HOUSE OF LORDS AUDIT COMMITTEE. Monday 9 July 2018 MINUTES

Transcription

1 HOUSE OF LORDS AUDIT COMMITTEE Monday 9 July 2018 MINUTES Present: Apologies Officials Liz Hewitt (Chair) John Beckerleg Lord Fink Baroness Fritchie Lord Shutt of Greetland Lord Carter of Coles Ed Ollard (Clerk of the Parliaments) Mostaque Ahmed (Finance Director) Jonathan Smith (Head of Finance) Paul Thompson (Head of Internal Audit) Carl Woodall (Director of Facilities) Reshma Menon-Jones (National Audit Office) Elizabeth Thornton (National Audit Office) 1. Declaration of interests for the meeting on 9 July The Chair invited members to declare any interests relevant to the matters under discussion. No interests were declared. 2. Matters arising from the minutes of the meeting on 16 April The Chair updated the Committee on the progress of the agreed actions arising from the Committee s self-assessment. This included a meeting with the NAO and agreement to circulate papers 10 days prior to future meetings where practical. 3. Updates from the Commission meetings in May and July 3.1 The Chair updated the Committee on the business discussed at the Commission meetings in May and July. There was no Commission meeting in June. Business included the governance arrangements for R&R and ongoing work on bullying and harassment. 3.2 The Chair said that she had indicated that a draft Memorandum of Understanding setting out the relationship between the Shadow Sponsor Board and the Administration, considered by the Commission, did not set out the role of the Audit Committee in sufficient detail. The Memorandum will be expanded to cover this and other matters. The Commission will consider a revised paper on this topic in September. 1

2 ANNUAL REPORT AND RESOURCE ACCOUNTS [RESERVED] 4. Draft Annual Report and Resource Accounts Jonathan Smith gave a presentation, setting out the key features of the resource accounts. 4.2 Jonathan Smith explained that, shortly before the completion of the audit, the NAO raised an issue about the valuation of the Palace of Westminster. In previous years this valuation had been included in the accounts without VAT. This year the NAO had procured external advice on whether VAT should be applied to this valuation. Their conclusion was that it should. The Finance Directors of both Houses had questioned this assumption and had submitted a note to the NAO explaining their reasoning. This note was being considered by the NAO s technical team who were expected to respond to the points raised by Wednesday 11 July. 4.3 Mostaque Ahmed explained that any adjustments required as a result would need to be agreed by both Accounting Offices. If a change needed to be made this could be accommodated within the House s estimate. 4.4 Reshma Menon-Jones stated that this issue had been raised with other institutions, such as the Supreme Court. 4.5 Lord Shutt of Greetland queried the practical impact of the issue. Baroness Fritchie stated that the issue should be approached in a proportionate and balanced way. Lord Fink suggested that the Administration should take the advice of the technical team as to the appropriate resolution. [Additional information restricted access]. 4.6 The Chair noted out that the valuation of the Palace and the Parliamentary estate was a difficult area and that there was a limit to how robust any such valuation could be. 4.7 [Additional information restricted access] 5. Audit Completion Report 5.1 Reshma Menon-Jones presented the Audit Completion Report. The NAO confirmed that the VAT issue aside, the audit had gone well. The NAO would send a subsequent management letter to the Committee detailing other recommendations for future years which were not relevant to this audit. The Chair stated that this letter should be sent to the Administration and copied to the Committee. 5.2 John Beckerleg raised the issues heard by the Committee during the course of the year about strategic estates and asked how these were reflected in the completion report. Reshma Menon-Jones stated that the remit of the NAO relating to their audit of the accounts was limited, and asked that assurance on these points was sought through the internal audit process. Mostaque Ahmed pointed out that in a government department this gap would be filled by a value for money assessment. 2

