Internal Audit Annual Report 2016/17

Transcription

1 Pensions Committee Date: 13 th June 2017 Internal Audit Annual Report 2016/17 Report of the Corporate Director Business and Resources This report provides a summary of audit work completed by Internal Audit throughout 2016/17 and provides an overall assurance on the Pension Fund internal control environment. The report also assists the Council in its statutory responsibility to ensure the proper administration of its financial affairs. Contact Officer: Peter Hunter, Corporate Assurance Manager, ext 7069 audit audit audit audit audit audit audit audit audit

2 Internal Audit Annual Report Legislative Background 1. All principal local authorities subject to the Accounts and Audit Regulations 2003 must make provision for internal audit in accordance with the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice for Internal Audit in Local Government. 2. The requirement for an internal audit function is either explicit or implied in Section 151 of the Local Government Act 1972 which requires that authorities make arrangements for the proper administration of their financial affairs. The Accounts and Audit Regulations 2003 state that the relevant body must maintain an adequate and effective system of internal audit of its accounting records and of its system of internal control in accordance with the proper practices in relation to internal control. 3. As per the CIPFA Code of Practice, the Head of Internal Audit must provide a written report to those charged with governance timed to support the Statement of Internal Control, which is now incorporated as part of the Council s Annual Governance Statement. The Head of Internal Audit s annual report to the organisation must: a) include an opinion on the overall adequacy and effectiveness of the organisation s control environment; b) disclose any qualifications to that opinion, together with the reasons for the qualification; c) present a summary of the audit work from which the opinion is derived, including reliance placed on work by other assurance bodies; d) draw attention to any issues the Head of Internal Audit judges particularly relevant to the preparation of the Statement of Internal Control; e) compare the work actually undertaken with the work that was planned and summarise the performance of the Internal Audit function against its performance measures and targets; f) comment on compliance with these standards and communicate the results of the internal audit quality assurance programme. Aims and Objectives 4. The primary objective of Internal Audit is an assurance function that provides an independent and objective opinion on the Council s control environment, by evaluating it s effectiveness in achieving the Council s objectives. We objectively examine, evaluate and report on the adequacy of the control environment as a contribution to the proper, economic, efficient and effective use of resources. In addition, our objectives are to: Support the Head of Finance to discharge duties as S151 Officer; Provide assurance to the Head of Pensions, Pensions Committee and the Local Pension Board on the Pension Fund control environment; Support the Monitoring Officer in achieving Corporate Governance requirements; F:\Loans & Investments\Investment Miscellaneous\Committee Agenda\June 2017\Internal Audit Pensions Committee Annual Report doc 13 th June 2017 Version Final Page 2

3 Internal Audit Annual Report Provide appropriate inputs and opinions to support the Annual Governance Statement or other assurance mechanisms of the Council (including providing evidence for External Audit opinion purposes); Support management to understand its exposure to risks and advise on risk management principles/methods and appropriate controls/contingencies to manage risks; Provide resources to implement the Council s counter fraud strategy and for the investigation of fraud and irregularities; Provide quality services through the highest standards of professional practice, quality assurance systems and investment in staff. Risk Assessed Internal Audit Plan 5. The 2016/17 Audit Plan was set through discussions with Deloitte, the Council s specialist Internal Audit partner to deliver pension and investment audits, Internal Audit and the Head of Pensions. The plan was set taking into account the key risks facing the pension fund. 6. In line with the Society of County Treasurers report Good practice guidance: gaining assurance over the governance and administration of pension funds, and pension fund investment management a guide for the internal auditor, Internal Audit will aim to review the expected controls in relation to governance and strategy and pensions administration at least once over a three year period whilst in relation to investments, assurance will be taken each year through assessing that systems are in place to review and monitor control and governance reports for all externally managed investments. This coverage will allow Internal Audit to provide an opinion on the adequacy and effectiveness of the organisation s control environment. Assurance Scores 7. The assurance levels adopted by Internal Audit are as follows: Definition Full Assurance Substantial Assurance Moderate Assurance Limited Assurance Description There is a sound system of controls in place and those controls are consistently applied and are fully effective. Control objectives are fully met. There is a sound system of control in place but some of the controls are not consistently applied or fully effective. Control objectives are largely achieved. There is basically a sound system of controls in place but there are weaknesses and evidence of non-compliance with or ineffective controls. Control objectives are often achieved. The system of control is weak and those controls are consistently applied and there is evidence of noncompliance with the controls which do exist. Control objectives are sometimes achieved. F:\Loans & Investments\Investment Miscellaneous\Committee Agenda\June 2017\Internal Audit Pensions Committee Annual Report doc 13 th June 2017 Version Final Page 3

