Leicestershire County Council is responsible for ensuring that its business is conducted in accordance with the law and proper standards, and that public money is safeguarded and properly accounted for, and used economically, efficiently and effectively.  In discharging this accountability, members and senior officers are responsible for putting in place proper arrangements for the governance of the Council’s affairs and the stewardship of the resources at its disposal.  The Council also has a duty under the Local Government Act 1999 to make arrangements to secure continuous improvement in the way in which its functions are exercised, having regard to a combination of economy, efficiency and effectiveness.

In discharging this overall responsibility, Leicestershire County Council is also responsible for ensuring that there is a sound system of internal control which facilitates the effective exercise of the Authority’s functions and which includes arrangements for the management of risk.

The Council approved and adopted a Code of Corporate Governance on 13 May 2003 which is consistent with the principles and requirements set out in the CIPFA/SOLACE Framework – Corporate Governance in Local Government:  A Keystone for Community Governance.  A copy of the Code is on the Council’s website at www.leics.gov.uk or can be obtained from the Public Relations Unit at County Hall.  The Code reflects the Council’s commitment to comply with the underlying principles of:  Openness and Inclusivity, Integrity and Accountability and is framed around five dimensions:

a)Community focus

b)Service delivery arrangements

c)Structures and processes

d)Risk Management and Internal Control

e)Standards and conduct

The system of internal control is designed to manage risk to a reasonable level rather than to  eliminate all risk of failure to achieve policies, aims and objectives; it can therefore only provide reasonable and not absolute assurance of effectiveness.  The system of internal control is based on an ongoing process designed to identify and prioritise the risks to the achievement of the Council’s policies, aims and objectives, to evaluate the likelihood of those risks being realised and the impact should they be realised, and to manage them efficiently, effectively and economically.

The system of internal control has been in place at the Council for the year ended 31March 2007 and up to the date of approval of the annual report and accounts.

The Council sets out its objectives through the Medium Term Corporate Strategy, which is developed in consultation with the Leicestershire Local Strategic Partnership and its Community Strategy.  Linked to this are Service Plans, Medium Term Financial Plans, the Local Area Agreement, the Council’s Annual Plan and Action Plans arising from efficiency reviews and external inspection reports.

The Council’s Constitution provides the framework for its decision making processes and sets out the detailed procedures and codes of conduct by which Members and officers operate to achieve Council objectives.

Under the Constitution a Leader and Cabinet form the decision-making Executive.  Their decisions must be in line with Council objectives, and are subject to examination by a number of overview and scrutiny committees.  Meetings are open to the public except where confidential or exempt matters are being disclosed.  Key decisions to be taken by the Executive are published in the Authority’s Forward Plan and reports and background papers are available on the County Council website at www.leics.gov.uk.

A Corporate Governance Committee was established during 2005.  This committee promotes and maintains high standards in relation to the operation of the Council’s Code of Corporate Governance, including ensuring that an adequate risk management framework and associated control environment is in place and that the Authority’s financial and non financial performance is properly monitored.  Members of the Corporate Governance Committee also need to satisfy themselves that the County Council’s Statement of Accounts and those relating to the Leicestershire Pension Fund have been prepared in accordance with best practice.  Minutes of Corporate Governance Committee meetings are available on the County Council website at www.leics.gov.uk.

The County Solicitor is the designated Monitoring Officer with responsibility for ensuring the lawfulness of decisions taken by the Council, Cabinet, its committees and officers, providing support and advice on the maintenance of ethical standards and advising the Council’s Standards Committee.

As Chief Financial Officer, the Director of Corporate Resources is responsible for the proper administration of the Council’s financial affairs.  The Director has also developed the policy statement on risk management and corporate risk management strategy through the operation of a corporate risk management group.  This group represents the interests and views of all departments and is responsible for embedding risk identification and assessment in service and project planning using an agreed methodology, as well as ensuring that all major risks encountered by the Council are identified, assessed and responded to at an appropriate level.  Guidance has been issued and training in assessing, managing and monitoring risks has been provided to appropriate staff.  Departmental and corporate risk registers are maintained.

To ensure the economical, effective and efficient use of resources, and for securing continuous improvement in the way functions are exercised, the Council has established a performance management framework.  This framework requires each Department to produce annual service plans setting out their objectives and targets in relation to Council policy priorities.  These plans form the basis of the Council’s Annual Plan, which summarises progress against targets and sets out proposed improvements in performance and service standards.  Progress against the Council’s priorities is monitored and reported to Members on a regular basis.  A process of identifying individual employee targets and development needs linked to departmental objectives has been established, with some areas gaining the Investors in People (IIP) accreditation.

The system of internal financial control is based on a framework of regular management information, financial procedure rules and standard financial instructions, administration arrangements (including segregation of duties), management supervision and a system of delegation and accountability.

Leicestershire County Council has responsibility for conducting, at least annually, a review of the effectiveness of the system of internal control.  The review of the effectiveness of the system of internal control is informed by the work of the internal auditors and the executive managers within the Authority who in performing their statutory roles have responsibility for the development and maintenance of the internal control environment.  The review process is also routinely informed by the work of the Scrutiny Committees within the Authority as well as comments made by the external auditors and other review agencies and inspectorates.

