Statement of Internal Control for Hampshire County Council and Hampshire Pension Fund

1. Scope of responsibility

Hampshire County Council 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. This responsibility extends to the administration of the Hampshire Pension Fund which is undertaken by the Pension Fund Panel. The Panel, which meets regularly, is comprised of County Councillors and also co-opted members from other employer organisations and pensioners and contributors' representatives. The Panel is also advised by an external, independent pensions adviser.

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.

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.

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 2006/07.

2. The purpose of the system of internal control

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.

The system of internal control is based on an ongoing process designed to identify and prioritise the risk to the achievement of the Authority's policies, aims and objectives, to evaluate the likelihood of those risks being realised and the impact should they be realised, and to manage them efficiently, effectively and economically.

One of the key elements of the Corporate Governance regime and the production of the Statement of Internal Control is the methodology applied to obtain the necessary assurance. Briefly, this involves a detailed questionnaire being sent every two years to all Chief Officers and also to other officers who undertake a significant corporate role. The questionnaire, which is revised and updated on each occasion, covers a wide range of corporate governance issues. It will refer to the existence, knowledge and application within departments of governance policies generally but will also concentrate on specific issues that have been identified as having greater significance to the Council.

The responses to these questionnaires are then tested in detail over the next following two year period by the Council's team of internal auditors. This testing is a significant piece of work for the internal audit team, which, on average over the past four years has utilised 100 days per annum.

The results of the internal audit teams work will deliver a report to the relevant Chief Officer or Senior Corporate Manager for any follow up work necessary. It will also be sent to the Council's Monitoring Officer, who will use the report to assess the Council's future corporate governance priorities and also to compile the Statement of Internal Control.

The system of internal control has been in place within the Authority for the year ended 31 March 2007 and up to the date of approval of the annual report and accounts. The next section outlines the internal control environment in which the Authority operates and reviews the effectiveness of the controls.

3. The internal control environment

The key elements of control are as follows:

· The Authority sets out its priorities through the Corporate Strategy and Corporate Business Plan. In 2006 the Cabinet reviewed its aims and refined the previous six aims into a set of three priorities, introducing a greater emphasis on selecting priorities in the face of significant resource constraints. The corporate business plan sets out the key outcomes, activities and performance measures. This establishes a benchmark position, targets for improvement and the people who are accountable for delivering them. These targets are drawn from more detailed corporate policies and plans and cascaded through service plans and Individual Performance Plans. The resources to deliver the Corporate Strategy are summarised in the Workforce Plan, the Asset Management Strategy and the revenue and Capital Budgets.

The Corporate Strategy draws heavily from the Hampshire Community Strategy, which expresses the aims the Council shares with strategic partners in Hampshire and the Local Area Agreement (which incorporates the Local Public Service Agreement).

The Corporate Strategy and Business Plan set out in one document the main messages about what the County Council stands for and how we aim to achieve them. They show how the County Council responds to changes and challenges, identifies common aims with partners, linking to the Local Area Agreement, and sets priorities and targets for improvement. The Corporate Strategy is approved by the Corporate Management Team (CMT), Cabinet and full Council and forms the major part of the County Council's policy framework alongside the Community Strategy and Performance Plan. The Corporate Strategy sets priorities for the life of the administration and the Business Plan is reviewed annually. This is informed by the outcomes of consultation, performance results, review programmes and external inspections and factors such as local and national policies and initiatives. The priorities and business plan are published on the County Council's website alongside the Performance Plan and in hard copy for circulation internally and to key partners. Communication of the priorities is supported by other promotional activities including posters and a flash video and provide a cornerstone for all internal and external communication activities.

The County Council has published guidance on its integrated planning process which links workforce, budget and service planning into the County Council's Corporate Strategy and priorities. The Corporate Performance and Efficiency Group has responsibility for overseeing service planning and reporting on performance, in relation to the targets set in the Corporate Strategy, on a six-month basis to Departmental Management Teams (DMTs) and Executive Members, CMT and Cabinet through the Corporate Performance Results report.

