Agenda Document Pack - Risk and Audit Scrutiny Committee - 24/09/2024
South Lanarkshire Council · 24 September 2024
Back to Risk and Audit Scrutiny Committee — 24 September 2024 and its agenda
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Council Offices, Almada Street Hamilton, ML3 0AA Monday, 16 September 2024 Dear Councillor Risk and Audit Scrutiny Committee The Members listed below are requested to attend a meeting of the above Committee to be held as follows:- Date: Tuesday, 24 September 2024 Time: 14:00 Venue: Hybrid - Committee Room 1, Council Offices, Almada Street, Hamilton, ML3 0AA The business to be considered at the meeting is listed overleaf. Yours sincerely Paul Manning Chief Executive Members Elaine McDougall (Chair), Mary Donnelly (Depute Chair), Mathew Buchanan, Alistair Fulton, Ross Gowland, Celine Handibode, Cal Johnston-Dempsey, Susan Kerr, Richard Lockhart Substitutes Colin Dewar, Gavin Keatt, Monique McAdams, Helen Toner 1
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BUSINESS 1 Declaration of Interests 2 Minutes of Previous Meeting Minutes of the meeting of the Risk and Audit Scrutiny Committee held on 25 June 2024 submitted for approval as a correct record. (Copy attached) 5 - 10 Monitoring Item(s) 3 External Auditor's Report 2023/2024 Letter and report dated 24 September 2024 by Audit Scotland, External Auditors to the Council. (Copy attached) 11 - 66 4 External Auditor's Report 2023/2024. South Lanarkshire Council Charitable Trusts Letter and report dated September 2024 by Audit Scotland, External Auditors to the Council. (Copy to follow) Item(s) for Decision 5 Audited Annual Accounts 2023/2024 Report dated 10 September 2024 by the Executive Director (Finance and Corporate Resources). (Copy attached) 67 - 70 6 2022 National Fraud Initiative Exercise Report dated 6 September 2024 by the Executive Director (Finance and Corporate Resources). (Copy attached) 71 - 92 Item(s) for Noting 7 Financial Resilience and Sustainability Report dated 2 September 2024 by the Executive Director (Finance and Corporate Resources). (Copy attached) 93 - 102 8 Internal Audit Activity as at 30 August 2024 Report dated 6 September 2024 by the Executive Director (Finance and Corporate Resources). (Copy attached) 103 - 108 9 Fraud Statistics Annual Report 2023/2024 Report dated 6 September 2024 by the Executive Director (Finance and Corporate Resources). (Copy attached) 109 - 112 10 Year End Insured Risks Report – 2023/2024 Report dated 2 September 2024 by the Executive Director (Finance and Corporate Resources). (Copy attached) 113 - 122 11 Year End Risk Management Report (2023/2024) and Review of Council's Top Risks (2024/2025) Report dated 5 September 2024 by the Executive Director (Finance and Corporate Resources). (Copy attached) 123 - 154 2
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12 Forward Programme for Future Meetings Report dated 26 August 2024 by the Executive Director (Finance and Corporate Resources). (Copy attached) 155 - 158 Urgent Business 13 Urgent Business Any other items of business which the Chair decides are urgent. For further information, please contact:- Clerk Name: Elizabeth-Anne McGonigle Clerk Telephone: 07385403101 Clerk Email: elizabeth-anne.mcgonigle@southlanarkshire.gov.uk 3
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RISK AND AUDIT SCRUTINY COMMITTEE Minutes of meeting held via Confero and in the Council Chamber, Council Offices, Almada Street, Hamilton on 25 June 2024 Chair: Councillor Elaine McDougall Councillors Present: Councillor Mathew Buchanan, Councillor Alistair Fulton, Councillor Ross Gowland, Councillor Cal Johnston-Dempsey, Councillor Susan Kerr, Councillor Helen Toner (substitute for Councillor Mary Donnelly) Councillors' Apologies: Councillor Mary Donnelly (Depute), Councillor Celine Handibode, Councillor Richard Lockhart Councillor Also Present: Councillor Joe Fagan (for items 3 to 5) Attending: Chief Executive’s Service S Sengupta, Acting Depute Chief Executive (for items 3 to 5) Finance and Corporate Resources J Taylor, Executive Director; Y Douglas, Audit and Compliance Manager; E-A McGonigle, Administration Adviser; K McLeod, Administration Assistant; L O’Hagan, Head of Finance (Strategy); I Strachan, Head of Administration and Legal Services Also Attending: Audit Scotland A Barclay and M Ferris, External Auditors 1 Declaration of Interests No interests were declared. 2 Minutes of Previous Meeting The minutes of the meeting of the Risk and Audit Scrutiny Committee held on 26 March 2024 were submitted for approval as a correct record. The Committee decided: that the minutes be approved as a correct record. 3 Internal Audit Annual Assurance Report 2023/2024 A report dated 4 June 2024 by the Audit and Compliance Manager (Finance and Corporate Resources) was submitted providing:- a summary of progress and performance of Internal Audit for the financial year 2023/2024 an opinion on the adequacy and effectiveness of the Council’s framework of governance, risk management and control systems based on audit work undertaken in 2023/2024 2 5
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Details were given on:- Internal Audit performance Council-wide performance in relation to the delivery of audit actions workload analysis links to the Council’s objectives and top risks management of fraud risks areas of assurance areas of external reliance The UK Public Sector Internal Audit Standards Advisory Board had issued guidance around conformance with the Public Sector Standards which had shaped the Council’s internal audit approach in 2023/2024 which aimed to:- provide real-time advice and insight in the development of new systems and controls ensure that core internal audit work remained risk-based and relevant allow the regular reporting of activity to this Committee The overall opinion expressed on the Council’s control environment was that a reasonable level of assurance could be placed on the adequacy and effectiveness of the Council’s framework of governance, risk management and control arrangements for the year ended 31 March 2024. The Internal Audit findings would inform the Council’s 2023/2024 Annual Governance Statement. The Committee decided: (1) that the performance of Internal Audit during 2023/2024 be noted; (2) that the overall findings from internal audit work be noted, and that it be approved that those would inform the Council’s 2023/2024 Annual Governance Statement; and (3) that the level of assurance on the Council’s control environment be noted. [Reference: Minutes of 27 June 2023 (Paragraph 3)] 4 Annual Governance Statement for 2023/2024 and Significant Governance Areas Quarter 4 Progress Report A report dated 7 June 2024 by the Executive Director (Finance and Corporate Resources) was submitted on the Annual Governance Statement for 2023/2024 and progress against significant governance areas identified within the 2022/2023 Annual Governance Statement at Quarter 4. Each year, the Council undertook a review of the governance arrangements required to support its financial and operational controls. This review provided the basis for the Annual Governance Statement which was included in the Council’s Annual Report and Statement of Accounts. The Council’s governance assurance framework was detailed in Appendix 1 to the report. The resulting Annual Governance Statement for 2023/2024, attached as Appendix 2 to the report, provided information on the Council’s compliance during 2022/2023. The annual review of governance arrangements across the Council demonstrated sufficient evidence that the principles of delivering good governance in local government, contained in the Local Code of Corporate Governance, operated effectively and that the Council complied with its Code. Progress on the significant governance areas highlighted within the Annual Governance Statement 2022/2023 was attached as Appendix 3 to the report. 6
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The Committee decided: (1) that the Annual Governance Statement, attached as Appendix 2 to the report, which would be included in the 2023/2024 Annual Report and Statement of Accounts, be approved; and (2) that the progress against the significant governance areas identified within the Annual Governance Statement 2022/2023, attached as Appendix 3 to the report, be noted. [Reference: Minutes of 27 June 2023 (Paragraph 4)] 5 Unaudited Annual Accounts 2023/2024 A report dated 7 June 2024 by the Executive Director (Finance and Corporate Resources) was submitted on the requirement for members to consider the Unaudited Annual Accounts of the Council and related Charitable Trusts, attached as appendices 1 and 3 to the report, by 30 June 2024. The Council’s Unaudited Annual Accounts detailed key information on the Council’s expenditure and income for the financial year ended 31 March 2024. The accounts also covered the Charitable Trust managed by the Council, namely South Lanarkshire Council Charitable Trust The full Unaudited Annual Accounts would be circulated to all elected members following their submission to the External Auditor by 30 June 2024 and would be advertised as being available for public inspection on the Council’s website from 1 July 2024 until the date the Audited Accounts would be published. The information contained in the Unaudited Accounts took into account the final outturn position, as detailed in Appendix 2 to the report, which was submitted for approval to the Executive Committee meeting on 26 June 2024. Appendix 2 also provided an Expenditure and Funding Analysis, as required by the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Accounting Practice. Following the audit of the Accounts over the summer months, the Audited Annual Accounts would be brought back to the Committee at its meeting on 24 September 2024 for approval. The Committee decided: that the Unaudited Annual Accounts of the Council and related Charitable Trusts, to be submitted to Audit Scotland by the deadline of 30 June 2024, be noted. [Reference: Minutes of 27 June 2023 (Paragraph 5)] 6 Workforce Innovation – How Councils are Responding to Workforce Challenges: Best Value Thematic Work in South Lanarkshire Council in 2023/2024 A report dated June 2024 by Audit Scotland, the Council’s external auditors, was submitted entitled ‘Workforce Innovation – How Councils are Responding to Workforce Challenges: Best Value Thematic Work in South Lanarkshire Council 2023/2024’. The report set out how the Council was responding to current workforce challenges through building capacity, increasing productivity and innovation. The Accounts Commission’s Strategy (2021 to 2026) had set out its priorities to focus on inequalities, funding, communities and recovery. The Code of Audit practice had set out the Best Value work required to report on those priorities. 7
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The Senior Audit Manager, Audit Scotland, highlighted the following sections of the report:- key messages scope of the audit workforce strategy and priorities digital technology and the workforce flexible working and other innovative staff deployment developing future skills and capacity joint workforce arrangements across services and partners measuring the impact of workforce planning The report detailed the following audit recommendations:- the Council should develop a corporate level workforce strategy to demonstrate a clear link to the Connect Council Plan 2022 to 2027. The Council should build on the workforce planning to date and implement a more strategic, data-driven approach to workforce planning, with SMART action plans, setting out how Council level and service level actions were being progressed the Council should develop measures to capture and monitor the impact of digital technology on workforce productivity and service outcomes. It should also set out how it expected digital technology to shape its future workforce the Council should develop an action plan to allow it to monitor progress in addressing digital exclusion in its workforce and for its citizens An improvement action plan, attached as Appendix 1 to the report, set out those audit recommendations and the Council’s planned response, which included responsible officers and dates for implementation. The Committee decided: that the report be noted. 7 Internal Audit Activity as at 31 May 2024 A report dated 5 June 2024 by the Executive Director (Finance and Corporate Resources) was submitted on work completed by Internal Audit during the period 9 March to 31 May 2024. Findings from internal audit assignments were reported to this Committee throughout the year and the last progress report was considered by this Committee on 26 March 2024. Key performance indicators for March 2024, which related to the 2023/2024 Internal Audit Plan, were included in the Internal Audit Annual Assurance Report 2023/2024 which was considered earlier on the agenda. As at 31 May 2024, 42% of the 2024/2025 Audit Plan was in progress. Assignments completed in the period 9 March to 31 May 2024, together with a summary of overall assurances, were detailed in Appendix 1 to the report. Two assignments were deferred in 2023/2024 to increase the time available to support significant system implementations. Those assignments would be delivered via the use of contingency time in 2024/2025 or considered for inclusion in a future year’s audit plan. The Council formed part of the Glasgow City Region City Deal which funded a range of capital projects within South Lanarkshire. At the May 2024 meeting of the Cabinet, audit reports had been presented on:- Relationship and Stakeholder Management Audit Financial Monitoring Audit 8
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Follow Up Audit work Internal Audit Plan 2024/2025 Links to those report were provided at paragraph 5.1 of the report. The Internal Audit Plan 2024/2025 included 4 separate assignments which were detailed at paragraph 5.5 of the report. The findings from those assignments would be reported to the Cabinet during 2024/2025 and a summary would be included within future reports to this Committee. Updates were also provided on:- meetings of the Chief Internal Auditors’ Group which had provided an opportunity to share best practice and attend presentations on topical issues. A copy of the Chief Internal Auditors’ Group 2023/2024 Annual Report was provided at Appendix 2 to the report progress against the Audit Strategy which was a requirement of the Public Sector Internal Audit Standards (PSIAS). Delivery of the 2024/2025 Strategy would be evidenced by the completion of the Internal Audit Plan in year, and monitored during the year by performance indicators which were regularly reported to the Committee The Committee decided: that progress on Internal Audit activity be noted. [Reference: Minutes of 26 March 2024 (Paragraph 6)] 8 Audit Scotland – Financial Bulletin 2022/2023 A report dated 18 May 2024 by the Executive Director (Finance and Corporate Resources) was submitted on the Audit Scotland report entitled ‘Local government in Scotland: Financial bulletin 2022/2023’ which had been published in January 2024. The report had been divided into 2 parts:- councils’ funding and outturn councils’ financial position and outlook The key messages from the Audit Scotland report were detailed, together with an assessment of the position in South Lanarkshire Council. The Committee decided: (1) that the key messages and recommendations contained in the Audit Scotland report entitled 'Financial bulletin 2022/2023', as detailed in sections 4 and 5 of the report, be noted; and (2) that the commentary on the Council’s position, as included in the Audit Scotland report and as detailed in section 6 of the report, be noted. [Reference: Minutes of 23 May 2023 (Paragraph 6)] 9 Financial Resources Scrutiny Forum Activity A report dated 24 April 2024 by the Executive Director (Finance and Corporate Resources) was submitted on reports considered by the Financial Resources Scrutiny Forum in the period from August 2023 to March 2024. 9
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A report on the business considered by the Financial Resources Scrutiny Forum would continue to be submitted to the Risk and Audit Scrutiny Committee on an annual basis. The Committee decided: that the report be noted. [Reference: Minutes of 23 May 2023 (Paragraph 7)] 10 Forward Programme for Future Meetings A report dated 28 May 2024 by the Executive Director (Finance and Corporate Resources) was submitted on the outline forward programme for the meetings of the Risk and Audit Scrutiny Committee to 25 June 2025. As part of future arrangements, members were invited to suggest topics for inclusion in the Committee’s forward programme. The Committee decided: that the outline forward programme for the meetings of the Risk and Audit Scrutiny Committee to 25 June 2025 be noted. [Reference: Minutes 26 March 2024 (Paragraph 7)] 11 Urgent Business There were no items of urgent business. 10
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102 West Port Edinburgh EH3 9DN 8 Nelson Mandela Place Glasgow G2 1BT The Green House Beechwood Business Park North Inverness IV2 3BL T: 0131 625 1500 E: info@audit-scotland.gov.uk www.audit-scotland.gov.uk Risk and Audit Scrutiny Committee 24 September 2024 South Lanarkshire Council Audit of 2023/24 annual accounts Independent auditor's report 1. Our audit work on the 2023/24 annual accounts is now substantially complete. Subject to receipt of a revised set of annual accounts for final review, we anticipate being able to issue unmodified audit opinions in the independent auditor's report on 24 September 2024 (the proposed report is attached at Appendix A). Annual Audit Report 2. Under International Standards on Auditing in the UK, we report specific matters arising from the audit of the annual accounts to those charged with governance of a body in sufficient time to enable appropriate action. For South Lanarkshire Council, those charged with governance is the Risk and Audit Scrutiny Committee. We present for the committee’s consideration our draft Annual Audit Report on the 2023/24 audit. The section headed "Significant findings and key audit matters" sets out the issues identified in respect of the annual accounts. 3. The report also sets out conclusions on the wider scope areas that frame public audit as set out in the Code of Audit Practice. 4. This report will be issued in final form after the audit of the annual accounts has been completed. Unadjusted misstatements 5. We also report to those charged with governance all unadjusted misstatements in the annual accounts which we have identified during the course of our audit, other than those of a trivial nature, and request that these misstatements be corrected. 6. We have no unadjusted misstatements to be corrected. Fraud, subsequent events, and compliance with laws and regulations 7. In presenting this report to the Risk and Audit Scrutiny Committee we seek confirmation from those charged with governance of any instances of any actual, suspected, or alleged fraud; any subsequent events that have occurred since the date of the financial statements; or material non-compliance with laws and regulations affecting the entity that should be brought to our attention. 3 11
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Representations from Section 95 Officer 8. As part of the completion of our audit, we are seeking written representations from the Executive Director (Finance and Corporate Resources) as Section 95 Officer on aspects of the annual accounts, including the judgements and estimates made. 9. A draft letter of representation is attached at Appendix B. This should be signed and returned to is by the Section 95 Officer with the signed annual accounts prior to the independent auditor’s report being certified. Outstanding matters 10. At the time of issuing our proposed Annual Audit Report certain audit evidence remained outstanding. 12
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Appendix A: Proposed Independent Auditor’s Report Independent auditor’s report to the members of South Lanarkshire Council and the Accounts Commission Reporting on the audit of the financial statements Opinion on financial statements I certify that I have audited the financial statements in the annual accounts of South Lanarkshire Council and its group for the year ended 31 March 2024 under Part VII of the Local Government (Scotland) Act 1973. The financial statements comprise the group and Council only Comprehensive Income and Expenditure Statement, the group and Council only Balance Sheets, the group and Council only Movement in Reserves Statements, the group and Council only Cash-Flow Statements, the Housing Revenue Account Income and Expenditure Statement, the National Non-Domestic Rates Income and Expenditure Statement, the Council Tax Income and Expenditure Statement and notes to the financial statements, including Accounting Policies. The financial reporting framework that has been applied in their preparation is applicable law and UK adopted international accounting standards, as interpreted and adapted by the Code of Practice on Local Authority Accounting in the United Kingdom 2023/24 (the 2023/24 Code). In my opinion the accompanying financial statements: • give a true and fair view of the state of affairs of the council and its group as at 31 March 2024 and of the income and expenditure of the council and its group for the year then ended; • have been properly prepared in accordance with UK adopted international accounting standards, as interpreted and adapted by the 2023/24 Code; and • have been prepared in accordance with the requirements of the Local Government (Scotland) Act 1973, The Local Authority Accounts (Scotland) Regulations 2014, and the Local Government in Scotland Act 2003. Basis for opinion I conducted my audit in accordance with applicable law and International Standards on Auditing (UK) (ISAs (UK)), as required by the Code of Audit Practice approved by the Accounts Commission for Scotland. My responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of my report. I was appointed by the Accounts Commission on 2 December 2022. My period of appointment is five years, covering 2022/23 to 2026/27. I am independent of the council and its group in accordance with the ethical requirements that are relevant to my audit of the financial statements in the UK including the Financial Reporting Council’s Ethical Standard, and I have fulfilled my other ethical responsibilities in accordance with these requirements. Non-audit services prohibited by the Ethical Standard were not provided to the council. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion. Conclusions relating to going concern basis of accounting I have concluded that the use of the going concern basis of accounting in the preparation of the financial statements is appropriate. 13
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Based on the work I have performed, I have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the ability of the council and its group to continue to adopt the going concern basis of accounting for a period of at least twelve months from when the financial statements are authorised for issue. These conclusions are not intended to, nor do they, provide assurance on the current or future financial sustainability of the council and its group. However, I report on the council’s arrangements for financial sustainability in a separate Annual Audit Report available from the Audit Scotland website. Risks of material misstatement I report in my Annual Audit Report the most significant assessed risks of material misstatement that I identified and my judgements thereon. Responsibilities of Executive Director (Finance and Corporate Resources) and Risk and Audit Scrutiny Committee for the financial statements As explained more fully in the Statement of Responsibilities, the Executive Director (Finance and Corporate Resources) is responsible for the preparation of financial statements that give a true and fair view in accordance with the financial reporting framework, and for such internal control as the Executive Director (Finance and Corporate Resources) determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Executive Director (Finance and Corporate Resources) is responsible for assessing the ability of the council and its group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless there is an intention to discontinue the operations of the council and its group. The Risk and Audit Scrutiny Committee is responsible for overseeing the financial reporting process. Auditor’s responsibilities for the audit of the financial statements My objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decisions of users taken on the basis of these financial statements. Irregularities, including fraud, are instances of non-compliance with laws and regulations. I design procedures in line with my responsibilities outlined above to detect material misstatements in respect of irregularities, including fraud. Procedures include: • using my understanding of the local government sector to identify that the Local Government (Scotland) Act 1973, The Local Authority Accounts (Scotland) Regulations 2014, and the Local Government in Scotland Act 2003 are significant in the context of the council and its group; 14
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• inquiring of the Executive Director (Finance and Corporate Resources) as to other laws or regulations that may be expected to have a fundamental effect on the operations of the council and its group; • inquiring of the Executive Director (Finance and Corporate Resources) concerning the policies and procedures of the councils and its group regarding compliance with the applicable legal and regulatory framework; • discussions among my audit team on the susceptibility of the financial statements to material misstatement, including how fraud might occur; and • considering whether the audit team collectively has the appropriate competence and capabilities to identify or recognise non-compliance with laws and regulations. The extent to which my procedures are capable of detecting irregularities, including fraud, is affected by the inherent difficulty in detecting irregularities, the effectiveness of the council’s controls, and the nature, timing and extent of the audit procedures performed. Irregularities that result from fraud are inherently more difficult to detect than irregularities that result from error as fraud may involve collusion, intentional omissions, misrepresentations, or the override of internal control. The capability of the audit to detect fraud and other irregularities depends on factors such as the skilfulness of the perpetrator, the frequency and extent of manipulation, the degree of collusion involved, the relative size of individual amounts manipulated, and the seniority of those individuals involved. A further description of the auditor’s responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website www.frc.org.uk/auditorsresponsibilities. This description forms part of my auditor’s report. Reporting on other requirements Opinion prescribed by the Accounts Commission on the audited parts of the Remuneration Report I have audited the parts of the Remuneration Report described as audited. In my opinion, the audited parts of the Remuneration Report have been properly prepared in accordance with The Local Authority Accounts (Scotland) Regulations 2014. Other information The Executive Director (Finance and Corporate Resources) is responsible for the other information in the annual accounts. The other information comprises the Management Commentary, Annual Governance Statement, Statement of Responsibilities and the unaudited parts of the Remuneration Report. My responsibility is to read all the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or my knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If I identify such material inconsistencies or apparent material misstatements, I am required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work I have performed, I conclude that there is a material misstatement of this other information, I am required to report that fact. I have nothing to report in this regard. 15
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My opinion on the financial statements does not cover the other information and I do not express any form of assurance conclusion thereon except on the Management Commentary and Annual Governance Statement to the extent explicitly stated in the following opinions prescribed by the Accounts Commission. Opinions prescribed by the Accounts Commission on the Management Commentary and Annual Governance Statement In my opinion, based on the work undertaken in the course of the audit: • the information given in the Management Commentary for the financial year for which the financial statements are prepared is consistent with the financial statements and that report has been prepared in accordance with statutory guidance issued under the Local Government in Scotland Act 2003; and • the information given in the Annual Governance Statement for the financial year for which the financial statements are prepared is consistent with the financial statements and that report has been prepared in accordance with the Delivering Good Governance in Local Government: Framework (2016). Matters on which I am required to report by exception I am required by the Accounts Commission to report to you if, in my opinion: • adequate accounting records have not been kept; or • the financial statements and the audited parts of the Remuneration Report are not in agreement with the accounting records; or • I have not received all the information and explanations I require for my audit. I have nothing to report in respect of these matters. Conclusions on wider scope responsibilities In addition to my responsibilities for the annual accounts, my conclusions on the wider scope responsibilities specified in the Code of Audit Practice, including those in respect of Best Value, are set out in my Annual Audit Report. Use of my report This report is made solely to the parties to whom it is addressed in accordance with Part VII of the Local Government (Scotland) Act 1973 and for no other purpose. In accordance with paragraph 108 of the Code of Audit Practice, I do not undertake to have responsibilities to members or officers, in their individual capacities, or to third parties. John Boyd FCPFA Audit Scotland 4th Floor South Suite 16
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The Athenaeum Building 8 Nelson Mandela Place Glasgow G2 1BT 17
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Appendix B: Letter of Representation (ISA 580) Mr John Boyd, Audit Director Audit Scotland 4th Floor 8 Nelson Mandela Place Glasgow G2 1BT Dear John South Lanarkshire Council Annual Accounts 2023/24 1. This representation letter is provided about your audit of the annual accounts of South Lanarkshire Council and its group (hereafter referred to as the Council ) for the year ended 31 March 2024 for the purpose of expressing an opinion as to whether the financial statements give a true and fair view and have been properly prepared, and for expressing other opinions on the Remuneration Report, Management Commentary, and Annual Governance Statement. 2. I confirm to the best of my knowledge and belief and having made appropriate enquiries of the Chief Executive and Corporate Management Team, the following representations given to you in connection with your audit of South Lanarkshire Council’s annual accounts for the year ended 31 March 2024. General 3. The Council and I have fulfilled our statutory responsibilities for the preparation of the 2023/24 annual accounts. All the accounting records, documentation, and other matters which I am aware are relevant to the preparation of the annual accounts have been made available to you for the purposes of your audit. All transactions undertaken by the Council have been recorded in the accounting records and are properly reflected in the financial statements. 4. I confirm that the effects of uncorrected misstatements are immaterial, individually and in aggregate, to the financial statements as a whole. I am not aware of any uncorrected misstatements other than those reported by you. Financial Reporting Framework 5. The annual accounts have been prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom 2023/24 (2023/24 accounting code), and the requirements of the Local Government (Scotland) Act 1973, the Local Government in Scotland Act 2003, and The Local Authority Accounts (Scotland) Regulations 2014. 6. In accordance with the 2014 Regulations, I have ensured that the financial statements give a true and fair view of the financial position of the Council and its Group at 31 March 2024 and the transactions for 2023/24. Accounting Policies and Estimates 7. All material accounting policies applied are as shown in the notes to the financial statements. The accounting policies are determined by the 2023/24 accounting code where applicable. Where the accounting code does not specifically apply, I have used judgement in developing and applying an accounting policy that results in information that is relevant and reliable. All 18
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accounting policies applied are appropriate to the Council’s circumstances and have been consistently applied. 8. The significant assumptions used in making accounting estimates are reasonable and properly reflected in the financial statements. Judgements used in making estimates have been based on the latest available, reliable information. Estimates have been revised where there are changes in the circumstances on which the original estimate was based or as a result of new information or experience. Going Concern Basis of Accounting 9. I have assessed the Council’s ability to continue to use the going concern basis of accounting and have concluded that it is appropriate. I am not aware of any material uncertainties that may cast significant doubt on the Council’s ability to continue to adopt the going concern basis of accounting. Assets 10. Where a rolling programme of asset valuations has been used, I have satisfied myself that the carrying amount of assets at 31 March 2024 does not differ materially from that which would be determined if a revaluation had been carried out at that date. 11. I carried out an assessment at 31 March 2024 as to whether there is any indication that an asset may be impaired and have recognised any impairment losses identified. 12. I have provided you with all information of which I am aware regarding any valuation exercises carried out after 31 March 2024. 13. There are no plans or intentions that are likely to affect the carrying value or classification of the assets recognised within the financial statements. 14. Owned assets are free from any lien, encumbrance or charge except as disclosed in the financial statements. 15. The pension assumptions made by the actuary in the IAS 19 report for South Lanarkshire Council have been reviewed and I confirm that they are consistent with management's own view. The pension asset has been capped to reflect the asset ceiling as determined through IFRIC 14. I am satisfied that the assumptions applied in the calculation are consistent with management’s own view. Liabilities 16. All liabilities at 31 March 2024 of which I am aware have been reported in the financial statements. 17. Provisions have been recognised in the financial statements for all liabilities of uncertain timing or amount at 31 March 2024 of which I am aware where the conditions specified in the 2023/24 accounting code have been met. The amount recognised as a provision is the best estimate of the expenditure likely to be required to settle the obligation at 31 March 2024. Where the effect of the time value of money is material, the amount of the provision has been discounted to the present value of the expected payments. 18. Provisions recognised in previous years have been reviewed and adjusted, where appropriate, to reflect the best estimate at 31 March 2024 or to reflect material changes in the assumptions underlying the calculations of the cash flows. 19
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19. The accrual recognised in the financial statements for annual leave untaken by 31 March 2024 has been estimated on a reasonable basis. 20. There are no plans or intentions that are likely to affect the carrying value or classification of the liabilities recognised in the financial statements. Contingent Liabilities 21. There are no significant contingent liabilities, other than those disclosed in Note 31 to the financial statements, arising either under formal agreement or through formal undertakings requiring disclosure in the accounts. All known contingent liabilities have been fully and properly disclosed in accordance with the 2023/24 accounting code and IAS 37. Litigation and Claims 22. All known actual or possible legal claims have been disclosed to you and have been accounted for and disclosed in the financial statements in accordance with the 2023/24 accounting code. Fraud 23. I understand my responsibilities for the design, implementation, and maintenance of internal control to prevent fraud and I believe I have appropriately fulfilled those responsibilities. 24. I have provided you with all information in relation to: • my assessment of the risk that the financial statements may be materially misstated because of fraud • any allegations of fraud or suspected fraud affecting the financial statements, and • fraud or suspected fraud that I am aware of involving management, employees who have a significant role in internal control, or others that could have a material effect on the financial statements. Laws and Regulations 25. I have disclosed to you all known instances of non-compliance or suspected non- compliance with laws and regulations whose effects should be considered when preparing financial statements. Related Party Transactions 26. All material transactions with related parties have been appropriately accounted for and disclosed in the financial statements in accordance with the 2023/24 accounting code. I have made available to you the identity of all the Council’s related parties and all the related party relationships and transactions of which I am aware. Remuneration Report 27. The Remuneration Report has been prepared in accordance with the Local Authority Accounts (Scotland) Regulations 2014, and all required information of which I am aware has been provided to you. 20
