Document Pack (Bookmarked and Agenda) Audit Committee - 12 June 2024
West Dunbartonshire Council · 12 June 2024
Back to Audit Committee — 12 June 2024 and its agenda
Text extracted from the council's PDF. Layout and reading order may differ from the original.
Page 1
Agenda Audit Committee Date: Wednesday, 12 June 2024 Time: 14:00 Venue: Civic Space, 16 Church Street, Dumbarton G82 1QL Contact: Lynn Straker, Committee Officer lynn.straker@west-dunbarton.gov.uk committee.admin@west-dunbarton.gov.uk Dear Member Please attend a meeting of the Audit Committee as detailed above. The business is shown on the attached agenda. Yours faithfully PETER HESSETT Chief Executive Page 1
Page 2
Distribution: Councillor Ian Dickson Councillor Jonathan McColl (Vice Chair) Councillor James McElhill Councillor Michelle McGinty Councillor John Millar Councillor Karen Murray Conaghan (Chair) Councillor Martin Rooney Councillor Hazel Sorrell Mr C Johnstone All other Councillors for information Chief Executive Chief Officers Date of issue: 30 May 2024 Page 2
Page 3
AUDIT COMMITTEE WEDNESDAY, 12 JUNE 2024 AGENDA 1 APOLOGIES 2 DECLARATIONS OF INTEREST Members are invited to declare if they have an interest in any of the items of business on this agenda and the reasons for such declarations. 3 MINUTES OF PREVIOUS MEETING 5 - 6 Submit for approval, as a correct record, the Minutes of Meeting of the Audit Committee held on 21 February 2024. 4 OPEN FORUM The Committee is asked to note that no open forum questions have been submitted by members of the public. 5 INTERNAL AUDIT PLAN 2023-2024 – PROGRESS TO 7 - 29 10 MAY 2024 Submit report by Chief Officer – Resources advising of progress at 10 May 2024 against the Internal Audit Plan for 2023/24. 6 INTERNAL AUDIT ANNUAL REPORT TO 31 MARCH 2024 31 - 43 Submit report by Chief Officer – Resources advising Members of the work undertaken by Internal Audit in respect of the 2023/24 Annual Audit Plan and advising Members of the contents of the Assurance Statement given to Members of West Dunbartonshire Council, the Chief Executive and the Section 95 Officer (Chief Officer - Resources) in support of the Annual Governance Statement. 7 ANNUAL REPORT ON THE AUDIT COMMITTEE – 2023/24 45 - 49 Submit report by Chief Officer – Resources providing members with the Audit Committee Chair’s 2023/24 Annual Report on the Audit Committee. 8/ Page 3
Page 4
8 TREASURY MANAGEMENT STRATEGY AND 51 - 85 ANNUAL INVESTMENT STRATEGY Submit report by Chief Officer – Resources providing Members with the opportunity to further scrutinise the Prudential Indicators for and Treasury Management Strategy (including the Investment Strategy) for 2023/24 to 2032/33. 9 REVIEW OF LOCAL CODE OF GOVERNANCE AND 87 - 95 ANNUAL GOVERNANCE STATEMENT Submit report by Chief Officer – Resources regarding the Review of Local Code of Governance and Annual Governance Statement. ___________________________________________________________________ Page 4
Page 5
AUDIT COMMITTEE At a Meeting of the Audit Committee held in the Civic Space, 16 Church Street, Dumbarton, on Wednesday, 21 February 2024 at 10:00 a.m. Present: Attending: Councillors Ian Dickson, Michelle McGinty, John Millar, Karen Murray Conaghan, Martin Rooney and Hazel Sorrell. Peter Hessett, Chief Executive; Laurence Slavin, Chief Officer – Resources; Victoria Rogers, Chief Officer – People and Technology; Amanda Graham, Chief Officer – Citizen, Culture and Facilities; Julie Slavin, Chief Finance Officer - Health and Social Care Partnership (HSCP); Andi Priestman, Shared Service Manager – Audit and Fraud; Stephen Daly, Citizen and Digital Manager; and Lynn Straker, Committee Officer. Also Attending: Caleb Oguche, External Auditor – Mazars. Apologies: Apologies for absence were intimated on behalf of Councillors Jonathan McColl and James McElhill, Lay Member Mr Chris Johnstone and Beth Culshaw, Chief Officer – HSCP. Councillor Karen Murray Conaghan in the Chair DECLARATIONS OF INTEREST It was noted that there were no declarations of interest in any of the items of business on the agenda. MINUTES OF PREVIOUS MEETING The Minutes of Meetings of the Audit Committee held on 13 December 2023 were submitted and approved as a correct record, subject to Councillor Ian Dickson being removed from the list of people for whom apologies were recorded. OPEN FORUM The Committee noted that no open forum questions had been submitted by members of the public. Item 3 Page 5
Page 6
INTERNAL AUDIT PLAN 2023/24 – PROGRESS TO 24 JANUARY 2024 A report was submitted by Chief Officer – Resources advising of progress at 24 January 2024 against the Internal Audit Plan for 2023/24, of recently issued Internal Audit reports and action plans and the status of implementation progress in relation to action plans from previously issued Internal Audit reports. After discussion and having heard the Chief Officer – Citizen, Culture and Facilities and the Citizen and Digital Manager in further explanation and in answer to Members’ questions, the Committee agreed to note the content of the report. PUBLIC INTEREST DISCLOSURES AND OTHER INTERNAL AUDIT INVESTIGATIONS 19 JULY 2023 – 24 JANUARY 2024 A report was submitted by Chief Officer – Resources advising of the outcome of investigations into allegations and disclosures in line with public interest disclosure and business irregularities policies received by Internal Audit between 19 July 2023 and 24 January 2024. After discussion and having heard the Shared Service Manager – Audit & Fraud in further explanation and in answer to Members’ questions, the Committee agreed to note the content of the report. STRATEGIC RISKS 2022-2027 A report was submitted by Chief Officer – People & Technology providing an update on the strategic risks for 2022-27. After discussion and having heard the Chief Officer – Resources and the Chief Officer – People and Technology in further explanation and in answer to Members’ questions, the Committee agreed to note the strategic risks as detailed in Appendix 1 to the report. The meeting closed at 10.42 a.m. Page 6
Page 7
WEST DUNBARTONSHIRE COUNCIL Report by Chief Officer – Resources Audit Committee: 12 June 2024 Subject: Internal Audit Plan 2023/24 – Progress to 10 May 2024 1. Purpose 1.1 The purpose of this report is to advise Members of progress to 10 May 2024 against the Internal Audit Plan for 2023/24. 1.2 The report also advises Members of: • recently issued Internal Audit reports and action plans • the status of implementation progress relating to action plans from previously issued Internal Audit reports. 2. Recommendations 2.1 It is recommended that Members note the contents of this report. 3. Background 3.1 The annual audit plan for 2023/24 was approved by the Audit Committee on 8 May 2023. This report provides information on the progress in implementing the plan. 3.2 When audit reports are issued by Internal Audit, an action plan is agreed with management in relation to issues highlighted by the audit report. Progress on implementing the actions is monitored by Internal Audit on a monthly basis and reported to the Audit Committee. 4. Main Issues 4.1. The annual audit plan sets out the audit coverage for the year utilising available staff resources to enable the Shared Service Manager – Audit & Fraud to provide the annual internal audit opinion regarding the adequacy and effectiveness of internal control within the Council. 4.2 In accordance with the risk-based audit methodology, for each audit, one of four audit opinions is expressed: Strong In our opinion there is a sound system of internal controls designed to ensure that the organisation is able to achieve its objectives. Satisfactory In our opinion isolated areas of control weakness were identified which, whilst not systemic, put some organisation objectives at risk. Item 5 Page 7
Page 8
Requires Improvement In our opinion systemic and/or material control weaknesses were identified such that some organisation objectives are put at significant risk. Unsatisfactory In our opinion the control environment was considered inadequate to ensure that the organisation is able to achieve its objectives. 4.3 Detailed findings and recommendations reported to management are graded using the following criteria: Red In our opinion the control environment is insufficient to address the risk and this could impact the Council as a whole. Corrective action must be taken and should start immediately. Overseen to completion by Corporate Management Team. Amber In our opinion there are areas of control weakness which we consider to be individually significant but which are unlikely to affect the Council as a whole. Corrective action must be taken (some exceptions may be agreed with Internal Audit) within reasonable timeframe. Overseen to completion by Chief Officer/Head of Service. Green In our opinion the risk area is well controlled or our audit highlighted areas for minor control improvement and/or areas of minor control weakness. Process improvements/efficiencies may be actioned at management discretion in consultation with Internal Audit. Managed by service owner. Not reported in Audit Committee papers. 4.4 There were 2 audit reviews finalised since the last Audit Committee in February 2024: Cleaning – Stock Control (January 2024) 4.5 The Council’s Facilities Management service provides a cleaning service in schools and nurseries as well as a range of other council premises, such as offices, depots, public buildings and libraries. The team comprises of over 100 facilities assistants and over 250 cleaning staff. 4.6 The objective of this audit was to provide management and the Audit Committee with an assessment on the adequacy and effectiveness of the governance, risk management and control procedures in relation to Facilities Management Cleaning - Stock Control. 4.7 The review focused on the key procedures for Cleaning Supplies Stock Control and assessed the adequacy and effectiveness of controls in place such as written procedures, ordering arrangements, security arrangements, and training of staff on stock management. Page 8
Page 9
4.8 The overall control environment opinion was Satisfactory. There were five AMBER issues identified as follows: Lack of Procedural Documentation and Guidance (Amber) There are no documented procedures or guidance in place within the facilities team for cleaning supplies stock control. Facilities assistants at each council premise have developed individual local processes for managing cleaning supplies. Where relevant staff do not have access to and fully understand cleaning stock control procedures required to perform their role this may result in an inconsistent approach to cleaning materials stock control. Adequacy of Stock Checks (Amber) Stock checks should be carried out on a monthly basis, however the audit identified that the cleaning supplies stock check is only carried out at the year-end for each of the premises. Where regular stock checks for cleaning supplies do not take place, it may result in errors, losses or thefts occurring and going undetected. Excessive levels of stock (Amber) There are no minimum stock levels set for cleaning items used at establishments. In addition, large bulk orders are received automatically at three schools for high demand cleaning items. However stock levels are not regularly reviewed, resulting in excessive stock levels being held. For some establishments bulk orders are placed to reduce the number of orders having to be placed which can result in excessive stock levels being held. Excessive stock levels can lead to wasteful investment, out of date stock, theft or risks to health and safety and fire regulations. Adequacy of training (Amber) Limited informal on the job training is provided to facilities assistants for cleaning and stores management. This can lead to inadequate practices taking place. Lack of information on flammable – hazardous products in stock (Amber) In each of the Council premises there has been a fire risk assessment performed. Included in this assessment is the cleaning storage facilities and cleaning products. There are also Control of Substances Hazardous to Health Regulations (COSHH) risk assessments for each cleaning products and chemical data sheets for each of the products used are available onsite. However, with the exception of the year end stock count, there are no up to date stock records maintained of flammable/hazardous cleaning products held at each site nor is there signage for product safety advice displayed in storage areas. Page 9
Page 10
Where cleaning chemicals and flammable products are not correctly stored or adequate records are not in place there is a risk of harm to health. 4.9 Five significant control issues were identified and an action plan is in place to address all issues by 31 January 2025. Supporting Employee Attendance and Wellbeing (March 2024) 4.10 The Council is committed to improving attendance levels through supporting employees' health and wellbeing. The Council’s Wellbeing Charter sets out the expectations and responsibilities of both managers and employees in relation to health and wellbeing at work. 4.11 The Council’s Supporting Employee Wellbeing Policy and Procedure is in place to promote and support acceptable attendance at work, and to provide guidelines for the fair, reasonable and consistent management of sickness absence. 4.12 The objective of this audit is to provide management and the Audit Committee with an assessment of the adequacy and effectiveness of the governance, risk management and controls surrounding the key risks in relation to supporting employee attendance and wellbeing. 4.13 The review focused on the high level processes and procedures in relation to supporting employee attendance and wellbeing and concentrated on identified areas of perceived higher risk such as sickness absences not being completely and accurately processed in a timely manner and in line with the Supporting Employee Wellbeing Policy and Procedure; and management actions required under this Policy and Procedure not being carried out completely and accurately and in a timely manner. To facilitate this process it was planned that the scope of the audit focused on the key risks outlined within the attached Terms of Reference. 4.14 The overall control environment opinion was Satisfactory. Areas of good practice were identified including: • Wellbeing Support Meetings and Wellbeing Review Meetings are held for Long term Sickness absences in accordance with WDC policy and procedures; • Occupational health referral are carried out in accordance with WDC policy and procedures; and • Adequate arrangements are in place for employees who require work adjustments to be made before returning to work in accordance with WDC policy and procedures. There were four Amber issues identified as follows: Compliance issues with the WDC Supporting Employee Wellbeing Policy & Procedure – HSCP Care at Home (Amber) Within HSCP Care at Home, absences reported at the weekend are not being timeously logged on HR21 system. In addition, due to high levels of absences being reported, regular wellbeing contacts are not always maintained with employees and in some cases return to work discussions are not being held. Page 10
Page 11
Where absence management activities are not recorded in a timely manner on the HR21 system, this may impact on the completeness and accuracy of absence reporting and result in non-compliance with the Supporting Employee and Wellbeing Policy. Adequacy of registering absences on HR21 system – HSCP Mental Health, Learning Disability & Addiction (Amber) Within HSCP Mental Health, Learning Disability & Addiction line managers are maintaining contact with employees during absences and are holding wellbeing meetings however these actions are not always recorded on the HR21 system. Where absence management actions are not recorded on HR21 system, management cannot be confident that the Supporting Employee and Wellbeing Policy is being complied with. System Access Restrictions for Recording Absences – HSCP Residential Day Care (Amber) Care coordinators within the HSCP Residential Day Care Team cannot access their direct report records on HR21 due to system configuration set up issues, therefore details regarding employee absences and information on wellbeing require to be passed to deputes/managers with appropriate HR21 access to update employee records. This is causing delays and inefficiencies in logging of absence management activities on the HR21 system. Delays in logging absence management activities on HR21 system can result in non-compliance with the WDC Supporting Employee Wellbeing Policy and Procedure and may impact on the completeness and accuracy of absence recording. Monitoring Compliance issue with the WDC Supporting Employee Wellbeing Policy & Procedure – Roads and Neighbourhood (Amber) The WDC HR absence management report show that absence management actions for Roads and Neighbourhood are not being logged on HR21 system in accordance with the WDC Supporting Employee Wellbeing Policy and procedure. Where absence management is not actively monitored across all teams, management cannot be confident that the policy is being complied with. 4.15 Six audit issues were identified, four of which we consider to be individually significant and an action plan is in place to address all issues by 30 June 2024. 4.16 The status of the 2023/24 audit plan is attached at Appendix 1. 4.17 In relation to audit work for the Integration Joint Board, the 2023/24 is almost complete with regular reporting to the Integration Joint Board Audit & Performance Committee. Page 11
Page 12
4.18 In relation to the Valuation Joint Board, the planned follow up audit has been completed. 4.19 In relation to the Leisure Trust, the 2023/24 audit plan is complete. 4.20 Internal Audit Action Plans In relation to audit action plans, these are monitored by Internal Audit on a monthly basis. There were five actions due for completion by the end of March, four of which have been reported as completed by management and a revised completion date relating to one action requires to be set. The status report at 31 March 2024 is provided at Appendix 2. Ongoing Corporate Fraud Team Work 4.21 The Corporate Fraud team’s day to day work continues to focus on referrals relating to council tax reduction/single person discounts, joint working with DWP in relation to housing benefit and council tax reduction, referrals relating to housing tenancies and investigating relevant national fraud initiative matches. 4.22 The Internal Audit Team and the Corporate Fraud Team continue to work together as appropriate in order to ensure a joined-up approach to fraud investigation and detection for example in relation to whistleblowing enquiries. National Fraud Initiative 4.23 The National Fraud Initiative is a series of biennial exercises run by the Cabinet Office and Audit Scotland to identify or prevent fraud and error by matching electronic data held by public bodies. Participating bodies are required to investigate data discrepancies within a set timescale and report back on any savings. 4.24 Investigations are ongoing in relation to the 2022 exercise and a full report will be provided to the September meeting of the Audit Committee. Benchmarking 4.25 In accordance with the Council’s Strategic Improvement Framework, the Council’s Internal Audit service continues to be part of a benchmarking group which involves seven other Councils. 4.26 Meetings will continue to take place during 2024 to review performance and identify other areas for sharing of best practice. 5. People Implications 5.1 There are no people implications. 6. Financial and Procurement Implications 6.1 The Corporate Fraud Team activity can result in actual recoveries, charges and re-billings. The total amount of actual recoveries, charges and re-billings identified for 2023/24 is £197,496. 6.2 There are no procurement implications arising from this report. Page 12
Page 13
7. Risk Analysis 7.1 There is a risk that failure to deliver the Internal Audit Plan would result in an inability to provide a reasonable level of assurance over the Council’s system of internal financial control to those charged with governance. The main basis for providing assurance is coverage of the planned risk-based audits. Every endeavour is made to ensure that no material slippage occurs in risk-based audits by concentrating resources on these audits. 8. Equalities Impact Assessment (EIA) 8.1 There are no direct equalities impacts arising from the report however where an agreed action results in a change in process this will be considered for equalities impact by the relevant service. 9. Consultation 9.1 This report has been subject to consultation with appropriate Chief Officers. 10. Strategic Assessment 10.1 This report relates to strong corporate governance. .................................... Laurence Slavin Chief Officer - Resources Date: 13 May 2024 Person to Contact: Andi Priestman, Shared Service Manager – Audit & Fraud E-mail: andi.priestman@west-dunbarton.gov.uk Appendices: 2023/24 Annual Audit Plan – Progress to 10 May 2024 (Appendix 1) Status of Internal Audit Action Plans at 31 March (Appendix 2) Background Papers: Audit Committee – 8 May 2023: Internal Audit Annual Plan 2023/24 Audit Committee – 21 March 2018: Counter Fraud and Corruption Strategy Internal Audit Reports - Copies available on request Wards Affected: All wards Page 13
Page 14
Page 14
Page 15
