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Open Decision Item 5

Audit & Governance Committee 18th March 2015

Internal Audit Reports Resulting in Limited Assurance Opinions

SYNOPSIS

To report the findings and recommendations arising from Internal Audit reports which have resulted in Limited Assurance opinions, in relation to:

Housing Repairs

Materials and Vehicle Usage

1. Report

1.1 When approving the Audit Plan, it was agreed that the responsible manager / Head of Service would attend this Committee if a report had a rating of either Limited or No Assurance. The recent audits of Housing Repairs, and Materials and Vehicle Usage, resulted in ratings of Limited Assurance. The responsible manager has therefore been asked to attend this Committee to respond to any questions Members may have related to the findings, agreed recommendations, and progress made to date on delivery of the agreed action plans.

Housing Repairs

1.2 The Housing Repairs audit focussed upon the following key risks about which assurance was sought:

Housing repairs are not completed in a timely manner;

Expenditure is incorrectly accounted for and staff are not being utilised for the purposes intended;

The Council lacks the capacity to manage delivery of its housing capital programme;

Failure to achieve Value for Money when carrying out housing repairs; and

The PDA scheduling system is not delivering the expected efficiencies and improvements in performance.

1.3 Whilst examples of good practice were identified, and significant progress was made during the course of the audit, some significant control weaknesses were identified. In particular:

Whilst implementation of a performance improvement project has, so far, delivered positive results, the key corporate target of housing repairs being completed “outside of the target time” is not yet being met.

Internal Audit cannot provide assurance that the Council’s housing capital recharge is accurate.

There are significant weaknesses in the control of material usage, in particular for quick turnaround repairs.

The full Executive Report and agreed Action Plan arising from the audit are included within this report at Appendix A.

Materials and Vehicle Usage

1.4 The Materials and Vehicle Usage audit focussed upon the following key risks about which assurance was sought:

Inappropriate purchases, or use, of materials by operatives;

Personal use of fleet vehicles and theft of fuel; and

Fraud when procuring or disposing of fleet vehicles.

1.5 The audit review confirmed that appropriate controls are in place to monitor total expenditure on materials and vehicle fuel costs. The fleet vehicle register was found to be appropriately maintained and testing confirmed that the records of officers responsible for fleet vehicles are accurate. All fleet vehicles are fitted with tracker devices which identify the location and speed of each vehicle. There are appropriate controls in place to reduce the risk of fraud when procuring or disposing of fleet vehicles, including segregation of duties and clear authorisation procedures.

1.6 The audit also highlighted some significant control weaknesses. In particular:

Actual materials usage is not routinely compared with expected usage for individual jobs. Although management will shortly be implementing a new stock control system, including appointment of a stock controller, there is currently a high risk of theft of materials or fraudulent purchase of materials for personal use.

Decisions permitting use of additional materials on programmed housing repairs are not routinely documented. This increases the risk of fraud or theft of materials as there is no evidence available to demonstrate whether or not this expenditure has been suitably authorised.

Regular, documented management reviews are not performed for each fleet vehicle to confirm that fuel usage is acceptable based upon the mileage recorded. There is an increased risk that fuel theft could be taking place.

The full Executive Report and agreed Action Plan arising from the audit are included within this report at Appendix B.

2. Options to be considered (if any)

There are no direct options to be considered as a result of this report.

3. Issues to be taken into account:-

Policy Priorities

There are no direct policy issues arising from this report.

Financial

There are no direct financial issues arising from this report.

Risk

There are no direct risks arising from this report; however, failure to implement agreed internal audit recommendations could increase the Council’s financial, legal and reputational risks.

Legal

Internal Audit is a statutory function as detailed in the following:

i) Audit and Accounts Regulations 2003 [England]

ii) Section 151 of the Local Government Act 1972

Best Value

The assurance ratings provided in respect of the Council’s internal control environment is a predictor of the Council’s capacity to manage its resources so as to deliver value for money.

Human Rights, Equalities, Sustainability and Community Safety

There are no direct issues arising from this report.

3. Conclusion

The report contains the findings and recommendations arising from recent internal audits of Housing Repairs, and Materials and Vehicle Usage. Agreed action plans are in place to ensure that the issues identified are rectified and implementation of the actions will be monitored and reported upon by Internal Audit.

5. Recommendation

That Members note the report.

External Consultations

Not applicable

List of Appendices

Appendix A – Housing Repairs Final Internal Audit Report 2014/15

Appendix B – Materials and Vehicle Usage Final Internal Audit Report 2014/15

Officer to Contact

Chris Green – Audit Manager, Welland Internal Audit Consortium 07917 426528

APPENDIX A

WELLAND INTERNAL AUDIT CONSORTIUM Corby Borough Council

1

INTERNAL AUDIT REPORT

HOUSING REPAIRS 2014-15

Issue Date: 09 March 2015 Issued to: Norman Stronach – Chief Executive

Author: Chris Green Adrian Sibley – Director of Corporate Services (s151 officer)

Angela Warburton – Assistant Chief Executive

Gus Paton – Repairs and Maintenance Manager

APPENDIX A


2

HOUSING REPAIRS 2014-15

EXECUTIVE SUMMARY

1. INTRODUCTION & OPINION

The Council has an approved capital programme in place, of which £5.3 million per annum has been earmarked for repairs and improvements to the Council’s housing stock. In 2012, the Council invested in a new PDA (Personal Digital Assistant) scheduling system designed to manage quick turnaround housing repairs more efficiently and improve the timeliness of housing repairs completed across the Borough. The Council’s Internal Audit plan for 2014/15 included an audit on Housing Repairs, focusing upon the following key risks about which the client sought assurance: Housing repairs are not completed in a timely manner;

Expenditure is incorrectly accounted for and staff are not being utilised for the purposes intended;

The Council lacks the capacity to manage delivery of its housing capital programme;

Failure to achieve Value for Money when carrying out housing repairs; and

The PDA scheduling system is not delivering the expected efficiencies and improvements in performance.

A number of areas of good practice were identified during the course of the audit. In particular: There is a detailed programme delivery plan in place for the housing capital programme, including identification of

resource requirements and a clearly defined structure.