To help establish these corporate priorities the County Council has a corporate consultation plan agreed by CMT and Cabinet annually which sets out proposals to consult with staff, residents and other stakeholders and partners. The research findings are published, in summary, on the County Council's website. The results help inform the development of the Corporate Strategy and are disseminated through CMT/Cabinet, DMTs, senior managers seminars (Success through People) and other staff communications mechanisms to inform service planning.

The County Council has an agreed corporate communications strategy, currently under review, which is driven by the corporate priorities and is underpinned by specific communications plans for individual activities and documents e.g. Comprehensive Performance Assessment (CPA) etc. These plans are produced for agreement with the appropriate CMT and Cabinet member.

· The County Council has a Constitution, originally adopted with effect from 1 September 2001, which sets out in full the processes by which its policies are made and decisions taken. It sets out clearly the role of the Council, the Leader, Cabinet, arrangements for the performance of regulatory functions and the Standards Committee. It also identifies the role of the Governance Committee established to give added focus on governance and audit issues.

The Constitution also contains arrangements for the delegation of decision making to the above bodies and also to Chief Officers and others. In addition, appendices to the Constitution also contain a range of Codes and Protocols including those on Financial Regulations, Contract Standing Orders, Codes of Conduct for members and officers and a Protocol for member/officer relations. Financial limits within these documents have been recently reviewed and updated by the County Council at its meeting on 28 May 2007.

· The financial management of the Authority is led by the County Treasurer and is integrated with and influenced by the processes set out above. It includes processes for 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 taken are summarised annually in the Financial Management Policy included in the Council's Budget Book.

· In order to ensure compliance with policies, procedures and statutory requirements the Authority has a range of controls and processes in place, as set out and reviewed below. These processes also help the Authority to ensure the economical, effective and efficient use of resources, to secure continuous improvement in excising its functions, and to provide effective performance management and reporting.

Review of effectiveness of internal control

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 Monitoring Officer (the Head of Corporate and Legal Services) and the Chief Internal Auditor (for the Section 151 Officer) have close working relationships both between themselves and the Standards Committee and the 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 Cabinet the governance arrangements for the County Council. It also acts as the Audit Committee for the County Council.

The Council, Cabinet, Executive Members, Committees and Chief Officers have a full range of professional officer (including legal and finance) advice to enable them to carry out their functions effectively and in compliance with statutory requirements. The Council's Legal Practice has a central role in this respect. The Legal Practice obtained the Law Society's quality accreditation (Lexcel) in 1999 and has retained it since. Senior lawyers within the Practice have regular meetings with major clients to assess performance, review future demands and identify new legislative requirements.

The External Auditor's Annual Audit and Inspection letter confirms satisfaction with the Council's arrangements (Annual Audit Letter ).

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

Internal Audit is required to comply with the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice for Internal Audit in Local Government in the UK 2003 and its prescribed professional standards. External assurance that these standards are met is provided through regular inspections by the Audit Commission, ISO quality accreditation assessors, and specialist inspectors of services within the education and social care fields who need to place reliance on the work of internal audit.

The Governance Committee has approved the Internal Audit Plan for 2006/07 and continued to monitor performance and the progress of significant issues including the implementation of audit recommendations.

The Chief Internal Auditor has provided an Annual Statement of Assurance on the effectiveness of the control framework which is considered in conjunction with the Final Accounts.

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

The Annual Audit and Inspection Letter for 2007 (based on data from 2005/06) commented positively on the Council. `The Council has continued to perform strongly and to improve the services that matter most to its residents.' The External Auditor pointed out some areas for improvement but judged that the Council's overall corporate governance arrangements are satisfactory.

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 County Council has a well-developed Risk Management Strategy and Risk Management Framework, the details of which can be found on the intranet at http://hantsnet2000.hants.gov.uk/TC/riskmanagement/index.html

The Council has adopted a Corporate Strategy for Managing Risk and Improvement Plan for 2007-2010. Underpinning this is a comprehensive performance management framework for risk.