2023-2024 Internal Audit Annual Audit Plan – Progress to 10 May 2024 Item 5 Appendix 1 2023-24 Plan Audit/Status Not Started Planning Fieldwork Fieldwork Complete Draft Report Final Report Date Reported to Audit Committee Risk-Based Reviews Corporate Complaints ✓ ✓ ✓ ✓ ✓ February 2024 Participatory Budgeting ✓ September 2024 Supporting Employee Attendance ✓ ✓ ✓ ✓ ✓ June 2024 Commercial Waste ✓ ✓ September 2024 FM Cleaning – Stock Control ✓ ✓ ✓ ✓ ✓ June 2024 FM Catering – Stock Control ✓ ✓ ✓ ✓ ✓ February 2024 Corporate Procurement ✓ ✓ ✓ ✓ September 2024 Value for Money Reviews Void Management ✓ ✓ September 2024 Property Repairs and Maintenance ✓ September 2024 Limited Scope Financial System Reviews Debt Recovery ✓ ✓ September 2024 Project Assurance Review Learning Disability Service – Service Redesign ✓ Deferred to future audit plan as project not yet started. Regularity Audits Education CSA ✓ ✓ ✓ ✓ September 2024 Payroll High Earners – Quarterly Review ✓ ✓ ✓ ✓ September 2024 HSCP - Imprest Accounts ✓ ✓ ✓ ✓ ✓ December 2023 Advisory Reviews UK Shared Prosperity Fund Draft Report issued to management for comment. Roads – Route Optimisation No audit input required to date. Finance/HR Establishment Controls Audit advice and support provided to working group. Other Work Integration Joint Board – Internal Audit Service The internal audit annual plan for 2023/24 audit plan is almost complete with one review finalised and the other review at fieldwork stage. Valuation Joint Board – Internal Audit Service Audit Follow Up completed. Leisure Trust – Internal Audit Service Audit work complete and final report issued. National Fraud Initiative Matches for the 2022/23 Exercise have been received and investigations are ongoing. 2022/2023 Audit Plan C/f Complete. Page 15
Page 16
Page 16
Page 17
REPORT TO AUDIT COMMITTEE ON STATUS OF INTERNAL AUDIT ACTION PLANS AT 31 MARCH 2024 Summary: Section 1 Summary of Management Actions due for completion by 31/03/2024 There were 5 actions due for completion by 31 March 2024, 4 of which have been reported as completed by management and a revised date requires to be set for one action. Section 2 Summary of Current Management Actions Plans at 31/03/2024 At 31 March 2024 there were no audit reports delayed due to management not finalising the action plan within agreed timescales. Section 3 Current Management Actions at 31/03/2024 At 31 March 2024 there were 25 current audit action points. Section 4 Analysis of Missed Deadlines At 31 March 2024 there were 5 audit action points where the agreed deadline has been missed. Section 5 Summary of Action Plan Points by Audit Year Item 5 Appendix 2 Page 17
Page 18
REPORT TO AUDIT COMMITTEE ON STATUS OF INTERNAL AUDIT ACTION PLAN POINTS SUMMARY OF ACTION PLANS DUE FOR COMPLETION BY 31.03.2024 SECTION 1 2 Strategic Area No. of Actions Due No. of Actions Completed Deadline missed Revised date set* Deadline missed Revised Date to be set* HSCP 1 1 Citizen, Culture and Facilities 4 4 Total 5 4 1 * These actions are included in the Analysis of Missed Deadlines – Section 4 Page 18
Page 19
REPORT TO AUDIT COMMITTEE ON STATUS OF INTERNAL AUDIT ACTION PLAN POINTS SUMMARY OF CURRENT ACTION PLANS AT 31.03.2024 SECTION 2 3 CURRENT ACTIONS BY STRATEGIC AREA Roads and Neighbourhood Due for completion April 2024 3 Due for completion May 2024 3 Due for completion June 2024 1 Due for completion October 2024 1 Total Actions 8 HSCP - Health and Community Care Due for completion June 2024 3 Due for completion September 2024 1 Completion Date to be advised 2 Total Actions 6 Citizen, Culture and Facilities Due for completion April 2024 1 Due for completion July 2024 3 Due for completion August 2024 4 Due for completion September 2024 3 Total Actions 11 Total current actions: 25 Page 19
Page 20
REPORT TO AUDIT COMMITTEE ON STATUS OF INTERNAL AUDIT ACTION PLAN POINTS CURRENT ACTION PLANS AT 31.03.2024 SECTION 3 Status Key 4 On track Complete Overdue – update required Missed original due date –new date set Current Internal Audit Action Plans Supplier Management (Report Issued March 2023) Code Agreed Action Status Original Due Date Due Date Assigned To Managed By IAAP/158 HSCP Formal Contract and Supplier Management (Amber) Development of a Contracts Register to be stored centrally and controlled by the CCQ Team. By the due date it will have been developed to include a risk register in RAG format to cover contract start date, end date, extension date, CI scores, spend status, Quality monitoring information. Risk register will also be used to programme in more to review services well ahead of contract end date. 31-Dec-2023 30-Sep-2024 HSCP Head of Strategy and Transformation Chief Officer HSCP Board Occupational Therapy – Waiting Times (Report Issued April 2023) Code Agreed Action Status Original Due Date Due Date Assigned To Managed By IAAP/170 a Lack of capacity to manage current occupational therapy workloads (Red) Recruitment to current vacant posts. Limitations apply: availability of suitable, appointable applicants plus national recruitment issue. 01-May-2023 30-Jun-2024 HSCP Head of Health and Community Care Chief Officer HSCP Board Fleet Management (Report Issued May 2023) Code Agreed Action Status Original Due Date Due Date Assigned To Managed By IAAP/176 Adequacy of Strategic Planning in relation to Fleet Management (Amber) An asset management plan for vehicle fleet will be developed based on the current budget for the vehicle replacement programme. The first plan will focus on priority vehicles which require to be replaced and then a rolling programme will be implemented. 31-May-2024 31-May-2024 Chief Officer Roads and Neighbourhood Chief Officer Roads and Neighbourhood IAAP/178 Lack of Review and Update of Fortress System (Amber) An initial exercise will be undertaken to review and update the driver information held on Fortress through consultations. Half yearly review on an ongoing basis. Review of keys and allocation of a key to a specific vehicle will be implemented as part of the initial exercise. 31-Dec-2023 30-Jun-2024 Chief Officer Roads and Neighbourhood Chief Officer Roads and Neighbourhood Page 20
Page 21
REPORT TO AUDIT COMMITTEE ON STATUS OF INTERNAL AUDIT ACTION PLAN POINTS CURRENT ACTION PLANS AT 31.03.2024 SECTION 3 Status Key 5 On track Complete Overdue – update required Missed original due date –new date set Code Agreed Action Status Original Due Date Due Date Assigned To Managed By IAAP/179 Lack of measuring of individual vehicle efficiency/Co2 emissions (Amber) Management will further consider reporting of Co2 emissions as part of the net zero strategy and transition to electric vehicles. In relation to vehicle efficiency, as fuel efficiency is affected by individual driver style, management will consider whether driver information scores could be collated and provided to management to prioritise or target individual training. 31-Oct-2024 31-Oct-2024 Chief Officer Roads and Neighbourhood Chief Officer Roads and Neighbourhood IAAP/180 Single Person Dependency – Transport Administration (Amber) Roles and responsibilities will be clarified and agreed for what is considered to be a service task and what is considered to be a Corporate Admin Support task. Relevant action to document procedures will then be taken. 01-Apr-2024 01-Apr-2024 Chief Officer Roads and Neighbourhood Chief Officer Roads and Neighbourhood IAAP/181 Single Person Dependency – Transport Administration (Amber) Roles and responsibilities will be clarified and agreed for what is considered to be a service task and what is considered to be a Corporate Admin Support task. Relevant action to document procedures will then be taken. The service will consider developing the skills base of other officers within the wider service and undertake discussion with CAS management to ensure sufficient cross-training of required skills set within the wider CAS team. 01-Apr-2024 01-Apr-2024 Chief Officer Roads and Neighbourhood Chief Officer Roads and Neighbourhood HSCP Imprest (Report Issued November 2023) Code Agreed Action Status Original Due Date Due Date Assigned To Managed By IAAP/191 Lack of Segregation of Duties (Amber) A review of staff involved in the management and operation of petty cash imprest will be undertaken and the following will be noted: • Staff who carry out the day to day operation of petty cash imprest will not be an authorised signatory; and • Staff who are independent of the day to day operation will be nominated authorised signatories and will carry out checks and authorisation of reimbursement claims. 31-Jan-24 To be advised CFO HSCP Chief Officer HSCP Page 21
Page 22
REPORT TO AUDIT COMMITTEE ON STATUS OF INTERNAL AUDIT ACTION PLAN POINTS CURRENT ACTION PLANS AT 31.03.2024 SECTION 3 Status Key 6 On track Complete Overdue – update required Missed original due date –new date set Code Agreed Action Status Original Due Date Due Date Assigned To Managed By IAAP/192 Adequacy of Procedures (Amber) A review of the procedures will be undertaken and updated to reflect up to date practice and provide sufficient guidance to staff involved in operating and managing petty cash imprest accounts. 31-Mar-24 To be advised CFO HSCP Chief Officer HSCP Corporate Complaints (Report Issued November 2023) Code Agreed Action Status Original Due Date Due Date Assigned To Managed By IAAP/200 Managing complainants who contact Councillors, MSP’s and Chief Officers directly (Amber) Management will: Review current guidance on role of Councillors, MSP’s and Chief Officers within the overall complaints process and develop appropriate mechanisms to ensure compliance with the agreed procedures. Agree and establish a process which ensures central logging of all complaints across all services. 31-Mar-2024 31-Mar-2024 Chief Officer, Citizen, Culture and Facilities Chief Officer, Citizen, Culture and Facilities IAAP/201 Adequacy of Complaints Procedures (Amber) Management will develop additional complaints handling guidance including: • a step by step guide for staff to follow for all complaint pathways • roles, responsibilities and information flows at each stage • clearer guidance on what is a valid complaint and what is not • recording of all complaints Management will also introduce a regular review of internal complaints procedures and guidance to identify any changes or improvements required. 31-Mar-2024 31-Mar-2024 Chief Officer, Citizen, Culture and Facilities Chief Officer, Citizen, Culture and Facilities IAAP/202 Adequacy of Complaints Reporting (Amber) Management will develop reporting arrangements to ensure that there is adequate oversight of complaints at a service and corporate level, including root cause analysis and lessons learned. 31-Mar-2024 31-Mar-2024 Chief Officer, Citizen, Culture and Facilities Chief Officer, Citizen, Culture and Facilities Page 22
Page 23
REPORT TO AUDIT COMMITTEE ON STATUS OF INTERNAL AUDIT ACTION PLAN POINTS CURRENT ACTION PLANS AT 31.03.2024 SECTION 3 Status Key 7 On track Complete Overdue – update required Missed original due date –new date set Code Agreed Action Status Original Due Date Due Date Assigned To Managed By IAAP/203 Training arrangements for staff involved in handling complaints (Amber) Management will: Formally identify the training needs of each post involved in handling complaints. Determine the extent to which mandatory training in handling complaints is required for all posts, including the use of e-learning. Develop a training plan for all staff involved with handling complaints. 31-Mar-2024 31-Mar-2024 Chief Officer, Citizen, Culture and Facilities Chief Officer, Citizen, Culture and Facilities Facilities Management – Catering Stock Control (Report Issued January 2024) Code Agreed Action Status Original Due Date Due Date Assigned To Managed By IAAP/204 Lack of Documented Procedures (Amber) A review of current procedures for dealing with stores management and stock control will be undertaken and fully documented. The procedural document will include the date of preparation, details of version control and will be approved by the Chief Officer. Any future updates to the procedures will be recorded within the version control data. Thereafter, the procedures will be distributed to all appropriate staff. Distribution will be recorded on a Document Distribution Record which will be signed by all staff members receiving a copy of the procedures. Training will be provided where any knowledge gaps are identified. 30-Sep-2024 30-Sep-2024 Facilities Manager Chief Officer, Citizen, Culture and Facilities IAAP/206 Lack of Independent Check of Stock Check Documentation (Amber) Management will ensure that an independent check of stock checks is carried out to ensure the completeness an accuracy of the stock check. 30-Apr-2024 30-Apr-2024 Facilities Manager Chief Officer, Citizen, Culture and Facilities IAAP/208 Lack of Independent Check of Stock Check Documentation (Amber) Management will ensure that the integrity of the spreadsheets are maintained by protecting cells that contain formula and cells that relate to prices which the Food & Nutritionist Coordinator is only permitted to change/update. 31-Aug-2024 31-Aug-2024 Facilities Manager Chief Officer, Citizen, Culture and Facilities IAAP/210 Inadequate Process for Approval of Invoices (Amber) Training will be provided to appropriate staff on the process of validating and approving invoices on the RBS Purchase Card System. Thereafter, invoices will be checked for validity at least on a sample basis before approving for payment. Should potential issues be identified, the sample size for checking will be increased. 31-Aug-2024 31-Aug-2024 Facilities Manager Chief Officer, Citizen, Culture and Facilities Page 23
Page 24
REPORT TO AUDIT COMMITTEE ON STATUS OF INTERNAL AUDIT ACTION PLAN POINTS CURRENT ACTION PLANS AT 31.03.2024 SECTION 3 Status Key 8 On track Complete Overdue – update required Missed original due date –new date set Code Agreed Action Status Original Due Date Due Date Assigned To Managed By IAAP/211 Lack of checking Compliance with the Shopping List (Amber) As part of the monthly service reviews carried out, Team Leaders and the new Compliance Officer will carry out a check of stock as standard to ensure that stock items are compliant with the Shopping List. This will be documented within the Onsite Service Review form and where any non compliant items are identified, this will be highlighted to management. 31-Aug-2024 31-Aug-2024 Facilities Manager Chief Officer, Citizen, Culture and Facilities IAAP/212 Lack of checking Compliance with the Shopping List (Amber) In addition, where a check is carried out in respect of compliance with Food For Life, this will also be documented and any issues identified raised with management. 31-Aug-2024 31-Aug-2024 Facilities Manager Chief Officer, Citizen, Culture and Facilities Facilities Management –Cleaning Stock Control (Report Issued January 2024) Code Agreed Action Status Original Due Date Due Date Assigned To Managed By IAAP/219 Stock Control Procedures/Guidance for Cleaning Materials (Amber) Management will develop procedures to standardise the approach for cleaning supplies stock control and ensure compliance checks are carried out. 31-Jul-2024 31-Jul-2024 Facilities Officer and Compliance Team Leader Chief Officer, Citizen, Culture and Facilities IAAP/220 Adequacy of Stock Checks (Amber) Management will ensure an action plan is developed to include the implementation of stock and compliance checks are carried out on a monthly basis at each premise. 31-Jul-2024 31-Jul-2024 Facilities Officer Chief Officer, Citizen, Culture and Facilities IAAP/221 Excessive Levels of Stock (Amber) Management will ensure an action plan is developed to include setting a recommended stock holding of cleaning products at each of the premises and ensure compliance checks are carried out. 31-Jul-2024 31-Jul-2024 Facilities Officer and Compliance Team Leader Chief Officer, Citizen, Culture and Facilities IAAP/222 Adequacy of Training (Amber) Management will ensure an action plan is developed to include standard training guidance being delivered to all facilities staff responsible for cleaning stores & stock management, this will also include a consistent approach to the distribution and usage cleaning products. Attendance at this training will be compulsory for facilities staff responsible for cleaning stores & 30-Sep-2024 30-Sep-2024 Facilities Officer and Compliance Team Leader Chief Officer, Citizen, Culture and Facilities Page 24
Page 25
REPORT TO AUDIT COMMITTEE ON STATUS OF INTERNAL AUDIT ACTION PLAN POINTS CURRENT ACTION PLANS AT 31.03.2024 SECTION 3 Status Key 9 On track Complete Overdue – update required Missed original due date –new date set Code Agreed Action Status Original Due Date Due Date Assigned To Managed By stock management and monitoring will take place at each establishment to ensure guidance received is being adhered to. IAAP/223 Lack of Information on Flammable/Hazardous Products (Amber) Management will ensure an action plan is developed to include guidance for storing, handling and recording / registering flammable/hazardous cleaning products at premises and ensure compliance checks are carried out. 30-Sep-2024 30-Sep-2024 Facilities Officer and Compliance Team Leader Chief Officer, Citizen, Culture and Facilities Supporting Employee Attendance Facilitie – Code Agreed Action Status Original Due Date Due Date Assigned To Managed By IAAP/225 Compliance Issues – HSCP Care at Home (Amber) The management team is currently looking for the best way forward to be more compliant, there are currently a large number of competing demands and this requires some operational decisions to be made. A review of duties and process around absent management – including compliance with the policy is required. All management within Care at Home require further training in using the Workforce Console and will be put in place. 30-Jun-2024 30-Jun-2024 Integrated Operations Manager Head of Health and Community Care IAAP/227 System Access Restrictions for Recording Absences – HSCP Residential Day Care (Amber) The service have taken advice from HR connect on how to access HR21 system. The HR21 system will be piloted with a small staff group at Crosslet to ensure the process works and relevant action will then be taken to enable wider access/training. 30-Jun-2024 30-Jun-2024 Integrated Operations Manager Head of Health and Community Care IAAP/228 (a) Monitoring Compliance – Roads and Neighbourhood (Amber) Service Manager to carry out monthly checks to ensure compliance with the Supporting Employee Wellbeing Policy & Procedure. 30-Apr-2024 30-Apr-2024 Greenspace and Waste Manager Chief Officer – Roads and Neighbourhood Page 25
Page 26
REPORT TO AUDIT COMMITTEE ON STATUS OF INTERNAL AUDIT ACTION PLAN POINTS CURRENT ACTION PLANS AT 31.03.2024 SECTION 3 Status Key 10 On track Complete Overdue – update required Missed original due date –new date set Code Agreed Action Status Original Due Date Due Date Assigned To Managed By IAAP/228 (b) Monitoring Compliance – Roads and Neighbourhood (Amber) Continue to ensure absence management is properly monitored. 31-May-2024 31-May-2024 Corpoate Asset and Waste Manager Chief Officer – Roads and Neighbourhood IAAP/228 (c) Monitoring Compliance – Roads and Neighbourhood (Amber) Refresher training for all managers with line management responsibility. Absence and Wellbeing to be highlighted at team meetings. 31-May-2024 31-May-2024 Roads and Transportation Manager Chief Officer – Roads and Neighbourhood Page 26
Page 27
REPORT TO AUDIT COMMITTEE ON STATUS OF INTERNAL AUDIT ACTION PLANS ANALYSIS OF MISSED DEADLINES SECTION 4 11 Report Agreed Action Original Due Date Revised Date Management Comments Occupational Therapy – Waiting Times (April 2023) Lack of capacity to manage current occupational therapy workloads (Red) Recruitment to current vacant posts. Limitations apply: availability of suitable, appointable applicants plus national recruitment issue. 01-May-2023 30-Jun-2024 A new Integrated Operations Manager has now been appointed and one of the priority areas identified will be to review the wider OT service across ACT/COPT. This is anticipated to be concluded by June 2024 as this work will require a service redesign process. Supplier Management (March 2023) HSCP Formal Contract and Supplier Management (Amber) Development of a Contracts Register to be stored centrally and controlled by the CCQ Team. By the due date it will have been developed to include a risk register in RAG format to cover contract start date, end date, extension date, CI scores, spend status, Quality monitoring information. Risk register will also be used to programme in more to review services well ahead of contract end date. 31-Dec-2023 30-Sep-2024 This works remains a key workstream for the HSCP however, a number of challenges and additional pressures on capacity have prevented the completion of this audit action by the due date including: • Development of the Commissioned Services report across all HSCP commissioned services (format agreed at the last Audit Committee). • Quality Improvement Framework– work is still ongoing. • Amalgamating supplier information from multiple sources in order to get a picture of all current suppliers. • Contracts requiring strategic review. • Contracts and Commissioner Officer started in post December 2023. Fleet Management (May 2023) Lack of Review and Update of Fortress System (Amber) An initial exercise will be undertaken to review and update the driver information held on Fortress through consultations. Half yearly review on an ongoing basis. Review of keys and allocation of a key to a specific vehicle will be implemented as part of the initial exercise. 31-Dec-2023 30-Jun-2024 This action is dependent on completion of the action plan to clarify and agree roles and responsibilities for what is considered to be a service task and what is considered to be a Corporate Admin Support task. Relevant action will then be taken. Page 27
Page 28
REPORT TO AUDIT COMMITTEE ON STATUS OF INTERNAL AUDIT ACTION PLANS ANALYSIS OF MISSED DEADLINES SECTION 4 12 Report Agreed Action Original Due Date Revised Date Management Comments HSCP Imprest (November 2023) Lack of Segregation of Duties (Amber) A review of staff involved in the management and operation of petty cash imprest will be undertaken and the following will be noted: • Staff who carry out the day to day operation of petty cash imprest will not be an authorised signatory; and • Staff who are independent of the day to day operation will be nominated authorised signatories and will carry out checks and authorisation of reimbursement claims. 31-Jan-24 To be advised Due to other priorities and staff absence within the Finance team, this action has not yet been completed. A meeting will be scheduled to progress this work and a revised date for completion will be confirmed. HSCP Imprest (November 2023) Adequacy of Procedures (Amber) A review of the procedures will be undertaken and updated to reflect up to date practice and provide sufficient guidance to staff involved in operating and managing petty cash imprest accounts. 31-Mar-2024 To be advised Due to other priorities and staff absence within the Finance team, this action has not yet been completed. A meeting will be scheduled to progress this work and a revised date for completion will be confirmed. Page 28
