Corporate Committee 25th March 2015 ALMO 6 monthly Update

b
Corporate Committee
25th March 2015
ALMO 6 monthly Update
Wards: All
Report authorised by: Strategic Director Commissioning, Helen Charlesworth-May
Contact for queries
Pauline Marsh, Client Manager 020 7926 7734, pmarsh@lambeth.gov.uk
Report Summary
This report forms part of the Council’s commitment to provide Corporate Committee with a
regular 6 monthly update report about the management of risk identified by the ALMO’s Audit
and Resource Committee (ARC). It is also an opportunity for Lambeth Living to update on
audit activities since last reported in September 2014.
This is the second update of the current financial year, where Corporate Committee is
updated on how key risks are being managed locally by Lambeth Living. In part this report is
intended to discharge the Council’s duty to ensure that good governance arrangements are
in place and working well in Lambeth Living.
A number of Council commissioned audits are being carried out as noted in Lambeth Living’s
report ‘Corporate Committee Report – ALMO update FINAL’ attached as appendix 1.
Whilst these are not yet finalised, final outcomes and action plans will be considered by
Corporate Committee.
This report also seeks to reassure Corporate Committee that where risk exists, Lambeth
Living is addressing Council concerns.
Lambeth Living advise the external auditor for 2014/15 remain as BDO, first appointed in
2013, whilst its internal auditor is PwC.
Finance Summary
Any costs associated with the content of this report is limited to and accounted for by
Lambeth Living.
Recommendations
1.
To note the content of the report, current status of risks as reported by Lambeth
Living, and the actions being taken by Lambeth Living to address the
recommendations of internal auditors PwC.
2.
To note that the Council commissioned audits which are nearing finalisation will
be considered by Corporate Committee.
1.0
2.0
Context
1.1
This report follows on from the September 2014 report, and is the second
update in the current financial year (i.e. 2014/15) to Corporate Committee on
ALMO governance, providing assurance to Committee that appropriate controls
are in place and being progressed by Lambeth Living.
1.2
This report is based solely upon information provided by Lambeth Living and
also seeks to provide an update to Corporate Committee on key Finance, Audit
and Risk arrangements taking place in Lambeth Living since last reported.
1.3
Lambeth Living’s Audit and Resource Committee update which includes a
summary of its audit tracker, see appendix 1.
1.4
It is to be noted that the Council has taken the decision that Lambeth Living is
to be reintegrated back into Lambeth Council upon expiry of the current
Management Agreement. Reintegration will take place on 26th June 2015.
Proposal and Reasons
The following sets out Lambeth Living’s audit activities since the last 6-month update
report in September 2014.
Lambeth Living provide a summary of key Audit and Resource Committee activities in
a 6-month update report, attached as appendix 1.
Lambeth Living’s Audit and Resource Committee continues to meet regularly each
quarter. There have been 2 meetings since the last report – October 2014 and
January 2015.
2.1
Audit Committee – Lambeth Living
Council Commissioned Internal Audits –

The Council has commissioned a review into Lambeth Living prior to re-integration
as part of its due diligence. This is a substantial piece of work which commenced in
December 2014 and is due to conclude in May 2015. This exercise will cover
Finance, Lambeth Living contracts, Home Ownership and Organisational
behaviours.

In addition to the due diligence work, the Council also has two other audits running
concurrently around the procurement of Mears in the South Area, and an audit into
the Morrison’s contract relating to an unconnected whistleblowing allegation. This
particular audit is nearing final completion, with an overall risk as critical. The
council is concerned at this finding, and will closely monitor actions to address any
identified risk. Levels of risk will be clarified and an action plan will be developed in
conjunction with the Council.

3 Audits are being carried out relating to the delivery of the Decent Homes
programme, as required by the GLA. Decent Homes Standard funding is
conditional on the GLA being satisfied with the outcome of the Audits.
Lambeth Living Commissioned Internal Audits –

Feedback from recent Lambeth Living Follow-Up internal audit – this relates to
Lambeth Living’s own continuous internal auditing of existing open
recommendations. (see Section 2.2 for further detail)

Section 20 (i.e. for major works) service charges – focus on billing.
It is noted that the due diligence review is also reviewing arrangements in place in
respect of Leasehold Services, which includes service charges and final accounts
leading to billing.

