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Internal Audit Report: Capital Programme Slippage

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Internal Audit Report: Capital Programme Slippage Item: 6.1 Monitoring and Audit Committee: 14 November 2019. Internal Audit Report: Capital Programme Slippage. Report by Chief Internal Auditor. 1. Purpose of Report To present the internal audit report on processes and controls relating to the avoidance of Capital Programme Slippage. 2. Recommendations The Committee is invited to note: 2.1. That Internal Audit has undertaken an audit of the processes and procedures relating to the avoidance of Capital Programme Slippage. 2.2. The findings contained in the internal audit report, attached as Appendix 1 to this report, relating to Capital Programme Slippage. It is recommended: 2.3. That the Committee review the audit findings to obtain assurance that action has been taken or agreed where necessary. 3. Background Audit Scotland’s report entitled Best Value Assurance Report: Orkney Islands Council, dated December 2017, found that the Council’s capital programme had been ambitious and not deliverable due to weaknesses in forward planning arrangements. This has resulted in the Council having a history of slippage. The objective of this audit is to review capital projects that have been subject to slippage, in order to identify the respective causes and constraints. 4. Audit Findings 4.1. The audit provides adequate assurance that the processes and procedures relating to Capital Programme Slippage are well controlled and managed. Page 1. 4.2. The internal audit report, attached as Appendix 1 to this report, includes five medium priority recommendations within the action plan. There are no high-level recommendations made as a result of this audit. 4.3. The Committee is invited to review the audit findings to obtain assurance that action has been taken or agreed where necessary. 5. Corporate Governance This report relates to the Council complying with its governance and financial processes and procedures and therefore does not directly support and contribute to improved outcomes for communities as outlined in the Council Plan and the Local Outcomes Improvement Plan. 6. Financial Implications There are not anticipated to be many significant financial implications flowing from the report recommendations. The recommendation for the completion of a full feasibility study as a requirement for at least medium and larger sized projects before they may be submitted for consideration for CPA2 approval will require some additional work although it is not possible to quantify this in staff resource at this time. 7. Legal Aspects 7.1 Complying with recommendations made by the internal auditors helps the Council meet its statutory obligations to secure best value. 7.2 In terms of Section 95 of the Local Government (Scotland) Act 1973, the Council is under a duty to make arrangements for the proper administration of its financial affairs and must secure that the proper officer of the Council has responsibility for the administration of those affairs. 7.3 In terms of Section 35(1) and (2) of the Local Government in Scotland Act 2003, the Council is under an obligation to determine and keep under review the maximum amount which it can afford to allocate to capital expenditure. In so doing, the Council must comply with regulations made by Scottish Ministers. Page 2. 8. Contact Officers Andrew Paterson, Chief Internal Auditor, extension 2107, email [email protected]. Peter Thomas, Internal Auditor, extension 2135, email [email protected] 9. Appendix Appendix 1: Internal Audit Report – Capital Programme Slippage. Page 3. Appendix 1 Internal Audit Audit Report Capital Programme Slippage Draft issue date: 12/09/2019 Final issue date: 25/10/2019 Distribution list: Head of Infrastructure and Strategic Projects Executive Director of Development and Infrastructure Corporate Finance Senior Manager Head of Finance Contents. Audit Opinion ................................................................................................................................. 1 Executive Summary ....................................................................................................................... 1 Introduction .................................................................................................................................... 2 Audit Scope .................................................................................................................................... 2 Audit Findings ................................................................................................................................ 3 Action Plan ................................................................................................................................... 11 Key to Opinion and Priorities........................................................................................................ 13 Appendix 1 ................................................................................................................................... 14 Audit Opinion Based on our findings to this review, we have given the following audit opinion. Adequate Some improvements are required to enhance the effectiveness of the framework of governance, risk management and control. A key to our audit opinions and level of recommendation is shown at the end of this report. Executive Summary • In forming our opinion, we have considered that although the Council has had a history of slippage, the cause of this has generally been due to a desire to invest heavily which has been difficult to fulfil due to limited capacity. • The Council has recognised, as a response to the most recent external audit at the time of this report “that the capital programme for financial year 2017/18 was ambitious and not deliverable due to weaknesses in forward planning arrangements.” • Some areas of good practice as to capital projects were identified during the audit including: o a five-year rolling capital programme approved by the Council each year, o clear capital expenditure monitoring reports including detailed analysis to all projects which are presented to the Policy and Resources Committee twice yearly, o annual approval of slippage and acceleration by the Council, o a well written detailed capital project guidance document. • Not only may slippage impact on the cost of delivering the capital programme works, it also extends the timescale over which the capital finance is required. • At the time of writing this report the impact that Brexit may have on the future cost of delivering capital projects is uncertain. • There is a risk that slippage of the capital investment programme may lead to rescheduling of general fund capital projects which could have an impact on strategic priorities of the Council that rely on these capital projects being completed on time. • The report includes recommendations which have arisen from the audit. The number and priority of recommendations are set out in the table below. The priority headings assist management in assessing the significance of the issues raised. • Responsible officers will be required to update progress on the agreed actions via Aspireview. Total High Medium Low 0 0 5 0 • The assistance provided by Officers contacted during this audit is gratefully acknowledged. 1 Introduction Audit Scotland, in their report entitled, Best Value Assurance Report: Orkney Islands Council, dated December 2017, stated that “the council’s comfortable financial position has allowed it to be ambitious in agreeing its capital programme for a number of years. However, the desire to invest heavily in capital projects (such as new buildings or transport infrastructure) has been difficult to fulfil due to limited capacity. This has resulted in the council having a history of slippage, that is not completing capital projects and applying the allocated budgets within the planned timeframe.” This review was conducted in conformance with the International Standards for the Professional Practice of Internal Auditing. Audit Scope Our review included each capital project that has been subject to slippage in excess of £100,000. The objectives of this review were: • To review the causes and constraints of slippage to each of these projects in order to establish common themes. • To review the lessons learned register or capital monitoring report to each mid-size and major project. • To assess the impact of slippage in meeting the strategic priorities of the Council, where these may rely on capital projects being completed on time. • To make recommendation as to improvements that can be made in minimising slippage. 2 Audit Findings 1.0 Overview of slippage over the last four financial years. 1.1 An analysis of the value of slippage, i.e. the amount reprofiled, during the financial year and at year end, and net of acceleration, has increased each year over the previous four financial periods. Rising from £7,961,000 at the 2015/16 financial year end to £15,187,000 at the 2018/19 financial year end. (see table 1) 1.2 Overall slippage as a percentage of the original budget has also risen over the same period from 27.7% to 51.6%. (see table 1) Financial Year 2015/16 2016/17 2017/18 2018/19 Slippage £000’s 7,961 11,511 11,750 15,187 Slippage as a 27.7% 47.9% 45.3% 51.6% percentage of original budget. Table 1 2.0 Impact of main projects within overall slippage 2.1 For the 18/19 financial year, 11 projects with individual amounts reprofiled of over £100,000 formed 100.5% of the overall net slippage total. Net slippage is after deducting acceleration on other projects within the programme. Therefore,
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