Mutual benefit The audit committee and internal audit
Mutual benefit? The audit committee and internal audit Diana Melville FCPFA Governance Advisor CIPFA Better Governance Forum
cipfa. org How do you feel about your audit committee? ? Copyright © CIPFA 2016 protected under UK and international law
cipfa. org Mutual benefit Mission of internal audit: To enhance and protect organisational value by providing riskbased and objective assurance, advice and insight. Core Principles for the Professional Practice of Internal Auditing include: § § aligns with the strategies, objectives and risks of the organisation promotes organisational improvement PSIAS 2016 Copyright © CIPFA 2016 protected under UK and international law
cipfa. org Purpose of audit committees: Audit committees are a key component of an authority’s governance framework. Their function is to provide an independent and high level resource to support good governance and strong public financial management. CIPFA’s Position Statement: Audit Committees in Local Authorities and Police 2013 Copyright © CIPFA 2016 protected under UK and international law
cipfa. org Assuring, supporting, advising, guiding Audit committees add value by supporting improvement across a range of objectives: Copyright © CIPFA 2016 protected under UK and international law
cipfa. org The committee’s oversight of internal audit Internal audit needs the audit committee to fulfil many of ‘the board’ roles in the PSIAS, including: § § § approving the internal audit charter approving the risk-based internal audit plan approving the internal audit budget and resource plan audit reporting reviewing inappropriate scope or resource limitations. Copyright © CIPFA 2016 protected under UK and international law
cipfa. org Does a poor audit committee matter? ? To the organisation: § governance is weaker § audit is less effective § weaknesses, risks and control failings not addressed § accountability is reduced. To internal audit: § less support for audit § lower profile § audit issues not escalated § more difficult to meet professional standards. Copyright © CIPFA 2016 protected under UK and international law
cipfa. org So how good are audit committees? Working well – effectiveness of the audit committee in supporting internal audit: Very effective Quite effective Local authority head of internal audit 59% 37% PCC CFO 79% 21% Local authority chair 66% 31% Police chair 53% 47% Source: CIPFA Survey of Audit Committees 2016 Copyright © CIPFA 2016 protected under UK and international law
cipfa. org Positive views: § The support from the audit committee is first class and it is difficult to identify how it could better support the work of internal audit. The committee is focused on addressing control issues and making a difference in terms of how the council ensures that it provides value for money. Head of audit, English unitary council § I have always found them to be very supportive. They are willing to call responsible officers to account via attendance at committee to explain improvement plans if and when audit assurance ratings show weaknesses, or for more understanding on the management of key risks. They have always shown concern for internal audit resources being adequate and appear to appreciate the work and role of internal audit. Head of audit, English district council Copyright © CIPFA 2016 protected under UK and international law
cipfa. org Do audit committees challenge enough? Effectiveness of the audit committee in following up outstanding actions or improvement plans: Very effective Quite effective Local authority head of internal audit 41% 49% PCC CFO 61% 28% Local authority chair 51% 43% Police chair 53% 29% Source: CIPFA survey of audit committees 2016 Copyright © CIPFA 2016 protected under UK and international law
cipfa. org So what would heads of audit like to see? § Support and understanding is pretty good. However, there is always scope to challenge management more about the issues internal audit might have reported and certainly over the timely implementation of recommendations. Head of audit, English metropolitan district council Copyright © CIPFA 2016 protected under UK and international law
cipfa. org Knowledge and understanding How well do you think your audit committee understands its role in relation to internal audit? 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 1 2 3 4 5 HIA 6 Chairs Copyright © CIPFA 2016 protected under UK and international law 7 8 9 10
cipfa. org Effectiveness of internal audit How effective is internal audit in providing assurance on the areas that matter to the audit committee? 40% 35% 30% 25% 20% 15% 10% 5% 0% 1 2 3 4 5 Local Authority Copyright © CIPFA 2016 protected under UK and international law 6 Police 7 8 9 10
cipfa. org What do the results tell us? § Committees are providing good support to internal audit Scope for improvement: § developing the knowledge and understanding of the audit committee members § more questioning and constructive challenge § improving dialogue between some internal auditors and the audit committee Copyright © CIPFA 2016 protected under UK and international law
cipfa. org Other results: effectiveness Comparison of views of effectiveness of local authority and police audit committees (percentage of respondents answering ‘very effective’) Supporting the external audit process : Supporting the internal audit process : Promoting good governance to all stakeholders : Ensuring there is adequate assurance over partnerships : Explaining the committee's work to external stakeholders : Explaining the committee's work to internal stakeholders : Providing accountability to the public : Providing accountability to full council : Following up outstanding actions or improvement plans : Reviewing the risk mitigations in place for key areas of risk : Challenging governance, risk and control matters : 0% Police CFO 10% 20% 30% Local authority HIA Copyright © CIPFA 2016 protected under UK and international law 40% 50% 60% 70% 80% 90%
cipfa. org Barriers to improvement Comparison of responses to the question asking for the barriers to improvement of effectiveness of the audit committee Poor coordination of meetings and agenda papers Restrictions on the role of co-opted members Poor relationships between committee and officers Audit committee is not statutory requirement Committee not considered a priority by senior management Inexperienced chair Committee members lack interest in audit matters Lack of resources for training Lack of awareness of good practice Turnover of members on the committee Intrusion of political interests Committee not considered a priority by other members Limited knowledge or experience of members None of the above 0% 10% Police CFO 20% 30% Local authority HIA Copyright © CIPFA 2016 protected under UK and international law 40% 50% 60% 70% 80% 90% 100%
cipfa. org Barriers – views of chairs Comparison of the barriers identified by audit committee chairs Poor coordination of meetings and agenda papers Restrictions on the role of co-opted members Poor relationships between committee and officers Audit committee is not statutory requirement Committee not considered a priority by senior management Inexperienced chair Committee members lack interest in audit matters Lack of resources for training Lack of awareness of good practice Turnover of members on the committee Intrusion of political interests Committee not considered a priority by other members/PCC and CC Limited knowledge or experience of members None of the above 0% Police Chair Local authority Chair Copyright © CIPFA 2016 protected under UK and international law 10% 20% 30% 40% 50%
cipfa. org What do the results tell us? § It is possible to attract capable people – but you need to get the best out of them § Councillors have more engagement with organisation than appointed independents, but may lack knowledge and skills § Is the blended approach the best? Copyright © CIPFA 2016 protected under UK and international law
cipfa. org Looking to the future § Combined authorities § New external audit arrangements § Emergency services collaboration § New PSIAS § 2016 governance framework and impact on annual governance statement Copyright © CIPFA 2016 protected under UK and international law
cipfa. org Summing up § § Most audit committees are supportive of internal audit ……… But improvements can be made to their knowledge and skills § Audit committees could have more impact by challenging more and following through on risks and recommendations § Most internal auditors are meeting the needs of their audit committees ………. But some could engage better § § Audit committees could be more effective, particularly in relation to assurance on partnerships and explaining their role Copyright © CIPFA 2016 protected under UK and international law
cipfa. org Access the survey reports § Six briefings available to download: http: //www. cipfa. org/services/networks/better-governanceforum/corporate-governance-documentation/cipfa-survey-of-auditcommittees-in-local-authorities-and-police Other audit committee materials: § Audit Committee Update Issue 21 § Support for Audit Committees Copyright © CIPFA 2016 protected under UK and international law
cipfa. org Questions? Diana Melville CIPFA Better Governance Forum E: diana. melville@cipfa. org www. cipfa. org/Services/Networks/Better-Governance-Forum Copyright © CIPFA 2017 protected under UK and international law
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