Page 29
REPORT TO AUDIT COMMITTEE ON STATUS OF INTERNAL AUDIT ACTION PLANS SUMMARY OF ACTIONS BY AUDIT YEAR SECTION 5 13 Status at 31 March 2024 Audit Year No of Agreed Actions No of actions complete Current actions by Grade Red Amber Green* 2020/2021 25 25 0 0 0 2021/2022 51 50 0 0 1 2022/2023 51 41 1 6 3 2023/2024 43 15 0 18 10 Total 170 131 1 24 14 * Green actions are within the Council’s risk appetite and are therefore not included in Audit Committee reports. Page 29
Page 30
Page 30
Page 31
WEST DUNBARTONSHIRE COUNCIL Report by Chief Officer – Resources Audit Committee: 12 June 2024 Subject: Internal Audit Annual Report to 31 March 2024 1. Purpose 1.1 The purpose of this report is to advise Members of the work undertaken by Internal Audit in respect of the 2023/24 Annual Audit Plan and to advise Members of the contents of the Assurance Statement given to Members of West Dunbartonshire Council, the Chief Executive and the Section 95 Officer (Chief Officer - Resources) in support of the Annual Governance Statement. This report outlines how audit assurances are obtained. 2. Recommendations 2.1 It is recommended that Members note the contents of this report. 3. Background 3.1 The Public Sector Internal Audit Standards (PSIAS) became effective on 1st April 2013 (revised in 2017) and require that: “The chief audit executive [WDC: Shared Service Manager Audit & Fraud] must deliver an annual internal audit opinion and report that can be used by the organisation to inform its governance statement. The annual internal audit opinion must conclude on the overall adequacy and effectiveness of the organisation’s framework of governance, risk management and control. The annual report must incorporate: • The opinion; • A summary of the work that supports the opinion; and • A statement on conformance with the Public Sector Internal Audit Standards and the results of the quality assurance and improvement programme”. 3.2 Progress reports were provided to the Audit Committee at each meeting during 2023/24 on Internal Audit activity and progress against the annual audit plan. Item 6 Page 31
Page 32
4. Main Issues 4.1 Internal Audit has implemented a new risk-based audit methodology which means that for each audit, one of the following opinions is expressed: Strong In our opinion there is a sound system of internal controls designed to ensure that the organisation is able to achieve its objectives. Satisfactory In our opinion isolated areas of control weakness were identified which, whilst not systemic, put some organisation objectives at risk. Requires Improvement In our opinion systemic and/or material control weaknesses were identified such that some organisation objectives are put at significant risk. Unsatisfactory In our opinion the control environment was considered inadequate to ensure that the organisation is able to achieve its objectives. 4.2 Detailed findings and recommendations reported to management are graded using the following criteria: Red In our opinion the control environment is insufficient to address the risk and this could impact the Council as a whole. Corrective action must be taken and should start immediately. Overseen to completion by Corporate Management Team. Amber In our opinion there are areas of control weakness which we consider to be individually significant but which are unlikely to affect the Council as a whole. Corrective action must be taken (some exceptions may be agreed with Internal Audit) within reasonable timeframe. Overseen to completion by Chief Officer/Head of Service. Green In our opinion the risk area is well controlled or our audit highlighted areas for minor control improvement and/or areas of minor control weakness. Process improvements/efficiencies may be actioned at management discretion in consultation with Internal Audit. Managed by service manager. Not reported in Audit Committee papers. 4.3 The status of the Audit Plan for 2023/24 is set out at Appendix 1. There are no significant issues arising through audit work to date which would impact on the overall audit opinion within the 2023/24 Annual Report and Assurance Statement. Page 32
Page 33
4.4 The 2023/24 Internal Audit Annual Report and Assurance Statement is set out at Appendix 2. There are four overall Audit Opinion types as follows: Satisfactory Controls evaluated are adequate, appropriate and effective to provide reasonable assurance that risks are being managed and objectives should be met. • A limited number of amber rated issues may have been identified, but generally only green issues have been found in individual audit assignments. • None of the individual assignment reports have an overall opinion of Requires Improvement or Unsatisfactory. Generally Satisfactory with some improvement needed A few specific control weaknesses were noted: generally however, controls evaluated are adequate, appropriate and effective to provide reasonable assurance that risks are being managed and objectives should be met. • A number of amber rated issues identified in individual audit assignments that collectively do not significantly impact the system of internal control. • Red rated issues that are isolated to specific systems or processes. • None of the individual assignment reports have an overall opinion of Unsatisfactory. Major improvement needed Numerous specific control weaknesses were noted. Controls evaluated are unlikely to provide reasonable assurance that risks are being managed and objectives should be met. • A high number of amber rated issues that collectively have a significant impact on some parts of the system of internal control but are not widespread. • A number of red rated issues that collectively have a significant impact on some parts of the system of internal control but are not widespread. • A small number of individual assignment reports have an overall opinion of Requires Improvement or Unsatisfactory. Unsatisfactory Controls evaluated are not adequate, appropriate or effective to provide reasonable assurance that risks are being managed and objectives should be met. • Amber and red rated issues identified in individual assignments that collectively are widespread to the system of internal control. • A high number of individual assignment reports have an overall opinion of Requires Improvement or Unsatisfactory. Page 33
Page 34
4.5 On the basis of Internal Audit work performed in 2023/24 it can be concluded that the majority of the Council’s control procedures are operating as expected during the period under review, although it is recognised that work is ongoing with management to continue to make good progress in implementing agreed action plans arising from Internal Audit reviews. 4.6 However, there was one audit where a Requires Improvement rating was given: • Complaints Handling Arrangements 4.7 The overall audit opinion is Generally Satisfactory with some improvement needed. 4.8 Performance indicators for the Audit and Fraud service were reviewed for 2023/24 and reporting on performance against target is included within the service delivery plan. 5. People Implications 5.1 There are no people implications. 6. Financial and Procurement Implications 6.1 As a result of Corporate Fraud Team activity, actual recoveries, charges and re-billings of £237,496 have been identified during 2023/24. 6.2 There are no procurement implications arising from this report. 7. Risk Analysis 7.1 There is a risk that failure to deliver the Internal Audit Plan would result in an inability to provide a minimum level of assurance over the Council’s system of internal financial control to those charged with governance. 8. Equalities Impact Assessment (EIA) 8.1 There is no requirement for an EIA. 9. Consultation 9.1 This report has been subject to consultation with appropriate Chief Officers. 10. Strategic Assessment 10.1 This report relates to Assuring Our Success through strong financial governance and sustainable budget management. Page 34
Page 35
.................................... Laurence Slavin Chief Officer - Resources Date: 12 June 2024 Person to Contact: Andi Priestman, Shared Service Manager – Audit & Fraud E-mail: andi.priestman@west-dunbarton.gov.uk Appendices: 1 – Status of Audit Plan 2023/24 2 - Internal Audit Annual Report and Assurance Statement for the year ended 31 March 2024 Background Papers: Audit Committee – 8 June 2023: Internal Audit Plan 2023/24 Wards Affected: All wards Page 35
Page 36
Page 36
Page 37
Audit Plan 2023/24: Completed Audits Report Title Status Findings Control Environment Opinion Red Amber Green Risk Based Reviews Corporate Complaints Complete 1 4 0 Requires Improvement Supporting Employee Attendance Complete 0 4 2 Satisfactory FM Cleaning – Stock Control Complete 0 5 1 Satisfactory FM Catering – Stock Control Complete 0 5 4 Satisfactory Corporate Procurement – Procurement under £10k Draft Report 0 1 1 Satisfactory Commercial Waste Fieldwork N/A N/A N/A N/A Vehicle Maintenance Fieldwork N/A N/A N/A N/A Participatory Budgeting Not Started N/A N/A N/A N/A Value for Money Reviews Void Management Fieldwork N/A N/A N/A N/A Property Repairs and Maintenance Planning N/A N/A N/A N/A Limited Scope Finance Reviews Non-Domestic Rates Complete 0 3 4 Satisfactory Debt Recovery Fieldwork N/A N/A N/A N/A Regularity Audits Education Control Self- Assessment Draft Report 0 3 1 Satisfactory HSCP – Imprest Complete 0 2 2 Satisfactory High Earners – Quarterly check Fieldwork N/A N/A N/A N/A Project Assurance Reviews Learning Disability Services Deferred to future Audit Plan. There is currently a redesign planned for LDS financial monitoring processes. Audit resource will be provided to the project and terms of reference will be agreed. Advisory Reviews UK Shared Prosperity Fund Draft Report issued to management for comment. Draft Internal Audit Opinion – Satisfactory. Roads – Route Optimisation No audit input required. Finance/HR Establishment Controls Audit support and advice provided to working group. Other Work IJB Internal Audit Service 2023/24 Audit Plan – Two assurance reviews were planned. One review is complete with the remaining review at fieldwork stage. Valuation Joint Board 2023/24 Audit Plan - One follow up review audit was completed. WD Leisure Trust 2023/24 Audit Plan Complete. Item 6 Appendix 1 Page 37
Page 38
Page 38
Page 39
Assurance Statement for the year ended 31 March 2024 From the Shared Service Manager – Audit & Fraud To the Members of West Dunbartonshire Council, the Chief Executive and the Section 95 Officer (Chief Officer - Resources) As Shared Service Manager - Audit & Fraud of West Dunbartonshire Council, I am pleased to present my annual statement on the adequacy and effectiveness of the internal financial control system of the Group Accounts prepared by the Council for the year ended 31 March 2024. Respective responsibilities of management and internal auditors in relation to internal control It is the responsibility of the Council’s senior management to establish an appropriate and sound system of internal financial control and to monitor the continuing effectiveness of that system. It is the responsibility of the Shared Service Manager – Audit & Fraud to provide an annual overall assessment of the robustness of the internal financial control system. The Council’s framework of governance, risk management and internal control The Council has a responsibility to ensure that its business is conducted in accordance with legislation and proper standards. The governance framework comprises the systems and processes, culture and values by which the Council is directed and controlled and how it accounts to communities. It enables the Council to monitor the achievement of its strategic priorities and to consider whether those objectives have led to the delivery of appropriate services and value for money. The main objectives of the Council’s internal control systems are to ensure: • Adherence to management policies and directives in order to achieve the organisation’s objectives. • Economic, efficient, effective and safe use of resources and assets. • The relevance, reliability and integrity of information, so ensuring as far as possible the completeness and accuracy of records. • Compliance with statutory requirements. The system of internal control is a significant element of the governance framework. Any system of control can only ever provide reasonable and not absolute assurance that control weaknesses or irregularities do not exist or that there is no risk of material errors, losses, fraud, or breaches of laws or regulations. Accordingly, the Council is continually seeking to improve the effectiveness of its systems of internal control in order to identify and prioritise the risks that would prevent the achievement of the Council’s strategic objectives. Item 6 Appendix 2 Page 39
Page 40
The work of internal audit Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of governance, risk management and internal control processes. The Council’s Internal Audit Section operates in accordance with the Public Sector Internal Audit Standards (PSIAS) which have been agreed to be adopted from 1st April 2013 (revised in 2017) by the relevant public sector Internal Audit Standard setters. PSIAS applies the Institute of Internal Auditors International Standards to the UK Public Sector. PSIAS requires that a Quality Assurance and Improvement Programme (QAIP) is developed in order to provide assurance that internal audit activity: • Is conducted in accordance with an Internal Audit Charter. • Operates in an efficient and effective manner. • Is perceived to be adding value and improving operations. An internal self-assessment of internal audit practices has been carried out by Internal Audit every year since PSIAS became effective on 1st April 2013, with improvements identified and implemented as appropriate. PSIAS also requires, as outlined in Standard 1300 “QAIP”, that: “External assessments must be conducted at least once every five years by a qualified, independent assessor or assessment team from outside the organisation. External assessments can be in the form of a full external assessment or a self-assessment with independent external validation”. The last external review was carried out in 2016. The next external review was due to be carried out by 31 March 2021 however this was deferred due to the pandemic. The external review has now been rescheduled for 2024. The internal review confirms a high level of compliance and that the Internal Audit Section generally conforms with the requirements of PSIAS. The Internal Audit Section undertakes an annual programme of work based on a risk assessment process which is revised on an ongoing basis to reflect evolving risks and changes within the Council. All Internal Audit reports identifying control weaknesses and/or areas of non-compliance with expected controls are brought to the attention of management and the Audit Committee together with appropriate recommendations and agreed action plans. It is management’s responsibility to ensure that proper consideration is given to Internal Audit reports and that appropriate action is taken on audit recommendations. The internal auditor is required to ensure that appropriate arrangements are made to determine whether action has been taken on internal audit recommendations or that management has understood and assumed the risk of not taking action. Agreed actions arising from Internal Audit reports are followed up on a monthly basis as action dates fall due. Page 40
Page 41
Regular reporting on action plan implementation is provided on a monthly basis to senior management and to each meeting of the Audit Committee. Internal Audit and Corporate Fraud staff regularly attended the following external user group meetings: • SLACIAG, the purpose of which is to develop and improve the practice of internal audit activity with Scottish local authorities. It achieves this by meeting to discuss issues of common concern, commissioning work to develop ideas, sharing good practice, working in partnership with other professional / governing bodies and promoting SLACIAG as the representative body for internal audit in local authorities; and • The Scottish Local Authority Investigators Group (SLAIG): This group consists of fraud practitioners from local authorities in Scotland, with the objectives of: o Raising the profile of the counter fraud agenda; o Sharing good practice; o Raising awareness of the risk of fraud; and o Ensuring that fraud is investigated in a professional manner. Basis of Opinion My evaluation of the control environment is informed by a number of sources: • The audit work undertaken by Internal Audit during the year to 31 March 2024. • The assessment of risk completed during reviews of the annual audit plan. • The Code of Good Governance self-assessment process undertaken by the Chief Officers for the services for which they were responsible during the year to 31 March 2024. • The Council’s Annual Governance Statement for the year ended 31 March 2024. • Reports issued by the Council’s External Auditors, Audit Scotland, and other review agencies. • My knowledge of the Council’s governance, risk management and performance management and monitoring arrangements. Limitation to Resources or Scope of Internal Audit Work There were no significant threats identified to the independence of the internal audit activity such as inappropriate scope or resource limitations. Opinion The report concludes that the majority of West Dunbartonshire Council’s established internal control procedures operated as intended to meet management's control requirements for each area reviewed by Internal Audit in 2023/24. The overall audit opinion is Generally Satisfactory with some improvement needed. Page 41
Page 42
Signature: Andi Priestman Title: Shared Service Manager – Audit & Fraud Date: 13 May 2024 Page 42
Page 43
Opinion Types Satisfactory Controls evaluated are adequate, appropriate and effective to provide reasonable assurance that risks are being managed and objectives should be met. • A limited number of amber rated issues may have been identified, but generally only green issues have been found in individual audit assignments. • None of the individual assignment reports have an overall opinion of Requires Improvement or Unsatisfactory. Generally Satisfactory with some improvement needed A few specific control weaknesses were noted: generally however, controls evaluated are adequate, appropriate and effective to provide reasonable assurance that risks are being managed and objectives should be met. • A number of amber rated issues identified in individual audit assignments that collectively do not significantly impact the system of internal control. • Red rated issues that are isolated to specific systems or processes. • None of the individual assignment reports have an overall opinion of Unsatisfactory. Major improvement needed Numerous specific control weaknesses were noted. Controls evaluated are unlikely to provide reasonable assurance that risks are being managed and objectives should be met. • A high number of amber rated issues that collectively have a significant impact on some parts of the system of internal control but are not widespread. • A number of red rated issues that collectively have a significant impact on some parts of the system of internal control but are not widespread. • A small number of individual assignment reports have an overall opinion of Requires Improvement or Unsatisfactory. Unsatisfactory Controls evaluated are not adequate, appropriate or effective to provide reasonable assurance that risks are being managed and objectives should be met. • Amber and red rated issues identified in individual assignments that collectively are widespread to the system of internal control. • A high number of individual assignment reports have an overall opinion of Requires Improvement or Unsatisfactory. Page 43
Page 44
Page 44
Page 45
WEST DUNBARTONSHIRE COUNCIL Report by Chief Officer - Resources Audit Committee: 12 June 2024 Subject: Annual Report on the Audit Committee – 2023/24 1. Purpose 1.1 The purpose of this report is to provide members with the Audit Committee Chair’s 2023/24 Annual Report on the Audit Committee. 2. Recommendations 2.1 It is recommended that members: i) Review and endorse the Chair’s Annual Report on the Audit Committee for 2023/24. ii) Agree that the report should be presented to a future meeting of the Council in line with best practice guidance. 3. Background 3.1 It is important that the Committee fully complies with best practice guidance on Audit Committees to ensure it can demonstrate its effectiveness as a foundation for sound corporate governance for the Council. The Chartered Institute of Public Finance and Accountancy (CIPFA) issued an updated guidance note ‘Audit Committees Practical Guidance for Local Authorities and Police 2022 Edition’ which incorporates CIPFA’s Position Statement: Audit Committees in Local Authorities and Police. This sets out CIPFA’s view of the role and functions of an Audit Committee. The Guidance includes the production of an annual report on the performance of the Audit Committee against its remit for submission to the Council. 3.2 The Audit Committee Chair’s 2023/24 Annual Report, attached at Appendix 1, provides assurance to the Council over the activity of the Audit Committee. 4. Main Issues 4.1 The Audit Committee Chair’s 2023/24 Annual Report is appended with the main issues identified being that the Audit Committee: • met four times during 2023/24 with every meeting quorate • sought assurance on the adequacy and effectiveness of the Council’s systems of corporate governance and internal control for efficient operations and for the highest standards of probity and accountability. • provided assurance to the Council as detailed in the appendix. Item 7 Page 45