Regular performance reports are submitted to senior management and members, including statistics for “voids” (empty properties requiring repair prior to re-letting), and “out of target” repairs.

Audit testing confirmed the accuracy of the calculations for the “void” and “out of target” key performance indicators.

A substantial performance improvement project was initiated at the depot in August 2014; this involved a full review of working practices. Positive results have so far been achieved; the corporate target in respect of the number of “void” properties has, for example, been achieved since November 2014. Implementation has required significant commitment by the in house team, and the auditors noted the enthusiasm and desire of the team to sustain the recent improvements.

Whilst the PDA system has not yet been fully implemented, the system is now being used to manage tradesmen’s work plans. The number of jobs completed by each tradesman has increased from 3.5 per day in September 2014 to 5.5 per day in January 2015. The PDA system is also now being used to record customer satisfaction at the end of each job, freeing up Assistant Team Leader capacity. It is expected that full implementation of the system will be complete by 31

st March 2015.

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Whilst these areas of good practice have been recognised, the audit review also identified a number of significant control weaknesses at the time of testing. In particular: Whilst the performance improvement project has, so far, delivered positive results, the key corporate target of

housing repairs being completed “outside of the target time” is not yet being met. The corporate target is that no more than 12% of housing repairs should be completed outside of target time. The latest published performance information shows that during December 2014, of the total repairs completed, 14.59% were delivered outside of target time, whilst the annual cumulative figure was 20.33%. It is noted that performance against this target improved during the course of the audit, from 21.76% in September 2014 to 14.59% in December 2014. Whilst the number of housing repairs awaiting completion is now falling, Internal Audit cannot yet provide assurance that the performance improvement is sustainable. Frequent and ongoing performance monitoring is required to maintain this improving performance.

Based upon the testing completed, Internal Audit cannot provide assurance that the Council’s housing capital recharge is accurate. The housing capital recharge is an important adjustment to ensure that resource expended on housing capital activities is correctly accounted for, and to ensure compliance with accounting standards. Tradesmen’s timesheets are used to record the time spent on capital activities each day. The capital recharge can only be accurate if daily timesheets are completed fully and accurately and submitted in a timely manner. Sample testing of timesheets for 15 tradesmen identified 41 instances of missing timesheets during December 2014; as such it is not possible to confirm that the housing capital recharge is accurate. It was also noted that the current time recording system and capital recharge calculation is manual, and potentially open to human inputting error. Management plan to introduce an integrated electronic time recording system during 2015 which should reduce this risk of error.

A recent Internal Audit review of Materials and Vehicle Usage has highlighted significant weaknesses in the control of material usage, in particular for quick turnaround repairs. Sample testing confirmed that in no cases was it possible to directly compare the materials purchased with the official purchase order. This increases the risk of unnecessary and potentially fraudulent expenditure. Furthermore, variation orders are not routinely completed to authorise the additional work and material usage on “programmed” repairs (extensive refurbishments including kitchens and bathrooms). In Spring 2015, additional measures are to be introduced to control the use of materials on housing repairs. A stock controller is to be appointed, bar coding of stock is to be introduced, and a mobile stock van solution is to be implemented. These measures should, once implemented, improve control over material cost and usage, whilst improving efficiency because tradesmen will no longer be required to undertake frequent journeys to the supplier to collect materials.

It is the Auditor’s Opinion that the current overall design and operation of controls, at the time of audit testing, provides Limited Assurance. The Opinion is based upon the testing of the design of controls to manage the five risks about which the Client sought assurance and testing to confirm the extent of compliance with those controls as summarised below. It is evident that progress is being made and that the Council is addressing the control weaknesses identified. It is acknowledged that, at the time of testing, the Council was implementing a substantial performance improvement project. A follow up audit will be scheduled for 2015/16 to review progress made and to review the assurance opinion, as appropriate.

APPENDIX A


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Internal Audit Assurance Opinion Direction of Travel

Limited Assurance Not applicable

Risk Design Comply Recommendations

H M L 01 - Housing repairs are not completed in a timely manner

Limited Assurance

Limited Assurance

1 3 0

02 - Expenditure is incorrectly accounted for and staff are not being utilised for the purposes intended

Limited Assurance

Limited Assurance

1 0 0

03 - The Council lacks the capacity to manage delivery of its housing capital programme

Sufficient Assurance


0 0 0

04 - Failure to achieve Value for Money when carrying out housing repairs

Limited Assurance

Limited Assurance

1 1 0

05 - PDA scheduling system is not delivering expected efficiencies and improvements in performance



Included at Risk 1

Included at Risk 1

Included at Risk 1

Total Number of Recommendations 3 4 0

2. SUMMARY OF KEY FINDINGS

Risk 1: Housing repairs are not completed in a timely manner

Implementation of the PDA housing repair scheduling system began in 2012. Management were,

however, initially focussed upon establishing a structure to manage the system. Full implementation of

the system did not therefore take place until late 2014.

Whilst the performance improvement project has, so far, delivered positive results, the key corporate target of a maximum of 12% of housing repairs being completed “outside of the target time” is not yet being met. The latest published performance information shows that in December 2014, of repairs that were completed, 14.59% were delivered outside of target time, whilst the annual cumulative figure was 20.33%. Performance against this target improved during the course of the audit, from 21.76% in September 2014 to 14.59% in December 2014. Whilst the number of housing repairs awaiting completion is now falling, Internal Audit cannot yet provide assurance that the performance improvement is sustainable. Frequent and ongoing performance monitoring is required. Recommendation 1 addresses this issue.

Regular performance reporting takes place to members and senior management, including the number

of “void” properties and the percentage of repairs being completed “out of target” time. Weekly

performance reports are also produced and reviewed by depot management; these reports include the

housing repair backlog and number of jobs carried out by each tradesman each day. There is an

opportunity to enhance performance reporting for the depot, by considering the introduction of additional

performance measures. This would provide additional assurance to members and senior management

that performance improvement is sustained, and would facilitate enhanced scrutiny of depot

performance. Recommendation 4 addresses this issue.

