The internal audit identified two key areas for improvement that pose substantial risks: 1) The accounts payable system, as the council does not have a commitment accounting system in place. This could lead to delays in recording expenses and inaccurate reporting of liabilities. A new system is planned for 2011/12. 2) The payroll system, as it uses an outdated IT system. A new system has been procured for implementation in August 2011. Overall, many of the council's fundamental systems are well-managed. However, the internal audit identified that implementing the new commitment accounting and payroll systems as planned will be important to further improve controls and reduce substantial risks.

1. Internal Audit
2010/2011
Fundamental System Audits - Summary Report

2. Internal Audit – Fundamental System Audits Summary Report 2010/2011
Contents
Background Page 2
Overall Conclusions Page 3
Future Developments Page 4
Appendix 1 – Summary of Key Findings Page 5
Appendix 2 – Substantial Risks: Detailed Key
Findings & Action Plan
Page 8
Auditors:
Chris Green – Audit Manager
Dave Tapsfield – Lead Auditor
Neil Evans – Lead Auditor
Benjamin Bruce – Senior Auditor
Tracey Andrews – Senior Auditor
Amy Webb – Senior Auditor
Chris Lines – Auditor
Paul Seward – Auditor
Distribution:
Rob Walsh – Executive Director Business Services (Monitoring Officer)
Neil Thornton – Chief Financial Officer (s151 Officer)
Jackie Andrews – Acting Deputy Director Human Resources
Rob Woollatt – Head of Corporate Finance
Sharon Wroot – Head of Operational Finance
Joanne Robinson – Head of Income & Payments
Dave Tapsfield – Directorate Risk Champion
Audit Working Group
Audit Commission
Page 1 of 14

3. Internal Audit – Fundamental System Audits Summary Report 2010/2011
1 Background
1.1 The Council maintains a number of business systems designed to
ensure that its financial statements are free from material error or
misstatement. These systems are referred to as ‘Fundamental Systems’.
1.2 Internal Audit perform annual audits on the Council’s Fundamental
Systems to provide management with assurance about the effectiveness
of key controls that are operated by the Council to ensure that the
financial statements are free from material error or misstatement, and
the exposure to risk that any control weaknesses may cause. The
approach used is Risk Based Internal Auditing (RBIA), which is
recognised as best practice.
1.3 A series of workshops were held with the client during July 2010 and
August 2010 to identify and assess the key risks and controls for each
fundamental system, and to design audit tests to measure the
effectiveness of the key controls.
1.4 Internal Audit fieldwork on the Council’s Fundamental Systems for
2010/11 was performed between November 2010 and April 2011. This
report presents a summary of the key findings arising from those audits.
The report also highlights the recommendations made in those reports
which, if not implemented, would represent a substantial risk to the
Council.
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4. Internal Audit – Fundamental System Audits Summary Report 2010/2011
2 Overall Conclusions
2.1 A summary of our audits is shown on Appendix 1. We have concluded
that many of the Council’s Fundamental Systems are well managed and
that there has been a general improvement in the design and operation
of key controls. The key areas for further improvement, both of which
have already been identified by the Council are as follows:
• Only Partial Assurance could be given to the overall control
effectiveness of the Accounts Payable System and the residual risk has
been assessed as Substantial, because the Council does not yet have
a commitment accounting system to ensure the timely and accurate
recording of liabilities. The Council plans to implement such a system
during 2011/12.
• Although the audit of the Payroll system found that many areas of the
system are well managed, the residual risk has been assessed as
substantial because the current payroll system remains outdated. An
ICT solution has been procured with an implementation date scheduled
for August 2011.
Those areas where a significant risk exposure has been identified are
shown on Appendix 2
2.2 We found that a high proportion of the recommendations made in the
previous year had been fully or substantially implemented. The one
exception was the Accounts Payable system for which only 46% of the
previous year recommendations had been implemented; however many
of the outstanding recommendations are reliant upon successful
introduction of the new commitment accounting system.
2.3 Our audits also identified a number of potential Value for Money issues
which could generate cost savings for the Council. Key areas included:
• A review of creditor payment terms to generate cash flow and interest
income benefits, and
• Requesting customer payment in advance to generate cash flow and
interest income benefits whilst reducing expenditure incurred due to
non payment by customers.
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5. Internal Audit – Fundamental System Audits Summary Report 2010/2011
Page 4 of 14
3 Future Developments
3.1 The Council is currently updating its Human Resources, Payroll and
Financial Systems. The new systems will be introduced in a phased
basis from April 2011. During 2010/11 Internal Audit reviewed progress
on development of the systems and provided feedback to the Project
Board on the issues it needs to consider as the projects move forward.

