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Report for: INFORMATION

Contains Confidential or Exempt Information

No

Title Quarter 3 Audit & Investigation Performance Report

Member Reporting N/A

Contact Details Jeremy Welburn, Interim Head of Audit & Investigations, ext. 2430

For Consideration By Audit Committee

Date to be Considered 23 February 2017

Implementation Date if Not Called In

23 February 2017

Affected Wards All

Keywords/Index Audit & Investigation Performance Report

1. Details of Recommendations

1.1 To note the report.

Summary The attached report describes the work undertaken by the Audit and Investigation Shared Service team to the end of Quarter Three, 1 April to 31 December 2016

If the recommendations are adopted, how will residents benefit?

Benefits to residents and reasons why they will benefit, link to Values

Dates by which they can expect to notice a difference

Internal Audit activity provides independent assurance to the Chief Executive, Members and Senior Officers on the adequacy of the internal control environment in Hounslow Council. This aids Members and Officers in ensuring that we are continually learning from experience. All counter fraud activity assists the Council in its value of spending money wisely. Every pound lost through fraudulent behaviours is a resource or asset diverted away from services provided to those who are in genuine need.

Ongoing

2. Background

This report outlines the performance of the Audit & Investigations Shared Service from April 1 to the 31 December 2016 (to 31 January 2017 for internal audit work).

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Internal Audit and Investigations activity within the Council is delivered under a shared service arrangement with the London Borough of Ealing. During this period, LB Brent initiated an exit clause from the Shared Service Partnership.

3. Reason for Decision and Options Considered

The Audit Committee is presented with details in the attached report.

4. Key Implications

4.1 The performance of the audit team (including the Strategic Audit Partner) is measured by:

%age of Internal Audit Plan completed (100% target);

%age of draft audit reports issued on time (95% target);

%age of final reports issued on time (95% target) ; and

%age of assignments completed within agreed budget (100% target).

4.2 The performance of the fraud team during the year is measured by:

The number of cases where fraud is established; and

The amount of money identified for recovery In addition to these performance indicators, the benefits of counter fraud work are reported within Appendix B.

5. Financial Details

a) Financial Impact on the Budget

In terms of the impact on the Internal Audit and Investigation service budget, there are no impacts on the basis that all services are delivered within existing budgets.

b) Comments of the Director of Finance and Corporate Services

The Director of Finance and Corporate Services liaises closely with the Head of Internal Audit and Investigation on the progress of specific cases.

6. Legal (to be completed in conjunction with the Legal Department)

a) Legal Details

All Local Authorities are required to make a proper provision for Internal Audit in line with the 1972 Local Government Act and Accounts and Audit Regulations 2015 (as amended). The Public Sector Internal Audit Standards (2013) also require the proper planning of audit work.

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Local authorities are required to demonstrate proper stewardship of public funds in line with the 1972 Local Government Act. The London Borough of Hounslow utilises a fraud and investigation team to assist in its safeguarding of public funds and the recovery of funds that have been misappropriated.

c) Comments of the Head of Governance

The Director of Finance and Corporate Services, as the Council’s Chief Finance Officer, continues to have a personal statutory responsibility concerning the proper administration of the council’s financial affairs notwithstanding any appointment to perform the internal audit and investigation function.

7. Value for Money

Internal Audit seeks to provide value for money both in terms of the delivery of the service and through reviews of individual auditable areas. The investigation team provides good value for money to the Council and residents: the presence of the team helps prevent fraud by acting as a visible deterrent.

8. Sustainability Impact Appraisal

Not applicable.

9. Risk Management

Internal Audit activity is directly influenced by the Council’s risk management processes.

10. Links to Council Priorities

Efficient use of Council resources.

11. Equalities, Human Rights and Community Cohesion

No direct implications arising.

12. Staffing/Workforce and Accommodation implications

The recruitment exercise for the permanent Head of Audit and Investigations for the Shared Service is underway. Interviews with shortlisted candidates will take place in December.

13. Property and Assets

None.

14. Any Other Implications

None.

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15. Consultation

None.

16. Timetable for Implementation

Not applicable.

17. Appendices

Appendix A – Internal Audit Performance Report 1 April – 31 January 2017. Appendix B – Counter Fraud Performance Report 1 April – 31 December 2016.

