HOUSE OF LORDS AUDIT COMMITTEE Monday 10 July 2017 MINUTES Present: Liz Hewitt (Chair) Lord Carter of Coles Lord Fink Lord Shutt of Greetland John Beckerleg Apologies Baroness Cohen of Pimlico Baroness Fritchie Officials Ed Ollard (Clerk of the Parliaments) Jonathan Smith (Head of Finance) Angela Greenfield (Head of Financial Accounting) Paul Thompson (Head of Internal Audit) Carl Woodall (Director of Facilities) Oliver Dixon (Strategic Estates) Damian Brewitt (National Audit Office) Adam Badger (National Audit Office) Huw Richards, Deputy Director of Special Services Unit, NHS Wales 1. DECLARATION OF INTERESTS FOR THE MEETING ON 10 JULY No interests were declared. 2. COMMITTEE MET IN PRIVATE WITH THE NAO 3. MATTERS ARISING FROM THE MINUTES OF THE MEETING OF 27 MARCH There were no matters arising from the minutes of the meeting on 27 March. 4. UPDATE FROM THE COMMISSION MEETINGS IN MARCH AND JUNE 4.1 The Chair updated the members on the outcome of the meetings of the House of Lords Commission on 28 March and 28 June. Items for discussion had included security and the Restoration and Renewal programme. With regard to security, two reviews had been launched following the attack on 22 March, one concerning the perimeter security of the parliamentary estate, and another concerning the incident management framework in operation in parliament. Both reviews had reported. The Commission was due to consider the perimeter review and the administration would consider the incident management review. 4.2 The Commission meeting in June had given authorisation to let a contract jointly with the House of Commons for Client Advisory Services in relation to the 1
restoration and renewal of the Palace of Westminster (R&R). The Commons Commission had given its authorisation at a subsequent meeting. The contract was essential to undertake preparatory work for R&R and would be option neutral. It was an umbrella contract under which individual task orders would be issued, with the usual approval processes. In the light of the delay to the decision in principle and any subsequent establishment of a delivery authority, and the consequent extension of time during which the Audit Committees of the two Houses had responsibility for oversight of the programme, it was agreed by the Commission that the R&R programme would report to the Audit Committees on three occasions over the course of each calendar year. Specifically, it would report to each Committee once, and additionally to a joint meeting of the two Committees. 4.3 There had also been an update on cyber security following the recent attack. The cyber security operations team had spotted the attack; work to protect the parliamentary network was ongoing. The attack had highlighted the importance of using strong passwords for access to the network. 4.4 Mathew Duncan had been appointed as external member to the Commission. He was the Chief Financial Officer for Crossrail. 5. ANNUAL REPORT AND RESOURCE ACCOUNTS 2016-17 [RESERVED] 5.1 Jonathan Smith gave a presentation, setting out the key features of the resource accounts, which were due to be signed by the Clerk of the Parliaments the next day. 5.2 Lord Shutt noted that savings worth 1 million per annum generated by bringing inhouse the printing and publishing of House documents were to be applauded and should be publicised more widely. 5.3 Two drafting amendments were suggested and agreed. 5.4 John Beckerleg asked whether the posts of Finance and Human Resources director had been advertised. Ed Ollard responded that interviews were currently in train for both posts. The posts had been advertised on the civil service gateway and in relevant professional publications. 5.5 The Chair noted that this was the first year that the annual report and resource accounts had been combined. She thanked the team Jonathan Smith, Angela Greenfield and Judith Brooke for their work on the combined document. 5.6 6. ANNUAL ASSURANCE FOR THE 2016-17 FINANCIAL YEAR [RESERVED] Paul Thompson introduced the paper. There was evidence to support a finding of moderate assurance in relation to the overall adequacy and effectiveness of the Administration s risk management, control and governance arrangements. 6.1 John Beckerleg asked about reciprocal arrangements with the House of Commons Internal Audit service to smooth peaks caused by staff gaps or absences; and about the proposal for joining up the two services. 2