Page 46
5. People Implications 5.1 There are no personnel issues with this report. 6. Financial and Procurement Implications 6.1 There are neither financial nor procurement implications arising directly from this report. 7. Risk Analysis 7.1 There is a risk that the Audit Committee does not comply with best practice guidance in relation to demonstrating its effectiveness in providing a foundation for sound corporate governance. The annual report provides this assurance to the Council on the activity of the Committee. 8. Equalities Impact Assessment (EIA) 8.1 There is no requirement for an EIA. 9. Consultation 9.1 This report has been subject to consultation with appropriate Chief Officers. In addition, services have been consulted in the update of action plans. 10. Strategic Assessment 10.1 This report relates to strong corporate governance. .................................... Laurence Slavin Chief Officer - Resources Date: 12 June 2024 ______________________________________________________________ Person to Contact: Andi Priestman, Shared Service Manager – Audit & Fraud E-mail: andi.priestman@west-dunbarton.gov.uk Appendix: Annual Report on the Audit Committee 2023/24 Background Papers: N/A Wards Affected: All Wards Page 46
Page 47
West Dunbartonshire Council Audit Committee 2023/24 Annual Report from the Chair Introduction This annual report has been prepared to inform West Dunbartonshire Council of the work carried out by the Council’s Audit Committee during the financial year 2023/24. Meetings The Audit Committee met four times during 2023/24 comprising meetings on 8 June, 9 August, 13 December and 15 February to consider reports relevant to the Audit cycle and other matters as deemed appropriate. Pre-Agenda meetings were also held ahead of Committee involving the Chair and appropriate officers. The purpose and remit of Audit Committee as detailed in the Council’s Standing Orders is to: • Monitor, and make recommendations on the development of the Audit activity of the Council. • Scrutinise the monitoring and review activity of the thematic and regulatory committees. To fulfil this remit, the Audit Committee sought assurance on the adequacy and effectiveness of the Council’s systems of governance, risk management and internal control to ensure efficient operations and the highest standards of probity and accountability. This was achieved through reports received from Internal Audit, other Council functions and External Audit with focus in particular on internal control and governance. At each meeting of the Audit Committee it considered significant findings from Internal Audit reports together with monitoring the progress made by management in completing agreed actions to improve the Council’s control environment. It also considered the external audit strategy memorandum for the 2022/23 audit from the newly appointed external auditors (Mazars). The Audit Committee also received reports on: • Prudential Indicators and Treasury Management. • Risk Management. • National Fraud Initiative. • Annual Complaints Report 2022-2023. • Code of Good Governance and the Annual Governance Statement. • Responses to External Audit Enquiries to Those Charged With Governance. The minutes of Audit Committee meetings are first confirmed as a correct record at the next Audit Committee before being remitted to Council for approval. Item 7 Appendix 1 Page 47
Page 48
Membership of the Audit Committee In accordance with West Dunbartonshire Council’s Standing Orders membership of the Audit Committee comprises eight Elected Members and one Lay Member who is not a member of any political party. The quorum of the Audit Committee is three Elected Members. The Chair and Vice Chair of the Audit Committee are members of the Opposition. Attendance by members of the Committee at Audit Committee meetings in 2023/24 was as follows: 8/06/23 9/08/23 13/12/23 15/02/24 Cllr K Conaghan (Chair) Present Present Apologies Present Cllr I Dickson Apologies Present Present Present Cllr J McColl Present Apologies Present Apologies Cllr J McElhill Apologies Apologies Apologies Apologies Cllr M McGinty Apologies Present Apologies Present Cllr J Millar Apologies Apologies Apologies Present Cllr M Rooney Present Present Present Present Cllr H Sorrell Apologies Apologies Apologies Apologies Lay Member Chris Johnstone (from 12/12/18) Apologies Present Apologies Present Every meeting of the Audit Committee during 2023/24 was quorate. Attendance by Officers All meetings were attended by the Chief Executive, Chief Officer – Resources and the Shared Service Manager - Audit & Fraud. Other senior officers also attended meetings as appropriate for items on the Agenda for which their presence was relevant. Representatives from the Council’s external auditors - Mazars - were present at relevant meetings. Assurance Statement to the Council The Audit Committee provides the following assurance to the Council: • The Council has received the Minutes of the Audit Committee meetings throughout the year. • The Audit Committee has operated in accordance with its agreed terms of reference, and accordingly with the audit committee principles in the CIPFA Position Statement relating to its Audit functions. • It did this through reports received from Internal Audit, External Audit, and assurances from Management. It focussed on matters of governance, risk management and internal control; giving advice to the Council on the value of the audit process; on the integrity of financial reporting; and on governance arrangements. • For all audit reports, the Audit Committee considered whether it was satisfied that an adequate management response was in place to ensure action would be taken to manage risk and address concerns on governance, risk management and internal control arrangements. The Committee acknowledges that all the audit recommendations are input to Pentana, the Council’s performance Page 48
Page 49
management system, and that there is a system in place of ongoing follow-up by Internal Audit and reporting thereon. • The Audit Committee has received and considered material to fulfil its scrutiny role on treasury management activity. Conclusion Based on the reports received and reviewed by the Committee they are in agreement with the Shared Service Manager – Audit & Fraud’s annual audit report which confirms that reasonable assurance can be placed upon the adequacy and effectiveness of the Council’s internal control system in 2023/24. I am satisfied that active monitoring and follow up of recommendations is in place in respect of agreed management action. Councillor Conaghan Chair of the Audit Committee 12 June 2024 Page 49
Page 50
Page 50
Page 51
WEST DUNBARTONSHIRE COUNCIL Report by Chief Officer - Resources Audit Committee: 12 June 2024 ___________________________________________________________________ Subject: Treasury Management Strategy and Annual Investment Strategy 1. Purpose 1.1 Following approval at Council on 27 March 2024, the purpose of this report is to provide Members with the opportunity to further scrutinise the Prudential Indicators for and Treasury Management Strategy (including the Investment Strategy) for 2023/24 to 2032/33. 2. Recommendations 2.1 Members are requested to consider the report and note that on 27 March 2024 that Council: (a) Approved the proposed Treasury Management Strategy Statement and Annual Investment Strategy and the indicators contained within (b) Approved the continued use of the asset life method (using either annuity or equal instalment) for the repayment of loan fund advances with the exception of spend to save schemes where the funding/income profile method could be used. (c) Approved the ability to continue to use countries with a sovereign rating of AA- and above. (d) Added the recommendation that the short-term debt profile be capped at 30%. Council recognised that transitioning from current short-term levels to longer- term will take some time and invites the S95 officer to manage the timeline of this change. This should be reported on at the next review of the Treasury management strategy. Council also seeks to strike off lender option borrower option (LOBO’s) as an approved source of long or short term borrowing from our borrowing and debt strategy. (e) Noted that the report will be referred to Audit Committee for further scrutiny. 3. Background 3.1 The Council has adopted the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice on Treasury Management in Local Authorities. A requirement of the Code is for an annual Treasury Management Strategy Statement and Investment Strategy to be approved by Council for the forthcoming financial year. This report seeks Member’s approval of the proposed Treasury Management Strategy Statement and Annual Investment Item 8 Page 51
Page 52
Strategy. The report also sets out the policy for the repayment of loans fund advances for 2024/25. 3.2 The Council uses Link Treasury Services as its external treasury management advisors. The Council recognises that there is value in employing external providers of treasury management services in order to acquire access to specialist skills and resources. The Council will ensure that the terms of their appointment and the methods by which their value will be assessed are properly agreed and documented, and subject to regular review. 3.3 Appendix 1 and 2 of the attached document outline the Council’s Capital Prudential and Treasury Indicators which Members are asked to approve as required by the Local Government (Scotland) Act 1973 (extended via the Code on the Investments of Money by Scottish Local Authorities (issued on 1 April 2010) under section 40 of the Local Government in Scotland Act 2003. 3.4 In 2016 new regulations were enacted by the Scottish Parliament, the Local Authority (Capital Finance and Accounting) (Scotland) Regulations 2016, under which the Council is required to set out its policy for the statutory repayment of loans fund advances prior to the start of the financial year as detailed in section 3 of Appendix 1. The policy on repayment of loans fund advances in respect of capital expenditure by the Council is to ensure that the Council makes a prudent provision each year to pay off an element of the accumulated loans fund advances made in previous financial years. . 3.7 The CIPFA Treasury Management Code of Practice requires greater Member scrutiny of the treasury polices, increased Member training and awareness and greater frequency of information. One of the key clauses is that a responsible body is required to ensure effective scrutiny of the treasury management strategy and polices. Within West Dunbartonshire Council the body identified to fulfil this role is the Audit Committee. Therefore the proposed Treasury Management Strategy Statement and Annual Investment Strategy and the indicators contained within should be referred to the Audit Committee once approved by Council to ensure further scrutiny takes place. 4. Main Issues 4.1 The Local Government in Scotland Act 2003 requires Council to adopt the CIPFA Prudential Code and to produce prudential indicators. Appendix 6 of this report details the Council’s expected year end indicators for 2024/25, revises the indicators for 2025/26 to 2027/28 and projects the indicators to 2032/33, with those for the period 2027/28 to 2032/33 being indicative at this time. 4.2 Within this overall prudential framework there is a clear impact on the Council’s treasury management activity, either through borrowing or investment activity. As a consequence the treasury management strategy (which includes details of both debt and investment) for 2024/25 to 2032/33 is included in Appendix 6 (with the period 2027/28 to 2032/33 being indicative at Page 52
Page 53
this time) to complement the prudential indicators relating to the treasury activity. 4.3 Details of the risks, mitigating controls and limits associated with each of the permitted investment categories are shown in Appendix 3. Credit rating type and definitions are attached as Appendix 4 and a list of approved sovereign countries for investments are attached as Appendix 5. Changes to Financial Regulations – Leasing 4.4 The Treasury Management Strategy report to Council in March 2021 reported a change to financial regulations regarding leasing. The change was postponed and is now due to be implemented on 1 April 2024. 4.5 This change brings the assets and future liabilities for all leases onto the Council’s Balance Sheet from 1 April 2024, which will bring leased assets onto the balance sheet for the closing of the 2024/25 accounts. The effect of this change will increase the ‘level of debt’ identified by the Council; the Capital Financing Requirement; Operational Boundary; and Authorised Limit, by the future liability of the leased assets. Forecast and estimates of the ratio of financing costs to Net Revenue Stream may also be affected in future years. This change affects all councils, though this Council has a low number of leased assets. Capital Strategy 4.6 For information, in December 2017, CIPFA issued a revised Prudential Code. As a result, from 2019/20, all local authorities were required to prepare a Capital Strategy report, and a revision to the Prudential Code 2021 confirmed that Local Authorities must produce an Annual Capital Strategy which is intended to provide the following: • a high-level overview of how capital expenditure, capital financing and treasury management activity contribute to the provision of services • an overview of how the associated risk is managed • the implications for future financial sustainability. 4.6.1 The aim of the Capital Strategy report is to ensure that all elected members fully understand the overall strategy, governance procedures and risk appetite entailed by the Strategy. 4.6.2 The Capital Strategy for 2024/25 (reported to, and approved by, Council on 6 March 2024) includes capital expenditure, investments and liabilities and treasury management in sufficient detail to allow all Members to understand how stewardship, value for money, prudence, sustainability and affordability will be secured. 5. Option Appraisal 5.1 No option appraisal was required for this report. Page 53
Page 54
6. People Implications 6.1 There are no people implications arising from this report. 7. Financial and Procurement Implications 7.1 The prudential indicators detailed in Appendix 6 show the Council’s likely and indicative capital financing for the period 2024/25 to 2032/33 while the treasury management indicators detailed in Appendix 6 show the likely borrowing requirement for the same period. 7.2 Table E in Appendix 6 indicates that in each year the gross borrowing requirement (which includes short term borrowing for cashflow purposes) is below the capital financing requirement and does not exceed the total of the CFR in the preceding year plus the estimates of any additional CFR for 2024/25 and following two financial years (Appendix 2 – section 2.1 and 2.2). 7.3 As a key indicator of prudence this illustrates that the Council only undertakes long term borrowing for capital purposes and that over the last few years investment balances have been utilised to fund capital expenditure due to the concerns over the general economic environment and restricted counterparty lists. 7.4 There are no procurement issues arising from this report. 8. Risk Analysis 8.1 There are three main risks associated with the formulation of prudential indicators and the treasury management strategy as detailed in Appendix 1 and 2: (a) Capital receipts which affect the capital financing and borrowing requirement may not materialise and if this occurs then additional borrowing will be required in order to fund the financing requirement; (b) The risk of Counterparties default (i.e. loss of principal sum invested) must also be taken into account; however the robust controls included within the investment strategy (Appendix 2 – section 6) will assist in mitigating this risk; and (c) Capital inflation may increase capital expenditure levels, which in turn may affect the capital financing and borrowing requirement leading to an increase in borrowing, assuming no additional capital receipts are available. (d) Interest rates have increased significantly over the past 18 months and are subject to further uncertainty. It was highlighted to Council on the 6th March that the approved Capital plan was affordable in 2024/25 assuming a balanced revenue budget was agreed it does create significant pressures on Page 54
Page 55
the revenue budget due to the cost of borrowing as a result of high interest rates. There is a risk that if interest rates remain higher for longer than currently forecast. This will have revenue implications for future years and these will require to be planned for in the normal manner through long-term financial strategies and budget planning processes. This may require the capital programme to be subject to further review in future years if it is deemed to be placing an excessive pressure on the revenue budget and the sustainability of the Housing Revenue Account (HRA). 9. Equalities Impact Assessment 9.1 No equalities impact assessment was required in relation to this report. 10. Environmental Sustainability 10.1 No assessment of environmental sustainability was required in relation to this report. 11. Consultation 11.1 Legal and Resources have been consulted in relation to this report and appendices. 12. Strategic Assessment 12.1 Proper budgetary control and sound financial practice are cornerstones of good governance and support Council and officers to pursue the 5 strategic priorities of the Council’s Strategic Plan. This report forms part of the financial governance of the Council. Laurence Slavin Chief Officer - Resources Date: 22 May 2024 Person to Contact: Karen Shannon Church Street, Dumbarton Email: Karen.Shannon@west-dunbarton.gov.uk Appendices: 1 Prudential Indicators 2024/25 to 2032/33 2 Treasury Management Strategy 2024/25 to 2032/33 3 West Dunbartonshire Council and Common Good Funds Permitted Investments, Associated Controls and Limits 4 Counterparty Rating Explanations 5 Approved Countries for Investment 6 Prudential and Treasury Indicators Page 55
Page 56
Background Papers: 2024/25 Budget Report – Council 6 March 2024 Treasury Management Strategy – Council 29 March 2023 Treasury Mid-year update – Council 20 December 2023 Wards Affected: All wards affected. Page 56
Page 57
Capital Prudential Indicators 2023/24 to 2032/33 1. Capital Expenditure and Financing 1.1 This prudential indicator is a summary of the Council’s capital expenditure plans, both those agreed previously, and those forming part of the 2024/25 budget setting. The Council’s gross capital expenditure plans are summarised in Table A within Appendix 6. This forms the first of the prudential indicators. Total expenditure is partially funded by resources such as capital receipts, capital grants, etc. Any remaining expenditure which cannot be immediately funded from other resources will form a borrowing need. 1.2 A certain level of capital expenditure will be supported by the general capital grant provided by the Scottish Government, and also specific capital grants from the Scottish and UK Governments. Anything above this level will be funded from the Council’s own resources (e.g. other grants, capital receipts, prudential borrowing). 1.3 There are two main limiting factors which may impact on the Council’s ability to undertake unsupported capital expenditure: • Whether the revenue resource is available to support the implications of capital expenditure (borrowing costs and running costs). • The Government may use a control to limit either the total of all councils’ plans nationally, or in the event of an assessment by central government that local plans are unaffordable at a specific council, it may implement a local control. No such control has been implemented since the inception of the prudential code, however, HM Treasury keep this under review. 1.4 The summary of capital expenditure, as per the capital plan reported to Council on 6 March 2024 for both HRA and General Services, is shown in table A in Appendix 6. The HRA capital plan refresh extends to 2028/29 with the period from 2028/29 to 2032/33 extracted from the HRA Business Plan for the purposes of Prudential Indicator calculations. 1.5 Under section 22 of Schedule 3 of the Local Government (Scotland) Act 1975 a local authority may establish a capital fund to be used for “defraying any expenditure of the authority to which capital is properly applicable, or in providing money for repayment of the principal of loans (but not any payment of interest on loans)”. Furthermore paragraph 24 of Finance Circular 7/2018 confirms that capital receipts may also be used to “fund the cost of premiums, either as they are incurred, or as they are recharged back to the General Fund/ HRA” 1.6 The capital plan update for General Services reported to Council assumes an element of capital receipts is used to fund the principal element of loan charges and annual premium costs between 2023/24 and 2026/27. This has been adjusted for within these indicators, where appropriate. 2. The Council’s Borrowing Need (the Capital Financing Requirement) 2.1 The second prudential indicator is the Council’s Capital Financing Requirement (CFR). The CFR is simply the total outstanding capital expenditure which has not yet been paid for from either revenue or capital resources. It is a measure of the Council’s underlying borrowing Item 8 Appendix 1 Page 57
Page 58
