Apologies for lateness were received from Councillors John Leach and Misdaq Zaidi.

To approve the Minutes of the meeting held on 24 September 2009 (ENCLOSURE).

The Minutes of the meeting held on 24 September 2009 were approved as a correct record and signed by the Chair.

Indicative time 40 minutes

(a) Council’s Approach

Report of the Chief Internal Auditor (ENCLOSURE).

(b) Pension Fund Investment Strategy

Presentation by Alastair McKissack, Investment Consultant, Hymans Robertson LLP.

By Minute 797/09, the Committee requested a report on the Council’s arrangements for risk management, including the Pension Fund Investment Strategy.

(a) Overall Risk Management Arrangements

Area and Council planning was driven by information based needs assessments that identified opportunities, risks and the changing local context. The assessments drew on engagement with stakeholders. The Sutton Strategy set the vision and priorities for the area and The Sutton Plan set out the Council’s strategic objectives and priorities. The Corporate Risk Register was refreshed annually alongside The Sutton Strategy and The Sutton Plan and showed the alignment between strategic business opportunities and risks and priorities. It also summarised the principal operational opportunities and risks and partnership governance risks.

The Sutton Strategy and The Sutton Plan drove Unit/Group business planning, including partnership working. The management of the opportunities and risks in the Corporate Risk Register was integrated into business planning and performance management through the priorities. This ensured that opportunities and risks were actively managed. Business plans specified targets aligned to priorities along with the actions necessary to deliver them and the related risks. Business plans also specified other principal opportunities and risks.

Area-based and Council performance management reports included risk based forecast outcomes. Each quarter, Sutton Partnership and Council Performance Review Boards focused on risks that were red (significant risk of failure to achieve target) or amber (some risk of failure to achieve target) and address underperformance by scrutinising targets, actions and related risks.

The Sutton Plan and forward budget were aligned. The medium term financial planning process included the assessment and management of risk, which was based on sensitivity to factors such as inflation, demography and the recession. Similarly, the integrated annual budget planning process included the assessment of risk.

Treasury management policies embedded risk management into the treasury business processes. The criteria for selecting approved counterparties could be changed to reflect the changing assessment of risk. The minimum level of credit rating had been increased in response to the international banking crisis and there were restrictions, such as upper limits on investments. The Council’s Treasury Management consultants, SECTOR, provided creditworthiness advice within this framework and were developing their methodology, including the introduction of a credit default swap spread overlay.

Where appropriate, key decision reports to The Executive included the outcomes of risk assessments. This enabled critical issues to be identified and managed. Project management methodology was used to manage the risks inherent in projects. It systematically embedded risk management into project management, starting with the application of cost benefit analysis to inform prioritising between potential projects and moving on to managing the critical success factors in delivering specific projects by dividing them into manageable parts.

Internal Audit undertook annual risk based reviews of the key financial systems and performance indicator outturns. They reviewed other systems based upon a risk assessment that included a counter error and fraud component. This Committee reviewed Internal Audit reports and monitored the implementation of recommendations. In addition, the Committee reviewed the Council’s Annual Governance Report  ...  view the full minutes text for item 1095.

Indicative time 20 minutes

Report of the Head of Exchequer Services (ENCLSOURE).

The Committee considered the report of the Head of Exchequer Services regarding the strategy behind self insurance and the performance of the Council’s Insurance Section. A copy of the Insurance Review 2009 was submitted to the Committee that:-

• provided an update on the strategy and performance of the Council’s insurance arrangements and how they operated both in the event of a single large claim or a series of smaller claims:
• examined the principles behind self insurance and demonstrated why this was a prudent and cost effective strategy;
• efficiency savings of £2m had been realised over the period 2006/11 with inflation adjusted projections estimated that the true savings exceeded £2.8m
• updated on both the financial performance and customer service delivery of the insurance section over 2009. Customer service satisfaction was at its highest level of 68%, with 92% also finding the insurance staff more than or very polite.

The strategy would remain in place until the next insurance tender that was planned for the summer of 2011, with implementation on 1 April 2012. In preparation for this an external review and examination of the strategy would take place over summer/autumn 2010.

