CIPFA - NW Risk & Governance Group Annual Development and Training

1. CIPFA - NW Risk & Governance GroupAnnual Development and Training “Financial Resilience - An Innovative Role for Internal Audit…….” 8th March 2014 Steven Mair – Borough Treasurer Jane Whyatt – Audit and Counter Fraud Manager

2. Financial Resilience:Innovative Approach for Internal Audit • Our Story “…the Way we Were…” • Public Sector Financial Pressures • Our Journey • Measuring Financial Resilience • Internal Audit’s Contribution to Success • External Validation

3. Oldham’s Story:The way we were….. 2006/2007 • Audit Commission’s “Use of Resources” Report 2006/07: • Internal control scored 1 out of max 4 • “…systems of internal control and arrangements to ensure probity and propriety in the conduct of business deteriorated in 2006/07”. • Audit Commission particularly highlighted that: • Fundamental financial systems not reviewed by Internal Audit • Absent / infrequent core bank and other reconciliations • Fraud and corruption, and whistle-blowing policies not readily available or appropriately communicated • 3 statutory recommendations - urgent action required

4. Oldham’s ResponseFinancial Transformation Programme • Immediate Improvements instigated in 2008/09: • Statutory recommendations implemented • Further change programme developed • Financial Transformation required to the Culture: • Managers to own their “financials” • Members’ to be engaged • Residents to see the benefits • “Silo” working does not deliver value for money • Financial systems – “get the basics right….”

5. The Financial Challenge Continues • “Towards a Tipping Point”: • “…largest reduction in public spending reductions since the 1920s….” • “….reduce in real terms by 28% by 2014-15..” ** • Plus demand pressures: • increased demand from demographic changes • recession-led economic changes • uncertainty in local government financial planning re: changes • Beyond 2014/15, it gets more challenging: • RSG reductions continue • Income is volatile/ CT raising restrictions • Not changing is not an option ……. ** Source: Grant Thornton, 2012

6. Innovation???

7. “Financial Resilience”: Key Criteria • Key Indicators of Financial Performance • Benchmarked analysis using key indicators of financial health; reserves, long term borrowing, liquidity, sickness • Strategic Financial Planning: • Budgets to be set in the long term context of the MTFS • Responsive to uncertainties in the economy, • Financial Governance: • Quality of financial governance and leadership is critical to meet financial challenges and for sustainability. • Financial Control: • Manage within their budgets and have robust challenge around budget monitoring and that they can demonstrate VFM

8. Financial Resilience:Role of Internal Audit • Question: “What’s all this got to do with the Internal Audit Team? • Answer: “it’s a no brainer…” • Internal Audit is at the forefront of Oldham’s success and is leading change in some cases

9. Financial ResilienceInternal Audit - Adding Value Financial Governance: • Understand financial environment • Executive and Member engagement • Performance manage budgets • Accuracy of committee/cabinet reporting Strategic Financial Planning: • Focus of MTFP • Adequacy of planning assumptions • Scope of the MTFP and link to annual plan • Review processes • Responsiveness of plan Indicators of Financial Performance: • Liquidity • Borrowing • Workforce • Performance vs budget • Reserves Financial Control: • Budget performance management • Performance vs savings plans • Key financial accounting systems • Finance department resourcing • IA arrangements • EA arrangements

10. Oldham’s Innovative ApproachBut what have we done differently? • Commercial Approach: • Successful business has tight financial management & control • Effective governance requires business and cultural change • Strong Finance Function essential to success • Getting the basics right • Professionally collaborates to deliver cultural change: • …with the business…. • …with Finance…. • …with External Audit… • …with external colleagues.. • Professional independence supports the business

11. Internal AuditEffective Collaboration…with the Business • Embed sound governance into culture • Repositioning Oldham – align to change agenda • Be pro-active / support the business / risk manage • Communicate, listen and challenge professionally • Develop customer service, yet remain independent • Grasp opportunities to raise awareness and train • Internal control recommendations to accompany fraud investigations • Comply technically….always! • Audit Committee – Independent Chair

12. Internal AuditEffective Collaboration....with Finance • Audit is pivotal to Financial Management transformation: • Strong professional collaboration across Finance • Key contribution in departmental transformation agenda • Job rotation / enlargement within & across teams & secondments • Staff benefits are significant • Audit Managers lead projects & themes • Audit support the Final Accounts • Financial Systems Audits: • Annual Interim and Final audits each year • Control issue resolution included in close down timetable • Continuous audits in key areas support monthly close-downs

13. Internal AuditEffective Collaboration...with External Audit • Monthly Audit Liaison meetings: • Revenue and capital outturn (monthly close-downs) • Results of continuous internal audit reviews • Council’s budgets and next steps • Emerging issues/risk • External Audit matters – AGS, Audit Committee reports • 2014 FAN Events – External Audit • Internal Audit Financial Systems audits: • Aligned with EA control objectives +/- local risks • Review interim audits as part of interim planning • EA participate in weekly audit team meetings

14. Internal AuditEffective Collaboration…with 3rd Parties • Finance and Audit judged as “best practice”: • CIPFA, LGA, other Local Authorities, benchmarking • DCLG using Oldham as exemplar evidence to raise national bar • External Audit report professional standard of Internal Audit • Finance and Audit share Knowledge: • Raises governance and financial control standards • Shapes and promotes future public sector finance • 2013 CIPFA FAN Events and continuous advice to peers • Professional Bodies seek support from Finance & Audit Team: • 2014 on-going partnering with CIPFA

15. Examples: Internal Audit’s Contribution

16. Impact and Where we are now….Scale and Pace of Transformation in 4 Years

17. Scale and Pace of Transformation“World Class” 2015/16 • Transformation vehicle for cultural change • Audit support: • Integrated Finance and HR system 2014 • Self service to be implemented by 2015 • Continuing close down timelines • LEAN reviews continue for efficiency • Selling services to 3rd parties • Compete with the private sector • Future-proofed for anticipated changes

18. Views of members and senior officers.... Leader of the Council, Jim McMahon: “Strong corporate governance is the foundation of any successful council. Without this, little else can be achieved.” Carolyn Wilkins, Chief Executive: “The Finance Team in Oldham have driven significant improvement to governance and financial management across the Council. Members and Officers have clear and timely information and are able to  realistically plan the future rather than focusing on past outturn. This is essential to the success of the authority and the ability to play a strong active role in wider public service reform.”

19. What our review bodies think... Peer Review 24th October 2013: • “Financial management….highly effective, with a dramatic improvement..” DCLG 25th November 2013: • names Oldham as “best practice” • reports enhanced accountability to residents from earlier publication of accounts • benefits of a future-focus rather than on the past Audit Commission 12th December 2013: • only council to publish audited accounts in May since they began collecting this information

20. What the finance community thinks... • CIPFA recognise the “… transformation programme which has delivered significant sustainable benefits in the form of improved financial rigour and long-term financial planning across the organisation…”Rob Whiteman – Chief Executive CIPFA • “Congratulations to Oldham for being shortlisted for the Corporate Governance Award… The approach taken by Oldham, including clear communication of the Council’s priorities, allows us to effectively plan the annual audit well in advance of the year end.  Grant Thornton continues to be supportive of Oldham’s ambition and how it works to continuously improve.” Sarah Howard, Partner, Head of Public Sector Assurance, Grant Thornton

21. Summary: Innovative Internal Audit is .... • Embedded in the culture • Supports the council agenda • Professionally collaborates to drive change • Technically and professionally compliant • Externally validated by a range of organisations: • DCLG, LGA, Audit Commission, CIPFA • Thank you and any questions?