Hampshire Fire and Rescue Authority

Governance Committee Item 6

22 June 2006

Draft Statement of Internal Control 2005/06Error! Bookmark not defined.

Report by the Chief Officer

Contact: David Howells, Director of Corporate Services Tel: 023 8062 6833

1

Summary

The Statement of Internal Control is an annual requirement. It explains the actions the Authority is taking to provide financial management assurance. The Governance Committee is asked to approve the Statement (set out as Appendix 1) so that it can be included as part of the Annual Statement of Accounts for 2005/06.

2

RecommendationError! Bookmark not defined.

2.1

That draft Statement of Internal Control, subject to any amendments that the Committee may wish to make, be approved for signature by the Chairman of the Authority and the Chief Officer.

3

Introduction Error! Bookmark not defined.and Background

3.1

The Accounts and Audit Regulations (2003) requires that a `Statement of Internal Control' be produced and signed by the Chairman and Chief Officer as part of the annual statement of accounts.

3.2

The need to demonstrate good practice in corporate governance arrangements is a key feature of Comprehensive Performance Assessment (CPA) and other internal and external audits. The Statement of Internal Control is an essential requirement because it represents a review of the effectiveness of the Authority's internal control and risk management systems and is also intended to give an assurance about how effectively these operate in practice.

3.3

The attached Statement is modelled on guidance issued by the Chartered Institute of Public Finance and Accountancy (CIPFA). The content and conclusions also rely heavily on the outcomes and recommendations of work undertaken by our internal auditors.

3.4

The Statement is presented as a draft to give the Committee the opportunity to comment on the content and indicate whether or not they would wish to see any amendments made to it.

4

Contribution to Corporate Aims and Objectives

4.1

The preparation of the Statement provides an additional opportunity to identify and explain the actions being taken to ensure that the Authority's arrangements for financial management are sound and follow best practice. It can therefore contribute to our aim to become one of the top 20% of best performing fire and rescue authorities.

5

Risk Analysis

5.1

A Statement of Internal Control is a requirement of Accounts and Audit Regulations 2003. Failure to produce this as part of the annual statement of financial accounts would leave the Authority vulnerable to a qualified audit opinion by our external auditors and consequential damage to the Authority's reputation.

6

Resource Implications

6.1

There are no significant resource implications involved in producing this Statement other than the cost of the administrative task of preparing it.

7

Equality Impact Assessment

7.1

The recommendations of this report are assessed as not giving rise to any equality issues for the Authority and are considered compatible with the provisions of the European Convention on Human Rights, the Human Rights Act 1998, and the Race Relations (Amendment) Act 2000.

Background Information (Section 100D of Local Government Act 1972)

The following documents disclose the facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of the report:

The Annual Internal Audit Opinion for 2005/06 - also on this meeting's agenda

Note: The list excludes: (1) published works; and (2) documents that disclose exempt or confidential information defined in the Act.

1

Scope of responsibility

1.1

Hampshire Fire and Rescue Authority 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.

1.2

The Authority also has a duty under the Local Government Act 1999 to make arrangements to secure continuous improvement in the way in which its functions are exercised, having regard to a combination of economy, efficiency and effectiveness.

1.3

In discharging this overall responsibility, the Authority is also responsible for ensuring that there is a sound system of internal control which facilitates the effective exercise of the Authority's functions and which includes arrangements for the management of risk.

1.4

In accordance with the requirements in the Accounts and Audit Regulations 2003, this statement sets out how the Authority has sought to meet these requirements during 2005/06.

2

The purpose of the system of internal control

2.1

The system of internal control is designed to manage risk to a reasonable level rather than to eliminate all risk of failure to achieve policies, aims and objectives; it can therefore only provide reasonable and not absolute assurance of effectiveness.

2.2

It is an ongoing process designed to identify and prioritise the risk to the achievement of the Authority's policies, aims and objectives; and to evaluate the likelihood of those risks occurring and to manage them efficiently, effectively and economically.