18. Background Information

Counter Fraud Plan 2016/17 https://democraticservices.hounslow.gov.uk/documents/s122820/Counter%20Fraud%20Plan%202016-2017.pdf Internal Audit Plan 2016/17 https://democraticservices.hounslow.gov.uk/documents/s122853/Draft%20Internal%20Audit%20Plan%202016-2017.pdf

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Appendix B

APPENDIX A

LONDON BOROUGH OF HOUNSLOW INTERNAL AUDIT PERFORMANCE REPORT 1 April – 31 January 2017 February 2017

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1. Introduction

The purpose of the report is to provide Audit Committee members and management with an update on the delivery of the audit plan and highlight any issues that should be brought to the Committee’s attention.

2. Background

The fundamental role of Internal Audit is to provide senior management and members with an independent assurance on the adequacy, effectiveness and efficiency of the system of internal control and report major weaknesses together with recommendations for improvement. The role is fulfilled by carrying out appropriate audit work in accordance with the Annual Plan as approved by the Director of Finance and Corporate Services and the Audit Committee. As Internal Audit is a major source of assurance that the Council is effectively managing its risks, a key rationale for the development of the Internal Audit Plan was the Council’s own Corporate and Service Risk registers.

3. 2016/17 Audit Plan Progress 3.1 The contract with the new Strategic Audit Partner, PwC, was signed in June of

this year, with audit work for 2016/17 starting shortly after this. As such, the update has been provided to the 31st of January to provide the Audit Committee with the most up to date position on progress against the audit plan, given the delayed start to the programme this year.

3.2 The 2016/17 Plan was approved by the Audit Committee in February 2016.

The plan presented was indicative and can be subject to revision during the year to take account of changing priorities and emerging risks, which is aligned with good internal audit practice. The Director of Finance and Corporate Services regularly meets with the Head of Audit & Investigations and the Strategic Internal Audit Partner (PwC) to discuss progress and emerging findings.

3.3 The following table shows progress against the 2016/17 audit plan, illustrating

the status (draft/final/in progress etc) of each review: Table 1

Audit Title Scope Update

1 Lampton 360 Governance

Review of Lampton 360 governance arrangements including reporting, membership, directorships and funding.

To be delivered end of Q4

2 Fortnightly waste collection programme (Lampton 360)

Project assurance review that looks at planning for transition to fortnightly waste collection.

Fieldwork scheduled w/c 27th March

3 Pension Fund Administration

Review of Pension Administration arrangements

Finalised (Substantial

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Audit Title Scope Update

Assurance)

4 Continuous auditing and monitoring Phase 1 (Key financial systems)

Audit of key controls for five major systems: Accounts Payable, Accounts Receivable, NNDR, Council tax, Payroll

Finalised – overall Reasonable Assurance

5 Continuous auditing and monitoring Phase 2 (Key financial systems)

Fieldwork scheduled w/c 20th February

6 Savings delivery Review of the management controls and reporting procedures to effectively monitor the delivery of savings commitments.

Draft report issued

7 Schools themed audits – Payroll and safe recruitment

Review of payroll and safe recruitment arrangements in 5 schools maintained by the Council

Finalised – overall Reasonable Assurance

8 Schools themed audits – Procurement

Review of procurement arrangements in 5 schools maintained by the Council

Draft report issued (4/5 individual reports finalised)

9 Schools themed audits – Financial governance

Review of financial governance arrangements in 5 schools maintained by the Council

Finalised - overall Reasonable Assurance

10 Complaints Handling Procedures

Assessment of control design for the corporate complaints handling procedure process

Finalised (Reasonable Assurance)

11 Cash Imprest Accounts

Review of cash locations, including appropriateness of expenditure and reconciliation

Finalised (Substantial assurance)

12 Recruitment Processes

Review of recruitment procedures, including pre-employment checks and vetting

Draft report issued

13 Fire Safety and Legionella

Review of H&S assessments, governance, monitoring of remedial actions and training arrangements for fire safety and legionella for non-residential properties across the Council

Finalised (Limited Assurance)

14 Corporate Governance Arrangements

Review of adequacy and effectiveness of the Corporate Governance arrangements.