need. The net capital financing need (as indicated in Table A in Appendix 6) impacts directly on the CFR. 2.2 Due to accounting requirements, the CFR currently includes any other long-term liabilities (i.e. PPP schemes, PPI schemes, finance leases) brought onto the Balance Sheet. Whilst this increases the CFR, and therefore the Council’s borrowing requirement, these types of scheme include a borrowing facility and so the Council is not required to separately borrow for these schemes. The Council currently has circa £90m for PPP schemes and leases within the CFR. From 1 April 2024, further accounting changes see operational leases (where the Council is lessee) also being brought onto Balance Sheet, which will further increase CFR through other long-term liabilities (value to be confirmed, however an estimate has been included within the appendices). 2.3 The CFR projections for both General Services and HRA are shown in table B in Appendix 6 and show that the CFR for the HRA and the CFR for General Services is projected to increase each year from 2022/23 to 2032/33 2.4 The expected impact of the capital expenditure decisions above on the Council’s debt and investment position are shown in the treasury strategy (Appendix 2). 3. Statutory repayment of loans fund advances 3.1 The Council is required to set out its policy for the statutory repayment of loans fund advances prior to the start of the financial year. The repayment of loans fund advances ensures the Council makes a prudent provision each year to pay off an element of the accumulated loans fund advances made in previous financial years. 3.2 A variety of options are provided to councils so long as a prudent provision is made each year as detailed below: Option Method Detail 1 Statutory Loans fund advances will be repaid by the annuity method. The Council was permitted to use this option for a transitional period only, of five years until 31 March 2021, at which time it was required to change its policy to use alternative approaches based on depreciation, asset life periods or a funding/income profile as detailed below. 2 Depreciation Annual repayment of loans fund advances will follow standard depreciation accounting procedures. 3 Asset Life Loans fund advances will be repaid with reference to the life of an asset using either the equal instalment or annuity method. 4 Funding/ Income Profile Loans fund advances will be repaid by reference to an associated income stream 3.3 Council is recommended to approve the following policy for loans fund advances: • For loans fund advances made before 1 April 2016, advances will be repaid by the annuity method, by the appropriate write off period (based upon useful asset lives, following the agreed Council policy). Page 58
Page 59
• Recognising that the Council had forward capital expenditure plans and was already committed to that plan and the revenue implications of that plan, the policy for loans fund advances made from 1 April 2016 to 31 March 2021 was to mainly repay loans fund advances by the annuity method (with a write off period based upon useful asset lives) unless an alternative method is more appropriate. • For loans fund advances made after 1 April 2021 (i.e. commencing 2021/22), the policy for the repayment of loans advances is to apply the following options, selecting the most suitable method for each individual advance. o Asset life method – loans fund advances will be repaid with reference to the life of an asset using either the equal instalment or annuity method. It is likely that the equal instalment method will be used. o Funding / Income profile method – loans fund advances will be repaid by reference to an associated income stream. 3.4 The annuity rate applied to the loans fund repayments is based on historic interest rates and is currently 9%. 3.5 Table C in Appendix 6 details the loans fund repayment profile for 2023/24 onwards based on the balance outstanding at 1 April 2023 and capital expenditure plans 2023/24 to 2032/33 as per Table A. 4. Affordability Prudential Indicators 4.1 The previous sections cover the overall capital and control of borrowing, but within this framework prudential indicators are required to assess the affordability of the capital investment plans. These indicate the impact of the capital investment plans on the overall Council’s finances. The Council is asked to approve the following indicators: 4.2 Actual and Estimates of the ratio of financing costs to net revenue stream. This indicator is detailed in Table D in Appendix 6, and identifies the trend in financing cost of capital (loan charges and long-term liability financing) against the net revenue stream (funding sources e.g. Scottish Government revenue support grant, council tax and HRA rental income). The estimates of financing costs include current commitments and the impact of capital expenditure as per Table A and this indicator shows the percentage of total council revenue expenditure that is spent on repayment of loan charges and long-term liability capital and interest repayments. 5. Financial reporting changes in relation to leases 5.1 From 1 April 2024 there is a significant change to the Accounting Code of Practice which the Council follows for their Financial Statements, which will impact on debt levels and prudential indicators in the future. This change is in relation to assets the Council leases in. 5.2 Currently there are two types of leases which are treated differently through the Financial Statements. From April 2024, all leases (where the Council is lessee and with a few exceptions) will require to be accounted for on the Council Balance Sheet as assets. For illustrative purposes, leases currently held by the Council (but not owned and therefore not currently on the Council’s Balance Sheet) include leases for properties (such as Aurora/ Clydebank Town Centre Office/ Bridge Street), Page 59
Page 60
photocopiers, and vehicles. The treatment of these leases will become similar to the current accounting reporting for PPP assets. 5.3 Accounting for these leases on the Balance Sheet will result in increases to assets and long- term liabilities, affecting a number of the prudential and treasury management indicators – increasing: the ‘level of debt’ identified by the Council; the Capital Financing Requirement; Operational Boundary; and Authorised Limit, by the value of the leases. Forecast and estimates of the ratio of financing costs to Net Revenue Stream may also be affected. 5.4 We have carried out an exercise is underway to identify all leases and values for both the assets and the liabilities. When leases are brought on balance sheet in 2024/25 this has resulted in an increase in the CFR of £2.159m. Page 60
Page 61
Treasury Management Strategy 2023/24 – 2032/33 1. Background 1.1 The treasury management service is an important part of the overall financial management of the Council’s affairs. Whilst the prudential indicators in Appendix 1 consider the affordability and impact of capital expenditure decisions, the treasury service covers the effective funding of these decisions. There are specific treasury prudential indicators included in this strategy which need approval. 1.2 The Council’s treasury activities are strictly regulated by statutory requirements and a professional code of practice (the CIPFA Code of Practice on Treasury Management). 1.3 As a requirement of the Code Council is required to adopt a Treasury Management Policy Statement and four Treasury Management clauses. These form part of the Council’s financial regulations and the following documents were adopted on 5 March 2018: • Treasury Management Policy Statement • Treasury Management Clauses • The Treasury Management Role of the Section 95 Officer 1.4 The policy requires an annual strategy to be reported to Council outlining the expected treasury activity for the forthcoming three years, however in line with the longer capital planning process treasury management indicators have been provided (where appropriate) covering the period to 2032/33. A key requirement of this report is to explain both the risks, and the management of the risks, associated with the treasury service. Further reports are issued as follows: • Mid-year monitoring report on actual activity during the year including revised indicators where appropriate. • Year-end report on actual activity for the previous year. • Updates as part of the capital BCR. 1.5 This strategy covers: • The Council’s debt and investment projections • Limits to the Council’s borrowing activity • The economic climate and expected movement in interest rates • The Council’s borrowing, debt and investment strategies • Treasury performance indicators • Specific limits on treasury activities • Policy on ethical investments. 2. The Council’s debt and investment projections 2.1 The Council’s forecast treasury portfolio position at 31 March 2024 with forward projections are summarised in Table E in Appendix 6 and shows the gross debt (the treasury management operations), against the underlying capital borrowing need (the Capital Financing Requirement - CFR), highlighting any under or over borrowing. Item 8 Appendix 2 Page 61
Page 62
2.2 Within the prudential indicators there are a number of key indicators to ensure the Council operates its activities within well defined limits. One of these is that the Council needs to ensure that its gross debt does not, except in the short term, exceed the total of the CFR in the preceding year plus the estimates of any additional CFR within the following two financial years. This allows some flexibility for limited early borrowing for future years, but ensures that borrowing is not undertaken for revenue purposes. This is illustrated by comparing the estimated gross debt as at 31 March 2024 with the CFR as at 31 March 2027. 2.3 The Section 95 Officer (Chief Officer - Resources) reports that the Council has complied with this prudential indicator, and no difficulties are envisaged for the current or future years. This view takes into account the capital plan refresh reports for General Services and HRA. 3. Limits to Borrowing Activity 3.1 The Operational Boundary is detailed in Table F in Appendix 6 and is the limit beyond which external debt is not normally expected to exceed. In most cases, this would be a similar figure to the CFR, but may be lower or higher depending on the levels of actual debt. 3.2 The Authorised Limit for External Borrowing – This is a key prudential indicator and represents a control on the maximum level of borrowing. This represents a legal limit beyond which external debt is not allowed to exceed. This needs to be set or revised by Members. It reflects the level of external debt which, while not desired, could be afforded in the short term, but is not sustainable in the longer term. This is the statutory limit (Affordable Capital Expenditure Limit) determined under section 35(1) of the Local Government in Scotland Act 2003. The Government retains an option to control either the total of all councils’ plans, or those of a specific council, although this power has not yet been exercised. The Council is asked to approve the authorised limit detailed in Table G in Appendix 6. 3.3 Policy on borrowing in advance of need - This Council will not borrow more than or earlier than required purely in order to profit from the investment return of the extra sums borrowed. Any decision to borrow in advance will be within forward approved Capital Financing Requirement estimates, and will be considered carefully to ensure that value for money can be demonstrated and that the Council can ensure the security of such funds. Risks associated with any borrowing in advance activity will be subject to prior appraisal and subsequent reporting through the mid-year or annual reporting mechanism. 4. UK, World and Scottish Economy Update – Extraction from Link Treasury Advisor Reports (January 2024) and the Scottish Fiscal Commission Forecast (December 2023). 4.1 UK The run of softer than expected news on CPI Inflation and wage growth means analysts now expect the Bank of England to cut interest rates sooner than before. Forecasters expect rates will be cut from 5.25% in June and will fall to 3.00% in 2025. The recent fall in mortgage rates means total household payments may not rise by as much as analysts thought. The economic recovery may start earlier and be a bit stronger. Unemployment rates stayed at 4.2% in November, the further fall in the job vacancy rate is consistent with wage growth slowing from 6.6% in October to 3.5% by the middle of this year. Page 62
Page 63
The bigger than expected fall in CPI inflation to 3.9% in November means that the UK is no longer a big international inflation outlier. 4.2 US PCE (Personal Consumption Expenditure) inflation is expected to return to 2% by middle of 2024 and analysts expect rates to fall between 3.00% and 3.25% in early 2025. The lagged impact of previous monetary policy tightening will continue to feed through the next few quarters, but forecasters do expect the economy to avoid a recession and rate cuts should fuel a pick up in GDP growth. 4.3 EU The Eurozone will remain in or close to recession in the first half of 2024 as the effects of higher interest rates continue to weigh on household consumption and investment. Headline inflation has already dropped sharply and will be close to the ECB’s (European Central Bank)2% target for most of 2024. 4.4 China China’s economy has regained some strength recently and analysts expect this to continue throughout 2024, on the back of support from fiscal policy and a further pick up in household spending. Property construction is likely to continue to decline along with exports and the recovery will lack momentum. 4.5 Japan The recent sharp fall in Japan’s ratio of public debt to GDP reflects one off factors that will not be sustained. Whilst the influence of rising bond yields on the trajectory of the public finances will largely be offset by higher inflation and nominal GDP growth, the Government will need to reduce its primary budget deficit sharply to prevent the public debt ratio from creeping higher again. Analysts now believe that inflation will ultimately reach 2% on a sustained basis, forcing the Bank of Japan to lift its policy rate to 2% as well. This in turn suggests that bond yields will rise further too. 6 Scotland Specific The outlook for the Scottish economy and for living standards (as measured by real disposable income per person) is largely unchanged from our December 2022 and May 2023 forecasts, with a slightly less negative picture for 2023-24 compared to a year ago. For 2023-24, back in May, we forecast Gross Domestic Product (GDP) to remain stable rather than fall into the shallow recession we had predicted in December 2022, and this coincided with less of a fall in living standards. Since May, reflecting stronger nominal earnings growth than anticipated, we have further revised up our forecast of real disposable income per person although we still expect a small fall this year. The drop in living standards between 2021-22 and 2023-24, of 2.7 per cent, is still the largest reduction since Scottish records began in 1998. Living standards will take until 2026-27 to return to their level. Page 63
Page 64
For 2024-25, we forecast slow and fragile growth in GDP and real disposable income per person, as the recent rises in interest rates continue to weigh on household incomes and the economy, with inflation also likely to stay higher for longer than we assumed previously. We forecast living standards to remain broadly flat in 2024-25 as inflation will largely offset growth in nominal household disposable income. Higher interest rates will continue to reduce disposable income over the next year.6 In part, this is because the widespread use of fixed-rate mortgages means that the recent rises in interest rates are passing through to mortgage costs with a longer lag than in the past. The forecast for inflation is higher and more persistent than last December. We do not expect the Bank of England’s target of 2 per cent to be met until the second quarter of 2025, after which the outlook is relatively stable. Due to strong earnings growth, we have revised up our forecast of real disposable income per person. Despite this, the drop between 2021-22 and 2023-24 is the largest reduction in living standards since Scottish records began in 1998. 5. Prospect for Interest Rates 5.1 The Council has appointed Link Asset Services as its treasury advisor and part of their service is to assist the Council to formulate a view on interest rates. Table H in Appendix 6 gives the current Link Asset Services central view. 6. Borrowing and Debt Strategy 2024/25 – 2032/33 6.1 Table E in Appendix 6 forecasts that the capital borrowing need (the Capital Financing Requirement) will be almost fully funded with external borrowing which is a mixture of short term and long term debt. 6.2 Against this background and the risk within the economic forecast, caution will be adopted with the 2024/25 treasury operations. The Section 95 Officer will monitor interest rates in financial markets and adopt a pragmatic approach to changing circumstances. 6.3 If it was felt that there was a significant risk of fall in long and short term rates, e.g. due to a marked increase of risks around recession or of risks of deflation, then long term borrowing will be postponed, and potential rescheduling from fixed rate funding into short term borrowing will be considered. 6.4 If it was felt that there was a significant risk of a much sharper rise in long and short term rates than that currently forecast, perhaps arising from a greater than expected increase in world economic activity or further increases in inflation risks, then the portfolio position will be re-appraised with the likely action that fixed rate funding will be drawn whilst interest rates were still relatively cheap. 6.5 Any decisions will be reported to Members via the Members Bulletin at the next available opportunity. 6.6 Approved sources of long and short term borrowing include: Page 64
Page 65
Fixed Variable PWLB X X Local Authorities X X Banks X X Pension Funds X X Insurance Companies X X Market – long term X X Market – short term X X Market – LOBOs X X Overdraft X X Internal (capital receipts / revenue balances) X X Finance Leases X X 7. Investment Strategy 7.1 The Council’s investment policy has regard to the Local Government Investment (Scotland) Regulations (and accompanying finance circular). Council has also adopted both the Treasury Management Code of Practice and the Prudential Code and is required to adopt revised editions. The day to day investment policies and practices are contained in the Council’s Treasury Management Practices, which reflect the requirements of these codes. 7.2 Key Objectives – Following the economic background above, the current investment climate has one over-riding risk consideration - counterparty security risk. As a result of these underlying concerns, officers have implemented an operational investment strategy which prioritises security first, liquidity second and then return. 7.2.1 The Council has adopted a prudent approach to managing risk and defines its risk appetite by the following means: • Minimum acceptable credit criteria are applied in order to generate a list of highly creditworthy counterparties. This also enables diversification and thus avoidance of concentration risk. The key ratings used to monitor counterparties are the short term and long-term ratings. • Other information: ratings will not be the sole determinant of the quality of an institution; it is important to continually assess and monitor the financial sector on both a micro and macro basis and in relation to the economic and political environments in which institutions operate. The assessment will also take account of information that reflects the opinion of the markets. To achieve this consideration the Council will engage with its advisors to maintain a monitor on market pricing such as “credit default swaps” and overlay that information on top of the credit ratings. • Other information sources used will include the financial press, share price and other such information pertaining to the financial sector in order to establish the most robust scrutiny process on the suitability of potential investment counterparties. • The Council has defined the list of types of investment instruments that the treasury management team are authorised to use. • Transaction limits are set for each type of investment. • All investments will be denominated in sterling. Page 65
Page 66
7.2.2 The aim of the strategy is to generate a list of highly creditworthy counterparties which will enable diversification, and thus avoidance of concentration, with the prime intention of providing security of investment and minimisation of risk. 7.3 Investment Strategy – The process for investment strategy under the regulations covers a wide range of Council investments and will be broadly managed in the following way: • Short Term Cash – Cash relating to day to day cash flow will be maintained on a shorter term basis in cash type products with consideration to liquidity requirements. • Longer Term Cash – Cash relating to reserves, provisions and balances on the balance sheet may be held for longer periods of time in cash type products or in longer term bonds or funds depending on: ▪ cash flow requirements ▪ the underlying expectation for interest rates ▪ the economic background of these investments may be held longer term. • Service Type Investments – These will predominantly be policy driven and approved by Members. Shareholdings, development opportunities, loans to third parties, equity instruments and investment properties held for rental returns will be regularly reviewed to judge the investment performance. • Non Service Type Investments – Investments such as Joint venture delivery companies such as Hub West Scotland and investments in regeneration partnerships and development opportunities. 7.4 Benchmarking and Monitoring Security, Liquidity and Yield in the Investment Service A development for Member reporting is the consideration and approval of security, liquidity and discreet benchmarks. Yield benchmarks are currently widely used to assess investment performance. 7.4.1 These benchmarks are targets (not limits) and so may be breached from time to time, depending on movements in interest rates and counterparty criteria. The purpose of the benchmark is that officers will monitor the current and trend position and amend the operational strategy depending on any changes. Any breach of the benchmarks will be reported, with supporting reasons in the Mid-Year or Annual Report. 7.4.2 In the context of benchmarking, assessing security is a very subjective area to assess. Security is currently evidenced by the application of minimum quality criteria to investment counterparties, primarily through the use of credit ratings supplied by the three main credit rating agencies (Fitch/ Moody’s and Standard and Poors). Whilst this approach embodies security considerations, benchmarking levels of risk is more problematic. One method to benchmark security risk is to assess the historic level of default against the minimum criteria used in the Council’s investment strategy. Table I in Appendix 6 shows average defaults for differing periods of investment grade products for each Fitch/ Moody’s Standard and Poors long term rating category. 7.4.3 The Council’s minimum long term rating criteria is currently “A-”, meaning the average expectation of default for a one year investment in a counterparty with a “A” long term rating would be 0.05% of the total investment (e.g. for a £1m investment the average loss would be Page 66
