report for: information audit and...the director of finance and corporate services, as the...

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Report for: INFORMATION

Contains Confidential or Exempt Information

No

Title Quarter 3 Audit & Investigation Performance Report

Member Reporting N/A

Contact Details Mike Pinder, Head of Audit & Investigations, ext. 2350

For Consideration By Audit Committee

Date to be Considered 22 February 2018

Implementation Date if Not Called In

22 February 2018

Affected Wards All

Keywords/Index Audit & Investigation Performance Report

1. Details of Recommendations

1.1 To note the report on the Quarter 3 update.

Summary The attached reports on the work undertaken by the Audit and Investigation Shared Service team to the end of Quarter Three.

If the recommendations are adopted, how will residents benefit?

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

Dates by which they can expect to notice a difference

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

Ongoing

2. Background

2.1 This report outlines the performance of the Audit & Investigations Shared Service from April 1 to the 31 December 2017.

2.2 Internal Audit and Investigations activity within the Council is delivered under a

shared service arrangement with the London Borough of Ealing.

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3. Reason for Decision and Options Considered

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

4. Key Implications

4.1 The performance of the audit team (including the Strategic Audit Partner) is measured by: The shared service KPIs for delivery against the audit plan for each quarter are (based on draft reports issued):

Quarter 1 – 15% of 17/18 audits delivered (draft report issued) Quarter 2 – 35% of 17/18 audits delivered (draft report issued) Quarter 3 – 65% of 17/18 audits delivered (draft report issued) Quarter 4 – 100% of 17/18 audits delivered (draft report issued)

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

The number of cases where fraud is established; and

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

5. Financial Details

a) Financial Impact on the Budget

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

b) Comments of the Director of Finance and Corporate Services

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

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

a) Legal Details

All Local Authorities are required to make a proper provision for Internal Audit in line with the 1972 Local Government Act and Accounts and Audit Regulations 2015 (as amended). The Public Sector Internal Audit Standards (2017) also require the proper planning of audit work. Local authorities are required to demonstrate proper stewardship of public funds in line with the 1972 Local Government Act. The London Borough of Hounslow utilises a fraud and investigation team to assist in its safeguarding of public funds and the recovery of funds that have been misappropriated.

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c) Comments of the Head of Governance

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

7. Value for Money

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

8. Sustainability Impact Appraisal

Not applicable.

9. Risk Management

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

10. Links to Council Priorities

Efficient use of Council resources.

11. Equalities, Human Rights and Community Cohesion

No direct implications arising.

12. Staffing/Workforce and Accommodation implications

None

13. Property and Assets

None.

14. Any Other Implications

None.

15. Consultation

None.

16. Timetable for Implementation

Not applicable.

17. Appendices

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

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18. Background Information

Counter Fraud Plan / Internal Audit Plan 2017/18 http://democraticservices.hounslow.gov.uk/ieListDocuments.aspx?CId=453&MId=9559&Ver=4

http://democraticservices.hounslow.gov.uk/ieListDocuments.aspx?CId=453&MId=9559&Ver=4

http://democraticservices.hounslow.gov.uk/ieListDocuments.aspx?CId=453&MId=9559&Ver=4

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APPENDIX A

LONDON BOROUGH OF HOUNSLOW INTERNAL AUDIT PERFORMANCE REPORT 1 April – 31 December 2017 22 February 2018

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1. Internal Audit Performance 1.1 This report provides a progress update on the work of internal audit for quarter

3. 1.2 The 2017/18 Plan was approved by the Audit Committee in February 2017. The

plan presented was indicative and can be subject to revision during the year to take account of changing priorities and emerging risks, which is aligned with good internal audit practice.

1.3 The following table shows progress against the 2017/18 audit plan, illustrating

the status (draft/final/in progress etc) of each review: Audit Title Scope Audit Status Final Report

to Audit Committee

1 Delivery of DLO Services (FM360)

Internal Audit review of the capability and capacity of the DLO to deliver the required services.

Deferred 2018/19 delivery in order to optimise the value of this project

N/A

2 Lampton 360 – Governance

To consider set-up arrangements and reporting to the Council.

Terms of Reference agreed

Due Q4

3 Lampton 360 – Housing Investments

To consider the investment programme in to affordable housing.


Due Q4

4 Continuous auditing and monitoring phase 1

Two cycles of key financial systems testing during 2017/18 – will include specific issues raised during 16/17, key financial testing programme and the transfer of financial systems to the new service provider. This considers the key controls for: Accounts Payable; Accounts

Finalised Reasonable assurance

Q3

5 Continuous auditing and monitoring phase 2

Fieldwork in progress

Due Q4

6 Savings Plans – monitoring of delivery (including budgetary control)

Review of delivery against agreed savings plans and budget monitoring arrangements.