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Substantial changes have been, and are continuing to be, made to working practices and procedures at

the depot, to ensure that the new system is supported. Many procedural documents have been updated

as part of the performance improvement project, and staff have been required to formally acknowledge

the new procedures. Nominated officers have been appointed in each team to “champion” the new

procedures. The new trades handbook requires completion, and ongoing targeted staff training will be

required to ensure maximum compliance across the establishment. Recommendation 5 addresses

this issue.

Audit testing confirmed that the “Out of Target” and “Void” performance indicators are being accurately

reported to senior management and members.

During 2014, the number of outstanding jobs increased to over 2,000. This included both the current

workload and “out of target” repairs. A key contributing factor was failure to regularly maintain and

update the system to reflect repairs which had been carried out, or which were no longer required.

Customers were able to log requests for housing repairs with the One Stop Shop, housing management

or the depot. This resulted in some repairs being entered on the system twice in error. All requests for

housing repairs are now channelled through to dedicated staff at the depot. A data cleansing exercise

has now been completed. At the time of reporting, the latest information provided by management is

that there are 280 outstanding repairs which are “out of target”. Recommendation 3 relates to this

issue.

During the course of the audit testing, improvement in the timeliness of the delivery of housing repairs has been achieved. At the time of reporting, Internal Audit can report upon these developments but cannot yet provide assurance that all corporate targets are being met and there is not yet sufficient evidence to provide assurance that recent improvements will continue and be sustained. For this key reason the current assurance rating for design and operation of controls is Limited Assurance. Risk 2: Expenditure is incorrectly accounted for and staff are not being utilised for the purposes intended

There are appropriate procedures in place to monitor depot expenditure on a monthly basis, and to

explain significant variances between budget and actual spend.

In August 2012, the Council approved the creation of 26 additional posts, 15 of which were to be capital

funded. Management confirmed during the audit that, owing to the substantial backlog in housing

repairs, a significant proportion of the new staff’s time has initially been spent on revenue repairs rather

than delivery of capital works. The Council also had a number of contracts in place for delivery of capital

works; as these existing contracts have expired, staff have been reallocated to delivery of capital works.

APPENDIX A


6

A time recording system is operated at the depot, and is used to identify time spent by tradesmen on

capital projects. This information is used to calculate a capital recharge for accounting purposes. The

capital recharge is only accurate if tradesmen accurately complete and submit their timesheets.

Examination of a sample of the tradesmen’s timesheets, completed for December 2014, identified 41

missing timesheets. It was also noted that the current time recording system and capital recharge

calculation is manual, and therefore open to human inputting error. Management plan to introduce an

integrated electronic time recording system during 2015 which should reduce the risk of error. The audit

cannot therefore provide assurance that the Council’s housing capital recharge is currently accurate.

Recommendation 2 addresses this issue.

Based upon the above findings the assurance rating for design and operation of controls is Limited Assurance. Risk 3: The Council lacks the capacity to deliver its housing capital programme

There is a detailed capital project delivery plan in place, recorded on the Council’s Apex system.

Resource capacity and management requirements have been identified and documented, with a clearly

defined structure in place for the next five years.

Appropriately skilled and experienced staff are in place, and there is a clear procedure for management

of contractors at regular programme meetings.

There is a detailed programme delivery plan in place for the Council’s housing capital programme,

aligned with the Housing Revenue Account (HRA) Business Plan. A resources and management

structure is in place, and an appropriately skilled team has been established to deliver the programme

over the next five years. Recommendation 6 relates to this issue.

Based upon the above findings the assurance rating for design and operation of controls is Sufficient

Assurance.

Risk 4: Failure to achieve Value for Money when carrying out housing repairs

For repairs on “void” properties, and large repairs expected to take more than one day to complete, a

100% pre and post inspection procedure is in place. This is designed to provide assurance that only

authorised repair work is carried out, and that repairs are completed to an acceptable standard.

Customer satisfaction returns are used to ensure that housing repairs are carried out to the required

standard.

Appropriate reporting arrangements are in place to enable management to monitor expenditure on

materials. Reporting includes total expenditure on materials, number of transactions, average invoice

APPENDIX A


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value, list of all materials purchased, trend analysis, number of jobs carried out by each operative, and

average job cost for each operative.

As highlighted by the Materials and Vehicle Usage audit, completed in February 2015, for individual

repairs the review of actual materials used compared with expected usage is informal, ad hoc, and not

routinely evidenced. Furthermore, for responsive quick turnaround repairs, operatives are currently

permitted to spend up to £500 on each transaction without authorisation. Spend above £500 is

authorised by the Team Leader, a job number must be provided, and purchases must be made from an

agreed list of products. The Council receives a monthly list of materials purchased from the Council’s

supplier; this is monitored by the Team Leader. Although management will shortly be implementing a

new stock control system, including appointment of a stock controller, there is currently an increased

risk that material costs may be higher than necessary. Recommendation 7 addresses this issue.

Where contractors are commissioned to undertake repairs, additional work is not permitted without an

inspection. Variation orders are completed to authorise any additional work.

Weekly reports of Right to Buy applications are produced, and the Orchard housing system is updated

to reflect receipt of the Right to Buy application. If a housing repair request is subsequently received, a

red flag marker on the Orchard system identifies that the repair should not be authorised.

There is an appropriate system in place to recharge private leaseholders for repairs. The leaseholders

are then sent a Section 20 notice advising them that the works are required together with the costs

involved; leaseholders are provided with the option of seeking an alternative quotation for the works.

Based upon the above findings, the assurance rating for design of controls is Limited Assurance.

Increased utilisation of the PDA system from September 2014 has resulted in a significant increase in

the number of jobs completed per operative, from 3.5 in September 2014 to 5.5 in January 2015. If the

improved productivity is sustained, the Council’s housing repairs function will provide better value for

money because the Council will be able to carry out more repairs for the same cost.

