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Internal Audit Report

ExDRA

Internal Audit Report – Walton Halls Barn Feasibility Study

May 2006
Internal Audit Report

Contents
1 Executive Summary ................................................................................................................ 1
2 Background ............................................................................................................................. 1
3 Scope and Objectives............................................................................................................. 1
4 Audit Approach ....................................................................................................................... 1
5 Conclusion............................................................................................................................... 2
6 Acknowledgement .................................................................................................................. 2
7 High priority recommendations............................................................................................. 3
Appendix A – Detailed summary of audit findings ...................................................................... 7
Appendix B – Key risks addressed ............................................................................................. 15
Appendix C – Priority Ratings ..................................................................................................... 16

Audit visit completed 6 March 2006

First draft report issued 2 May 2006

Final Management responses received 19 May 2006

Final report issued 30 May 2006

Presented to Audit Committee 19 Sept 2006

We have prepared this report solely for the use of management. We believe that it would
not be appropriate for it, or extracts from it, to be made available to third parties. If such a
third party were to obtain a copy, in whole or in part, without our prior consent, we would not
accept any responsibility for any reliance that they might place upon it.
1 Executive Summary
At the request of the National Audit Office an audit has been performed on the
adequacy of the project documentation in place for the Walton Hall Barns Feasibility
Study.

A number of serious concerns have been noted, eleven in total, on the failure of
project management procedures from the initial application phase through to the
payment of the final claim.

A high priority recommendation has been raised in relation to the deficiencies noted
in the adherence to the stated project management procedures these are noted in
detail in appendix A.

2 Background
For each audit we identify and critically evaluate the controls in place and highlight
in our report those potential weaknesses that become apparent as a result of our
work. We obtain comments from appropriate staff for each weakness identified and
ask management to provide action plans that detail the likely timescale for
implementation of our recommendations.

The audit of Walton Hall Barns Feasibility Study was undertaken during March
2006.

3 Scope and Objectives


The scope and objectives of the review were to ensure that ExDRA has followed
the stated project management procedures and has an adequate framework in
place to provide assurance over their delegated authority.

4 Audit Approach
Our approach was to:

• Discuss with relevant personnel and develop an understanding of the


processes and procedures established by ExDRA to achieve compliance
with the funding agreement;
• Document and evaluate whether the associated systems and procedures are
appropriately designed to achieve the organisation’s objectives for the
system. This includes comparison of the controls in place against those that
we would expect to find;
• Ascertain staff awareness of their roles and responsibilities under the ExDRA
funding agreement; and

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• Determine whether the system is effective through testing, where
appropriate, that the controls are operating in practice, and if not establish
the likely impact of the weakness in control.

In carrying out this audit work standard quality assurance procedures have been
applied to ensure compliance with Government Internal Audit Standards (GIAS).

5 Conclusion
In our opinion, on the basis of the work that we have performed, we consider that
the arrangements in place at ExDRA are inadequate to meet the requirements of
EEDA’s delegated authority. Our review has identified a number of deficiencies in
the adherence to the stated project management procedures that management will
need to address in order to strengthen the control environment of the Agency.
Refer to section seven of the report for the high priority recommendation.

6 Acknowledgement
We wish to thank the ExDRA staff for their co-operation during this review, and in
particular Martin Woodrow.

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7 High priority recommendations


