Audit Committee Annual Report 2003/04
Introduction
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.
Membership
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.
Meetings
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.
Annex
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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