Management accounts – a brief position statement on the update of the
management fee, capital spend and the delegated budget. This forms part of the
Council’s commissioned external audit on close down.
For full details of the summary of activities reported by Lambeth Living see attached
appendix 1.
Council’s continuous auditing –
Regarding the Council’s Continuous Auditing programme in respect of systems
managed by Lambeth Living, two systems within the programme
managed by Lambeth Living include; housing rents and housing repairs.
Table 1 below is an extract from the report to Corporate Committee in December
2014, giving the rating for these two systems for Period 1 2014/15 (up to August
2014).
System
Rating P1
2014/15
Overall risk
classification
2013/14
Rating P2
2013/14
Housing rents
A

Medium

G

Housing repairs
A

Medium

A
Rating P1
2013/14
Overall risk
classification
2012/13
Direction of Travel
2013/14 to 2014/15

A
High 


High 

R
Table 1 – Period 1 ratings
The table shows that although Housing Repairs, for Period 1 - 2013/14
was rated as a Red risk, it improved in Period 2 - 2013/14 to Amber and remained at
this level for Period 1 - 2014/15. The current Amber rating is due to exceptions noted
in the timely completion of post-inspections, determining the direction of travel
remained constant.
In relation to Housing Rents, the table shows that for Period 1 - 2013/14 the risk was
assessed as Amber, improving to Green for Period 2 - 2013/14), but then deteriorated
and returned to Amber in Period 1 -2014/15. This was due to exceptions noted in the
appropriate approval of rent refunds, determining the direction of travel as downward.
Regarding direction of travel, continuous audit goes from period to period. The end of
the table shows the up to date position from the period before the current period, in
this case Period 1 – 2013/14 to Period 2 – 2013/14 to the current period of testing
Period 1 – 2014/15.
As mentioned above, in addition to the planned audit work covered by the Council’s
Internal Audit Work Plan 2014/15, Council officers have also commissioned a due
diligence review to assist with the reintegration process.
2.2
Lambeth Living Internal Audit – March 2015 update
Lambeth Living overview of risk
Lambeth Living tracks open audit recommendations quarterly via its Audit and
Resources Committee (ARC) and monthly via senior management meetings. Their
main purpose is to make sure agreed actions are implemented and report progress on
open recommendations from various audits carried out by internal auditors. The next
ARC meeting will take place on 16th April 2015.
The annual Follow-Up (dated November 2014) carried out by Lambeth Living’s
Internal Auditor, PwC, reviewed the existing ‘open audit recommendations’. The
review focussed solely on ‘following-up’ of the open recommendations that Lambeth
Living reported as having been ‘Completed and Closed’.
The number of open recommendations has reduced from 48 open internal audit
findings (September 2014) to 26. Of these 26 - 3 are classed as ‘high risk’; 14 as
‘medium risk’ and 9 as ‘low risk’.
Table 2 below summaries the current ‘open’ and ‘closed’ recommendations since last
reported.
1. Executive summary
Fol l ow up : trend of report
Total number of open fi ndi ng
Critical
Total
High
3
Medium
14
Low
9
Closed
Total
open
Total number of fi ndi ngs
High
Review reference
4. Lambeth Partnering Contracts
5. Human Resources
6. Key financial Systems
8. Health and safety
9.Budgetry Control
10. Customer Services
11. Health and safety
Medium
Closed
Low
Date of Review
Open
Closed
Open
Mar-13
May-12
Feb-12
Feb-13
Feb-14
-
-
4
1
1*
-
1
1
1
Nov - 11
(Fire, asbestos, legionella, electrics and
gas safety)
-
-
2
2
Mar-13
(Lone workers and office compliance)
-
-
3
-
-
Feb-13
Mar-14
Mar- 14
(CDM and estate inspections)
Total
3
3
-
Open
2
2
5
1
2
-
-
2
1
1
-
4
-
1
4
1
1
2
1
4
14
9
4
9
8
11
26
1
* The fol l owi ng recommenda tion ha s been cl os ed a t the reques t of ma na gement a s i t no l onger cons i dered nes s a ry (s ee fi ndi ng 6e)
Table 2 – Identified risks
The continued number of identified open risks, is likely due in part to the increased