6. Internal Audit – Fundamental System Audits Summary Report 2010/2011
Appendix 1 – Summary of Key Findings
Audit Title Controls
Assurance
Risk
Exposure
Prior Year
Control
Assurance
% of Prior Year
Recommendations
Implemented in Full or
Substantially, or Assessed
as No Longer Applicable
Summary of Key Findings
Budgetary
Control
Significant Limited Significant 75% Most areas of the system are well
managed; however budget
monitoring forms are not always
returned by departments in a timely
manner.
NNDR Significant Minimal Significant 100% Most areas of the system are well
managed; however not all empty/
void properties were visited every
three months as stipulated by
Council procedure.
Accounts
Payable
Partial Substantial Partial 46% The Council does not yet have a
commitment accounting system to
ensure the timely and accurate
recording of liabilities although the
Council plans to implement such a
system during 2011/12.
Treasury
Management
Significant Limited Significant 100% Most areas of the system are being
well managed although there may
be scope to further review Treasury
Management awareness raising and
support for any new members of the
Audit Committee.
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7. Internal Audit – Fundamental System Audits Summary Report 2010/2011
Audit Title Controls
Assurance
Risk
Exposure
Prior Year
Control
Assurance
% of Prior Year
Recommendations
Implemented in Full or
Substantially, or Assessed
as No Longer Applicable
Summary of Key Findings
Fixed Assets Significant Limited Significant 75% Most areas of the system are well
managed although capital
expenditure monitoring information
is not always completed or
submitted in a timely manner.
Debtors Significant Limited Significant 75% Most areas of the system are well
managed although there was
£121,522 of outstanding payroll debt
overdue by more than 100 days.
Main
Accounting
Significant Limited Significant 100% Most areas of the system are being
well managed although there is not
always full segregation of duties
between the person preparing and
reviewing journal entries.
Council Tax Significant Limited Significant 100% Most areas of the system are being
well managed. There were
discrepancies noted within the
2009/10 subsidy claim. Systems and
controls have been implemented to
prevent these errors recurring.
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8. Internal Audit – Fundamental System Audits Summary Report 2010/2011
Audit Title Controls
Assurance
Risk
Exposure
Prior Year
Control
Assurance
% of Prior Year
Recommendations
Implemented in Full or
Substantially, or Assessed
as No Longer Applicable
Summary of Key Findings
Housing
Benefits
Significant Limited Significant 100% Most areas of the system are being
well managed. There were
discrepancies noted within the
2009/10 subsidy claim. Systems and
controls have been implemented to
prevent these errors recurring.
Cash
Collection
High Minimal Significant 100% The system is being well managed
with only a small number of minor
recommendations made.
Payroll Significant Substantial Significant 67% Many areas of the system are well
managed. However the current
payroll system remains outdated and
an ICT solution has been procured
with an implementation date
scheduled for August 2011.
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9. Internal Audit – Fundamental System Audits Summary Report 2010/2011
Appendix 2 – Substantial Risks: Detailed Findings & Action Plan
3.2 Key Areas for improvement are shown below according to the impact they represent to the service or process on which we
are reporting. The findings have been discussed with the responsible officer and their response included. Timescales for
implementation of agreed recommendations have also been completed in consultation with the responsible officer.
Ref Findings Risk Recommendation
Agreed/
Not
Agreed
Management Response
Officer
Responsible/
Timescale
1
Substantial
Accounts Payable
The Council does not yet
operate a commitment
accounting system although
there are active plans to
implement such a system
during 2011/12.
This can result in delays in
central recording of
expenditure and liabilities and
causes inefficiency as services
maintain ancillary, duplicate
records in order to manage
budgets. In mitigation, there
are consistently applied year
end procedures to minimise
the risk of expenditure being
coded to the wrong year.
Inefficient
recordkeeping.
Liabilities potentially
misstated.
Potential budgetary
implications.
Ensure that the new
commitment accounting
system is implemented
in line with the planned
timetable; ensure that
any delays which could
impact on the reliability
of the Council’s
accounts are properly
risk assessed.
Agreed As highlighted in the
report there are
mitigating controls in
place to minimise the risk
of commitments not
being recognised in
financial reporting during
the year, and especially
at the year end.
We recognise the
importance of a fully
operational commitment
accounting system. This
is currently being rolled
out and will be fully
operational by April 2012
Head of
Corporate
Finance
April 2012
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10. Internal Audit – Fundamental System Audits Summary Report 2010/2011
Agreed/ Officer
Ref Findings Risk Recommendation Not
Agreed
Management Response Responsible/
Timescale
2
Substantial
Accounts Payable
There are currently no
formalised procedures to
identify and monitor duplicate
creditor payments. This issue
was highlighted in the 2008/9
and 2009/10 internal audit
reports.
A business case to procure the
services of an external agency
was proposed in 2009/10 but
has not yet approved.
Internal Audit are currently
performing NFI testing to
identify potential duplicate
payments.
Duplicate payments
are processed and
outstanding monies
might not be
collected.
Produce and review, at
least annually, a system
report detailing potential
duplicate payments.
Collect any outstanding
monies due to the
Council.
Agreed Funding was not secured
to complete this exercise
during the previous
financial year. Work is
ongoing with the
implementation of the
new system to review
this.
Benefits and
Payments
Manager
December 2011
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11. Internal Audit – Fundamental System Audits Summary Report 2010/2011
Agreed/ Officer
Ref Findings Risk Recommendation Not
Agreed
Management Response Responsible/
Timescale
3
Substantial
Accounts Payable
As highlighted in the previous
audit, there are various credit
note balances on the ledger
that are more than a year old
with the total value being
£195,948. A review of these
balances is ongoing but has
not yet been completed.
Failure to recover
monies owed to the
Council or incorrect
record-keeping.
Transfer the credit
balances to the debtor
system for recovery or
write-off.
Collect any outstanding
monies due to the
Council.
Agreed Work is ongoing to
secure refunds of credit
balances; some success
was achieved during the
previous financial year.
Benefits and
Payments
Manager
December 2011
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12. Internal Audit – Fundamental System Audits Summary Report 2010/2011
Agreed/ Officer
Ref Findings Risk Recommendation Not
Agreed
Management Response Responsible/
Timescale
4
Substantial
Payroll
As noted during the 2009/2010
audit review, the current
payroll system ‘Pay Personnel’
is gradually becoming dated
and concerns have been
raised regarding the ability of
the system to meet the
demands of its current user
base.
An ICT solution; ‘iTrent’ has
been procured and is currently
being configured with a
scheduled implementation
date for Payroll and Human
Resources of August 2011.
In the event of a system
failure, however, contingency
arrangements are in place. A
report is provided by ICT each
The Council’s
Business Continuity
arrangements and
the success of the
Future Shape
project may be
jeopardised if the
new HR/ Payroll
system is not
implemented on
time.
Ensure that the new HR/
Payroll system is
implemented in line with
the planned timetable;
ensure that any delays
impacting on the
reliability of the existing
system is properly risk
assessed.
Agreed Implementation plan is
on target.
HRP project
team
March 2012
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13. Internal Audit – Fundamental System Audits Summary Report 2010/2011
Agreed/ Officer
Ref Findings Risk Recommendation Not
Agreed
Management Response Responsible/
Timescale
Page 12 of 14
4
Substantial(continued)
Payroll (cont)
night detailing the net payroll
at that time. This report is
periodically checked against
the system for accuracy and
the results are recorded. The
report can be converted to a
BACS file by ICT if required,
and instructions would come
from Payroll. A periodic check
is carried out to confirm
accuracy of the report;
although it is noted that in
these circumstances the
payroll would not reflect
amendments due for that
particular month, whilst it may
lead to significant disruption if
these mitigation measures
needed to be implemented.