Ref Issue/Risk Recommendations Management Response/Action
Plan
1 The specific review of the Walton Hall Whilst this particular project is historic, It is important to understand the
background to this exceptional application.
Barns feasibility study has highlighted we strongly recommend that ExDRA
11 issues within the project review the level of accountability and EEDA’s Rural Executive first drew this
project to the attention of the Appraising
management cycle from the initial delegated authority within the Agency Officer at the Centre for Environment &
application through to the final and formally report back to EEDA. Rural Affairs (“CERA”) at the very end of
payment of the project (refer to 2004. At that time CERA, based at Writtle
College, was contracted by ExDRA to
appendix A for the specific points). The report will need to provide provide administration services for the
assurance to EEDA that an Rural Renaissance Fund in Essex. This
There is a risk that if ExDRA do not appropriate level of approval is sought was an arrangement inherited from
ExDRA’s predecessor “accountable body”
follow the stated project management at all stages of a project and that the
for Rural Renaissance funding in Essex,
procedures inappropriate projects may necessary evidence and degree of the Essex Economic Partnership (“the
be funded with public funds and the rigour will be demonstrated in all EEP”). It is our understanding that EEDA’s
necessary level of evidence to support aspects of project management. Rural Executive had been in discussion
with the applicants for some while before
claims and payments made may not then and had encouraged them to apply to
be evident from the project file. There the Rural Renaissance Fund for funding to
may also be reputational risks for the support the feasibility study (the
th
applicant’s fundraising plan dated 20
parties involved if it is discovered that January 2005 stated that “a good
there has been an inappropriate use relationship has already been established
of public funds. with EEDA staff”).
On 6th January, in anticipation of EEDA
being in a position to ring fence £50k of
additional funding for this project (ExDRA
having already allocated its original Rural
Renaissance Fund budget for the year to
March 2005), CERA’s Appraising Officer

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Ref Issue/Risk Recommendations Management Response/Action
Plan
e-mailed the applicant’s completed Initial
Application Form to an independent panel
for appraisal.

On 17th January EEDA’s Rural Executive


confirmed that EEDA had indeed allocated
an extra £50k of Rural Renaissance
funding to this project. The Appraising
Officer at CERA received the last of the
comments of the appraisal panel on 24th
January and prepared, on ExDRA’s
behalf, an offer letter which purported to
include all the safeguards required by the
panel members. This letter was sent out
by ExDRA to the applicant on 4th
February.
With the benefit of hindsight we feel
that this project was rushed through
far too quickly owing to pressure to get
the monies “out of the door” by 31st
March. It is clear that CERA did not meet
all their obligations under their Service
Level Agreement with ExDRA. In
particular CERA did not fulfil the
requirements of them to “undertake a
technical check on the application forms to
ensure complete and sufficient detail is
provided and liaise with bidders where
information is incomplete or missing” and
to “check all claims for funding and alert
the EEP of any discrepancies or non-
claimable expenditure”.
None of this abrogates ExDRA’s own
responsibility, as “accountable body”, for
managing the fund and it is acknowledged

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Ref Issue/Risk Recommendations Management Response/Action
Plan
that additional management scrutiny
should have been applied. At this very
busy time of the year (and particularly so
since ExDRA was in its first 6 months of
operation) too much latitude was given to
CERA, working with EEDA’s Rural
Executive, to run with this project and to
ensure that the stated project
management procedures were being
complied with.

Throughout Appendix A of this report we


have highlighted with the words
TRAINING NEED wherever we recognise
that the observations made by EEDA are
well-founded. Albeit that CERA’s
involvement is now at an end (all ExDRA’s
project management has now been
brought in-house), follow-up training will
be applied before the end of July 2006 so
as to ensure that, as far as is possible,
ExDRA staff are fully equipped to ensure
full compliance in future. All the issues
raised in this report will themselves be
disseminated (as a case study) widely
throughout the organisation so that the
lessons are embedded.

To conclude, although we feel that this


was an exceptional project, the errors
and omissions highlighted in this
report demonstrate that it is now
appropriate to revisit the Company’s
initial procedures and practices and to
instil additional checks and balances

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Ref Issue/Risk Recommendations Management Response/Action
Plan
that will ensure that the Company
becomes (and remains) fully compliant
with general legislation, published
codes of conduct and the specific
requirements of all funding bodies and
partner organisations.
In particular, we are fully committed to
reviewing the levels of accountability
and delegated authority within the
Company by the end of July 2006.

Finally, we would assure EEDA that


this report carries the full
endorsement of ExDRA’s Audit, Risk
& Remuneration Committee, itself a
newly formed sub-committee of the
Board with the following specific remit
in relation to risk and compliance:
a) to consider all risks, financial and
otherwise, significant to the
fulfilment of the Company’s
objectives, and in particular to keep
under review the effectiveness of
the Company’s internal control
systems and programme Risk
Registers;
b) to advise the Board on compliance
matters relating to general
legislation, published codes of
conduct and specific contractual
requirements.