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Management Commentary 28. I confirm that the Management Commentary has been prepared in accordance with the statutory guidance and the information is consistent with the financial statements. Corporate Governance 29. I confirm that the Council has undertaken a review of the system of internal control during 2023/24 to establish the extent to which it complies with proper practices set out in the Delivering Good Governance in Local Government: Framework 2016. I have disclosed to you all deficiencies in internal control identified from this review or of which I am otherwise aware. 30. I confirm that the Annual Governance Statement has been prepared in accordance with the Delivering Good Governance in Local Government: Framework 2016 and the information is consistent with the financial statements. There have been no changes in the corporate governance arrangements or issues identified, since 31 March 2024, which require to be reflected. Group Accounts 31. I have identified all the other entities in which the Council has a material interest and have classified and accounted for them in accordance with the 2023/24 accounting code. Any significant issues with the financial statements of group entities, including any qualified audit opinions, have been advised to you. Common Good Fund 32. I confirm, to the best of my ability, that all material common good assets have been identified and correctly accounted for within the common good fund financial statements and where appropriate, common good assets in use by the Council have been assessed and accounted for in line with IAS 17. Events Subsequent to the Date of the Balance Sheet 33. All events subsequent to 31 March 2024 for which the 2023/24 accounting code requires adjustment or disclosure have been adjusted or disclosed. Yours sincerely Executive Director (Finance and Corporate Resources) Section 95 Officer 21
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Prepared for the Members of South Lanarkshire Council and the Controller of Audit September 2024 South Lanarkshire Council 2023/24 Annual Audit Report – PROPOSED 3 23
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South Lanarkshire Council 2023/24 Annual Audit Report – PROPOSED | 2 Contents Key messages 3 Introduction 5 1. Audit of 2023/24 annual accounts 7 2. Financial management 15 3. Financial sustainability 21 4. Best Value 25 5. Vision, leadership and governance 27 6. Use of resources to improve outcomes 29 Appendix 1. Action plan 2023/24 35 Appendix 2. Summary of uncorrected misstatements 43 24
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Key messages | 3 Key messages 2023/24 annual accounts 1 Our audit opinions on the annual accounts of South Lanarkshire Council (the Council), its group and the section 106 charities administered by the Council are unmodified, i.e. the financial statements and related reports are free from material misstatement. 2 The management commentary, annual governance statement and remuneration report were all consistent with the financial statements and properly prepared in accordance with the relevant regulations and guidance. 3 No adjustments have been made to the annual accounts as a result of the audit process (subject to completion of the audit). Financial management and sustainability 4 The Council continues to operate within its annual budget. While facing financial challenges through inflationary pressures on pay and non-pay costs as well as demand on services, the Council continues to demonstrate sound financial management maintaining general fund reserves in line with the long term Revenue Financial Strategy. 5 The Council transformational change programme is underway to help the Council achieve a balanced budget, and support medium and long term financial plans. 6 The Council has effective budget monitoring arrangements. Given the financial pressures, the Council is continuing to assess its reserves strategy and review how it assesses, monitors and reports on its financial resilience. Best Value 7 The Council’s Workforce Plan 2022-25 is supported by detailed service level plans, however there is an opportunity for this to have a more strategic focus. 8 The Council is using digital technology to support new ways of working but has not yet set out how it plans to use digital technology to shape its future workforce. 9 Our follow up work of Best Value improvement recommendations from 2022/23 concluded that the Council has now addressed these recommendations. 25
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Key messages | 4 Vision, leadership and governance 10 The Council has a clear vision, strategy, and priorities. 11 The Council has effective and appropriate governance arrangements for delivery of its plans. 12 A new Chief Executive and Director of Finance and Corporate Resources were appointed during 2023/24. 13 The Council has a Management Development programme in place to support succession planning. Use of resources to improve outcomes 14 The Council has an effective performance management framework in place. 15 The Council’s overall performance has improved compared to its prior year results but has declined compared with the Scottish average. 16 The Council has effective and appropriate arrangements in place to ensure that resources are deployed to improve strategic outcomes, that meet the needs of service users. 26
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Introduction | 5 Introduction 1. This report summarises the findings from the 2023/24 annual audit of South Lanarkshire Council. The scope of the audit was set out in an Annual Audit Plan presented to the 26 March 2024 meeting of the Risk and Audit Scrutiny Committee. This Annual Audit Report comprises: • significant matters arising from an audit of South Lanarkshire Council’s annual accounts • conclusions on South Lanarkshire Council’s performance in meeting its Best Value duties • conclusions on the following wider scope areas that frame public audit as set out in the Code of Audit Practice 2021: o Financial Management o Financial Sustainability o Vision, Leadership, and Governance o Use of Resources to Improve Outcomes. 2. This report is addressed to South Lanarkshire Council and the Controller of Audit and will be published on Audit Scotland's website www.audit- scotland.gov.uk in due course. Audit appointment 3. John Boyd has been appointed by the Accounts Commission as auditor of South Lanarkshire Council for the period from 2022/23 until 2026/27. The 2023/24 financial year was the second year of the five-year appointment. 4. We would like to thank councillors, risk and audit scrutiny committee members, senior management, and other staff, particularly those in finance, for their cooperation and assistance in this year’s audit and we look forward to working together constructively over the remainder of the five-year appointment. Responsibilities and reporting 5. South Lanarkshire Council has primary responsibility for ensuring the proper financial stewardship of public funds. This includes preparing annual accounts that are in accordance with proper accounting practices. South Lanarkshire Council is also responsible for compliance with legislation, and putting arrangements in place for governance and propriety that enable it to successfully deliver its objectives. 27
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Introduction | 6 6. The responsibilities of the independent auditor are established by the Local Government (Scotland) Act 1973, the Code of Audit Practice 2021 and supplementary guidance, and International Standards on Auditing in the UK. 7. Weaknesses or risks identified are only those which have come to our attention during our normal audit work and may not be all that exist. Communicating these does not absolve management of South Lanarkshire Council from its responsibility to address the issues raised and to maintain adequate systems of control. 8. This report contains an agreed action plan at Appendix 1. It sets out specific recommendations, the responsible officers, and dates for implementation. Auditor Independence 9. We can confirm that we comply with the Financial Reporting Council’s Ethical Standard. We can also confirm that we have not undertaken any non-audit related services and therefore the 2023/24 audit fee of £625,070 (including £3,500 in respect of Charitable Trusts) as set out in our 2023/24 Annual Audit Plan remains unchanged. We are not aware of any relationships that could compromise our objectivity and independence. 10. The annual audit adds value to South Lanarkshire Council by: • identifying and providing insight on significant risks, and making clear and relevant recommendations • providing clear and focused conclusions on the appropriateness, effectiveness and impact of corporate governance, arrangements to ensure the best use of resources and financial sustainability. • sharing intelligence and good practice identified. 28
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1. Audit of 2023/24 annual accounts | 7 1. Audit of 2023/24 annual accounts Public bodies are required to prepare annual accounts comprising financial statements and other related reports. These are principal means of accounting for the stewardship public funds. Main judgements Our audit opinions on the annual accounts of South Lanarkshire Council, its group and the section 106 charities administered by the Council are unmodified, i.e. the financial statements and related reports are free from material misstatement. The management commentary, annual governance statement and remuneration report were all consistent with the financial statements and properly prepared in accordance with the relevant regulations and guidance. Audit opinions on the annual accounts are unmodified 11. The Council approved the annual accounts for South Lanarkshire Council and its group for the year ended 31 March 2024 on 24 September 2024. In addition to the Council the group accounts consolidate the financial results of the Council and its subsidiaries and its investments in associates and interests in joint ventures. These include: Strathclyde Partnership for Transport, Strathclyde Concessionary Travel Scheme Joint Committee, Lanarkshire Valuation Joint Board, South Lanarkshire Integration Joint Board, South Lanarkshire Leisure and Culture Limited, Routes to Work South, Clyde Valley Learning and Development Joint Committee and the Common Good Fund. 12. As reported in the independent auditor’s report, in my opinion as the appointed auditor: • the financial statements give a true and fair view and were properly prepared in accordance with the financial reporting framework • the audited part of the remuneration report was prepared in accordance with The Local Authority Accounts (Scotland) Regulations 2014. • the management commentary and annual governance statement were consistent with the financial statements and properly prepared in accordance with the applicable requirements. 29
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1. Audit of 2023/24 annual accounts | 8 Overall materiality was assessed on receipt of the unaudited annual accounts as £26.5 million 13. Broadly, the concept of materiality is applied by auditors to determine whether misstatements identified during the audit could reasonably be expected to influence the economic decisions of users of the financial statements, and hence impact their opinion set out in the independent auditor’s report. Auditors set a monetary threshold when considering materiality, although some issues may be considered material by their nature. It is ultimately a matter of the auditor’s professional judgement. 14. Our initial assessment of materiality was carried out during the risk assessment phase of the audit. This was reviewed on receipt of the unaudited annual accounts and is summarised in Exhibit 1. Exhibit 1 Materiality values Materiality level Council Group Overall materiality £26.5 million £26.8 million Performance materiality £18.6 million £18.8 million Reporting threshold £1.33 million £1.34 million Source: Audit Scotland 15. The overall materiality threshold for the audit of the annual accounts of South Lanarkshire Council and its group was set with reference to gross expenditure, which was judged as the figure most relevant to the users of the financial statements. 16. Performance materiality is used by auditors when undertaking work on individual areas of the financial statements. It is a lower materiality threshold, set to reduce the probability of aggregated misstatements exceeding overall materiality. We have used our professional judgement and set performance materiality at 70 per cent of overall materiality. 17. It is our responsibility to request that all misstatements, other than those below our reporting threshold, are corrected, although the final decision on making the correction lies with those charged with governance. Significant findings and key audit matters 18. Under ISA (UK) 260, we communicate significant findings from the audit to the council, including our view about the qualitative aspects of the council’s accounting practices. 19. The Code of Audit Practice also requires us to highlight key audit matters, which are defined in ISA (UK) 701 as those matters judged to be of most 30
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1. Audit of 2023/24 annual accounts | 9 significance. The significant findings including key audit matters, are summarised in Exhibit 2. Exhibit 2 Significant findings and key audit matters from the audit of the annual accounts Issue Resolution 1. Non-current assets Council house valuations: Council dwellings require to be valued on an Existing Use Value – Social Housing (EUV-SH) basis. The Beacon Method is the methodology which estimates this. The Beacon principle is used for large groups of properties that contain a similar design, age, type, or construction. A sample property (the beacon) is selected, which is representative of the group, and a detailed inspection and valuation carried out. For the purposes of this exercise 'representative of the group' means the most typical or frequently occurring type of dwelling within the group. The Beacon valuation is compared with the other properties within the group. The aim is to accurately reflect the range of values within the group. The approach taken by the Council draws on elements of Guidance for Valuers issued in 2016, however the Council should ensure that the methodology applied is consistent to factor in different types and ages of property. The Council provided a detailed summary paper to management outlining the approach undertaken and assurances that the approach taken does not result in a material misstatement of the overall council house stock value. Recommendation 1 (Refer Appendix 1, action plan) The valuer should review the current valuation process against applicable guidance to assure themselves that the valuation process remains fit for purpose. Source: Audit Scotland Our audit work responded to the risks of material misstatement we identified in the annual accounts 20. We have obtained audit assurances over the identified significant risks of material misstatement in the annual accounts. Exhibit 3 sets out the significant risks of material misstatement to the financial statements identified in our 2023/24 Annual Audit Plan. It also summarises the further audit procedures performed during the year to obtain assurances over these risks and the conclusions from the work completed. 31
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1. Audit of 2023/24 annual accounts | 10 Exhibit 3 Significant risks of material misstatement in the annual accounts Audit risk Assurance procedure Results and conclusions 1. Risk of material misstatement due to fraud caused by management override of controls As stated in ISA (UK) 240, management is in a unique position to perpetrate fraud because of management’s ability to override controls that otherwise appear to be operating effectively. • Assess the design and implementation of controls over journal entry processing. • Make inquiries of individuals involved in the financial reporting process about inappropriate or unusual activity relating to the processing of journal entries and other adjustments. • Test journals at the year-end and post-closing entries and focus on significant risk areas. • Consider the need to test journal entries and other adjustments throughout the year. • Evaluate significant transactions outside the normal course of business. • Assess the adequacy of controls in place for identifying and disclosing related party relationship and transactions in the financial statements. • We will assess any changes to the methods and underlying assumptions used to prepare accounting estimates compared to the prior year. Results: We found no instances of material misstatement due to fraud or error caused by management override of controls. Assurance has been gained that in year and year end journals were properly processed. 2. Estimation in the valuation of land and buildings. South Lanarkshire Council held land and buildings with a net book value of £3,324 million at 31 March 2023. There can be a significant degree of subjectivity in the valuation of land and buildings. Valuations are based on specialist and management assumptions, and changes in these can • Review the information provided to the external valuer to assess for completeness. • Evaluate the competence, capabilities, and objectivity of the professional valuer. • Obtain an understanding of the management’s involvement in the valuation process to assess if appropriate oversight has occurred. • Critically assess the approach South Lanarkshire Council has adopted to assess the risk that assets not subject to valuation Results: Assurance has been gained that there are no material misstatements in the carrying value of land & buildings. 32
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1. Audit of 2023/24 annual accounts | 11 Audit risk Assurance procedure Results and conclusions result in material changes to valuations. Valuations should reflect conditions at 31 March 2024 including those subject to valuation, those valued earlier in the year and those not re-valued. There is a risk that the carrying value of land and buildings does not reflect the current value as at 31 March 2024. are materially misstated and consider the robustness of that approach. • Review the appropriateness of the key assumptions used in the valuation of land and buildings as well as the underlying data used to support the estimate. • Critically assess the adequacy of South Lanarkshire Council’s disclosures regarding the assumptions in relation to the valuation of land and buildings. Source: Audit Scotland 21. In addition, as part of our assessment of audit risks, we identified other areas where we considered there were also risks of material misstatement to the financial statements. Based on our assessment of the likelihood and magnitude of the risks, we did not consider these to represent significant risks. These areas of specific audit focus were: 22. Pension Valuation: the pension valuation due to the material value and significant assumptions used in the calculation of the carrying value. We utilised the work of PwC as auditor expert in assessing the reasonableness of the methodology used and assumptions made by the Council’s actuary, Hymans Robertson LLP, in arriving at the IAS 19 pension valuation as at 31 March 2024. 23. In accordance with IFRIC 14, the pension asset recognised within the financial statements was capped at the estimated future benefit to the Council. We have reviewed the assumptions applied by the actuary in arriving at the asset ceiling cap and are satisfied that this is in accordance with IFRIC 14. The net pension asset recognised was £NIL. 24. As part of our risk assessment, we have also identified the following areas where further work would be performed. These are not risk of material misstatement to the primary financial statements but areas to be kept under review: 25. IFRS 16: from 1 April 2024, a new International Financial Reporting Standard, IFRS 16, will come into effect for Local Authorities. IFRS 16 introduces a new ‘Right of Use’ asset class to the balance sheet, and also recognises the corresponding lease liability. This applies to all leases - property, land, vehicles, plant and equipment. 26. This will change the way in which South Lanarkshire Council accounts for operating leases, including recognising assets and liabilities for the rights and obligations arising from leases previously classified as operating leases. The 33
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1. Audit of 2023/24 annual accounts | 12 Council has prepared a summary paper outlining their preparations for the implementation of IFRS 16 from 2024/25. 27. In terms of recognition exemptions, IFRS 16 provides two major recognition and measurement exemptions to reduce the reporting burden on entities; short- term leases and low value leases. CIPFA has mandated the application of the recognition exemption for short term leases meaning that a lease that, at the commencement date, has a lease term of 12 months or less is exempt from the accounting treatment under IFRS 16. 28. For low value leases the recognition exemption is optional. The Council as lessee may elect not to apply the accounting treatment under IFRS 16 to low value leases. It is a matter for individual authorities to set a local policy to define what low value is in practice. The Council has elected to apply the low value recognition. 29. Under IFRS 16 the initial measurement of the lease liability is recognised at the commencement date and measured as the present value of the lease payments that are not paid at that date using the: • interest rate implicit in the lease, or • lessee’s incremental borrowing rate (but only if the implicit rate cannot be readily determined) 30. The Council will use the PWLB annuity certainty rate that matches the term of the lease as a measure of its incremental borrowing rate in the event that the interest rate implicit in the lease cannot be readily determined. 31. IFRS 16 is a complex accounting standard and the Council has recognised that officers do not necessarily have the required skills and knowledge to undertake the implementation of IFRS 16 alone. The Council has awarded Link Treasury Services the contract for the procurement of leasing advice. The Council is also investigating the procurement of a software solution that meets the particular accounting requirements of IFRS 16 for local authorities. 32. Officers from Finance Services have been working alongside colleagues in other service departments to identify any leases that the Council may have in place. This exercise captured information at a specific point in time and will be reviewed and repeated throughout the current financial year. However the Council is not yet in a position to quantify the likely impact of IFRS 16. Recommendation 2 The Council is progressing its review to support the implementation of IFRS 16 for the 2024/25 financial statements. The Council is not yet in a position to quantify the likely impact of IFRS 16. The Council should review the current timetable to ensure that key dates are being achieved to allow implementation in line with the project plan. 34
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1. Audit of 2023/24 annual accounts | 13 33. The statutory override relating to valuation of infrastructure assets is due to end for the 2024/25 financial statements. On 24 June 2024, the Scottish Government published; Introduction - Local government finance circular 8/2024 - accounting for infrastructure assets: temporary statutory override - gov.scot (www.gov.scot). 34. Due to practical difficulties in applying component accounting for the recognition and derecognition of replaced components of infrastructure assets, most local authorities have been unable to comply with the requirement to assess the net book value of a replaced component of an infrastructure asset and have taken a network approach to the measurement of such assets, treating the amount of the replaced component as having no value. 35. A temporary statutory override was introduced in August 2022, applying to the 2022/23 and 2023/24 financial years, in order to allow time for the CIPFA LASAAC Local Authority Accounting Code Board to conclude the development of a permanent solution. 36. However, a permanent solution has not yet been agreed and CIPFA believe that this will continue be an area of enhanced scrutiny for local government auditors. The statutory guidance will therefore be extended by a further 12 months, until 31 March 2025. Recommendation 3 The Council should proactively work with CIPFA and the wider local government sector to arrive at appropriate solution for the implementation of accounting for infrastructure assets. 37. We kept these areas under review throughout our audit. Based on the findings of the audit procedures performed, there are no matters which we need to bring to your attention. There were no identified misstatements 38. To be confirmed on conclusion on the audit. 39. The unaudited accounts were updated by management during the course of the audit to reflect an accounting adjustment. This resulted in a decrease in the deficit in the Comprehensive Income and Expenditure Statement of £86,622 and a corresponding increase the Usable Reserves balance on the Balance Sheet of £86,622. We are content the Council has correctly actioned the required adjustment. The unaudited annual accounts were received in line with the agreed audit timetable 40. The unaudited annual accounts were received in line with the agreed audit timetable on 25 June 2024. 35
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1. Audit of 2023/24 annual accounts | 14 Our audit opinions on Section 106 charities were unmodified 41. Due to the interaction of section 106 of the Local Government in Scotland Act 1973 with the charities legislation, a separate independent auditor's report is required for the statement of accounts of each registered charity where members of the Council are sole trustees, irrespective of the size of the charity. 42. The Council has made good progress in reducing or removing the number of charitable trusts where it is the sole trustee. 43. Our audit opinions on the Section 106 charities are unmodified. Good progress was made on prior year recommendations 44. South Lanarkshire Council has made good progress in implementing the agreed prior year audit recommendations. For actions not yet implemented, revised responses and timescales have been agreed with management, and are set out in Appendix 1. 36
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2. Financial management | 15 2. Financial management Financial management means having sound budgetary processes, and the ability to understand the financial environment and whether internal controls are operating effectively. Conclusion The Council continues to operate within its annual budget. While facing financial challenges through inflationary pressures on pay and non-pay costs as well as demand on services, the Council continues to demonstrate sound financial management maintaining general fund reserves in line with the long term Revenue Financial Strategy. The Council operated within budget in 2023/24 45. The Council approved its 2023/24 revenue budget of £895.702 million in February 2023. In its 2023/24 annual accounts, the Council reported an underspend on the provision of services of £26.351 million. This was mainly as a result of underspends in the corporate items budget which included unbudgeted income from a historic VAT claim, an underspend on loan charges reflecting the timing and level of borrowing and the resultant reduced interest charges, and an over-recovery of council tax. Following a number of agreed transfers to contribute to reserves, the final reported position was break-even. 46. The changes in the budget position were reported in revenue budget monitoring reports presented to the Executive Committee throughout the year. These reports contained a good level of detail on the forecast outturn position. There were no significant under or overspends during 2023/24 at a service level. An underspend of £0.360 million was reported against the Housing Revenue Account (HRA) budget 47. The Council is required by legislation to maintain a separate housing revenue account and to ensure that rents are set a level which will at least cover the costs of its social housing provision. 48. The Council reported a £0.360 million underspend against the HRA budget for 2023/24 mainly as a result of a reduction in loan charges due to the Loans Fund review and additional rental income from new builds and purchased Council housing being greater than anticipated. These were offset by additional spend on repairs and maintenance. The underspend was transferred to the Housing Revenue Account Reserve resulting in a closing balance of £13.221 million in 2023/24. 37
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2. Financial management | 16 The Council has appropriate and effective budget setting and monitoring arrangement in place 49. The Council continues to balance its budget each year and maintains the level of reserves is in line with the long term Revenue Financial Strategy. 50. From our review of these reports, we concluded that these provide an overall picture of the budget position at service level and good explanations for significant variances against budget. These allow both members and officers to carry out scrutiny of the Council’s finances. 51. The Council has appropriate and effective budget setting and monitoring arrangements in place. Council members worked collaboratively to set the Council budget for 2024/25. The level of General Fund reserves has decreased with the majority of these earmarked for specific Council priorities 52. One of the key measures of the financial health of a body is the level of reserves held. The General Fund is the largest usable reserve and is used to fund the delivery of services. It provides a contingency fund to meet unexpected expenditure and a working balance to help cushion the impact of such expenditure. 53. The level of usable reserves decreased from £176.941 million in 2022/23 to £133.689 million in 2023/24 exhibit 4. The General Fund balance is £109.773 million, however £96.730 million has been earmarked for a specific priority which leaves a residual £13.043 million of uncommitted general reserves. Against an expenditure budget of £895.702 million for 2023/2024, this unearmarked element represents a 1.45 per cent reserve. Management considers that this level of reserve reflects a suitable contingency to contribute towards any unanticipated pressures. Exhibit 4 South Lanarkshire Council usable reserves Reserve 31 March 2020 £’million 31 March 2021 £’million 31 March 2022 £’million 31 March 2023 £’million 31 March 2024 £’million General fund 75.579 116.980 122.424 150.283 109.773 Housing revenue account 9.713 12.784 16.241 12.861 13.221 Repair and renewal fund 5.918 7.484 6.496 7.610 5.346 Capital fund 10.327 6.268 5.730 4.776 3.975 38
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2. Financial management | 17 Insurance fund 2.053 2.304 1.295 1.411 0.195 Total usable reserves 103.590 145.820 £152.186 176.941 133.689 Source: South Lanarkshire Council annual accounts 2019/20 to 2023/24 54. We are satisfied that reserves are being regularly reviewed to confirm that they remain at an appropriate level. However, there are ongoing sustainability challenges of using reserves to fund recurring expenditure. Difficult decisions will need to be taken in the future, with a clear plan and effective management of the Council’s reserves key to maintaining financial sustainability. Capital expenditure was less than originally budgeted in 2023/24 55. The Council approved the 2023/24 capital programmes in February 2023. The general services programme for 2023/2024 originally totalled £91.061 million, with the housing capital programme amounting to £63.916 million. 56. At the Executive Committee meeting in June 2023, revisions were made to the general services programme including, slippage of £12.660 million from 2022/23 projects added to the programme budget and £26.775 million of 2023/24 projects removed to give an updated budget of £77.849 million for 2023/24. 57. At each meeting of the Executive Committee, capital programme monitoring reports are presented to members. Throughout the year these reports detailed the various movements in the general services programme budget. 58. At the June 2024 Executive Committee, the general services outturn capital programme spend was reported as £64.244 million for 2023/24, against original budget representing a slippage of 29.5 per cent. 59. The underspend reflects a variation from the expected timing of spend across a number of projects within multi-year programmes. The main projects contributing to the underspend include the Place Based Investment Programme, Rural Development Centre, IT infrastructure Refresh and a number of Glasgow City Region City Deal projects. 60. The housing capital programme outturn was reported as £62.240 million for 2023/24, against the revised budget of £63.916 million. This represents slippage of 2.5 per cent against the revised budget (slippage of nine per cent against 2022/23). 61. This underspend is due to a number of factors, mainly, the timing of the purchase of land at sites within the East Kilbride Community Growth Area and Brackenhill Farm, Hamilton, with these concluding early in the new financial year. In addition, there were access issues with a significant number of central heating systems upgrades and windows and doors projects. 39
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2. Financial management | 18 62. The Council has reviewed the reasons for slippage and reported that there is no one reason for projects slipping in terms of spend achieved in year. Each project is different and slippage can be as a result of contractor default, delays in the supply chain or the impact of weather conditions. The Council has confirmed that there continues to be no significant risk associated with project slippage, and tends to be a timing issue only. 63. Officer meetings take place every four weeks to consider each project on its own merit. Any variations in spend anticipated are reported to members through an adjustment to the programme to reflect the revised spend for the year and achievability in terms of the project deliverables if applicable. These adjustments are reported on a four-weekly basis to the Executive Committee and then on an eight weekly basis to the relevant Resources (service) Committee. The Council does not undertake valuations as at the year end, but has provided satisfactory evidence to support its approach 64. The Council’s valuation team (qualified RICs valuers) have confirmed that they carried out their valuation duties in line with the RICs professional standards, and they have provided a formal year-end report to management. This included a covering report, a Service Level Agreement (SLA) outlining their conditions of engagement, and an asset review paper (impairment review) which focussed on identifying any unusual circumstances which would affect the value of whole categories of assets. They reviewed the NCA that were most subject to risk in terms of economic influence. 65. Bodies should carry out valuations as at the year end, i.e. as at 31 March. However, there is no requirement for this, and bodies may use 1 April (or other date) subject to the standard condition that the carrying amount at the end of the year does not differ materially from the current value at that date. 66. Where a valuation has been carried out at 1 April 2023, a body should evaluate whether: • there have been any movements in value during 2023/24 that should be reflected in the 31 March 2024 carrying amount • there is sufficient evidence that supports the body's consideration of the above is adequate • it has made necessary adjustments to the 31 March 2024 carrying amount to reflect any movements that require to be reflected. 67. The Council adopt a five year rolling programme for the valuation of other land and buildings. The valuation of these assets for 2023/24 has taken place as at 1 April 2023. There was a 3.5 per cent increase in the BCIS index year on year to quarter four, that is, 1 March 2023 to 31 March 2024. The valuer did not consider this an unusual variance and therefore considered that a reassessment of the DRC figures was not required out with the 5 year rolling programme. 40
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2. Financial management | 19 68. Whilst the Council has demonstrated that the current approach of undertaking valuations as at 1 April has resulted in appropriate valuations in accordance with the Code, management should consider valuing at 31 March to reduce the risk of adjustments being required as a result of material movements in year. The Council completed the review to identify any buildings containing Reinforced Autoclaved Aerated Concrete and taken remedial action as required 69. Reinforced Autoclaved Aerated Concrete (RAAC) was widely used in the construction of floors and roofs from the 1950s to early 1990s. Recent investigations have identified that leaks or water exposure could lead to the deterioration of RAAC planks. 70. The Scottish Government are working in partnership with the UK Government on research into the extent of the use of RAAC in public buildings and public bodies, including the Council, have been advised to check as a matter of urgency whether any buildings in their estates have roofs, floors, cladding or walls made of RAAC. 71. The Council has confirmed that the desktop exercise with focused survey activity has now been completed on all Non-housing and Housing properties and remedial action has been taken where required. Standards of conduct and arrangements for the prevention and detection of fraud and error were appropriate 72. The Council is responsible for establishing arrangements for the prevention and detection of fraud, error and irregularities, bribery, and corruption. Furthermore, it is responsible for ensuring that its affairs are managed in accordance with proper standards of conduct by putting effective arrangements in place. 73. The Council has a range of established procedures for preventing and detecting fraud and irregularity including a whistleblowing policy, counter fraud strategy and codes of conduct for members and officers. We assessed these to ensure that they were appropriate, readily available to staff and are regularly reviewed to ensure they remain relevant and current. 74. We have concluded that the Council has appropriate arrangements in place for the prevention and detection of fraud and corruption. National Fraud Initiative 75. The National Fraud Initiative (NFI) is a counter-fraud exercise across the UK public sector which aims to prevent and detect fraud. The Council participates in this biennial exercise. The 2022/23 exercise concluded during the 2023/24 financial year and the final report was published in August 2024 The National Fraud Initiative in Scotland 2024 (audit.scot). 41
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2. Financial management | 20 76. The value of outcomes from the NFI, recorded since the last report, total £21.5 million (up from the £14.9 million in 2022). The cumulative value of outcomes from the NFI in Scotland since participation started in 2006/07 now stands at around £180 million. 77. The Council continues to participate in the National Fraud Initiative (NFI). This is a counter-fraud exercise across the UK public sector which aims to prevent and detect fraud. Internal Audit presented a paper to the RASC in September 2024 which confirmed that overall outcomes remain relatively. 78. The Council’s arrangements for investigating and reporting data matches identified by the NFI are satisfactory. 42