Due Q4

7 Health & Safety Review of compliance with legislation covering fire safety and asbestos.

Draft

Due Q4

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Audit Title Scope Audit Status Final Report to Audit Committee

8 Data Protection Review to assess the readiness for 2018 legislation (GDPR). Will be conducted across shared service.


Due Q4

9 Workforce planning Focused review on higher risk business areas – e.g. including the Occupational Health Unit.

Draft report Advisory report

Due Q4

10 Highways Contract Specialist internal audit review covering commercial assurance of the PFI scheme.


Q3

11 Commissioning Arrangements

Review of arrangements for commissioning of adult services from external providers.

Fieldwork in progress.

Due Q4

12 Care Homes Review of contract/Performance management of external care homes.

Finalised Limited assurance

Reported Q2

13 Children and Adults – budget management

Review of the management and control of budgets.


Q3

14 Leaseholder Services

Internal audit review focusing on Section 20 processes.


Q3

15 Service Charges Establishment of service charge levels in Council properties.


Due Q4

16 Temporary accommodation

Review of the strategy for managing temporary accommodation demands.

Not started Discussions held with management

Due Q4

17 Cyber security Cyber security review to be conducted across Shared Service.

Not started Fieldwork scheduled

Due Q4

18 Contract management - review of draft policies

Review of the new contract management policies and guidance.

Finalised Advisory report

Q3

19 Fortnightly waste collection

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


Reported Q2

20 Direct payments Review of the assessment process and expenditure monitoring.

Draft report Due Q4

21 Procurement Compliance

Reviewing off contract procurement


Due Q4

22 Building Control Reviewing the Building Control section

Draft report Due Q4

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Audit Title Scope Audit Status Final Report to Audit Committee

23 Invoicing Care Provider

Reviewing the invoice process for care providers

Not Started Due Q4

24 Housing of Care Leavers

Children leaving care and placed in accommodation

Not Started Due Q4

25 Children out of Borough

Children placed in out of borough placements

Not Started Due Q4

26 Schools x 5 Reviewing the school’s compliance


Due Q4

27 Fleet Management Reviewing the financial processes for Fleet Management

Finalised Limited assurance

Reported in Q2

1.4 As indicated above there were five reports finalised during quarter 3. These

were:

Highways contract – Reasonable assurance

Leaseholder S20 charges – Reasonable assurance

Children and Adults – budget management – Reasonable assurance

Contract management draft policies review – This was an advisory piece of work undertaken to review new policies prior to implementation

Continuous Audit Monitoring Phase 1 - Reasonable assurance (however Payroll and Accounts Payable were rated as high risk with high risk recommendations).

The progress against the actions plans for these will be followed up and reported to Committee following the agreed implementation dates.

1.5 Key performance indicators (KPIs) have been established to measure the

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

Quarter 1 – 15% of 17/18 audits delivered (draft report issued)



Quarter 4 – 100% of 17/18 audits delivered (draft report issued) 1.6 Performance against these targets is set out in the table below:

KPI Actual Variance

Q1 15% 7% -8%

Q2 35% 37% +2%

Q3 65% 44% -21%

Q4 100% TBC TBC

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1.7 The table below provides a summary of progress in terms of the number of reports at draft or final stage and those in progress as reported in the table above:

Audit Status Number of reviews Percentage Completion

Finalised 8 30%

Draft report 4 15%

Fieldwork in progress 6 22%

ToR agreed 3 11%

Not started 5 18%

Deferred 1 4%

Total 27 100%

1.8 A combined total of 45% of reports have been issued in draft or final. Whilst

20% behind the target there are a number of projects where work is in progress and close to reporting. PWC remain confident that they will complete their projects to draft by 31 March. The in-house team have undertaken additional work on the procurement review and picked up the schools work.

2. Follow-ups

2.1 Follow-up of high recommendations due to be implemented has been completed. The results are summarised as:

Number of high risk findings 27

Number of high risk findings completed 13

Number of high risk findings in progress. 14

2.2 Satisfactory progress has been made on the 14 recommendations. This will be monitored until completion. In the event that delays occur this will be reported to committee.

2.3 At the previous committee meeting (21 December 2017), Members asked for an update on the Fleet Management audit to be provided to this meeting.

In the December report, the following summary was reported:

“Fleet Management - three high risk recommendations. These related to:

• there being no formal financial policies and procedures being in place;

• a lack of segregation of duties between key processes; and

• there being no central electronic records of equipment.

There were further medium risks issues identified around budget monitoring; performance information; overtime not being authorised in advance; and recommending suppliers. Management have provided an action plan to address all of the risks by February 2018”.

