Agenda item

Report attached.

Mark Beard, Head of Audit & Investigations presented a report to inform and update the Committee about the Public Sector Internal Audit Standards (PSIAS) external peer review process, which would ensure that Hyndburn Borough Council met the requirement under PSIAS that the Internal Audit Service was externally assessed once every 5 years.

The PSIAS stated that a local authority internal audit function must be subject to an external inspection against the PSIAS once every 5 years.  The last external inspection of Hyndburn’s Internal Audit Service had taken place in February 2018.  The next external inspection of Hyndburn’s Internal Audit Service against the PSIAS was provisionally timetabled for November 2022.

There were 8 Lancashire Councils including Hyndburn taking part in a Lancashire Peer Review process.  Of the remaining Lancashire Councils which were not part of this scheme, two Councils had chosen to buy-in their external review from an outside provider.  Four Councils had internal audit provided by Mersey Internal Audit Agency.  One Council was part of the Northwest Chief Audit Executives Group and they also supplied internal audit to another Council.

There was a sub-group of the Lancashire District Councils’ Audit Group consisting of the Heads of Audit from Burnley, Blackpool, Chorley / South Ribble (one head of Audit covered both Councils), Hyndburn and Wyre.  This sub-group had reviewed and updated the methodology for the Lancashire Peer Review process that was based on the one developed previously by the North West Chief Audit Executives Group.

A Memorandum of Understanding (MofU) had been produced that set out the key aspects of the process including:

• The participating Councils;
• Duration of the MofU;
• Confidentiality;
• Governance;
• Moderation and Quality Control;
• Cost; and
• Methodology.

A copy of the MofU was included as an appendix to the report.

The peer reviews had been split into grouped areas to perform the inspections.  These groupings were as follows:

• Burnley, Blackburn with Darwen, Chorley / South Ribble;
• Blackpool, Hyndburn, Wyre; and
• Preston

Preston was originally in a triad with 2 other authorities both of whom had now outsourced their internal audit provision to an external provider.  As a result, the external review of Preston City Council’s internal audit service had been carried out using a shared approach by a number of the other Heads of Audit participating in this process.  Mr Beard indicated that it was possible that Ribble Valley might join the Lancashire Peer Review group in the future.

The timetable for carrying out all 8 external reviews was between June 2021 and March 2023.  The external reviews of the internal audit service for Blackburn, Blackpool and Preston had already taken place with the rest still being outstanding.

Hyndburn Borough Council’s external inspection of Internal Audit was scheduled to take place during November 2022 with the exact dates still to be set.  As part of this process the external assessors would interview key personnel as defined within the PSIAS.  This would include:

• Chief Executive;
• Director of Finance s151;
• Monitoring Officer;
• Chair of Audit Committee; and
• Head of Audit

These 5 post-holders were essential to the process, but in addition the external assessors would choose to interview at least one member of the audit team and would interview one or more auditees which were usually the Head of Service.

In order to both facilitate the required interviews and to gather information a pre-inspection questionnaire would be issued to all the key people.  The answers to this questionnaire would then be used to target areas to explore further in the subsequent interview.  This was likely to be sent out to recipients at some point during October 2022.

The Head of Audit & Investigation would provide the external assessors with evidence to demonstrate why Internal Audit did comply with the PSIAS.  Internal Audit would be externally assessed by the Head of Audit & Risk from Blackpool Borough Council and the Head of Governance and Business Support (former Head of Audit) at Wyre Borough Council.

Following completion of the inspection process a report would be produced.  The judgement of whether an internal audit service conformed to the PSIAS would be based on 3 areas of focus:

• Purpose and positioning;
• Structure and resources; and
• Audit execution.

The judgement would be that Internal Audit Service conformed, partially conformed or did not conform.  The external assessment team might make recommendations for an authority to either achieve full conformity, if it had not achieved that, or improvements on service delivery, if improvements could be made even if overall the Internal Audit Service conformed to the PSIAS.  Mr Beard commented that the authority would need to pass at least 2 of the 3 areas of focus above.

Once the final report had been issued to the Council it would be presented to both Corporate Management Team and the Audit Committee.  The external assessment team was prepared to attend either or both of these meetings if required to answer any questions that might arise.

As different authorities would have different external assessors there was a Moderation / Quality Control process that took place at a number of points until the end of review process in March 2023.  The first Moderation / Quality Control meeting had taken place on 8^th October 2021 with future meetings due to take place during 2022 and 2023.  The purpose of these meetings was to look at the reviews carried out and ensure that there was consistency of approach around logical findings and any recommendations made.  The Head of Audit & Investigation was a member of the Moderation / Quality Control Panel but would clearly have no involvement when Hyndburn Borough Council’s Internal Audit assessment was moderated.

The Head of Audit & Investigation was reviewing key documents that were part of the internal audit process in preparation for the external assessment.  The Head of Audit & Investigation had begun the process of evidencing the self-assessment of the PSIAS.  The self-assessment was carried out annually and reported with the Annual Internal Audit Report & Audit Opinion.

The Chair asked about the cost of the Peer review process.  Mr Beard responded that the cost to the Council of being involved in the Lancashire Peer Review process was staff time as opposed to direct costs.  The preparation time undertaken by the Head of Audit & Investigation was accounted for in the Annual Audit Plan and historical information could be obtained if necessary.  The Peer Review process had the added advantage of enabling best practice to be shared across all participating authorities.

Councillor Dawson asked if all authorities had to undergo an inspection and whether peer review was the best method.  Mr Beard commented that this method represented the best value of money.  An external provider could be used, but there were fewer firms operating in this market at present and prices had risen to around £15k.

Resolved                                    -    That the Committee notes the content of this report.