22-01 - Leader
Perth and Kinross Council · 27 September 2022
Back to Audit and Risk Committee — 27 September 2022 and its agenda
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Internal Audit Report Communities 22-01 LEADER July 2022 Final Report (Report No 22/244) Legal and Governance Corporate and Democratic Services Perth & Kinross Council Council Offices 2 High Street Perth PH1 5PH
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22-01 LEADER Contents by Section 1. Introduction 2. Audit Background Information 3. Scope and Limitations 4. Assessment of the Control Environment 5. Summary of Findings 6. Conclusions 7. Acknowledgement 8. Authorisation 9. Distribution 10. Assessment Definitions
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1. Introduction 1.1 The audit of LEADER was undertaken on the instructions of LEADER Delivery Team Leader at the Scottish Government in his e-mail on 23 March to the Accountable Body (PKC) representative and LEADER Co-ordinator accompaniment to PKC’s LAG Annual Confirmation Certificate Report. 1.2 The e-mail stated: “In light of the reduced level of money that almost all areas have claimed for since 16 October 2021, we have approached audit and risk colleagues to see if it is permissible for some areas not to have to undertake an Internal Audit for the current year as part of the CoA requirement. They have agreed to this. However, having assessed your claim values since 16 October, you are required to ensure that an IA is completed and submitted with the full Certificate of Assurance return. The selection criteria was: • firstly on those who had claimed over £150,000 since 16/10 and; • then on those where this was in excess of 25% of their 2020-21 spend. Your figure is just over.” 1.3 The indicative scope was to review regulatory compliance for the LEADER projects. 2. Audit Background Information 2.1 LEADER was a community-led funding programme aimed at increasing support to local, rural community and business networks to build knowledge and skills and encourage innovation and cooperation in order to tackle local development objectives. It was funded by the Scottish Government and the European Union, as part of the Scottish Rural Development Programme, with other contributions from local partners and organisations. Grants were awarded by Local Action Groups (LAG) to projects that support delivery of a Local Development Strategy (LDS). 2.2 Perth & Kinross Council (PKC) agreed to act as the ‘Lead Partner’ or ‘accountable body’ on the LEADER project, whereby they entered into a Service Level Agreement with the Scottish Government on behalf of the LAG. The purpose of the agreement was to define the obligations, duties and accountabilities of both parties in regard to the Scotland Rural Development
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Programme. Included within Annex A of the agreement was the undertaking that the Council will provide internal audit coverage of the functions undertaken on behalf of the Scottish Government and would submit, as part of an annual report, confirmation that there had been compliance with applicable Regulations. 2.3 Internal Audit have carried out seven previous assignments in respect of LEADER in which we have undertaken consultancy and audit work (Committee reports 16/310 and 17/57 consultancy and 17/386, 19/30, 20/39, 20-237 and 22/29 refers). 2.4 This report is the result of our audit work covering the LEADER year ended 15 October 2022. 3. Scope and Limitations 3.1 The Service Level Agreement refers to the requirement to comply with all EU regulatory requirements but in particular 1306/2013, 907/2014, 259/2008, 1305/2013 and 1303/2013. The Scottish Government has issued guidance which is based on the Regulations. Internal Audit have limited their assurance to compliance with that guidance and the service level agreement. 4. Assessment of the Control Environment 4.1 The table below contains a summary of the findings against each control objective and Internal Audit’s assessment of the adequacy and effectiveness of the controls in place to meet each of the objectives agreed for this audit. Further details, including any improvement actions, are set out in the Management Action Plan. No. Control Objective Action Rating Control Objective Assessment 5 4 3 2 1 1 To ensure Regulatory requirements are met by reviewing the systems in place to deliver LEADER as well as the financial processes No actions Substantial 2 Assess compliance with the SLA and conduct a review of the controls over LEADER projects. No actions Substantial
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No. Control Objective Action Rating Control Objective Assessment 5 4 3 2 1 3 To Identify and assess for appropriateness the system introduced after 31 December 2021 to manage the LEADER projects and electronic and paper files and answer any queries from the Scottish Government or the European Court of Auditors during the period that files must be retained under the conditions of funding. No actions Substantial 4.2 The auditor has assessed that substantial assurance can be placed on controls overall in relation to LEADER from the audit. Meaning: A sound system of governance, risk management and control exists, with internal controls operating effectively and being consistently applied to support the achievement of objectives in the area audited. 4.3 A summary of the key findings are provided in section 5, please note however, the following areas of good practice which have been highlighted during the audit: 4.4 The LEADER team had a two-person independent review process, using a checklist, to ensure all documents required are filed on the Scottish Government IT system, Local Actions in Rural Communities system (LARCs). Any omissions were corrected. As of 21 July, all of the 71 projects have been through this double review. 4.6 There is segregation of duties over the submission of a claim form for drawdown from the Scottish Government. It is compiled by a LEADER team Finance Claims & Admin Officer, checked by a PKC Communities Finance Officer, authorised by the Accountable Body (PKC)’s representative, PKC Place Manager, and certified on behalf of the Accountable Body by the PKC Head of Finance. 4.7 The LEADER team monitors drawdowns claimed and the amounts received. 5. Summary of Findings 5.1 Below is a summary of key findings. There are no actions arising from this audit.