An update of the implementation status was requested. The Interim Technical Facilities Management Manager has introduced measures to address some of the low and medium risks identified in the report. To address the segregation of duties required a restructure and with that including the addition of a

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financial administrator post, the policies and procedures will need to reflect changes in the way the service will operate. A consultation process on new structure is to be undertaken, whilst this has been slightly delayed it is currently anticipated to finish in March. We will continue to monitor to ensure that the new structure, once implemented, addresses the risks identified

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Appendix B

LONDON BOROUGH OF HOUNSLOW COUNTER FRAUD TEAM PERFORMANCE REPORT Quarter 3 1 April – 31 December 2017 22 February 2018

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1. Introduction

1.1 This report details the performance of the Audit & Investigations Shared Service

in respect of the delivery of investigation services on behalf of the London Borough of Hounslow. The purpose of the report is to provide Audit Committee members and management with an update on the work undertaken by the Shared Service to quarter 3 (1 April to 31 December 2017) and highlight key issues for the attention of Members.

1.2 The service closed a total of 47 proved cases to the end of December 2017 against a target of 68 for the year. These cases represent loss to the Council totalling £865k, made up of £789k notional loss and £75k actual loss.

2. Background

2.1 As previously reported to the Committee, Internal Audit & Investigation services are delivered by the Internal Audit and Investigations Shared Service, which has brought together the Internal Audit and Investigation resources of the London Boroughs of Hounslow and Ealing.

2.2 The Shared Service, hosted by the London Borough of Ealing, enhances the Internal Audit and Investigation services delivered to the two boroughs, by bringing together a wealth of experience, improving overall service resilience, whilst also providing the opportunity to share best practice and harmonise counter fraud processes.

2.3 The Shared Service is responsible for the investigation of all types of suspected fraud within the Council, including but not limited to:

Corporate fraud matters in relation to offences committed by employees;

Procurement fraud by employees, Contractors or other third parties;

Fraud within schools;

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

Blue Badges.

3. Proactive

3.1 Following on from the housing fraud drive which was undertaken in November 2017, work has been ongoing. So far, 9 investigations have been opened, 8 are still ongoing and 1 has been closed. The 1 which was closed was due to the tenant being evicted, this was not as a direct result of the housing fraud drive.

3.2 Due to the leads and positive feedback received from the housing fraud drive,

the proactive fraud team are working closely with the housing team, and are in

the early stages of planning the next fraud drive for April 2018.

3.3 The Council Tax Single Person Discount 2017/18 National Fraud Initiative

exercise is currently underway. This data match is designed to identify fraud and

error in relation to single person discount. The data for this year’s exercise will

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be uploaded by the 28 February 2018 and a summary of outcomes will be

reported to future committees.

4. Detail

4.1 Performance 1 April – 31 December 2017 4.1.1 The table below provides a summary of cases opened and closed during the

period: Summary of open/closed cases (Table 1)

Open cases (end Quarter 2) 115

New cases opened in Quarter 3 67

Cases closed in Quarter 3 84

Cases open at end Quarter 3 98

4.1.2 Table 2 provides ‘new offences’, which is a breakdown on new cases reported

for the year to date (176 up to and including Q2, plus new cases in Q3 of 67): New offences (Table 2)

Case type Fraud alleged Total Sub-total

Council Tax 118

Council Tax Discount 23

Council Tax Reduction Scheme (CTRS)

91

Other 4

Tenancy 47

Application 3

Eviction 1

Occupancy 12

Other 1

Right To Buy 17

Sub-let 13

Parking 35

Blue Badge 34

Parking permit 1

Other 19

Other 19

Deception 16

Benefit 7

Employment 2

Grant 2

Instrument of Payment 1

Other 3

Planning 1

Corruption 3

Other 3

Financial Investigation 3

Planning 2

Proceeds of Crime Act (POCA)

1

Business rates 1

Non Domestic Rates (NDR)

1

Disciplinary 1

Other 1

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Total 243

4.1.3 At the end of the period there were 98 open cases. It should be noted that cases will frequently and necessarily run for a number of months, so that the number closed does not correlate directly to those opened (shown in Table 1 above) in the same period.

4.1.4 Audit & Investigation must have reasonable and sufficient grounds to conduct a criminal investigation. Cases will be screened out, or not progressed with, for a variety of reasons including: that there is a more appropriate agency to deal with the allegation; that the allegation has no merit (including cases that are suspected of being malicious); or cases where after initial enquiries it is apparent that there are insufficient grounds to warrant further action. Only a proportion of the allegations received will progress to a full investigation. Resource is required to adequately address each stage of this process.