As highlighted by the Materials and Vehicle Usage audit, sample testing of 10 extensive programmed

repairs, confirmed that in 7 cases the materials used on the job were in excess of those approved on

the order and specification of works. Reasonable explanations were provided for the additional

materials used, however no variation order had been completed to authorise the additional work and

material usage. In 4 of these 7 cases there was satisfactory photographic evidence which demonstrated

the additional work carried out. In the remaining 3 cases, the quality of photographic evidence was not

sufficient to demonstrate the additional work carried out. As such, there is an increased risk that

material costs are higher than necessary. Management have advised that some controls are in place to

detect potential misuse of materials. These controls include post completion inspections, sign off of

APPENDIX A


8

materials used, and review of materials used against the supplier invoice. In addition, management

asserted that telephone approval is provided where a variation is sought, although the auditor could not

obtain evidence this. Whilst these controls are acknowledged and should act as deterrent and detective

controls, these are applied after expenditure has already been incurred and would not prevent any

financial loss due to fraudulent use of materials. A recommendation has been made to ensure that use

of additional materials is documented in advance of any such expenditure being incurred.

Recommendation 8 addresses this issue.

Sample testing of 10 repairs completed by contractors confirmed that, where permission was requested

to complete additional works, approval was appropriately documented.

Sample testing of 15 quick turnaround repairs confirmed that in no cases was it possible to directly

compare the materials purchased with the official purchase order. This is because the official purchase

orders only contained a description of the work to be carried out, rather than details of the materials to

be ordered. The types of material used did appear consistent with the description of works, however

there is no assurance that the correct quantities were purchased. Management asserted that schedules

of rates confirm the materials required, and that material usage is checked by Assistant Team Leaders;

these checks were not, however, being evidenced at the time of the audit. Recommendation 7

addresses this issue.

Sample testing of 10 private leaseholders confirmed that in all cases a section 20 notice was issued

prior to works being carried out. In 9 out of 10 cases the amount billed accurately reflected the costs of

work carried out although in 1 case the invoice from the contractor could not be located.

Based upon the above findings the assurance rating for operation of controls is Limited Assurance.

Risk 5: PDA scheduling system is not delivering expected efficiencies and improvements in performance The recent improvement in performance and efficiency, following full implementation of the PDA system, is significant. The system is now being used to manage tradesmen’s work plans. The number of jobs completed by each tradesman has increased from 3.5 per day in September 2014 to 5.5 per day in January 2015. The PDA system is also now being used to record customer satisfaction at the end of each job, freeing up Assistant Team Leader capacity. Based upon the above findings the assurance rating for design and operation of controls is Sufficient Assurance.

APPENDIX A


9

3. LIMITATIONS TO THE SCOPE OF THE AUDIT

This is an assurance piece of work and an opinion is provided only on the effectiveness of arrangements for managing the risks specified above. Our work does not provide absolute assurance that material error; loss or fraud does not exist.

APPENDIX A


10

ACTION PLAN

Rec No.

ISSUE RECOMMENDATION Management Comments Priority Officer Responsible

Due date

1 Management have, since September 2014, been implementing an action plan designed to improve the depot’s performance. Management were not previously able to control the backlog of housing repairs because the number of new repair requests was consistently higher than the number of repairs being completed. Within a short time, performance of the depot has improved as measured by:

A reduction in the number of void properties from 50 in September 2014 to 39 in January 2015; and

An increase in the number of jobs completed by each operative per day, from 3.5 in September 2014 to 5.5 in January 2015.

Whilst the performance improvement project has, so far, delivered positive results, the key corporate target of housing repairs being completed “outside of the target time” is not yet being met. The latest published performance information shows that in December 2014 14.59% of repairs were completed out of target time, whilst the annual cumulative figure was 20.33%. Performance against this target improved during the course of the audit, from 21.76% in September 2014 to 14.59% in December 2014. The corporate target is that no more than 12% of housing repairs should be completed out of target time. Whilst the number of housing repairs awaiting completion is now falling, internal audit

Repairs and Maintenance Manager ensures that all actions highlighted in the depot improvement plan remain implemented, and that the recent performance improvement is sustained.

Agreed. The improvement project was at implementation stage during the audit, and is due for completion by the end of March 2015.

High Chief Executive

31/03/15

APPENDIX A


11

Rec No.


Due date

cannot yet provide assurance that the performance improvement is sustainable. Frequent and ongoing performance monitoring is required.

2 A time recording system is operated at the depot, and is used to identify time spent by tradesmen on capital projects. This information is used to calculate a capital recharge for accounting purposes. Examination of a sample of tradesmen daily timesheets completed for December 2014 identified that 41 were missing. The audit can only, therefore, provide limited assurance that the Council’s housing capital recharge is accurate. It was noted that the current timesheet procedure and capital recharge calculation is manual, and therefore open to human inputting error. Management plan to introduce an integrated system during 2015 which should reduce the risk of error.

Repairs and Maintenance Manager ensures that:

All tradesmen timesheet records are retained on file, in the event of query.

All tradesmen are reminded of the importance of completing and submitting daily timesheets.

All tradesmen timesheets are reviewed for accuracy and reasonableness before the capital recharge is calculated.

Agreed. An electronic system is to be implemented in 2015 which will streamline the process, reduce the scope for error, and enable prompt follow up whenever timesheets are not submitted. As an interim measure, timesheets will be monitored at one to one meetings, and a sample will be reviewed by the Repairs & Maintenance Manager.


30/06/15

3 During 2014 the number of outstanding jobs including current workload and “out of target” repairs increased to over 2,000. A key contributing factor was failure to regularly maintain and update the system to reflect repairs which had been carried out, or which were no longer required. Customers were able to log requests for housing repairs with any department at the Council and this caused some repairs to be entered twice on the system in error. All requests for housing repairs are now channelled through to dedicated staff at the depot. A data cleansing exercise has now been completed.

Repairs and Maintenance Manager ensures that the register of outstanding housing repairs is regularly reviewed and updated to reflect the true level of outstanding jobs.

Processes are in place and the housing management system will be maintained on a weekly basis.

Medium Chief Executive

31/03/15

APPENDIX A


12

Rec No.


Due date

4 Regular performance reporting takes place for void properties and repairs completed out of target time. However, there is an opportunity to enhance performance reporting for the depot by introducing additional performance measures. Additional performance measures would provide assurance to members and senior management that continuous performance improvement is sustained, and would facilitate enhanced scrutiny of performance.