Draft report issued

15 Procurement and Contract

General procurement compliance review, review to

Audit deferred to Q1 2017/18

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Audit Title Scope Update

Management be extended to consider supplier resilience reviews.

as policies in this area are being updated

16 Logicalis contract management review

Review of contract management arrangements for Logicalis contract (ICT) with focus on value for money considerations.

Draft report

17 Hounslow Civic Centre

Project assurance review. In progress

18 Right to Buy Review of controls and procedures regarding the implementation of the Right to Buy scheme.

Finalised (Reasonable Assurance)

19 Pathway from Adult Social Care Assessment

Review of pathway arrangements from adult social care assessment, from referral to creation of the Support Plan

Finalised (Reasonable Assurance)

20 IT risk diagnostic

Use of IT Risk Diagnostic to identify risk areas in IT.

Draft report issued

21 IT Governance and Third Part management

Priority areas identified from the IT risk diagnostics work

Scoping underway – to be delivered in February/March 2017

22 Assurance mapping

Development of assurance map for 2017/18.

Final report issued

23 Looked after children

Review of controls and safeguarding arrangements in looked after children

In progress

24 Anti-Social Behaviour

Review of strategy against required performance as outlined in Pledge 1 of Council's promises

In progress

25 Housing Benefits

The implications of risk based verification for HB

In progress

26 Grants Verification

Grant certification testing, e.g.. Troubled Families

Finalised - grant certification

27 Bribery Act Review of the implementation of the measures contained within the Bribery Act

Draft report issued

28 HB Law Contractual Arrangements

Contract management arrangements including billing and performance management

In progress

29 Planning Services

Completion of system based review on planning services to include compliance with statutory requirements.

Finalised (Substantial Assurance)

30 Voids Management

Policies and procedures regarding the management of voids

In progress

31 Governance Arrangements -

Review of governance arrangements including roles

In progress

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Audit Title Scope Update

Uplifts in residential and nursing care.

and responsibilities for uplifts in residential and nursing care in Children's and Adults

32 Community Centres

Governance review of arrangements within the centres

Scoping – to be scheduled for end of Q4

It should be noted that the three schools thematic audits result in 15 individual reports. An overall Reasonable Assurance level is provided for these.

3.9 Key performance indicators (KPIs) have been established to measure the delivery of the audit service across the shared service. These are how we measure our performance to ensure that all audits on the plan for each Council are delivered by the end of the financial year. The shared service KPIs for delivery against the audit plan for each quarter are (based on draft reports issued):

Quarter 1 – 15% of 16/17 audits delivered (draft report issued) Quarter 2 – 35% of 16/17 audits delivered (draft report issued) Quarter 3 – 65% of 16/17 audits delivered (draft report issued) Quarter 4 – 100% of 16/17 audits delivered (draft report issued) 3.10 The table below provides a summary of progress in terms of the number of

reports at draft or final stage and those in progress: Table 2

Audit Status Number of reviews

Percentage Completion

Finalised 12 37.5%

Draft 7 22%

In Progress 7 22%

Fieldwork scheduled 2 6.25%

Scoping in progress 2 6.25%

To be scoped for Q4 delivery

1 3%

Deferred to 17/18 1 3%

Total 32 100%

3.11 The current percentage output of 59.5% of the plan delivered at draft or final

stage is below the target for this stage of the year, due to the delayed start to the audit plan. The progress tables at Section 3.8 and 3.10 above demonstrate the level of work in progress and the schedule for the rest of the audit year. As such, despite the late start due to the new audit contract, the plan will be delivered in full by the end of March 2017, with the exception of Procurement and Contract Management. This review will be deferred to the start of Q1, as new policies are being developed in this area, which need to be in place before work can commence.

3.12 One report, Fire Safety and Legionella, has been issued with a Limited

assurance opinion. There were two high risk findings in this report, relating to:

Evidence of risk assessments does not appear to be retained.

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The Council cannot evidence that remedial actions have been performed for completed risk assessments.

All recommendations have been accepted and action plans to resolve the issues have been agreed and put in place.

