Agenda Item 7(a)(ii)
Internal Audit Report
Contract Management
Report ref: C4/2
Report Issued
Draft:
Final:
17/12/13 (revised)
20/12/13
Significant
Level of
Assurance
Contents
Auditor: Laura Daffern
Background
page 2
Scope
page 3
Audit Opinion
page 4
Detailed Findings & Action Plan
page 6
Distribution:
Name
Paul Shevlin
Joanna Miller
Claire Hudson
Carol Lee
Hazel Smith
Job Title
Chief Executive
Corporate Head (Financial Management & S151 Officer)
Value for Money & Improvement Manager
Procurement, Payments & Risk Manager
Asset & Project Manager
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1
Background
1.1
The audit was undertaken as part of the agreed 2013/14 Audit Plan under the contract audit programme, and conducted under the
general principles of the CIPFA Contract Audit Toolkit document. The objective of the audit was to ascertain service contract
management arrangements at Craven District Council once a contract for an outsourced service has been let. Managing a service
contract effectively is key to ensuring that contract objectives are met and value for money achieved. The major service contracts in
place at Craven District Council are Grounds Maintenance and the Responsive Repairs and Maintenance Framework Agreement, both
of which were let in 2012/13 (total contract values of £700k (5 years) and £222k (2 years) respectively). The contract management for
both of these contracts was reviewed in detail for the audit.
1.2
The main risks faced by an organisation when letting large service contracts are:
 Poor contract performance
 Contract objectives not met
 Negative PR issues
 Poor value for money
 Ineffective working relationship with the contractor
 Poor contractual documentation to measure contract performance
 Overspending
1.3
The Key Control Objectives (KCO’s) are as follows:
 The service contract document should include robust governance arrangements for contract monitoring
 There are clear departmental officer roles and responsibilities for monitoring the contract
 Performance on service delivery is monitored and reported on a regular basis
 Declining contractor performance is identified at an early stage and dealt with properly in line with contractual requirements
 The financial position of the contract is monitored to help identify overspends
1.4
Internal Audit (IA) is an assurance function that provides an independent and objective opinion to the Council on the control
environment by evaluating its effectiveness in achieving the Council’s objectives. IA objectively examines, evaluates and reports on the
adequacy of the control environment as a contribution to the proper, economic, efficient and effective use of resources.
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2
Audit Scope
2.1
The following testing was undertaken:
KCO
The service contract document should include robust governance
arrangements for contract monitoring
There are clear departmental officer roles and responsibilities for
monitoring the contract
Performance on service delivery is monitored and reported on a regular
basis
Declining contractor performance is identified at an early stage and
dealt with properly in line with contractual requirements
The financial position of the contract is monitored to help identify
overspends
Test
Review of contractual
documentation outlining contract
management measures
Meetings with officers in the
Property management section
Review of recent contract
monitoring meeting minutes,
performance monitoring
information, records to verify that
service being provided by the
contractor
Review of corporate risk register,
evidence of dealing with declining
service performance (if applicable)
Review of budget monitoring for
the contract to ascertain current
position against the budget, sample
of recent invoices paid to the
contractor
Sample size
2 largest service contracts in
place for the Council,
selected from the contracts
register:


Grounds Maintenance
contract
Repairs & Maintenance
framework agreement
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3
Audit Opinion
3.1
A summary of IA’s opinion levels and their definitions is provided below:
Level
Definition
Significant Level of Assurance
Good Level of Assurance
Partial Level of Assurance
No Level of Assurance
The system of internal control is designed to support the Council’s corporate and service
objectives and controls are consistently applied in all the areas reviewed.
There is generally a sound system of control designed to support the Council’s corporate
and service objectives. However, some improvements to the design or application of
controls is required.
Weaknesses are identified in the design or inconsistent application of controls which put
the achievement of some of the Council’s corporate and service objectives at risk in the
areas reviewed.
There are weaknesses in control, or consistent non-compliance which places corporate
and service objectives at risk in the areas reviewed.
3.2
This audit has been given a Significant Level of Assurance. The procurement of the Grounds Maintenance and Repairs and
Maintenance Framework agreement was reviewed previously by IA (Compliance with Contract Procedures report C3/2) where a
Significant level of assurance was also given. The high levels of assurance awarded to both the procurement and day to day
management of these contracts shows that departmental staff are committed to ensuring that service objectives are met and value for
money is achieved for the Council. The recommendations made relate to the Repairs and Maintenance Framework agreement; for
administration and payment issues rather than performance.