Repairs and Maintenance Manager considers introducing additional key performance indicators for the depot, by proposing additional indicators for inclusion in the regular Performance Matters report. Examples could include:

Size of housing repair backlog (lower is preferable).

Customer satisfaction score (higher is preferable).

Agreed, the key performance indicators are not set by management at the depot and, as such, this would require approval from senior management and members.


30/04/15 for the backlog indicator 31/03/16 for the customer satisfaction indicator

5 Substantial changes have been, and are still being, made to working practices and procedures at the depot. Many procedural documents have been updated as part of the performance improvement project, and staff have been required to formally acknowledge the new procedures. Nominated officers have been appointed in each team to “champion” the new procedures. The new trades handbook requires completion, and ongoing targeted staff training will be required to ensure maximum compliance across the establishment.

Repairs and Maintenance Manager should:

Finalise and cascade the new trades’ handbook and supporting guidance.

Ensure that all staff receive the level of ongoing training and support necessary to ensure maximum compliance with expected working procedures across the establishment.

Agreed. A project will be implemented between April and June 2015, to finalise the new trades’ handbook and associated guidance. Staff training on the new handbook will follow between July and October 2015.


31/10/15

6 Although summary management reports are produced, for individual jobs the review of actual materials used compared with expected materials is informal, ad hoc, and not routinely evidenced. Furthermore, for responsive quick turnaround repairs, operatives are currently permitted to spend up to £500 on each transaction without authorisation. The materials ‘variation’ limit is set at the lower level of £100, and variations are approved

See recommendation 1 in the Materials & Vehicle Usage internal audit report.

Agreed. A computer generated sample of 10% of ad hoc/ quick turnaround repairs will be selected for sample testing each month. I addition, for each job sample checking will be carried out for 10% of


31/03/15

APPENDIX A


13

Rec No.


Due date

verbally by the Assistant Team Leaders. The Council receives a monthly list of materials purchased from the Council’s supplier; this is monitored by the Team Leader. Sample testing of 15 quick turnaround repairs confirmed that in no cases was it possible to directly compare the materials purchased with the official purchase order. This is because the official purchase orders only contained a description of the work to be carried out, rather than details of the materials to be ordered. The types of material used did appear consistent with the description of works, however there is no assurance that the correct quantities were purchased. Management plan to introduce a new stock control system including recruitment of a dedicated stock controller, introduction of bar coding, and a mobile stock van to improve productivity. However there is currently an increased risk that material costs are higher than necessary. This issue has also been highlighted in the Materials and Vehicle Usage audit.

materials purchased. Post completion inspections will be carried out for 10% of ad hoc/ quick turnaround repairs. A tolerance threshold of £100 has been set, above which variances will be fully investigated.

7 Sample testing of 10 extensive programmed repairs, confirmed that in 7 cases the materials used on the job were in excess of those approved on the order and specification of works. Reasonable explanations were provided for the additional materials used, however no variation order had been completed to authorise the additional work and material usage. In 4 of these 7 cases there was

See recommendation 2 in the

Materials & Vehicle Usage

internal audit report.

Agreed. A threshold of £100 is to be enforced when approving and documenting additional works or material usage. Scanners are to be


31/03/15

APPENDIX A


14

Rec No.


Due date

satisfactory photographic evidence which demonstrated the additional work carried out. In the remaining 3 cases the quality of photographic evidence was not sufficient to demonstrate the additional work carried out. In the remaining 3 cases the quality of photographic evidence was not sufficient to demonstrate the works carried out. There is an increased risk that material costs are higher than necessary. This issue has also been highlighted in the Materials and Vehicle Usage audit. Management have advised that some controls are in place to detect potential misuse of materials. These controls include post completion inspections, sign off of materials used, and review of materials used against the supplier invoice. In addition, management asserted that telephone approval is provided where a variation is sought, although the auditor could not evidence this. Whilst these controls are acknowledged, they are applied after expenditure has already been incurred.

purchased, which will enable decision records to be saved on the Orchard system.

APPENDIX A


15

GLOSSARY The Auditor’s Opinion The Auditor’s Opinion for the assignment is based on the fieldwork carried out to evaluate the design of the controls upon which management relay and to establish the extent to which controls are being complied with. The table below explains what the opinions mean.

Level Design of Control Framework Compliance with Controls

SUBSTANTIAL

There is a robust framework of controls making it likely that service objectives will be delivered.

Controls are applied continuously and consistently with only infrequent minor lapses.

SUFFICIENT

The control framework includes key controls that promote the delivery of service objectives.

Controls are applied but there are lapses and/or inconsistencies.

LIMITED

There is a risk that objectives will not be achieved due to the absence of key internal controls.

There have been significant and extensive breakdowns in the application of key controls.

NO

There is an absence of basic controls which results in inability to deliver service objectives.

The fundamental controls are not being operated or complied with.

Category of Recommendations The Auditor prioritises recommendations to give management an indication of their importance and how urgent it is that they be implemented. By implementing recommendations made managers can mitigate risks to the achievement of service objectives for the area(s) covered by the assignment.

Priority Impact & Timescale

HIGH Management action is imperative to ensure that the objectives for the area under review are met. Recommendation to be implemented immediately with explanation to Audit & Governance Committee should timeframe extend beyond three months.

MEDIUM Management action is required to avoid significant risks to the achievement of objectives Recommendation should be implemented as soon as possible with explanation to Audit & Governance Committee should timeframe extend beyond six months

LOW Management action will enhance controls or improve operational efficiency. Recommendation should be implemented within six months but Audit & Governance Committee will be advised where the client specifies that a longer delivery time is necessary and / or justified.

Limitations to the scope of the audit The Auditor’s work does not provide any guarantee against material errors, loss or fraud.