3

The internal control environment

3.1

The Authority sets out its key aims and objectives in its Integrated Risk Management Plan (IRMP). This is the Authority's primary strategic and corporate plan. It is supplemented by a number of medium-term functional or business plans which support and complement the actions and activities that will be pursued. The Authority's revised staff appraisal system - `Personal Development Review' - has been developed to ensure that all personnel are fully aware and engaged in helping to achieve the Authority's corporate aims. All the Authority's plans are integrated and monitored as part of the Authority's well-established corporate planning process and performance management framework.

3.2

The IRMP sets out for the benefit of all our stakeholders the key corporate aims and the actions the Authority will take to achieve them. It shows how the Authority will respond to changes and challenges, identifies common aims with its partner organisations and sets priorities and targets for improvement. The IRMP is approved by the full Authority. It is comprehensively reviewed annually and takes fully into account the outcomes of: a comprehensive programme of consultation with stakeholders; performance results; various review outcomes; and external factors such as local and national policies, expectations and initiatives. It is available on the Authority's website together with current information on actual performance against targets. It is also published in hard copy for circulation to key partners and staff. The IRMP is supported by promotional activities and campaigns to ensure that the Authority's five corporate aims and targets provide a cornerstone for all internal and external communication activities.

3.3

The Authority's Performance Review Committee has particular responsibility for overseeing service improvement planning and reporting on performance. It monitors progress on implementing the outcomes and recommendations of best value reviews and internal audit reports. The Corporate Management Team (CMT) - a regular joint meeting of leading Members of the Authority and its Principal Officers - also plays an important role in reviewing the Strategic Risk Register.

3.4

The Authority has a constitution, originally adopted with effect from 1 April 1997. It is based on the provisions of Statutory Instrument 1996 No 2923 `The Hampshire Fire Services (Combination Scheme) Order 1996'. The various documents set out the processes by which its policies are made and decisions taken, the terms of reference of the Authority and its Standing Committees. The role of the Governance Committee (established in 2004) provides added scrutiny on governance issues.

3.5

The financial management of the Authority is overseen by the Treasurer in conjunction with the Chief Officer. Financial planning and management and is fully integrated with and influenced by the corporate planning and monitoring processes set out above. This includes processes for the forward planning of expenditure, consultation on budget proposals, setting and monitoring income and budgets, and completion of final accounts. All are intended to be accurate, informative, timely and within statutory requirements. The approaches and justification for them taken are summarised annually in the Authority's Budget Book.

3.6

The Constitution is supplemented by a set of Standing Orders (last reviewed, revised and adopted in May 2002), Codes of Conduct for members and officer, and a Protocol for member/officer relations. The Authority has a set of Financial Regulations and Scheme of Delegation to Officers (both of which were reviewed, revised and adopted in 2004/05). In addition the Service has a comprehensive set of `Service Orders' setting out policies and procedures across a wide range of front-line and support functions.

4

Review of effectiveness of internal control

4.1

In order to ensure compliance with policies, procedures and statutory requirements the Authority has a range of controls and processes in place which are summarised in this section under headings taken from the good practice guidance. These processes help the Authority to ensure the economic, effective and efficient use of its resources, to secure continuous improvement in excising its functions, and to provide effective performance management and reporting.

4.2

Statutory roles of Monitoring Officer and Section 151 Officer to ensure internal control procedures are efficient and effective and are being complied with on a routine basis to ensure legality and sound financial standing.

The role of Monitoring Officer is combined with that of Clerk. He works with the Authority's Internal Auditor and they have close working relationships with the Standards Committee and Governance Committee. The Standards Committee has responsibility for maintaining high standards of probity amongst members through the provision of advice and training and by carrying out investigations referred to it by the Standards Board. The Governance Committee is responsible for monitoring, reviewing and reporting to the Authority the governance arrangements. The Treasurer is the Authority's designated Section 151 Officer.