4.1.5 Table 3 below shows the number of cases completed during the period 1 April to 31 December 2017, including those passed to other agencies (such as Department for Work and Pensions, Police or other London Borough) and those for which no further action was taken following initial enquiries. Cases closed 1 April – 31 December 2017 (Table 3)

Case type

Fra

ud a

llege

d

Tota

l

Sub-t

ota

l

Refe

rred t

o a

noth

er,

more

appro

priate

org

anis

atio

n

Not in

vestig

ate

d, or

insuff

icie

nt

gro

un

ds to c

onclu

de a

n

investigation

Full

investiga

tio

n c

on

ducte

d a

nd

com

ple

ted

Council Tax 149 Council Tax

Discount 21 16 5

CTRS 124 28 73 23 Other 4 2 2

Tenancy 56 Application 5 1 3 1 Eviction 1 1 Occupancy 12 1 9 2 Other 1 1 Right To Buy 23 1 22 Sub-let 14 2 10 2

Parking 44 Blue Badge 43 22 21 Parking permit 1 1

Other 19 Other 19 8 11

Deception 14 Benefit 8 3 4 1 Employment 2 2 Grant 1 1 Other 1 1 Planning 2 1 1

Corruption 4

15

Conflict 1 1 Other 3 2 1

Business rates 3 NDR 3 2 1

Financial Investigation

2

Other 1 1 POCA 1 1

Theft 1 Other 1 1

Total 47 163 82

4.1.6 The details of the 82 investigations completed between the 1 April and 31

December 2017 are detailed in table 4 below.

Completed investigations 1 April - 31 December 2017 (Table 4)

Case type

Fra

ud a

llege

d

Investig

ation c

onclu

ded,

offence

not

pro

ved

Investig

ation c

onclu

ded,

offence

pro

ved

Sanctions

Notiona

l £ loss p

rove

d

Actu

al £ loss p

rove

d

Add

itio

nal £

incom

e

Council Tax C-Tax discount 5 5 18,000 5,968 CTRS 10 13 9 15,723 4,637

Tenancy Application 1 1 18,000 Occupancy 1 1 1 104,900 Right to Buy 16 6 7 647,400 Sub-let 2

Parking Blue Badge 2 19 18 1,472

Corruption Conflict 1 Other 1

Deception Benefit 1 1 50,210 Planning 1

Business rates NDR 1 3,526

Financial Investigation

POCA 1

Total 35 47 42 789,772 75,427 4,637

Sections 4.2 – 4.7 below provide further detail for the figures given in Table 4 above.

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4.2 Council Tax

4.2.1 Allegations about Council Tax discount resulted in the removal of 4 Council Tax discounts, involving losses totalling £5,968. In addition a further case resulted in the recovery of a council tenancy, with a notional value of £18,000.

4.2.2 9 financial penalties were accepted in respect of Council Tax Reduction Scheme cases, involving losses totalling £15,723. The additional income resulting from the penalties totals £4,637

4.3 Tenancy

4.3.1 A council tenancy application was refused following investigation, with a notional value of £18,000.

4.3.2 An allegation about the occupancy of a council property resulted in the rejection of a Right To Buy application, with a notional value of £104,900.

4.3.3 6 further Right To Buy applications were refused following investigation, notionally valued at £104,900 each.

4.3.4 A further Right To Buy investigation resulted in the recovery of a council property, with a notional value of £18,000.

4.4 Parking

4.4.1 Investigation of Blue Badge misuse cases resulted in the prosecution of 2 offenders, the issue of a written warning to 13 first time offenders and the seizure and removal from circulation of 3 Blue Badge permits. These cases have a notional value of £1,472.

4.5 Deception

4.5.1 A ‘Deception’ case involving a historic welfare benefit fraud case (an offence now investigated by the DWP) resulted in a proved loss of £50,210 and a prosecution.

4.6 Business Rates

4.6.1 An allegation involving non-payment of Business Rates resulted in the billing of £3,526.

4.7 Explanation for calculation of notional loss

4.7.1 The notional loss is an indication of the potential loss to the council if an offence was allowed to continue.

4.7.2 The Right to Buy scheme helps eligible council and housing association tenants in England to buy their home with a discount, in London, of up to £104,900. A Right to Buy sale that proceeds based on the provision of incorrect information results in a loss to the authority of a valuable asset at a fraction of its true value.

4.7.3 In their Protecting the Public Purse 2012 publication the Audit Commission identified an average annual notional cost of £18,000 to house a family or individual in temporary accommodation. This average notional cost has been

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used to estimate the nominal cost to the public purse of housing a tenancy fraudster.

4.7.4 In the Annual Fraud Indicator 2011 the National Fraud Authority estimated a notional loss for a misused Blue Badge of £92.

4.8 Performance 4.8.1 As outlined within the previously presented Counter Fraud Plan, the Shared

Service had a target of achieving 68 proven cases within the year. The team have achieved 47 proven cases to the end of December, which is broadly in line with the target set.