Audit Committee Annual Report 2002/03|
1. This is the third Annual Report
of the House of Commons Audit Committee, which was established
by the House of Commons Commission on 15 May 2000. The Committee
was formed following recommendations in the Review of Management
and Services of the House of Commons by a team led by Mr Michael
Braithwaite, which was published by the Commission in July 1999.
2. The Committee's membership
at the start of the year was:
- The Rt Hon Eric Forth MP (Chairman);
- Mr Archy Kirkwood MP;
- The Clerk of the House;
- The Director of Finance and Administration; and
- Sir Thomas Legg KCB QC (external member)
Lord Sharman's review of audit
and accountability for central government recommended that audit
committees should not include the accounting officer or the principal
finance office amongst their membership and this recommendation
was accepted by the Government.
In consequence, since 29 April 2002, the Clerk of the House and
the Director of Finance and Administration have not been members
of the Committee. At the same time, the Commission agreed to the
Committee's request for the appointment of a second external member
of the Committee. Mr David Taylor FCA was subsequently appointed
to the Committee.
3. The Clerk of the House and
Director of Finance and Administration continue to attend meetings,
although they may withdraw for specific items at the Committee's,
or their own, request.
4. Sir William McKay KCB retired
as Clerk of the House on 1 January 2003 and was replaced by Mr
Roger Sands. Mr Kirkwood was awarded a knighthood on 1 January
Terms of Reference
5. The Committee's terms of reference are included
as an annex to this report. The Committee held a special meeting
on 11 March 2003 to discuss its terms of reference in light of
the recommendations of the review of the role and responsibilities
of audit committees led by Sir Robert Smith.
It recommended to the Commission two changes to its terms of reference:
firstly, to make it clearer that the Committee acts on behalf
of the Commission; and secondly, to enable the Committee to monitor
and review the external auditor's independence, objectivity and
effectiveness, and to make recommendations to the Commission about
the external auditor's appointment. This latter recommendation
reflected one of the conclusions of the Smith report. The Commission
agreed to the changes on 7 April 2003.
6. The Committee met four times in the financial
year 2002/03, including the special meeting referred to above.
It also held an informal meeting to discuss emerging best practice.
Relationship with the internal auditor
7. The Committee routinely receives an oral report
at its meetings from the Director of the Internal Review Service
(IRS) on the work of his unit. It agreed the IRS programme for
2003/04 and expects to discuss a paper from the Director of IRS
on the future development of the unit during 2003/04.
8. The Committee reviewed the IRS annual report for
2002/03 at its April 2003 meeting. It is satisfied that the scope
and nature of the work of IRS adequately underpins the assessment
of the Accounting Officer on the system of internal control.
9. The Chairman of the Audit Committee visited IRS
on 31 March. His visit included a meeting with staff at which
the Director of IRS was not present.
10. The Committee has instituted new arrangements
for monitoring reports from IRS and the responses they receive
from management. These are now sent directly to the external members
of the Committee, who may take matters up with management on the
Committee's behalf. The external members may also report back
to the Committee on significant matters. The new arrangements
began in January 2003 and two reports have so far been dealt with
in this way.
Relationship with the external auditor
11. The Committee has strengthened its links with
the House's external auditor, the Comptroller and Auditor General,
Sir John Bourn, and his staff of the National Audit Office (NAO).
Discussion with NAO representatives has been a routine feature
of the Committee's meetings, and the NAO received a note of the
Committee's deliberations. The Committee also met with the NAO
in a separate session, without the presence of the Accounting
Office and his staff.
12. Following discussion of the Smith report, and
the broadening of the Committee's terms of reference, the NAO
will from now on have greater access to the Committee's papers
and meetings, although the Committee will continue to meet from
time to time without auditors present.
Relations with the House of Lords
13. The House of Lords Audit Committee was set up
in summer 2002, under the chairmanship of Lord Alexander of Weedon.
The chairmen of the two Audit Committees plan to meet to discuss
topics of common interest. The Committee looks forward to working
with its Lords counterparts in 2003/04.
Principal areas of work
14. The Committee took a close interest in the House
Administration accounts for 2001/02, which were the first to be
based on accruals rather than cash. This issue provided the main
subject for discussion between the Committee and NAO representatives.
The Committee intends to continue to oversee the preparation of
the annual accounts. It has asked the NAO for its audit strategy
memorandum for the 2002/03 accounts and for a paper on lessons
learned during the preparation of the 2001/02 accounts.
15. Scope for joint working between the NAO and IRS
has also been an issue of interest to the Committee.
16. The Committee considered an IRS value for money
study of procurement policy, and the management response to it,
at its July 2002 meeting. IRS agreed to monitor the progress made
in implementing the study's recommendations, which included the
establishment of a House-wide procurement service. The Committee
is likely to look again at this area in 2003/04.
17. The Committee also discussed security expenditure,
an issue to which it may return in 2003/04.
18. IRS were asked for a breakdown of the different
areas which could be covered in a value for money study of facilities
management. Utilities and office services were identified as areas
for further work. IRS have been invited to specify how this work
could be undertaken during 2003/04.
19. Risk management has again been a major issue
of concern to the Committee. An IRS paper on the House's compliance
with the Turnbull report on internal controls was discussed.
The Committee agreed to return to the issue of compliance by 2005.
The Board of Management has recently discussed an IRS paper on
risk management, and the Committee intends to take an interest
in the Board's decisions on this matter.
20. Discussions of the Committee's role and responsibilities
led to some consideration of the arrangements for scrutinising
expenditure from the Members' Estimate, on, for example, Members'
salaries and allowances. The Members' Estimate is laid before
Parliament by the Government and is supervised by The Speaker:
it is not a matter for the Commission and is therefore currently
beyond the remit of the Committee.
The Committee's current terms of reference are shown
below, with the additions agreed by the Commission on 7 April
2003, on the recommendation of the Committee, shown in italics:
On behalf of the Commission,
- have general oversight of the work of internal
audit and review, with particular emphasis on promoting economy,
efficiency and effectiveness, on value-for-money studies, and
on risk assessment and control assurance;
- receive and consider reports from the Internal
Review Service (IRS), together with management letters and other
external audit material;
- monitor and review the external auditor's
independence, objectivity and effectiveness, and to make recommendations
to the Commission about the external auditor's appointment;
- advise the Accounting Officer in the exercise
of his responsibilities;
- consider and recommend to the Accounting Officer
the internal review programme;
- encourage best financial practice, use of resources
and governance in the House administration;
- report annually, the report to be published with
the Commission's Annual Report.
32 Holding to Account: the Review of Audit and Accountability
for Central Government, Lord Sharman of Redlynch, Feb 2001,
and the Government's response, HM Treasury, Cm 5456, Mar 2002 Back
Audit Committees: Combined Code Guidance, report to the
Financial Reporting Council by Sir Robert Smith, published Jan
Internal Control, Institute of Chartered Accountants, Sep
99 (known as the Turnbull Report) Back