Page 67
£500). This is only an average - any specific counterparty loss is likely to be higher - but these figures do act as a proxy benchmark for risk across the portfolio. 7.4.4 As required by the CIPFA Treasury Management Code of Practice The Council will “ensure that it has adequate, though not excessive, cash resources, borrowing arrangements, overdrafts or standby facilities to enable it at all times to have the level of funds available to it which are necessary for the achievement of its business/service objectives”. In respect to liquidity as defined above the Council seeks to maintain: • Bank overdraft - £1m • Liquid short term deposits of at least £5m available on an overnight basis. 7.4.5 Local measures of yield investment benchmarks that will be used to assess returns are: Benchmark Benchmark Return Average Return Compound 12 month SONIA* 4.71% 4.92% Council’s Instant Access Account 5.15% 4.92% * SONIA is Sterling Overnight Index Average and has replaced LIBOR & LIBID 7.5 Council Permitted Investments – The Investments Regulations (Code on the Investment of Money by Scottish Local Authorities) requires Council approval of all the types of investment to be used and set appropriate limits for the amount that can be held for each investment type. These types of investment are termed permitted investments and any investments used which have not been approved as a permitted investment will be considered ultra vires. 7.5.1 The permitted investments which may be used in the forthcoming year are noted below. Details of the risks, mitigating controls and limits associated with each of these permitted categories are shown in Appendix 3. • Cash Type Instruments ▪ Deposits with the Debt Management Account Facility (UK Government) ▪ Deposits with other local authorities or public bodies ▪ Money Market Funds ▪ Call accounts, deposit accounts with financial institutions (banks and building societies ▪ Term deposits with financial institutions (banks and building societies) ▪ UK Government Gilts and Treasury Bills ▪ Certificates of deposits will financial institutions (banks and building societies) ▪ Structured deposit facilities with banks and building societies (escalating rates, de-escalating rates, etc). • Other Investments ▪ Investment properties ▪ Loans to third parties, including soft loans ▪ Loans to a local authority company ▪ Shareholding in a local authority company ▪ Non-local authority shareholdings ▪ Joint venture delivery companies such as Hub West Scotland ▪ Regeneration partnerships and development opportunities ▪ District Heating Schemes Page 67
Page 68
▪ Local Authority Mortgage Scheme (LAMS). 7.5.2 Permitted investments related to the Common Good are also shown in Appendix 3, and where applicable the same counterparty selection criteria as noted in 6.6 below will be applied. 7.6 Investment Counterparty Selection Criteria The primary principle governing the Council’s investment criteria is the security of its investments, although the yield or return on the investment is also a key consideration. After this main principle the Council will ensure: • It maintains a policy covering both the categories of investment types it will invest in, criteria for choosing investment counterparties with adequate security, and monitoring their security. • It has sufficient liquidity in its investments. For this purpose it will set out procedures for determining the maximum periods for which funds may prudently be committed. These procedures also apply to the Council’s prudential indicators covering the maximum principal sums invested. 7.6.1 The Section 95 Officer will maintain a counterparty list in compliance with the following criteria and will revise the criteria and submit them to Council for approval as necessary. This criteria selects which counterparties the Council will choose from, rather than defining what its investments are. 7.6.2 Credit rating type and definitions are attached within Appendices 4 and 6. 7.6.3 Credit rating information is supplied by our treasury consultants on all active counterparties that comply with the criteria below. Any counterparty failing to meet the criteria would be omitted from the counterparty (dealing) list. Any rating changes, rating watches (notification of a likely change), rating outlooks (notification of a possible longer term change) are provided to officers almost immediately after they occur and this information is considered before dealing. For instance a negative rating watch applying to any counterparty at the minimum Council criteria will be suspended from use, with all others being reviewed in light of market conditions. 7.6.4 The criteria for providing a pool of high quality cash type investment counterparties is: • Category 1 - Good Credit Quality – the Council will only use financial institutions (including certificates of deposit and corporate bonds) which: ▪ Are UK banks; and/or ▪ Are non-UK and domiciled in a country which has a minimum Sovereign long term rating of AA; The UK will be excluded from any Sovereign rating criteria. ▪ And have, as a minimum, the following Fitch, Moody’s and Standard and Poors (S&P) credit ratings (where rated): o Short Term – F1 (or equivalent from Fitch, Moody’s and S&P) o Long Term – A- (or equivalent from Fitch, Moody’s and S&P) The difference between the ratings will be reflected in the money limits as noted in Table K in Appendix 6. Page 68
Page 69
• Category 2 – Part nationalised UK banks –Royal Bank of Scotland Group. These banks can be included if they continue to be part nationalised or they meet the ratings in Category 1 above. • Category 3 - The Council’s own banker for transactional purposes if the bank falls below the above criteria specified in category 1, although in this case balances will be minimised in both monetary size and time. • Category 4 - Bank Subsidiary and Treasury Operations – the Council will use these where the parent bank has the necessary ratings outlined in category 1. • Category 5 - Building Societies – the Council will use all Societies which meet the ratings for banks outlined in category 1. • Category 6 - Money Market Funds – the Council will use either Constant Net Asset Value (CNAV) or Low Volatility Net Asset Value (LVNAV) money market funds that are AAA rated (by at least one of the 3 rating agencies) • Category 7 - UK Government (including gilts, treasury bills and the Debt Management Account Deposit Facility (DMADF/HM Treasury) • Category 8 - Local Authorities, etc 7.6.5 Due to the uncertainty in the financial markets it is recommended that the Investment Strategy is approved which will provide officers with the flexibility to deal with any unexpected occurrences. Officers can restrict the pool of available counterparties from these criteria to safer instruments and institutions. 7.6.6 The time limits for institutions on the Council’s cash type counterparty list are as noted in Table J in Appendix 6. 7.6.7 The Council’s bankers are currently Virgin Money (previously known as the Clydesdale Bank Plc) which falls within Category 3. It is recognised that the money limit of £5million may be breached for purely operational purposes on a temporary overnight basis only. The Chief Officer - Resources will endeavour to avoid this scenario but this allows for circumstances that are outwith the Council’s control where funds may be deposited unexpectedly or at short notice into the Council’s accounts after the dealing deadline for the day has passed. In such a circumstance the funds will require to be kept on an overnight basis in the Council’s bank account until appropriate arrangements can be made for investment. 7.6.8 Table J does not include a monetary limit for category 7 which are funds deposited with the UK Government namely the DMADF. This facility allows local authorities to deposit surplus cash on flexible terms and receive a market related rate of interest. Funds are held by the Bank of England and the scheme carried the Government’s own sovereign credit rating offering the highest available security and therefore no maximum monetary limit has been set. 7.6.9 Country and sector considerations - Due care will be taken to consider the country, group and sector exposure of the Council’s investments. In part the country selection will be chosen by the credit rating of the Sovereign state in Banks 1 above and the list of approved countries for investments are detailed in Appendix 5. In addition: • No more than 25% will be placed with any country outside of the UK at any time • Limits in place above will apply to Group companies Page 69
Page 70
• Sector limits will be monitored regularly for appropriateness. 7.6.10 Use of additional information other than credit ratings – Additional requirements under the Code of Practice now requires the Council to supplement credit rating information. Whilst the above criteria relies primarily on the application of credit ratings to provide a pool of appropriate counterparties for officers to use, additional operational market information will be applied before making any specific investment decision from the agreed pool of counterparties. This additional market information (for example Credit Default Swaps, negative rating watches/outlooks) will be applied to compare the relative security of differing investment counterparties. 7.6.11 Economic Investment Considerations – Current forecasts on shorter-term interest rates, on which investment decisions are based, show a potential for the current 5.25% Bank Rate to continue to slowly decrease. The Council’s investment decisions are based on comparisons between the rises priced into market rates against the Council’s and advisers own forecasts. 7.6.12 There is an operational difficulty arising from the current economic situation. There is currently little value investing longer term unless credit quality is reduced. Whilst some selective options do provide additional yield uncertainty over counterparty creditworthiness suggests shorter dated investments would provide better security. 7.6.13 The criteria for choosing counterparties set out above provide a sound approach to investment in “normal” market circumstances. Whilst Members are asked to approve this base criteria above, under the exceptional current market conditions the Section 95 Officer (Chief Officer - Resources) may temporarily restrict further investment activity to those counterparties considered of higher credit quality than the minimum criteria set out for approval. These restrictions will remain in place until the banking system returns to “normal” conditions. Similarly the time periods for investments will be restricted. 7.7 Sensitivity to Interest Rate Movements - Whilst most of the risks facing the treasury management service are addressed elsewhere in this report (credit risk, liquidity risk, market risk, maturity profile risk), the impact of interest rate risk is discussed but not quantified. Table K in Appendix 6 highlights the estimated impact of a 1% increase/decrease in all interest rates to the estimated treasury management costs/income for next year. That element of the debt and investment portfolios which are of a longer term, fixed interest rate nature will not be affected by interest rate changes. 7.8 Ethical Investments - This is the placing of funds and selecting investments in a manner that reflects an authority’s ethical values. Generally, two sets of criteria are drawn up – negative and positive values whereby investments are to be avoided or encouraged. 7.8.1 The following policy statement was approved on 25 October 2017: 7.8.2 The Council will not knowingly invest directly in organisations (including financial institutions and money market funds) whose activities and practices pose a risk of serious harm to individuals and/or groups, or whose activities are inconsistent with the Council’s vision, values and priorities. This could include avoiding direct investment in organisations with material links to: • Human rights abuse (e.g. child labour) • Environmentally harmful activities (e.g. destruction of habitat) • Socially harmful activities (e.g. gambling). Page 70
Page 71
7.8.3 In order to give effect to its commitment to this policy the Chief Officer - Resources contacted all investment counterparties on 9 January 2018 advising of our policy. 7.8.4 In accordance with the further commitments that were given in October 2017 it is considered that this policy statement remains relevant and does not require to be amended at this time. 8. Treasury Management Limits on Activity 8.1 There are four further treasury activity limits, which were previously prudential indicators. The purpose of these prudential indicators is to contain the activity of the treasury function within certain limits, thereby managing risk and reducing the impact of an adverse movement in interest rates. However, if these are set to be too restrictive they will impair the opportunities to reduce costs. • Upper limits on variable interest rate exposure – This indicator identifies a maximum limit for variable interest rates based upon the debt position net of investments • Upper limits on fixed interest rate exposure – Similar to the previous indicator this covers a maximum limit on fixed interest rates. • Maturity structures of borrowing – These limits are set to reduce the Council’s exposure to large fixed rate sums falling due for refinancing, and are required for upper and lower limits. • Total principal funds invested for greater than 364 & 365 days - These limits are set with regard to the Council’s liquidity requirements and to reduce the need for early sale of an investment, and are based on the availability of funds after each year-end. The proposed indicators are shown within Table L in Appendix 6. 9. Performance Indicators 9.1 The Code of Practice on Treasury Management requires the Council to set performance indicators to assess the adequacy of the treasury function over the year. These are distinct historic indicators, as opposed to the prudential indicators, which are predominantly forward looking. Examples of performance indicators often used for the treasury function are: • Debt – Borrowing - Average rate of borrowing for the year compared to average available • Debt – Average rate movement year on year • Investments – Internal returns above the 7 day SONIA rate. 9.2 The results of these indicators will be reported in the Treasury Annual Report for 2023/24. 10. Treasury Management Advisors 10.1 The Council uses Link Asset Services as its treasury management advisors. The company provides a range of services which include: • Technical support on treasury matters, capital finance issues and the drafting of Member reports Page 71
Page 72
• Economic and interest rate analysis • Debt services which includes advice on the timing of borrowing • Debt rescheduling advice surrounding the existing portfolio • Generic investment advice on interest rates, timing and investment instruments • Credit ratings/market information service comprising the three main credit rating agencies. 10.2 The current treasury advisor contract was awarded to Link Asset Services following a quick quote exercise and commencing on 1 May 2021 until 30 April 2023, with an option to extend for one year. This option was recently agreed with the contract now due to terminate on the 30th April 2024. Officers are actively reviewing the treasury advisor contract and are reviewing options to secure best value for the Council. 10.3 The Council recognises that responsibility for treasury management decisions remains with the organisation at all times and will ensure that undue reliance is not place upon external service providers. 10.4 The Council also recognises that there is value in employing external providers of treasury management services in order to acquire access to specialist skills and resources. The Council will ensure that the terms of their appointment and the methods by which their value is assessed are properly agreed and documented, and subjected to regular review. 10.5 Whilst the advisers provide support to the internal treasury function the final decision on treasury matters remains with the Council. 11. The Monitoring of Investment Counterparties 11.1 The credit rating of counterparties will be monitored regularly. The Council receives credit rating information (changes, rating watches and rating outlooks) from Link Asset Services as and when ratings change, and counterparties are checked promptly. On occasion ratings may be downgraded when an investment has already been made. The criteria used are such that a minor downgrading should not affect the full receipt of the principal and interest. Any counterparty failing to meet the criteria will be removed from the list immediately by the Chief Officer - Resources and, if required, new counterparties which meet the criteria will be added to the list. Page 72
Page 73
West Dunbartonshire Council and Common Good Funds Permitted Investments, Associated Controls and Limits Type of Investment Treasury Risks Mitigating Controls Council and Common Good Limits Cash Type Instruments Deposits with the Debt Management Account Facility (UK Government) (Very low risk) This is a deposit with the UK Government and as such counterparty and liquidity risk is very low, and there is no risk to value. Deposits can be between overnight and 6 months. Little mitigating controls required. As this is a UK Government investment the monetary limit is unlimited to allow for a safe haven for investments. As shown in Table J. Deposits with other local authorities or public bodies (Very low risk) These are considered quasi UK Government debt and as such counterparty risk is very low, and there is no risk to value. Liquidity may present a problem as deposits can only be broken with the agreement of the counterparty, and penalties can apply. Deposits with other non- local authority bodies will be restricted to the overall credit rating criteria. Little mitigating controls required for local authority deposits, as this is a quasi UK Government investment. Non- local authority deposits will follow the approved credit rating criteria. As shown in Table J. Money Market Funds (MMFs) (Very low risk) Pooled cash investment vehicle which provides very low counterparty, liquidity and market risk. These will primarily be used as liquidity instruments. Funds will only be used where the MMFs has an “AAA” rated status from either Fitch, Moody’s or Standard and Poor’s. As shown in Table J. Call account deposit accounts with financial institutions (banks and building societies) (Low risk depending on credit rating) These tend to be low risk investments, but will exhibit higher risks than the first three categories above. Whilst there is no risk to value with these types of investments, liquidity is high and investments can be returned at short notice. The counterparty selection criteria approved above restricts lending only to high quality counterparties, measured primarily by credit ratings from Fitch, Moody’s and Standard and Poors. On day to day investment dealing with this criteria will be further strengthened by the use of additional market intelligence. As shown in Table J. Item 8 Appendix 3 Page 73
Page 74
Type of Investment Treasury Risks Mitigating Controls Council and Common Good Limits Term deposits with financial institutions (banks and building societies) (Low to medium risk depending on period & credit rating) These tend to be low risk investments, but will exhibit higher risks than the first three categories above. Whilst there is no risk to value with these types of investments, liquidity is low and term deposits can only be broken with the agreement of the counterparty, and penalties may apply. The counterparty selection criteria approved above restricts lending only to high quality counterparties, measured primarily by credit ratings from Fitch, Moody’s and Standard and Poors. On day to day investment dealing with this criteria will be further strengthened by the use of additional market intelligence. As shown in Table J. Government Gilts and Treasury Bills (Very low risk) These are marketable securities issued by the UK Government and as such counterparty and liquidity risk is very low, although there is potential risk to value arising from an adverse movement in interest rates (no loss if these are held to maturity. Little counterparty mitigating controls are required, as this is a UK Government investment. The potential for capital loss will be reduced by limiting the maximum monetary and time exposures. As shown in Table J. Certificates of deposits with financial institutions (Low risk) These are short dated marketable securities issued by financial institutions and as such counterparty risk is low, but will exhibit higher risks than the first three categories above. There is risk to value of capital loss arising from selling ahead of maturity if combined with an adverse movement in interest rates. Liquidity risk will normally be low. The counterparty selection criteria approved above restricts lending only to high quality counterparties, measured primarily by credit ratings from Fitch, Moody’s and Standard and Poors. On day to day investment dealing with this criteria will be further strengthened by the use of additional market intelligence. As shown in Table J. Page 74