The Chief Executive has a duty to monitor and review the operation of the Constitution and the Monitoring Officer (County Solicitor) has a duty to report to Cabinet on matters which could be considered as unlawful or give rise to maladministration.  As part of this process the Monitoring Officer ensures an annual assessment of the Authority’s compliance with the Code of Corporate Governance is undertaken.  During 2006/07, the Council’s Head of Internal Audit carried out an audit of the corporate governance arrangements of the Authority as a whole and also in relation to a specific department to examine how these arrangements are implemented at department level.  He concluded that substantial assurance could be given in relation to the corporate governance controls guarding against material risk.  He did however identify some areas for improvement and made recommendations which are the subject of an action plan.  The major recommendations have already been implemented and other improvements will be implemented during 2007/08.

The Chief Executive conducted the annual review of the Constitution during the year which led to the County Council at its meeting on 21 September 2006 agreeing a number of changes on the recommendation of the Constitution Committee.  Changes were also made to the Constitution at the meetings of the Council on 24 May 2006 (to give effect to changes in the structure of scrutiny bodies), 6 December 2006 (in relation to the establishment of the Community Engagement Scrutiny Committee) and 21 March 2007 (in respect of employment matters, particularly the Officer Employment Procedure Rules).

Overview and Scrutiny Committees support the work of the Executive and the Council as a whole, by producing reports and recommendations, which advise the Executive and the Council on its policies, budget and service delivery.  Decisions by the Cabinet are monitored by these committees who have the facility to examine them in detail.  In the case of ‘key decisions’ they are able to ‘call in’ the decision which means that implementation is delayed to enable the Scrutiny Committee’s views to be considered by the Cabinet.

The Corporate Governance Committee plays a key role in monitoring and reviewing the effectiveness of the system of internal control by promoting and maintaining high standards within the Authority in relation to the operation of the Council’s Code of Governance.  This includes monitoring the effectiveness of officer arrangements for ensuring an adequate internal control environment and combating fraud and corruption and ensuring that an adequate risk management framework and associated control environment is in place.  The Corporate Governance Committee considers the findings of the review of the effectiveness of the system of internal control and approves the Statement on Internal Control.  The Committee also considers the findings of the annual review into the effectiveness of the system of internal audit.

The effectiveness of the Council’s internal controls is examined in detail through the work of the Internal Audit section of the Corporate Resources Department.  The section’s four-year strategic plan is based on an assessment process that focuses resources on higher risk areas and meets the professional standards required by CIPFA.  From this an annual audit plan is produced.  Audit findings are reported to the relevant Chief Officer and Service Manager, together with recommendations for improvement and agreed action plans.  Checks are undertaken by Internal Audit to ensure agreed major recommendations have been implemented.  Regular progress reports on the work of the Internal Audit section, including high importance recommendations from specific audits, are reported to the Corporate Governance Committee.

A review into the effectiveness of the system of internal audit was undertaken during 2006/07.  This review considered performance in a range of areas in order to produce a self assessment of the quality of internal audit arrangements within the Council.  Overall the review concluded that the Council’s system of internal audit is effective.  The Corporate Governance Committee considered the findings of this review and supported the review’s conclusion.

Based on evidence from planned audits and any special investigations, the Chief Internal Auditor reports each year to the Director of Corporate Resources and to members of the Council on any major weaknesses that have been identified in the internal controls examined and highlights where important improvements are considered necessary.  The Director of Corporate Resources reviews this information along with other relevant information such as budget monitoring reports and departmental assurance statements in compiling this statement.  The work of Internal Audit and the wider financial aspects of corporate governance and performance management are examined each year by the Council’s external auditors.

Formal assurance is provided by departmental Chief Officers that the policies and procedures are being applied in the initiation, development and delivery of service plans.  Where gaps have been identified, action plans have been drafted and responsibility for implementation assigned.

Risk management is undertaken as part of the normal service planning and project management process.  The Corporate Risk Management Group, through the Director of Corporate Resources, reports progress on mitigating the risks in the corporate risk register to the Corporate Governance Committee on a regular basis.  Regular performance monitoring reports are also brought to the Cabinet showing progress against the Council’s Annual Plan, the Local Area Agreement and the Medium Term Corporate Strategy.

Further assurance is provided by regular reports produced by independent review bodies including the Audit Commission, Commission for Social Care Inspection, Ofsted etc.

As part of the Audit Commission’s Comprehensive Performance Assessment, the Council achieved a 4 star overall performance in 2006.  In addition, the Council was judged to be ‘improving well’ under the framework for assessing the ‘Direction of Travel’.

The reviews of the effectiveness of the system of internal control undertaken by both Internal and External Audit have advised that the Council’s overall financial management and corporate governance arrangements are sound and that arrangements for the collection and reporting of performance information is satisfactory.

The review of the system of internal control that has been undertaken in order to produce this statement has highlighted a number of minor internal controls issues that require attention and action is being taken to address these issues.  There are no significant internal control issues to highlight for 2006/07.  Future risks have been identified and action will be taken during 2007/08 to monitor and mitigate these risks.

We have been advised on the implications of the result of the review of the effectiveness of the system of internal control by the Authority, the Executive, the Corporate Governance Committee and Scrutiny Committee, and note the steps in place to ensure continuous improvement of the system of internal control.

Chief ExecutiveLeader of the Council and