A Corporate Risk Management Board and Risk Management Steering Group exist. The former is chaired by the Chief Executive and the latter by the Head of Resources in the Chief Executive's Department. The terms of reference etc. can be found on the intranet site.

Risk registers are maintained in all departments, with regular reports to Departmental Management Teams. Information on risk is collated corporately and reported to the Corporate Risk Management Board and the Governance Committee on a regular basis.

The methodology for assessing risks has been reviewed and amended. Following this, workshops were held with all departments to raise awareness and provide training in the use of the methodology. Copies of the slides used at the presentation are available on the intranet site.

During 2005 a specification was drawn up for an integrated corporate risk management and audit management system. Following a tendering exercise a new system has been purchased. One of the benefits of the integrated system should be to enable audit to link its work to risks identified by departments. It should also provide for better monitoring of risks and identification of cross cutting risks.

Following a review of the management of Health and Safety it has also been agreed to bring this within the remit of Risk Management at a corporate level. A new post of Corporate Risk Manager has been developed and was filled in 2006.

Insurance policies and funds are in place and are regularly reviewed to ensure the Council is adequately safeguarded.

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

The Council's Financial Management Strategy is incorporated annually in the Budget Book. Progress against it is reviewed annually with the Final Accounts report. Procedures have been reviewed to ensure that the timetable for earlier completion of Final Accounts is achieved. As part of the Comprehensive Performance Assessment in 2006, the Council maintained its score of three out of four for its policies and procedures in relation to use of resources. New and revised Financial Regulations were implemented from 1 September 2001, within the Constitution. Internal Audit monitor the effectiveness and level of compliance as part of their work during the year. This has confirmed that they continue to operate successfully.

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

The Authority has complied with the 2003 CIPFA Code of Practice relating to Capital Finance and Treasury Management. The County Council's Cabinet monitors policies, practices and activities through regular reports on debt management and investment strategy.

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 met in the last financial year. The Committee had two complaints referred to it by the Standards Board for investigation and determination, one of which resulted in a hearing. A sub committee of the Standards Committee was appointed to hear this complaint and consisted of a majority of independent members one of whom undertook the role of Chairman.

Governance Committee is charged with governance responsibilities.

A Governance Committee was established so as to give enhanced focus on corporate governance issues. This is reflected in the Committee's terms of reference and by it being chaired by the Leader of the Council and with representation from the Leaders of the two opposition parties. The full role of the Committee is clearly referred to in the Council's Constitution at Part 1: Chapter 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 continues to be developed. The business plan element of the Corporate Strategy has introduced high profile accountability for targets, and departments are using the plan as the basis for developing departmental service plans and individual performance plans for 2007/08, so that the `golden thread' between these core documents is strengthened and visible. At the strategic level the relationship between the targets and activities in the Corporate Strategy, expressed in the business plan, are being aligned with the Corporate Budget and Workforce Plan. Work is ongoing at the operational level to identify the resource implications of focusing on the new priorities. This supports the work to respond to audit recommendations to improve cost benchmarking, while the `integrated' approach is working to embed performance management in the culture of the organisation.

Clear terms of reference are set for the preparation of service plans and guidance is accessible on the performance management website, which incorporates a mechanism to reflect corporate priorities within service plans. The guidance also cross-references budget planning and workforce planning and is available as an e-learning package. A `Corporate Threads Portal' has been developed and is being launched during 2007, which supports service managers in taking account of corporate priorities in the planning and delivery of their services.

Departments have developed their own regimes for approving and monitoring objectives and targets set in service plans. Service reviews are now instigated through the Service Planning regime, while the Corporate Review Programme focuses on cross cutting and strategic issues, paying attention to efficiency and value for money.

All performance measures, both national and local are known and responsibility allocated through the service planning process.

The corporate performance reporting process covers:-

· National performance results - these are incorporated in the corporate performance results: half yearly report in November/December and full year report in May/June.

· Results against Corporate Strategy targets/priorities - these form the major part of the corporate performance results.