14. Internal Audit – Fundamental System Audits Summary Report 2010/2011
Agreed/ Officer
Ref Findings Risk Recommendation Not
Agreed
Management Response Responsible/
Timescale
5
Substantial
Payroll
CMT receive monthly reports
showing the number of payroll
errors, the reasons and the
values. However, CMT have
not received a report detailing
payroll errors since September
2010.
Management have been
reminded of the importance of
timely payroll submissions and
of the level of salary
overpayments that occur due
to late notifications. However,
errors continue to occur and
documents are still being
submitted late.
For the period April to
September 2010; total
reported errors include 214
underpayments and 137 over
payments, compared to the
Excessive under
and over payments
continue to be
made.
Ensure that the report
detailing payroll errors is
reintroduced.
Consider introducing an
administration charge
where emergency
payments or recovery of
overpayments has been
caused by incorrect or
late submission of
documents by
departments.
Consider using the new
HR/ Payroll system to
actively monitor under/
overpayments.
Agreed
Agreed
Agreed
This has been difficult as
the priority has been the
HRP project. Once the
project for payroll has
been completed, the
reports will recommence.
Administration charges
have been introduced for
Schools. Charges for
Council departments will
be introduced from
August following a
communication to
managers in the HR
Newsletter.
Payroll
Manager
March 2012
Payroll
Manager
September
2011
Payroll
Manager
March 2012
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15. Internal Audit – Fundamental System Audits Summary Report 2010/2011
Agreed/ Officer
Ref Findings Risk Recommendation Not
Agreed
Management Response Responsible/
Timescale
5
Substantial(continued)
Payroll (cont)
same period 2009/2010 where
278 under payments and 118
overpayments occurred.
Overpayments for the period
April 2010 to September 2010
amounted to £56,000,
compared with £51,000 for the
same period in 2009/10.
At the time of audit
approximately £42,000 of
salary overpayments had been
recovered by payroll during
2010/11; this was double the
amount recovered in 2009/10
and demonstrates some
progress being made.
The agreed actions may be subject to a follow up audit to establish whether they have been implemented.
Any queries regarding this report should be directed to Chris Green (Audit Manager) on 01472 323915
Internal Audit would like to thank the Management and Staff for their assistance during this audit.
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