3.3
All 5 KCOs were found to be in place and met where appropriate from the samples and documentation examined.
Key points from the Grounds Maintenance contract are:
 The performance of the contract is measured closely to an agreed number of grass cuts and other maintenance that were set out in
the tender specification. An agreed sum is paid for the work, however where performance was not achieved in 2012 the Council
was able to negotiate additional tree works to ensure value for money.
 Regular budget monitoring is reported by Financial Services, and is split between different cost centre areas for more detailed
expenditure monitoring.
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

The contract conditions are detailed and have proved to be a key success in managing the poor performance of 2012. This was the
first year of operation for the contract, where a new contractor was providing the service. Initially there were performance issues in
particular regarding the frequency and quality of grass cutting, and the management of operational staff by the contractor.
The Property and Asset Management team have continuously monitored performance by the contractor, and handled customer
complaints effectively. As a result the contractor made a staff management change, and since that point performance has
significantly improved.
Key points from the Repairs and Maintenance Framework agreement are:
 The contract is effectively managed by checking individual job performance at a basic level, and careful monitoring by management
of expenditure against approved site budgets
 The contract conditions are adequate for the type of contract, officer roles and responsibilities are clear, and there is adequate
resource to apply to the operation of the contract
 Adequate controls are in place to effectively record jobs undertaken in order to approve contractor invoices.
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4
Detailed Findings & Action Plan
The audit findings are detailed in this section on an exception basis only for the attention of management, therefore contracts from the sample
with adequate controls are not included.
Recommendations are prioritised as follows;
Priority 1- relating to significant gaps in the Internal Control Framework
Priority 2- relating to minor gaps in the Internal Control Framework or significant issues of non-compliance with key controls
Priority 3- relating to minor issues of non-compliance with controls.
Ref Findings
1
Repairs & Maintenance Framework agreement:
The repairs log is a spreadsheet maintained to
record jobs identified for repair, with a separate
tab for completed jobs. The key control provided
by the spreadsheet is the record that a job has
been completed, so that when the invoice is
received from the contractor completion can be
easily verified and the invoice passed for
payment. This control has been tested in the
audit and found to be in place from the sample
examined.
However the spreadsheet has not been fully
completed to include the date scheduled, date of
repair, order number, contractor name etc and is
therefore not a full record.
Risk
Recommendations and
Management Response
Officer Responsible
and Implementation
Date
Independent member of
staff not easily able to
pick up and manage the
work load, ineffective
monitoring record
Priority 3
Asset & Project
Manager
The format of the repairs log should
be revised so that only essential
June 2014
information for the management of
the repairs and maintenance contract
is required to be input. The log
should therein be fully completed.
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Ref Findings
Repairs & Maintenance Framework agreement:
The testing of invoices identified a supplier
quoting an incorrect VAT number (supplier ref
17485). The VAT number stated for the supplier
is 114 513 51.
2
The Council has paid the supplier from
December 2012 (framework agreement
commenced November 2012) and has therefore
reclaimed input tax on all invoices from this date
to 18/11/13. 34 invoices have been paid, with a
net value of £9.4k, and a VAT element of £1.9k.
Risk
Recommendations and
Management Response
Officer Responsible
and Implementation
Date
Penalty from HMRC for
claiming VAT on an
invalid invoice,
repayment of total VAT
claimed, other
unidentified invalid VAT
invoices processed
Priority 2
Corporate Head
(Financial
Management & S151
Officer)
The VAT numbers for new suppliers
set up between November 2011 and
September 2013 should be verified
on the HMRC website.
June 2014
Financial Services notified HMRC of the VAT
input tax claiming error during the audit.
There was a procedure in place in Financial
Services to check the VAT number on a new
supplier invoice, however since the upgrade of
Agresso in November 2011 until the new
supplier form was amended in September 2013
to include the VAT number, it cannot be
guaranteed that the VAT numbers of all new
suppliers were correct.
Any queries or requests for further information regarding this report should be directed to Internal Audit on 01423 556112. Internal Audit would
like to thank the officers involved for their assistance during this audit.
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