· Reports against departmental/service targets/priorities - reports go to Departmental Management Teams and Cabinet portfolio holders half yearly and should be monitored regularly by service managers and DMT level Managers.

· Individual performance reports - every line manager considers performance results at least on an annual basis, though usually more frequently. The process is evaluated by Investors in People accreditation.

Poor performance is escalated through performance reporting to the managerial/political level which can agree remedial action. Once remedial action is agreed, it should be implemented through service plans.

Performance is driven upwards over time primarily by changes to policy or strategy arising from a mix of professional aspirations or experience of senior/service managers, feedback from frontline staff, political aspirations, extensive opinion research, knowledge and analysis of external factors with performance results being added to this array of factors.

The performance plan updates and publishes year-on-year comparison of achievement against performance targets on the website which is accessible internally and externally.

The Audit Commission's report on the 2006 Performance Plan indicates satisfaction that the plan includes those matters prescribed in legislation and statutory guidance and was appropriately published. The Audit Commission had no matters to report to the Council nor any recommendations to make on procedures in relation to the plan.

The performance frameworks are regularly reviewed and updated to take account of changes in organisational structure, new Government initiatives, new internal performance measures and other factors including external or internal review of the arrangements.

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

The County Council produced its first formal Corporate Procurement Strategy in 2003 and this was replaced in 2006 with a new document for the period 2006-2008. This is accessible to all employees of the County Council on its intranet, Hantsnet. Awareness and training sessions to support the Council's procurement agenda have now been delivered to more than seven hundred and fifty staff and further supporting information is available to staff electronically. The new strategy was approved by Members and presentations outlining the key themes in the strategy have been made to all departmental management teams. The Corporate Procurement Network continues to monitor progress against action plans and is developing relevant performance indicators. The Director of Property, Business and Regulatory Services is the Corporate Management Team sponsor for the procurement agenda and progress reports are made both to CMT and to the Buildings, Land and Procurement Panel, which is chaired by the Deputy Leader of the County Council. A range of procurement reviews identified jointly with departments is now in progress and this will continue through the next financial year.

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

The current version of the Corporate Health and Safety Policy Statement was issued in March 2004 having been the subject of extensive consultation and after being approved by the Corporate Health and Safety Steering Group, the Chief Executive and the Leader of the Council. This version of the Policy is currently being revised to incorporate the changes introduced by the implementation of the Corporate Review of Health and Safety.

The recent corporate Review of Health and Safety has brought health and safety into the remit of Risk Management and has involved the transfer of the health and safety specialists from HR into the departments or the Chief Executive's department, in the case of the corporate roles.

The Review has also involved changes to the decision making and performance monitoring arrangements with the establishment of a Health and Safety Executive Group, chaired by a senior member of the Legal Practice Team which now formally reports to the Risk Management Board. The Executive Group is made up of the health and safety lead senior manager from each department and is responsible for health and safety policy and strategy changes as well as ensuring implementation into work practices in departments.

The service delivery departments have taken the opportunity brought about by the Review to strengthen their health and safety professional support and are in the process of recruiting additional specialists specific to the needs of the department.

Work to monitor compliance with the health and safety standards continues in all departments and at a corporate level by audits and by use of a number of performance indicators. Data from the monitoring is published publicly on an annual basis.

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

The corporate complaints policy/procedure produced in 2002 is being reviewed and updated during 2007. A corporate policy for dealing with difficult complainants was endorsed in 2002 but a new draft policy has been produced ready for consultation. Workshops have been set up by Hampshire Learning Centre to offer practical skills to better manage dealing with difficult complainants. This is part of the support to departments now being provided by the Corporate Complaints & Information Compliance Team.