The Authority, its standing committees and the Chief Officer have a full range of professional officer advice (including legal and financial) to enable them to carry out their functions effectively and in compliance with statutory requirements. Legal and financial services are provided through contracts for services (service level agreements) with Hampshire County Council. This is supplemented by specialist legal advice (mainly for specific fire and rescue activities and occasional employment advice) by other external providers. The External Auditor is satisfied with the Authority's arrangements (Annual Audit Letter 2004/05) and aware of the Authority's review the contracts for various services provided by Hampshire County Council. This review has been completed and the findings and recommendations are due to be reported to the Performance Review Committee in June 2006.

4.3

Internal Audit provide independent and objective assurances across the whole range of the Authority's activities.

The Governance Committee has approved the Internal Audit Strategy and Plan for 2006/07 and the Annual Internal Audit Opinion for 2005/06 is presented together with this Internal Statement of Control (in its draft form) at the June meeting of the Committee.

The Authority's Internal Auditor has provided an Annual Statement of Assurance which will be included in the Statement of Final Accounts for 2005/06.

4.4

External Audit provide a further source of assurance by reviewing and reporting upon the Authority's internal control processes and any other matters relevant to their statutory functions and codes of practice.

The Annual Audit Letter for 2004/05 commented positively on the Authority's governance arrangements and performance.

For the first time all fire and rescue services have been reviewed under a Comprehensive Performance Assessment (CPA) in 2005. This resulted the Authority being categorised as a `good' authority. The assessment raised no concerns over the Authority's financial and governance arrangements.

4.5

Risk Management policies and procedures are in place with the objective of ensuring that the risks facing the authority in achieving its objectives are evaluated, regularly reviewed and mitigation strategies developed.

The Authority has comprehensive Risk Management Policy and Strategic Risk Register. The Register is under a process of continual review which includes a quarterly review by the Service Management Team and twice-yearly review by the Corporate Management Team. The Register is presented annually to the Authority with any major changes highlighted. Reviews of Register are also regarded as a valuable part of our improvement planning process and the development and prioritisation of actions in the IRMP and supporting plans.

Additional risk assessment training is being progressively rolled-out to those senior managers with responsibility for business planning so that `risk management' is regarded as part of good day-to-day management practice and firmly embedded across the organisation.

Insurance policies and levels of reserves and balances are regularly reviewed - at least annually - to ensure that the Authority is financially adequately safeguarded. The Authority achieved its aim to establish a £2m level of reserves in 2006/07.

4.6

Provision of effective, efficient and responsive systems of financial management.

The Authority's three-year financial management strategy is reviewed annually and incorporated in the Budget Book. The budget is monitored during the year at meetings of the Finance and General Purposes Committee (FGPC). The Final Accounts report is reported to the FGPC at the June/July meetings . Procedures have been reviewed to ensure that the timetable for earlier completion of Final Accounts is achieved. As part of CPA process, no concerns were raised in relation to the Authority's policies and procedures in the use of resources. Revised Financial Regulations were approved by the Authority in February 2005 and implemented from 1 April 2005.

Internal Audit monitor the effectiveness and level of compliance as part of their work during the year. It has been confirmed - in the Audit Opinion - that the systems continue to operate successfully.

4.7

Codes of practice are issued by external bodies in respect of services and processes, with which the Authority is expected to comply.

The Authority complies with the 2003 CIPFA Code of Practice relating to Capital Finance and Treasury Management. This work is undertaken on behalf of the Authority by Hampshire County Council's Treasurers Department under a contract for services. The Authority monitors policies, practices and activities through regular reports.

4.8

The role of the Standards Committee is to promote and maintain high standards of conduct by councillors and co-opted members.

The Standards Committee has not dealt with any major issues of concern during 2005/6.

4.9

Governance Committee is charged with governance responsibilities.

The Governance Committee's terms of reference are now well established. During 2005/06 the Governance Committee questioned the status and role of the Corporate Management Team (CMT). Two reports prepared by the Clerk and Director of Corporate Services were considered by the Committee and the conclusion reached was that the CMT performs a useful role in fostering good (all party) member/officer relations; provides a sounding board for exploring new policy initiatives, and encourages member engagement in discussions of topical interest and concern. It was confirmed that CMT is not a standing committee of the Authority and that it is not a formal decision-making committee.

4.10

Performance Management processes are in place to measure progress against objectives and to provide for remedial action where appropriate.

