Meeting documents

To consider this update report from the internal auditors.

The Director of Economic and Community Infrastructure (ECI) Operations was invited by the Vice Chair to present the Advisory Audit Follow Up Report on the South West Audit Partnership (SWAP) Non-Opinion Audit of Highway Maintenance: Duplicate Payment Requests, as well as the Highway Maintenance Audit Committee – 23 September 2021 2 – Application for Payment Follow Up Report; and he noted that the purpose of the report was to provide an update to the non-opinion audit that had been carried out earlier this year regarding the actions that were identified by the auditor.  The Vice Chair invited questions from the Committee, and during the consideration of the reports, issues/concerns were raised, questions were asked/answered, and further information was provided.

The Audit Committee:

Accepted the report and update, and the Vice Chair noted that the Committee would receive a further update on progress made against the action plan after the follow-up audit in 2022/23 is completed.

The Director of Economic and Community Infrastructure (ECI) Operations was invited by the Chair to present the Advisory Audit Follow Up Report on the South West Audit Partnership (SWAP) Non-Opinion Audit of Highway Maintenance: Duplicate Payment Requests, as well as the Highway Maintenance – Application for Payment Follow Up Report; and he noted that the purpose of the report was to provide an update to the non-opinion audit that had been carried out earlier this year to the Committee regarding the actions that were identified by the auditor.

The Director for ECI explained that the Highways Maintenance Contract was previously operated by Skanska UK Limited but was now being managed by Milestone Infrastructure Services, which is part of the M Group; and he noted that this change had not impacted on the actions or progress made.  He reminded Members that this audit was requested by the service in order to consider payment procedures and ensure that they were robust and fit for purpose.

He reflected that the audit had identified seven key/priority actions; of those, three had been completed and four were in progress.  There had been good collaboration, and positive progress and improvements have been made.  A further follow-up audit has been requested by the service for the first quarter of the 2022/23 financial year to ensure that all of the actions have been completed.

The Vice Chair invited questions from the Committee, and during the consideration of the reports, issues/concerns were raised, questions were asked/answered, and further information was provided as follows:

Cllr Rigby, referring to an email he had sent to the Director for ECI, asked if the summary of findings had been written by the Auditor or the Officers; the Assistant Director of AP confirmed that she had written the summary of findings. 

Cllr Rigby asked about additional Officer resourcing and if certification was being completed by Officers with appropriate qualifications.  It was explained that recruitment was ongoing and that all inspections were conducted by those with necessary experience.  There was a question about the number of days before certification, and the Director of ECI stated he would clarify this in writing.

Cllr Rigby asked, with respect to the 15 months covered by the data, what percentage of requests for payment showed a high differential between what was asked for and what was paid.  In response, the Head Auditor from SWAP explained that a "high" differential is one of £1000, and the number of those was contained in the appendix of the report; the Director for ECI added that the appendix provides details of the number of high differentials for every month, e.g., 29% in August 2020.  Cllr Rigby clarified that he was referring to the overall percentage of discrepancies, in order to identify how often the contractor might be asking for more money when compared to the order.  The Director for ECI confirmed that he would provide a detailed answer and that this would be circulated to the Committee.

Cllr Rigby asked about the total value of the additional costs applied for by the contractor over the time frame covered by the audit; the Director for ECI stated that £124,765,213 had been asked for, while £123,750,575 had been paid, and this pertained to the period from the start of the contract.  Cllr Rigby asked if that represented the difference in value between work orders and payments over the 15 months of data, not before.  The Director for ECI referred to Page 45 sets out task orders for new assets but said he would provide a detailed answer and would circulate this to the Committee.  He added that no evidence of duplicate payments or overpayments had been discovered by the auditors.  The Assistant Director of SWAP noted that during the follow-up audit they had repeated the process undertaken in the original audit; Pages 30-31 of the report set out what had been ordered and what was paid overall, and although it has not been completed, there had been no evidence suggesting duplicate payments.

Cllr Rigby asked whether the two outstanding priority issues in the audit report would be brought back to a future meeting; the Vice Chair confirmed that this would be considered by the Committee at a future meeting and reiterated that an additional audit had already been requested by the service for the first quarter of 2022/23.

Cllr Leyshon enquired, given the move from Skanska to Milestone and the fact that Skanska had had contracts with other Councils besides SCC, whether those other councils had experienced the same situation, if the Council had contributed to the novation of the contract, and how many entries there were for Skanska on accounts payable versus how many there were for Milestone.  In response, the Director for ECI stated that the novation and changes to the contract had been completed late last year and confirmed earlier this year by M Group services; and all benefits and liabilities associated with the contract had been transferred to Milestone.  On the question of whether other Councils had encountered similar issues with duplicate payments, it was noted that seven had moved from Skanska to Milestone, with regular dialogue occurring between the client group organisations focusing on collaboration, service delivery, and new technologies.  Cllr Leyshon asked whether this dialogue included financial arrangements, or if that was confidential, and whether it would help to know if other Councils had experienced similar issues and how they had resolved them.  In response it was noted that discussions included opportunities for service improvement, contract management and collaboration but not confidential financial information.  Cllr Leyshon asked if the Committee could have the details about the number of entries in accounts payable for both Skanska and Milestone; the Director of Finance and Governance confirmed that he would provide those details and that this information would be shared with the Committee.

Cllr Noel asked if the differentials arose because the original estimates were too low, or because more work needed to be done than originally thought, or because fraud had been attempted.  The Director for ECI thought that differences could result from a change in the work delivered on the ground or the design of the process (for example, the inspector could see that the pothole had become bigger), in which case, more time or materials were required.  He also highlighted Page 31 of the report, under the New Assets section, that the remedy for the problem may change through the process, and ‘compensation events’ would be the name for this re-measuring of time and/or materials. On the potential fraudulent activity, it was stated that checks were regularly carried out to ensure that the work was completed, including taking ‘before and after’ photos of defects needing to be fixed, with payment being withheld until the work was completed.

Cllr Filmer enquired about recruitment and whether the Audit post being recruited would be full or part-time.  He also noted that the quarterly reconciliation process was a useful way to improve, depending upon how it was addressed in an ongoing process.  The Director for ECI said that they had been unable thus far to fill the post and were currently using temporary resources, but they were committed to filling the position and would review the recruitment process, including the terms and remuneration. He noted that the post mentioned on Page 34 was currently for one part-time post holder, but they would like to increase this to full-time.  Regarding the new quarterly reconciliation process, the new software and payment process should be in place by the end of October, and this would enable regular monitoring.  He reiterated that the audit had been requested by the service, and the actions arising would allow the service to become more automated/digitised and would improve the full transparency of payments before certification.

Cllr Davies reflected that he was frustrated by the situation, as some questions remained unanswered, and he thought that the action plan was unclear.  The Director of ECI responded that the action plan, agreed with the auditors, had been included in the audit report, and he undertook to provide answers to all the questions asked to all Members of the Committee.

The Committee accepted the report and update, and the Vice Chair noted that the Committee would receive a further update on progress made against the action plan after the follow-up audit in 2022/23 is completed.