Medway Council · assurance on the adequacy of the risk management framework, associated internal...

© 2013 Grant Thornton International Ltd. All rights reserved.

Medway Council Role of the Audit Committee

June 2019

Darren Wells – Director

Ade Oyerinde – Senior Manager

© 2019 Grant Thornton UK LLP. All rights reserved.

Introduction – what we will cover

• Who we are

• Purpose of Audit Committee

• Core functions

• Structure and administration

• Role on financial reporting

• Assessment of effectiveness

• Internal Audit

• External Audit

• Questions

Presentation1


Purpose of Audit Committee

“The purpose of an Audit Committee is to provide to

those charged with governance independent

assurance on the adequacy of the risk management

framework, associated internal control environment

and the integrity of the financial reporting and annual

governance processes.

By overseeing internal and external audit it makes an

important contribution to ensuring that effective

assurance arrangements are in place.”

Source: CIPFA Publication “Audit Committees: Practical Guidance for Local

Authorities and Police” (2018)

Presentation1


Audit Committees Best Practice - CIPFA Guidance• Audit Committees: Practical guidance for local authorities

and police (2018)

• Audit committees are a key component of corporate governance

• Core functions high level focus on Council’s arrangements for

– Governance

– Managing risk

– Effective control environment

– Audit (Reporting on financial and non-financial performance).


Audit Committees core functions– Be satisfied that the authority’s assurance statements, including the Annual

Governance Statement, properly reflect the risk environment and any

actions required to improve it, and demonstrate how governance supports

the achievements of the authority’s objectives.

– In relation to the authority’s internal audit functions:

– oversee its independence, objectivity, performance and professionalism

– support the effectiveness of the internal audit process

– promote the effective use of internal audit within the assurance

framework.

– Consider the effectiveness of the authority’s risk management

arrangements and the control environment. Review the risk profile of the

organisation and assurances that action is being taken on risk-related

issues, including partnerships with other organisations.


Audit Committees core functions continued

– Monitor the effectiveness of the control environment, including

arrangements for ensuring value for money and for managing the

authority’s exposure to the risks of fraud and corruption.

– Consider the reports and recommendations of external audit and

inspection agencies and their implications for governance, risk

management or control.

– Support effective relationships between external audit and internal

audit, inspection agencies and other relevant bodies, and

encourage the active promotion of the value of the audit process.

– ��Review the financial statements, external auditor’s opinion and

reports to members, and monitor management action in response

to the issues raised by external audit.


Medway Audit Committee core functions• All the above ; and

• To receive reports re whistleblowing, anti bribery, covert surveillance policies and anti money laundering policies

• To monitor Council’s compliance with its own published standards and consider proposals for changes to SFO/SFI and contract rules

• To monitor financial policies and processes and improvement plans to strengthen control environment

• To scrutinise the Council’s treasury management, investment strategy, MRP policy statement along with treasury management practices and approve the annual treasury outturn


Key Principals of how

• Apolitical

• Big picture, with ability to drill down when required

• Balance of approach

• Coverage?


Audit Committees - Structure and administration

Audit Committees should:

• Act as the principal non-executive, advisory function supporting those charged with governance.

• „Be independent of both the executive and the scrutiny functions.

• Have clear rights of access to other committees/functions.

• „Be properly accountable to the Cabinet

• „Meet regularly – at least four times a year and have a clear policy on those items to be considered in private and those to be considered in public.

• „Be able to meet privately and separately with the external auditor and with the head of internal audit.


Audit Committees - Structure and administration continued

• „Include, as regular attendees, the chief financial officer(s) or appropriate senior and qualified substitute, the chief executive, the head of internal audit and the appointed external auditor. Other attendees may include the monitoring officer (for standards issues) and the head of resources (where such a post exists). These officers should also be able to access the committee, or the chair, as required.

• The committee should have the right to call any other officers or agencies of the authority as required.

• „Report regularly on their work, and at least annually report an assessment of their performance.


Audit Committees Role in respect of Financial Reporting• Audit committees may undertake a review of the financial statements

and satisfy themselves that appropriate steps have been taken to meet

statutory and recommended professional practices. Their work could

include:

• reviewing the Narrative Report to ensure consistency with the

statements and the financial challenges and risks facing the authority in

the future

• reviewing whether the foreword is readable and understandable by a lay

person

• identifying the key messages from each of the financial statements and

evaluating what that means for the authority in future years

• monitoring trends and reviewing for consistency with what is known

about financial performance over the course of the year


Audit Committees Role in respect of Financial Reporting continued

• reviewing the suitability of accounting policies and treatments

• seeking explanations for changes in accounting policies and treatments

• reviewing major judgemental areas, eg provisions

• seeking assurances that preparations are in place to facilitate the

external audit.

