Select Committee on House of Commons Commission Twenty-sixth Annual Report

Audit Committee Annual Report 2003/04


1.  This is the fourth annual report of the House of Commons Audit Committee, which was established by the House of Commons Commission on 15 May 2000.


2.  The Committee's membership at the start of the year was:

-  The Rt Hon Eric Forth MP (Chairman);

-  Sir Archy Kirkwood MP;

-  Sir Thomas Legg KCB QC (external member); and

-  Mr David Taylor FCA (external member).

3.  The Clerk of the House, the Director of Finance and Administration, the Director of the Internal Review Service and the Secretary of the Board of Management attend meetings, although they may withdraw for specific items at the Committee's, or their own, request. The Committee's secretary is Mark Egan, Private Secretary to the Clerk of the House.

4.  Mr Oliver Heald MP replaced Mr Forth as Chairman of the Committee on 17 November 2003, following his nomination as a member of the Commission by the Leader of the Opposition, in place of Mr Forth.

5.  Sir Thomas Legg was re-appointed to the Committee for a further three years by the Commission on 14 July 2003.


Terms of Reference

6.  The Committee's terms of reference are annexed to this report.


7.  The Committee met four times in the financial year 2003/04.

Internal audit

8.  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, supplemented by a paper showing progress against the annual work programme and the balance between core audit and other work undertaken by IRS.

9.  At the Committee's request, IRS has begun to follow-up more systematically than hitherto the extent to which those of its recommendations agreed by management have been implemented. The external members of the Committee considered a report on the implementation of agreed recommendations at the end of the financial year.

10.  In July, the Director of IRS presented a paper on the future development of IRS, as a result of which the Committee asked the Clerk of the House to initiate a review of the work required from the House's internal audit function and the prevalence of, and reasons for, the outsourcing of the internal audit function in other public sector organisations. The review, which was undertaken by PricewaterhouseCoopers, made a number of recommendations about the House's internal audit requirements, principal of which were that the senior staff vacancies in IRS should be urgently filled and that the House should enter into a partnership agreement with a private sector audit provider, to supplement the work of IRS. These main recommendations were accepted: arrangements for the recruitment of a partner firm are being made.

11.  The Committee reviewed the IRS annual report for 2003/04 at its April 2004 meeting. IRS only completed 50 per cent of its internal audit programme for the year, largely because of staff shortages and uncertainty about the future development of the unit. As noted above, action has been taken to deal with these problems and the Committee expects a significant improvement next year. Nevertheless, the Committee remains 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.

12.  One of the detailed recommendations of the review of IRS was that it should develop a more formal risk-based internal audit strategy. Both the Board of Management and the Committee approved an internal audit strategy based on the analysis of high-level corporate risks by Board members, and departmental risk management work derived from this analysis, at meetings in January. The IRS work programme for 2004/05 was drawn up in accordance with the new strategy and approved by the Committee at its April 2004 meeting.

13.  The external members of the Audit Committee visited IRS on 14 January 2004.

External audit

14.   National Audit Office (NAO) staff now routinely attend meetings of the Committee and receive all of its papers and minutes, although the Committee continues to meet from time to time without auditors present.

15.  The external members of the Committee met with NAO and Department of Finance and Administration staff on 20 November to discuss the draft House of Commons: Administration Accounts for 2002/03, following which the accounts were discussed by the full Committee prior to being signed off by the Clerk of the House, as Accounting Officer. Amongst the issues raised by the Committee were the House's policy on the valuation and estimated lives of assets and the work in progress to break down expenditure according to the core tasks of the House.

16.  The Committee also received a paper on the lessons learned from the 2002/03 audit, and an audit strategy memorandum for 2003/04. It will continue to take a close interest in the annual accounts, which it is intended will this year be signed off in October.

Relations with the House of Lords Audit Committee

17.  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 met on 20 May 2003 for a general discussion of areas of mutual interest, following which arrangements were instituted for the Committees to share working papers, including agendas and minutes. A meeting between the Chairmen and external members of the two Committees is now being arranged.

Other areas of work

18.  A number of the Committee's discussions during the year concerned risk management, including approval of the internal audit strategy in January 2004. The Committee received a report on the Board of Management's proposals for monitoring high-level risks in July 2003 and discussed the outcome of the Board's work and other aspects of risk management in April 2004.

19.  The Committee was kept abreast of progress in negotiations of the parliamentary contract with the Metropolitan Police. It was also agreed that the Committee would be informed of any significant items of security expenditure as and when they arose.

20.  A value for money study of expenditure on furnishings was discussed by the Committee in November. Further value for money studies, including of contract management and cleaning services will be considered in 2004/05. The Committee also discussed a report on the first year of the House's Central Procurement Office and an IRS study of dishonesty in the workplace and a new staff policy on the subject.

21.  IRS audit reports are considered initially by the external members of the Committee, who may choose to bring matters to the attention of the full Committee. Three reports were considered in this way in 2003/04, one of which, on preparations for compliance with the Data Protection Act 1998, was discussed by the full Committee in July 2003.

22.  During the year, HM Treasury circulated a draft handbook of guidance for public sector Audit Committees, which has now been published. The Committee considered the draft handbook at its July meeting and concluded that it was complying with the principles of best practice suggested therein. It intends to keep pace with developments in best practice, as and when it is appropriate to do so.

Members Estimate audit arrangements

23.  There was again discussion 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. Although the Members Estimate is not formally a matter for the Commission, new governance arrangements were introduced in January 2004 whereby a Members Estimate Committee, with the same membership as the Commission, was appointed to oversee this area of expenditure. The external members of the Audit Committee now see reports from IRS dealing with Members Estimate matters and offer comments to the Clerk of the House and the Director of Finance and Administration.


The Committee's current terms of reference are shown below:

On behalf of the Commission, to:

-  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; and

-  report annually, the report to be published with the Commission's Annual Report.

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Prepared 6 July 2004