3 INTERNAL
AUDIT
25. The House's Internal Audit service consists
of an internal team of four auditors who work in collaboration
with an external strategic partner, currently PwC. We consider
internal audit to be a major facet of the control environment,
that is the system for checking and testing the controls and processes
designed to ensure compliance with the rules (set out in the Green
Book and associated Resolutions of the House), and reporting on
the outcome of those checks to those wanting assurance. An inadequate
control environment could mean that the Accounting Officer would
be unable to be satisfied about the sufficiency of assurance over
the use of public funds reported in the accounts. This could hamper
the means by which an external auditor could gain adequate assurance
to support their audit opinion and to confirm the proper use of
public funds. The House's Internal Audit service will have an
important role to play in an effective audit and assurance system
therefore.
26. Given high levels of public concern about
the possibility of misuse of allowances and the significant reputational
risk such misuse would pose, THE
INTERNAL AUDIT
SERVICE SHOULD
TREAT MEMBERS'
ALLOWANCES AS
A HIGH
PRIORITY FOR
THEIR WORK
PROGRAMME. INTERNAL
AUDIT STAFF
SHOULD HAVE
THE SAME
ACCESS TO
THE EVIDENCE
SUBMITTED BY
MEMBERS IN
SUPPORT OF
CLAIMS AS
THE NAO WOULD
HAVE WHEN
CONDUCTING A
FULL SCOPE
AUDIT. EACH
YEAR INTERNAL
AUDIT SHOULD,
AT A
MINIMUM, CONSIDER
ALL ALLOWANCES,
AS WELL
AS EXAMINING
THE OVERALL
GOVERNANCE AND
CONTROL ENVIRONMENT
OPERATING WITHIN
THE DEPARTMENT
OF RESOURCES,
AND THE
OPERATION OF
THE MAIN
CONTROLS OVER
PROCESSING CLAIMS
BY THE
DEPARTMENT'S
MANAGEMENT AND
STAFF.
27. In approaching their work on the Members
Estimate, Internal Audit should work with the NAO in accordance
with the principle, already agreed between them, that the NAO
should seek to place as much reliance as possible on the work
of Internal Audit, when reaching a view on the adequacy of the
control environment.
28. We recommend that the Internal Audit work
programme should include substantive testing of expense claims,
conducted in cooperation with the Department of Resources and
the NAO, so as to give the Accounting Officer assurance on the
regularity and propriety of expenditure. Substantive testing seeks
to "substantiate" the transaction behind the claim,
primarily through tests of detail such as verification of claims
by vouching to receipts or third party confirmations. Substantive
testing would include statistical analysis of data in order to
identify anomalies. Good quality records will need to be held
to underpin such testing and the Department of Resources may need
to incur some costs to improve their IT systems for data capture
and storage.
29. On 3 July the House acknowledged the need
to strengthen audit of the Additional Costs Allowance when it
agreed that "a rigorous internal system of audit of the Additional
Costs Allowance be introduced covering 25% of Members each year
and every Member each Parliament".[16]
We are not convinced that specifying a percentage of Members to
be audited each year is the best way forward. When approaching
a risk-based audit, auditors would normally assess the risk associated
with each area of expenditure in order to determine an appropriate
level of audit coverage. INSTEAD
OF AUDITING
A SPECIFIC
PERCENTAGE OR
NUMBER OF
MEMBERS, WE
RECOMMEND THAT
INTERNAL AUDIT
EMPLOY AN
APPROPRIATE, RISK-BASED
SAMPLING REGIME
DEVELOPED IN
ACCORDANCE WITH
THEIR PROFESSIONAL
STANDARDS, IN
ORDER TO
DETERMINE WHAT
PERCENTAGE OF
MEMBERS TO
AUDIT FOR
EACH ALLOWANCE.
30. The involvement of the internal audit strategic
partners, currently PwC, in the development of the detailed audit
approach for Internal Audit may enhance public confidence through
the provision of additional professional independence. However,
we expect it would be more cost-effective for the work itself
to be carried out by the in-house team than by the external partners,
even if some additional resource is required to support the Internal
Audit unit. THE INTERNAL
AUDIT STRATEGIC
PARTNERS SHOULD
BE INVOLVED
IN DEVELOPING
THE DETAILED
AUDIT STRATEGY
FOR INTERNAL
AUDIT, SUGGESTING
SAMPLING AND
TESTING REGIMES
AND DETERMINING
HOW TO
EVALUATE RESULTS.
16 Official Report, 3 July 2008, col 1121. Back
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