Scope of Responsibility

As Accounting Officer, I have responsibility for maintaining a sound system of internal control that supports the achievement of the policies, aims and objectives of the House of Lords Administration, whilst safeguarding the public funds and assets for which I am personally responsible, in accordance with the responsibilities assigned to me in Managing Public Money.

Purpose of the System of Internal Control

The system of internal control is designed to manage risk to a reasonable level rather than to eliminate all risk of failure to achieve policies, aims and objectives; it can therefore only provide reasonable and not absolute assurance of effectiveness. The system of internal control is based on an ongoing process designed to identify principal risks to the corporate objectives of the House of Lords Administration; to evaluate the likelihood and impact of those risks being realised; and to manage them efficiently, effectively and economically. The system of internal control has been in place throughout the House of Lords Administration during the year ended 31 March 2010 and up to the date of approval of the annual report and accounts, and accords, as far as is practicable, with HM Treasury guidance.

Capacity to Handle Risk

It is House of Lords policy to integrate risk management into all areas of business activity and to ensure that all significant business decisions are informed by appropriate consideration of the likely risk consequences. The risk management system supports this objective. The system is owned by the Management Board and is subject to oversight by the Audit Committee.

Each corporate risk of the House of Lords Administration has a nominated risk owner on the Management Board. These officials are responsible for ensuring that the risks allocated to them are managed effectively in accordance with the Administration's risk strategy, and for reporting relevant risk information to the Management Board according to a defined timetable.

The Secretary to the Management Board is responsible for maintenance of the House of Lords corporate risk register. This is updated on a monthly basis using input provided by corporate risk owners and has, since the Autumn of 2009, been considered at every meeting of the Management Board.

Heads of Offices have been provided with appropriate guidance material and support to allow them to assess risk within their own areas of responsibility. Each Office is asked to identify and assess key risks to the achievement of its strategic objectives. These risks are referred to in the business plans of each Office and are described in detail in Office risk registers.

The Risk and Control Framework

Risk Management

The Management Board, the Audit Committee and the House Committee all contribute to the development of the risk and control framework. The Management Board has primary responsibility for the development of risk management policy and for implementing appropriate and effective strategies for the management of all corporate risks. The Audit Committee has responsibility for reviewing the Administration's approach to risk and for considering and advising on prevailing exposure levels. The Audit Committee provides assurances on the effectiveness of risk management to me, as Accounting Officer, and, via its annual report, to the House Committee. The House Committee is also informed of any substantive change of policy in this area.

All House of Lords Offices are required to maintain separate risk registers; these are the primary means by which Heads of Offices report the management of risk. Each register requires an assessment of the extent to which corporate risks are being managed at Office level. For each risk there is an assessment of exposure and an identified Office level risk owner. Heads of Offices are required to submit updated risk registers on a quarterly basis. These are used to prepare risk reports for all corporate risk owners on the Management Board.

The responsibilities of all involved in the Administration's risk management processes, including the roles exercised by Internal Audit and the Business Planning Group, are included as an annex to the House of Lords risk strategy. The risk strategy document has been circulated to all Offices within the Administration.

I consider that an effective system of risk management is embedded in all significant areas of the House of Lords Administration. I believe it delivers an appropriate and proportionate level of control to all operational activities for which I am responsible.

Information Risk

Work has continued during 2009-10 to strengthen House of Lords management of information and data security risks. Key roles and responsibilities in this area are clearly defined, with primary responsibility delegated to the Reading Clerk as Senior Information Risk Owner. Information assurance arrangements were subject to internal audit review during 2009-10 using current Cabinet Office guidelines as a basis of assessment. Although the report offered partial assurance in terms of the current situation, it pointed to several important initiatives now in train, all of which are expected to be completed during 2010-11. I have asked the Head of Internal Audit to reassess the position at an appropriate point after completion of this work.

External Assurance

Internal financial control is achieved through a framework of regular management information, administrative procedures including segregation of duties, and financial delegation and accountability. However, there are some significant areas of expenditure for which I am responsible but for which day-to-day operational control and financial management has been devolved to external parties. For these areas I seek additional assurances as follows:

• The calculation of certain shared service costs and shared asset values is undertaken in the House of Commons and incorporated into the House of Lords Resource Account. I have received an assurance from the Accounting Officer in the House of Commons regarding the adequacy of the accounting systems used to determine this information.

• Charges under the Palace of Westminster Special Services Agreement include direct and indirect costs, and an apportionment of Metropolitan Police overheads. I have obtained written assurance from the Metropolitan Police concerning the probity of these charges.
• A scheme for providing financial assistance to opposition parties - generally referred to as Cranborne Money - was introduced in 1996. I have no direct control over the expenditure involved but am provided annually with professional audit certificates by each of the main opposition parties and by the Convenor of the Cross-Bench Peers.

I am content to rely on these three sources of external assurance

Review of Effectiveness

As Accounting Officer, I have responsibility for reviewing the effectiveness of the system of internal control and for ensuring continuous improvement. A key source of assurance is the Internal Audit section which operates to defined Government Internal Audit Standards. Based on review work delivered during 2009-10, the Head of Internal Audit has provided a substantial overall assurance on the strength of House of Lords risk management, control and governance processes.

The review of effectiveness is further informed by the work of executive managers within the House of Lords who have responsibility for the development and maintenance of the internal control framework, and by comments made by the external auditors in their management letter and other reports. I am also guided by the views of the Audit Committee and the Management Board. All Management Board members have been asked to prepare specific declarations regarding the strength of internal control arrangements in the areas for which they are responsible. These have provided supporting evidence to me as Accounting Officer and have helped to underpin this Statement.

Payments made under the House of Lords Members' Reimbursement Scheme continue to comprise a significant proportion of the expenditure for which I am responsible. Early in the year criticisms were made in the media about the Scheme, in particular the absence of controls over the designation of Members' main residences and of vouching or receipts in support of claims. On the initiative of the House Committee, the Scheme was referred for independent review by the Senior Salaries Review Body which published its report in November 2009.

Responding to the SSRB's recommendations, it was agreed that from the start of the new Parliament (18 May 2010) all Members seeking to claim night subsistence must sign a declaration stating the location of their principal residence and provide copies of documents from an approved list to verify that the principal residence is outside Greater London. These declarations will be published. Under a new Code of Conduct for Members (which also came into effect on 18 May), all complaints about Members' conduct, including complaints about expense claims, will be considered by a new office of Lords Commissioner for Standards. The position of the independent Lords Commissioner for Standards is enshrined in the new Lords Code of Conduct, and Paul Kernaghan, former Chief Constable of Hampshire Constabulary, was appointed as the Lords' first Commissioner for Standards on 2 June 2010. The other SSRB recommendations about expenses remain under consideration.

Several complaints were made against Members of the House of Lords, the investigation of which fell to me as Accounting Officer. As part of the investigative process, and to allow a more objective assessment of complaints about past claims, the House Committee endorsed my proposal for a minimum requirement to reside at an address deemed to be a main residence, below which it would not be acceptable to claim overnight subsistence. All of my investigations are now complete with some having been referred to the Sub-Committee on Lords' Interests (now the Sub-Committee on Lords Conduct).

Control arrangements governing payments to Members are already considerably strengthened and will be reassessed once the House has responded formally to the latest SSRB recommendations.

Michael Pownall

Clerk of the Parliaments and Accounting Officer

16 July 2010