number of internal audits in 2014/15. There is however a Client concern regarding the
3 open ‘high’ risk recommendations relate to health and safety, these are CDM
compliance, Contractor and Designer competency checks and follow-up remedial
works after estate inspections.
However Lambeth Living report that all 3 of the identified ‘high’ risks are now closed
due to the appointment of a CDM Co-ordinator. This appointment was made in
January 2015. The Council will require assurance from Lambeth Living that the
identified high and medium risks are managed and as such want to see these ‘closed’
by PwC prior to reintegration.
In addition the Council will monitor the outcome of the carried out Estate Inspections
and compliance with CDM through the scheduled Health and Safety Liaison
Meetings.
The risk relating to Lambeth Partnering Contracts should be clarified as part of the
outcome of the Council commissioned audit.
Brief outline of risks
PwC in this final annual Follow-Up Report states “management has made progress in
resolving recommendations that were determined to be ‘open’ after the last follow-up
review reported in November 2013 with 17 being closed”.
In addition, PwC also noted within the same 2014/15 Follow-Up report that of the 21
recommendations Lambeth Living stated were ‘Completed and Closed’, 17 were
agreed as closed but 4 were to remain open.
Of these 26 risk areas, as listed in table 2, 14 are unresolved carry-over risks from
previous years and 12 are new risks dated March 2014.
The12 new risks (3 high, 4 medium and 5 low) are construction and inspection related
health and safety concerns and customer service. With the 14 carry over risks (10
medium and 4 low) being contracts, financial control, maintenance related health and
safety concerns and housing management function.
In particular the 3 high risks highlighted in the PwC report relate specifically to key
health and safety activities in terms of:
1. Compliance
 Construction (Design and Management) Regulations 2007
The non-availability of preconstruction information being produced and made
available to contractors to use and the provision of welfare facilities for workers
during the construction of a project. (audit finding 11a)
2. Competency checks
 Competency assessments of some principal contractors had not taken place
and no assessment had taken place of the competency of designers. (audit
finding 11b)
3. Estate Inspections
 Non-follow up of actions identified on Estate Inspections
That estate inspection forms were not being reviewed and follow-up actions not
being carried out by Estate Housing Officers where required. Plus where forms
were completed, some may have been completed incorrectly – this creates a
risk that key ‘post inspection’ tasks i.e. rectifying defects may not take place.
(audit finding 11f)
For clarity the auditors define the risk areas as follows:
 High – could have significant operational; financial; laws and regulatory or
reputational impact.
 Medium - could have moderate operational; financial; laws and regulatory or
reputational impact.
 Low - could have minor operational; financial; laws and regulatory or reputational
impact.
Failure to comply could lead to breach of CDM regulations, reputational damage and
attract financial penalties levied against the Council.
However, as previously mentioned under 2.2, Lambeth Living has stated they have
made progress in implementing the recommendations by appointing a CDM Coordinator in January 2015. The newly appointed officer has begun to put in place
actions agreed with internal auditors PwC. The Council will need to be assured that
proposed improvements currently being introduced are sustained.
Lambeth Living are committed to closing all open recommendations ahead of
reintegration in June 2015. To achieve this, Lambeth Living has begun addressing and
implementing resolutions to agreed recommenations, particularly those rated as ‘high’.
The Council’s Financial Controls Team is also working closely with Lambeth Living to
address recommendations pertaining to reconciliations. All of which will be confirmed