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5.2 The systems in place to deliver LEADER, as well as the financial processes, were reviewed. There has been no change in systems from last year. There is no evidence that regulatory requirements are not being met. 5.3 Compliance with the Service Level Agreement was reviewed. There is no change in systems from last year. There has been no change to the SLA since 2015. There is no evidence that the SLA was not complied with. 5.4 LEADER requires that arrangements are in place to ensure that any questions which arise subsequent to the closure of the LEADER programme can be addressed by the Accountable Body. The Head of Finance has been nominated as the responsible officer in this regard and the retention of LEADER personnel within the Council will assist with this. 5.5 Areas of good practice were found during the audit. These are documented in section 4 above. 6. Conclusion 6.1 The Internal Audit review is able to place substantial assurance on the overall control environment for LEADER. 7. Acknowledgements 7.1 Internal Audit would like to thank the RPK LEADER Co-Ordinator who was involved in this audit. 8. Authorisation 8.1 The auditor for this assignment was M Stewart. The supervising auditor was J Clark. This report is authorised for issue: 9. Distribution 9.1 This report has been distributed to: T Glen, Chief Executive B Renton, Executive Director (Communities) D Littlejohn, Head of Planning & Development
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J McCrone, City Development Manager S Rice-Jones, RPK LEADER Coordinator K Donaldson, Chief Operating Officer S Mackenzie, Head of Finance L Simpson, Head of Legal & Governance Services External Audit
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10. Assessment Definitions 10.1 The following table contains the definitions of the control objective assessment. Control Objective Assessment Level of assurance Definition Substantial Assurance A sound system of governance, risk management and control exists, with internal controls operating effectively and being consistently applied to support the achievement of objectives in the area audited. Reasonable Assurance There is a generally sound system of governance, risk management and control in place. Some issues, non- compliance or scope for improvement were identified which may put at risk the achievement of objectives in the area audited. Limited Assurance Significant gaps, weaknesses or non-compliance were identified. Improvement is required to the system of governance, risk management and control to effectively manage risks to the achievement of objectives in the area audited. No Assurance Immediate action is required to address fundamental gaps, weaknesses or non-compliance identified. The system of governance, risk management and control is inadequate to effectively manage risks to the achievement of objectives in the area audited. 10.2 The following table contains the definitions applied by Internal Audit in rating audit findings/actions. Risk Rating for Individual Findings Rating Rating description Definition 5 Critical Significant observations / major concerns which require immediate action. Management will need to add these to the appropriate Service risk register Issue represents a control weakness which could cause, or is causing, severe disruption of the process or severe adverse effect on the ability to achieve process objectives 4 High Significant observations regarding the absence / failure of key controls requiring urgent action. Management should consider adding these to the appropriate Service / divisional risk register Issue represents a control weakness which could have, or is having, major adverse effect on the ability to achieve process objectives
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Risk Rating for Individual Findings Rating Rating description Definition 3 Medium Observations regarding the effectiveness of key controls requiring reasonably urgent action. Management should consider these when updating any divisional / team risk registers Issue represents a control weakness which could have, or is having, significant adverse effect on the ability to achieve process objectives 2 Low Minor observations regarding the adequacy of controls which require action to improve the efficiency, effectiveness, or economy of operations or which otherwise require to be brought to the attention of Senior Management Issue represents a minor control weakness with minimal but reportable impact on the ability to achieve process objectives 1 Trivial / Minor Very minor observations which will be raised during the audit and may not be included within the final report Issue represents a very minor control weakness with negligible impact on the ability to achieve process objectives. The issue will be raised during the audit and may not be included within the final report.