APPENDIX B


INTERNAL AUDIT REPORT

MATERIALS & VEHICLE USAGE 2014-15

Issue Date: 09 March 2015 Issued to: Norman Stronach – Chief Executive

Author: Chris Green Adrian Sibley – Director of Corporate Services (s151 officer)

Angela Warburton – Assistant Chief Executive

Gus Paton – Repairs & Maintenance Manager

Dave Higgins – Team Leader

Caroline McLeish – Assistant Team Leader (Business Support)

Rory Baillee – Assistant Team Leader

APPENDIX B


MATERIALS & VEHICLE USAGE 2014-15

EXECUTIVE SUMMARY

1. INTRODUCTION & OPINION

The purchasing of materials for housing repairs and the use of Council vehicles are two key areas where the Council could be exposed to the risk of fraud and this was recognised in a recent senior management review of potential fraud risks. The Council owns and maintains a fleet of 80 vehicles which are used to assist in the provision of a range of services, including housing repairs. As such, an Internal Audit review of Materials and Vehicle Usage was included in the Audit Plan for 2014/15 to provide assurance that sufficiently robust controls are in place, and operating consistently, to minimise the opportunities to commit theft or fraud when purchasing materials or using fleet vehicles.

The audit focussed on three key risks associated with materials and fleet vehicle usage:

Inappropriate purchases, or use, of materials by operatives;

Personal use of fleet vehicles and theft of fuel; and

Fraud when procuring or disposing of fleet vehicles. The audit review confirmed that appropriate controls are in place to monitor overall expenditure on materials and vehicle fuel costs. The fleet vehicle register was found to be appropriately maintained and testing confirmed that the records of officers responsible for fleet vehicles are accurate. All except three fleet vehicles are fitted with tracker devices which identify the location and speed of each vehicle. This enables management to identify, and take action, when a vehicle is found to be in an unexpected location, for example, if a vehicle is driven outside of the borough. The tracking devices also enable management to take action when a vehicle is recorded as being driven above the speed limit. There are appropriate controls in place to reduce the risk of fraud when procuring or disposing of fleet vehicles, including segregation of duties and clear authorisation procedures. Testing identified three significant control weaknesses, however, which would increase the risk of theft or fraud. The key issues highlighted were as follows:

Actual materials usage is not routinely compared with expected usage for individual jobs. Any reviews are informal, ad hoc, and are not evidenced. For responsive and quick turnaround repairs, spend above £500 is authorised by the Team Leader, a job number must be provided, and purchases must be made from an agreed list of products. Where the spend is below £500 however, operatives are currently permitted to spend up to £500 on each material purchase transaction, without any independent authorisation. The Council receives a monthly list of materials purchased from the Council’s supplier; this is monitored by the Team Leader. Although management will shortly be implementing a new stock control system, including appointment of a stock controller, there is currently a high risk of theft of materials or fraudulent purchase of materials for personal use.

Decisions permitting use of additional materials on programmed housing repairs are not routinely documented. This control weakness increases the risk of fraud or theft of materials as there is no

APPENDIX B


evidence available to demonstrate whether or not this expenditure has been suitably authorised. In addition, in the event that fraud or theft is suspected, it would be more difficult to identify exactly when the offence took place and the individual responsible. It would also be difficult to quantify the Council’s financial loss. Management have advised that some controls are in place to detect potential misuse of materials. These controls include post completion inspections, sign off of materials used, and review of materials used against the supplier invoice. Whilst these controls are acknowledged, these are applied after any additional expenditure has already been incurred. A recommendation has been made to ensure that authorisation for use of additional materials is documented in advance of any such expenditure being incurred.

Appropriate records are maintained which detail the mileage and fuel expenditure for each fleet vehicle. Regular, documented management reviews are not, however, performed for each vehicle to confirm that fuel usage is acceptable based upon the mileage recorded. Audit analysis carried out for the month of November 2014 highlighted that 7 out of 15 selected vehicles were achieving less than 15 mpg based upon records available, although it is acknowledged that the timing of fuel purchases could affect the calculated figures. Given the weaknesses identified in the monitoring controls, there is an increased risk that fuel theft could be taking place and remain undetected. Appropriate, formal monitoring controls can also act as a deterrent to any potential abuse of Council resources. It is understood that management have carried out their own exercise which shows that, across the entire fleet, an average fuel economy of 21mpg is being achieved.

Management have agreed all of the findings highlighted in this report, and have committed to implementing the agreed action plan in a timely manner. It is the Auditor’s Opinion that the current overall design and operation of controls provides only Limited Assurance. The Opinion is based upon testing of the design of controls to manage the three risks about which the Client sought assurance and testing to confirm the extent of compliance with those controls as summarised below.

Internal Audit Assurance Opinion Direction of Travel

Limited Assurance Not Applicable

Risk Design Comply Recommendations

H M L 01 - Inappropriate purchases or use of materials by operatives

Limited Assurance

Limited Assurance

2 0 0

02 – Personal use of fleet vehicles and theft of fuel Limited Assurance

Limited Assurance

1 0 1

03 - Fraud when procuring or disposing of fleet vehicles

Substantial Assurance


0 0 0

Total Number of Recommendations 3 0 1

2. SUMMARY OF FINDINGS

Risk 1: Inappropriate purchases or use of materials by operatives

Appropriate reporting arrangements are in place to enable management to monitor total expenditure on materials. Reporting includes total expenditure on materials, number of transactions, average invoice

APPENDIX B


value, list of all materials purchased, trend analysis, number of jobs carried out by each operative, and average job cost for each operative.

Appropriate controls are in place to ensure that programmed and extensive repairs are not carried out until an inspection has been completed, recording the works required.

For programmed and extensive repairs, planned and actual material usage is recorded on the Council’s Orchard system. As such, there is an appropriate audit trail of material usage in place.

Aside from the monitoring controls highlighted above, management do not routinely compare actual materials usage with expected usage for individual jobs. Any reviews are informal, ad hoc, and are not evidenced. For responsive and quick turnaround repairs, operatives are currently permitted to spend up to £500 on each material purchase transaction, without any senior authorisation. The materials ‘variation’ limit is set at the lower level of £100, and variations are approved verbally by the Assistant Team Leaders. The Council receives a monthly list of materials purchased from the Council’s supplier; this is monitored by the Team Leader. Although management will shortly be implementing a new stock control system, including appointment of a stock controller, there is currently a high risk of theft of materials, or fraudulent purchase of materials for personal use. Furthermore, sample testing of 15 responsive and quick turnaround repairs confirmed that in none of these cases was it possible to directly compare the materials purchased with the official purchase order. This is because the official purchase order only contains a description of the work to be carried out, rather than details of the materials to be ordered. Management asserted that national schedules of rates indicate the materials required on a standard costing basis, and that material usage is checked by Assistant Team Leaders; these checks were not, however, being evidenced at the time of the audit testing. Recommendation 1 in the Action Plan addresses these issues.