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3. Financial sustainability | 21 3. Financial sustainability Financial Sustainability means being able to meet the needs of the present without compromising the ability of future generations to meet their own needs. Conclusion The Council transformational change programme is underway to help the Council achieve a balanced budget, and support medium and long term financial plans. The Council has effective budget monitoring arrangements. Given the financial pressures, the Council is continuing to assess its reserves strategy and review how it assesses, monitors and reports on its financial resilience. 79. Exhibit 5 sets out the wider scope risks relating to Financial Sustainability identified in the 2023/24 Annual Audit Plan. It summarises the audit procedures performed during the year to obtain assurances over these risks and the conclusions from the work completed. Audit work has addressed the wider scope risks identified in the Annual Audit Plan Exhibit 5 Risks identified from my wider responsibility under the Code of Audit Practice Audit risk Assurance procedure Results and conclusions Financial Sustainability South Lanarkshire Council continues to operate in an increasingly complex and challenging environment, aiming to provide the best possible service within the resources available. Although a surplus position of £9.0 million is projected for 2023/24, the Council has identified a savings requirement of £95.8 million for the next four years to 2027/28. Reviewed the Council’s annual budget setting arrangements. Reviewed and assessed budget monitoring arrangements Reviewed the Council’s medium to longer term financial planning including how the Council aligns savings plans and transformation activity with strategic priorities. Reviewed the Council’s financial position and delivery of planned savings. Results and conclusion: The Council recognise the financial challenges facing the organisation. A Transformational Change programme is underway to achieve financial sustainability over the medium to longer term. 43
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3. Financial sustainability | 22 Audit risk Assurance procedure Results and conclusions Management have implemented a programme of reviews to contribute towards addressing the financial pressures. However, there is a risk that the Council plans do not deliver the required savings to address the projected shortfall. The Council transformational change programme is underway to help the Council achieve a balanced budget, and support medium and long term financial plans 80. At the Executive Committee meeting in June 2024 management advised that the budget gap, before any corporate solutions, for 2025/26 was estimated at £22.355 million. Key elements making up the budget gap are: • pay and pension items which includes assumed pay award for teachers and non-teachers: £8.820 million • Reinstatement / Impact of Prior Year Budget Decisions and includes the need to reinstate budget to cover one-off savings from previous years and also to take the benefit of residual impact of previous year decisions: £11.515 million 81. In addition the report explained that given the financial horizon, there was a need to look at the picture not just for the year ahead but for the medium-term and the report outlined the starting point for the Medium-Term Strategy from 2025/2026 to 2027/2028. As detailed in exhibit 6 the overall budget gap for the period 2025/2026 to 2027/2028 is £77.275 million. Exhibit 6 Identified savings requirement 2025/26 to 2027/28 2025/26 2026/27 2027/28 Total Savings required £’million £22.355 £24.515 £30.405 £77.275 Source: 2025/2026 to 2027/2028 Revenue Budget Strategy 82. To address the budget gap, the Council will need to review what services it can afford to continue to deliver and how these services will be provided. The Council will need to significantly change what they deliver over the next 3 years with the focus being on statutory services. There will be difficult decisions to take on whether the Council can continue to deliver services and if so, what those services will actually look like. 44
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3. Financial sustainability | 23 83. To achieve a balanced budget, the Council need to have clear medium and long term financial plans to support transformational change. 84. The report to the Executive Committee outlined the Transformational Change Programme that is underway. This will be a series of cross cutting reviews, not focussed on one Resource, but on Council-wide activities. The reviews will start in 2024/2025, and the Council anticipates they will deliver savings across the term of the three year Budget Strategy. The reviews include: • Charging: options for full cost recovery where possible • Procurement: further consideration of procurement practices/options • Overtime: review of overtime practices and spend • Management Structure: review to ensure correct balance between management and the staff they oversee • Digital Transformation / Customer Contact: review of the use of technology and how the Council and its customers interact • Property: right size use of property and look to meet Net Zero targets • Consideration of in-house and procured services • Loans Fund: consider any further benefits through Loans Fund accounting • Depot Rationalisation: rationalising the number across Resources • Fleet Reduction: reducing this where efficiencies can be identified. 85. Progress on each cross-cutting review will be presented to the Performance and Review Scrutiny Forum (PRSF). In addition, service departments are considering their own service areas, and a programme of reviews will also take place to inform savings for the coming year. As these service reviews progress, proposals will be presented to Members for approval as part of the Budget setting process. The Council has effective budget monitoring arrangements. Given the financial pressures, the Council is continuing to assess its reserves strategy and review how it assesses, monitors and reports on its financial resilience 86. The Council recognises the financial challenges it faces in the coming years. As detailed in exhibit 5, as at 31 March 2024, the Council had a total General Fund balance of £109.773 million. Of this £96.730 million has been earmarked for a specific priority with a residual balance of £13.043 million of uncommitted general reserves. 87. Councils can hold reserves for a number of reasons. Some reserves are earmarked for identified expenditure which will, or may occur over the short, 45
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3. Financial sustainability | 24 medium or longer term. In addition to these reserves, there are uncommitted reserves which help manage unforeseen circumstances. 88. The Local Authority Accounting Panel (LAAP) provides guidance on the establishment and maintenance of local authority reserves and balances. The LAAP Bulletin does not prescribe a minimum level of reserves which should be held by a council. It is for the Council to consider an appropriate level of reserves taking account of their strategic, operational and financial risks. However, it does state that reserves should not be held without a clear purpose. 89. The Council intends to review and present an updated Reserves Strategy to the Finance and Corporate Resources Committee in Autumn 2024, following the conclusion of the 2023/24 Annual Accounts. 90. The Chartered Institute of Finance and Public Accountancy (CIPFA) introduced a Financial Management Code for implementation by 31 March 2021. This provides “guidance for good and sustainable financial management in local authorities. By complying with the principles and standards within the code, authorities will be able to demonstrate their financial sustainability”. A key goal of the FM Code is to improve and evidence the financial resilience of organisations by embedding enhanced standards of financial management. 91. In our 2022/23 Annual Audit Report we recommended that given the scale of the financial challenges facing the Council it should ensure that in developing its financial strategy and annual budget there is a clear consideration around its financial resilience, including the level of reserves to allow the Council to meet unforeseen costs and pressures. We also recommended that the Council should also enhance the level of monitoring around financial resilience indicators and risks. 92. The Council has an effective financial planning and monitoring arrangements in place, with regular reporting throughout the year. Through the 2025/2026 to 2027/2028 Revenue Budget Strategy the Council demonstrates a clear understanding of the budget pressures it faces. 93. The Council intends to present a more detailed report on resilience to the Risk and Audit Scrutiny Committee in September 2024. Recommendation 4 The Council should ensure that there is a clear risk assessment and scrutiny of the level of reserves held and how this supports financial resilience and sustainability over the medium term. 46
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4. Best Value | 25 4. Best Value Councils have a statutory duty to make arrangements to secure continuous improvement in the performance of their functions. Conclusions The Council’s Workforce Plan 2022-25 is supported by detailed service level plans, however there is an opportunity for this to have a more strategic focus. The Council is using digital technology to support new ways of working but has not yet set out how it plans to use digital technology to shape its future workforce. Our follow up work of Best Value improvement recommendations from 2022/23 concluded that the Council has now addressed these recommendations. Best Value work in 2023/24 94. For 2023/24, the scope of Best Value work included conclusions on: • Workforce Innovation (2023/24 thematic work) • Council service performance improvement • Effectiveness of council performance reporting • Progress made against Best Value improvement actions made in previous years 95. As set out in the Code of Audit Practice 2021, Best Value audit is integrated with other wider-scope annual audit work. Therefore, in addition to the work set out in the remainder of this section, Best Value work has informed the content and conclusions set out in parts 3 to 6 of this Annual Audit Report. Workforce Innovation priorities 96. Annual thematic Best Value work is set by the Accounts Commission. For the 2023/24 financial year, auditors were asked to focus on workforce innovation within the council. The results of this work were reported to elected members at the Risk and Audit Scrutiny committee on 25 June 2024. This report will be published on the Audit Scotland website in due course. The key findings in this report are: • The Council’s Workforce Plan 2022-25 is supported by detailed service level plans, however there is an opportunity for this to have a more 47
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4. Best Value | 26 strategic focus. The Council has not had a corporate level workforce strategy since 2019. • The Council and service-level workforce plans capture the workforce challenges however actions need to be SMART to allow progress to be monitored and reported. • While the Council’s service-level workforce plans contain workforce data, there is no workforce data included in the Council-level Workforce Plan. • The Council has developed a comprehensive toolkit to help services with workforce planning. • The Council is using digital technology to support new ways of working but has not yet set out how it plans to use digital technology to shape its future workforce. The introduction of Oracle Fusion provides the Council with opportunities to create efficiencies and the increased use of digital technology in education is providing more choice for pupils. • The Digital Strategy 2022-27 sets out an intention to address digital exclusion. Around ten per cent of employees who responded to a digital skills survey identified that they do not have basic digital literacy. • The Council recognises the need for innovative skills and capacity measures in light of the workforce recruitment and retention challenges it faces. The Council uses a number of approaches to improve the skills and capacity of its future and existing workforce. • The Council reports detailed council-wide and resource-level workforce monitoring information to Committee quarterly although there is scope for the content to be further developed. 97. The audit recommendations from the thematic report, together with the management responses, are included in Appendix 1 of this report. Follow up of Best Value improvement recommendations from 2022/23 98. For the 2022/23 financial year, auditors were asked to focus on the councils’ leadership of the development of new local strategic priorities. The 2022/23 Best Value Thematic report contained two improvement recommendations in respect of the Council’s compliance with the Fairer Scotland Duty and ongoing support for Elected Members. 99. Our follow up work has concluded that the Council has now addressed these recommendations. 48
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5. Vision, leadership and governance | 27 5. Vision, leadership and governance Public sector bodies must have a clear vision and strategy and set priorities for improvement within this vision and strategy. They work together with partners and communities to improve outcomes and foster a culture of innovation. Conclusions The Council has a clear vision, strategy, and priorities. The Council has effective and appropriate governance arrangements for delivery of its plans. A new Chief Executive and Director of Finance and Corporate Resources were appointed during 2023/24. The Council has a Management Development programme in place to support succession planning. The Council has clearly articulated its vision and priorities 100. The Council’s Connect Plan 2022-27 is the strategic document that sets out the Council’s vision, values and objectives and what difference this will make to the residents and communities of South Lanarkshire. 101. The Council’s vision is ‘to improve the lives and prospects of everyone in South Lanarkshire’. It sets out the key actions to be delivered over five years, around a long-term vision with three key priorities and supported by six detailed outcomes. Governance arrangements are effective and appropriate 102. The Council’s governance arrangements have been set out in the Annual Governance Statement in the annual accounts. We have reviewed these arrangements and concluded that they are appropriate. This is informed by our regular attendance at the Risk and Audit Scrutiny Committee and review of Council, Executive Committee and other committee papers as appropriate. 103. We have concluded that overall, the Council has appropriate governance arrangements in place which support effective scrutiny, challenge and decision making. 49
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5. Vision, leadership and governance | 28 A new Chief Executive and Director of Finance and Corporate Resources were appointed during 2023/24 104. The Council has an experienced management team in place that has been relatively stable in recent years. During August 2023 the then Chief Executive, announced his intention to retire. The previous Director of Finance and Corporate Resources and Deputy Chief Executive was appointed as the new Chief Executive and started in his new role in January 2024. 105. In March 2024, the previous Head of Finance (Strategy) was appointed as the Director of Finance and Corporate Resources. In turn, the Head of Finance (Strategy) was backfilled through an internal appointment. Finance are continuing to review staffing and backfill arrangements are being progressed to ensure capacity within the department. The Council has a Management Development programme in place to support succession planning 106. The Council offers three levels of management development training in conjunction with the Chartered Management Institute to support succession planning: • Ambition (entry) level for employees managing small teams • Consolidation level for employees who are practising managers or team leaders • Development level for senior managers. This includes training on project management, coaching, collaborative working and managing change. 107. In addition to the Management Development programme for all managers, the Council operates a leadership challenge programme to develop ‘rising stars’ and assist with succession planning. Executive Directors select employees to take part in this. It includes skills and attitudes tests, access to speakers to help participants think beyond their current role, participation in service reviews in a different part of the Council and mentoring and coaching. The purpose of the Leadership Challenge is for the Council to ensure its leaders and managers can adapt to different situations and changing circumstances, and can inspire, challenge and encourage. 50
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6. Use of resources to improve outcomes | 29 6. Use of resources to improve outcomes Public sector bodies need to make best use of their resources to meet stated outcomes and improvement objectives, through effective planning and working with strategic partners and communities. Conclusions The Council has an effective performance management framework in place. The Council’s overall performance has improved compared to its prior year results but has declined compared with the Scottish average. The Council has effective and appropriate arrangements in place to ensure that resources are deployed to improve strategic outcomes, that meet the needs of service users. The Council has an effective performance management framework in place 108. The Best Value: Revised Statutory Guidance 2020 sets out that councils should be able to demonstrate a trend of improvement over time in delivering its strategic priorities. 109. The Best Value: Revised Statutory Guidance 2020 also sets out that performance management arrangements should be in place to promote the effective use of the local authority’s resource, which includes effective performance reporting. 110. In addition to the annual reporting on LGBF performance, the Council engaged with the Improvement Service in 2021/22 to look at how it uses and reports on the Local Government Benchmarking Framework (LGBF). This aimed to produce a suite of refined indicators that the Council could use to better reflect its priorities and allow for scrutiny on its identified improvement areas. 111. In 2024, the Improvement Service (IS) launched an online dashboard as the main portal to access LGBF data and analysis. The dashboard is part of the commitment by SOLACE and COSLA to develop better measurement and comparable data as a catalyst for improving services, targeting resources to areas of greatest impact, and enhancing public accountability. 51
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6. Use of resources to improve outcomes | 30 112. As part of this, the IS offered to work with interested councils to explore how dashboard technology could be used at a local level to improve engagement with and use of the LGBF. 113. Building on the review of LGBF reporting undertaken in 2021-22, South Lanarkshire took the opportunity to work with the IS to develop a South Lanarkshire version of the LGBF dashboard. Key features of the South Lanarkshire Council dashboard: • based on the 36 “priority indicators” aligned to the council plan outcomes • focuses on SLC vs Scotland vs family group average performance • allows drill-down to examine family group members and their performance • provides at-a-glance time-trend information for each indicator • presents the LGBF data for SLC along with local. 114. Of the 102 LGBF indicators, 36 have been identified as aligning with the outcomes of the Council’s Connect Plan. These are now embedded within the Connect Plan’s reporting to focus attention on how well the Council is performing in achieving its strategic outcomes. The Council’s overall performance has improved compared to its prior year results but has declined compared with the Scottish average 115. The Council participates in the Local Government Benchmarking Framework (LGBF). The framework brings together a wide range of information about how all Scottish councils perform in delivering services, including the cost of services and how satisfied citizens are with them. The Council notes that the use of the LGBF allows it to self-assess its performance across years, and to compare performance with peers against an agreed suite of performance indicators, which will assist in achieving best practice and efficiencies. 116. The most recent National Benchmarking Overview Report 2022-23 (improvementservice.org.uk) by the Improvement Service was submitted to the Council’s Performance and Review Scrutiny Forum in March 2024 along with a Council specific action plan. When comparing the indicator’s reported, the Council’s overall performance has improved against its own prior year performance. Details of the Council’s trend over the past four years against these performance indicators can be seen at exhibit 7. 117. Across the 102 indicators in 2023/24, the Council’s performance has improved against 52 (51 per cent) and declined against 31 (30 per cent). In terms of the Council’s figures relative to the Scottish average, performance was better than Scottish average for 47 (46 per cent) indicators. This is a decrease on the prior year results of 51 per cent. 52
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6. Use of resources to improve outcomes | 31 Exhibit 7 South Lanarkshire Council analysis of LGBF results Number of indicators (%) 2019/20 Number of indicators (%) 2020/21 Number of indicators (%) 2021/22 Number of indicators (%) 2022/23 Performance Improving performance 35 (39%) 36 (38%) 39 (39%) 52 (51%) Declining performance 45 (49%) 36 (38%) 53 (54%) 31 (30%) No change in performance 1 (1%) 2 (2%) 3 (3%) 4 (4%) Information not available 10 (11%) 21 (22%) 4 (4%) 15 (15%) Comparison with Scottish Average Better than Scottish average 42 (46%) 37 (39%) 50 (51%) 47 (46%) Worse than Scottish average 39 (43%) 37 (39%) 43 (43%) 38 (37%) Same as Scottish average 0 (0%) 0 (0%) 2 (2%) 2 (2%) Information not available 10 (11%) 21 (22%) 4 (4%) 15 (15%) Source: LGBF 2022/23 (2022/23 Results at 30 April 2024) 118. The Council has an improvement action plan for all the indicators, including those reported as being below the Scottish average. The Council also undertakes family group analysis, which focuses on those indicators performing worse than the Scottish average. This aims to group councils into a “family group” of councils with similar levels of deprivation and urban profiles, providing better context to the results. 119. At a service level, under-performing LGBF measures are included in the horizon-scanning and self-assessment exercise undertaken each year. This draws attention to poor performance in the LGBF and services are asked to review the figures and provide narrative about reasons why and any actions necessary which would feed into Resource Plans and improvement actions throughout the year. 53
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6. Use of resources to improve outcomes | 32 The Council is on track to achieve most performance measures however the percentage of reports submitted to the Children’s Reporter within agreed timescales did not meet the target 120. The Council reviews its performance using a number of measures that are aligned to the priorities and outcomes set out in the Council Plan. A total of 272 measures were identified within Resource Plans for 2023/2024. Of those 68 (25 per cent) are linked to the achievement of the Connect Outcomes detailed in the Council Plan. The measures are detailed within the individual Resource Plans and bi-annual progress reports are publicly reported on the performance pages of the Council’s website. 121. In addition, the Connect 2022-27 Quarter 2 Progress Report 2023/2024 was reported to the Performance and Review Scrutiny Forum in December 2023. The progress reports include a summary of performance against measures for each of the Council’s Connect Plan objectives, along with details of the main achievements for that objective. 122. The Connect quarter two progress report for 2023/24 reports that of the Council’s 68 strategic performance measures, three projects had been completed (four per cent); 44 projects, the timescale or target had been met (65 per cent); eight projects where there was minor slippage in timescale or target (12 per cent) and 12 where the information was not yet available and would be reported at a later date (18 percent). Of the remaining measures, one experienced significant issues (one percent). This was: • The percentage of reports submitted to the Children’s Reporter within agreed timescales: In quarter two, 37 out of 53 (70 per cent) of reports were submitted within timescales, 88 out of 139 (63 per cent) for the year to date. Due to staff vacancies of just over 30 per cent within local teams, some reports have been submitted beyond the deadline. Service managers are working closely with operational teams to prioritise workloads and ensure that children and their families are not adversely affected by any delays. A more flexible approach to recruitment is being taken with social worker students on placement with South Lanarkshire guaranteed a job interview and practice educator support with the interview process. This has resulted in an increase in the recruitment of newly qualified workers in the first year 123. Performance management and reporting is well established within the Council. This provides members the opportunity to scrutinise the Council’s performance against its strategic objectives. Despite the ongoing service pressures the Council has achieved or is on track to achieve most of its performance measures as set out in its Connect Plan. The Council is working effectively with partners to meet stated outcomes and improvement objectives 124. The Council is part of the South Lanarkshire Community Planning Partnership (CPP) and the Community Planning Partnership Board (CPPB) which has a key role in progressing Community Planning. 54
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6. Use of resources to improve outcomes | 33 125. The CPPB’s remit is to provide collective strategic leadership, direction, governance and oversight of partnership activity with local communities to support the delivery of its agreed vision and outcomes. 126. Following a full review of Community Planning structures and plans, the Community Planning Partnership Board approved a new Thematic Board structure in March 2023. In September 2023, the Board approved its revised Governance Framework. The final part of the review is to develop a proposal for partnership working at a locality level. Work continues with the Outcomes Leads Group to deliver on this. 127. The Council approved the Community Wealth Building (CWB) Strategy in March 2021 and subsequently the CWB Commission was set up to engage a wide range of partners and stakeholders in the CWB agenda. A community wealth building action plan for the delivery of the CWB strategy was first approved by the Community wealth building Commission in August 2021 with annual reports providing progress updates. 128. The Commission for South Lanarkshire includes the Council, NHS Lanarkshire, third sector representatives VASLan, the University of the West of Scotland and the Federation of Small Businesses. The Commission also includes representation from senior elected members, and community representation through the involvement of the CPP locality groups. 129. The draft 2022/23 annual report was presented to the CWB commission in September 2023 for approval. A review of the Community Wealth Building Risk Register is underway. The outcome of the review will be reported to the CWB Commission later this year. South Lanarkshire Council has satisfactory arrangements for the preparation and publication of Statutory performance information (SPIs) 130. The Accounts Commission’s 2021 Statutory Performance Direction defines the performance information that councils must publish. The Commission does not prescribe how councils should report this information but expects them to provide the public with fair, balanced, and engaging performance information. 131. Our work in 2023/24 has confirmed that the Council’s performance reporting arrangements were satisfactory. The Council’s website covers all the requirements set out in the SPI direction issued by the Accounts Commission. The Council continues to improve its public reporting of performance information through clear alignment of performance information with its key strategic outcomes. 132. Alongside overarching and service level performance reporting the Council publishes Annual Performance Spotlights, 'bite-sized' performance information, per Connect Outcome which includes: • a case study to illustrate how the Council is working towards achieving outcomes 55
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6. Use of resources to improve outcomes | 34 • infographics giving a visual presentation of performance; identifying whether or not performance is improving • links to additional more detailed information. 133. To continue to enhance the performance reporting on the website the Council could include information on the reasons for year on year changes in performance and where performance is below target, details of measures to address this. 134. The performance information included within the Annual Performance Spotlights shows that for a number of indicators, year on year, the Council is performing above the targets set. Whilst this is a positive result; there is an opportunity for the Council to review the target benchmarks to ensure that they remain challenging and support continuous improvement. 56
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Appendix 1. Action plan 2023/24 | 35 Appendix 1. Action plan 2023/24 2023/24 recommendations Issue/risk Recommendation Agreed management action/timing 1. Council house valuations The approach taken by the Council draws on elements of Guidance for Valuers issued in 2016, however only one beacon property is used as a basis for the full council house stock held by the Council. Risk: There is a risk that the council house stock is not valued in line with applicable guidance. The valuer should detail the valuation process followed, assumptions that have been made and supporting information so that the entire process, sources of information and assumptions provide suitable assurances to management. In addition the valuer should review the current valuation process against applicable guidance to assure themselves that the valuation process remains fit for purpose. Paragraph 19 Accepted The Head of Property has detailed the process followed and has confirmed that the valuation method used for council house valuations follows the Beacon method. This valuation process matches the applicable guidance and therefore the valuation process is fit for purpose. Responsible officer: Head of Property 2. IFRS 16 Implementation From 1 April 2024, a new International Financial Reporting Standard, IFRS 16, will come into effect for Local Authorities. The Council is not yet in a position to quantify the likely impact of IFRS 16. Risk: there is a risk that the Council do not progress the implementation of IFRS 16 in line with the project plan. The Council should review the current timetable to ensure that key dates are being achieved to allow implementation in line with the project plan. Paragraph 32 Accepted The Council is aware of the requirements of IFRS 16 and is working towards the implementation date of end March 2025. Responsible officer: Head of Finance Agreed date: End March 2025 3. Statutory override The statutory override relating to valuation of The Council should proactively work with CIPFA and the wider local government sector to arrive Accepted 57
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Appendix 1. Action plan 2023/24 | 36 Issue/risk Recommendation Agreed management action/timing infrastructure assets is due to end for the 2024/25 financial statements. Risk: A permanent solution has not yet been agreed and CIPFA believe that this will continue be an area of enhanced scrutiny for local government auditors. at appropriate solution for the implementation of accounting for infrastructure assets. Paragraph 36 The Council is keeping a watching brief on national discussion on this topic and will continue to engage with CIPFA and other bodies where possible, to arrive at a suitable solution. Responsible officer: Head of Finance Agreed date: End March 2025 4. Reserves strategy and financial resilience In our 2022/23 Annual Audit Report we recommended that the Council should enhance the level of monitoring around financial resilience indicators and risks. Risk – This Council is preparing a detailed report on resilience to the Risk and Audit Scrutiny Committee in September 2024. The Council should ensure that there is a clear risk assessment and scrutiny of the level of reserves held and how this supports financial resilience and sustainability over the medium term. Paragraph 93 Accepted The Council has presented a report to the Risk and Audit Scrutiny Forum detailing the Council’s Resilience Framework. A further report on the Council’s Reserves position will be presented to the Finance and Corporate Resources Committee in the Autumn. This will detail the level of reserves held by the council, their purpose, and will note their role in financial resilience. Responsible officer: Head of Finance Agreed date: End November 2024 2023/24 recommendations from the BV thematic report Issue/risk Recommendation Agreed management action/timing 5. Corporate level workforce strategy supported by clear reporting on actions The Council does not have a corporate level workforce The Council should develop a corporate level workforce strategy to demonstrate a clear link to the Connect Council Plan 2022-27. The Council should build on the Management response The Council will complete an updated Workforce Strategy for 2025-2027 with accompanying workforce plans to align to the Council 58
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Appendix 1. Action plan 2023/24 | 37 Issue/risk Recommendation Agreed management action/timing strategy. The Council level workforce plan does not include or refer to workforce data, such as the age profile of its workforce, the number of casual staff used or indicators of staff wellbeing. Nor does it include any information on what it is currently doing to address any workforce capacity issues or how it plans to develop its future workforce. Risk – There is a risk that the Council is not using workforce data to inform workforce planning that links to its strategic priorities. workforce planning to date and implement a more strategic, data-driven approach to workforce planning, with SMART action plans, setting out how Council level and service level actions are being progressed. Plan Connect Business Planning Cycle. The Council will create a strategic workforce plan for 2025– 2027 to align with the Council plan and will also create workforce plans for this period and reference the data analysis and findings more clearly to show both the high-level actions and specific resource actions. Responsible officer Head of Personnel Services Actioned by 31 March 2025 6. Digital technology The Council is at an early stage in establishing links between workforce planning and digital technology Risk – There is a risk that the workforce planning is not fully utilising the benefits of digital technology. The Council should develop measures to capture and monitor the impact of digital technology on workforce productivity and service outcomes. It should also set out how it expects digital technology to shape its future workforce. Management response The Council will include links in the 2025-2027 workforce strategy and plans to digital technology. The Council will include measures to capture and monitor the impact of digital technology. Responsible officer Head of Personnel Services Head of IT Services Actioned by 31 March 2025 7. Digital Exclusion Digital inclusion is one of 21 principles set out in the Digital Strategy 2022-27 and is also one of eight themes. The Council is progressing a number of initiatives to support digital inclusion. Risk – There is a risk that without a SMART action plan to monitor progress the Council cannot demonstrate it The Council should develop an action plan to allow it to monitor progress in addressing digital exclusion in its workforce and for its citizens. Management response The Council will develop an action plan within its workforce plans that will detail the next steps in progressing digital inclusion in its workforce. For its citizens, this will be captured within the digital strategy action plans. Responsible officer 59
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Appendix 1. Action plan 2023/24 | 38 Issue/risk Recommendation Agreed management action/timing is achieving the principles set out in the Digital Strategy. Head of Personnel Services Head of IT Services Actioned by 31 March 2025 Follow-up of prior year recommendations Issue/risk Recommendation and Agreed Action Progress 1. Capital programme At the June 2023 Executive Committee, the general services outturn capital programme spend was reported as £65.736 million for 2022/23, against original budget representing a slippage of 20 per cent. The housing capital programme outturn was reported as £60.695 million for 2022/23, against the revised budget of £66.361 million. This represents slippage of nine per cent against the revised budget Risk – Delayed investment can lead to inefficiencies in the existing estate with adverse impact on service delivery. The Council should review the underlying reasons for recurring slippage within the capital programmes to identify opportunities to review project management and budget setting procedures in place. Management Response: The Council has reviewed the reasons for slippage in year and we report movements to members on a monthly basis. We are satisfied that there has been no significant risk realised from this slippage, however, we will work with the officers delivering projects to set realistic budgets for capital expenditure. Responsible officer: Head of Finance Agreed date: 31 March 2024 Implemented In February 2024, the Council approved the 2024/2025 capital programme based on achievable spend levels. Any slippage experienced and the reasons for it, will continue to be subject to review with any financial and operational impact advised to members as appropriate. 2. Asset valuation The Council adopt a five year rolling programme for the valuation of other land and buildings. The valuation of these assets for 2022/23 has taken place as at 1 April 2022. The Council should consider their approach to the valuation of land and buildings to ensure this is appropriate to assess whether asset values have moved materially in year and as at 31 March. The valuer should also issue a formal year end valuation report to provide the required Implemented The Council’s valuation team produced a formal year end valuation report detailing the valuation duties in line with RICs professional standards. The Council assessed current conditions and has 60