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Appendix A – Detailed summary of audit findings
Ref Audit Observation Management Comment
1 There is no evidence that the financial information contained within the It is acknowledged that this has not been evidenced by
application form has been checked. CERA’s Appraising Officer on the Initial Application Form.
However, her Strategic Appraisal Report does include a
value for money assessment and the percentage of match
funding has been calculated.
TRAINING NEED
2 The Appraisal sections of the Initial Application Form has not been It is acknowledged that the following three appraisal sections
completed. However, there is a copy of a Strategic Appraisal Report on file in the Initial Application Form, namely State Aid, Option
completed by the Appraising Officer which addresses:
Assessment and Risk Assessment, have not been
addressed in the CERA Appraising Officer’s Strategic
• Project description;
Appraisal Report.
• Strategic Fit;
• Equality and Diversity; TRAINING NEED
• Value for Money;
• Comment; and
• Recommendation.

However, the following appraisal sections from the Initial Application Form
have not been addressed:
• State Aid;
• Option Assessment;
• Risk Assessment.

3 There is no evidence on file of background checks having been made on the It would appear that CERA placed undue reliance on EEDA’s
applicant. Rural Executive’s knowledge of the applicant thereby
obviating the need for independent background checks. It is
acknowledged that this was an oversight.
TRAINING NEED

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4 A Review Group panel member states in his e-mail approving the project that It is acknowledged that the Review Group panel member’s
“I accept your recommendation and will support it as it is a feasibility study comments were not adequately addressed by CERA’s
but could we have some more clarification on the project management costs.
Appraising Officer.
These do seem very high.” 1
TRAINING NEED

The project management costs are not subsequently clarified with the
applicant, nor is it checked with the approval panel whether they wish to
continue with the approval of the project before project management costs
are clarified.

There is no clarification from the project on file, only an e-mail from EEDA’s
Rural Executive, sent after the offer letter was sent to the applicants, which
states “The costs do seem high at the moment – but it is not unusual for this
to be so as no other partners would be forthcoming at this early stage.” 2

5 The invoices provided to support the claim are not the original invoices. They It is acknowledged that the original invoices were not
would appear to be scanned in copies of invoices. provided at the time. However, with the exception of those
for the community consultation, the marketing survey and the
Defra bats license (see 7 below), the originals have now
been received and verified.
TRAINING NEED
6 It is not clear the amount that is being claimed/paid on invoice ref 1016; It is acknowledged that invoice ref 1016 is hand-written and
is only partially supported by supporting receipts.
TRAINING NEED
7 Estimated expenses were given on the Claim Form for the following invoices: It is acknowledged that there was a significant delay in
chasing up those invoices which were estimated on the claim
• Community Consultation (£4,700) form. This was in part at least due to the transfer in

1
E-mail dated 7 January 2005 entitled “Fw: ERRF Living Naze Bid”
2
E-mail dated 21 February 2005 entitled “RE: Living Naze Project”

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• Surveyors Fees – IJP Conservation Building (£3,525) administrative responsibilities from CERA to ExDRA as from
• Surveyors Fees – Dudley Smith (£840); 1st April 2005 and there being no dedicated officer in place at
• Marketing – EETB survey (£1,733); ExDRA until August 2005.
• Marketing – website and brochure (£4,113) (The total amount
TRAINING NEED
for this line is for £4,879, but includes three invoices which
total £766); and With regard to the invoices that are still outstanding it was
• Environmental – Defra bats licence (£1,500). understood at the time that the following pieces of work
couldn’t be carried out until after 31st March 2005:
There is no evidence on file that the organisations who had submitted 1. the community consultation – est. cost £4,700; and
estimates were contacted until receipt of an e-mail from the National Audit 2. the issuing of a Defra bats licence - est. cost £1,500
Office on 13 January 2006. The following invoices were received by ExDRA (the community consultation was carried out in October - the
on 18 January 2006: applicants are chasing the invoice - and the bats licence
• IJP Building Conservation ltd (£3,525); cannot be obtained until planning permission is granted).
• Dudley Smith Partnership (£705)
The project file will only be closed once these items of
• Silk Pearce (£4,026.72);
paperwork are received from the applicant (or, in the case of
• Chris Vine (£490)
the latter, we are advised that planning agreement has not
Invoices are therefore outstanding for the Community Consultation the EETB been granted by Tendring DC).
Survey, and the bats licence. The applicants now believe that they will not be invoiced for
the marketing survey carried out by the East of England
Tourist Board (estimated cost £1,733); it would appear that
the EETB has either overlooked or waived the recharge of
this to the applicant.

