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Local Authority Internal Audit Virtual Forum

13 December 2023


Please note:

  • All Institute responses are boxed and highlighted blue
  • Where the chair comments in that capacity this box is highlighted in yellow
  • For confidentiality, the identities of all delegates/attendees are anonymised

Institute welcome | Anne Kiem, CEO, Chartered IIA UK and Ireland

Today’s session is about reflection and learning as we look at the highs and lows of 2023.

Economic uncertainty topped a seemingly permanent state of crisis first initiated by the pandemic. Organisations grappled with an ensuing polycrisis – with multiple catastrophic events occurring simultaneously. With Europe’s economies in a fragile state, boards dealt with increased climate-related pressures, geopolitical uncertainties, a dangerous cyber risk landscape and inflationary pressures. But many organisations face challenges in securing the talent and skills required to navigate through such uncertainties. Preparing to be resilient for possible trouble and being ready to leap forward when conditions improve are key success factors.

Local authorities experience a challenging year from a financial aspect, the lack of funds, the lack of liquidity and the lack of solvency meant the risk of local governmental operations was very real. Lack of funds in financial management meant that there are no funds available from central sources to fulfil the tasks required and put down in law.  They experienced significant cost and income pressure, especially in adult social care, which could place further downward pressure on support contracts.

According to the Local Government Association councils in England face a funding gap of almost £3 billion over the next two years just to keep services standing still, new analysis by the Local Government Association reveals.  As internal audit we need to look ahead and build our strategic plan around supporting our local authority.

Our speakers today from BDO LLP, Gurpreet Dulay, Partner within Public Sector Internal Audit Team and Aaron Winter, Director will lead our review of the year.

 

Chair opening comments | Piyush Fatania, Head of Audit, Risk, Assurance and Insurance at Gloucestershire County Council and Chartered IIA Council member 

This year has shown the importance and fragility of local government. Decision makers within authorities have the potential to identify and address the challenges that matter the most to their local communities. As internal auditors we must work with our audit committees to navigate these challenging times and be able to respond rapidly to emerging threats. We need to be courageous in getting our messages across, even when solutions are not readily identifiable.

Local government landscape

  • The sector has possibly not seen this degree of challenge for decades.
  • Estimates suggest 20% of authorities will issue section 114 notices in the next 18 months.
  • +’s levelling up and increased devolved powers for local decision-making.
  • -‘s pressure on discretionary services and cut-backs on statutory services.
  • Emerging risk – authorities are making short-term decisions.
  • OFLOG is consulting on KPI dashboards and frameworks – be sure to engage. 

Key themes for internal audit into 2024

  • Root cause of most risks is financial pressure and simultaneous risks materialising.
  • Presentation slide details 12 risk areas where assurance should ideally be provided.
  • Internal audit must be involved up front in transformation/change projects – be part of the lifecycle and involved at all stages to think about risk and be an enabler for change.

Click here for presentation slides.

Challenges for internal audit leaders to think about -

  • Is your charter relevant for 2024?
  • How are you gaining engagement from senior managers?
  • What are you doing to enable change? Or is internal audit perceived as a barrier?
  • How can you rebalance the audit plan to provide assurance on key risk areas not simply core controls and statutory obligations to support the annual opinion? Are they mutually exclusive?

Chair closing comments

A high for me this year is the Chartered Institute focusing on membership needs and the appointment of Anne as being experienced in this respect. A low is the lack of foresight that authorities display by not recognising the iceberg in front of them before they collide. And remember we must be honest about our assurance capacity, don’t be afraid to push back and ask the audit committee to help decide priorities.

  

Institute close | Derek Jamieson, Head of Membership Services, Chartered IIA

Our next forum is 24 January when we will discuss Shaping the Future.

The schedule for the first half of 2024  will be published by the end of January.

Our Data Analytics Working Group will focus specifically on Local Authorities at every third meeting. If you are interested in joining, please email paola.petritoli@iia.org.uk

 Chat Questions and Comments

Answers from speaker, anonymised comments from attendees

Question | Given that so many authorities are at risk, how do authorities reconcile internal audit functions suffering significant budget cuts at a time when assurance should surely be valued?

Response | It is all at odds. HIAs need to have risk-based plans and having a strong understanding of their risks, maturity varies across authorities which makes it challenging. While we might have fewer days (resource) to do our work, we have to rethink what we do to ensure that every audit engagement we do adds value and needs critical support.

Response | HIAs need to be more confident that they are the experts in this area. Refreshing their audit plan on a risk basis not repeating cyclical audits because of history.

Comment | The Chartered Institute has a vibrant data analytics working group, internal audit needs to embrace technology to make the best use of resource and efficiently provide assurance.

Comment | Workshops can be a useful tool to explore risk maturity with boards, the output can help to build engagement and rationale for internal audit to take a more risk-based approach.