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Appendix 1. Action plan 2023/24 | 39 Issue/risk Recommendation and Agreed Action Progress Although the Council were able to provide the required information and supporting documentation to support the valuations undertaken during the year, the valuer does not produce a formal year end valuation report. management assurances enabling greater oversite and scrutiny by management of the suitability of the key assumptions and approach adopted by the valuer. Management Response: The Council’s valuation team will produce a formal year end valuation report. The council has assessed in 2022/23 that the asset values have not materially moved in year and will continue to consider valuation dates. Responsible officer: Head of Property / Head of Finance Agreed date: 31 March 2024 ascertained that the asset values in the balance sheet are not materially misstated. 3. Payroll reconciliations The Council’s internal guidance requires that all payroll must be reconciled at least once a month. Payroll reconciliations were not carried out on a regular basis during 2022/23. The Council should ensure payroll reconciliations are undertaken in line with internal guidance. Management Response: The payroll reconciliations are up to date for 2023/24 Responsible officer: Head of Finance Agreed date: October 2023 Implemented All payroll reconciliations for 2023/2024 are complete. 4. Transformational change The Council should continue to identify where it can progress transformational change in how its services are delivered. This should identify where recurring savings, rather than temporary solutions, can be The Council should continue to identify where it can progress transformational change in how services are delivered to address the longer-term financial pressures it faces. Management Response: The Council has a programme of reviews that have and will Ongoing The Council has a programme of cross-cutting reviews as well as individual Resource Reviews which will assist in bridging the budget gap moving forward. 61
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Appendix 1. Action plan 2023/24 | 40 Issue/risk Recommendation and Agreed Action Progress made together with proposals to reduce costs. continue to contribute towards, addressing financial pressures. Responsible officer: Executive Director, Finance and Corporate Resources Agreed date: Ongoing 5. Financial resilience Given the scale of the challenges there is an opportunity to enhance its focus on financial resilience, including greater emphasis on its reserves position; clear financial resilience indicators and measures; and alignment to risks ensuring there is a clear financial strategy to support a resilient council. Given the scale of the financial challenges facing the Council it should ensure that in developing its financial strategy and annual budget there is a clear consideration around its financial resilience, including the level of reserves to allow the Council to meet unforeseen costs and pressures. The Council should also enhance the level of monitoring around financial resilience indicators and risks. Management Response: Through consideration of level of reserves, specific resilience indicators, and financial planning and management, we already understand and mitigate as much as we can against unforeseen costs and pressures. We will look to further develop the Council’s approach to monitoring and reporting on resilience. Responsible officer: Head of Finance Agreed date: 31 March 2024 Ongoing A paper detailing the Council’s consideration of its financial resilience is to be presented to the September 2024 meeting of the Risk and Audit Scrutiny Committee. 6. Fairer Scotland Assessment The Fairer Scotland Duty came into force from 1 April The Council should continue its work to embed its Fairer Scotland duties by completing and referencing Fairer Implemented The Council’s monitoring officer issued guidance to all Resources and Admin staff 62
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Appendix 1. Action plan 2023/24 | 41 Issue/risk Recommendation and Agreed Action Progress 2018. It places a legal responsibility on local authorities to actively consider how they can reduce inequalities of outcome caused by socio- economic disadvantage, when making strategic decisions. Risk – There is a risk that the Council is not fully complying with the Fairer Scotland Duty. Scotland assessments in council papers, strategies and plans. It should also check all assessments are listed online. Management Response: We will continue to embed Fairer Scotland duties, and remind all officers on the Council’s Fairer Scotland Duties and the use of Fairer Scotland Assessments by reissuing the guidance and arranging further training as appropriate. We will ensure that reference to Fairer Scotland assessments are made in committee reports (where carried out). All Fairer Scotland Assessments will be posted online. Responsible Officer: Head of Administration and Legal Services Date: 31 December 2023 to publicise the duty and to make sure that it is followed. Fairer Scotland Assessments are published on the Council’s website. 7. Ongoing support for Elected Members In May 2022, the Council put in place a comprehensive induction programme. Committee members feel overwhelmed by the volume, complexity and technical nature of some committee papers. Risk – There is a risk that the current suite of training is not tailored to the individual needs of Elected members. Officers should continue to engage with elected members to support their training and development requirements, including specific training to build confidence and allow scrutiny. Management Response: The programme of engagement with members on training requirements will continue. The annual needs assessments will be carried out to inform ongoing training plans. Responsible Officer: Head of Personnel Date: Implemented An annual needs assessment was carried out in March 2024 with a catalogue of training sessions being compiled for members to choose from. 63
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Appendix 1. Action plan 2023/24 | 42 Issue/risk Recommendation and Agreed Action Progress 31 March 2024 64
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Appendix 2. Summary of uncorrected misstatements | 43 Appendix 2. Summary of uncorrected misstatements We report all uncorrected misstatements in the annual report and accounts that are individually greater than our reporting threshold. The table below summarises uncorrected misstatements that were noted during our audit testing and were not corrected in the financial statements. Cumulatively these errors are below our performance materiality level as explained in Exhibit 1. We are satisfied that these errors do not have a material impact on the financial statements. Narrative Account areas Comprehensive Income and Expenditure Statement Balance Sheet Accounting Misstatements Dr Cr Dr Cr £0 £0 £0 £0 Narrative Disclosure Misstatements 65
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Appendix 2. Summary of uncorrected misstatements | 44 South Lanarkshire Council Proposed 2023/24 Annual Audit Report Audit Scotland’s published material is available for download on the website in a number of formats. For information on our accessibility principles, please visit: www.audit-scotland.gov.uk/accessibility For the latest news follow us on social media or subscribe to our email alerts. Audit Scotland, 4th Floor, 102 West Port, Edinburgh EH3 9DN Phone: 0131 625 1500 Email: info@audit-scotland.gov.uk www.audit-scotland.gov.uk AS.4.0 66
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Report Agenda Item Report to: Risk and Audit Scrutiny Committee Date of Meeting: 24 September 2024 Report by: Executive Director (Finance and Corporate Resources) Subject: Audited Annual Accounts 2023/2024 1. Purpose of Report 1.1. The purpose of the report is to: [purpose] advise members of the requirement to approve the Annual Accounts 2023/2024 for signature, both Council and related Charitable Trusts [1purpose] 2. Recommendation(s) 2.1. The Committee is asked to approve the following recommendation(s): [recs] (1) that it be noted that the South Lanarkshire Council Accounts 2023/2024 and the Charitable Accounts have received a clean audit certificate; (2) that the audited South Lanarkshire Council Accounts 2023/2024 and the Charitable Trusts’ Accounts be approved for signature; (3) that it be noted that the External Auditor’s Report will be referred to South Lanarkshire Council for information; and (4) that it be noted that the Audited Accounts 2023/2024 will be available on the Council’s website (section 3.6). [1recs] 3. Background 3.1. Following the publication of The Local Authority Accounts (Scotland) Regulations 2014, the members of the Committee are required to meet to consider approval of the Audited Accounts for signature. 3.2. The submission date for local government is generally set to be consistent with the date specified in accounts regulations by which a body is required to approve its audited annual accounts. For 2023/2024, the submission date has returned to the pre pandemic date of 30 September. 3.3. The members are also required to have regard to any report made or advice provided on the Annual Accounts by the External Auditor. 3.4. The External Auditor’s Report was included as an earlier report to this meeting and will be referred to a meeting of South Lanarkshire Council for information. 3.5. Copies of the (unsigned) Audited Accounts 2023/2024, for both the Council and Related Charities, have been emailed to members of this Committee under separate cover. Copies of the Council’s Audited Accounts, the Charitable Trusts’ Audited Accounts and the External Auditor’s Report will be issued to all Elected Members for their information. 5 67
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3.6. Once signed, the Audited Accounts will be available to the general public on the Council’s website and we can arrange to send a copy out to anyone who requests them. 4. Audited Accounts – South Lanarkshire Council 4.1. As noted in section 3.1, members of the Committee are required to approve the Audited Accounts for signature. A copy of the Audited Accounts for 2023/2024 are being emailed to Members of this Committee under separate cover. 4.2. As detailed in an earlier report to this Committee, at the time of writing, the Council’s External Auditors, Audit Scotland, are in the process of completing the audit which extends across the 2023/2024 Accounts and related matters. 4.3. The report notes that, at the time of writing, the External Auditor has provided a clear Audit Certificate with no qualifications on the Council’s Accounts. 4.4. The External Auditor’s Report also includes an agreed action plan at Appendix 1. Officers of the Council will work to ensure that these actions are implemented during 2024/2025. 5. Audited Accounts – Charitable Trusts 5.1. Members of the Committee are required to approve the Charitable Trusts’ Audited Accounts for signature. A copy of the Audited Accounts for 2023/2024 have been emailed to Members of this Committee under separate cover. 5.2. The External Auditor also reports on the 2 Charitable Trusts managed by the Council: South Lanarkshire Council Educational Trust and South Lanarkshire Council Charitable Trust. 5.3. The External Auditor’s report shows a clear audit certificate for each Trust. 6. Employee Implications 6.1. There are no direct employee implications from this report. 7. Financial Implications 7.1. There are no direct financial implications arising from this report. The Annual Accounts received a clear audit certificate. Any changes identified in the External Auditor’s report have been made and the impact on the Council’s outturn reflected in the Audited Accounts. 8. Climate Change, Sustainability and Environmental Implications 8.1. There are no implications for climate change, sustainability or the environment in terms of the information contained in this report. 9. Other Implications 9.1. The main risk associated with the Council and Charitable Annual Accounts is a qualified audit report. The risk has been assessed as low due to the detailed preparation in relation to the year end process, technical training undertaken by key finance staff and the roll out of this to Resource finance staff as appropriate. Finance and Resources work together to achieve key deadlines and actions set from timetables. 68
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10. Equality Impact Assessment and Consultation Arrangements 10.1. This report does not introduce a new policy, function or strategy or recommend a change to an existing policy, function or strategy and, therefore, no impact assessment is required. 10.2. There is also no requirement to undertake any consultation in terms of the information contained in this report. Jackie Taylor Executive Director (Finance and Corporate Resources) 10 September 2024 Link(s) to Council Values/Priorities/Outcomes Accountable, effective, efficient and transparent Previous References None List of Background Papers South Lanarkshire Council Annual Accounts 2023/2024 and External Auditor’s Report. Charitable Trusts’ Annual Accounts 2023/2024 and External Auditor’s Report. Financial Ledger 2023/2024 and associated working papers. Contact for Further Information If you would like to inspect the background papers or want further information, please contact:- Lorraine O'Hagan, Head of Finance (Strategy) Ext: 2601 (Tel: 01698 452601) E-mail: lorraine.o’hagan@southlanarkshire.gov.uk 69
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Report Agenda Item Report to: Risk and Audit Scrutiny Committee Date of Meeting: 24 September 2024 Report by: Executive Director (Finance and Corporate Resources) Subject: 2022 National Fraud Initiative Exercise 1. Purpose of Report 1.1. The purpose of the report is to:- advise the Risk and Audit Scrutiny Committee (RASC) of the outcome of investigations undertaken as part of the 2022 National Fraud Initiative (NFI) exercise provide a summary of Audit Scotland’s report – The National Fraud Initiative in Scotland 2022 (published August 2024), highlighting key points specifically in relation to South Lanarkshire Council and any further action required 2. Recommendation(s) 2.1. The Committee is asked to approve the following recommendations:- (1) that South Lanarkshire Council’s outcomes from the 2022 NFI exercise are noted; (2) that the summary of Audit Scotland’s 2022 NFI Exercise report is noted; and (3) that the action in Appendix 8 is agreed. 3. Background 3.1. The NFI is a counter fraud exercise, which cross matches data from councils and other public bodies. These bodies then investigate the matches. The Cabinet Office is responsible for the UK-wide delivery of the NFI exercise with Audit Scotland co- ordinating the exercise in Scotland. 3.2. South Lanarkshire Council (SLC) has taken part in NFI exercises since 2004/2005. These exercises are undertaken every 2 years and include data from benefits, payroll, creditors and blue badge holders along with a match of the electoral register to council tax records to detect where single person discount (SPD) has been claimed despite there being more than one person over 18 in the household. In addition to being matched to other benefits and payroll data, records are also matched to DWP deceased persons’ records. 3.3. Internal Audit co-ordinates the delivery of the NFI exercise within SLC; however, each Resource is responsible for investigating matches relevant to them. Internal Audit reports progress to the Council’s External Auditors throughout the year. 4. 2022 NFI Exercise Results 4.1. There were 9 match areas covered in the current NFI exercise. These are listed in Appendix 1. 6 71
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4.2. In June 2023, the RASC were advised that there were 26,026 matches across these match areas. Following further data refreshes and a subsequent release of additional matches1, the final number of matches for SLC from the 2022 NFI Exercise was 28,090 (see Appendix 2). 4.3. From the list of matches received, a target number of investigations is determined, on a risk basis, and passed to Resources to investigate. There is no obligation to investigate every match but the decision to restrict investigations must be risk based. The NFI Website provides risk scoring against matches which allows Resources to prioritise high risk matches for investigation. Internal Audit also liaised with External Audit to ensure that they were satisfied with the approach that had been taken. 4.4. It was originally intended that the Council would investigate 3,151 matches plus 7,209 SPD matches (total 10,360), however, as additional matches were received, these targets were revised. This resulted in an amended target of 10,676 which was agreed with External Audit (see Appendix 3). A further 74 matches were investigated out-with this target number which included responding to enquiries from other authorities/organisations. 4.5. Separate to the NFI data-matching exercise, Benefits and Revenue use an external contractor, Datatank, to undertake rolling reviews around SPD eligibility. In previous exercises, reliance was placed on the ongoing work of Datatank given that there was a significant duplication with the matches being generated by the NFI exercise. During the 2022 exercise, however, a gap in this contract (that has now been addressed) resulted in a higher number of matches being identified by the NFI exercise that had not been captured by a Datatank review. This has resulted in higher SPD NFI outcomes than the previous exercise. 4.6. As the Housing Benefit Fraud team has transferred to the DWP Fraud and Error Service (FES), although initial NFI investigations are undertaken by the Council, if this indicates a potential benefit fraud, the case is passed to FES. Matches are closed on the NFI website as “passed to DWP”. Any outcome, after investigation, is treated in the same way as any other overpayment/fraud and reflected within the fraud statistics reported to RASC on a six-monthly basis. 4.7. A total of 317 recoverable fraud and errors have been detected through the current NFI exercise, with an (actual) amount to be recovered of £107,116: Area No of fraud/errors Amount Housing Benefit 3 7,514 CTRS 21 15,829 Creditors 6 1,182 1 In relation to Council Tax Reduction Scheme, Housing Tenants and Council Tax Single Person Discount. One further match category within “Small Business Bonus Scheme” was issued in May 2024 and will be reported in the 2024 NFI exercise. 72
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Area No of fraud/errors Amount SPD 256 82,591 Blue Badges 31 0 TOTAL 317 107,116 A more detailed summary of outcomes is included at Appendix 3. 4.8. Overall outcomes reduced by 32.2% from the 2020 to the 2022 Exercise. A comparison of the 2022 exercise outcomes to that of the previous exercise in 2020 is included at Appendix 4. 4.9. The next NFI exercise is due to commence in Autumn 2024. It is anticipated that 2024 matches will be issued around January 2025. The timetable for this exercise is shown at Appendix 5. Internal Audit are liaising with Services around the provision of data and Executive Directors have been advised that the 2024 Exercise is commencing. 5. Audit Scotland NFI 2022 Report 5.1. At the conclusion of each main NFI exercise, Audit Scotland publish an overview report that sets out NFI outcomes across Scotland, draws conclusions from these results and makes recommendations for consideration ahead of participation in the next NFI exercise. A copy of the full Audit Scotland report can be found here. 5.2. 110 public sector bodies in Scotland participated in the 2022 NFI exercise, submitting data and following up on matches. The Scottish Government also submitted data for another 17 central government bodies who share their systems for payroll and/or creditors. Many councils also submit payroll data for their Arm’s-Length External Organisations. Across the UK, 1,100 bodies participated in the 2022 Exercise. 5.3. The 2022 Exercise matched data from His Majesty’s Revenue and Customs (HMRC) using powers under the Digital Economy Act (2017) for the first time. Non-Domestic Rates Small Business Bonus Scheme (NDR SBBS) matching was postponed due to the national NDR revaluation exercise taking place in 2023. This will now be included in the 2024 Exercise. 5.4. Audit Scotland have reported that the overall outcomes from the 2022 NFI exercise have increased from £14.9m in 2020 to £21.5m in 2022. Most outcomes (fraud, overpayment or error) related to council tax, pensions and housing benefit. The figure reported by Audit Scotland consists of three elements; actual savings identified by the NFI Exercise; an estimated forward saving and an estimated notional loss. The £21.5m reported by Audit Scotland is broken down as follows: Outcome Category Description Amount (£m) actual actual overpayment and additional income identified by the Exercise 5.714 forward estimates estimated value of any future losses that may have been incurred without intervention as a result of an NFI match 8.924 notional estimates estimated value of loss from a fraud or error detected because of an NFI match, in instances where no monetary value can be recovered 6.839 TOTAL 21.477 Appendix 6 sets out the estimation bases for each category. 73
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5.5. Audit Scotland attributed an increase in outcomes reported for the 2022 Exercise partly to an improvement in recording of results as bodies continued to recover from Covid- 19 but, also, to changes in estimation methodologies. The report noted that it was not possible to extrapolate from these figures that underlying levels of fraud had increased. 5.6. A detailed analysis of the outcomes across Scotland are set out in Audit Scotland’s report and are summarised across the various data areas in the table below: 5.7. Audit Scotland reported that although governance and follow-up arrangements remain sound for most of the bodies in Scotland that participated in the 2022 Exercise, several had struggled with delivery and there remained scope for improvement. The Auditor ranked the delivery as ‘satisfactory’, ‘mostly adequate’ and ‘unsatisfactory’ and reported that good delivery required leadership, knowledge and resources. South Lanarkshire were ranked by Audit Scotland as ‘satisfactory’ in managing the 2022 Exercise. 5.8. Within the report, Audit Scotland made 3 recommendations for participating bodies:- ensure that an appropriate level of resource is available to deliver NFI follow-up activities in an efficient and effective manner, in line with local priorities use the NFI Self-Appraisal Checklist as part of planning for the 2024/25 exercise put in place arrangements for monitoring follow-up activity, and where it is necessary, seek to understand reasons for low or nil outcomes. 5.9. All three recommendations are acknowledged by SLC and had already been implemented. A copy of the completed self-appraisal checklist for the 2024 Exercise is attached at Appendix 7. Part A is designed to assist audit committee members when reviewing, seeking assurance over or challenging the effectiveness of their 2 This is the notional rather than actual loss attributed to the fraudulent misuse of blue badges. Scotland Data Number Outcome (£m) Council Tax SPD 3,419 4.487 Pensions Not disclosed 5.612 Concessionary Travel 1,075 1.673 Housing Benefits Not disclosed 2.197 Blue Badges 5,140 3.3412 Housing Tenancy 11 0.876 Housing Waiting Lists 280 1.199 Creditors 146 0.751 Council Tax Reduction 395 0.916 Payroll 12 0.101 Other (including NRD previous outcomes not reported) Not disclosed 0.324 TOTAL 21.477 74
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body’s participation in the NFI. Part B is for employees involved in planning and managing the NFI exercise. In addition, Audit Scotland’s report sets out suggestions for improving efficiencies and effectiveness and the associated checklist for this is attached at Appendix 8. 6. Employee Implications 6.1. One Audit Assistant (with overview and management from an Audit Adviser) has been responsible for co-ordinating the SLC exercise which has included facilitating the issue and receipt of information requests from other public bodies in relation to NFI cases, assisting with the recording of some or all Creditor, Procurement, Grants and Single Person Discount investigation outcomes and reporting on employee benefit fraud cases if required. In addition to the time required by Resources to investigate matches, a total of 108 days was used by Internal Audit in 2023/2024 to undertake the tasks listed. 7. Financial Implications 7.1 Other than employee time, there is no direct cost associated with participating in the NFI exercise. 8. Climate Change, Sustainability and Environmental Implications 8.1. There are no implications for climate change, sustainability or the environment in terms of the information contained in this report. 9. Other Implications 9.1. Fraud Risk is recognised as one of the top risks facing SLC. This risk is significant as it can adversely affect the delivery of Council objectives and erode valuable resources. It is, therefore, important that the risk of fraud is soundly managed. 9.2. The NFI exercise is a valuable counter fraud exercise which has continued to identify fraud and error within the Council. As well as the quantifiable financial return from participating in the Exercise, it is also recognised that the Council’s participation in the Exercise will continue to act as a deterrent to fraud. 9.3. When a fraud or overpayment occurs, steps will usually be taken to recover the loss. Services are expected to examine why the loss occurred and demonstrate a change in their processes and procedures accordingly. 9.4. There are no sustainability issues associated with the content of this report. 10. Equality Impact Assessment and Consultation Arrangements 10.1. As the risks associated with the NFI are carried by the Cabinet Office and the Council is bound by statute to participate, there is no need to undertake a separate equality impact assessment. 10.2. SLC Employees and South Lanarkshire residents are informed of the commencement of the NFI exercise through a variety of sources. There is no requirement to undertake any further consultation in terms of the content of this report. Jackie Taylor Executive Director Finance and Corporate Resources 6 September 2024 75
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Link(s) to Council Values/Priorities/Outcomes Accountable, effective, efficient and transparent Previous References 2022 National Fraud Initiative Exercise, RASC, 27 June 2023 List of Background Papers NFI – The National Fraud Initiative in Scotland 2022 (Audit Scotland, August 2024) Contact for Further Information If you would like to inspect the background papers or want further information, please contact:- Yvonne Douglas, Audit and Compliance Manager Ext: 2618 (Tel: 01698 452618) E-mail: yvonne.douglas@southlanarkshire.gov.uk 76
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Appendix 1 List of “matched” areas in the 2022 NFI Exercise Match area Match between Purpose of Match/Fraud risk Housing Benefits (HB) HB to Student Loans To identify individuals claiming benefits, whose student loan eligibility results in them being ineligible for those benefits. HB to HB (within SLC and between other authorities) To identify an individual that is claiming housing benefit from one or more local authority at the same time. HB to Housing Tenants (within SLC and between other authorities) To identify possible tenancy fraud and/or housing benefit fraud where an individual appears to be resident at two different addresses. HB to taxi drivers (within SLC and between bodies) To identify where housing benefit claimants have failed to declare income that may remove entitlement to benefit or reduce benefit payable. HB to CTRS To identify anyone claiming housing benefit and council tax reduction from one or more local authority at the same time. HB to DWP Deceased To identify where a claimant has passed away and who was in receipt of DWP benefits which would not have stopped HB to Waiting List To identify where an individual appears to be resident at two different addresses as the address on the waiting list application is different to the address on the benefit system Council Tax Reduction Scheme (CTRS) CTRS to Payroll (within SLC and between other bodies) To identify where CTRS claimants have failed to declare income that may remove entitlement to benefit or reduce benefit payable. CTRS to pensions To identify where CTRS claimants have failed to declare pension income that might remove entitlement to benefit or reduce benefit payable. CTRS to CTRS (within SLC and between other authorities) To identify an individual claiming CTRS from one or more local authority. CTRS to HB (within SLC and between other authorities) To identify where an individual is in receipt of council tax reduction and housing benefit from one or more local authority simultaneously that may remove or reduce entitlement to the reduction. CTRS to Housing Tenants (within SLC and between other authorities) To identify possible cases of tenancy fraud and/or CTRS fraud where an individual appears to be resident at two different addresses. CTRS to taxi drivers(within SLC and between bodies) To identify where CTRS claimants have failed to declare income that may remove entitlement to benefit or reduce benefit payable. CTR Scheme to DWP deceased To identify where a person has passed away but may be in receipt of CTR after the date of death 77
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CTR Scheme to HMRC To identify where CTRS claimants have been matched to household income and property owned. Payroll Payroll to payroll (within SLC and between bodies) To identify individuals who may be committing employment fraud by failing to work their contracted hours because they are employed elsewhere or are taking long-term sickness absence from one employer and working for another employer at the same time. Payroll to Creditors To identify employees who are also creditors where there may be a conflict of interests or corruption. Payroll to Pensions To identify employees who have gone back into employment after drawing a pension that could result in an abatement of pension. Housing Tenants (HT) HT (within SLC and between bodies) To identify where an individual appears to be resident at two different addresses suggesting possible cases of subletting or dual tenancies. HT to HB To identify possible cases of tenancy fraud and/or housing benefit fraud, where an individual appears to be resident at two different addresses. HT to CTR Scheme To identify possible causes of tenancy fraud and/or incorrect claims for CTR where an individual appears to be resident at two different addresses. HT to State Benefits To identify possible cases of tenancy fraud against the organisation i.e. where an individual appears to be resident at two different addresses. HT to DWP Deceased To Identify where the tenant has died, but the DWP has not been informed. HT to HMRC To identify where a local authority tenant also owns a property and may not have been given a tenancy. Waiting Lists Housing Waiting Lists to Housing Tenants (within SLC and between bodies) To identify where an individual appears to have registered on the waiting list using a different address to the one on the housing rents system suggesting possible undisclosed changes in circumstances or that false information has been provided. Housing Waiting List to Housing Waiting List (within SLC and between bodies) To identify where an individual appears to have registered on the waiting list using two different addresses. Housing Waiting Lists to Housing Benefit Claimants (within SLC and between bodies) To identify where an individual appears to have registered on the waiting list using a different address to the one on the housing benefit system. Waiting List to DWP deceased To identify an applicant who has died but is still shown on the waiting list. Blue Badges Blue badge to blue badge To identify individuals who hold more than one Blue Badge. Blue badge to DWP deceased person To identify cases where a permit holder has died, but the local authority may not have been notified. Procurement Procurement – payroll to Companies House (Director) To identify potential undeclared interests that have given a pecuniary advantage. Creditors Duplicate creditors by Duplicate creditor payments and details To identify instances where the same supplier has been recorded against more than one reference number on the system thus increasing the potential for creditors to obscure fraudulent activity. 78
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To identify possible duplicate payments. VAT overpaid This test identifies instances where VAT may have been overpaid. Council Tax Single Person Discount Council Tax to Electoral register To identify where Single Persons Discount is being claimed and there is more than one person aged 18 or over registered within the property on the Electoral Register. Single Person discount award to other government bodies To identify individuals who have declared they are living alone but have not declared they are living with a partner or non-dependant in the household. Single Person discount to HMRC To identify individuals in receipt of SPD and who may have another person in the property based on HMRC information SBBS [Outcomes to be reported in 2024 Exercise] Business Rates to Business Rates, same bank account, company name (within SLC and between bodies) To identify those claiming multiple Small Business Bonus Scheme grants, those fraudulently in receipt of SBBS. New match areas are highlighted in bold. 79
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Appendix 2 Update to matches previously reported Area/Matches Matches Reported to RASC June 2023 Additional Matches Final Number of Matches Housing Benefits 135 2 137 CTRS 1,272 591 1,863 Payroll 159 1 160 Housing Tenants 488 1,308 1,796 Waiting List 1,257 11 1,268 Blue Badge 1,339 0 1,339 Creditors 4,488 0 4,488 Procurement 202 0 202 Single Person Discount 16,686 62 16,748 SBBS * 0 n/a n/a National Entitlement Cards 0 89 89 Overall matches 26,026 2,064 28,090 * To be reported in 2024 exercise 80
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Appendix 3 Target Investigations and Actual Outcomes Area Total Original Target Additional Target Revised Target Cleared Fraud and Errors Value £ Housing Benefits 137 128 2 130 130 3 7,514 CTRS 1,863 265 147 412 412 21 15,829 Payroll 160 143 1 144 144 0 0 Housing Tenants 1,796 377 70 447 447 0 0 Waiting List 1,268 272 11 283 283 0 0 Blue Badge 1,339 1,339 0 1,339 1,339 31 0 Creditor 4,488 425 0 425 425 6 1,182 Procurement 202 202 0 202 202 0 0 Single Persons Discount 16,748 7,209 62 7,271 7,271 256 82,591 SBBS n/a n/a n/a n/a n/a n/a n/a Total 28,001 10,360 293 10,653 10,653 317 107,116 National Entitlement Cards (note 1) 89 23 0 23 23 0 0 Revised Total 28,090 10,383 293 10,676 10,676 317 107,116 Note 1: A further match was released in January 2024 in relation to National Entitlement Cards to DWP deceased persons. This was co- ordinated by Dundee City Council who manage the scheme. 81
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Appendix 4 Comparison of Outcomes to last NFI Exercise Area Value (2022) £ Value (2020) £ Housing Benefits 7,514 18,041 CTRS 15,829 6,382 Creditors 1,182 5,676 Single Persons Discount (note 1) 82,591 30,247 Grants (SBGF and RHLG) n/a 25,000 SBBS n/a 72,658 Total 107,116 158,004 Blue Badges (note 2) 20,150 247,250 Note 1: During the 2022 exercise, however, a gap in service delivery under this contract, resulted in a higher number of matches being identified by the NFI exercise that had not previously been captured by a Datatank review. This has resulted in higher SPD outcomes than the previous exercise. Note 2: This represents a notional loss of income of £650/blue badge (attributed by the Cabinet Office) due to fraud. A significant reduction in an admin backlog reduced outcomes in this area in 2022 compared to 2020. 82
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Appendix 5 Timetable for 2024 NFI Exercise Date Description April 2024 Draft Specification will be available for extracts/uploads July 2024 SROs will be sent email requesting data with a link to the final specifications June/July 24 The 2024/25 area within the website will be available to: • Update user details /check for access • Check the expected datasets list is up to date and advise the NFI team of any changes • Review the Security Compliance • Review and complete the 2024/25 Privacy Notice declaration Aug 24 (and as and when future changes occur) Key Contacts should ensure the person responsible for uploading data has a user account on the web application The end of September is also the date by which time the Privacy Notice declaration should be completed. End Sept 24 Key contacts should ensure that data is extracted from systems as at the date stated on the data specification, and quality is checked, prior to upload. Ensure all fields are recorded even if blank. Begin. Oct. 24 Data should be uploaded promptly after extraction via the 2024/25 Data File Upload tool. End Oct. 24 This will be the cut off for the dataset to make it into the main 2024/25 release. Check published timetable for the exact cut-off date. Late data may miss release and occur a fee. Dec 24 (and as when future changes occur) Key contacts should ensure accounts are set up on the web application for those in their organisation responsible for reviewing matches. 83