The update of this years CIPFA benchmarking report evidenced further service improvement with Sutton’s liability claims performance ranked number 1 across London on the average of performance matrixes. Building on this case management success, the report outlined the further developments this year with in-house handling of personal injury claims and an efficiency target of £75,000 from this project.

Councillor Misdaq Zaidi asked for more detailed figures for previous years on self insurance. The Chair reported that if there was any further information this would be forwarded to Councillor Zaidi.

Resolved: (i) To endorse the report and that it be reviewed further in April 2011 when the strategy for the planned insurance tender can be considered and scrutinised ahead of the 2011 tender exercise.

(ii) To thank Ray Chitty for attending.

Indicative time 15 minutes

Lindsey Mallors, the District Auditor will be attending the meeting to introduce the Annual Audit Letter.

Report of the Strategic Director of Resources (ENCLOSURE).

Lindsey Mallors, the District Auditor, presented the Annual Audit Letter for 2008/09 that had also been considered by The Executive (Minute 1085/09).

Lindsey Mallors confirmed that Sutton’s accounts had received an unqualified opinion on the financial statements, and an unqualified value for money conclusion stating that the Council had proper arrangements in place to secure economy efficiency and effectiveness in the use of resources.

The 2009 arrangements for Use of Resources were intended to represent a harder test across more wide ranging themes with an increased focus on outcomes rather than process. The overall score the Council had achieved was 3 out of 4 – performing well. On the basis of current information, it was understood that the number of London authorities scoring 4 for Use of Resources was likely to drop from 10 in 2008 to 1 in 2009.

Officers would need to review the Use of Resources assessments to consider where improvement in outcomes and scores was possible. The increased focus on judgement of outcomes rather than process meant that it was harder to develop improvement plans which would lead directly to higher scores. The Audit Commission had also announced an accelerated timetable for the 2010 Use of Resources process with initial assessments to be completed by March 2010 which left less time to develop improvements. The 2010 Use of Resources assessment would include within the Managing Resources theme an additional review area of “Workforce Planning” which was not assessed in 2009.

Lindsey Mallors informed the Committee that she could not formally conclude the audit of accounts and issue a certificate as the issue raised by an elector made during the year had not yet been resolved.

At the discretion of the Chair, Executive Councillor John Drage addressed the meeting about the fee that the Audit Commission were charging for 2008/09. He believed that an increase of 20% was unacceptable, given the low level of inflation and the 1.5% increase in Sutton’s grant. He also questioned the Audit Commission’s ability to appoint itself as Sutton’s auditor and then increase its fees by such a significant amount. Councillor Drage also queried the intention to adopt International Financing Reporting Standards (IFRS) for all local authorities. This made them more opaque and, in effect, meant that two sets of accounts had to been produced to satisfy government requirements. Lindsey Mallors sympathised with this latter point and said that it was a legal requirement.

With regard to the fees, she explained to the Committee the tender process and how the fees were set. 2008/09 had also been the first year where there had been a separate audit of the pension fund.  The setting of the 2010/11 fees scales for pension funds had been deferred until the 2008/09 audits had been completed and the Commission could review the actual cost incurred in carrying them out. If the results of the review indicated that the Commission could reduce the scale fees for these audits, they would do so and issue revised fee scales  ...  view the full minutes text for item 1097.

Indicative time 15 minutes

Report of the District Auditor (ENCLOSURE)

The Committee considered a report from the Councils external auditor’s that summarised the progress since the September meeting of the Committee. The external auditors had made progress with the 2009/10 Audit Plan and had focused on the following:-

·        Financial Statements Audit 2008/09;

·        Whole of Government Accounts Audit 2008/09;

·        Use of Resources;

·        Organisational Assessment and Comprehensive Area Assessment;

·        Annual Audit Letter; and

·        International Financing Reporting Standards.

The work programme and national scales of fees for 2010/11 was circulated at the meeting.

Resolved: That the report be noted.

Indicative time 20 minutes

Report of the Chief Internal Auditor (ENCLOSURE).