3.13 Follow Up Work Internal Audit carries out a review of the progress in implementing

recommendations raised. High risk recommendations are followed up as they become due to allow the Committee to be made aware of progress against high priority recommendations on a regular basis. The status of high risk recommendations due to be implemented by 31 January are outlined below:

Table 3

Number of High Risk recommendations due to be implemented by 31 January 2016

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Number of High Risk recommendations fully implemented 23

Number of High Risk recommendations partially implemented 1

Partially implemented recommendations (those for which action has been undertaken but which were not fully completed by the original action date) will continue to be monitored to ensure they are completed, and any instances of non-implementation will be reported to future meetings of the Audit Committee. Details of the partially implemented high risk recommendation and progress against it is provided in the table below: Details of progress against partially implemented recommendations Table 4

1 Gifts, Hospitality and Declaration of Interests

Employees should be reminded of their responsibilities in relation to the Bribery Act 2012, and suitable training should be provided where appropriate. Gifts or hospitality offered that could be interpreted as a bribe, should be declined and immediately reported to the Head of Internal Audit and the S151 Officer. To be implemented by October 2016.

Training will be implemented once the new Head of Internal Audit is in post.

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Appendix B

LONDON BOROUGH OF HOUNSLOW COUNTER FRAUD TEAM PERFORMANCE REPORT Quarter 3 1 April – 31 December 2016 February 2017

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1. Introduction

This report details the performance of the Audit & Investigations Shared Service in respect of the delivery of investigation services on behalf of the London Borough of Hounslow. The purpose of the report is to provide Audit Committee members and management with an update on the work undertaken by the Shared Service to Quarter 3 (1 April to 31 December 2016) and highlight key issues for the attention of Members.

2. Background As previously reported to the Committee, Internal Audit & Investigation services are delivered by the Internal Audit and Investigations Shared Service, which has brought together the Internal Audit and Investigation resources of the London Boroughs of Hounslow and Ealing. The Shared Service, hosted by the London Borough of Ealing, enhances the Internal Audit and Investigation services delivered to the two boroughs, by bringing together a wealth of experience, improving overall service resilience, whilst also providing the opportunity to share best practice and harmonise counter fraud processes. The Shared Service is responsible for the investigation of all types of suspected fraud within the Council, including but not limited to:

Corporate fraud matters in relation to offences committed by employees;

Procurement fraud by employees, Contractors or other third parties;

Fraud within schools;

Housing tenancy related fraud; Council Tax fraud, including Council Tax Reduction, discounts and exemptions;

Blue Badges; and

School placement applications.

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3. Detail

3.1 Performance 1 April – 31 December 2016 3.1.1 The table below shows the number of new cases reported to the fraud team

from 1 April to 31 December 2016. New offences (Table 1)

Case type Fraud alleged Total Sub-total

Council Tax 108

Council Tax Discount 15

Council Tax Reduction Support 93

Tenancy 55

Application 12

Occupancy 3

Right To Buy 24

Sub-let 15

Succession 1

Parking 50

Blue Badge 47

Other 2

Parking permit 1

Deception 19

Benefit 10

Grant 1

Instrument of payment 2

Insurance 2

Other 1

Planning 3

Financial investigation 6

Other 1

Planning 3

Proceeds of Crime Act 2

Corruption 2

Bribery 1

Planning 1

At the end of the period there were 178 cases open on the fraud system (there were 201 cases previously reported as open at the end of Quarter 2). It should be noted that cases will frequently run for a number of months, so that the number closed does not correlate directly to those opened (shown in Table 1 above) in the same period. Audit & Investigation must have reasonable and sufficient grounds to conduct a criminal investigation. Cases will be screened out, or not progressed with, for a variety of reasons including: that there is a more appropriate agency to deal with the allegation; that the allegation has no merit (including cases that are suspected of being malicious); or cases where after initial enquiries it is apparent that there are insufficient grounds to warrant further action. Only a proportion of the allegations received will progress to a full investigation. Resource is required to adequately address each stage of this process.

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3.1.2 The table below shows the number of cases completed during the period 1

April to 31 December 2016, including those passed to other agencies (such as Department for Work and Pensions, Police or other London Borough) and those for which no further action was taken following initial enquiries.