Decisions permitting use of additional materials on programmed housing repairs are not routinely documented. Sample testing of programmed and extensive repairs highlighted that in 7 out of 10 cases, decisions permitting use of additional materials were not documented. In 3 out of these 7 cases, the quality of photographic evidence was not sufficient to demonstrate the additional works carried out. This increases the risk of fraud or theft of materials. Management have advised that some controls are in place to detect potential misuse of materials. These controls include post completion inspections, sign off of materials used, and review of materials used against the supplier invoice. In addition, management asserted that telephone approval is provided where a variation is sought, although the auditor could not evidence this. Whilst these controls are acknowledged and should act as a deterrent and detective control, these are applied after expenditure has already been incurred and would not prevent any financial loss due to fraudulent use of materials. A recommendation has been made to ensure that use of additional materials is documented in advance of any such expenditure being incurred. Recommendation 2 in the Action Plan addresses this issue.

Based upon the above findings, the assurance rating for design and compliance with controls is Limited Assurance.

APPENDIX B


Risk 2: Personal use of fleet vehicles and theft of fuel

A live, 24 hour per day, tracker system is fitted to all except three fleet vehicles. The system operates whenever a vehicle engine is started, and records the speed and location of each vehicle and reports can be produced from the system as required. This enables management to identify, and take action, when a vehicle is found to be in an unexpected location, for example, if a vehicle is being driven outside of the borough. It also enables management to take action when a vehicle is recorded as driven above the speed limit.

All drivers are required to sign a declaration that they understand and agree to abide by the driving regulations, before being handed the key to a fleet vehicle. The regulations highlight that vehicles must not be taken outside the borough, and must not be used for private purposes.

Each fleet vehicle is allocated to a specific driver, details of which are recorded on the fleet register. This enables management to readily identify the driver when vehicle misuse is suspected.

Weekly safety check sheets are completed for each vehicle, and include a record of daily mileage. Spreadsheet records are maintained which record details of mileage and fuel expenditure for each vehicle. However, individual vehicle records are not routinely examined to confirm that fuel usage is acceptable for the mileage recorded. Line managers are expected to carry out a random check each month to confirm that fuel usage and mileage is in line with expectations; testing identified, however, that in practice this control is not consistently applied. Recommendation 3 in the Action Plan addresses this issue.

The Council uses All Star fuel cards to obtain fuel for its fleet vehicles. Each vehicle has its own fuel card and PIN number. The cards can only be used to purchase fuel for the recorded vehicle registration number, and only permit purchase of the fuel type specific to the vehicle. This enables management to identify and record the fuel cost for each individual vehicle.

A spreadsheet is maintained which records fuel usage, summarises fuel expenditure for each month, and analyses fuel consumption and cost for each vehicle. Management monitor total fuel expenditure trends on a monthly basis.

Although there was sufficient information available, at the time of testing, management did not regularly review whether fuel consumption for each vehicle was reasonable for the mileage driven. This increases the risk of undetected theft of fuel and fails to provide a deterrent to any potential fraud attempts.

Based upon the above findings, and due to the absence of key management controls to monitor fuel usage for individual vehicles, the assurance rating for design of controls is Limited Assurance.

Audit analysis carried out for the month of November 2014 highlighted that 7 out of 15 selected vehicles were achieving less than 15 mpg. There is an increased risk that fuel theft is taking place as this performance is not currently subject to appropriate review and scrutiny. Management have committed to

APPENDIX B


fully investigating the issues raised, and to monitor the average fuel economy of each fleet vehicle on a monthly basis. Recommendation 3 in the Action Plan addresses this issue.

Audit testing confirmed that fleet register driver records are being accurately maintained. In the event that theft of fuel or inappropriate vehicle usage is suspected, management would be able to trace the officer responsible for the vehicle.

Based upon the above findings, the assurance rating for compliance with controls is Limited Assurance. Risk 3: Fraud when procuring or disposing of fleet vehicles

Fleet vehicles are only purchased on submission, and approval, of a business case presented to the Council’s Asset Management Group. Tender exercises are completed and the evaluation process involves officers independent of the department requesting the purchase. There are appropriate authorisation and segregation of duty controls in place.

The Council purchased four electric vehicles in Autumn 2014, and review of the related documentation demonstrated that, in addition to the controls outlined above, the decision was also approved by the One Corby Policy Committee (OCPC).

The Council’s Financial Procedure Rules (FPRs) state the procedures which must be followed when fleet vehicles are disposed of. Procedures state that, for items of significant value, disposal should be by competitive tender or public auction, unless the OCPC agrees otherwise.

The Asset Management Group is the management forum responsible for authorising decisions on asset disposals, this includes fleet vehicles.

The Council has not recently disposed of any fleet vehicles; however officers demonstrated an awareness of the procedures to be followed.

For these reasons the assurance rating is Substantial Assurance for the design of controls, and Sufficient Assurance for the operation of controls.

3. LIMITATIONS TO THE SCOPE OF THE AUDIT

This is an assurance piece of work and an opinion is provided on the effectiveness of arrangements for

managing only the risks specified above.

Our work does not provide assurance that material error; loss or fraud does not exist.

APPENDIX B


ACTION PLAN

Rec No.


Due date

1 Management do not routinely compare actual materials usage with expected usage for individual jobs. Any reviews are informal, ad hoc, and are not evidenced. For responsive/quick turnaround repairs, operatives are currently permitted to spend up to £500 on each material purchase transaction, without any authorisation. The materials ‘variation’ limit is set at the lower level of £100, and variations are approved verbally by the Assistant Team Leaders. The Council receives a monthly list of materials purchased from the Council’s supplier; this is monitored by the Team Leader. Although management will be implementing a new stock control system, including appointment of a stock controller, there is currently a high risk of theft of materials, or fraudulent purchase of materials for personal use. Furthermore, sample testing of 15 responsive/quick turnaround repairs confirmed that in none of the selected cases was it possible to directly compare the materials purchased with the official purchase order. This was due to the official purchase order only containing a description of the work to be carried out, rather than details of the materials to be ordered.