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Appendix 6 Summary of methodologies in calculations applied to NFI datasets Data Match Basis of calculation of forward savings and estimated outcomes Council Tax Single Person Discount Forward savings – Annual value of the discount cancelled multiplied by two years. Council Tax Reduction Scheme Forward savings – Weekly change in council tax discount multiplied by 33 weeks (increased from 21 weeks in 2020/21). Housing Benefit Forward savings – Weekly benefit reduction multiplied by 21 weeks. Pensions Forward savings – Annual pension multiplied by the number of years until the pensioner would have reached the age of 85. Housing Tenancy Notional outcomes – £78,300 per property recovered, based on average four–year fraudulent tenancy. Includes: temporary accommodation for genuine applicants; legal costs to recover property; re–let cost; and rent foregone during the void period between tenancies (reduced from £93,000 in 2020/21). Housing Waiting Lists Notional outcomes – £4,283 for each case based on the annual estimated cost of housing a family in temporary accommodation, the duration a fraud may continue undetected and the likelihood a waiting list applicant would be provided a property (increased from £3,240 in 2020/21). Blue Badges Notional outcomes – Number of badge holders confirmed as having died multiplied by £650 to reflect lost parking and congestion charge revenue (increased from £575 in 2020/21). Concessionary Bus Travel Forward savings – Number of bus passes used fraudulently multiplied by £420. Based on average fraudulent use and reflecting two years forward use. Payroll Notional outcomes – £5,685 for each employee dismissed or resigns as a result of NFI matching. (up from £5000 in 2020/21). 84
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Appendix 7 NFI Checklist 2022/2023 Part A: For those charged with Governance Yes/No/Partly Is Action Required Who by and when? Leadership, commitment and communication 1. Are we aware of emerging fraud risks and taken appropriate preventative and detective action? Yes. Internal Audit regularly review the emerging fraud risks and update the Audit Plan accordingly. In addition, Fraud Risk Registers are in place for each Resource and reviewed annually, overseen by Internal Audit. The Risk Management Service continually update the Council’s Top Risks and discuss risks with representatives of each Resource. No n/a 2. Are we committed to NFI? Has the council/board, audit committee and senior management expressed support for the exercise and has this been communicated to relevant staff? Yes. South Lanarkshire Council has participated in NFI exercises since 2004. Support through Risk and Audit Scrutiny Committee evidenced through allocation of employees across Resources to participate in exercise. Employees and Members are made aware of the exercise through intranet and internet notices and Personnel Circulars. No n/a 3. Is the NFI an integral part of our corporate policies and strategies for preventing and detecting fraud and error? Yes. The NFI exercise is outlined in the Council’s Anti-Fraud, Bribery and Corruption Policy and also included in other council policies. No n/a 4. Have we considered using the point of application data matching service offered by the NFI team (AppCheck), to enhance assurances over internal controls and improve our approach to risk management? Yes. This has been reviewed but is not being utilised in 2024/2025. No n/a 85
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5. Are NFI progress and outcomes reported regularly to senior management and elected/board members (e.g., the audit committee or equivalent)? Yes. Included in six-monthly Fraud Statistics reports to the Risk and Audit Scrutiny Committee. No n/a 6. Where we have not submitted data or used the matches returned to us (e.g. council tax single person discounts), are we satisfied that alternative fraud detection arrangements are in place and that we know how successful they are? Yes. SLC submits all data sets to allow matches to be carried out. When matches are returned, a decision is then taken on the a target number of investigations to be undertaken. The target number of investigations agreed is risk-assessed based on the results of previous NFI exercise, the control environment and existing ongoing reviews in the area. Where other fraud detection arrangements are in place, these continue and are reviewed in conjunction with NFI data (e.g. external company used to assist with investigating SPD matches). No n/a 7. Does internal audit, or equivalent, monitor our approach to NFI and our main outcomes, ensuring that any weaknesses are addressed in relevant cases? Yes. Internal Audit manage and monitor the NFI exercise for the Council. This includes any output from Audit Scotland who are contacted should any issues arise during the exercise. No n/a 8. Do we review how frauds and errors arose and use this information to improve our internal controls? Yes. All matches are investigated by the relevant Service. Learning points are used to improve controls. No n/a 9. Do we publish, as a deterrent, internally and externally the achievements of our fraud investigators (eg, successful prosecutions)? No. SLC do not have fraud investigators. Internal Audit and Personnel Services undertake any internal fraud related interviews and report to Police Scotland if appropriate. No n/a 86
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Part B: For NFI Key Contacts and users Yes/No/Partly Is Action Required Who by and when? Planning and Preparation 1. Are we aware of emerging fraud risks and taken appropriate preventative and detective action? Yes. Internal Audit are aware of emerging risks and ensure matches in relation to these are fully investigated. No n/a 2. Are we investing sufficient resources in the NFI exercise? Yes. Internal Audit co-ordinate, monitor and report on the NFI exercise. Time is allocated within the Internal Audit Plan each year. Resources nominate employees and allocate time to allow matches to be investigated. No n/a 3. Do we plan properly for NFI exercises, both before submitting data and prior to matches becoming available? This includes considering the quality of data. Yes. SLC has written their own procedures and guidance for the exercise covering the whole process. Prior to uploading data, checks are undertaken to ensure extracts comply with specifications and are cleansed. Once submitted, Internal Audit ensure that the people responsible for match investigations are trained in the processes and have read all the privacy and security guidance. No n/a 4. Is our NFI Key Contact the appropriate officer for that role and do they oversee the exercise properly? Are our Key Contact’s details up to date on the NFI system? Yes. The key contacts for the exercise are fully involved in the whole exercise. They are involved in identifying the matches to be reviewed and monitoring output and outcomes on a regular basis. They are available to Users for any assistance or queries they may have. Key contact details are correct on the NFI system. No n/a 5. Does our Key Contact have the time to devote to the exercise and sufficient authority to seek action across the organisation? Yes. Time has been allocated in the Audit Plan to undertake the NFI work. One Audit Assistant manages the exercise overseen by an Audit Adviser. The Audit and Compliance Manager and Audit Adviser, who are both key contacts, have adequate authority to take action across the organisation should it be required. No n/a 6. Where NFI outcomes have been low in the past, do we recognise that this may not be the case the next time, that NFI can deter fraud and that there is value in the assurances that we Yes. SLC review matches based on the high risk score, high fraud, key reports and also previous outcomes regardless of their value. No n/a 87
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can take from low outcomes? 7. Do we confirm promptly (using the online facility on the secure website) that we have met the fair processing notice requirements? Yes. No n/a 8. Do we plan to provide all NFI data on time using the secure data file upload facility properly? Yes. SLC is aware of the timescales for the NFI exercise and always ensure compliance. No n/a 9. Have we considered using the point of application data matching service offered by the NFI team (AppCheck) to enhance assurances over internal controls and improve our approach to risk management? Yes. This has been reviewed but is not being utilised in 2024/2025. No n/a Effective Follow-up of Matches 10. Do all departments involved in NFI start the follow-up of matches promptly after they become available? Yes. Departments start their investigations as soon as Internal Audit issue their target matches to them. No n/a 11. Do we give priority to following up high-risk matches, those that become quickly out- of-date and those that could cause reputational damage if a fraud is not stopped quickly? Yes. All high risk matches are investigated by SLC. Departments are aware of the highest risks for their service area and prioritise appropriately. Discuss and confirm approach with External Audit. No n/a 12. Are we investigating the circumstances of matches adequately before reaching a ‘no issue’ outcome, in particular? Yes. All Departments involved in the NFI exercise have expertise in their field and carry out adequate investigations. No n/a 88
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13. (In health bodies) Are we drawing appropriately on the help and expertise available from NHS Scotland Counter Fraud Services? n/a No n/a 14. Are we taking appropriate action in cases where fraud is alleged (whether disciplinary action, penalties/cautions or reporting to the Procurator Fiscal)? Are we recovering funds effectively? Yes. Fraud is investigated in accordance with standard procedures. Disciplinary action is considered where appropriate. Recovery procedures are in place. No n/a 15. Do we avoid deploying excessive resources on match reports where early work (e.g., on high- risk matches) has not found any fraud or error? Yes. This is analysed on a risk-basis and targets set dependant on a number of factors, including number of matches, fraud area, previous outcomes and resources. No n/a 16. Where the number of high-risk matches is very low, are we adequately considering the medium and low-risk matches before we cease our follow-up work? Yes. This is analysed on a risk-basis and targets set dependant on a number of factors, including number of matches, fraud area, previous outcomes and resources. No n/a 17. Do we follow up matches which indicate a customer may be eligible for a benefit or service which they currently do not receive? Yes, claimant would be contacted to advise they may be entitled to a particular benefit (similar to standard process to advise claimants should there be a potential entitlement to another benefit). 18. Overall, are we deploying appropriate resources on managing the NFI exercise? Yes. Internal Audit co-ordinate, monitor and report on the NFI exercise. Time is allocated within the Internal Audit Plan each year. Resources nominate employees and allocate time to allow matches to be investigated. No n/a Recording and Reporting 19. Are we recording outcomes properly in the secure website and keeping it up to date? Partly. It was identified during the 2022 exercise that some outcomes were not recorded correctly and had to be amended. Yes. During training, Internal Audit will go over what each Key Contact 89
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outcome means and when it should be used. This has also been added to the guidance. 20. Do staff use the online training modules and guidance on the secure website, and do they consult the Cabinet Office NFI team if they are unsure about how to record outcomes (to be encouraged)? Partly. SLC has produced their own guidance on accessing the website and recording match outcomes. Access to online training is also available, if required, along with the NFI helpdesk. Yes. New users would be encouraged to access the online modules in addition to SLC’s guidance. Key Contact 21. If, out of preference, we record some or all outcomes outside the secure website, have we made arrangements to inform the Cabinet Office NFI team about these outcomes? No. SLC do not record the outcomes for NFI matches elsewhere. All outcomes are recorded on the NFI system. Where a third party identified an outcome previously, it would be recorded as “Already Known”. No n/a 90
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Appendix 8 Audit Scotland checks as to how to work more efficiently (actions to be taken are noted in bold) Efficient Working Practice Action Required? Ensure staff involved in the NFI keep up to date with new features of the web application and good practice, by reading the guidance notes and watching the online training modules before they begin work on the matches. Yes. All NFI users will be directed to complete refresher training where required ahead of the 2024 NFI exercise. Key Contacts should schedule staff resources so that time critical matches, such as housing benefit to students, can be dealt with as soon as they are received. Instructions around this are already included in the NFI Plan and conveyed to Resources. Key Contacts should coordinate investigations across internal departments and, eg organise joint investigation of single person discount matches involving housing benefit, to ensure all relevant issues are actioned. Internal Audit fulfil this role and no amendment to approach is required. Use the tools within the web application, such as the filter and sort options or data analysis software, to help prioritise matches that you deem the highest risk. You should also look back to see which reports in a previous exercise gave you outcomes. This will save time and free up staff for the most important investigations Internal Audit utilise this tool and no amendment to approach is required. The web application shows the number of shared comments which require a response (Outstanding Actions). These responses should be prioritised if they relate to an ongoing investigation so that it can be progressed promptly. Internal Audit regularly review the shared comments/outstanding actions and notify Resources of those that need a response. This practice will continue. Review the quality of the data supplied before the next exercise as external providers normally have to phase in changes to extraction processes. Better data quality will improve the quality of resulting matches. Data has been reviewed for the next exercise. Develop capability and capacity to punish fraudsters, ensuring that investigations are not abandoned if the individual resigns, leaves the property etc. Seek, through collaborating with law enforcement and the courts, the recovery of defrauded funds. South Lanarkshire Council will continue to pursue outcomes in compliance with fraud policies. 91
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Report Agenda Item Report to: Risk and Audit Scrutiny Committee Date of Meeting: 24 September 2024 Report by: Executive Director (Finance and Corporate Resources) Subject: Financial Resilience and Sustainability 1. Purpose of Report 1.1. The purpose of the report is to: provide a position on the Council’s Financial Outlook, financial resilience and sustainability, and how we can respond to the risks posed by the financial challenges ahead 2. Recommendation(s) 2.1. The Committee is asked to approve the following recommendation(s): (1) that the Financial Position and Plan for 2025/2026 to 2027/2028 (section 4), be noted; and (2) that the Financial Resilience Framework (section 5 and Appendix 1), be noted. 3. Background 3.1. A report was presented to the Council’s Executive Committee on 26 June 2024 detailing the 2025/2026 to 2027/2028 Revenue Budget Strategy. 3.2. Section 8 of the June 2024 Revenue Budget Strategy report noted that the Chartered Institute of Finance and Public Accountancy (CIPFA) introduced a Financial Management Code (the FM Code) for implementation by 31 March 2021. The FM Code provides “guidance for good and sustainable financial management in local authorities. By complying with the principles and standards within the code, authorities will be able to demonstrate their financial sustainability”. A key goal of the FM Code is to improve and evidence the financial resilience of organisations by embedding enhanced standards of financial management. 3.3. In the Annual Audit Report for 2023/2024, it was acknowledged that given the scale of the challenges there is an opportunity to enhance focus on financial resilience, including greater emphasis on reserves, clear financial resilience indicators and measures, and alignment to risks ensuring there is a clear financial strategy to support a resilient council. 3.4. Through consideration of the level of reserves, and the financial planning and management shown in the medium-term Budget Strategy presented in June 2024, the Council already demonstrates it has an understanding of the Budget pressures it faces and that it mitigates as far as possible against unforeseen costs and pressures. 3.5. The Budget Strategy noted that a further report would be brought to the Risk and Audit Scrutiny Committee which would provide further information on the Council’s resilience. 7 93
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3.6. This report will, therefore, provide a summary of the 2025/2026 to 2027/2028 Budget Strategy reported in June demonstrating the Council’s understanding of the medium- term financial outlook (section 4) and section 5 will provide information on the Council’s Financial Resilience and Sustainability. 4. Financial Position and Plan for 2025/2026 to 2027/2028 4.1. The report to Council in June covered the current estimates and assumptions resulting in the budget gap of £77.275 million for the next 3 years. This gap is the result of estimations around grant levels, cost increases, and the impact of temporary solutions previously put in place to manage pressures. This gap did not include any assumption around an increase in Council Tax. 4.2. At a level of £77.275 million across the 3 years, the Budget Gap is substantial. Following presentation of this to the Executive Committee in June 2024, the outlook was also presented to all members at a Budget Seminar held on 29 August 2024. This presentation demonstrated the enormity of the financial challenge ahead and the medium-term financial outlook. 4.3. The June 2024 paper highlighted that to address this Budget Gap, consideration will be required to what services the Council can afford to continue to deliver and how these services are provided. Difficult decisions will need to be made to balance the Council’s budget and we will need to significantly change what we deliver over the next 3 years with the focus being on statutory services. There will likely be areas where we will need do consider whether we can continue to deliver services and if so, what those services will actually look like. 4.4. In order to deliver a balanced budget, it is acknowledged that we need to have a programme of change. This will build on the work undertaken over many years, where service reviews have taken place and which have fed into the savings options that Members have considered. A Transformational Change programme will drive continuous improvement as well as efficiencies and will feed into the Budget Strategy. 4.5. The foundation of this Transformational Change Programme will be a series of Cross- Cutting Reviews. These Cross-Cutting Reviews are not focussed on one Resource, but on Council-wide activities. A recent report to the Performance and Review Scrutiny Forum titled Cross-Cutting Review - Update gave members of the Forum a list of all the cross-Resource reviews, and a brief description of what each Review will consider. 4.6. Most of these Cross-Cutting Reviews have already commenced and it is anticipated that they will deliver savings across the term of this Budget Strategy, 2025/2026 to 2027/2028. 4.7. Alongside the Cross-Cutting Reviews, Resources are considering their own Service areas, and a programme of Reviews will also take place to inform savings for the coming year. As these Resource Reviews progress, proposals will be presented to Members for approval as part of the Budget setting process. 4.8. The Executive Committee agreed in June that options to meet the budget gap would be developed for members’ consideration and brought back to a future meeting of the Committee. That process is ongoing and will be informed by the Cross-Cutting and Resource Reviews. This demonstrates a structured approach to identifying savings proposals for members’ consideration and will assist greatly in managing the Budget Gap. 94
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4.9. As part of the process of managing the Council’s finances over the coming 3 years, especially given the financial challenges that lie ahead and the Budget Gaps being faced by the Council, consideration must be given to the Council’s position on resilience. More than ever, the Council needs to be able to demonstrate our strong financial management and how we will manage financially in these difficult times. 4.10. The importance of this is acknowledged by Audit Scotland in their Annual Audit Report 2023/2024 where they assess the Council’s position on Financial Sustainability. They state that Financial Sustainability means being able to meet the needs of the present without compromising the ability of future generations to meet their own needs. 4.11. The key messages in relation to the assessment is that the Council has effective budget monitoring arrangements in place. They go on to state that given the financial pressures, the Council is continuing to assess its reserves strategy and review how it assesses, monitors and reports on its financial resilience, and that the Council recognises the financial challenges facing the organisation. The Transformational Change programme is underway and is key to achieving financial sustainability over the medium to longer term. Financial resilience is covered in the next section of this report. 5. Financial Resilience 5.1. It is acknowledged that financial resilience is a crucial aspect of financial management and is particularly important in light of the financial pressures facing local government especially following years of inflationary cost increases. It is recognised that this is about more than the reliance on usable reserves, and that councils need to be more comprehensive in their assessment of their level of financial resilience. 5.2. This paper will detail how councils can demonstrate financial resilience, by explaining key aspects of financial strength as well as highlighting the areas that should continue to be monitored or examined further. 5.3. The financial resilience of the Council looks at its ability to anticipate and respond to changes in the internal and external financial environment. In order to do that, it is important to know what resources are available in a time of crisis, and not just reserves. It is also important to understand the Council’s exposure to loss of income, your level of commitment to expenditure, and to know what flexibility the Council has in terms of accessing funds when they are required. Appendix 1 provides a framework which looks at:- A Review of the Balance Sheet (Appendix 1, sections 4 to 17 including Council Reserves and Liquidity, Debt and Investment) Exposure to Risk (Appendix 1, sections 18 to 23 including Significant Income Areas, Top Expenditure Commitments and Group Risk) 5.4. A summary of the Council’s performance in terms of the Financial Sustainability element of the Local Government Benchmarks is also included in Appendix 1 (sections 24 to 30) for consideration. 5.5. As with any set of indicators, there is not necessarily a right or a wrong answer. It is more important that they are used to provide financial context, and it may be that the trend in these figures over a number of years is more of an indicator for action as on an annual basis only, an issue might not be visible or may be overlooked. These indicators will continue to be monitored across time and we will report these to the Risk and Audit Scrutiny Committee on an annual basis. 95
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5.6. Summary of Financial Resilience Framework: The financial resilience framework demonstrates the level of the Council’s financial resilience in a number of ways. The Council holds an uncommitted General Fund Reserve to protect against unforeseen events. This sits alongside a level of earmarked reserves which can be used in a managed way to smooth the impact of pressures across years – for example the Loans Fund Review, Service Concessions and the reduced Pension Fund Contributions. This aligns to the Council’s medium term financial strategy which has been approved by members and demonstrates good financial management through planning and managing key budget pressures. 5.7. The framework shows that the level of debt costs compared to the net income for the Council has reduced on the previous year. An important point to note that these debts costs are the result of the planned borrowing undertaken by the Council and that the debt repayments are considered affordable as part of our revenue budget. 5.8. As well as looking at what resources are available in times of crisis, the financial resilience of the Council also looks at its ability to anticipate and respond to changes in the internal and external financial environment. In order to do that, it is important to understand the Council’s exposure to loss of income and key areas of budget pressure. The financial resilience framework details the significant income areas and also the areas of high spend / high risk that the Council acknowledges and will continue to monitor. 5.9. The Council participates in the Local Government Benchmarking Framework in relation to assessing sustainability. The Improvement Service note that a direct comparison cannot be drawn due to the nuances of individual councils and their own financial plans. However, reviewing the trend in the Council’s position over time will give context. From the Council’s own perspective, analysis of the ratios demonstrates the level of reserves held by the Council was lower than the Scottish average, as is the unearmarked element. However, at a value of £13.043 million, this is deemed an appropriate level but will continue to be monitored. The sustainability indicators also note that the Council finished its year end in a break-even outturn position which is a positive outturn. 5.10. This paper demonstrates the Council’s financial resilience by explaining its detailed financial planning, its level of reserves and its key financial strengths in term of its balance sheet position. Any risks identified through horizon scanning are mitigated where appropriate through the Budget Strategy, a key part of the Council’s financial resilience framework. 6. Employee Implications 6.1. There are no direct employee implications from this report. 7. Financial Implications 7.1. The financial implications are summarised within the report. 8. Climate Change, Sustainability and Environmental Implications 8.1. There are no implications for climate change, sustainability or the environment in terms of the information contained in this report. 8.2. Climate Change targets will have an impact on the Council’s future financial strategies. This will be included in future Budget Strategy papers as appropriate. 9. Other Implications 96
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9.1. The review of financial resilience is a way of understanding the key financial risks to the Council. The financial strategy is the way in which the Council can manage a number of these key risks which directly impact on the money available to deliver Council outcomes. 9.2. We will continue to monitor and report on these resilience indicators as appropriate. 10. Equality Impact Assessment and Consultation Arrangements 10.1. This report does not introduce a new policy, function or strategy or recommend a change to an existing policy, function or strategy and, therefore, no impact assessment is required. 10.2. There is no requirement to undertake any consultation in terms of the information contained in this report. 10.3. However, as the process to identify savings continues, and with proposals to be presented to members later in the year, stakeholder consultation and equality impact assessments will be carried out. The results will be provided to members to inform their decision-making process. Jackie Taylor Executive Director (Finance and Corporate Resources) 2 September 2024 Link(s) to Council Values/Priorities/Outcomes Accountable, Effective, Efficient and Transparent Previous References Executive Committee, 24 June 2024 Performance and Review Scrutiny Forum, 27 August 2024 List of Background Papers None Contact for Further Information If you would like to inspect the background papers or want further information, please contact: Jackie Taylor, Executive Director, Finance and Corporate Resources Ext: 4637 (Tel: 01698 454637) E-mail : jakie.taylor@southlanarkshire.gov.uk 97
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Appendix 1 Financial Resilience – A Framework 1. It is acknowledged that financial resilience is a crucial aspect of financial management, and is particularly important in light of the financial pressures facing local government especially following years of inflationary increases in costs. It is recognised that this is about more than the reliance on usable reserves, and that councils need to be more comprehensive in their assessment of their level of financial resilience. 2. This paper will detail how councils can demonstrate financial resilience, by explaining key aspects of financial strength as well as highlighting the areas that should continue to be monitored or examined further. 3. The financial resilience of the Council should look its ability to anticipate and respond to changes in the internal and external financial environment. In order to do that, it is important to know what resources are available in a time of crisis, and not just reserves. It is also important to understand the Council’s exposure to loss of income, your level of commitment to expenditure, and to know what flexibility the Council has in terms of accessing funds when they are required. 4. A Review of the Balance Sheet: Taking information from the Council’s Balance Sheet at the end of the financial year is a way to assess resilience. Maintaining a strong balance sheet provides the assurance that the Council can respond in the time of crisis and that it can meet its obligations. It is proposed that a Balance Sheet Review would consider the following: • Council Reserves and Liquidity and • Debt and Investment. 5. Council Reserves and Liquidity: It is the responsibility of the Executive Director (Finance and Corporate Resources) to advise the Council on the level of reserves it should hold and to ensure that there are clear protocols for their establishment and use. 6. The Local Authority Accounting Panel (LAAP) provide guidance to the Council’s Section 95 Officer (the Executive Director of Finance and Corporate Resources), on the establishment and maintenance of local authority reserves and balances. The LAAP Bulletin does not prescribe a minimum level of reserves which should be held by a council. It is for the Council to consider an appropriate level of reserves taking cognisance of strategic, operational and financial risks facing the authority at a local level. It does, however, say that Reserves should not be held without a clear purpose. Audit Scotland have noted that the level of reserves that a council holds is a local decision but should be clearly informed by an annually reviewed reserves policy. 7. The Council keeps an Uncommitted General Fund Reserves to protect against the risk of unforeseen events. This is considered best practice and demonstrates sound financial planning. As has been advised to members previously, the use of Reserves is not a permanent budget solution but can be used to smooth the impact of pressures across years – for example as we have employed with the monies released by the Loans Fund Review, Service Concessions and the reduced Pension Contributions. If necessary, Reserves can be used to absorb one-off costs to avoid an impact on Resource budgets in-year or can facilitate the rollover of unused elements of grant into the next financial year. 98
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8. Table 1 provides information on the level of Reserves across the past 3 years and looks at these Reserve levels in light of total expenditure commitments. It also looks at the ratio of current assets to current liabilities (Liquidity) in order to determine whether the Council could use its current assets to cover its current liabilities, if required. Table 1: Reserves and Liquidity 2023/2024 2022/2023 2021/2022 General Fund Useable Reserves (exc. HRA) £120.382m £164.080m £135.945m Movement in Useable Reserves (exc. HRA) (43.698m) £28.135m £2.909m Useable Reserves / Net Revenue Stream 14.12% 19.86% 17.41% Level of Uncommitted General Fund Reserve £13.043m £13.043m £13.043m Level of Committed Reserves (exc. HRA) £107.339m £151.037m £122.902m Housing Revenue Account Reserve Useable Reserves £13.221m £12.861m £16.241m Movement in Useable Reserves £0.360m (£3.380m) £3.457m Useable Reserves / Net Revenue Stream 12.52% 12.67% 16.58% Liquidity Current Assets to Current Liabilities £119.471m/ £277.521m = 0.43 £225.337m/ £242.674m = 0.93 £213.198m/ £258.841m = 0.82 9. Table 1 shows the movement in the Total Useable Reserves of the Council (exc. HRA) as well as the HRA Reserve. The level of committed reserves for the General Fund and the HRA have both decreased across years. At the end of 2023/2024, the General Fund decrease reflects the use of reserves for budget strategies mainly relating to those Generated by the Loan Fund Review and the implementation of Service Concessions. 10. As a proportion of the Net Revenue Stream, General Fund Reserves have decreased over time. While the Council’s Net Revenue Stream (Council Tax and Government Grant) has increased, there has been a reduction in useable reserves reflecting the use of reserves for budget strategies. This is similar for the HRA Reserve as a proportion of its Net Revenue Stream. 11. In terms of the Council’s liquidity position, the ideal would be that current assets exceed current liabilities. In 2023/2024, the ratio has dipped due to the Council no longer holding any short-term investments. In reality, this indicator reflects the Council’s position at a point in time, and there are no concerns regarding the Council’s liquidity position. 12. Debt and Investment: The Council’s Balance Sheet provides information on Debt (borrowing) and Investment levels. It shows whether the Council’s liabilities are short or long term. 13. The Council already prepares a suite of ratios to meet the obligations of the Prudential Framework. The ratios that relate to Debt and Investment are provided in Table 2. 99
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Table 2: Debt and Investment 2023/2024 2022/2023 2021/2022 Borrowing 1,034.532 1,036.302 993.486 PPP Liability 172.036 179.134 186.290 Gross Debt 1,206.568 1,215.436 1,179.766 General Fund 1,102.027 1,089.036 1,015.606 HRA 307.217 292.706 282.854 Total Capital Financing Requirement 1,409.244 1,381.742 1,298.460 Under / (Over) Borrowed 202.676 166.306 118.684 Investments (Deposits) 13.475 160.770 132.070 General Fund Financing Costs 31.249 36.921 40.487 Net Revenue Stream 852.568 826.366 780.941 Financing Charges to Net Revenue Stream 3.67% 4.47% 5.18% HRA Financing Costs 8.155 14.192 15.716 Net Revenue Stream 105.649 101.531 97.975 Financing Charges to Net Revenue Stream 7.72% 13.98% 16.04% 14. Table 2 shows that the Council’s Gross Debt has decreased since last year reflecting anticipated debt repayment profiles. The Capital Financing Requirement (the level of debt that we need to finance our assets) has increased over the 3 years and this is because our in-year borrowing has been higher than the level of debt repayments made. 15. Comparing the Gross Debt to the Capital Financing Requirement gives a position of under or over borrowing. The Council has under-borrowed. This is a favourable position and is because we did not need to borrow as much as predicted due to the level of cash reserves held. In terms of investments (deposits) – there was an obvious decrease in 2023/2024, and this reflects the lower level of cash balances as we have used reserves in lieu of borrowing. 16. Finally, the ratio of debt costs to net financing stream for the General Fund and the HRA are sitting at approximately 4% and 8% respectively. This is a reduction on the previous year and generally reflects the reduction in debt payments offset by the increase in revenue income. 17. An important point to note is that the borrowing undertaken by the council is planned and the repayments on these debts are considered as affordable as part of our revenue budget 18. Exposure to Risk: A review of Revenue expenditure and income over time ensures that we know the areas that we need to focus our attention on to ensure we can pre-empt any potential financial pressures. A review of the exposure to risk would look at: • Significant Income Areas and • Top Expenditure Commitments 19. Significant Income Areas: Looking at the Council’s Budget, there are a number of significant high value Income areas outwith the Government Grant / NNDR Income budgets. These are noted in Table 3 as appropriate, giving context on each. 100
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Table 3: Significant Income Areas 2023/2024 2022/2023 2021/2022 Council Tax Income 159.053 148.958 143.472 Council Tax Income as a percentage of Net Revenue Stream 18.70% 18.03% 18.37% Parking Income 2.031 1.867 1.503 School Meals Income 3.213 2.763 2.578 Bereavement Income 2.979 2.658 2.431 Planning and Building Standards Income 2.885 3.362 4.078 Early Years Fee Income 1.990 1.591 1.021 Licensing and Registration Income 1.503 1.793 1.472 20. Table 3 shows that as a percentage of the Council’s Total Budget, the level of Council Tax Income has increased into 20203/2024. This mainly reflects increased property numbers being added to the Council Tax list as well as an approved increase in Council Tax Band D. In financial terms, the level of Council Tax income received in 2023/2024 is actually £13 million higher than the previous year – a positive position. 21. The table also shows some significant income budgets and the pattern over recent years. Some of these areas (School Meals, Parking, Licensing and Registration) were significantly affected by the pandemic and have struggled to return to pre-pandemic levels (before 2020/2021). They will continue to be monitored to identify whether the pressure reduces. 22. Top Expenditure Commitments: Similarly, there are a number of significant Council budget areas that can be highlighted for a trend analysis, on the basis that they are demand lead, high value budgets and are, therefore, a risk area for the Council. These are noted in Table 4 which notes the actual spend and the variance across years to show the pressure in those areas. Top expenditure commitment areas feature as part of the Council’s considerations when looking at future budget strategies. Table 4: Top Expenditure Commitments 2023/2024 2022/2023 2021/2022 £m £m £m Adult and Older People Social Care - delegated to the IJB 182.657 (breakeven) 165.334 (breakeven) 141.338 (0.031 under) Children and Family Services 47.160 (0.468 over) 43.749 (1.295 over) 36.145 (0.917 over) Waste Services - Facilities, Streets, Waste and Grounds 82.954 (0.097 over) 75.349 (0.370 over) 70.849 (0.262 over) * All figures are after approved Transfers to Reserves. 23. Table 4 shows that the spend on these areas is increasing over time. For Children and Families and also for Adults and Older People (albeit the services are delegated to the Integration Joint Board (IJB)), the Services continue to manage budget pressures through budget planning. In the same way as the Council, the IJB identify budget gaps, and solutions as part of their medium-term financial planning process. The cost of the Waste Service (as part of the Facilities, Streets, Waste and Grounds) continues to experience high demand and income pressures (school meals for example). These Services will continue to be monitored. 24. Local Government Benchmark Framework: From 2019/2020 onwards, the Local Government Benchmarking Framework introduced new ratios to assess sustainability. 101