6.2 Paul Thompson answered that the protocol for sharing resources was in place. Under the terms of the protocol, if the Internal Audit team were to lose twenty days of audit work due to absence or staffing gaps, it could ask the Commons service for help with the remaining audits. He noted that there had been no need to make such a request over the past year, nor had any requests been received from the Commons. 6.3 Ed Ollard said that the decision had been made by the Joint Working programme board not to join up the two internal audit services, but to work towards closer alignment; this was underway. It was too soon to re-open the decision but it would be kept under review. Paul Thompson noted that research undertaken for the Joint Working programme board had demonstrated that 70% of audits undertaken by the Lords internal audit service were Lords-specific, and a similar proportion applied to the Commons internal audit service. 6.4 Lord Carter of Coles raised the recurring issue of the delay to the decision in principle in relation to R&R. He asked what else the Committee could do. The Chair responded that it was a difficult situation. The role of the Committee was to continue to note its concerns about the state of the building, especially in relation to the fire risk. It was within the Committee s remit to ensure that the budgeting and financial controls in relation to the R&R programme were appropriate. The Chair would continue to make such points at Commission meetings. 6.5 The Chair noted that the level of assurance had been moderate for some years and asked Paul Thompson to explain where moderate fitted in the scale. Paul Thompson explained that the four point assurance scale adopted across Whitehall defined moderate assurance as some improvements are required to enhance the adequacy and effectiveness of the framework of governance, risk management and control. The scale had recently changed from a five point scale to a four point scale and this allowed less room to demonstrate improvement below the highest level, of substantial. In his opinion the administration was operating in the upper quartile, but not at the substantial level. 6.6 The Chair noted the comments made by the House of Commons Head of Internal Audit at the meeting of the Commons Audit Committee in April, which appeared to suggest that the level of assurance in the House of Lords had been influenced by the choice of audits in the internal audit work programme. The Chair reminded the Committee that it had scrutinised the annual work programme carefully to ensure that it was appropriate and challenging. The comments by the House of Commons Head of Internal Audit needed to be challenged as a matter of record. 6.7 The Chair undertook to write to the Chair of the Commons Audit Committee. 6.8 7. FRAUD: ANNUAL UPDATE 2017 [RESERVED] 71. Paul Thompson introduced the paper. Although there were few reported incidents of fraud, and no concern from the Internal Audit team about the risk of fraud uncovered during their routine audits, it was concerning that a relatively low proportion of desk-based staff had completed the online anti-fraud training. 3
7.2 8. AUDIT COMPLETION REPORT [RESERVED] 8.1 Damian Brewitt presented the Audit completion report. NAO would be recommending to the Comptroller and Auditor General that he should certify the 2016-17 financial statements with an unqualified audit opinion. The outstanding matters set out in the report had been satisfactorily resolved and final checks would be undertaken on receipt of the signed accounts. Damian Brewitt commended the quality of the data, which had been achieved despite significant staff moves over the course of the year. He noted the ongoing and long-term trend for underspend, especially in relation to capital projects. 8.2 The Chair responded that this was a matter for the Finance Committee, rather than for the Audit Committee, whose role it was to consider the adequacy of the internal controls. The Chair undertook to refer the matter to the Finance Committee. 8.3 Damien Brewitt raised one issue of internal control relating to how Cranbourne money was used, and suggested a review of the arrangements to assess whether they remained appropriate. The Chair asked Ed Ollard to consider whether the current arrangements were suitable to give him the necessary assurance. 8.4 To sum up, the Chair reminded the Committee that the accounts had been reviewed on a page by page basis on 14 June by the Chair, and by Baroness Cohen of Pimlico and John Beckerleg; 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. On the basis of the evidence presented, the Committee was content with its review of the annual financial statements and accounts, and would recommend them to the Commission. INTERNAL AUDIT REPORTS [RESERVED] 9. REVIEW OF FINANCIAL SUPPORT TO MEMBERS 9.1 Paul Thompson introduced the paper. Auditors had offered substantial assurance. 10. REVIEW OF PARLIAMENTARY MAINTENANCE FUNCTION 10.1 Paul Thompson introduced the paper. Auditors had offered moderate assurance. 10.2 The Chair noted that the report had been submitted in March, and that the management response suggested a target date of three months for implementation of the recommendations. Given the passage of time, it was reasonable to expect the majority of the recommendations to have been implemented by now. The Chair asked for an update to be provided to Ed Ollard, Paul Thompson and herself by Friday 14 July on the status of each of the 16 recommendations in the report. 10.3 4