Repairs and Maintenance Manager ensures that purchase orders for ad hoc works include details of the materials to be used on the job. Repairs and Maintenance Manager ensures that sample checking of materials usage is carried out each month, covering different types of housing repairs. The sample checking should be based on a variety of jobs, and compare actual material usage against planned material usage. Evidence of the sample checking should be retained. Repairs and Maintenance Manager sets a threshold above which any variances identified by the sample checking will be investigated.

Agreed. A computer generated sample of 10% of ad hoc/ quick turnaround repairs will be selected for sample testing each month. I addition, for each job sample checking will be carried out for 10% of materials purchased. Post completion inspections will be carried out for 10% of ad hoc/ quick turnaround repairs. A tolerance threshold of £100 has been set, above which variances will be fully investigated.


31/03/15

APPENDIX B


Rec No.


Due date

2 Decisions permitting the use of additional materials on housing repairs are not routinely documented. Sample testing of programmed/ extensive repairs highlighted that in 7 out of 10 cases, decisions permitting use of additional materials were not documented. In 3 out of these 7 cases, the quality of photographic evidence was not sufficient to demonstrate the additional works carried out. This increases the risk of fraud or theft of materials. Management have advised that some controls are in place to detect potential misuse of materials. These controls include post completion inspections, sign off of materials used, and review of materials used against the supplier invoice. In addition, management asserted that telephone approval is provided where a variation is sought, although the auditor could not evidence this. Whilst these controls are acknowledged, they are applied after expenditure has already been incurred. A recommendation has been made to ensure that use of additional materials is documented in advance of any such expenditure being incurred.

Repairs & Maintenance Manager:

Establishes and cascades a threshold,

above which any additional works or

material usage must be documented as

formally approved by an appropriate

senior officer;

Routinely monitors and enforces

compliance with these requirements;

Agreed. A threshold of £100 is to be enforced when approving and documenting additional works or material usage. Scanners are to be purchased, which will enable decision records to be saved on the Orchard system.


31/03/15

3 Spreadsheet records are maintained which record details of mileage and fuel expenditure for each vehicle. Individual vehicle records are not, however, routinely examined to confirm that fuel usage is acceptable for the mileage recorded.

Repairs and Maintenance Manager:

Monitors the average fuel economy of

each fleet vehicle on a monthly basis,

taking into account cost of fuel and

mileage recorded on the vehicle

trackers;

Agreed. The average mpg has been reviewed across the entire fleet, and the current average is 21mpg. A template has been designed,


31/03/15

APPENDIX B


Rec No.


Due date

Audit analysis carried out for the month of November 2014 highlighted that 7 out of 15 selected vehicles were achieving less than 15 mpg. Based upon the findings, there is an increased risk that fuel theft is taking place and remains undetected, although it is acknowledged that the timing of fuel purchases

could affect the calculated figures. Management

have committed to fully investigating the specific issues raised.

Ensures that appropriate investigation is

carried out, including formal action

where necessary, when the average fuel

economy is lower than expected,

including those cases highlighted by the

Audit testing. The Auditor suggests that

20mpg be regarded as a benchmark,

below which further investigation will be

carried out.

and fuel usage and mileage will analysed every month for every vehicle. The Team Leaders will fully investigate any cases where the calculated fuel economy is below 20mpg.

4 A live, 24 hour per day, tracker system is fitted to fleet vehicles. The system operates whenever a vehicle engine is started, and records the speed and location of each vehicle and reports can be produced from the system as required. This enables management to identify, and take action, when a vehicle is found to be in an unexpected location, for example, if a vehicle is being driven outside of the borough. It also enables management to take action when a vehicle is recorded as driven above the speed limit. The tracker system has not, however, been fitted to the two corporate pool cars; these vehicles form part of the corporate fleet of vehicles.

Repairs and Maintenance Manager considers fitting trackers to the two corporate pool cars.

Agreed, subject to approval by senior management.

Low Chief Executive

30/09/15

APPENDIX B


GLOSSARY The Auditor’s Opinion The Auditor’s Opinion for the assignment is based on the fieldwork carried out to evaluate the design of the controls upon which management relay and to establish the extent to which controls are being complied with. The table below explains what the opinions mean.

Level Design of Control Framework Compliance with Controls

SUBSTANTIAL

There is a robust framework of controls making it likely that service objectives will be delivered.

Controls are applied continuously and consistently with only infrequent minor lapses.

SUFFICIENT

The control framework includes key controls that promote the delivery of service objectives.

Controls are applied but there are lapses and/or inconsistencies.

LIMITED

There is a risk that objectives will not be achieved due to the absence of key internal controls.

There have been significant and extensive breakdowns in the application of key controls.

NO

There is an absence of basic controls which results in inability to deliver service objectives.

The fundamental controls are not being operated or complied with.

Category of Recommendations The Auditor prioritises recommendations to give management an indication of their importance and how urgent it is that they be implemented. By implementing recommendations made managers can mitigate risks to the achievement of service objectives for the area(s) covered by the assignment.

Priority Impact & Timescale

HIGH Management action is imperative to ensure that the objectives for the area under review are met. Recommendation to be implemented immediately with explanation to Audit & Governance Committee should timeframe extend beyond three months.

MEDIUM Management action is required to avoid significant risks to the achievement of objectives Recommendation should be implemented as soon as possible with explanation to Audit & Governance Committee should timeframe extend beyond six months.

LOW Management action will enhance controls or improve operational efficiency. Recommendation should be implemented within six months but Audit & Governance Committee will be advised where the client specifies that a longer delivery time is necessary and / or justified.

Limitations to the scope of the audit The Auditor’s work does not provide any guarantee against material errors, loss or fraud. It does not provide absolute assurance that material error, loss or fraud does not exist.

Documents

Internal Audit Reports Resulting in Limited Assurance Opinions Audit... · Internal Audit Reports Resulting in Limited Assurance Opinions ... All fleet vehicles are fitted with tracker