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The 2022/2023 data is shown in Table 5. Table 5: Sustainability – Local Government Benchmark Framework Council Scotland What proportion of my income does the council hold in reserves? 22% 24.5% What proportion of my council's revenue is not committed to a specific theme/project? 1.5% 3.2% How much of my council's income is used to service debt? 5% 5.4% How much of my council's housing income is used to service debt? 17.2% 22.2% What proportion of my council's budgeted spend is spent in practice? 100% 98.6% 25. Table 5 shows that the Council’s results alongside the national position. It is noted that a direct comparison cannot be drawn due to the nuances of individual councils and their own financial plans. However, reviewing the trend in the Council’s position over time will give context. The data over years since 2013/2014 are included in the Improvement Service website. 26. The financial resilience framework and the Local Government Benchmarks detailed above can be used as a basis for assessing the financial resilience of the Council. The aim of the first indicator is to show how much money the Council holds in reserves. At the end of 2022/2023 the Council was lower than the Scottish average. While the significance of the level of reserves held is acknowledged, it must also be acknowledge that most of these reserves are committed. 27. In terms of the uncommitted revenue monies, that refers to the unearmarked general fund and while it is lower than the Scottish average, at a level of £13.043 million, this is deemed appropriate but is kept under review. 28. The third indicator (and the fourth relation to the HRA) refers to the level of loan charges compared to the overall budget. Again, the General Fund loan charges are lower than the Scottish average, and similarly for the HRA. The relevance of this indicator is to consider affordability. The Council and the HRA have planned for the debt, ensuring repayments are sustainable. 29. Finally, the last indicator looks at the year-end position and as the Council had a break- even position after approved transfers to reserves (the full budget is spent or committed in year) this is a positive outturn. 30. As with any set of indicators, there is not necessarily a right or a wrong answer. It is more important that they are used to provide financial context, and it may be that the trend in these figures over a number of years is more of an indicator for action as on an annual basis only, an issue might not be visible or may be overlooked. 102
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Report Agenda Item Report to: Risk and Audit Scrutiny Committee Date of Meeting: 24 September 2024 Report by: Executive Director Finance and Corporate Resources Subject: Internal Audit Activity as at 30 August 2024 1. Purpose of Report 1.1. The purpose of the report is to:- update the Risk and Audit Scrutiny Committee (RASC) on progress of the Internal Audit service in the period 1 June to 30 August 2024 2. Recommendation(s) 2.1. The Committee is asked to approve the following recommendation(s):- (1) that progress is noted. 3. Background 3.1. Findings from internal audit assignments are reported to the Committee throughout the year. The last progress report to the Committee was in June 2024 and reported on work completed in the period 9 March to 31 May 2024. This report covers all work completed in the period 1 June to 30 August 2024. Performance information is also included. 4. Delivery of the Internal Audit Plan: Progress and Performance 4.1. As at 30 August 2024, 72% of the 2024/2025 Audit Plan is in progress. 4.2. Appendix 1 lists all assignments completed in the period 1 June to 30 August 2024 together with a summary of overall assurances from each area of work. 4.3. Key performance indicators for the period to August 2024 are included at Appendix 2. 4.4. Members are asked to note progress. 5 Glasgow City Region City Deal – Internal Audit Plan 2023/2024 5.1. At the August 2024 Cabinet meeting of the Glasgow City Region City Deal, audit reports were presented on the Shared Prosperity Fund (SPF), Assurance Framework Compliance and on the 2023/2024 Internal Audit Annual Report and Annual Governance Statement. A link to these reports can be found here. 5.2. The audit of SPF, Assurance Framework Compliance sought to obtain assurance that member authorities are complying with the requirements outlined in the SPF Assurance Framework and that an adequate audit trail is being maintained. The scope of the audit included a review of documented policies and procedures, roles and responsibilities; governance and monitoring arrangements; reporting activities to 8 103
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track the progress and adherence to the SPF Assurance Framework; the Change Control process; reporting requirements to the Glasgow City Region, Programme Management Office (PMO) and the UK Government and record keeping arrangements to maintain an audit trail. 5.3. The audit concluded that a number of key controls are in place and generally operating effectively. Key officers responsible for SPF, within both the PMO and member authorities, are fully aware of their role in the process and the requirements that are outlined in the Framework. All relevant officers at each member authority were provided with details of the document and this has been made readily available to all appropriate staff. Appropriate monitoring and reporting activities are in place across the GCR and within each member authority. This includes internal reporting within each organisation and more widely across the different GCR Support Groups. The audit found that quarterly and 6-monthly returns are submitted as required and any discrepancies appropriately investigated by the PMO. The PMO are aware of the thresholds and occasions where a formal change control should be adopted. It was also noted that there are appropriate arrangements in place across the Region to ensure that documents relating to SPF are retained for audit purposes and, where required, these are restricted to relevant staff. 5.4. The second report was in relation to the Internal Audit Annual Report and Annual Governance Statement 2023/2024. This report provided a positive audit opinion for the year ended 31 March 2024 based on the audit work undertaken and the assurances provided by member authorities. 6. Progress against Strategy 6.1. The Public Sector Internal Audit Standards (PSIAS) require progress against the audit strategy to be monitored and reported to the Committee as part of regular monitoring reports that are presented at each meeting. 6.2. Delivery of the strategy in 2024/2025 will be evidenced by the completion of the Internal Audit Plan in-year and will be monitored through the performance indicators regularly reported to the Committee. 7. Employee Implications 7.1. There are no employee issues. 8. Financial Implications 8.1. A breakeven position for 2024/2025 is forecast at the end of the financial year for the Internal Audit section. 9. Climate Change, Sustainability and Environmental Implications 9.1 There are no implications for climate change, sustainability or the environment in terms of the information contained in this report. 10. Other Implications 10.1. The main risks to the delivery of the Audit Plan are, generally, vacancies and team up-skilling requirements, unforeseen service demands and delays with client sign-off. These are mitigated by coaching and training, regular meetings and escalation processes as well as inclusion of contingency time within the annual plan. The risk of significant, subsequent amendments to the Plan, arising from a change in the Council’s priorities or risks, are mitigated by regular re-assessment of capacity and Audit Plan content to allow incremental adjustments as the year progresses. 104
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11. Equality Impact Assessment and Consultation Arrangements 11.1. There is no requirement to equality assess the contents of this report. 11.2. Heads of Service are consulted on each and every audit assignment. Jackie Taylor Executive Director (Finance and Corporate Resources) 6 September 2024 Link(s) to Council Values/Priorities/Outcomes Accountable, effective, efficient and transparent Previous References Risk and Audit Scrutiny Committee - 2024/2025 Internal Audit Plan, 26 March 2024 Risk and Audit Scrutiny Committee – Internal Audit Activity Report – 25 June 2024 List of Background Papers Figtree extracts of Action Plans Contact for Further Information If you would like to inspect the background papers or want further information, please contact:- Yvonne Douglas, Audit and Compliance Manager Ext: 2618 (Tel: 01698 452618) E-mail: yvonne.douglas@southlanarkshire.gov.uk 105
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Assignments completed 1 June to 30 August 2024 Appendix 1 Job Number Assignment name Draft Issue Final Issue Assurance Info I350116 Governance Statements 25/06/2024 25/06/2024 Review of 2023/2024 Resource Directors’ Statements of Assurance. I821044 2023/2024 Annual Report 10/06/2024 25/06/2024 Provision of annual statement of assurance. Job Number Assignment name Draft Issue Final Issue Assurance Info External Clients I912238 SLLC CCM 2023/24 17/06/2024 19/07/2024 Reported to SLLC. I918247 SLLC 2023/2024 Annual Report 12/08/2024 19/08/2024 Reported to SLLC I928253 LVJB 2023/2024 Annual Report 27/03/2024 03/06/2024 Reported to LVJB I938257 SEEMIS 2023/2024 Annual Report 21/05/2024 20/06/2024 Reported to SEEMIS 106
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Key audit performance indicators as at 31 August 2024 Appendix 2 Indicator Numbers Percentage Target Comment Assignments delivered within budget 2/2 100% 80% Draft reports delivered within 6 weeks of file review 2/2 100% 80% 2024/2025 Audit Plan completed to draft by 30 April 2024 2/39 5% 100% 28/39 (72%) of 2024/2025 Audit Plan in progress at 31 August 2024. Internal Audit recommendations delivered on time n/a n/a 90% No audit actions have fallen due in the period to 31 August 2024. Client to agree findings and actions within 4 weeks of draft issue 2/2 100% 80% 107
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Report Agenda Item Report to: Risk and Audit Scrutiny Committee Date of Meeting: 24 September 2024 Report by: Executive Director (Finance and Corporate Resources) Subject: Fraud Statistics Annual Report 2023/2024 1. Purpose of Report 1.1. The purpose of the report is to:- provide a summary of the fraud statistics for the year to 31 March 2024 and a comparison to the same period in 2023 2. Recommendation(s) 2.1. The Committee is asked to approve the following recommendation(s):- (1) that the contents of this report are noted. 3. Background 3.1. Collating and reporting fraud statistics and setting targets for improvement are considered best practice by the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Association of Local Authority Risk Managers (ALARM). 3.2. This report provides information on the number, types and outcomes of fraud investigations within South Lanarkshire Council (SLC) for the year to 31 March 2024 together with a comparison to the statistics for the same period in 2023. It includes all frauds reported to Internal Audit, benefit frauds during this period passed to the Department for Work and Pensions (DWP) for investigation and insurance losses resulting from a failure in internal controls or that have been investigated by Internal Audit. 3.3. Although the responsibility for housing benefit fraud investigations has transferred to the DWP Fraud and Error Service (FES), SLC retains responsibility for the recovery of fraud overpayments from their own Housing Benefit claimants. Housing Benefit fraud data will therefore continue to be included within the fraud statistics reported, as information is provided by FES. 3.4. Benefits and Revenue deliver an annual programme of rolling reviews on Housing Benefit claimants based on risk-profiling to establish the most likely areas of benefit fraud or overpayment. Information is also obtained from HMRC through the Verification of Earnings and Pensions arrangement, from DWP through the Housing Benefit Matching Service and from data gathered through the National Fraud Initiative. Where fraud is suspected, the case will be passed to FES for investigation and, if proven, returned to SLC to pursue recovery. Irrespective of whether a fraud is proven or not, the Council takes steps to recover any overpayment. 9 109
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4. Results 4.1. All concerns reported to Internal Audit are risk assessed with high risk areas investigated by Internal Audit, medium risks investigated by Resources and low risks registered for monitoring of trends. Internal Audit may also undertake joint investigations with Resources and the Fact-Finding team within Personnel Services depending on the nature of the fraud and the operational knowledge required. 4.2. Areas within the Council that have an inherently higher risk of fraud are considered for inclusion in the annual Audit Plan. There have been no new patterns or trends identified in 2023/2024. 4.3. An analysis of the fraud caseload for the year to 31 March 2024 and the comparative period in 2023 is detailed in Table One. Table One - Fraud Caseload Status Year to 31/03/24 Year to 31/03/23 Nos. £000 Nos. £000 Cases open as of 1 April 136 70 148 120 Concerns reported during financial year 101 32 36 11 DWP referrals - - (32) (45) SLC caseload for the year 237 102 152 86 Cases closed in period (see Table Two) (66) (58) (16) (16) Work in progress at 31 March 171 44 136 70 4.4. DWP referrals made to the Council were previously included in cases reported but were removed in 2022/2023 (32 cases) to ensure data reflects only the SLC- managed element of the caseload. For completeness, potential frauds identified by the DWP, and relating to SLC, are reported separately (see paragraph 4.5). 4.5. Cases reported in the year remain relatively low with the increase in the 2023/2024 caseload more comparable to pre-pandemic levels. Patterns, however, remain unchanged with cases coming primarily from suspected benefit fraud and theft. In addition to those cases summarised above, a further 22 SLC investigations are being progressed by the DWP with a potential cumulative housing benefit overpayment/fraud value of £27,000. On conclusion of investigations, SLC will seek repayment in line with standard recovery procedures. 4.6. An analysis of closed cases in the year is detailed in Table Two: Table Two - Analysis of Closed Cases Source of fraud Year to 31/03/24 Year to 31/03/23 Nos. £000 Nos. £000 Founded allegation (see Table Three) 19 56 9 12 Insufficient information 28 2 1 0 Unfounded allegations 19 0 6 4 Total 66 58 16 16 4.7. An analysis of founded allegations is detailed in Table Three: 110
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Table Three – Analysis of Founded Allegations Source of fraud Year to 31/03/24 Year to 31/03/23 Nos. £000 Nos. £000 External 18 56 7 7 Internal 1 0 1 0 Benefits 0 0 1 5 Total 19 56 9 12 5. Improvements 5.1. Services work with the Security Coordinator or with Internal Audit to review and address gaps in controls identified during the investigation of cases. Where appropriate, improvement plans are agreed with the relevant Heads of Service and the actions followed up by Internal Audit to ensure implementation. Outcomes for concluded investigations are reported to the Risk and Audit Scrutiny Committee as part of Internal Audit’s annual assurance report. 6. Employee Implications 6.1. SLC has a zero tolerance approach to fraud. Manager and employee roles and responsibilities are set out in SLC’s Counter Fraud, Bribery and Corruption Policy. 7. Financial Implications 7.1. The investigation of fraud, participation in the National Fraud Initiative (NFI) exercise and the collection and reporting of fraud statistics is carried out within existing resources. The 2023/2024 Internal Audit Plan included 200 days to manage the NFI exercise, disseminate fraud alerts and undertake anti-fraud assignments and fraud investigations. The anticipated time allocated across each activity required some revision in the year with a further 26 days allocated from the contingency budget to manage this element of the Internal Audit Plan. 7.2. The majority of days used by Internal Audit in the year to 31 March 2024 relates to a fraud investigation that is still ongoing. Time budgets and target completion timescales for investigations are set at the start of each audit and will vary depending on the nature of the investigation. These are reviewed and, at times, extended, depending on the nature of findings. 7.3. Outcomes from audit work completed in year was reported in the 2023/2024 Internal Audit Annual Assurance Report or has been captured in the report on the 2022 NFI exercise, a separate item on this meeting’s agenda. 8. Climate Change, Sustainability and Environmental Implications 8.1. There are no implications for climate change, sustainability or the environment in terms of the information contained in this report. 9. Other Implications 9.1. Fraud risk is recognised as one of the top risks facing SLC. This risk is significant as it can adversely affect the delivery of Council objectives and erode valuable resources. It is therefore important that the risk of fraud is soundly managed. Fraud Risk Registers are in place within all Resources and are reviewed and updated annually in line with standard Risk Management procedures. Periodic self- assessment exercises against good practice guidance in fraud management inform these updates. 111
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9.2. The Council’s Serious and Organised Crime (SOC) working group have developed an action plan to address the impact of COVID-19 on SOC and the challenges that this has brought to the Council in the short, medium and long term. The Group progress delivery of various actions, revising if any new or emerging threats are identified through the pan Lanarkshire Multi Agency SOC Group. 9.3. The collection and reporting of fraud statistics assists in the management of fraud by identifying patterns and trends of fraud and areas of high risk where preventative controls should be concentrated. However, in order to do this effectively, fraud statistics must be complete. Internal Audit will continue to highlight areas where practice could be improved to ensure that all instances of potential and actual fraud are reported to Internal Audit. 9.4. There are no sustainability issues in terms of the information contained in this report. 10. Equality Impact Assessment and Consultation Arrangements 10.1. There is no requirement to undertake an equality impact assessment. 10.2. Consultation was not necessary for this report. Jackie Taylor Executive Director (Finance and Corporate Resources) 6 September 2024 Link(s) to Council Values/Priorities/Outcomes Accountable, effective, efficient and transparent Previous References Fraud Statistics 2022/2023 Annual Report, 22 August 2023 Fraud Statistics Six Monthly Update, 30 January 2024 List of Background Papers None Contact for Further Information If you would like to inspect the background papers or want further information, please contact:- Yvonne Douglas, Audit and Compliance Manager Ext: 2618 (Tel: 01698 452618) E-mail: yvonne.douglas@southlanarkshire.gov.uk 112
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Report Agenda Item Report to: Risk and Audit Scrutiny Committee Date of Meeting: 24 September 2024 Report by: Executive Director (Finance and Corporate Resources) Subject: Year End Insured Risks Report – 2023/2024 1. Purpose of Report 1.1. The purpose of the report is to:- [purpose} highlight trends on an annual basis, for insurance claims against the Council [1purpose] 2. Recommendation(s) 2.1. The Committee is asked to approve the following recommendation(s):- [recs] (1) that the Insured Risks Report for year ended 31 March 2024 be noted. [1recs] 3. Background 3.1. The Council has in place insurance policies for employers’ liability, public liability, motor, property and other miscellaneous risks. 3.2. The combined liability policy covers both public liability (PL) and employer’s liability (EL) claims. The PL section of the policy provides indemnity for the Council’s legal liability to pay claims for death, injury and disease to third parties, as well as third party property damage, where the Council is found to be responsible for such losses. The EL section of the policy covers employee injury, disease, and death, where the Council is deemed to be negligent. The self-insured excess for this policy is £0.500 million. 3.3. Motor insurance provides comprehensive cover for all council vehicles and injuries resulting from motor incidents. The self-insured excess for this policy is £0.150 million. 3.4. The property insurance policy covers damage/loss to council buildings and assets. The self-insured excess for this policy was increased at renewal on 1 April 2024 to minimise the extent of premium increases against a challenging insurance market. The self-insured excess for this policy is £0.500 million for all claims (increased from £0.100 million), other than for storm and flood where a £1.000 million excess applies (increased from £0.500 million). 4. Five Year Overview 4.1. Claims which fall under the main policies are handled by the Council’s Risk Management section and external claims handlers, Gallagher Bassett for combined liability claims, and the Davies Group for motor claims. The number and cost of these claims form the basis of this report and includes comparisons with previous years. 4.2. Claims will continue to be intimated beyond the financial year end, with numbers increasing by approximately 10 per cent due to those incidents that have taken place, but claims have not yet been reported to the Council. 10 113
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4.3. Up to date annual comparisons for the last 5 years are included at Appendix 1. The comparison shows that claim numbers have fluctuated over the period, with the highest number of claims being intimated in 2019/2020 (996). The average number of claims intimated each year is 870, therefore, with 886 claims intimated for 2023/2024, last year’s claim numbers are slightly above average. It should be noted also that 2020/2021 experienced an unusually low number of claims, due to reduced operations at the start of the pandemic, which affects the 5-year average figure. 4.4. Claims costs have also fluctuated over the last 5 years. On average, over that period, the self-insured cost of claims per annum is £2.444 million, with 2023/2024 costs notably above average at £3.548 million. It should be noted however that last year’s figures are higher due to a number of significant storm events, with the self-insured estimated cost of these four losses being £0.801 million. Inflation, increased costs of materials, car parts and repair charges has impacted on claim values also. 4.5. In addition, to allow comparison of the position as at the year-end for the last 2 years, Appendix 2 compares the claim numbers and costs for incidents reported in 2022/2023 as at 31 March 2023 against incidents reported in 2023/2024, as at 31 March 2024. In effect, this compares the equivalent position and removes the impact of late claims notification for both years. 5. Total losses reported as at 31 March each year – 2022/2023 v 2023/2024 5.1. Based on the comparisons in Appendix 2, the overall number of claims for all classes received to date for incidents occurring during 2023/2024 is 886. This is an increase of 7 claims (1 per cent) on the numbers reported last year for 2022/2023. 5.2. The total self-insured estimated cost of claims for 2023/2024 is £3.548 million. At the same time last year estimated claims costs for 2022/2023 was £2.475 million. This is an increase of £1.073 million (43 per cent). One of the main reasons for the increase in costs last year is due to damage to council properties as a result of 4 significant storm events that occurred over the winter period. 5.3. Based upon Appendix 2, sections 6 to 8 detail some of the key findings from the analysis of 2023/2024 claims. 6. Combined liability claims 6.1. The combined liability policy covers for both public liability (PL) and employer’s liability (EL) claims. The PL section of the policy provides indemnity for the Council’s legal liability to pay claims for death, injury and disease to third parties, as well as third party property damage, where the Council is found to be responsible for such losses. The EL section of the policy covers employee injury, disease, and death, where the Council is deemed to be negligent. The following sections detail the current position for 2023/2024 and makes comparisons against the position reported for 2022/2023 as at 31 March 2023. 6.2. 415 claims have been received for 2023/2024, with an estimated value of £1.361 million. 6.3. The number of claims received for 2022/2023 was 440 and the estimated settlement value of these claims was £0.948 million. The 2023/2024 figures represent a 6 per cent reduction in claims received however a there has been a 43.5 per cent increase in claims costs. 114
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6.4. Despite the overall number of claims reducing, there has been a higher number of significant injury and property damage claims received from members of the public . These claims are the main reason for the increasing claim costs. It is anticipated that the value of these ongoing claims will change as claims are answered and files closed off by claims handlers. 6.5. The main area where a decrease in claim numbers has been seen is in Housing and Technical Resources where 68 fewer claims have been received, due to less public liability claims for water damage from burst pipes. 6.6. A further breakdown of public liability claims numbers and costs specifically for Roads and for other services within Community and Enterprise Resources is contained within Appendix 3. 7. Motor claims 7.1. The Council’s motor insurance policy provides comprehensive cover for all council vehicles and injuries resulting from motor incidents. The following sections detail the current position for 2023/2024 and makes comparisons against the position reported for 2022/2023 as at 31 March 2023. 7.2. 394 claims have been received for 2023/2024, with an estimated value of £0.697 million. 7.3. At the same time last year, 395 motor claims had been received for incidents during 2022/2023, with an estimated settlement value of £0.629 million. This equates to an 11 per cent increase in costs, which is in part, due to the rising costs of vehicle parts and repairs. Claim numbers remain in line with the 2 previous years. 7.4. “At fault” incidents continue to be monitored. Table One compares the number and cost of “at fault” incidents for the last 5 years. Table One – Comparison of “at fault” incidents Number of vehicles on fleet Number of incidents Cost of incidents Number of Accidents per vehicle Average cost per incident 2019/2020 1,588 145 £367,909 0.09 £2,537 2020/2021 1,808 127 £328,250 0.07 £2,585 2021/2022 1,834 189 £432,672 0.10 £2,289 2022/2023 1,863 200 £471,263 0.11 £2,356 2023/2024 1,700 184 £315,446 0.11 £1,714 7.5. The number of “at fault” incidents has improved, with 16 fewer incidents during 2023/2024, when compared to the previous year. At the same time vehicle numbers on the Council’s fleet have decreased by 163. 7.6. With 0.11 “at fault” incidents per vehicle for 2023/2024, this is above the average for the four previous years (0.09). 7.7. Following the roll out of a driver behaviour training programme for managers, a further training course on challenging driver behaviour specifically aimed at employees who drive a fleet vehicle or who use their own vehicle or pool cars whilst on council business was recently launched. The course has been developed to provide guidance to drivers on actions that they can take to reduce the likelihood of them being involved in a motor accident. 115
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8. Property claims 8.1. The property insurance policy covers damage/loss to council buildings and assets. This section of the report details the current claim position for 2023/2024 and makes comparisons against the status reported for 2022/2023 as at 31 March 2023. 8.2. 77 claims have been received for 2023/2024, with an estimated self-insured value of £1.491 million. 8.3. The overall number of claims intimated for 2023/2024 has increased by 33 from the previous year, which equates to a 75 per cent increase. The value of estimated claims intimated during 2023/2024 at £1.491 million is an increase of £0.594 million from 2022/2023, a 66 per cent increase. 8.4. The reason for the increase is due to more weather events taking place over the winter months that resulted in damage to council properties, mainly housing stock, and an increased number of fires within the housing stock. 8.5. The overall value of the 4 storm claims that occurred during 2023/2024 is £0.801 million. In line with the current uninsured excess for storm on the Council’s property insurance policy, the first £0.500 million of each storm claim will require to paid from the Council’s Self Insurance Fund. 8.6. The main cause of property claims during 2023/2024 continues to be fires within the council’s housing stock. The number of council house fires resulting in insurance claims has increased by 14, from 13 incidents in 2022/2023 to 27 in 2023/2024. Costs over this period have increased by £0.177 million, from £0.330 million in 2022/2023 to £0.507 million in 2023/2024. The main causes of fires within council housing are as a result of wilful fire raising, cooking and cigarettes/smoking materials. Details of actions being taken to reduce this risk are noted in section 9.3. 9. Insurance hotspots and claim mitigation 9.1. Following a health and safety training review by Gallagher Bassett last year an action plan is being prepared to help mitigate against accidents and claims. 9.2. Resources are also being asked to respond with details of the actions taken to minimise the risk of recurring losses and to mitigate against future claims. 9.3. The Council continues to raise awareness to council tenants on fire prevention and measures that can be taken to reduce the risk of burst pipes. 10. Employee Implications 10.1. Time and effort will continue to be required by Resource personnel to deal with the significant number of claims intimated. Resource Personnel will also require to dedicate time to implementation of initiatives to mitigate insurance hotspots. 11. Financial Implications 11.1. Claims received to date, for incidents which occurred during 2023/2024 have an estimated self-insured cost of £3.548 million. It is reasonable to expect this value to increase due to incidents that have taken place, but claims have not yet been received. 11.2. During 2023/2024, a total of £2.782 million was paid out by the council on all claims, irrespective of their incident date. For claims which occurred between 1 April 2023 and 31 March 2024, £0.313 million was paid out by the Council. These costs include claims payments and other associated costs. 116
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11.3. The total cost of loss for 2023/2024 was £5.274 million. This covers self-insured claims costs, (£2.782 million) insurance premiums (£2.492 million), and other costs for contracted insurance services. For 2022/2023 the total cost of loss was £4.546 million. 11.4. The balance in the insurance fund will require to be closely monitored to ensure adequate funds are available to meet known liabilities. 12. Climate Change, Sustainability and Environmental Implications 12.1. There are no implications for climate change, sustainability or the environment in terms of the information contained in this report. 13. Other Implications 13.1. The cost of insurance claims and premiums is linked to the Council top risk ‘Reduction in external funding and fees/income received by the council, as well as increased financial pressures/demand for services; results in savings difficulties’. 13.2. Over the last 5 years, the council’s claims handlers have repudiated a total of 1,549 public liability claims, which reduces the potential level of claim settlements. This equates to a repudiation rate of 64 per cent. 13.3. Failure to adequately manage insurance hotspots is likely to lead to increased claims numbers, self-insurance costs and insurance premiums. This risk is mitigated through the insurance hotspots review and associated action plans and other risk management initiatives implemented by Resources. 14. Equality Impact Assessment and Consultation Arrangements 14.1. There is no requirement to carry out an impact assessment in terms of the proposals contained within this report. 14.2. Consultation has taken place with Resource risk representatives. Jackie Taylor Executive Director (Finance and Corporate Resources) 2 September 2024 Link(s) to Council Values/Priorities/Outcomes Accountable, effective, efficient and transparent Previous References Risk and Audit Scrutiny Committee – 2023/2024 Year End Insured Risks – 22 August 2023 List of Background Papers Insured Risks Annual Report for year ended 31 March 2024 Contact for Further Information If you would like to inspect the background papers or want further information, please contact:- Craig Fergusson, Head of Finance (Transactions) Ext: 4951 (Tel: 01698 454951) E-mail: craig.fergusson@southlanarkshire.gov.uk 117
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Appendix 1 Full year claims numbers and values by Resource as at 31 March 2023. All claim types Number of claims 2019/20 2020/21 2021/22 2022/23 2023/24 Community and Enterprise 633 520 555 484 541 Education 32 22 40 27 35 Finance and Corporate 2 2 1 2 2 Housing and Technical 397 261 298 309 205 Social Work 65 83 101 107 103 Total 1,129 888 995 929 886 Reported at individual year end 996 768 822 879 Cost of claims 2019/20 2020/21 2021/22 2022/23 2023/24 Community and Enterprise £1,188,488 £597,969 £1,165,185 £735,788 £1,283,276 Education £52,383 £377,183 £171,370 £144,081 £202,275 Finance and Corporate £50 £0 £8,000 £10,000 £16,500 Housing and Technical £1,233,596 £564,591 £550,359 £1,515,266 £1,851,783 Social Work £72,955 £478,689 £290,614 £181,594 £194,404 Total £2,547,473 £2,018,432 £2,185,528 £2,586,729 £3,548,238 Reported at individual year end £1,946,633 £2,009,739 £2,241,620 £2,474,988 Combined Liability Number of claims 2019/20 2020/21 2021/22 2022/23 2023/24 Community and Enterprise 399 308 280 323 309 Education 17 11 36 17 15 Finance and Corporate 1 2 1 2 1 Housing and Technical 231 166 169 174 75 Social Work 8 10 7 9 15 Total 656 497 493 525 415 Cost of claims 2019/20 2020/21 2021/22 2022/23 2023/24 Community and Enterprise £790,440 £278,057 £513,661 £373,589 £818,300 Education £48,674 £362,206 £169,723 £123,644 £98,354 Finance and Corporate £50 £0 £8,000 £10,000 £16,500 Housing and Technical £666,062 £291,982 £397,959 £590,933 £344,890 Social Work £39,776 £422,993 £207,330 £91,262 £82,619 Total £1,545,003 £1,355,239 £1,296,673 £1,189,428 £1,360,663 Motor Number of claims 2019/20 2020/21 2021/22 2022/23 2023/24 Community and Enterprise 202 189 213 187 211 Education 6 1 2 7 10 Finance and Corporate 1 0 0 0 1 Housing and Technical 121 56 94 114 93 Social Work 54 63 84 91 79 Total 384 309 393 399 394 Cost of claims 2019/20 2020/21 2021/22 2022/23 2023/24 Community and Enterprise £363,108 £293,834 £456,971 £341,649 £421,169 Education £365 £1,163 £1,297 £5,283 £6,926 Finance and Corporate £0 £0 £0 £0 £0 Housing and Technical £191,063 £87,594 £152,400 £184,318 £157,583 Social Work £33,179 £55,152 £76,456 £89,756 £110,935 Total £587,715 £437,743 £687,124 £621,006 £696,614 118
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Property Number of claims 2019/20 2020/21 2021/22 2022/23 2023/24 Community and Enterprise 32 23 23 15 21 Education 9 10 2 3 10 Finance and Corporate 0 0 0 0 0 Housing and Technical 45 39 35 21 37 Social Work 3 10 10 7 9 Total 89 82 70 46 77 Cost of claims 2019/20 2020/21 2021/22 2022/23 2023/24 Community and Enterprise £34,941 £26,078 £194,553 £20,550 £43,807 Education £3,343 £13,812 £350 £15,153 £96,995 Finance and Corporate £0 £0 £0 £0 £0 Housing and Technical £376,470 £185,016 £285,014 £740,015 £1,349,310 Social Work £0 £544 £6,828 £576 £850 Total £414,754 £225,450 £486,745 £776,294 £1,490,962 119
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Appendix 2 Comparison of claims costs and numbers for claims occurring during the last 2 years as at their respective year ends All claim types Number of claims 2022/23 as at 31 March 2023 2022/23 as at 31 March 2024 Difference Difference Percentage Community and Enterprise 478 541 63 13% Education 18 35 17 94% Finance and Corporate 1 2 1 100% Housing and Technical 276 205 -71 -26% Social Work 106 103 -3 -3% Total 879 886 7 1% Cost of claims 2022/23 as at 31 March 2023 2022/23 as at 31 March 2024 Difference Difference Percentage Community and Enterprise £785,418 £1,283,276 £497,858 63% Education £128,098 £202,275 £74,178 58% Finance and Corporate £13,050 £16,500 £3,450 26% Housing and Technical £1,335,302 £1,851,783 £516,481 39% Social Work £213,121 £194,404 -£18,718 -9% Total £2,474,988.43 £3,548,237.81 £1,073,249 43% Combined liability Number of claims 2022/23 as at 31 March 2023 2022/23 as at 31 March 2024 Difference Difference Percentage Community and Enterprise 278 309 31 11% Education 9 15 6 67% Finance and Corporate 1 1 0 0% Housing and Technical 143 75 -68 -48% Social Work 9 15 6 67% Total 440 415 -25 -5.7% Cost of claims 2022/23 as at 31 March 2023 2022/23 as at 31 March 2024 Difference Difference Percentage Community and Enterprise £413,682 £814,415 £400,733 97% Education £109,178 £126,939 £17,761 16% Finance and Corporate £13,050 £16,500 £3,450 26% Housing and Technical £318,637 £344,890 £26,253 8% Social Work £93,652 £57,919 -£35,733 -38% Total £948,199 £1,360,662 £412,463 43% 120