It should be recognised that the omission of these invoices


did not affect the issuing of the grant because there was
already sufficient supporting paperwork (constituting the
required leverage of 100% of the amount claimed) in support
of the £50k grant issued.

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8 The following terms and conditions have been attached to the payment of the It is acknowledged that evidence of progress towards
grant: planning permission was not provided to CERA prior to
payment. The applicants are of the view that it may take until
The balance of the grant will be paid “provided that the following documentary August 2006 before it is known whether or not planning
evidence is also supplied at the same time: permission has been granted by Tendring DC.
• Registration documents and constitution demonstrating the
creation of a not-for-profit organisation; It is further acknowledged that receipted invoices for
• Evidence of planning permission or progress towards planning
professional fees were not provided to CERA at that time.
permission;
• Receipted invoices for professional fees, to include timesheets However, they have now been received and verified.
for any in-kind contributions;
• A summary report demonstrating how biodiversity will be It is also acknowledged that registration documents
improved by this project including assurances that the project demonstrating the creation of a not-for-profit organisation
will not be detrimental to the environment; were not supplied to CERA at that time although draft
• Copies of all other reports and studies produced during this Memorandum and Articles of Association were provided.
phase.” The applicants have now advised that they are awaiting the
outcome of their planning application before they apply to
A copy of the feasibility study was submitted with the Claim Form and
Companies House for the not-for-profit organisation to be
contained:
incorporated.
• An update on the position in relation to planning permission 3 .
However there is no documentation in relation to the
It is acknowledged that enquiries should have been made by
submission to Tendring District Council for planning
permission. We understand from a conversation with the CERA’s Appraising Officer into all of these omissions. Either
planning officer at Tendring District Council that the revised the paperwork should have been obtained from by the
planning application is being heard in May 2006; applicant or the terms and conditions attaching to the
• Timesheets for DW Eagle and DW Rampling and copies of payment of the grant should have been varied.
invoices for professional fees. However, the invoices provided TRAINING NEED
to support the claim are not the original invoices or certificated
copies of the invoices received;
• Copies of the following reports and studies produced to
support the feasibility study:

3
Living Naze Feasibility Report, Section 2 Planning Permission, page 2

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Internal Audit Report
o Living Naze, Transport Statement produced by
Intermodal Transportation;
o Memorandum and Articles of Association, drafted by
Birketts Solicitors;
o Barn Owl & Bat Survey, prepared by Chris Vine;
o Ecological Assessment of land adjacent to Walton Hall,
prepared by McKenna Environmental Limited;
o The Living Naze Visitor Centre Initial Feasibility Study,
produced by WWT Wetlands Advisory Service;
o Concept Script, produced by Derek Nice, Sarner
International and David Page;
o Building Control and Design, prepared by IJP Building
Conservation Ltd, Shore Engineering and the Carbon
Trust.
o Community Consultation Plan,
o Marketing Strategy, prepared by Doreen L Macintyre;
and
o East of England Tourist Board Survey;

There are no copies of “registration documents and constitution


demonstrating the creation of a not-for-profit organisation” as requested by
the Offer Letter.

