had been deferred from the inquorate meeting in March 2023.

The document set out the timeline for the audit process, and the planned risk assessment between March and July 2023, and final testing at the end of September The initial work had identified the following risk areas for focus:

·       Management Override Control (mandatory risk)

·       Pensions Liabilities (risk requiring specialist testing)

·       Property, Plant and Equipment valuations.

Mazars had identified enhanced risk for group management due to the complexity in preparing consolidated accounts, however this did not reflect any significant weaknesses and was standard practice.

The Committee's attention was also drawn to materiality calculations on pages 195 and 231 and that it was broadly consistent with previous years and benchmarking with others.

Members raised the following issues:-

·       Further information was requested on the strategy for testing given the expansion of reserves to £24million. Mazars advised that they had a standard approach to test against movement within reserves.

·       Clarification was sought on why general balances were as high as they were, compared to others in the sector. In response it was stated that because the Combined Authority had a number of large multi-year projects where there were variations in annual spend, these could not be easily captured in the annual accounts. The 2022/24 outturn report had recently been considered by the Combined Authority that included changes to the budget in light of these variations and included the reviewed medium-term financial plan and reserve strategy.

·       Given the well-publicised resourcing challenges in the auditing and accountancy sector, assurance was sought from Mazars that the audit would be completed within the timescales in the Memoranda. The Mazars representative acknowledged those issues and advised that these pressures had been factored into the timescale and that they were confident the audit would be delivered to the timetable.

RESOLVED – That

(a)       the external audit plans and approach as detailed in the appended the Audit Strategy Memoranda be noted; and

(b)       the Audit Strategy Memoranda be endorsed.

To consider a report of the Executive Director for Corporate Services

The Committee considered the report of the Assistant Director of Finance on the draft Statement of Accounts for 2022/23, covering both the Combined Authority and the Merseytravel.

Due to the size and complexity of the document, the Assistant Director and

Strategic Finance Manager gave a presentation that provided an overview of the Statement of Accounts, including:

·       What the LCRCA Accounts Covered

·       What Merseytravel Group Accounts Covered

·       Statutory Accounts - Content

·       Primary Financial Statements

·       Statutory Accounts vs Management Accounts

·       Movements in Reserves

·       Reserves

·       Usable Reserves

·       Comprehensive Income and Expenditure Statement

·       Balance Sheet

Members raised the following issues:-

·       Members commented on the comprehensiveness of the presentation

·       The re-valuation of assets was welcomed and comment sought on its impact. In response it was stated that valuation was something that had to be done regularly and would lead to changes to the balance sheet, but there was no particular impact to the organisation unless the assets were disposed of.

·       The Chair welcomed the introduction of new rolling stock following significant public investment in the transport infrastructure that would make it more attractive for the public and support the achievement of net zero.

RESOLVED – That the draft Combined Authority Group Statement of Accounts 2022/23 be noted.

To consider a report of the Monitoring Officer

The Committee considered a report of the Chief Legal Officer and Monitoring Officer that provided a draft Work Programme of planned agenda items for 2023/24.

Members raised the following issues:

·       Further detail was sought on the proposed effectiveness review and how Members would be involved. In response it was noted that the review would be linked to a broader review of the Combined Authority constitution and that the process would be subject to further consideration. Members stressed the importance of their involvement in any self-assessment process.

·       Concerns were expressed about the timetable of meetings and potential clashes with other commitments Members had, potentially impacting on quoracy.  In response, the Chair noted the challenges that would arise from changes within the year, but it was suggested that the matter be reviewed for 2024 and members views canvassed.

RESOLVED – That the Committee Work Programme for 2023-24 as set out at Appendix 1 of the report be approved, subject to a review of the timetable of meetings for 2024.