4 Internal Audit Annual Report No Assurance There is no system of control in place and control objectives are rarely or never achieved. 8. The standard assurance levels adopted by Deloitte differ slightly to the Council s as follows: Definition Substantial Adequate Limited Inadequate Description Mitigations and monitoring activities accord with accepted good practice and are operating to a high standard The majority of mitigations and monitoring activities accord with accepted good practice and are operating, although some deficiencies exist which could result in financial and / or reputational loss Mitigations and monitoring activities in place offer scope for considerable improvement and result in a high risk of financial and / or reputational loss Mitigations and monitoring activities, where in place, require substantial improvement, and result in an unacceptably high risk of financial and / or reputational loss Internal Audit Coverage 2016/17 The Internal Audit plan covered the period from 1 st April 2016 to 31 st March An outline of the work delivered is shown below: Planned Work Governance Review (Deloitte) Tax and Chargeable Events (Deloitte) Pensions Processing (joint Deloitte & Internal Audit) Risk Management Workshop (Deloitte) Benefit Awards Normal Retirements (Internal Audit) Contributions (Internal Audit) Business Continuity (Internal Audit) Compliance Against Code of Practice 14 (Internal Audit) Opinion Substantial Substantial Not Applicable Not Applicable Full Full Deferred Deferred 9. Sound systems were found to be in place for the Fund s compliance with Myners governance principles relating to effective decision making, clear objectives, risk and liabilities, performance assessment, responsible ownership and transparency and reporting. 10. Sound systems were also found to be in place for tax and chargeable events which included a review of the Fund s compliance with governing documentation and policies with regard to refunds, unauthorised payments, contributions, retirement calculations and Lifetime Allowances. F:\Loans & Investments\Investment Miscellaneous\Committee Agenda\June 2017\Internal Audit Pensions Committee Annual Report doc 13 th June 2017 Version Final Page 4

5 Internal Audit Annual Report Deloitte facilitated a risk management workshop with the Pension Committee and the Local Pension Board in September Following the 2016 Actuarial Review, employers were notified in a timely manner of their contribution rates and past service deficiency contributions for the 3 year period 2017/18 to 2019/ Sound systems and controls were found to be in place for the timely receipt, accurate accounting and reconciliation of employer, employee and past service deficiency contributions. 14. Normal retirement benefits into payment were found to have been calculated in line with LGPS rules. 15. The Pensions Processing review was a value for money/consultancy type review of the efficiency of processes. The findings of the joint review are being considered by the service. Conclusion on Internal Control Environment 16. To provide an opinion on the adequacy and effectiveness of the Pension Fund control environment, an analysis of all audits undertaken over the last 3 years has been undertaken (see Appendix 1). From the work undertaken Internal Audit are able to provide full assurance on the adequacy and effectiveness of the organisation s control environment. In the majority of systems audited there is a sound system of control in place and those controls are consistently applied and fully effective. This conclusion will feed into the Annual Governance Statement to be published with the Council s Statement of Accounts. 2017/18 Internal Audit Plan 17. The Internal Audit Plan has been set through discussions with Internal Audit, Deloitte and the Head of Pensions and takes into account risks identified within the Fund s risk register. The full plan, including the scope of each audit, is attached at Appendix 2. Legal Implications 18. All legal implications are outlined in the report. Financial and Value for Money Implications 19. There are no financial or value for money implications arising from the recommendations set out in this report. Risk and Opportunity Implications 20. Risk implications have been considered as part of the audit planning process. Equality and Diversity Implications F:\Loans & Investments\Investment Miscellaneous\Committee Agenda\June 2017\Internal Audit Pensions Committee Annual Report doc 13 th June 2017 Version Final Page 5

6 Internal Audit Annual Report There are no equality and diversity implications arising directly from this report. Environmental and Sustainability Implications 22. There are no environmental and sustainability implications arising directly from this report. Options to be considered 23. No other options are submitted for consideration. Recommendations 24. Members are requested to note the contents of this report and are given the opportunity to comment on the 2017/18 audit plan. Reasons for Recommendation 25. The recommendation is made so that the Committee can be satisfied that a sound system of internal control is in place. F:\Loans & Investments\Investment Miscellaneous\Committee Agenda\June 2017\Internal Audit Pensions Committee Annual Report doc 13 th June 2017 Version Final Page 6

7 Internal Audit 3 year Pension Fund Coverage Appendix 1 System * - based upon Deloitte scoring Substantial assurance is maximum score available. ** - based upon Deloitte scoring Adequate assurance equates to Substantial assurance. Audit Findings Yr Yr Yr Governance Review Substantial 5* Substantial 5* Substantial 5* Employer Covenant Risk Substantial 5* Investment Strategy Substantial 5* Funding Strategy Substantial 5* Pensions Payroll Full 5 Property Portfolio Substantial 4 Benefit Awards Testing Deferred Payments Full 5 Cashflow Management Full 5 Freedom & Choice and Pensions Liberation Substantial 5* Tax on UK Investments Adequate 4** Risk Management Substantial 4 Payment Processes Full 5 Data Flows Moderate 3 Benefit Awards Testing Ill Health Retirements Full 5 Transfer Out Full 5 Tax and Chargeable Events Substantial 5* Benefit Awards Testing Normal Retirements Full 5 Contributions Full 5 Average 3 year score (95/20) Full 4.75 F:\Loans & Investments\Investment Miscellaneous\Committee Agenda\June 2017\Internal Audit Pensions Committee Annual Report doc 13 th June 2017 Version Final Page 7

