Local Government and NHS Audit Committee Effectiveness


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Presentation to CIPFA Audit Conference in May 11 on tips for Audit Committee effectiveness

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Local Government and NHS Audit Committee Effectiveness

  1. 1. CIPFA Audit Conference 2011Improving your audit committee effectivenessPaul Hughes - 11 May 2011©2011 Grant Thornton UK LLP. All rights reserved.
  2. 2. Content Introduction Context - the public sector audit committee The current challenge What can go wrong - examples Assurance gathering The importance of the AGS Making a difference Good practice examples Conclusion - top tips for effectiveness©2011 Grant Thornton UK LLP. All rights reserved.
  3. 3. Introduction The public sector is key market for Grant Thornton and we have the large pool of expertise and a proven track record.©2011 Grant Thornton UK LLP. All rights reserved.
  4. 4. Introduction Assurance Director and public sector specialist 17 years - Audit Commission and Grant Thornton Lead relationships with large LG and NHS clients Interest in good governance Audit and advisory reviews Grant Thornton Governance Institute National report on LG Corporate Governance©2011 Grant Thornton UK LLP. All rights reserved.
  5. 5. Context - the public sector audit committee similarities with the “The purpose of an audit committee private sector is to provide independent assurance of the adequacy of the riskdiffering public sector management framework and the associated control environment,models independent scrutiny of the authority’s financial and non-financial principles of public audit performance to the extent that it affects the authority’s exposure to risk and weakens the control environment, specific factors for local and to oversee the financial reporting process.” government (From a London Borough constitution) ©2011 Grant Thornton UK LLP. All rights reserved.
  6. 6. The public sector audit committee - role Role to provide independent assurance to the Board (or equivalent) over over Financial reporting Risk management and (i.e. the annual internal control (including accounts) scrutiny of performance) Discharged by: Discharged by: Assurance and Approving accounting policies commissioning Recommending AGS adoption Approving annual accounts role re Internal and External Receiving risk management, Considering External Audit Audit Internal Audit, External Audit, report regulatory and other reports throughout the year to gain Considering wider control reasonable assurance to issues recommend the AGS Monitoring action plan©2011 Grant Thornton UK LLP. All rights reserved.
  7. 7. Characteristics of assurance gathering For the two main areas of Audit Committee responsibility Financial reporting Risk management / internal control Simple to scope boundaries of Tougher to define boundaries of responsibility responsibility Objective Subjective Committee work loaded towards Year round gathering of assurance year end Few reports and sources of evidence Lots of reports and sources of to consider evidence to potentially consider©2011 Grant Thornton UK LLP. All rights reserved.
  8. 8. Unprecedented times making the auditcommittee agenda more challenging… large funding reductions over SR period pressure on senior officer pay demand for greater transparency major organisational change outsourcing and shared services loss of capacity and capability©2011 Grant Thornton UK LLP. All rights reserved.
  9. 9. What can go wrong - some examples panic response - 24 items and 3 inch thick papers gaps/duplication - unclear boundaries with executive/scrutiny / management party politics - wood for the trees proportionality - meals on wheels example agenda management - ground rush©2011 Grant Thornton UK LLP. All rights reserved.
  10. 10. Obtaining assurance over financial reporting Audit Committee responsibilities clearer, however: progress updates on issues and resolution early review of accounting policies training on interpreting the accountsfinancial expertise challenging finance team resources follow up of ISA260 recommendations©2011 Grant Thornton UK LLP. All rights reserved.
  11. 11. Obtaining assurance over risk management andinternal control More complicated… audit committees have limited time "reasonable assurance" most efficient means of obtaining the required assurances start with AGS and work back to design workplan clarity over flows of assurance into the committee©2011 Grant Thornton UK LLP. All rights reserved.
  12. 12. Importance of the AGS In LG, AGS are largely: • still in the "compliance phase" • not at the heart of governance processes • weak in clearly articulating annual assurances • unclear in reporting "significant weaknesses." To add real value we believe the AGS should: • have greater status as the key document that records the planned and obtained assurances over achievement of the vision and strategic objectives • be owned from the top, used to plan and monitor internal and external assurance gathering throughout the year • be fundamentally reviewed each year so that it clearly includes what is significant and excludes what is not • have only significant weaknesses recorded with SMART action planning • provide a robust, transparent and honest assessment of the governance framework for the year.©2011 Grant Thornton UK LLP. All rights reserved.
  13. 13. Making a difference in challenging times Some messages from our March 2011 workshop with Audit and Scrutiny Members: Where joint When major Audit committees arrangements or organisational can increase their shared services change is being effectiveness by: are being undertaken • ensuring that their introduced, audit an audit committee members have committees can: can: access to • seek a clear • ensure that a appropriate statement as to robust risk training what outcomes assessment has • including lay are envisaged, to been carried out members provide a • ensure that the • ensuring that they benchmark internal audit plan take the against which covers the perspective of "demonstrate impact from your work" performance can changes relevant be judged • demand robust stakeholders into • ensure that assurances over account. "focus on what really matters" appropriate areas of concern. internal controls are in place.©2011 Grant Thornton UK LLP. All rights reserved.
  14. 14. Audit Committee effectiveness - some examples cracking the whip - implementing recommendations flexing the agenda to reflect new risks - Iceland strategic risk driving the agenda in social housing board secretary keeping meetings on track briefings, training and walking the floorfresh challenge on debt collection "guess the party" - minimising the politics©2011 Grant Thornton UK LLP. All rights reserved.
  15. 15. Conclusion - top tips for effectiveness Establishing or reviewing the committee: • appropriate, tailored, up to date terms of reference, reviewed alongside scrutiny • membership - good chair supported by audit and financial expertise (including lay members and planning for future role) • officer support - board secretary role. Subjective Planning for the year: • focus on end point of assurance for AGS • members to own the agenda and ensure that this reflects key risks facing the organisation • workplan and meeting schedule to flow from this, as well as required training and briefings.©2011 Grant Thornton UK LLP. All rights reserved.
  16. 16. Conclusion - top tips for effectiveness During the year: • pre-meetings (including audit) to organise and prioritise agenda • obsessive focus on assurance gathering for the AGS and speaking up / call officers in if not getting what is needed Year end: • hard challenge on anything that threatens • challenge the effectiveness to soak up committee time that is not key of the AGS to assurance gathering (interesting • ensure explanations on the distractions / too much detail) accounts are clear and • awareness of tendency to drift into satisfactory scrutiny/executive/management roles • prepare a report on the (policing role but assurance that it is effectiveness of the being covered in the appropriate place) committee during the year • willingness to flex workplan / additional • feed improvements into meeting / subgroup to deal with next years plan. emerging important issues and risks.©2011 Grant Thornton UK LLP. All rights reserved.
  17. 17. www.grant-thornton.co.uk © 2011 Grant Thornton UK LLP. All rights reserved. "Grant Thornton" means Grant Thornton UK LLP, a limited liability partnership. Grant Thornton UK LLP is a member firm within Grant Thornton International Ltd (Grant Thornton International). Grant Thornton International and the member firms are not a worldwide partnership. Services are delivered by the member firms independently. This proposal is made by Grant Thornton UK LLP and is in all respects subject to the negotiation, agreement and signing of a specific contract/letter of engagement. The client names quoted within this proposal are disclosed on a confidential basis. All information in this proposal is released strictly for the purpose of this process and must not be disclosed to any other parties without express consent from Grant Thornton UK LLP©2011 Grant Thornton UK LLP. All rights reserved.