• Other committees in the governance structure might also scrutinise the

authority’s financial performance. Care should be taken to avoid

duplication and maintain the focus of the audit committee on financial

reporting and financial governance rather than on wider issues of

performance and spending priorities.


Audit Committees Role in respect of Internal Audit

• The roles of the audit committee in relation to internal audit

are to:

• „oversee its independence, objectivity, performance and

professionalism

• support the effectiveness of the internal audit process

• „promote the effective use of internal audit within the

assurance framework

• this should include approving (but not directing) the risk

based audit plan, considering the use made of other

sources of assurance


Audit Committees Role in respect of External Audit

The roles of the audit committee in relation to external audit

are to:

• „receive and consider the work of the external auditor

– receive the planned work programme to support the

opinion

– „receive reports following the completion of external audit

work in order to monitor the action to be taken

• �contribute to the authority’s response to the reports received

from the external auditor

• support the quality and effectiveness of the external audit

process


Audit Committees Assessment of Effectiveness• An audit committee’s effectiveness should be judged by the contribution

it makes to, and the beneficial impact it has on, the authority’s business.

• Completion of the ‘Self assessment of Good Practice’ and ‘Evaluating

the effectiveness of the audit committee’ assessments as set out in

CIPFA’s ‘Audit Committees: Practical Guidance for Local Authorities and

Police (2018)’ will support an assessment against recommended

practice to inform and support the audit committee.

• A regular self-assessment can be used to support the planning of the

audit committee work programme and training plans. It can also inform

an annual report.


External Audit Our role - Audit Opinion

Presentation1

• Free from material error

• Obtain sufficient appropriate evidence

• Risk based approach

• True and fair view


External Audit

• Provide independent external scrutiny of the Council, its accounts and

supporting systems and use of resources (value for money).

• We are governed by the Code of Audit Practice issued by the National

Audit Office.

• Public Sector Audit Appointments (PSAA) manages the appointment of

external auditors to local authorities (Grant Thornton was appointed from

2018/19 for a period of 5 years).

• Principal objective as your appointed auditor is to carry out an audit that:

• focuses on the specific risks the Council faces

• meets the requirements of the Code of Audit Practice

• In discharging our duties we also consider the requirements of the

“Roles and Responsibilities of the NAO and local auditors” issued by the

National Audit Office in March 2015.


External Audit Scope

Code of Audit Practice (“the Code”) sets out:

• Scope of the audit

• Purpose of the audit

• Powers and duties of auditors

• The audit approach

• Outputs from the audit

• The exercise of special powers

• Grants certification is based on instructions agreed by

external auditor, funding body and authority


External Audit – audit approach

Presentation1

• We test all large balances and unusual transactions

• Random Sample testing of items

• Corroboration of items to prime documents

• Professional scepticism

• Analytics and trend analysis


External Audit Exercise of special powers

• Powers of external auditors (as defined in the Local

Audit and Accountability Act 2014):

• Report in the public interest (S.24)

• Declare an item unlawful (S.28)

• Advisory notice (S.29)

• Apply for judicial review (S.31)


External Audit Relationship with Internal Audit• The Code requires the external auditor to

• “build effective coordination arrangements with internal

audit, using the work of internal audit where, in the

auditor’s judgement and in line with professional

standards, this is appropriate”

• External audit are prohibited by ISAs from directing the work

of internal audit

• Grant Thornton maintains contact with internal audit

throughout the year via regular liaison meetings

• External audit review the findings of internal audit’s work on

the key financial systems to help inform our risk assessment


External Audit OutputsPlanning:

• Audit Fee Letter [by 30 April of the year of audit]

• Audit Plan [before the start of the main fieldwork of the audit]

Audit of the accounts:

• Audit Findings Report to those charged with governance [before the

opinion is given]

• Assessment of financial systems’ ability to produce materially correct

financial information included within the Audit Findings Report to those

charged with governance) [before the opinion is given]

• An opinion on whether the accounts give a true and fair view of the

financial position of the Council [by 31 July following the year of audit]

• Certificate [by 31 July following the year of audit]


External Audit Outputs continued

Value for money:

• A conclusion on the adequacy or otherwise of your arrangements for:

• Securing financial resilience

• Challenging how the organisation secures economy, efficiency and

effectiveness

• (the “Value for Money [VFM] Conclusion”) [by 31 July after the year

of audit]

• Whole of Government Accounts (WGA):

• Assurance statement on the WGA data collection tool:

• Where authority is above testing threshold, perform suite of tests as specified by the National Audit Office


External Audit Outputs continued

• Certification of grant claims:

• Certificate on housing benefit subsidy claim [in accordance

with deadlines set in the Certification Instruction] or as

agreed by external auditor, funding body and authority (all

other claims)

• Report on the certification of grant claims


Close

• Any questions?



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