9 There is a completion report on file. However, it is noted that: It is acknowledged that this was not picked up, primarily due
• There are a number of discrepancies between the Completion to the transfer in administrative responsibilities from CERA to
Report and the Initial Application Form and Claim Form as
ExDRA as from 1st April 2005 and, subsequently, there being
follows:
no dedicated officer in place at ExDRA until August 2005.
TRAINING NEED
Output Completion Report Initial Application
(“original forecast Form It is also acknowledged that the EEDA Activity leader’s
from offer letter”) comments are missing from the completion report. It was, at
Private sector 62,516 £108,123 the time, unclear whether these should have been added

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funding generated when the completion report was submitted or only once all
(£) the outstanding paperwork had been received. These
comments will now be added.
Output Completion Report Claim and TRAINING NEED
(“actual outputs Monitoring Form
achieved”) (“actual outputs
achieved by this
project to date”)
Private sector
funding generated £73,942 £127,500
(£)

Completion Report Initial Application


Form
Original Private
Revenue £62,516 £108,123
forecast – funding
revenue EEDA EEDA
£50,000 £50,000
Contribution revenue
Total £112,516 Total £158,123

Completion Report Claim and Monitoring


Form
Actual
expenditure Revenue £73,942 Applicant’s £69,075
own
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– revenue resources
EEDA
EEDA
£50,000 funding to £50,000
Contribution
date
Total £123,942 Total £119,075

There is evidence that the figures on the completion report have been
checked but section g – EEDA Activity leader’s comments has not been
completed.

10 It could be considered that not all of the expenditure on the project is It is acknowledged that the rationale for sight clearance costs
appropriate. The scope of the project was to produce a feasibility study which is unclear and that the sub-contracted work is not evidenced.
“will examine the potential for regeneration and provide a realistic, fully
costed and appraised project”. The following points are noted:
It is also acknowledged that the rationale for a detailed
• There is an invoice on file for JW & FD Eagle (P1014) for “site
Concept Script is unclear.
clearance at Walton Hall Barns on behalf of Living Naze:
It is acknowledged that all these costs should have been
scrutinised by CERA’s Appraising Officer and enquiries
In kind works Eagle and Rampling – 5 days 2,000.00
made as to their appropriateness.
N A Baxter subcontract work, cutting and
TRAINING NEED
Heavy duty moving equipment – 10 days 2,900.00
Total £4,900.00”

It is not clear why site clearance should be claimed as part of


the feasibility study. There is no invoice to support the work
sub-contracted to N A Baxter.

• There are two invoices for a total of £6,000 from David Page
for “six days scriptwriting, one day conference at New Holland”
(PL1006) and “Production of full provisional script for Living

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Naze as agreed.” (PL1024)

There is also an invoice from Derek Nice for £10,000 for


“artistic concept design on Living Naze Project to feasibility
stage, including engagement of scriptwriter and audio visual
artists, outline sketches and models and inception and
development of theme”.

The Concept Design section of the Feasibility Study contains:


o Concept Summary
o Interpretation Sketch & Key
o Interpretation Model
o Concept Script

It is not clear why at the Feasibility Study stage of the project that a Concept
Script is necessary.

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Appendix B – Key risks addressed

Key Risks covered by the review


• The SREP Board are supplied with meaningful management information to
make appropriate strategic and operational decisions
• A robust project application process is in place
• Projects are appraised against set criteria
• Projects are approved against set criteria
• Sufficient controls are in place to prevent any conflicts of interest arising
• Grant payments are supported by appropriate evidence
• Projects are monitored on the basis of risk
• Project costs are monitored to prevent commitments being exceeded
• Appropriate terms and conditions are issued to grant recipients
• The accountable body has robust quality assurance procedures in place over
the delegated scheme
• Project outputs are accurately recorded and reported to EEDA

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Appendix C – Priority Ratings


The findings and recommendations are each allocated a priority level to assist
management with prioritising the action necessary to implement the recommendations.
• High Priority – A significant weakness which if not addressed has the potential to
undermine EEDA’s financial and operational management due to risk of serious
error, irregularity or inefficiency;

• Medium Priority – Area where improvements in control are needed to further


reduce the risk of undetected errors or irregularities occurring;

• Low Priority – Areas that have potential for improvement to comply with best
practice guidance or to strengthen the overall control environment by building upon
existing controls in place.

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