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FINAL AUDIT REPORT

London
TREASURY MANAGEMENT AUDIT 2008/2009

Borough

of
Auditor:
Hillingdon
Draft Issued: 16TH FEBRUARY 2009
Final Issued: 17TH FEBRUARY 2009

Internal Audit Service

1S/05
Civic Centre
High St
Uxbridge
UB8 1UW

TREASURY MANAGEMENT AUDIT 2008/2009


1.
INTRODUCTION

1.1.  This Treasury Management (TM) audit was undertaken to provide
management with an assurance that the processes and controls relating to loans
and investment of surplus funds within the Capital and Treasury Management
section are adequate and effective. The audit brief, which provided the objectives,
methodology and scope, was issued on 2nd October 2008.
1.2.  Furthermore, the audit was to evaluate whether monies placed with the
Icelandic banks were made in accordance with the London Borough of Hillingdon’s
operating framework.

2.
EXECUTIVE SUMMARY
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2.1.
Overall Audit’s view is that we are able to give Satisfactory Assurance
that the controls in place to for Treasury Management are effective. A definition
of the assurance level and risk categories is available on the intranet in the
internal audit pages.
London

2.2.
The following areas were reviewed and found to be operating satisfactorily:
  The Council has a Treasury Management Strategy Statement and Annual
Investment Strategy 2008/09, a Treasury Management Policy and Treasury
Borough
Management Practices that are detailed and properly documented. They have
been determined and approved by appointed committee /Investment panel and
are reviewed periodically.
  There is adequate separation of duties in the Treasury Management’s day-to-
of
day operations.
Hillingdon
  Reconciliations relating to both investments and loans are adequately and
regularly carried out.
  Investments and electronic transfers/payments are properly authorised,
checked and monitored.
  A detailed, up to date Loan Register is maintained with access restricted.
  Adequate Fidelity insurance cover is in place for all treasury members of staff.
  The Council’s External Treasury Management Advisers/consultants complied
with their contract of engagement and there performance was satisfactory.
  The deposits made with the Icelandic Banks complied with the London
Borough of Hillingdon’s Investment Framework.

2.3.
The areas of concern resulting from the audit were:
  The daily Cash Flow statements and monthly reconciliations of
investment/loan records do not indicate who prepared them.

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TREASURY MANAGEMENT AUDIT 2008/2009

  It is difficult to determine the names of signatories that had signed “The
Payment Transit Forms” because names were not printed against their
signatures.
  Files containing important Treasury Management documents such as daily
cash flow statements and dealing forms are left on the desk overnight.
  An approved procedure for collection of unpaid investments is not in place.

2.4.  Detailed audit findings are set out from section three onwards.
Recommendations in respect of each area are set out in italics  and bold at the
end of each section and a rationale follows each recommendation. The
recommendations are also brought together in Appendix A.
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London
Borough
of Hillingdon

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TREASURY MANAGEMENT AUDIT 2008/2009


3.
TREASURY MANAGEMENT PRACTICE, PROCEDURES AND STRATEGY

3.1.
The Council has a Treasury Management Strategy Statement and Annual
Investment Strategy 2008/09, a Treasury Management Policy and Treasury
Management Practices that are detailed and properly documented. The Treasury
Management Strategy Statement and Annual Investment Strategy was approved
by the Council on 28 February 2008 and are reviewed periodically.
3.2.
The procedures and Treasury Management Practices provide for adequate
separation of duties.

4.
COUNTER PARTY LIST AND DAILY CASH FLOW

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4.1. There is a comprehensive and adequately approved Counter Party List, which
contains the names and limits of each institution where the Council can invest its
fund. This record is updated regularly.
4.2. The daily Cash Flow is satisfactorily computed, reviewed and signed by the
London
Treasury Manager. However, it is not signed by the preparer.
Recommendation
1)  The preparer of the daily Cash Flow statements should print and sign
their name as evidence of who prepared the statements.
Borough

Rationale
It would be difficult to identify who prepared the statements if there were any
queries at a later date. There is also no audit trail.
of

Hillingdon
5.
RECORDS AND MONITORING OF INVESTMENT

5.1.    Investments are properly and accurately recorded in the appropriate
treasury books.
5.2.   Access to the Electronic Investment Register is restricted and the register is
satisfactorily maintained.
5.3. There are manual procedures in place to monitor investment maturity, but the
Logotech system, used for investment and loan management, does not alert the
TM Team of loan repayments and investment maturity dates in advance. Although
there are compensating controls in place by using the daily diary, it would be good
practice to have an electronic alert. However, at the moment, the logotech system
cannot be configured to do this

6.
RECONCILIATIONS

6.1.  The Council’s main accounting records are regularly reconciled to the
investment register and the register is reconciled with financial institutions’
statements.

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TREASURY MANAGEMENT AUDIT 2008/2009

6.2.
A senior officer reviews and signs the reconciliations statements, but they
are not signed by the preparer.
Recommendation
2) The preparer of the reconciliations statements should print and sign their
name as evidence of who prepared the reconciliation statements.