Page 75
Type of Investment Treasury Risks Mitigating Controls Council and Common Good Limits Structured deposit facilities with banks and building societies (escalating / de- escalating rates, etc.) (Low to medium risk depending on period & credit rating) These tend to be medium to low risk investments, but will exhibit higher risks than the first three categories above. Whilst there is no risk to value with these types of investments, liquidity is very low and investments can only be broken with the agreement of the counterparty (penalties may apply). The counterparty selection criteria approved above restricts lending only to high quality counterparties, measured primarily by credit ratings from Fitch, Moody’s and Standard and Poors. On day to day investment dealing with this criteria will be further strengthened by the use of additional market intelligence. As shown in Table J. Corporate Bonds (Medium to high risk depending on period & credit rating) These are marketable securities issued by financial and corporate institutions. Counterparty risk will vary and there is risk to value of capital loss arising from selling ahead of maturity if combined with an adverse movement in interest rates. Liquidity risk will be low The counterparty selection criteria approved above restricts lending only to high quality counterparties, measured primarily by credit ratings from Fitch, Moody’s and Standard and Poors. Corporate bonds will be restricted to those meeting the base criteria. On day to day investment dealing with this criteria will be further strengthened by the use of additional market intelligence. As shown in Table J. Other Types of Investments Investment properties These are properties that are not used to facilitate service delivery but are held solely to earn rentals or for capital appreciation or both. These are highly illiquid assets with high risk to value (the potential for property prices to fall or for rental voids). In larger investment portfolios some small allocation of property based investment may counterbalance/compliment the wider cash portfolio. Property holding will be re- valued regularly and reported annually with gross and net rental streams. The Section 95 Officer will determine monetary and time limits managing risk accordingly, to the maximum total as noted in Table L of £7m. Page 75
Page 76
Type of Investment Treasury Risks Mitigating Controls Council and Common Good Limits Loans to third parties, including soft loans These are service investments either at market rates of interest or below market rates (soft loans). These types of investments may exhibit credit risk and are likely to be highly illiquid. Each third party loan requires Member approval and each application is supported by the service rational behind the loan and the likelihood of partial or full default. The Section 95 Officer will determine monetary and time limits managing risk accordingly, to the maximum total as noted in Table L of £7m. Loans to a local authority company These are service investments either at market rates of interest or below market rates (soft loans). These types of investments may exhibit credit risk and are likely to be highly illiquid. Each loan to a local authority company requires Member approval and each application is supported by the service rational behind the loan and the likelihood of partial or full default. The Section 95 Officer will determine monetary and time limits managing risk accordingly, to the maximum total as noted in Table L of £7m. Shareholdings in a local authority company These are service investments which may exhibit market risk and are likely to be highly illiquid. Each equity investment in a local authority company requires Member approval and each application will be supported by the service rational behind the investment and the likelihood of loss. The Section 95 Officer will determine monetary and time limits managing risk accordingly, to the maximum total as noted in Table L of £7m. Non-local authority shareholdings These are non-service investments which may exhibit market risk, be only considered for longer term investments, likely to be liquid. Any non-service equity investment will require separate Member approval and each application will be supported by rational behind the service the investment and the likelihood of loss. The Section 95 Officer will determine monetary and time limits managing risk accordingly, to the maximum total as noted in Table L of £7m. Page 76
Page 77
Type of Investment Treasury Risks Mitigating Controls Council and Common Good Limits Joint venture delivery companies such as hub West Scotland Public sector organisations across a hub territory will work in partnership with each other, and a private sector delivery partner, in a joint venture delivery company called hub West Scotland. . Any investment in hub West Scotland requires approval from the Section 95 Officer (Chief Officer - Resources) and the Chief Executive in consultation with the Leader of the Council and the Leader of the Opposition and each application will be supported by the service rational behind the investment and the likelihood of loss. The Section 95 Officer will determine monetary and time limits managing risk accordingly, to the maximum total as noted in Table L of £7m. Regeneration partnerships and development opportunities Investments undertaken with the prime intention of local area regeneration. Any investment in a regeneration partnership / development opportunity requires Member approval with each application supported by rational behind the investment and the likelihood of loss. The Section 95 Officer will determine monetary and time limits managing risk accordingly, to the maximum total as noted in Table L of £7m. Investment in Projects procured and managed by third parties e.g. District Heating Schemes Investments undertaken to assist in facilitating third party projects where the Council has an interest in the successful outcome of the project. Expectation of a financial return for the Council. Any investment in such projects requires Member approval and each application will be supported by a business case for the investment and the expectation of a financial benefit to the Council. The Section 95 Officer will determine monetary and time limits managing risk accordingly, to the maximum total as noted in Table L of £7m. Local Authority Mortgage Scheme (LAMS) These are service investments at market rates of interest. Under this scheme the Council is required to place funds for a number of years with the bank which is participating in this scheme Any investment in the LAMS requires Member approval and each application will be supported by the service rational behind the investment and the likelihood of loss. The Section 95 Officer will determine monetary and time limits managing risk accordingly, to the maximum total as noted in Table L of £7m. Page 77
Page 78
Type of Rating Rating Explanation Fitch -Short Term F1+ Indicates exceptionally strong capacity for timely payment of financial commitments F1 Indicates strong capacity for timely payment of financial commitments Fitch - Long Term AA- Indicates very strong capacity for timely payment of financial commitments and this capacity is not significantly vulnerable to foreseeable events A- Indicates strong capacity for timely payment of financial commitments. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings Moody’s - Short Term P-1 Banks based Prime-1 for deposits offer superior credit quality and a very strong capacity for timely payment of short term deposit obligations Moody’s - Long Term Aa Offer excellent credit quality, with susceptibility to long term risks with a vulnerability to greater fluctuations within protective elements A Offer excellent credit quality, but elements suggest a Susceptibility to impairment over the long term Standard & Poors - Short Term A-1 Indicates a strong capacity to meet institutions financial commitments. Within this category, certain obligors are designated with a plus sign (+). This indicates that the obligor’s capacity to meet its financial commitments is EXTREMELY STRONG Standard & Poors - Long Term AA- Indicates strong capacity for timely payment of financial commitments A- Indicates strong capacity for timely payment of financial commitments. This capacity may, nevertheless, be more susceptible to the adverse effects of changes in circumstances or in economic conditions than is the case for higher rated category Item 8 Appendix 4 Page 78
Page 79
West Dunbartonshire Council and Common Good Funds Permitted Investments, Approved Countries for Investments Based on lowest available rating AAA • Australia • Denmark • Germany • Netherlands • Norway • Singapore • Sweden • Switzerland AA+ • Canada • Finland • U.S.A. AA • Abu Dhabi (UAE) AA- • Belgium • France • Qatar • U.K. Please note that this is the list will be updated as required on an ongoing basis Item 8 Appendix 5 Page 79
Page 80
Page 80
Page 81
West Dunbartonshire Council Prudential and Treasury Indicators General Services 32,799 76,757 59,808 27,507 14,416 11,089 11,041 10,781 10,838 10,738 Capital receipts (0) 0 0 0 0 0 0 0 0 0 Capital grants 19,492 28,081 20,038 8,477 6,722 6,722 6,722 6,722 6,722 6,722 Revenue 250 250 0 0 0 0 0 0 0 0 Other funding 0 0 0 0 0 0 0 0 0 0 Net financing need for the year 13,057 48,426 39,770 19,030 7,694 4,367 4,319 4,059 4,116 4,016 HRA 55,680 73,385 77,676 55,760 47,898 33,450 21,917 22,355 21,854 21,854 Capital receipts 0 0 0 0 0 0 0 0 0 0 Capital grants 9,885 13,004 8,941 4,573 4,010 3,074 0 0 0 0 Revenue 0 0 0 0 0 0 0 0 0 0 Other funding 0 0 0 0 0 0 0 0 0 0 Net financing need for the year 45,795 60,381 68,735 51,187 43,888 30,376 21,917 22,355 21,854 21,854 General Services 32,799 76,757 59,808 27,507 14,416 11,089 11,041 10,781 10,838 10,738 HRA 55,680 73,385 77,676 55,760 47,898 33,450 21,917 22,355 21,854 21,854 Capital Expenditure 88,479 150,142 137,484 83,267 62,314 44,539 32,958 33,136 32,692 32,592 Capital receipts (0) 0 0 0 0 0 0 0 0 0 Capital grants 29,377 41,085 28,979 13,050 10,732 9,796 6,722 6,722 6,722 6,722 Revenue 250 250 0 0 0 0 0 0 0 0 Other funding 0 0 0 0 0 0 0 0 0 0 Net financing need for the year 58,852 108,807 108,505 70,217 51,582 34,743 26,236 26,414 25,970 25,870 Capital Financing Requirement CFR – General Services 396,061 445,645 492,739 517,478 534,331 542,753 546,909 551,141 555,136 559,064 CFR – HRA 396,061 445,645 492,739 517,478 534,331 542,753 546,909 551,141 555,136 559,064 Total CFR 792,123 891,290 985,477 1,034,956 1,068,662 1,085,506 1,093,818 1,102,282 1,110,272 1,118,128 Movement in CFR 49,745 99,168 94,187 49,479 33,705 16,844 8,312 8,464 7,990 7,857 Movement in CFR represented by Net financing need for the year (above) 58,852 108,807 108,505 70,217 51,582 34,743 26,236 26,414 25,970 25,870 Loans Fund Review - - - - - - - - - - Less scheduled debt amortisation and other financing movements (9,107) (9,639) (14,318) (20,738) (17,877) (17,899) (17,923) (17,950) (17,980) (18,013) Movement in CFR 49,745 99,168 94,187 49,479 33,705 16,844 8,312 8,464 7,990 7,857 Table A - Net Capital Financing Need General Services and HRA Shown Separately £000 Forecast 2023/24 Forecast 2024/25 Forecast 2025/26 Forecast 2026/27 Forecast 2027/28 Forecast 2031/32£000 Forecast 2028/29 Forecast 2029/30 Forecast 2030/31 Forecast 2031/32 Financed by: Forecast 2024/25 Forecast 2025/26 Forecast 2026/27 Forecast 2027/28 Forecast 2028/29 Forecast 2029/30 Forecast 2030/31 Forecast 2023/24 General Services and HRA Combined £000 Forecast 2023/24 Forecast 2024/25 Forecast 2025/26 Forecast 2026/27 Forecast 2031/32 Financed by: Forecast 2027/28 Forecast 2028/29 Forecast 2029/30 Forecast 2030/31 Forecast 2024/25 Forecast 2025/26 Forecast 2026/27 Forecast 2027/28 Forecast 2028/29 Forecast 2029/30 Forecast 2030/31 Forecast 2031/32 Financed by: Table B - Capital Financing Requirement £000 Forecast 2023/24 Forecast 2032/33 Forecast 2032/33 Forecast 2032/33 Forecast 2032/33 Item 8 Appendix 6 Page 81
Page 82
West Dunbartonshire Council Prudential and Treasury Indicators Table C - Internal Loan Fund Repayment Profile (excluding PPP repayments) £M £M £M Under 12 months 4.023 6.836 10.859 2 years to 5 years 16.888 27.080 43.968 6 years to 10 years 23.520 38.567 62.087 11 years to 15 years 27.967 30.964 58.931 16 years to 20 years 25.956 38.527 64.483 21 years to 25 years 18.217 42.462 60.679 26 years to 30 years 12.574 25.349 37.923 31 years to 35 years 9.941 5.304 15.245 36 years to 40 years 11.526 3.250 14.776 41 years to 45 years 12.257 3.378 15.635 46 years to 50 years 14.057 4.785 18.842 51 years to 55 years 18.900 7.114 26.014 56 years to 60 years 24.414 8.395 32.809 60 years plus 134.080 22.244 156.324 Total 354.320 264.255 618.575 General Services (Exc PPP) 10.64% 12.21% 11.83% 11.07% 8.10% 6.96% 6.83% 7.22% 7.34% 7.50% General Services 15.19% 16.69% 16.22% 15.32% 12.20% 10.90% 10.65% 10.90% 10.83% 10.79% HRA 38.22% 42.68% 41.12% 38.57% 46.79% 38.34% 37.55% 36.63% 34.89% 33.01% External Debt Debt at 1 April 620,831 670,883 768,637 863,570 913,764 948,204 965,806 974,899 984,171 992,999 New Borrowing - CFR 50,052 97,754 94,933 50,195 34,440 17,601 9,094 9,272 8,828 8,728 Debt at 31 March 670,883 768,637 863,570 913,764 948,204 965,806 974,899 984,171 992,999 1,001,727 Long Term Liabilities at 1 April 90,122 89,815 91,229 90,482 89,767 89,032 88,275 87,494 86,686 85,847 Change in Long Term Liabilities (307) 1,414 (746) (716) (735) (757) (782) (808) (838) (871) Long Term Liabilities at 31 March 89,815 91,229 90,482 89,767 89,032 88,275 87,494 86,686 85,847 84,976 Gross Debt at 31 March 760,698 859,865 954,052 1,003,531 1,037,237 1,054,081 1,062,393 1,070,857 1,078,847 1,086,703 Capital Financing Requirement 792,123 891,290 985,477 1,034,956 1,068,662 1,085,506 1,093,818 1,102,282 1,110,272 1,118,128 Under / (Over) Borrowing 31,425 31,425 31,425 31,425 31,425 31,425 31,425 31,425 31,425 31,425 Table D - Ratio of Financing Costs to Net Revenue Stream General Services Forecast 2031/32 HRA Total Forecast 2023/24 Forecast 2024/25 Forecast 2025/26 Forecast 2026/27 Forecast 2027/28 Forecast 2028/29 Forecast 2029/30 Forecast 2030/31 Table E - Gross External Debt compared to the Underlying Need to Borrow (CFR) £000 Forecast 2023/24 Forecast 2024/25 Forecast 2031/32 Forecast 2025/26 Forecast 2026/27 Forecast 2032/33 Forecast 2032/33 Forecast 2027/28 Forecast 2028/29 Forecast 2029/30 Forecast 2030/31 Page 82
Page 83
West Dunbartonshire Council Prudential and Treasury Indicators External Debt 737,971 845,500 949,927 1,005,141 1,043,025 1,062,386 1,072,389 1,082,589 1,092,299 1,101,900 Long Term Liability 98,797 100,352 99,531 98,744 97,936 97,103 96,243 95,354 94,432 93,474 Total 836,768 945,852 1,049,457 1,103,884 1,140,960 1,159,489 1,168,632 1,177,943 1,186,731 1,195,374 External Debt 805,059 922,364 1,036,284 1,096,517 1,137,845 1,158,967 1,169,879 1,181,006 1,191,599 1,202,073 Long Term Liability 107,778 109,475 108,579 107,720 106,839 105,930 104,993 104,023 103,017 101,971 Total 912,837 1,031,839 1,144,863 1,204,237 1,244,684 1,264,897 1,274,872 1,285,028 1,294,616 1,304,044 Bank Rate 5.25% 5.25% 4.75% 4.25% 3.75% 3.25% 3.00% 3.00% 3.00% 3.00% 3.00% 5yr PWLB Rate 4.50% 4.40% 4.30% 4.20% 4.10% 4.00% 3.80% 3.70% 3.60% 3.60% 3.50% 10yr PWLB Rate 4.70% 4.50% 4.40% 4.30% 4.20% 4.10% 4.00% 3.90% 3.80% 3.70% 3.70% 25yr PWLB Rate 5.20% 5.10% 4.90% 4.80% 6.40% 4.40% 4.30% 4.20% 4.20% 4.10% 4.10% 50yr PWLB Rate 5.00% 4.90% 4.70% 4.60% 4.40% 4.20% 4.10% 4.00% 4.00% 3.90% 3.90% Long term rating 1 year 2 years 3 years 4 years 5 years AAA 0.04% 0.09% 0.16% 0.25% 0.34% AA 0.02% 0.04% 0.09% 0.16% 0.22% A 0.05% 0.13% 0.24% 0.36% 0.50% BBB 0.14% 0.38% 0.65% 0.97% 1.29% BB 0.64% 1.85% 3.21% 4.50% 5.73% B 2.73% 6.63% 10.29% 13.41% 15.82% CCC 18.60% 26.52% 31.84% 34.95% 37.84% Note - The AAA default risk is actually higher than the AA default risk due the number of AAA rated institutions left Forecast 2032/33 Forecast 2032/33 Forecast 2027/28 Forecast 2028/29 Forecast 2029/30 Forecast 2030/31 Forecast 2031/32 Table F - Operational Boundary £000 Forecast 2023/24 Forecast 2024/25 Forecast 2025/26 Forecast 2026/27 Sep-26Jun-26 Table I - Historic Risk of Default Sep-24 Dec-24 Mar-25 Jun-25 Sep-25 Dec-25Link Asset Services Interest Rate View Mar-24 Jun-24 Mar-26 Table H - Interest Rate Forecast Table G - Authorised Limit £000 Forecast 2023/24 Forecast 2024/25 Forecast 2031/32 Forecast 2025/26 Forecast 2026/27 Forecast 2027/28 Forecast 2028/29 Forecast 2029/30 Forecast 2030/31 Page 83
Page 84
West Dunbartonshire Council Prudential and Treasury Indicators Investment Fitch Category (or equivalent) Money Limit F1+ / AA- £10million F1 / A- £5 million 2 F1/A- £10 million (per group) 3 £5 million 4 £5 million 5 As in 1 above £10million and £5million Sector Limit £25 million Fund Limit £5 million 7 No limit Sector Limit £25 million Fund Limit £5 million £000 1% -1% Variable Rate Debt Payments N/A N/A N/A Variable Rate Investment income 53,000 530 -530 6 8 Table J - Counterparty Limits Time Limit 364 days 364 days Overnight 364 days Table K - Sensitivity to Interest Rate Movements 1 364 days Very liquid no time limit applies 6 months 364 days Page 84
Page 85
West Dunbartonshire Council Prudential and Treasury Indicators 2023/24 Upper Limits on fixed interest rates Limits on variable interest rates Lower Upper Lower Upper Lower Upper Under 12 months 0% 50% 0% 50% 0% 50% 12 months to 2 years 0% 50% 0% 50% 0% 50% 2 years to 5 years 0% 50% 0% 50% 0% 50% 5 years to 10 years 0% 50% 0% 50% 0% 50% 10 years to 20 years 0% 50% 0% 50% 0% 50% 20 years to 30 years 0% 50% 0% 50% 0% 50% 30 years to 40 years 0% 50% 0% 50% 0% 50% 40 years to 50 years 0% 100% 0% 100% 0% 100% 50 years to 60 years 0% 100% 0% 100% 0% 100% 60 years to 70 years 0% 100% 0% 100% 0% 100% Principal sums invested > 364 & 365 days 2024/25 2025/26 Upper Upper £nil £7m £nil £7m 100% 100% 100% 50% 50% 50% £7m£nil Table L- Treasury Management Limits on Activity Maturity Structure of fixed interest rate borrowing Page 85
Page 86
Page 86
Page 87
WEST DUNBARTONSHIRE COUNCIL Report by Chief Officer - Resources Audit Committee: 12 June 2024 Subject: Code of Good Governance and Annual Governance Statement 2023/24 1. Purpose 1.1 The purpose of this report is to advise Members of the outcome of the annual self-evaluation undertaken of the Council’s compliance with its Code of Good Governance and to ask Members to consider the Annual Governance Statement that will be published in the Council’s Abstract of Accounts. 2. Recommendations 2.1 The Committee is asked to: i) Note the outcome of the recent self-evaluation process in considering how the Council currently meets the agreed Code of Good Governance, together with the issues identified and improvement actions. ii) Consider the detail of the Annual Governance Statement and approve the actions identified by management to improve the internal control environment. 3. Background 3.1 Delivering Good Governance in Local Government: Framework, published by CIPFA in association with Solace in 2007, set the standard for local authority governance in the UK. CIPFA and Solace reviewed the Framework in 2015 to ensure it remained ‘fit for purpose’ and published a revised edition in spring 2016. The current Delivering Good Governance in Local Government: Framework (CIPFA/Solace, 2016) has applied to annual governance statements prepared for the financial year 2016/17 onwards. 3.2 The concept underpinning the revised Framework is that it assists local government in taking responsibility for developing and shaping an informed approach to governance, aimed at achieving the highest standards in a measured and proportionate way. This Framework is intended to assist authorities individually in reviewing and accounting for their own unique approach. The overall aim is to ensure that: Item 9 Page 87
Page 88
• resources are directed in accordance with agreed policy and according to priorities • there is sound and inclusive decision making • there is clear accountability for the use of those resources in order to achieve desired outcomes for service users and communities. 3.3 In order to demonstrate a commitment to sound governance, local authorities are encouraged to publish a governance statement on an annual basis. 3.4 The annual governance statement is the formal statement that recognises, records and publishes a Council’s governance arrangements as defined in the CIPFA/SOLACE Framework. The statement requires to be signed off by the most senior officer (Chief Executive) and the most senior member (Council Leader). Clearly the signatories must be satisfied that the document is supported by reliable evidence. 3.5 Following the review of the Audit Committee, carried out in accordance with the contents of the CIPFA publication “Audit Committees: Practical Guidance for Local Authorities and Police” (2018 Edition)” a report was submitted to the Audit Committee meeting on 12 December 2018. One of the actions arising was to submit the draft Annual Governance Statement to the Audit Committee as a stand-alone document for consideration. 4. Main Issues 4.1 A revised local code was developed for the Council and agreed at the Audit and Performance Review Committee on 8 March 2017. 4.2 A Governance Report is produced annually and is based on an annual self- evaluation of compliance against the Council's Code of Good Governance. 4.3 The annual self-evaluation review for 2023/24 has been carried out and has identified that current practice is mainly compliant against our revised Code of Governance, whilst identifying some areas for improvement. There were no significant governance issues identified and areas for improvement are detailed within the draft Annual Governance Statement at Appendix 1. 4.4 The draft Annual Governance Statement details the key elements of the Council’s governance framework, annual review process, improvement areas and overall opinion. 4.5 In terms of the Council’s overall corporate governance arrangements, it is considered that, although there are some areas of work to be completed to ensure full compliance with the Local Code of Good Governance, the overall governance arrangements of the Council are considered to be satisfactory. The Annual Governance Statement 2023/24 is informed by the self- assessment of compliance against the Local Code of Good Governance and related Certificates of Assurance from Chief Officers, the work of Internal Audit, External Audit and external inspection agencies. Page 88