3 5.3 John Beckerleg also raised the issue of overall capital underspend which could disguise long-term increases in individual project costs. Mostaque Ahmed stated that monthly information on project and programme finances was received by the Finance Directors to help them monitor this issue. The two Houses were working together to increase the quality of challenge on shared capital expenditure. 5.4 The Committee took note of the report. 6. Annual Assurance for the Financial Year 6.1 Paul Thompson introduced his annual assurance. The number of audits completed was sufficient to support the overall opinion. Paul Thompson noted that there may be resourcing challenges for the internal audit function over the next year due to staff retirements and the end of the current external audit contract. Paul Thompson stated that there would be an external reaccreditation of the internal audit team during the year and he would bring an internal audit self-assessment report to the next Committee meeting. 6.2 Paul Thompson stated that the overall opinion was moderate and noted that, all the reviews conducted over the past year that fell below this standard were in shared services. 6.3 John Beckerleg asked if there was merit in acknowledging more explicitly in the report the variation in the audit outcomes. Paul Thompson stated that he was obliged to provide a single level of assurance. The current four- point scale meant that the moderate assurance level covered a wide range. 6.4 Baroness Fritchie asked about the concern raised in relation to the Metropolitan Police Service contract that certain performance measures were of questionable value. She indicated that management should challenge KPIs that did not add value. 6.5 Summing up the advice to the Clerk of the Parliaments, Chair suggested that there may need to be early consideration of the resources available to internal audit. The Committee were concerned about the audit of shared services and hoped that the recent correspondence between Audit Committee chairs would lead to an improvement in the auditing of digital services. The Chair stated that KPIs on future contracts should be critically examined to ensure they are meaningful. 6.6 The Committee took note of the report. 7. Fraud: Annual Update Paul Thompson introduced his report. The overall assessment of the risk of exposure to fraud is moderate. The internal controls operated by the Administration are good, but the external threat is evolving and becoming more sophisticated. 7.2 The Chair asked about the risk of fraudulent activity in procurement. She asked if procurement arrangements make provision for a separate reporting line for whistleblowing if a contractor wishes to report fraudulent activity. 3

4 7.3 Lord Shutt of Greetland raised the issue of the parliamentary art collection. He understood that the Curator was retiring and asked what controls were in place when long-standing members of staff leave. Ed Ollard stated that exit interviews were routinely conducted. Lord Shutt also told the Committee that the Lord Speaker s Advisory Panel on Works of Art was unaware of the internal audit of Lords Works of Arts. 7.4 The Committee took note of the report. 8 Note to the Commission on the Annual Report 8.1 The Chair introduced the report. She stated the purpose was to highlight the key issues from the accounts. John Beckerleg suggested that the note should include the issues regarding internal audit and the difficulties presented by the audit of shared services. The Chair agreed note could be amended to reflect these comments. 8.2 Lord Shutt of Greetland stated that at the read through of the accounts he had asked for the attendance records of Commission members to be included in the annual report. Liz Hewitt explained that she intended to raise this with the Commission and to ask for the inclusion of these data in future years. 8.3 The Committee discussed the process for the sign-off of the accounts. Ed Ollard explained that until 2017 the Commission had considered the annual report and the Audit Committee had reviewed the resource accounts. The amalgamation of the two into a single document meant that this process needed to be adjusted. It had then been decided that the Audit Committee would be invited to consider the combined document. Lord Shutt asked who signed off the accounts. Ed Ollard said that he approved the accounts as Accounting Officer. The Chair stated the Lord Speaker had reconfirmed his request that the Committee review the accounts and annual report on behalf of the Commission. The Chair indicated that the terms of reference of the Committee may be altered to reflect this and that the Committee would consider this, and other possible changes to the terms of reference, at the next meeting. 8.4 John Beckerleg commented that it was helpful to be able to review the accounts in advance and that the accounts were of a very good standard. 8.5 To sum up, and giving advice to Clerk of the Parliaments, the Chair reminded the Committee that the accounts had been reviewed on a page by page basis on 13 June; the Committee had heard a presentation of the salient points in the accounts by the Head of Finance, and it had considered the combined annual report and resource accounts; it had reviewed the annual assurance statement and the annual fraud update from the Head of Internal Audit; as well as the audit completion report from the NAO. The Chair acknowledged there was an outstanding issue relating to the valuation of the Estate. She noted that both Accounting Officers needed to agree their approach to this. She asked the Committee to agree that the Accounting Officers and NAO should come to an agreement on this issue, advised by the Chair and John Beckerleg. The Committee should be informed of the outcome. The Committee agreed this approach. On the basis of the evidence presented, and 4

