AUDIT AND RISK COMMITTEE: TERMS OF REFERENCE 1. CONSTITUTION 1.1. The Audit and Risk Committee is a Committee of the Board of Trustees. 1.2. The Delegations to all such Committees including the Audit and Risk Committee is laid down in the Board of Trustees Scheme of Delegation. 2. PURPOSE 2.1. The Committee shall provide assurance and recommendations to the Trust on the effectiveness of its governance, internal control and risk management framework, including ensuring that risk management does not inhibit innovation. 2.2. The Committee shall identify any matters where it considers that action or improvement is needed, make recommendations as to the steps to be taken and report its work, conclusions and any recommendations to the Trust. 3. DELEGATIONS 3.1. The Board has delegated specific decisions to Board Committees, including the Audit and Risk Committee, via its formal Scheme of Delegation. These delegations are reproduced in Appendix 1. 4. DUTIES AND RESPONSIBILITIES Risk management 4.1. The Committee shall: 4.1.1. Consider and make recommendations to the Board on the effectiveness of the Trust s risk management framework by an informed assessment of the risks to the Trust s objectives and by reference to a clear definition of the types and levels of risk considered acceptable and of compliance with the appropriate controls, standards and processes and regulatory requirements 4.1.2. Review reports from management and Internal Audit on the effectiveness of risk management 4.1.3. Challenge management s identification and assessment of gross and residual risk, by bringing their own experiences- and the experiences of others- to bear. External audit 4.2. The Committee shall:
Page 2 of 6 4.2.1. Make recommendations to the Board to Trustees regarding the appointment, resignation or dismissal of the external auditor 4.2.2. Approve the remuneration and terms of engagement of the external auditors (following delegation to the Board at the Annual General Meeting) 4.2.3. Agree in advance the external audit strategy 4.2.4. Review the performance of the external auditors, including: the cost effectiveness of the audit the independence and objectivity of the external auditor, ensuring that key partners are rotated at appropriate intervals whether the external auditor has delivered the agreed audit strategy including understanding any changes in perceived audit risks and the work undertaken by the external auditors to address those risks the external auditors quality control procedures and steps taken by the auditor to respond to changes in regulatory and other requirements the robustness and perceptiveness of the external auditors in their handling of the key accounting and audit judgements identified and in responding to questions from the Committee feedback about the conduct of the external audit from key people involved, including the Finance and Corporate Services Director and the Head of Internal Audit. 4.2.5. Approve any fees in respect of non-audit services provided by the external auditor in excess of the limit approved by the Committee 1 and to ensure that the provision of non-audit services does not impair the external auditors independence or objectivity. The Trustees Annual Report and Accounts 4.3. The Committee shall approve the Trust s accounting policies before the Annual Report and Accounts are prepared. 4.4. The Committee shall review the statement on internal control and management of risk for inclusion in the Trustees Annual Report and Accounts. 4.5. The Committee will receive the auditor s report. 4.6. The Committee shall review the Trustees Annual Report and Accounts before submission to the Board, taking account of: 4.6.1. All relevant reports made by the external auditor, and management s response to those reports 4.6.2. All relevant reports made by the Finance and Corporate Services Director, including those which relate to compliance with the appropriate Statement of 1 In June 2014 the Audit and Risk Committee set this limit at 20,000
Page 3 of 6 Recommended Practice, and other regulatory requirements including Charity Commission requirements. 4.6.3. Key accounting and audit judgements, particularly decisions or estimates requiring a major element of judgement, or proposed accounting treatment for significant or unusual transactions 4.6.4. Levels of errors identified during the audit, obtaining explanations from management and, where necessary the external auditors, as to why certain errors might remain unadjusted 4.6.5. the extent to which the financial statements are affected by any unusual transactions in the year and how they are disclosed 4.6.6. the Going Concern assumption. 4.7. The Committee will receive and review the draft letter of representation before signature by management and give particular consideration to matters where representation has been requested that relate to nonstandard issues. The Committee should consider whether the information provided is complete and appropriate based on its own knowledge. Internal audit 4.8. The Committee shall: 4.8.1. Approve the Internal Audit Charter, Strategy and annual plans, in advance 4.8.2. Ensure that the internal audit function is adequately resourced and has appropriate standing within the Trust. 4.9. Consider annually the effectiveness of Internal Audit, and feedback the results to the Head of Internal Audit. 4.10. Review reports from management and Internal Audit on the effectiveness of systems for internal control, financial reporting and risk management. Governance and internal control 4.11. The Committee shall: 4.11.1. Consider and make recommendations to the Board on the effectiveness of the Trust s governance and internal control framework 4.11.2. Ensure that the Trust complies with Charity Commission requirements relating to Serious Incident reporting 4.11.3. Review the effectiveness of procedures for handling allegations from whistleblowers 4.11.4. Review standards and processes for preventing or detecting fraud, corruption and bribery 4.11.5. Ensure that management have devised, implemented and published a Competition Law Compliance Code of Practice