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Motor Number of claims 2022/23 as at 31 March 2023 2022/23 as at 31 March 2024 Difference Difference Percentage Community and Enterprise 186 211 25 13% Education 6 10 4 67% Finance and Corporate 0 1 1 0% Housing and Technical 112 93 -19 -17% Social Work 91 79 -12 -13% Total 395 394 -1 0% Cost of claims 2022/23 as at 31 March 2023 2022/23 as at 31 March 2024 Difference Difference Percentage Community and Enterprise £340,086 £421,169 £81,083 24% Education £3,237 £6,926 £3,690 114% Finance and Corporate £0 £0 £0 0% Housing and Technical £168,507 £157,583 -£10,924 -6% Social Work £117,668 £110,935 -£6,732 -6% Total £629,497 £696,614 £67,117 11% Property Number of claims 2022/23 as at 31 March 2023 2022/23 as at 31 March 2024 Difference Difference Percentage Community and Enterprise 14 21 7 50% Education 3 10 7 233% Finance and Corporate 0 0 0 0% Housing and Technical 21 37 16 76% Social Work 6 9 3 50% Total 44 77 33 75% Cost of claims 2022/23 as at 31 March 2023 2022/23 as at 31 March 2024 Difference Difference Percentage Community and Enterprise £31,650 £43,807 £12,157 38% Education £15,683 £96,995 £81,312 518% Finance and Corporate £0 £0 £0 0% Housing and Technical £848,158 £1,349,310 £501,152 59% Social Work £1,802 £850 -£952 -53% Total £897,293 £1,490,962 £593,669 66% 121
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Appendix 3 Public Liability – Community and Enterprise Resources Roads and other claims Number of claims 2019/20 2020/21 2021/22 2022/23 2023/24 Total Roads claims - injury 77 71 59 45 38 290 Community and Enterprise Resources other - injury 10 8 10 10 8 46 Roads claims – property damage 252 178 160 221 195 1,006 Community and Enterprise Resources other – property damage 50 40 46 38 32 206 Total 389 297 275 314 273 1,548 Cost of claims 2019/20 2020/21 2021/22 2022/23 2023/24 Total Roads claims - injury £562,301 £161,790 £448,655 £151,542 £444,031 £1,768,320 Community and Enterprise Resources other - injury £32,658 £15,759 £4,150 £93,755 £20,620 £166,942 Roads claims – property damage £28,800 £48,803 £18,811 £29,438 £106,617 £232,468 Community and Enterprise Resources other – property damage £24,327 £8,108 £8,297 £4,517 £36,522 £81,770 Total £648,086 £234,460 £479,913 £279,252 £607,790 £2,249,500 *note number and cost of these public liability claims are also contained in Appendix 1. 122
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Report Agenda Item Report to: Risk and Audit Scrutiny Committee Date of Meeting: 24 September 2024 Report by: Executive Director (Finance and Corporate Resources) Subject: Year End Risk Management Report (2023/2024) and Review of Council's Top Risks (2024/2025) 1. Purpose of Report 1.1. The purpose of the report is to:- [purpose] provide the Risk and Audit Scrutiny Committee (RASC) with an update on progress with risk management activity undertaken during 2023/2024 provide an update on the Council’s top risk register following the review and consultation process provide an update on the Council’s Risk Management Strategy following a review process [1purpose] 2. Recommendation(s) 2.1. The Committee is asked to approve the following recommendation(s):- [recs] (1) that Resource compliance with the requirements of the Risk Management Strategy be noted; (2) that the progress being made in delivering actions to mitigate top Council risks be noted; (3) that the updated Council top risks, detailed at Section 6, are noted; and (4) that the updated Risk Management Strategy be noted. [1recs 3. Background 3.1. Annual reviews of the Council’s top risks are undertaken, with the findings of the last review reported to the Committee on 31 October 2023. This year’s full review commenced in April 2024. The consultation involved views being sought from Heads of Service, Elected Members and Trade Unions on new areas of risk. 3.2. The results of the work undertaken was considered and used to inform proposals for a refined set of top risks. The feedback was used to review risk descriptions, as required. 3.3. The content of this report provides the Committee with the outcome of the review of these risks. 4. Resource compliance with the Risk Management Strategy 4.1. Risk Sponsors are required on an annual basis to assess Resource compliance with the Risk Management Strategy and provide supporting evidence. The information for 2023/2024 is summarised in the end of year compliance statement which is attached at Appendix 1. 11 123
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4.2. Appendix 1 shows that Resources continue to demonstrate full compliance with the Strategy, having scored 45 out of 45. 4.3. It is important that the current level of compliance is maintained to demonstrate effective risk management which contributes to robust service planning and improved decision making. 5. Progress made in delivering actions to control the Council’s top risks 5.1. As at 31 March 2024, the percentage of actions completed on the 2023/2024 risk control plan was 94.4 per cent against an overall target of 90 per cent. One action, ‘Develop neighbourhood plans in East Kilbride and Hamilton’, has been delayed and carried forward to the 2024/2025 risk control plan. 5.2. Table 1 below shows the overall status as at 31 March 2024 for all actions relating to the Council’s top risk register. Table 1 – Completion of top risk control actions Action status Number of actions Percentage of actions Complete 17 94.4% Carried forward to 2024/2025 1 5.6% Total 18 100% 5.3. Actions identified during this year’s review have been included within the 2024/2025 top risk control plan. This contains a total of 15 actions. 6. Results of the review of the Council’s top risks 6.1. To assist the review process, the following broad criteria were recommended as a guide to concluding what constitutes a top risk:- it threatens delivery of corporate objectives it impacts on other services or partnerships there are financial impacts or it impacts on other key priority strategies there are impacts of a social or demographic context 6.2. Risks from last year’s review, as detailed on the report to Committee on 31 October 2023, were mostly deemed to be still valid. The main changes and developments with the top risks are summarised below:- Two new risks have been added:- The Council inherits commercially unviable shopping centres due to the financial failure of existing owner/management companies resulting in significant financial and operational liabilities transferring to the council. The Council fails to comply with its statutory duties by not conducting sufficiently robust impact assessments where the same are required, including in respect of budget/service redesign proposals, leading to potential legal and financial challenges, which could result in failure to deliver those proposals. Some key risk wordings have been updated to reflect the current status of risks and/or to provide more straightforward and understandable risk descriptions. The risk score for ‘Inability of the Council to effectively provide accommodation and support to households who are homeless and people who arrive in South Lanarkshire as part of refugee resettlement and the asylum seeker dispersal programmes, (including those for unaccompanied children)’ has increased from 124
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16 to 20. This is consistent with the difficulties faced managing the risk, reflected in the Council’s recent declaration of a housing emergency. The risk score for ‘Inability to take the necessary action due to funding constraints, to combat climate change, and work toward achieving net zero carbon emissions by 2045, thereby contributing to negative and irreversible environmental, social and economic impacts on the Council and its residents’ has increased from 16 to 20, to reflect funding constraints and difficulties faced by the Council in meeting climate change targets. The risk score for ‘Fraud, theft, organised crime and cyber attacks’ has increased from 12 to 20. Whilst controls in this area have been assessed as adequate, the threat landscape is very active at the moment and shows no signs of easing. The residual score for ‘The Council does not fully deliver the strategic outcomes required of the IJB as outlined in their Strategic Commissioning Plan’ has increased from 16 to 20, due to the requirement to implement significant savings to address budget shortfalls alongside significant demand pressures. The residual risk score in respect of ‘Lack of capacity and skills to meet increased service demands’ has increased from 9 to12 in light of a shift in supply/demand of officers and recruitment difficulties. The risk score for ‘Increasing levels of adverse weather’ has gone up from 9 to 16. This reflects more frequent issues being encountered by the council as a result of weather-related events, including significant damage to council properties over recent years as a result of storms and burst pipes. Weather events are also impacting upon the Council’s property insurance premiums and level of uninsured excesses carried. The risk score has reduced from 16 to 9 in relation to the ‘Implications of the Scottish Fire and Rescue Service Unwanted Fire Alarm Signals Policy within the Council's non-domestic estate’ risk. The continuing risk in this area is mainly in respect of property damage due to a fire when the property is unoccupied out of hours. Our property claims history indicates that the risk of fires in non-domestic properties is low, and additionally our schools are protected either by sprinklers or fire suppression systems, which further mitigate this risk. The ‘Community Wealth Building Strategy’ risk score has reduced from 16 to 9 which aligns this risk with the risks for the council’s other plans and strategies. The ‘IT development/functionality’ risk description has been widened to encompass implementation of new systems. This reflects the three significant IT projects which continue to be progressed at present for the Integrated Housing Management System, the SWIS+ replacement (Liquidlogic) and Fusion. 6.3. The Council’s top risk register is monitored on an ongoing basis and updates are reported annually to this Committee. Risk scores and rankings may be amended if new information comes to light that allows the position to be reassessed. 6.4. As a result of the above changes and taking account of the revision of risk scores, the top risk register for 2024/2025 is attached at Appendix 2. 7. Benchmarking 7.1. A benchmarking exercise was undertaken by the Scottish Local Authority Chief Internal Auditors Group (SLACIAG) in December 2023. A total of 28 public sector organisations (including South Lanarkshire Council) took part in the exercise. This review established that the current South Lanarkshire Council top risk register is in the main reflective of the risks faced by authorities. 125
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7.2. The AON Global Risk Management Survey was published within ALARM Stronger Journal in April 2024. This survey collects the views of more than 2,800 decision makers across the public and private sectors and provides an indicator of the risk landscape being faced across a number of organisations. 7.3. The survey noted the top 10 current risks being faced by the public sector, as well as the top 10 future risks. These are noted in Table 2 below: Table 2 – Current and Future Risks faced by the public sector Current risks Current risks – SLC position Future risks Future risks – SLC position 1 Cyber attack or data breach Already covered within top risks Cyber attack or data breach Already covered within top risks 2 Damage to brand or reputation Covered as an impact within a number of top risks Failure to attract or retain top talent Already covered within top risks 3 Failure to attract or retain top talent Already covered within top risks Economic slowdown or slow recovery Already covered within top risks 4 Regulatory or legislative change Scored as a medium risk rating and monitored at Resource level Regulatory or legislative change Scored as a medium risk rating and monitored at Resource level 5 Economic slowdown or slow recovery Already covered within top risks Cash flow or liquidity risk Already covered within top risks 6 Cash flow or liquidity risk Already covered within top risks Damage to brand or reputation Covered as an impact within a number of top risks 7 Property damage Already covered within top risks Capital availability Already covered within top risks 8 Business Interruption Already covered within top risks Failure to innovate or meet customer needs Covered by a number of existing top risks 9 Political risk Not considered appropriate at this time Workforce shortage Already covered within top risks 10 Failure to innovate or meet customer needs Covered by a number of existing top risks Artificial intelligence Not considered appropriate at this time 7.4. The vast majority of these risks have also been captured within the current top risks, and, therefore, provides further comfort that the Council’s understanding of our current and future risk landscape is in line with other public sector bodies. Further detail on the potential risks posed by Artificial Intelligence is covered within Section 8, Horizon Scanning. 7.5. A watching brief will be kept on these areas, to ascertain if any further risks materialise. 126
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8. Horizon Scanning 8.1. Through wider analysis and discussion with the Council’s Risk Sponsors Group, areas that could pose potential threats and risks or emerging issues and opportunities that could affect the council were identified. Areas identified are listed below:- Transformational Change The Council is embarking upon a transformational change programme which will include a series of Cross-Cutting Reviews, focussing on council-wide activities rather than individual Resources. Monitoring of the delivery of transformational change reviews will inform whether an overarching ‘transformational change’ risk requires to be developed and added to the top risk register. Outcomes from the reviews offer mitigation to the top risk on funding. Scotland Excel Supply Chain Intelligence Report A recent Scotland Excel Supply Chain Intelligence report highlights a significant number of national and global issues that will present supply chain challenges. This report has been circulated throughout the Council and Resources are being encouraged to prepare and where possible put plans in place to react to the challenges that arise. A further intelligence report is due to be provided by the end of the year. Artificial Intelligence As the capabilities of Artificial Intelligence (AI) continue to evolve, there are potential implications for the Council that warrant close monitoring. While AI offers opportunities to enhance efficiency and service delivery, it also presents risks such as ethical concerns, data privacy issues, and potential displacement of jobs within the public sector. The rapid pace of AI development may outstrip existing regulatory frameworks, leading to challenges in governance and accountability. Although AI is not currently included in the risk register, it is important to remain vigilant, particularly in areas such as automated decision- making, cybersecurity threats, and the integration of AI-driven tools in public services. 8.2. These areas will continue to be monitored to ensure that the Council is adequately prepared to respond where required. 9. Three lines model 9.1. The ‘three lines’ model was developed by the Institute of Internal Auditors. When using this model, risk controls are categorised under three lines of defence. This aims to provide assurance around the adequacy of control measures that are in place to mitigate strategic risks, identify control descriptions that need amendment to clearly link these to the mitigation of the risk and to highlight any residual gaps in controls that require to be addressed. 9.2. Internal Audit work on the three lines model for the top risks is concluding and Resource Risk Sponsors will now be provided with individual analysis and guidance to support them in developing further controls to close any gaps identified from the three lines approach for the council top risks that they lead on. 9.3. The guidance will cover the following areas:- 127
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introduction and explanation of the three lines model a summary of all of the top risks that the Resource is responsible for along with a percentage analysis (Percentage split of how the existing controls fall into each of the three lines, highlighting gaps for consideration) some advice for each Resource on how controls can be developed (using specific examples) to provide a good coverage of controls across the three lines for each risk area. 10. Scope and appetite for risk 10.1. The Council aims to be risk embracing, that is it will accept a tolerable level of risk in seeking service efficiencies and in agreeing control measures. 10.2. The level of risk facing the council is measured both before (inherent risk) and after (residual risk) consideration of controls. The Council should never carry a very high residual risk exposure as this would indicate instability, but a low residual risk exposure should also be avoided as this indicates lack of innovation. 10.3. The Council’s universal risk tolerance levels were updated as part of the review of the risk management strategy last year, with the ideal risk profile defined as:- no more than 10 per cent of residual risks at a very high level no more than 15 per cent of risks at a high level around 50 to 60 per cent of residual risks at a medium level no more than 30 per cent of residual risks at a low level 10.4. Table 3 below shows the top risks heat map, i.e. it details the total number of risks for each individual risk score. Table 4 below notes the overall risk profile for the top risks. Table 3 – Top risks heat map Likelihood 5 Almost certain 4 4 Likely 6 5 3 3 Possible 5 2 2 Unlikely 3 1 Rare 1 Negligible 2 Minor 3 Moderate 4 Major 5 Catastrophic Impact Table 4 –Top risks risk profile Risk category Risk rating Number of risks Percentage of risks 1 Very high 12 42.9% 2 High 16 57.1% 3 Medium 0 - 4 Low 0 - 10.5. The main changes to the risk profile from last year are:- 128
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Two new very high risks have been added to the top risk register:- The Council inherits commercially unviable shopping centres due to the financial failure of existing owner/management companies resulting in significant financial and operational liabilities transferring to the Council The Council fails to comply with its statutory duties by not conducting sufficiently robust impact assessments where the same are required, including in respect of budget/service redesign proposals, leading to potential legal and financial challenges, which could result in failure to deliver those proposals Two risks have moved from being high up to very high:- Fraud, theft, organised crime and cyber attacks Increasing levels of adverse weather Two risks have moved from being very high down to high:- Implications of the Scottish Fire and Rescue Service Unwanted Fire Alarm Signals Policy within the council's non-domestic estate The Council fails to deliver the objectives of the Community Wealth Building Strategy 10.6. The number of very high risks has increased from 10 last year to 12. There are currently 16 risks scored at the high level, the same number as last year. 10.7. The profile noted in Table 4 is outwith the ideal universal risk exposure defined by the Risk Management Strategy. These are, however, the highest level risks currently being faced by the Council. 10.8. The Council is now carrying a slightly higher level of risk than last year. Whilst this profile is not unusual in the current climate, where possible further mitigation is encouraged. Upon completion of the exercise to categorise controls using the ‘three lines’ model (noted at section 9 of the report), further work will be undertaken to review controls and where required risk owners should consider implementation of new actions to further mitigate risks and review residual scores thereafter. 11. Review of the Risk Management Strategy 11.1. To comply with best practice and to ensure it is fit for purpose, a review the Risk Management Strategy has been undertaken this year. The review was undertaken by the Risk Management team, with input from the Council’s Risk Sponsors. 11.2. There have been no fundamental changes to the strategy. The main revisions are summarised below:- a general refresh to bring the strategy up to date including refences to revised information contained within Connect updated opening Chief Executive Statement introduction of guidance from the Institute of Internal Audit three lines model, to allow a better means of recording and categorising risk controls revisions to the risk matrix categories (low, medium, high and very high) to improve prioritisation and focus mitigation on higher scored risks updated risk tolerance levels to provide a better balance on previously set levels and acknowledge requirement to accept a higher level of risk 11.3. The Committee is asked to note the updated Risk Management Strategy, attached at Appendix 3. 129
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11.4. In summary the Strategy details:- a policy statement which sets out the Council’s commitment to risk management, as one of the principal elements of good governance encouragement of reasonable risk taking in order to make service improvements and enable positive outcomes; the implementation of mitigating control measures to avoid or reduce the impact of losses and deterioration in services; the preparation and testing of business continuity plans for responding to emergency events clear aims, objectives and measures of success how and when to apply risk management roles and responsibilities for employees at all levels in the Council the Council’s risk tolerance level when seeking opportunities, services efficiencies and in agreeing control measures core requirements for Resources monitoring and Reporting arrangements 11.5. The revised Strategy will take effect from 1 April 2025, to allow to final round of 2024/2025 risk reporting to be completed using existing scoring and tolerance guidance. The strategy will be issued via a management bulletin and the Risk Sponsors Group. 12. Employee Implications 12.1. There are no direct employee implications relative to this report. There are proposed risks which are classified under the heading of employee. Where this is the case the appropriate controls and actions have been included in the risk control cards and progress will be monitored. 13. Financial Implications 13.1. There are no direct financial implications associated with the Council’s top risks. There are a number of proposed risks which are classified under the heading of financial. Where this is the case, the appropriate controls and actions have been included in the risk control cards and progress will be monitored. 14. Climate Change, Sustainability and Environmental Implications 14.1. There are no direct implications associated with the Council’s top risks. 14.2. A specific risk has been included within the Council’s top risk to cover climate change and environmental implications. The risk is titled ‘Inability to take the necessary action due to funding constraints, to combat climate change, and work toward achieving net zero carbon emissions by 2045, thereby contributing to negative and irreversible environmental, social and economic impacts on the council and its residents.’ Control measures that currently mitigate against this risk have been identified, with a number of additional actions recorded to further strengthen these controls. 14.3. There are a number of further risks within the Council’s top risk register which are categorised under the risk classification ‘Environmental’ and/or are linked to the Connect Outcome ‘Communities and Environment’. Appropriate controls and actions have been identified within the individual risk control cards and progress will be monitored. 15. Other Implications 15.1. Failure to demonstrate that risk is actively considered and managed can not only lead to avoidable financial loss but could also adversely affect delivery of services and could affect the Council’s reputation. The work carried out to identify and review the council’s 130
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top risks and to determine the risks controls and actions necessary enables the council to manage the impact. 16. Equality Impact Assessment and Consultation Arrangements 16.1. This report does not introduce a new policy, function or strategy or recommend a fundamental change to an existing policy, function or strategy and, therefore, no impact assessment is required. 16.2. Consultation has taken place with Heads of Service, Risk Lead Officers, Elected Members, Trade Unions and Resource Risk Sponsors. Jackie Taylor Executive Director (Finance and Corporate Resources) 5 September 2024 Link(s) to Council Values/Priorities/Outcomes Accountable, effective, efficient and transparent Previous References Risk and Audit Scrutiny Committee – Review of Council’s Top Risks/Year End Risk Management Report – 31 October 2023 List of Background Papers Top Risk Control Cards Contact for Further Information If you would like to inspect the background papers or want further information, please contact:- Craig Fergusson, Head of Finance (Transactions) Ext: 4951 (Tel: 01698 454951) E-mail: craig.fergusson@southlanarkshire.gov.uk 131
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Appendix 1 – 2023/2024 Compliance with risk management strategic requirements Key Score 3= Up to date and in line with requirement Score 2= Work in progress Score 1= Needs addressed Requirement from Risk Management Strategy Community and Enterprise Resources Education Resources Finance and Corporate Resources Housing and Technical Resources Social W ork Resources Risk registers are updated on an annual basis, in line with the council’s Risk Management Strategy 3 3 3 3 3 Where appropriate, council top risks are adequately reflected in the Resource risk register 3 3 3 3 3 Delivery of Resource risk control actions and control actions for top risks lead by the Resource are progressed. 3 3 3 3 3 The risk register and risk control plan are approved annually by the Resource Management Team 3 3 3 3 3 The risk register is presented for noting; and assurance of delivery of actions is given to the Resource Committee on an annual basis. 3 3 3 3 3 Information held on Figtree reflects the latest Resource Risk Register and Risk Control Plan 3 3 3 3 3 The council’s agreed risk profile and risk tolerance level is adopted. 3 3 3 3 3 Risk evaluations are undertaken prior to the commencement of major projects, partnerships and organisational changes 3 3 3 3 3 Formal risk sharing agreements for major partnerships and contracts are in place 3 3 3 3 3 Major decisions are transparent and clearly show the following key elements: • Full cost over life of proposal; • Funding source; • Savings or efficiencies; • Other benefits; • Associated risks and how they will be managed. 3 3 3 3 3 Elected members are kept informed of risks by using the “Other Implications” section of the Committee report template. This section should include: • The risks involved with the report’s recommendations; • The potential positive and negative consequences; • How these risks are currently being managed (existing controls) or how they will be managed going forward (additional actions); • Link to risks on the council’s top risk register. 3 3 3 3 3 Assurance is gained from contractors and sub-contractors, in line with procurement processes, of their adoption of recommended risk management practices, particularly that adequate insurance cover, safe health and safety practices, and equalities, sustainable development, business continuity and scrutiny procedures are in place. 3 3 3 3 3 Regular Resource Risk Management Group meetings (or alternative where risk management is a standing agenda item). 3 3 3 3 3 Liaison with Service Planners to ensure that risks associated with council and Resource plans are identified and assessed; and that appropriate plans are put in place to manage these risks. 3 3 3 3 3 Management of insurance hotspots and required mitigating actions 3 3 3 3 3 Total 45 45 45 45 45 Percentage compliance 100% 100% 100% 100% 100% 132
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Appendix 2 – Council top risk register 2024/2025 Risk Category Key risk Inherent Risk Score Residual Risk Score Controls (Good, adequate, poor) 1 Very High (15-25) The Budget Gap that the council is facing across the medium term is the biggest risk faced by the Council. The Budget Gap is the result of the continued real terms reduction in Government funding as well as the increased demand and increased cost of services including the significant impact of price increases on areas such as inflationary increases on utilities, and increased staff costs due to pay awards. Reduced fees/income received by the Council would add to budget pressures across Services 25 20 Adequate Inability of the council to effectively provide accommodation and support to households who are homeless and people who arrive in South Lanarkshire as part of refugee resettlement and the asylum seeker dispersal programmes (including those for unaccompanied children) 25 20 Good The council, in conjunction with its partners, is unable to provide the required support to reducing the overall impact of the costs of living crisis on households in South Lanarkshire resulting in increasing levels of poverty, debt, and poorer outcomes for people 25 20 Adequate Inability to take the necessary action due to funding constraints, to combat climate change, and work toward achieving net zero carbon emissions by 2045, thereby contributing to negative and irreversible environmental, social and economic impacts on the council and its residents 25 20 Good The council’s operations are affected by fraud, theft, organised crime and cyber attacks 25 20 Adequate The council does not fully deliver the strategic outcomes required of the IJB as outlined in their Strategic Commissioning Plan 25 20 Good The council fails to comply with or meet the expected standards of scrutiny and deliver the improvement actions identified by regulatory bodies 25 20 Adequate The provision of council services is disrupted because of industrial action 20 16 Adequate The council fails to comply with its statutory duties by not conducting sufficiently robust impact assessments where the same are required, including in respect of budget/service redesign proposals, leading to potential legal and financial challenges, which could result in failure to deliver those proposals * 20 16 Adequate Inability to ensure public protection and safety 25 16 Good The council inherits commercially unviable shopping centres due to the financial failure of existing owner/management companies resulting 20 16 Adequate 133
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in significant financial and operational liabilities transferring to the council * Increasing levels of adverse weather 20 16 Good 2 High (8-12) Failure to fulfil emergency response commitments befitting the council’s status as a Category One (emergency) responder 25 12 Adequate Due to the fragility and lack of capacity of the third and private sector market, providers are potentially unable to sustain their business models, which could result in a deterioration of their service standards and/or provider failure. This could result in the Council seeking alternative service provision in a reduced marketplace to allow us to meet the demand for services. 25 12 Good The council does not have the appropriate emergency / business continuity plans; contingency arrangements or partnerships in place to respond to/or recover from a pandemic/endemic event. 25 12 Good Procurement activity is affected by supply chain issues; a lack of resources; non-compliance or legal challenge 25 12 Good Lack of capacity and skills to meet increased service demands 20 12 Good Information governance not subject to adequate control 20 12 Adequate Historic childhood abuse 16 12 Good The council is materially affected by the implications arising from the National Care Service Bill 16 12 Adequate Implications of the Scottish Fire and Rescue Service Unwanted Fire Alarm Signals Policy within the council's non-domestic estate 25 9 Adequate Inability to maintain infrastructure, assets and properties in a well-maintained condition that will avoid unplanned closure, due to budget constraints and failure to achieve objectives of asset and property reviews 20 9 Good IT development, functionality and implementation of new systems does not support service delivery to secure efficiencies 20 9 Adequate The council fails to deliver the objectives of the Community Wealth Building Strategy 20 9 Good The council fails to deliver the outcomes of the Economic Strategy 12 9 Adequate Failure to ensure the health, safety and wellbeing of employees and the protection of service users and members of the public in the delivery of council services 20 8 Good Failure to achieve the outcomes of the Community Plan 2022-2032 20 8 Adequate 134
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Failure to achieve the outcomes of the Council Plan 16 8 Adequate ‘*’ indicates new risk added this year 135
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Appendix 3: Risk Management Strategy South Lanarkshire Council Risk Management Strategy August 2024 136
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South Lanarkshire Council Risk Management Policy Statement South Lanarkshire Council is committed to undertaking practical risk management to maximise the opportunities available and to minimise losses. The Council recognises that risk management is one of the principal elements of good governance and a key contributor to ensuring a sound internal control environment. South Lanarkshire Council aims, through a systematic framework and process, to identify, evaluate, manage and monitor all risks within its control to protect its employees, service users, assets, service delivery, reputation, community and business partners. South Lanarkshire Council promotes an inclusive approach to managing risk through engaging with Resources to embed, develop, challenge and support risk management activity within the Council. The overall aim of this policy is to raise awareness of risk throughout the Council. Introduction from Chief Executive The risk environment in which the public sector operates has been the most unpredictable and challenging in recent times and with the council embarking upon a wide ranging transformational change programme, it is imperative that we assess and manage the risks that come with such changes. Risk Management is an important element of our good governance arrangements and a key contributor to sound internal control. More generally, risk management supports our Connect Outcomes. As an organisation, we require to consider risk in all key decisions, as part of planning and budget setting processes, and when we undertake new projects and initiatives. To be successful, we need to take risk, but need to ensure the risk that we carry is appropriately managed and controlled, within acceptable tolerance levels. Paul Manning Chief Executive 137
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Introduction South Lanarkshire Council’s Resources, Services and employees are encouraged to develop new initiatives, improve performance and achieve goals safely, effectively and efficiently through the application of good risk management practice. For consistency throughout the Council, Resources are required to ensure that the systematic management of risks and opportunities is embedded in service planning and delivery; in the way they make decisions; in major projects; and in their dealings with partners and contractors. This strategy describes the specific risk management techniques and standards to be applied and the responsibilities for achieving effective risk management. The strategy aims to provide a sensible and proportionate approach to risk management that promotes awareness rather than avoidance. The Council seeks to promote an environment that is risk aware and strives to place risk management at the heart of key decisions. Applying a systematic risk management process will encourage: • reasonable risk-taking in order to make service improvements and enable positive outcomes; • the implementation of mitigating control measures to avoid or reduce the impact of losses and deterioration in services; • the preparation and testing of business continuity plans for responding to emergency events. Risk management is an integral part of all that we do and is key to the success of the Council. Definition of risk A risk is something which creates uncertainty and could prevent the Council, or our community and business partners, from achieving our Connect Outcomes; or which might detract from the successful delivery of our services. A risk is also an opportunity which is taken in order to improve services or efficiency. A risk can, therefore, be a positive opportunity or a negative threat. Risks can affect all Council services, our assets, employees, reputation, and our dealings with our community and business partners. Risk management aims and objectives We aim to: • integrate risk management into how we run the Council, ensuring risk management forms part of key decisions; • support reasonable risk taking in a balanced way, giving consideration to the level of risk, reward, impact and cost of control measures; • clearly identify all significant risks we face, prioritise these and ensure they are managed within set tolerance levels; • safeguard Council employees, assets and reputation; • achieve best value by ensuring more efficient use of resources; • ensure risk management is a key and effective element of our Corporate Governance arrangements, through more informed, transparent and accountable decision making; • develop awareness throughout the Council, to allow practical implementation of the risk management methodology; • ensure the Council operates within the requirements of the law; • share risk information through all areas of the Council to aid effective risk management and encourage best practice; • acknowledge that even with good risk management arrangements and best endeavours, things can go wrong; 138