5 subject to the resolution of the VAT issue, the Committee was content with its review of the annual financial statements and accounts, and would recommend them to the Commission. INTERNAL AUDIT REPORTS 9 Outstanding audit recommendations 9.1 Paul Thompson introduced the report. The Chair noted the completion of a number of long-standing recommendations. The Committee noted the outstanding audit recommendations. 10 Staff Recruitment [follow up report] 10.1 Paul Thompson introduced the report. The Auditors had offered moderate assurance Baroness Fritchie raised a concern that the recommendations in the report could lead to an emphasis on process and governance requirements. The focus on the recruitment process should be on the selection of the most suitable candidate. If those involved in recruitment were focused on evidencing their compliance with processes, this could be forgotten. The Clerk of the Parliaments agreed to raise this informally with the HR Director The Committee took note. 11 Catering and Retail Services Staffing Arrangements 11.1 Paul Thompson introduced the report. The Auditors had offered moderate assurance. The Chair noted that fire life safety works leading to the closure of catering outlets would affect CRS staffing arrangements during the summer The Committee took note. 12 Open-Book Arrangements for the Cast Iron Roofs Programme 12.1 Paul Thompson introduced the report. The Auditors had offered substantial assurance. Paul Thompson explained that this was the first open-book audit conducted by the House of Lords. He emphasised that the focus of the audit was on assurance of the costs billed by the contractor, not on the costs or value of the overall programme John Beckerleg asked how the audit was conducted. Paul Thompson explained that the auditors went to the contractor s premises and conducted a detailed study of their records John Beckerleg asked if the open-book contract would be the standard for future contracts. Paul Thompson responded that whilst a more collaborative approach was being encouraged, open-book contracts would not be appropriate in all circumstances. 5

6 12.4 The Chair asked that once the new PPCS director was established in post, he should be invited to come to speak to the Committee about contracts for construction generally and R&R in particular The Chair noted that the stonework contract was over budget and behind schedule. Paul Thompson confirmed that this contract was on the Internal Audit forward plan The Committee took note. 13 Financial Support for Members 13.1 Paul Thompson introduced the report. The Auditors had offered substantial assurance. Paul Thompson confirmed that the figures in the paper were for the 2017/18 financial year The Committee took note. 14 Members Attendance Data 14.1 Paul Thompson introduced the report. The Auditors had offered moderate assurance. [Additional information restricted access] The Committee took note. REPORTS FOR INFORMATION 15 British American Parliamentary Group [substantial assurance] The Committee took note. 16 Select Committee Support Arrangements [substantial assurance] 16.1 Baroness Fritchie told the Committee that the Chair of the EU Financial Affairs Committee had raised an issue about the staffing of the Sub-Committee. Ed Ollard stated he would investigate this concern The Committee took note. 17 Contract Compliance [substantial assurance] The Committee took note. 18 Corporate Procurement Cards [moderate assurance] The Committee took note. 19 Grievance Procedures [substantial assurance] The Committee took note. 20 Parliamentary Procurement Function [moderate assurance] The Committee took note ANY OTHER BUSINESS The Chair stated that the new Chair of the House of Commons Audit and Risk Committee is Dr Rima Makarem. She will meet Dr Makarem in September. 6

7 The Chair informed the Committee that Lord McPherson of Earl s Court had agreed to join the Committee in place of Baroness Cohen of Pimlico. Lord McPherson will be appointed by the Commission at its meeting in September. The Chair informed the Committee that she had, with John Beckerleg, met the head of EPMO. A piece of work reviewing compliance with the EPMO governance arrangements was proposed. The next meetings of the Committee will be held on 16 October at 4pm [Joint Meeting] and 12 November at 4pm [Lords Audit Committee meeting] 7

8 Action Owner Deadline/status 4 Finalise the annual report and resource accounts; make any necessary changes arising from the agreement with the NAO regarding the outstanding VAT issue. 5.1 The NAO would send a subsequent management letter to the Committee detailing other recommendations for future years which were not relevant to this audit. 6.1 Present internal audit self-assessment to next Committee meeting 7.2 Clarify whether whistleblowing arrangements are included in contracts. 8.2 Raise with the Commission the possibility of including attendance data in the annual report Jonathan Smith NAO PT AW Chair Completed 16 October (joint meeting) 12 November 12 November Commission meeting in Sept 8.3 Consider changes to the Terms of Reference at the next meeting AW/Chair 12 November 8.5 Update note to the Commission and send following finalisation of the accounts Ask the new head of PPCS to brief the Committee on open book contracts. AOB Consider the audit of EPMO processes at a future meeting. AW AW PT Note sent to the Commission. Complete. Added to forward plan for seminar in March TBC 8