The entire performance management framework is very well-developed. The Authority has a good track record of monitoring performance via the Performance Review Committee which also now receives reports on compliance with audit recommendations. All performance indicators, both national and local, are clearly set out on the Authority's website and responsibility for monitoring each indicator is allocated to a member of the Service Management Team.

The Authority continues to be actively involved in regional collaboration across the full six work streams set out in the National Framework for the Fire and Rescue Service. Hampshire takes the lead on the Human Resources work stream.

A review of vehicle workshops commenced in 2004/05 and made a series of interim recommendations to improve efficiency and effectiveness in the day-to-management of the function. The review continued during 2005/06 to determine whether the tests of `best value' could be satisfied. The review concluded (in May 2006) that the function should remain in-house.

Two new best value reviews commenced in 2005/06: a review of service level agreements with Hampshire County Council; and a review of the effectiveness of our partnership arrangements.

4.11

A corporate procurement policy has been formally approved and communicated to all relevant staff.

The Authority, having completed a best value review of its procurement function, appointed a new post of Procurement Manager who was tasked with pursuing all the outstanding actions arising from the Review. These have now been completed and tangible savings have been achieved in several purchasing contracts. The Authority has also committed to active participation in the national and regional procurement initiatives - especially the `FireBuy' consortium arrangement.

4.12

A Corporate Health and Safety Policy has been formally approved and communicated to all relevant staff.

The Authority has a well-established policy (Service Order 8/1/1) which has been communicated widely to its staff. Comprehensive information and advice is available on our website.

4.13

A corporate complaints policy/procedure has been formally approved, communicated to all relevant staff, the public and other stakeholders and is regularly reviewed.

The Authority has a well-established complaints procedure (Service Order 2/8/3/6/2) setting out our policy and procedure for dealing with complaints. Full information is also available on our website.

4.14

Reports received from external agencies and inspectorates. Relevant external inspection reports.

The Authority's CPA rating of "good" was confirmed in July 2005 and the outcomes of the assessment have influenced the IRMP and supporting plans. Areas for improvement have been identified with many strategies and actions being taken. These are logged in the Authority's `Improvement Planning Register' (formerly referred to as the Improvement Planning Matrix).

4.15

Delivery of services by trained, skilled and experienced personnel.

The Authority has achieved ISO 9001 accreditation for its Commercial Training function, and has been formally recognised as working towards Investors in People (IIP) accreditation for the whole organisation by April 2007.

The Authority has made excellent progress in implementing the national Integrated Personal Development System [IPDS] which provides a comprehensive process for identifying personal training and development needs against a set of job role-maps.

5

Areas for improvement and improvement planning process

5.1

The Authority prides itself on being a `learning organisation'. Our Improvement Planning Register provides a useful checklist of the various actions and activities being taken to modernise the Service and improve the way we operate and deliver services. These improvements are categorised under five main themes:

· engaging our staff and communities

· managing our capacity to deliver

· managing our performance and raising our game

· embedding risk management

· living our values

The Register has recently been reformatted and is regularly reviewed by a joint officer/member steering board. It will be presented regularly to the Performance Review Committee and annually to the full Authority.

5.2

We take the outcomes of all audit reviews very seriously and monitor the implementation of recommendations publicly through regular reports to the Performance Review Committee. We take similar action in monitoring the outcomes of the best value reviews. Outstanding actions continue to be reported until they have been successfully implemented.

5.3

Our three-year Integrated Risk Management Plan (IRMP) sets out an ambitious programme of improvements in the way we deliver front-line services. Some of the actions involve conducting trials/pilot schemes during which we will be consulting with the local community, key stakeholders and our staff to ensure that our proposals are sound and that we can be confident that they will deliver the anticipated improvements in service.

5.4

Apart from our engagement in the review of the potential for increased collaborative working with the Isle of Wight Fire and Rescue Authority, we will continue to participate in regional reviews - particularly that involving the provision of training facilities and the scope for greater collaboration. From 2007/08 we are likely to be reviewing our position in relation to environmental/sustainability issues.