A review by the Auditor General for Wales has uncovered serious concerns about internal audit arrangements at Town and Community Councils in Wales. Despite there being a legal duty for Town and Community Councils to have adequate and effective internal audit arrangements in place, Wales Audit Office staff tested a sample and found that:
- One in ten were unable to satisfy Wales Audit Office staff that they had internal audit arrangements in place.
- One in five internal auditors were not sufficiently independent.
- Two-thirds have inadequate terms of reference in place.
- One in three had made inaccurate internal audit conclusions.
- Most councils did not formally document how they are addressing internal audit recommendations.
- A third of internal auditors interviewed felt that additional testing and fee charging guidance would be beneficial.
Over the last 10 years, there have been several cases of Community Councils suffering losses to tax payers’ money because of significant failures in their financial management and governance. In some cases, this has been due to fraud and theft. These could have been avoided if there were effective internal audit arrangements in place.
In most of these cases, external auditors identified issues with the scope and adequacy of work carried out by internal audit. External auditors often report that internal auditors are appointed by the council’s clerk with limited input, supervision or contact from the council itself. In a small number of recorded cases, this has resulted in clerks falsifying the existence of internal audit.
In his report on the 2015-16 Town and Community Councils in Wales accounts, the Auditor General commented on the contradictory conclusions drawn by internal and external auditors in relation to specific issues such as budget setting.
The messages in today’s report are consistent with the increasing number of cases of poor governance that we have seen in community councils, which have promoted several public interest reports and statutory recommendations over the last year.
Another report we issued earlier this month, into financial management and governance at Town and Community Councils in 2017-18, provides further detail on the public interest reports and statutory recommendations issued during 2018.
The Auditor General plans to review the audit arrangements for the sector in 2019-20 and this report on internal audit will provide evidence for that review.
Auditor General, Adrian Crompton said: “Internal audit provides a vital function within organisations – to ensure that checks and balances are in place to safeguard finances and services. The fact we have uncovered serious weaknesses at Town and Community Councils is both unacceptable and worrying – and it needs to be urgently addressed.”
Notes to Editors [opens in new window]
Link to the report