The corporate complaints policy is published as a fact sheet along with a form that the public can use to register complaints. This is being updated, providing details of the processes involved, in consultation with the Communications Team, departmental complaints co-ordinators and legal practice. The electronic information and complaints form available on Hantsweb will aim to provide clear information to the public about our procedures. Both policies and an e-form are published in Hantsweb and Hantsnet and these will also be updated when any changes are agreed. Equalities monitoring is undertaken using data supplied by complainants with these forms. Copies of the updated fact sheet will be distributed to all departments and copies for the public will be available from reception desks and all Information Centres around the county. Provision is made in departmental induction programmes to raise the awareness of new staff to the complaints policy/procedure. Separate complaints case files are maintained at departmental and corporate levels. A new corporate support group has been created, meeting quarterly in order to discuss current issues, consider training needs and ensure a consistent approach across the Council. Annual reports summarising/analysing complaints received, decisions made and actions taken to improve service delivery are presented by individual departments to appropriate Policy Review Committees. Similarly an annual report providing a corporate overview of complaints goes to Cabinet.

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

The Council was rated a Four Star authority in the CPA Harder Test in December 2005, the fourth year in a row the Council has achieved the highest category.

Delivery of services by trained, skilled and experienced personnel.

The Council has demonstrated its commitment through Investors in People accreditation; its attention to training needs including, for example, the Leading Success programme and the proposed development of Hampshire Apprenticeship schemes; and the implementation of an authority-wide Enterprise Resource Management IT Systems and IT2000 facilities to support staff. Overall planning for Workforce needs to take place through the annual Workforce Plan.

Areas for Improvement 2006/2007 - Feedback from last year

There is a perceived lack of consistency in the way in which departments implement corporate policies. As a result the Corporate Threads portal has been developed to offer guidance to service managers on how and when they should implement corporate policies. The content is owned and continuously developed by the owners of the relevant corporate policy. It is constructed to support service managers as they approach trigger events, such as new manager induction, development of a service plan. The launch will take place during Spring/Summer 2007. Liaison between internal audit and corporate performance teams will help establish the focus for internal audit work in this area. Internal audit will examine this area and identify where improvements can be made.

Corporate policies relating to the complaints procedures are currently being reviewed and updated. A draft policy on how the Council deals with difficult and persistent complainants has been produced and is being evaluated through consultation with departments and legal practice. Workshops for handling difficult complainants have been produced by Hampshire Learning Centre and are being delivered during March/April 2007.

During the year, and following an earlier Audit Commission initiative, a further ethical standards self-assessment survey was undertaken with all members. This also embraced other key training needs. The results were reported to the Governance and Standards Committees in January 2007 and further training and awareness measures identified.

The Monitoring Officer has undertaken four training sessions for members on conduct/ethics issues plus a further session for the Council's co-opted members.

The Monitoring Officer and Chief Internal Auditor have undertaken two sessions for all senior managers within the Council on conduct/ethics issues and also on an anti-fraud culture.

Corporate guidance on partnership arrangements and for the monitoring of effective governance have been published on the County Council's website along with a database of partnerships and evaluation workshops with departments and with partners have been held.

A review of processes for budget setting, budgetary control, and budget monitoring has been implemented within Adult Services to assist in the management of exceptional levels of demand for services.

Areas for Improvement 2007/2008

Continued development and communication of Corporate Business Plan

Continued roll out of Partnership evaluation and refinement of database

The Council has adopted a new Corporate Strategy for Managing Risk for 2007-2010. Underpinning this is a performance management framework and improvement plan. Key areas of improvement include partnership risk and business continuity planning.

Launch and continuing development of the Corporate Threads Portal. (This went originally to CMT on 23 November 2005 and a further report during 2007 is anticipated to update them on progress.) There will be significant investment in training and communications to ensure continued improvement in awareness levels of all corporate policies and procedures.

Programme to evaluate significant partnerships - the second phase of work on the partnership portal and continued reviews of governance arrangements.

Completion of Business Continuity Plans at all levels and arrangements for testing of effectiveness.

Review and document the assurance framework in preparation for the introduction of an Annual Governance Statement from 2007/08, which replaces the Statement of Internal Control.

Implement Business Process Review recommendations for Direct Payments to ensure efficient controls underpin significant redeployment of resources as part of the Adult Services recovery plan.

Signed: .............................. Signed: ...............................

Chief Executive Leader