8 Internal Audit 3 year Pension Fund Coverage Appendix 1 Tyne & Wear Pension Fund Internal Audit Plan 2017/18 F:\Loans & Investments\Investment Miscellaneous\Committee Agenda\June 2017\Internal Audit Pensions Committee Annual Report doc 13 th June 2017 Version Final Page 8

9 Tyne & Wear Pension Fund Introduction This document sets out our proposed internal audit plan for the Tyne and Wear Pension Fund for 2017/18 for the consideration and approval of the Pension Committee. In compiling this plan, South Tyneside Council s Internal Audit function have held discussions with Deloitte pension specialists. We have also discussed the plan with Ian Bainbridge, Dave Smith and Tom Morrison of Tyne and Wear Pension Fund in a meeting on 9 March To arrive at the proposed plan, we have evaluated, amongst other documents, the Pension Fund s risk register in order to ensure that the plan is genuinely risk-based and relevant to the current position of the Pension Fund.

10 Tyne & Wear Pension Fund Proposed Internal Audit Plan 2017/18 Deloitte Input The below table contains the audits discussed in the 9 March 2017 meeting. Costs have been calculated in accordance with the terms set out in our engagement letter dated 12 December Audit title Brief overview of proposed scope of work Draft indicative timing Responsibility Number of days Cost ( ) Funding strategy We will consider the approach adopted for the 2016 funding valuation and evaluate against good practice. This review will build on the review performed in 2014/15 in relation to the 2013 funding valuation. We propose that our 2016/17 review will also include a meeting with the Fund actuary. Q1 Richard Bradshaw & Alistair Sutherland 12 14,860 We will also undertake a review of the Fund s Investment Strategy Statement, evaluate references to investment strategy against industry good practice and comment on the reasonableness and transparency within the assumptions made in the Fund s investment strategy. This review will build on the review performed in 2014/15 in relation to the 2013 funding valuation. We consider it sensible to combine the funding strategy and investment strategy reviews in 2017/18 as the two subjects are closely related.

11 Tyne & Wear Pension Fund Audit title Brief overview of proposed scope of work Draft indicative timing Responsibility Number of days Cost ( ) Governance We will undertake a high level review of the Governance structure in place at the Fund, focusing in particular on the continued effectiveness of the Local Pension Board, and its interactions with the Pension Committee. Q3 Alistair Sutherland 6 5,865 At the request of the Council, we will widen our scope to consider succession planning as part of the 2017/18 review. We will undertake our annual assessment of the Fund s procedures for Investment Management against the requirements of the six Governance Principles published by the Chartered Institute of Public Finance and Accountancy in December Our review will include attendance at the Pension Committee meeting in Q3. Annual Allowance (AA) and Lifetime Allowance (LTA) monitoring We will consider the procedures put in place to calculate members AA and LTA amounts, including the operation of the Scheme Pays function. We will particularly focus on the AA calculations, following the introduction of AA tapering for 2016/17. Q3 / Q4 Clare Routledge 5 6,285 Planning and engagement management 3 2,980 Deloitte Days 26 29,990

12 Tyne & Wear Pension Fund Council Input Audit title Brief overview of proposed scope of work Draft indicative timing Responsibility Number of days Cost ( ) Benefit Awards Testing - Deaths Recharges Data Security Data quality Business Continuity Compliance against Code of Practice 14 Review the processes and perform substantive testing of the calculation of death benefits in relation to active, deferred and pensioner members. Review the process to calculate and agree internal recharges with the Council and BTST to ensure they are fair and reasonable. Review of the robustness of arrangements to secure data in line with relevant legislation. Review of the procedures in place for receiving and reviewing data supplied by employers, as well as the steps taken by the Fund to improving data quality. Review the adequacy of arrangements to recover systems in the event of a disaster scenario. To assess the Funds compliance with the Pensions Regulators Code of Practice 14 Governance and administration of public service pension schemes. Q3-4 Peter Hunter 8 5,400 Q3 Peter Hunter 8 5,400 Q2-3 Peter Hunter 8 5,400 Q2-3 Peter Hunter 8 5,400 Q3-4 Peter Hunter 5 C/Fwd 16/17 Q1-2 Peter Hunter 6 C/Fwd 16/17 Pension Queries To deal and support with ad-hoc queries raised by the service. Ongoing Peter Hunter 3 2,005 Management of Pension Plan 3 2,005 Internal Audit Days 49 25,610 TOTAL DAYS 75 55,600

13 background papers background papers background papers Internal Audit Annual Report 2016/17 The following is a list of the background papers (excluding exempt papers) relied upon in the preparation of the above report: Background Paper File Ref: File Location Internal Audit Annual Operational Plan G/index/operational audit plan/ Internal Audit