The Committee considered the report of the Chief Internal Auditor that summarised the activity of the Internal Audit Team during the first half of the year 2008/09. The report included audits that had full or substantial audit opinion and brief details of those audits receiving limited assurance audit opinion.

A table that summarised planned and actual audit activity in the first half of the year was considered by the Committee that provided comparative figures for last year. Overall progress remained in line with the audit plan. The disparity in audit days in Adult Social Services and Housing and Resources Groups would be addressed in the October to March period as work allocations were realigned in accordance with the full year audit plan.

Internal Audit had as one of its priorities the on-going review of data governance. Data was used by the Council and its partners to set priorities and manage performance to deliver more customer focused, efficient and effective services. At the same time, under the Comprehensive Area Assessment, inspectorates used data to assess the Council’s performance. To secure appropriate outcomes, data had to be reliable, accurate and timely. Since the 2008/09 year end report on data quality, detailed validation work on the 2008/09 outturn indicators had been completed and details were reported to the Committee.

The Audit Commission oversaw the National Fraud Initiative (NFI), a biennial exercise that matched data sets between audited bodies to identify inconsistencies that might indicate error or fraud. Details of the Council’s progress on the most recent NFI exercise were reported to the Committee, together with other investigations work.

Internal Audit had also undertaken a review of the Council’s agency staffing arrangements. The Council’s expenditure on agency staff had increased from £8.3m in 2006/07 to £12.5m in 2008/09. The Chair and the Committee were concerned that the numbers of agency staff and related expenditure were still comparatively high after previous concerns had been reviewed by this Committee. However, the increased volume of agency expenditure (via the Comensura neutral vendor system) had yielded significant annual savings on agency commission (circa £935,000 in 2008/09). The Council had a number of long serving agency workers; there were currently 126 agency staff who had been employed continuously for a period in excess of 12 months and a further 33 had been employed continuously for in excess of 24 months. This exposed the Council to a number of risks, for example, long serving agency staff might require employment rights analogous to those enjoyed by permanent Council employees such as entitlement to redundancy. There was a need for business units to review and monitor agency staff usage in order to ensure that the business need was periodically re-assessed and that alternatives such as permanent recruitment or conversion of agency staff to permanent employees was routinely considered. The recommendations arising from this work had been reported to the Council’s Corporate Management Team and an action plan would be taken forward jointly by procurement and human resources and monitored by Internal Audit  ...  view the full minutes text for item 1099.

Indicative time 20 minutes

Report of the Strategic Director of Resources (ENCLOSURE).

The Committee considered a report from the Strategic Director of Resources that summarised the Council’s treasury management operations during the first six months of 2009/10. No new long term borrowing was undertaken during this period. The Council invested surplus funds when available and complied with the requirements of the Prudential Code.

Market conditions remained difficult and interest rates available on investments were extremely low. To some degree, this reflected the very risk adverse lending criteria agreed as part of the Council’s Annual Investment Strategy for 2009/10 following the severe global economic cautious stance. The Council would be reviewing these issues in order to prepare the Annual Investment Strategy for 2010/11, to be approved as part of the 2010/11 budget by Full Council in March 2010.

In July the Council received the first instalment of the recovery of the £5.5m funds invested with Heritable Bank. The payment represented just over 16 pence in the pound or £893k. This was a slight improvement on the expected 15 pence in the pound. In the administrators updated report received in August, Ernst and Young, the administrators stated that the expected return to unsecured creditors remained at 80 pence in the pound as previously reported. This was based on cautious assumptions and if conditions improved the final recovery could be higher. They also stated that they were aiming to declare a second payout of at least 10 pence in the pound before the end of the calendar year.

In October the Council lodged a claim to the Landsbanki Winding up Committee for the full value of the investments outstanding with Heritable Bank plus penalty interest. This claim was made under the Landsbanki guarantee of Heritable liabilities. A decision was due to be made for the creditors meeting in Iceland on the 23 November 2009 but this had now been delayed until early in 2010.

Resolved: (i) That the report be noted.

(ii) That any proposed changes to the Annual Investment Strategy for 2010/11 be e-mailed to members of the Committee.