Page 4 of 6 4.11.6. Monitor any complaints of non-compliance with the Competition Law Compliance Code of Practice made under the internal complaints procedure or Waterways Ombudsman Scheme, or any threatened or actual legal action against the Trust which alleges breaches of competition law, and where considered appropriate to make recommendations in a timely manner. Annual Review 4.12. The Committee Chair shall ensure that Committee members conduct an annual review of their work and these Terms of Reference, and make any recommendations to the Trust. 5. MEMBERSHIP 5.1. The Committee shall normally comprise at least 4 Trustees, all of whom shall be appointed by the Board of Trustees. The Chair of the Board of Trustees may attend but may not be a member of the Committee. 5.2. The Committee Chair shall be appointed by the Board of Trustees. 5.3. At least one member of the Committee shall have significant, recent and relevant financial experience. 5.4. The quorum for meetings shall be set as one plus one third of the number of Committee members (rounded to the nearest number) 2. 5.5. The Committee Chair will ensure there will be an induction programme for new Committee members and that training takes place on an ongoing and timely basis for all members. 5.6. In accordance with paragraph 10.2.4, the Committee may co-opt an external non- Trustee with relevant experience to assist the Committee with its work. 5.7. If a regular member is unable to act due to absence, illness or any other cause, the Chair of the Trustees may appoint another member of the Board of Trustees to serve as an alternate member provided that at any time there is only one alternate member. 6. ATTENDANCE 6.1. The Chief Executive, Finance and Corporate Services Director, General Counsel, Head of Governance Audit & Risk, the Head of Internal Audit and the external auditors may attend meetings at the standing invitation of the Committee, but in accordance with the delegations set out in paragraph 10.2.6 may be asked not to attend. 6.2. The Committee may invite other Trustees, Council members, other executive directors, staff or advisers to attend meetings when appropriate in accordance with paragraph 10.2.6. 6.3. The Company Secretary (or his/her nominee) shall act as the Secretary of the Committee. 2 The quorum for Committees with 5, 6 or 7 members is therefore 3 and the quorum for Committees with 3 or 4 members is therefore 2.
Page 5 of 6 6.4. In determining whether Committee members are participating in a Committee meeting, it is irrelevant where any Trustee is or how they communicate with each other provided that they communicate with one another simultaneously. 6.5. Professional advisers appointed under paragraph 10.2.5 may also attend meetings. 6.6. Except as outlined above, the meetings of the Committee shall be conducted in accordance with the provisions of the Trust s Articles of Association governing the proceedings of the Board of Directors. 7. FREQUENCY OF MEETINGS 7.1. The Committee shall meet not less than 3 times a year and at such other times as it considers necessary. Meeting should coincide with key dates in the Trust financial reporting and audit cycle. 7.2. The frequency and timing is decided by the Committee Chair. Any member of the Committee, the Chief Executive or the Chair of the Trust may ask the Committee Chair to hold a meeting. 7.3. External auditors or the Head of Internal Audit may request the Committee Chair to convene a meeting if they consider that one is necessary. 7.4. There shall be at least one meeting a year during which the Committee can meet the external auditors without management present. 7.5. There shall be at least one meeting a year during which the Committee can meet the Head of Internal Audit without management present 7.6. The Head of Internal Audit shall be given the right of direct access to the Chair of the Committee. 7.7. Notice of each meeting confirming the venue, time and date together with an agenda of items to be discussed shall be forwarded to each member of the Committee no less than 5 working days prior to the meeting. 8 RECORD OF MEETINGS AND DECISIONS 8.1 The Secretary shall minute the proceedings and recommendations of all meetings of the Committee and keep appropriate records. Minutes of the meetings shall be circulated to all Trustees. 8.2 If an urgent decision is required between meetings, the Committee Chair may deem it appropriate for such a decision to be ratified by email. Where this is the case, the Secretary shall record this as an addendum to the minutes of the previous meeting. 9 REPORTING 9.1 The Committee Chair shall report the proceedings of the Committee to the next meeting of the Board of Trustees. 9.2 The Committee s duties and activities during the year shall be disclosed in the Trustees Annual Report and Accounts.
Page 6 of 6 Appendix 1 10 DELEGATIONS 10.1 The Board of Trustees has formally delegated certain decision to its Board Committee, via its approved Scheme of Delegation. 10.2 All Board Committees have the power to: 10.2.1 Approve its own agenda (via the Committee Chair) 10.2.2 Investigate any activity within its Terms of Reference 10.2.3 Seek information from any employee of the Trust 10.2.4 Co-opt independent members from outside the Trust Board, provided that Trustees remain in a majority on the Committee. Independent members may serve for a maximum period of 3 years, with the ability to be re-appointed for a further period of one term 10.2.5 Appoint independent professional advisers relevant to its Terms of Reference at the Trust s expense 10.2.6 Require any member of the Executive, or any employee nominated by a member of the Executive to attend their meetings, or ask them to not attend meetings. 10.3 The Board s Scheme of Delegation gives the following powers to the Audit and Risk Committee: 10.3.1 Make recommendations to the Board for the appointment of external auditors 10.3.2 Approve the remuneration and terms of engagement of the external auditor (following delegation to the Board at the AGM) 10.3.3 Approve the external audit strategy 10.3.4 Approve Internal Audit Charter, Strategy and annual plans 10.3.5 Make recommendations to the Board on the effectiveness of the Trust s risk management and internal control framework 10.3.6 Review the Trustees Annual Report and Accounts before submission to the Board, and to receive the Auditor s report and the draft letter of representation 10.3.7 Make recommendations to the Board on the publication of the statement on internal control and management of risk for inclusion in the Trustees Annual Report and Accounts 10.3.8 Approve changes to accounting policies. 18632w