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• learn from previous experiences, both good and bad, putting into practice what has been learned, ensuring that where necessary, steps are taken to reduce the likelihood of adverse events occurring again; • exploit opportunities. Risk Management - measures of success The measures of success for this strategy will be: • successful delivery of the Council Plan, Connect; • successful outcomes from external scrutiny; • fewer unexpected/unanticipated problems; • fewer incidents/accidents/complaints; • fewer claims/less litigation; • successfully taking advantage of opportunities; • maintaining a positive reputation for the Council. Risk management application The process of risk management does not seek to fully eliminate all risks, rather it aims to reduce risk to an appropriate level with which the organisation is comfortable, without preventing development. Good risk management is, therefore, about being risk aware and not risk averse. Management of risk must be carried out in a systematic manner and should be applied at both strategic and operational levels throughout the organisation. It should be practiced at all times but is especially important and must be considered: • during periods of major change; • prior to undertaking projects/as part of a project management system; • when entering into partnerships; • when setting budgets; • when amending structures; • as part of Procurement exercises; • when undertaking service reviews; • following political change; • as part of strategic planning/decision making process. Risk management and the strategic planning process To successfully manage risk, Connect Outcomes and Resource plan actions and measures must inform the Council’s risk management arrangements and vice versa. For this to occur, it is important that the arrangements for risk management are comprehensive enough to reflect the business of the Council as detailed within the Council Plan, Connect and individual Resource Plans. At a strategic level, the Council reviews its top risks each year and this contributes to the content of the annual Internal Audit plan. At a Resource level, Resource risk registers should be reviewed and updated following preparation of the annual Resource Plan. Risk registers must reflect the work of the Resource. To achieve this, the updated risk register must accurately reflect the content of the Resource Plan including details of risk controls and actions. Resource risk registers should be reviewed following the review of the Council’s top risks to ensure that any top risks that affect the Resource are adequately reflected. Resource risk registers are also considered as part of the Council’s top risk review process. This ensures the process is both top down and bottom up. 139
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Roles and responsibilities Risk management roles and responsibilities are as follows:- Roles and responsibilities The Chief Executive and the Corporate Management Team (CMT) will: • Ensure that risk management is embedded at all levels throughout the Council; • Prioritise and manage strategic risks and monitor those risks that are relevant to Council Plans and Policies. Executive Directors will: • Appoint a Resource Risk Sponsor and establish a Resource Risk Management Group (or alternative where risk management is a standing agenda item); • Evidence assurance of sound risk management within their Annual Governance Statement. The Executive Director – Finance and Corporate Resources will: • Champion risk management activity in the Council; • Organise reports on relevant risk management arrangements to the Risk and Audit Scrutiny Committee, the Finance and Corporate Resources Committee and the Executive Committee. The Head of Finance (Transactions), Finance Services, Finance and Corporate Resources will: • Co-ordinate the Council’s strategic risk management arrangements; • Provide periodic reports to the CMT and elected members on risk management arrangements. The Insurance and Risk Management Adviser, Finance Services, Finance and Corporate Resources will: • Liaise with Resources in the implementation and embedding of their risk management arrangements; • Offer advice and support to service managers and other groups in the management of operational and strategic risks; • Maintain a Risk Register for the Council; • Prepare reports on risk management and insured risks; • Drive forward risk management training, and support risk management initiatives; • Be aware of developments within insurance and risk management and share knowledge; • Prepare specific risk management guidance material; • Monitor the performance of Resources in meeting the requirements of the Risk Management Strategy. Audit and Compliance Manager, Finance and Corporate Resources • Create an Audit Plan that is aligned to the Council’s top risks; • Review/challenge the effectiveness of the Council’s risk management arrangements; • Test and validate existing control measures • Provide Resources support and guidance on the three lines model for categorising control measures The Corporate Risk Sponsors Group will: • Develop, challenge and support risk management activity at Resource and Corporate levels; • Advise and provide support to the CMT and lead officers on the management of risks and risk management processes; • Identify, analyse and discuss emerging risks resulting in provision of advice on opportunities and mitigation; • Lead new risk management initiatives; • Communicate the need to manage risk and share good practice; • Review risk management training materials and develop opportunities for dissemination of best risk management practice in Resources; 140
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• Review and prioritise the Council’s top risk register, co- ordinating the results for risk reporting and monitoring; • Prepare and deliver the annual risk management work plan. Resource Risk Sponsors will: • Lead their Resource Risk Management Group; • Facilitate the update of their Resource risk register and risk control plan; • Progress delivery of Resource risk control actions and control actions for top risks led by their Resource; • Prepare an annual progress report for their Resource Senior Management Team and their Resource Committee; • Participate in self evaluation of the risk management process and progress within their Resource; • Liaise with Service Planners to ensure that risks associated with Council and Resource plans are identified and that appropriate plans are in place to manage these risks. Resource Risk Groups will: • Consider and evaluate new risks to delivery of services; • Inform targeted risk management initiatives for the Resource; • Promote the management of risk at appropriate forums; • Manage Resource insurance hotspots and required mitigating actions. Heads of Service; Resource Management Teams; and Senior Managers will: • Take actions to deliver the Risk Management Strategy in their area of responsibility particularly promoting risk awareness in decision making; • Ensure risks are appropriately managed and that employees receive appropriate training; • Monitor operational risk management; • Input to the identification and management of top Council risks; • Provide assurance to elected members, by using the Other Implications section within reports, that risks associated with proposed plans have been evaluated and mitigated against. Operational Managers will: • Organise training and raise awareness for employees, as relevant, to ensure risks are identified and control measures are put in place and monitored; • Make risk based decisions when delivering services; • Provide assurance to elected members, by using the Other Implications section within reports, that risks associated with proposed plans have been evaluated and mitigated against. Lead Officers for specific priorities, projects and/or partnerships highlighted in Council and Community Plans will: • Ensure risks are identified, recorded and managed for the projects and partnerships under their leadership (Refer to guidance: Managing Risk in Partnerships). • Ensure that their Risk Sponsor is kept up to date with the level of risk and control. The Risk and Audit Scrutiny Committee (RASC) will: • Provide assurance to elected members that the Council’s risks are being appropriately managed; • Promote the understanding of risk among elected members and the benefits of risk management as well as monitoring the Council’s internal controls; • Seek assurance of sound risk control. Elected Members will: • Oversee the effective management of risk by officers of the Council; • Be supported in this role by the RASC. All employees will: • Be bound by the “Seven Principles of Public Life” detailed within the Council’s Code of Conduct for Employees; • Advise their line manager of any risks that they become aware of when undertaking their duties 141
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Risk management structure The main responsibility for implementing the Risk Management Strategy will lie with the nominated Risk Sponsors in each Resource. The Insurance and Risk Management Adviser has a key role in raising awareness and supporting the Resource Risk Sponsors. Resource Risk Groups and various other groups will undertake risk related activities at Resource and Service level, within projects, corporately and within Community groups and partnerships. Resource Risk Sponsors will report progress to Risk Management, the corporate Risk Sponsors Group and to their own Resource Management Team. The following diagram shows the structure of managing risk management activity in South Lanarkshire Council: Risk and Audit Scrutiny Committee Corporate Management Team Executive Committee Executive Director – Finance and Corporate Resources Head of Finance Services (Transactions) Risk Management Risk Sponsors Insurance and Risk Management Adviser, Finance and Corporate Resources Resource Risk Management Groups Resource Committees Local Management Resource Management Teams Employees 142
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Methodology A methodology for managing risk in South Lanarkshire Council has been established and will be universally applied. A copy is attached at Appendix Three. Techniques in using and applying the methodology will differ, depending on the project or service area and the impact it is likely to have on delivery of Connect Outcomes. The treatment of risk will depend on ownership, availability of insurance cover, cost of mitigation and level of concern. Risk registers and risk control plans will be used to share information, reduce duplication of effort in managing risks and to build up an overall risk profile of the Council. The risk profile will be monitored and the level of exposure reported as appropriate. Risk tolerance South Lanarkshire Council aims to be risk embracing, that is it will accept a tolerable level of risk in seeking opportunities, service efficiencies and in agreeing control measures. The level of risk facing the Council is measured both before (inherent risk) and after (residual risk) consideration of controls. The Council should never carry a high residual risk exposure as this would indicate instability but a low residual risk exposure should also be avoided as this indicates lack of innovation. It is generally understood that in normal circumstances: • Low risk is acceptable without any further action to prevent or mitigate the risk (risk category 4); • Medium risk is tolerable – control measures implemented or introduced must be cost effective (risk category 3); • High risk may be tolerable – providing the Council is assured regarding the adequacy and effectiveness of the control measures in place. Any further control measures implemented or introduced must be cost effective in relation to the high risk (risk category 2); • Very high risk is deemed to be unacceptable and measures should be taken to terminate, transfer or treat a very high risk to a more tolerable position (risk category 1), It is recognised that in exceptional circumstances that factors will combine to produce a very high risk for which the Council has limited control over (for example impact of demographic change). Recognising this scenario, and taking into account the inherent level of risk experienced in some Resources, the Council may have the capacity to deal with some very high risk, it does not wish to tolerate any more than 20 per cent of risks at a very high level at any given time. South Lanarkshire Council’s ideal risk exposure should be consistent with an acceptable tolerance of: • no more than 20 per cent of risks at a very high level; • no more than 25 per cent of risks at a high level • around 40 to 50 per cent of risks at a medium level; • no more than 25 per cent of risks at a low level It is always important to consider how proportionate your response to risk is, ensuring that the risk is continually evaluated to the lowest level that is reasonably practical whilst considering the net benefits, that is to a level where it is believed the cost of action will give the desired benefit without becoming risk averse. Risk financing Insurance, broking and loss adjusters’ contracts will be subject to regular competitive tendering to ensure best value. Legitimate insurable losses will be financed through purchased insurance covers and a self insurance fund. Regular professional advice will be sought on the optimum balance between bought and self insurance. The Risk Management team will manage the self insurance fund, following recognised insurance principles and standards. 143
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The self insurance fund will be subject to regular actuarial review and approved accounting practices. Core requirements and outcomes Appropriate and effective risk management will be embraced by all Council Resources as an enabler of success, whether for maximising opportunities, delivering innovation and best value, increasing performance or managing significant challenges. All Resources, major partnerships and projects will be required to meet the following minimum requirements: • that a register of risks must be approved by the Resource Management Team and presented for noting to Resource Committees once per annum; • that a risk control plan must be approved by the Resource Management Team and assurance of delivery of actions given to Committee once per annum; • that, where appropriate, the Council’s top risks are reflected within Resource risk registers • that documented evidence of risk evaluation prior to the commencement of major projects, partnerships and organisational changes is completed; • that formal risk sharing agreements for major partnerships and contracts are put in place; • that when major decisions are taken, they are transparent and clearly show the following key elements: ➢ full cost over life of proposal; ➢ funding source; ➢ savings or efficiencies; ➢ other benefits; ➢ associated risks and how they will be managed. • that Elected Members are to be kept informed of risks by using the “Other Implications” section of the Committee report template. This section should include: ➢ the risks involved with the report’s recommendations; ➢ the potential positive and negative consequences; ➢ how these risks are currently being managed (existing controls) or how they will be managed going forward (additional actions); ➢ link to risks on the Council’s top risk register. • that assurance is gained from contractors and sub contractors, in line with procurement processes, of their adoption of recommended risk management practices, particularly that adequate insurance cover, safe health and safety practices, and equalities, sustainable development, business continuity and scrutiny procedures are in place; • that the corporate risk management IT system is used to record and monitor risks and actions • assurance that risks are being managed is provided annually to the Chair of the Resource Committee and the Chief Executive as part of the Council’s governance framework; • that the Council’s agreed risk profile and risk tolerance level is adopted. Reports for projects and partnerships risk registers and action plans should be presented to the relevant board. Delivery of core requirements will ensure that the benefits outlined in the Strategy are recognised by insurers, auditors and members of the Community with the primary outcome being a well governed and high performing Council. Monitoring and reporting Management information for insured risks, including claims experiences, in terms of numbers and value, is used to inform the CMT of the Council’s losses and to identify hotspot areas where further targeted action is required. Changes in the level of risk are tracked by analysing trends. The CMT has overall responsibility to monitor Resources progress against the Risk Management Strategy. 144
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Regular reports will be prepared by the Risk Management team. Regular re-evaluation of risks will enable the risk exposure and effectiveness of initiatives to be tracked and reported. The RASC will oversee the effective management of risk through presentation of regular reports and discussion of issues arising. Risk management performance will be measured by reviews against standards, use of local and national insurance performance indicators and where possible benchmarking with other authorities. Reporting requirements and responsibilities are outlined in Table One. 145
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Table One - Risk Management reporting requirements Report title Purpose of report Report prepared by Frequency of report Reported to Executive Committee Corporate Managem ent Team Risk and Audit Scrutiny Committee Resource Senior Management Teams Resource Committees Year-end insured risks report To highlight the number and estimated costs of insured losses as at 31 March. To identify actions and progress for insurance hotspot areas Risk Management Annual Risk Management year- end report To advise Resources compliance with the Risk Management Strategy To seek approval and to provide an update on progress made in delivering actions in the risk management work plan To provide an update on progress made on delivering risk control actions. Risk Management Annual Review of the Council’s top risks To update top risk areas for the Council and seek approval for exposure levels Risk Management Annual Update of the Resource Risk Register and Risk Control Plan To seek approval for Resource risk registers and risk control plans Resource Risk Sponsor Annual Review of the Risk Management Strategy To seek approval for updates made to the Strategy Risk Management Following each review of the Strategy 146
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Risk Management Methodology Introduction The risk management process is a continuous and developing process involving the identification of risks; analysis and prioritisation of these risks; and the implementation of actions to further mitigate risks. Within South Lanarkshire Council, risk management is a four stage process: Risk identification Risks can be identified through a number of channels: • Council, Resource and Service planning processes • Risk sponsors meetings • Risk Identification Workshops • SWOT Analysis • Regular Resource risk management group meetings • Project/Partnership meetings • In the course of normal operational business • During periods of emergency/crisis management All identified risks should be aligned to Connect Outcomes. When describing a risk always it should be presented in three parts: • The root cause (weakness) • The trigger (initiating event or action) • And the impact (consequence) Step 1 Risk Identification Step 2 Analyse and assess/evaluate risks Step 3 Identify controls; effectiveness; and Further actions Step 4 Record, monitor and report Connect Outcomes Resource Plan Actions and Measures 147
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It is important to ensure risk descriptions are brief but fully communicate the risk in question. The following wording groups are often used to begin the process of articulating risk: Failure to ….. Reduction of ….. Loss of ….. Disruption to ….. Inability to ….. Increase in ….. Inappropriate ….. Lack of ….. Exploitation of ….. Realisation that ….. Enhancement of ….. Empowerment of ….. All risks should be categorised for the purpose of analysis. The Council’s risk categories are: • Assets • Reputation • Operational continuity and performance • Financial • Political • Environmental • IT • Regulatory and legislative • People Evaluation of risks - inherent Risks should be evaluated, initially without regard to any mitigation or controls that are already in place It is a twofold evaluation, which considers both the impact and likelihood of the risk. Definitions of likelihood and impact are detailed below, but these may vary depending on the project or partnership, where analysis requires to be more specific. Likelihood is scored on a scale of one to five, with one being the lowest. Descriptions of the scores are as follows: Score 1 2 3 4 5 Description Rare Unlikely Possible Likely Almost certain Likelihood of occurrence 1 in 10 years 1 in 3 years 1 in 2 years Annually Monthly Probability of occurrence The event may occur in certain circumstances The event could occur The event may occur The event will probably occur The event is expected to occur or occurs regularly Impact is also scored on a scale of one-five, with one being the lowest. Descriptions of the scores are as follows: The following descriptions are provided to assist in ensuring greater consistency when scoring the potential impact of specific types of risks: 148
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Reputation Financial Service delivery/ Time to recover Compliance Safety 1 Negligible Public concern restricted to local complaints <£50,000 per annum No impact to service quality; limited disruption to operations. No external interest Minor injury – no lost time 2 Minor Minor adverse local/public/m edia attention and complaints £50,000- £250,000 per annum Minor impact to service quality; minor service standards are not met; short term Very minor attention from legislative /regulatory body Minor injury – resulting in lost time 3 Moderate Adverse national media Public attention £250,000 to £500,000 per annum Significant fall in service quality; major partnership relationships strained; serious disruption in service standards Short-term attention from legislative/ regulatory body Major injury or ill health resulting in lost time 4 Major Serious negative national or regional criticism £500,000 to £1million per annum Major impact to service delivery; multiple service standards are not met; long term disruption to operations; multiple partnerships affected Medium-term attention from legislative/ regulatory body Fatality; Or injuries to several people 5 Catastrophic Prolonged international, regional and national condemnation >£1million per annum Catastrophic fail in service quality and key service standards are not met; long term catastrophic interruption to operations; several major partnerships are affected National impact with rapid intervention of legislative/ regulatory body Multiple fatalities; Or injuries to large number of people The assessments for impact and likelihood combine to provide an overall inherent risk score on the scale of between 1 and 25, using the Council’s recognised risk matrix. Risk matrix Likelihood 5 Almost Certain 5 10 15 20 25 4 Likely 4 8 12 16 20 3 Possible 3 6 9 12 15 2 Unlikely 2 4 6 8 10 1 Rare 1 2 3 4 5 1 Negligible 2 Minor 3 Moderate 4 Major 5 Catastrophic Impact 149
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The risk score is calculated as follows: Likelihood score x Impact score = Risk Score These scores should be recorded in the relevant columns of the risk register. Risk Categories/Rating Risk Category Risk Rating Risk Score 1 Very high 20-25 2 High 10-16 3 Medium 5-9 4 Low 1-4 The information gathered at the risk identification stage should be used to compile an initial risk register. Risk control For every risk, controls that reduce the impact and likelihood should be identified and noted in the risk register. Examples of controls are: • Policies and procedures • Information, instruction and training • Physical security measures • Scrutiny measures • Communication processes Three Lines Model Controls that mitigate top risks will be categorised using the ‘three lines’ model developed by the Institute of Internal Auditors. This aims to provide assurance around the adequacy of control measures that are in place to mitigate strategic risks, identify control descriptions that need amendment to clearly link these to the mitigation of the risk and to highlight any residual gaps in controls that require to be addressed. 1. The first line of defence (functions that own and manage risks) This is formed by managers and staff who are responsible for identifying and managing risk as part of their accountability for achieving objectives. Collectively, they should have the necessary knowledge, skills, information, and authority to operate the relevant policies and procedures of risk control. This requires an understanding of the organisation, its objectives, the environment in which it operates, and the risks it faces. Examples include: • Management controls • Internal control measures 2. The second line of defence (functions that oversee or who specialise in compliance or the management of risk) This provides the policies, frameworks, tools, techniques and support to enable risk and compliance to be managed in the first line, conducts monitoring to assess effectiveness and supports consistency of definitions and measurement of risk. Examples Include: • Resource Management Teams • Risk Management • Finance Services • Security Adviser/IT Security Manager • Corporate Health & Safety • Internal Inspection/Compliance Teams 150
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3. The third line of defence (functions that provide independent assurance) This is provided by internal audit. Sitting outside the risk management processes of the first two lines of defence, its main roles are to ensure that the first two lines are operating effectively and advise how they could be improved. Tasked by, and reporting to senior management and the audit committee, it provides an evaluation, through a risk-based approach, on the effectiveness of the governance, risk management, and internal control framework within the organisation. It can also give assurance to sector regulators and external auditors that appropriate controls and processes are in place and are operating effectively. The diagram below sets out the relationships between functions and how responsibilities are divided. A Full briefing on how to implement the Three Lines Model within Resources is available from: ADD LINK Effectiveness of control measures It is the responsibility of the risk owner/identifier to assess the effectiveness of the control measures that are already in place. Three opinions exist - poor, adequate and good. See table below for examples: Poor (Not effective) Adequate (Partially effective) Good (Completely effective) Insufficient controls; weak procedures; limited attempt made to implement preventative measures; controls not working as intended. Reasonable compliance with statutory requirements; reasonable standards established; some preventative measures in place; controls can be improved. Full compliance with statutory requirements; comprehensive procedures in place; no other controls considered necessary; ongoing monitoring only. If it is considered that the existing controls are adequate or poor, it is likely that further control measures will require to be implemented. After consideration of the controls that are already in place, a decision on the treatment of the risk needs to be made. There are four options - transfer, reject, accept and mitigate. See below: Transfer Reject Accept Mitigate This involves transferring the cost of risk to a third party This implies that a risk is undesirable, e.g. it offers unattractive awards, it is outside of the risk appetite, or The Council decides to accept the risk as it is and do nothing further to mitigate it. This involves putting in place risk control measures that reduce the likelihood and/or the consequences of the Corporate Management Team Elected Members External Audit Regulator first line (functions that own and manage risks) Second line (functions that oversee or who specialise in compliance or the management of risk) Third line (functions that provide independent assurance) 151
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there is no capability to manage the risk risk to acceptable levels. • Insurable • Cancel planned project; work; etc. • Cannot control – maintain a watching brief • Some further action required to mitigate the risk. • Not the Council’s responsibility • Change operation • Already adequately controlled • Existing Controls need tightened/ improved • Pass to contractor • Cost of control outweighs benefit For risks which require mitigation, a risk control plan should be prepared. This should contain the following information: • Details of the risk • The action that is to be completed • Who is responsible for ensuring completion • Target date for completion of the action After preparation of the risk control plan and consideration of the controls already in place, the risk is rescored as if all current controls were in place and working. This results in the residual risk score. This re-evaluation uses the same method as the inherent evaluation. A copy of the Council’s risk card that should be used to record the details of the risk is attached at Appendix One. Monitoring It is essential for risk management success that periodic review and monitoring of risks, controls and actions is in place. Risks should be updated if there are changes to the risk, and when further control measures are put in place when actions are completed. When reporting on the progress of the completion of risk control actions, the following statuses should used: Status Definition Green The timescale or target has been met as per expectations Amber There has been minor slippage against timescale or minor shortfall against target Red There has been major slippage against timescale or major shortfall against target Report later The information is not yet available to allow us to say whether the target has been reached or not. These will be reported when available 152
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Appendix One – Risk Card Key Risk: Risk description Root cause Trigger Impact Classification Connect Outcome: Head of Service Lead Officer Lead Resource Resources affected Inherent impact: Inherent likelihood: Inherent risk score: Existing Control Measures: First line of defence – functions that own and manage risk (operational/day to day management) 1 2 3 Second line of defence – assurance by corporate functions (not internal audit) that oversee or who specialise in compliance or the management of risk 4 5 6 Third line of defence – functions that provide independent assurance (Internal Audit) 7 8 9 Assessment of effectiveness of existing control measures: Poor/Adequate/Good Risk treatment Transfer/Reject/Accept/Mitigate Residual impact: Residual likelihood: Residual risk score: Action Plan (Additional control measures required to mitigate the risk) Action: Responsible person: Target completion date: 1 2 3 153
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Appendix Two - Risk management glossary Key definitions Control Any action, procedure or operation undertaken to either contain a risk to an acceptable level, or to increase the probability of a desired outcome. Down-side risk A risk with a negative or unfavourable impact. Impact Impact or consequence to the Council should the risk materialise Inherent risk score The level of risk existing before any control measures have been put in place. Likelihood Used as a qualitative description of probability or frequency of that risk actually materialising. Mitigation The limitation of any negative impact of a particular event. Operational risk Risks associated with the day-to-day issues that the Council is confronted with as we strive to deliver our actions and outcomes, Residual risk score The level of risk remaining after control measures have been taken into consideration Risk The chance of something happening that will have an impact upon objectives. It is measured in terms of impact and likelihood. Risk Appetite The amount of risk that the Council is willing to take Risk analysis A systematic use of available information to determine how often specified events may occur and the magnitude of their consequences. Risk assessment The overall process of risk analysis and risk evaluation. Risk communication The exchange or sharing of information about risk between the decision maker and other shareholders. Risk control The part of risk management which involves the provision of policies, standards and procedures, initiatives and actions to eliminate risk or minimise adverse risks. Risk control plan A list of all the proposed actions to be undertaken to mitigate risks. The control plan should contain details of the person who is responsible for implementation and a target completion date. Risk evaluation The process used to determine risk management priorities by comparing the level of risk against pre-determined standards for impact and likelihood, target risk levels or other criteria. Risk financing The provision of funds to meet the cost of implementing risk treatment and related costs. Risk identification The process of determining what can happen, why and how. Risk management The culture, processes and structures that are directed towards the effective management of potential opportunities and adverse effects. Risk register A product used to maintain information on all the identified risks pertaining to a particular activity, project or partnership. Also known as the risk log. Risk tolerance The range of exposure that is judged to be tolerable for the Council. Risk treatment Selection and implementation of appropriate options for dealing with risk. Stakeholders Those individuals and organisations who may affect, be affected by, or perceive themselves to be affected by, the decision or activity. Strategic risk Risks concerned with where the Council wants to go, and how we plan to get there. Up-side risk/Opportunities A risk with a positive or favourable impact. If you need this information in another language or format, please contact us to discuss how we can best meet your needs. Phone: 01698 453886 Email: equalities@southlanarkshire.gov.uk www.southlanarkshire.gov.uk 154
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Report Agenda Item Report to: Risk and Audit Scrutiny Committee Date of Meeting: 24 September 2024 Report by: Executive Director (Finance and Corporate Resources) Subject: Forward Programme for Future Meetings 1. Purpose of Report 1.1. The purpose of the report is to:- [purpose] advise members of the forward programme for the meetings of the Risk and Audit Scrutiny Committee to 30 September 2025 invite members to suggest topics for inclusion in the Committee’s forward programme [1purpose] 2. Recommendation(s) 2.1. The Committee is asked to approve the following recommendation(s):- [recs] (1) that the report and the outline forward programme for the meetings of the Risk and Audit Scrutiny Committee to 30 September 2025, attached as an Appendix to the report, be noted. [1recs] 3. Background 3.1. As part of a range of improvement measures introduced as a result of Audit Scotland’s report on the Audit of Best Value and Community Planning (2009), an Action Plan was prepared. One of the actions was to include, as a standard agenda item, a list of items proposed for consideration at subsequent meetings of this Committee to provide an opportunity for members to inform future agendas. The outline forward programme to 30 September 2025 is attached, for members’ information, as an Appendix to the report. 4. Employee Implications 4.1. There are no employee implications. 5. Financial Implications 5.1. There are no financial implications. 6. Climate Change, Sustainability and Environmental Implications 6.1. There are no Climate Change, Sustainability or Environmental implications in terms of the information contained within this report. 7. Other Implications 7.1. There are no risk implications in terms of the information contained within this report. 12 155
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8. Equality Impact Assessment and Consultation Arrangements 8.1. The report does not introduce a new policy, function or strategy or recommend a change to an existing policy, function or strategy and, therefore, no impact assessment is required. 8.2. There was no requirement to undertake any consultation in terms of the information contained in this report. Jackie Taylor Executive Director (Finance and Corporate Resources) 26 August 2024 Link(s) to Council Values/Priorities/Outcomes Accountable, Effective, Efficient and Transparent Previous References Executive Committee 8 July 2009 List of Background Papers Audit Scotland Audit of Best Value and Community Planning Contact for Further Information If you would like to inspect the background papers or want further information, please contact:- Elizabeth-Anne McGonigle, Administration Adviser Tel: 0738 5403101 E-mail:- elizabeth-anne.mcgonigle@southlanarkshire.gov.uk 156
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APPENDIX – RASC OUTLINE FORWARD PROGRAMME Meeting Date Item Responsibility 19 November 2024 Internal Audit Activity Report Audit and Compliance Manager Audit Scotland: The National Fraud Initiative in Scotland 2022 Audit and Compliance Manager Audit Scotland Report – Local Government in Scotland 2023 Head of Communications and Strategy 18 February 2025 Internal Audit Activity Report Audit and Compliance Manager Performance and Review Scrutiny Forum Annual Update Head of Communications and Strategy 2025/2026 Internal Audit Plan Audit and Compliance Manager Fraud Statistics Six Monthly Update 2024/2025 Audit and Compliance Manager Good Governance Update Head of Administration and Legal Services Annual Audit Plan External Audit Meeting Date Item Responsibility 6 May 2025 Internal Audit Activity Report Audit and Compliance Manager Audit Scotland – Financial Bulletin 2023/2024 Head of Finance (Strategy) Financial Resources Scrutiny Forum Activity Head of Finance (Strategy) 25 June 2025 Internal Audit Assurance Report 2024/2025 Audit and Compliance Manager Annual Governance Statement for 2024/2025 and Significant Governance Areas Quarter 4 Progress Report Audit Scotland: Best Value Thematic Report Head of Administration and Legal Services External Audit 157
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Unaudited Annual Accounts 2024/2025 Head of Finance (Strategy) Interim Management Report External Audit Internal Audit Activity Report Audit and Compliance Manager 30 September 2025 External Auditor’s Annual Report to South Lanarkshire Council 2024/2025 External Audit Audited Annual Accounts 2024/2025 Head of Finance (Strategy) Internal Audit Activity Report Audit and Compliance Manager 2023 NFI Exercise Audit and Compliance Manager Year End Insured Risks Report 2024/2025 Head of Finance (Transactions) Year End Risk Management Report 2024/2025 and Review of Council’s Top Risks 2025/2026 Head of Finance (Transactions) Fraud Statistics Annual Report 2024/2025 Audit and Compliance Manager N.B:- Audit Scotland national studies and reviews will appear as a recurring item but the frequency and subject matter will vary according to their programme. 158