Page 89
4.6 The Council’s Annual Governance Statement will be published within the Annual Accounts for the year ended 31 March 2024. 5. People Implications 5.1 There are no personnel issues. 6. Financial and Procurement Implications 6.1 There are no direct financial or procurement implications arising from this report as all improvement actions will be managed from within existing resources. 7. Risk Analysis 7.1 There is a risk that a failure to maintain a local code and develop a framework to support the gathering and updating of the necessary evidence will leave the Council unable to produce a Governance Statement. The current approach to ongoing annual assessment of compliance and reporting to this Committee ensures that the Council can produce a meaningful Governance Statement. 8. Equalities Impact Assessment (EIA) 8.1 There are no issues identified. 9. Consultation 9.1 This report has been subject to consultation with appropriate Chief Officers. 10. Strategic Assessment 10.1 This report relates to all five of the Council’s Strategic Priorities. .................................... Laurence Slavin Chief Officer - Resources Date: 27 May 2024 ______________________________________________________________ Person to Contact: Andi Priestman, Shared Service Manager – Audit & Fraud E-mail: andi.priestman@west-dunbarton.gov.uk Appendices: 1 – Draft Annual Governance Statement Background Papers: Report to Audit and Performance Review Committee (8 March 2017) – Revised Local Code of Good Governance; Wards Affected: All Wards Page 89
Page 90
Page 90
Page 91
Annual Governance Statement The Annual Governance Statement explains the Council’s governance arrangements as it meets the requirements of the “Code of Practice for Local Authority Accounting in the UK” (the Code) and reports on the effectiveness of its system of internal control, including the reliance placed on the governance frameworks of our partners. It is included within the Council’s Financial Statements to assure stakeholders on how the Council directs and controls its functions and how it relates to communities in order to enhance transparency and scrutiny of the Council’s activities. Scope of Responsibility The Council is responsible for ensuring that its business is conducted in accordance with the law and proper standards, and that public money is safeguarded and properly accounted for, and used economically, efficiently and effectively. It also has a statutory duty to make arrangements to secure best value under the Local Government in Scotland Act 2003. In discharging this overall responsibility, the Council's Elected Members and Corporate Management Team (CMT) are responsible for putting in place proper arrangements for the governance of its affairs and facilitating the effective exercise of its functions, which includes arrangements for the management of risk. The Council has established an arms-length external organisation: West Dunbartonshire Leisure Trust – to deliver leisure services more effectively on the Council’s behalf, which reports regularly to Elected Members. From 1 July 2015 the West Dunbartonshire Health and Social Care Partnership was established to continue the development of the integration of social care and health services between the Council and NHS Greater Glasgow and Clyde. The Council has approved and adopted a Local Code of Corporate Governance (“the Local Code”), which is consistent with the principles of the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Society of Local Authority Chief Executives (SOLACE) Framework: “Delivering Good Governance in Local Government”. The Local Code evidences the Council's commitment to achieving good governance and demonstrates how it complies with the governance standards recommended by CIPFA. A copy of this Code is available from the Council website at: http://www.west-dunbarton.gov.uk/media/4312582/wdc-local-code.pdf This statement explains how the Council expects to comply with the Local Code and also meets the Code of Practice on Local Authority Accounting in the UK, which details the requirements for the Annual Governance Statement. The Purpose of the Governance Framework The governance framework comprises: the systems and processes; and culture and values - by which the Council is directed and controlled and through which it accounts to and engages with communities. It enables the Council to monitor the achievement of the strategic objectives set out in the Strategic Plan. It enables the Council to consider whether those objectives have led to the delivery of appropriate and value for money services. The Council has put in place a system of internal control designed to manage risk to a reasonable level. Internal controls cannot eliminate risk of failure to achieve policies, aims and objectives and can therefore only provide reasonable and not absolute assurance of effectiveness. The system of internal control is based on an ongoing process designed to identify and prioritise the risks to the achievement of the Council's policies, aims and objectives, to evaluate the likelihood of those risks being realised and the impact should they be realised, and to manage them efficiently, effectively and economically. The governance framework has been in place at the Council for the year ended 31 March 2024 and up to the date of the approval of the Statement of Accounts. Item 9 Appendix 1 Page 91
Page 92
The Governance Framework The main features of our governance arrangements are described in the Local Code but are summarised below: • The overarching strategic vision and objectives of the Council are detailed in the Strategic Plan 2022/27, which sets out the key priorities of the Council and key outcomes the Council is committed to delivering with its partners, as set out in the Local Outcome Improvement Plan. • Services are able to demonstrate how their own activities link to the Council's vision and priorities through their Delivery Plans. Performance management and monitoring of service delivery is reported through service committees regularly. The CMT monitors performance information regularly. The Council regularly publishes information about its performance. • The West Dunbartonshire Community Alliance, which supports Community Planning West Dunbartonshire, represents the views of community organisations, communities of interest and geographical communities. In addition the Council has an Engaging Communities Framework in place which sets out our approach to engaging with citizens, community organisations and stakeholders. Consultation on the future vision and activities of the partnership is undertaken in a range of ways, including seeking the views of the Alliance and through specific service consultations and the Council actively engages with its partners through community planning arrangements. • The Council has adopted a Code of Conduct and associated employment policies for its employees. Elected members adhere to the nationally prescribed Code of Conduct for Members in a localised format. In addition, the Council has in place a protocol on member/officer relations and an inter-party protocol. • The Council operates within an established procedural framework which incorporates a Scheme of Delegation, Standing Orders and Financial Regulations. These describe the roles and responsibilities of Elected Members and officers and are subject to regular review. The Council facilitates policy and decision making through the agreed committee structure. • Responsibility for maintaining and operating an effective system of internal financial control rests with the Council’s Chief Officer Resources as Section 95 Officer. The system of internal financial control is based on a framework of regular management information, the Financial Regulations, administrative procedures (including separation of duties), management and supervision, and a system of delegation and accountability. Development and maintenance of the system is undertaken by managers within the Council. • The functions of the Audit Committee are undertaken as identified in CIPFA Guidance - Audit Committees: Practical Guidance for Local Authorities. • The Council’s approach to risk management is set out in the Risk Management Framework. A strategic risk register is in place and an update report on this is regularly submitted to the Corporate Services Committee and Audit Committee. The approach is embedded within the Council’s strategic planning and performance management framework with regular reporting of risk management arrangements to service committees. • Comprehensive arrangements are in place to ensure Elected Members and officers are supported by appropriate training and development. • The Council has adopted a response that is appropriate for its fraud and corruption risks and commits to maintain its vigilance to tackle fraud in accordance with the Code of Practice on Managing the Risk of Fraud and Corruption. • The Council continues to assess and monitor ongoing compliance with the CIPFA Financial Management Code. Review of Effectiveness The Council has a responsibility to review, at least annually, the effectiveness of its governance framework including the system of internal financial control. The review of effectiveness of the framework is informed by the work of the CMT which has responsibility for the development, implementation and maintenance of the governance environment, the Chief Internal Auditor’s annual report; and reports from the external auditors and other review agencies and inspectorates. The Council’s current Code of Good Governance was approved at the Audit & Performance Review Committee on 8 March 2017. An assessment of the Council’s compliance with the Code of Good Governance is supported by a process of self-assessment and assurance certification by Chief Officers and the outcome of this assessment was reported to the Audit Committee on 12 June 2024. Page 92
Page 93
Each Chief Officer was presented with a self-assessment checklist to complete and return as evidence of review of seven key areas of the Council’s governance framework which provided assurance for their service areas. The Audit Committee performs a scrutiny role in relation to the application of the Code of Good Governance and regularly monitors the performance of the Council's Internal Audit service. In relation to the effectiveness of governance arrangements and systems of internal control for the Council’s group entities, the Council places reliance upon the individual bodies’ management assurances in relation to the soundness of their systems of internal control. The Internal Audit service operates in accordance with the Public Sector Internal Audit Standards (PSIAS) 2017 and reports to the Audit Committee. An annual programme of work is determined and undertaken by Internal Audit, approved by the Audit Committee, based upon an established risk based methodology. The Shared Service Manager – Audit & Fraud provides an independent opinion on the adequacy and effectiveness of the Council’s System of Internal Financial Control. The Audit Committee performs a scrutiny role in relation to the application of PSIAS and regularly monitors the performance of the Internal Audit service. The Council's Shared Service Manager – Audit & Fraud (the Council’s Chief Internal Auditor) has responsibility for reviewing independently and reporting to the Audit Committee annually, to provide assurance on the adequacy and effectiveness of the code and the extent of compliance with it. It is our view that the Council has in place a sound system of internal financial control and that appropriate mechanisms are in place to identify areas of weakness. This is corroborated by an annual assurance statement prepared by the Shared Service Manager – Audit & Fraud stating that the overall control environment opinion was “Generally Satisfactory with some improvements needed” such that reasonable assurance can be placed upon the adequacy and effectiveness of the Council's internal control systems. There was one audit which received an overall opinion of “Requires Improvement”, namely Complaints Handling. An action plan is in place to address all issues identified in relation to the audit which will be monitored and reported to CMT and Audit Committee. Due to vacancies arising in the team, some audits from 2022/23 were completed in early 2023/24 which has impacted on the completion of the fieldwork for the 2023/24 audit plan. However the overall audit plan is set within the context of a multi-year approach to audit planning such that key risk areas are reviewed over a 5 year cycle. The system of governance (including the system of internal control) can provide only reasonable and not absolute assurance that the assets are safeguarded, the transactions are authorised and properly recorded, that material errors or irregularities are either prevented or would be detected within a timely period and that significant risks impacting on the achievement of the Council's objectives have been mitigated. Governance Issues and Planned Actions The following main issues and areas for improvement during 2023/24 have been identified through the self-assessment exercise carried out by Chief Officers against key aspects of the Code of Good Governance. These will be monitored as part of the next annual review in 2024/25. Improvement Area identified by 2023/24 Exercise Responsible Officer Embedding Be the Best Conversations within all service teams. Chief Officer, Citizen, Culture and Facilities Work is required in some services to review and update business continuity planning documentation. Chief Officer, Housing and Employability Business Classification Scheme will be rolled out to relevant service areas. Chief Officer, People and Technology Chief Officer, Resources Work is ongoing to implement the Council’s information classification policy and procedure as part of the Microsoft Office 365 project. Data Protection/Information Governance Officer A review of Learning Disability Service is underway to improve on ways of working to ensure the service is fit for future demands. Full review to be picked up as part of Head of Mental Health, Addictions & Learning Disabilities Page 93
Page 94
renewal and recovery work. Internal Audit support will be provided to the project. The refreshed engagement policy and procedure is being reviewed and will be presented for approval in September 2024. Chief Officer, HSCP Process for reporting on the status of external audit actions regularly to Audit Committee will be developed and implemented. Chief Officer, Resources A review of Guidance for Administration of School Funds is underway following an Internal Audit review. Chief Officer, Education, Learning and Attainment Action plans arising from reviews and inspections from Statutory Bodies including HMIE and the Care Inspectorate will be published online. Chief Officer, Education, Learning and Attainment A review of workforce and succession plans is underway to ensure the plans take cognisance of future needs. Chief Officer, Resources The 2022/23 Annual Governance Statement highlighted a range of areas for improvement during 2023/24. The following table provides an update on progress with these with a number having been completed or are areas which continue to have an ongoing focus: Improvement Area identified by 2022/23 Exercise Status Embedding Be the Best Conversations within all service teams. Ongoing. Work is required in some services to review and update business continuity planning documentation. Ongoing. Business Classification Scheme will be rolled out to relevant service areas. Ongoing. Evaluation processes are built into some key projects but not all. The HSCP would benefit from a consistent planning approach in this respect and this has been highlighted via external inspection activity. Complete. In relation to self-evaluation, work is ongoing to review complaints and consider how all feedback can be captured and used to inform service improvement across HSCP. Complete. Work is ongoing to implement the Council’s information classification policy and procedure as part of the Microsoft Office 365 project. Ongoing. A review of Learning Disability Service is underway to improve on ways of working to ensure the service is fit for future demands. Full review to be picked up as part of renewal and recovery work. Internal Audit support will be provided to the project. Ongoing. There is currently a resourcing issue in terms of community engagement and participation and although the HSCP Board have adopted a strategy this will be reviewed in 2023/24. Ongoing. Process for reporting on the status of external audit actions regularly to Audit Committee will be developed and implemented. Ongoing. Arrangements for Procurement and Commissioning remains an area of high risk for the HSCP. Additional resource is now in place to provide focus in this area and address actions arising from a recent Internal Audit review. Complete. The HSCP employ a small number of consultants through relevant procurement processes. A review of current appointments was undertaken in early 2023 utilising the manager’s guidance and the HMRC website to ensure invoices were being treated appropriately. The HSCP Head of HR and the CFO will support Heads of Service in any new contract arrangements that must comply with off payroll working guidance. Complete. Page 94
Page 95
Best Value Assurance Report A new approach to auditing Best Value has been introduced by the Accounts Commission. This work is now be integrated into annual audit reporting from 2023/24 to build local audit knowledge and reduce the scrutiny burden on councils. External Audit also conduct thematic reviews as directed by the Accounts Commission. In 2022/23 this direction focused on the effectiveness of council leadership in developing new strategic priorities following the elections in May 2022. The Council’s appointed external auditors completed their work on this during 2023/24 with a report presented to full Council on 20 December 2023. The overall conclusion was that ‘Administration elected members and officers worked together to agree clear strategic priorities, objectives, and measures of success. The council needs to maintain effective leadership to continue to achieve its priorities and make the difficult decisions to respond to its challenging financial position.’ Health and Social Care Integration The Council, as the funder of the Social Care services within the West Dunbartonshire Health and Social Care Partnership (HSCP) has an interest in the governance arrangements within the HSCP Board. Internal Audit arrangements for the HSCP is provided jointly by the Council’s Internal Audit service and the Health Board’s Internal Audit Service, with the Council’s Internal Audit service providing audit arrangements for social care services and the general oversight of the HSCP Board’s governance arrangements. The HSCP Board has arrangements in place to review its own ongoing compliance with the revised Code of Governance. Due to the Council’s role as social care service provider Internal Audit’s process outcomes on such services are reported to the Council’s Audit Committee as well as that of the HSCP Board. The Chief Social Worker provides the Council with an annual report on the performance of the HSCP. The financial arrangements for the Council’s funding to the HSCP Board are aligned and budget processes run parallel to ensure that appropriate budgets for the HSCP Board are aligned with Council policy and budgeting approaches. On an ongoing basis the Council continues to receive budgetary control information in relation to HSCP Board services funded by the Council. Compliance with Best Practice Statement on the role of the Chief Financial Officer in local government The Council complies with the requirements of the CIPFA Statement on “The Role of the Chief Financial Officer in Local Government 2010”. The Council’s Chief Financial Officer (Section 95 Officer) has overall responsibility for the Council’s financial arrangements, and is professionally qualified and suitably experienced to lead the Council’s finance function and to direct finance staff. Statement on the role of the Head of Internal Audit in Public Service Organisations The Council complies with the requirements of the CIPFA Statement on “The Role of the Head of Internal Audit in Public Service Organisations 2019”. The Council’s Chief Internal Auditor has responsibility for the Council’s Internal Audit function and is professionally qualified and suitably experienced to lead and direct the Council’s Internal Audit staff. The Internal Audit service generally operates in accordance with the CIPFA “Public Sector Internal Audit Standards 2017”. Assurance Subject to the above, and on the basis of the assurances provided, we consider the governance and internal control environment operating during 2023/24 provides reasonable and objective assurance that any significant risks impacting on the achievement of our principle objectives will be identified and actions taken to avoid or mitigate their impact. Systems are in place to continually review and improve the governance and internal control environment with plans in place to address improvement areas. Martin Rooney Peter Hessett Laurence Slavin Leader of the Council Chief Executive Chief Officer – Resources Date: Date: Date: Page 95