Rationale
It would be difficult to identify who prepared the statements if there were any
queries at a later date. There is also no audit trail.

7.
ELECTRONIC TRANSFERS OF FUNDS
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7.1.   The controls that are in place for the electronic transfer of fund are
satisfactory with transfers and payments being checked, authorised and
monitored.
7.2.
A regularly updated signatory list is in place.
London
7.3. Signatories on Payment Transit Forms were confirmed to the signatory list,
but it was difficult, in some instances, to determine the signatory’s name from just
looking at the Payment Transit Form. Borough
Recommendation
3) It is recommended that signatories signing the Payment Transit Forms
should print their names against their signature
Rationale
of
It would be difficult to identify who authorise the Payment Transit Forms if there
Hillingdon
were any queries at a later date.

8.
FIDELITY GUARANTEE INSURANCE

8.1.   The Fidelity Guarantee Insurance Policy in place is adequate.

9.
SECURITY OF INFORMATION AND DOCUMENTS

9.1.
Access to the TM’s electronic information and registers is restricted by login
ID’s and passwords, and non-use of the system is monitored so that ID’s can be
disabled.

9.2.  The Council has a robust data retention policy accessible to all staff on
Horizon.
9.3.  Files containing hard copies of some sensitive information such as cash
flow statements and reconciliations are kept in unlocked drawers.

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Recommendation
4)
Files containing Treasury Management day-to-day information should
be kept in lockable cabinets or scanned into the system.
Rationale
Information  may  fraudulently  be  used  to  misappropriate  monies  or  information
may be used to embarrass the Council.

10.
LOANS

10.1.  A detailed Loan Register is in place and the Loan Procedure is detailed,
clear, and fit for purpose and there are controls in place to ensure that risky loans
are not taken.
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11.
ICELANDIC BANK INVESTMENTS

11.1.  The Council’s TM operating framework is sound, robust and satisfactory.
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11.2.  The deposits that were made with the Heritable Bank Plc and Landsbanki
in August and September 2008, totalling £20 million, were made in accordance
with the London Borough of Hillingdon’s TM Operation Framework.
11.3. The Council’s External Treasury Management Advisers/consultants
Borough
complied with their contract of engagement and their performance was
satisfactory.
11.4.  The response of the TM Team of reporting to the Chief Executive, Chair of
the Audit Committee and Leader on the funds, completing claim forms and
of
stopping further investments in all Icelandic banks, was satisfactory.
Hillingdon
11.5.  However, there is no laid down procedure in the Annual Treasury Practice
that indicates step by step action to be taken in case of non payment of deposits
when matured.

Recommendation
5) It is recommended that unpaid investment recovery procedures should be
put in place.
Rationale
Lack of procedures may result in the Council losing monies.

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APPENDIX A – ACTION PLAN

London

Rec
Recommendation Rationale Risk
Management response
Person
No.
category
(including statement of agreement/disagreement)
responsible
and time scale
1
The preparer of the daily Cash  It would be difficult to
Low
Agreed:

Borough
Flow statements should print identify who prepared
Procedures will be updated to include  31/03/09
details of the person preparing the
and sign their name as evidence  the statements if there
daily cash flow statement.
of who prepared the statements.
were any queries at a
later date. There is also
no audit trail.
of Hillingdon

2
The preparer of the
It would be difficult to  Medium
Agreed:
31/03/09
reconciliations statements
identify who prepared
The preparer of monthly
reconciliations will state and sign
should print and sign their name  the statements if there
their name.
as evidence of who prepared the  were any queries at a
reconciliation statements.
later date. There is also

no audit trail.

3
It is recommended that
It would be difficult to
Medium
Agreed:
31/03/09
signatories signing the Payment  identify who authorise
A template will be created and
transposed onto the payment
transit Form should print their  the Payment Transit

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Rec
Recommendation Rationale Risk
Management response
Person
No.
category
(including statement of agreement/disagreement)
responsible
and time scale
names against their signature
Form if there were any
document. It will incorporate the
queries at a later date.
names of signatories to facilitate the

simplification and verification of the
signing process. Sample signatures
will be provided to those involved in
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the final payment approval stage to
allow validation.
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Files containing Treasury
Information may
Medium Agreed:
31/03/09
Management day-to-day
fraudulently be used to
The current Daily Cash Flow folder
will be locked away overnight.
information should be kept in  misappropriate monies
London
lockable cabinets or scanned or information may be
into the system.
used to embarrass the
Council.

5
It is recommended that unpaid  Lack of procedures may
High Agreed:
30/04/09
Borough
investment recovery procedures  result in the Council
Procedures relating to unpaid
investments will be included within
should be put in place.
losing monies
the next update to the Treasury
Management Practices

of

Hillingdon

COMPILED BY: ____________________________________

SIGNED AS AGREED: ____________________________________
(Auditor)

DESIGNATION:
_________________________________________

DATE:
_________________________________________________

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Document Outline

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