under the Council’s own continuous auditing that forms part of the due diligence being
carried out (refer to section 2.1) prior to reintegration.
The full list of current open and closed recommendations taken from the Follow-Up
report are presented in table 2 section 2.2 above.
2.3
ALMO/Commissioning Risk Register
In September 2014 the Client and Lambeth Living agreed a total of 9 risks (5 of which
classed as ‘medium’ risk). In January 2015 the number rose slightly to an agreed total
of 11 risks, including one that covers reintegration and another pertaining to the
delivery of the capital programme.
9 of the 11 risks are classed as ‘medium’ risk (as defined under 2.3), with 1 risk
deemed ‘high’ (Financial Threat for Corporate Health) which relates to the delivery of
the Capital Programme for 2015/16; 2016/17 and 2017/18 due to lack of availability of
resources.
Risks and imitigations are jointly reviewed and updated by the Client and Lambeth
Living as part of the quarterly client monitoring arrangements. The next review is
scheduled for year-end in April 2015.
Full details of agreed risks see document ‘Risks Register 03 02 15’ attached as
appendix 2.
3.0
4.0
Finance Comments
3.1
The recommendations of this report are for noting only and do not give rise to
an additional capital or revenue financial implication.
3.2
As this is an update report on the ALMO’s internal audit processes there is no
direct financial implication arising for LBL. Any costs associated with the
content of this report is limited to and accounted for by Lambeth Living.
Legal and Democracy
4.1
Regulation 4 of the Accounts and Audit (England) Regulations 2011 provides
that the Council:
(a)
Is responsible for ensuring that its financial management is adequate
and effective and that it has a sound system of internal control which
facilitates the effective exercise of the Council’s functions and which
includes arrangements for the management of risk; and
(b)
Shall conduct a review at least once a year of the effectiveness of its
system of internal control and shall publish with its statement of
accounts a statement of internal control, nprepared in accordance with
proper practices.
4.2
5.0
Consultation and Co-operation
5.1
6.0
None
Organisational Implication
9.1
10.0
N/A
Community Safety
8.1
9.0
Failure to complete the agreed work plans and ensure that the headline issues
and open recommendations are addressed may impact adversely on the
Council’s governance, risk and control processes.
Equalities Impact Assessment
7.1
8.0
N/A
Risk Management
6.1
7.0
There are no additional comments from a Democratic Services perspective.
N/A
Timetable for implementation
10.1
None
Audit Trail
Consultation
Name/Position
Lambeth cluster/
division or
partner
Commissioning
Date sent
Date
received
Comments
in para.
Commissioning
24.02.15
26.02.15
Item 2.1
Commissioning
11.02.15
23.02.15
20.02.15
26.02.15
04.03.15
Mandy Green
Associate Director
Commissioning
Lynette Peters
Lead Commissioner
Greg Carson,
Legal Services
Commissioning
02.03.15
03.03.15
04.03.15
Summary,
Recommend
ations,
General
General
Commissioning
10.02.15
23.02.15
19.02.15
Wayne Chandai
Democratic Services
Hamant Bharadia, Head
of Finance
Corporate Affairs,
Enabling
Integrated Support,
Enabling
10.02.15
23.02.15
10.02.15
23.02.15
04.05.15
04.03.15
10.02.15
23.02.15
04.03.15
19.02.15
26.02.15
Finance
Summary
and Item 3
Councillor Mathew
Bennett
Cabinet
Member for
Housing
Corporate Affairs,
Enabling
11.02.15
23.02.15
27.02.15
Item 2.1
Lambeth Living
04.03.15
06.03.15
Helen Charlesworth-May
Strategic Director
Commissioning
Rachel Sharpe
Commissioning Director
Su Gomer
Lead Commissioner
David Hughes
Head of Internal Audit
and
Counter Fraud
External
Patrick Pedder
Head of Finance
Integrated Support
Report History
Report Deadline
Date final report sent
Report No
Part II Exempt from Disclosure/
confidential accompanying report?
Key decision report
Background Information
Appendices
General
Item 4
cleared
12.03.15
Final deadline 11th March 2015
55/13-14 ?
No
Appendix 1 – Corporate Committee Report –
ALMO update FINAL
Appendix 2 – Risks Register 03 02 15