11. REVIEW OF FIRE SAFETY IMPROVEMENT PROGRAMME 11.1 Paul Thompson introduced the paper. Auditors had offered moderate assurance. 11.2 Questions were raised in relation to peers with restricted mobility. Carl Woodall explained that such peers had a personal evacuation plan agreed with the fire safety team. Carl Woodall wrote to the Whips on an annual basis to ask if other members had such needs. This matter was handled jointly by Ed Ollard and Carl Woodall working closely with the Whips and the Convenor of the Crossbench peers. 11.3 Lord Carter raised a question about fire drills, and ensuring these took place when a greater number of members and staff were in the Palace. The Chair said that the Services Committee was taking an interest in fire safety and that she would pass concerns about the organisation of fire drills to the Chair of the Services Committee. Ed Ollard added that this was timely as the Services Committee was meeting on 13 July to consider fire safety, including the timing of fire drills. 11.4 FOR INFORMATION: 12. REVIEW OF CONTRACT CLEANING Auditors had offered substantial assurance. 13. REVIEW OF STAFF GRIEVANCE PROCEDURES Auditors had offered substantial assurance. 14. REVIEW OF THE HISTORY OF PARLIAMENT TRUST Auditors had offered substantial assurance. FOLLOW-UP REPORTS FOR DISCUSSION: 15. HOUSE OF LORDS MEMBERS ICT EQUIPMENT 15.1 Paul Thompson introduced the paper. John Beckerleg asked whether Paul Thompson was confident that the responsible team would meet the next deadline. Paul Thompson replied that the recommendations should be simple to implement, but he was unable to offer a view on current progress. 15.2 The Committee agreed to invite the responsible manager to the next meeting of the Audit Committee if the recommendations remained outstanding by the end of September. 15.3 5
FOR INFORMATION 16. OFFICE SUPPLIES AND STATIONERY 17. BRITISH GROUP OF THE INTER PARLIAMENTARY UNION (BGIPU) 18. OUTSTANDING AUDIT RECOMMENDATIONS Paul Thompson introduced the paper. 19. DRAFT AUDIT COMMITTEE PROGRESS REPORT TO THE COMMISSION The Chair introduced the paper. 20. CORPORATE RISK REGISTER [RESERVED] 20.1 A point was made in relation to risk 3: Facilities. The target for R&R looked ambitious; it would be sensible to set targets that could be met. Ed Ollard agreed to consider this. 20.2 The Chair said she continued to have concerns in relation to the controls in place for the R&R programme. The resourcing of the Internal Audit team might need to be reviewed in the light of any additional work required. 20.3 Ed Ollard provided an outline of progress on the Millbank House Development project. 20.4 The Chair noted that there were a significant number of senior staff departures, including the Directors of Finance, HR and the Digital Service, as well as the Head of the Internal Audit Service in the Commons. It might be worth considering this as a short term risk, to be monitored over the next 12 months. Ed Ollard agreed to consider this. 20.5 [Additional data restricted access]. 20.6 21. ANY OTHER BUSINESS The Chair said that the forward work programme would be updated soon and that dates for 2018 would be considered at the same time. The Chair thanked the Committee and staff for their hard work and commitment. The next meeting of the Committee will be held on Monday 23 October 2017 at 4 pm. 6 Judith Brooke Clerk of the Audit Committee 10 July 2017
Action Owner Deadline/status To provide an update to the Chair Carl Woodall Complete on the status of each of the 16 recommendations relating to the report on the Parliamentary maintenance function by 14 July To write to the Chair of the Chair July 2017 Commons Audit Committee in relation to the Lords IA programme and level of assurance To refer concerns raised in Chair Complete relation to the trend for underspend, especially on capital projects, to the Finance Committee To refer concerns raised in Chair Complete relation to fire safety drills to the Services Committee To consider whether senior staff moves should be added to the risk register on a short term basis Clerk of the Parliaments October 2017 To invite the responsible manager to appear at the next meeting of the Audit Committee if the outstanding recommendations in relation to Members ICT equipment were not implemented by the end of September Clerk to the Committee End of September 2017 7