Cases closed 1 April – 31 December 2016 (Table 2)

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Council Tax 167 Council Tax Discount 12 1 8 3 Council Tax Reduction 154 28 82 44 Other 1 1

Tenancy 66 Application 11 7 4 Occupancy 9 2 7 Other 1 1 Right To Buy 33 5 28 Sub-let 11 9 2 Succession 1 1

Parking 44 Blue Badge 40 1 21 18 Other 2 2 Parking permit 2 2

Deception 42 Benefit 28 6 12 10 Employment 2 1 1 Expenses 1 1 Grant 2 2 Insurance 2 2 No Recourse to Public Funds 3 3 Other 2 1 1 Planning 2 2

Corruption 3 Bribery 2 1 1 Planning 1 1

Disciplinary 2 Other 2 1 1

Financial Investigation 1 Other 1 1

Total 325 39 164 122

217 cases were previously reported as closed at the end of Quarter 2. 3.1.3 The details of the 122 investigations completed between the 1 April and 31

December 2016 are detailed below (77 investigations were reported as completed at the end of Quarter 2).

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Completed investigations 1 April - 31 December 2016 (Table 3)

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Council Tax Council Tax Discount 3 Council Tax Reduction 16 28 13 33,503

Parking Blue Badge 4 14 13 1,104

Tenancy Application 1 3 2 36,000 6,562 Occupancy 6 1 1 18,000 Other 1 Right To Buy 25 3 5 347,700 730 Sub-let 1 1 1 18,000

Deception Benefit 10 223,419 Employment 1 1 Expenses 1 Other 1

Corruption Bribery 1

Disciplinary Other 1

Total 61 61 36 420,804 264,214

Sections 3.1.4 – 3.1.6 below provide an explanation of the sanctions, notional and actual loss columns in Table 3 above: 3.1.4 Sanctions

Sanctions are where we have taken direct action against a person for breaching civil or criminal law: 13 Council Tax Reduction Support financial penalties were issued 1 Council tenancy application was refused 5 Council tenancies were recovered 3 Right to Buy applications were refused 11 written warnings were issued for Blue Badge offences, 1 Blue Badge

was seized and 1 Blue Badge user was prosecuted 1 employee was disciplined

3.1.5 Notional loss proved

The notional loss is the amount the underlying asset would have been worth to the Council.

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In the Annual Fraud Indicator 2011 the National Fraud Authority estimated that around 500,000 Blue Badges are misused leading to a loss of £46m per year. This equates to a notional loss for a misused Blue Badge of £92. 13 Blue Badge cases have been proved and sanctioned, providing a notional saving of £1,104. The Right to Buy scheme helps eligible council and housing association tenants in England to buy their home with a discount, in London, of up to £103,900. A Right to Buy sale that proceeds based on the provision of incorrect information results in a loss to the authority of a valuable asset at a fraction of its true value. The 3 proved Right to Buy cases would therefore provide a notional saving of £347,700 (£311,700 is 3 right to buy cases, plus £36,000 for two tenancies recovered as part of these investigations). In their Protecting the Public Purse 2012 publication the Audit Commission identified an average annual notional cost of £18,000 to house a family or individual in temporary accommodation. This average notional cost has been used to estimate the nominal cost to the public purse of housing a tenancy fraudster. In addition to the two council tenancies recovered above, a further 4 have also been recovered, which provides an additional notional saving of £72,000 (occupancy – ie. abandoned the property; sub-let; and, application – ie. weren’t entitled to the property in the first place). The total of these notional savings to 31 December 2017 is £420,804.

3.1.6 Actual Financial loss proved Proved fraudulent loss for the period, including cases where fraud was proved but a sanction was not imposed, totalled £264,214. This loss is subject to on-going debt recovery action against the subjects of the investigations. This is a direct financial loss to the Council as a result of fraud. It is not possible in all cases to impose a legal sanction, for example if there is insufficient evidence for a realistic prospect of conviction, if it is not in the public interest to prosecute or the subject of the investigation cannot be traced.

3.2 Performance

As outlined within the previously presented Counter Fraud Plan, the Shared Service has a target of achieving 68 proven cases within the year. Based on this, the achieved proven cases of 61 is on target for the end of the year.