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Audit, Governance & Standards Committee

16 September 2019

 

Internal Audit Charter

 

Final Decision-Maker

Audit, Governance & Standards Committee

Lead Head of Service

Rich Clarke, Head of Audit Partnership

Lead Officer and Report Author

Rich Clarke, Head of Audit Partnership

Classification

Public

Wards affected

All

 

Executive Summary

 

The report proposes an updated Internal Audit Charter.† The Charter is a key document that sets out the roles and responsibilities of the Councilís internal audit service and its relationships with officers and Members.† It is updated to reflect changes in standards and audit practice, most notably to reflect the Committeeís expressed wish for greater engagement where internal audit issues adverse audit opinions.

 

Purpose of Report

 

Decision

 

 

This report makes the following recommendations to this Committee:

1.   That the internal audit charter be approved.

 

 

Timetable

Meeting

Date

Audit, Governance & Standards Committee

16 September 2019



Internal Audit Charter

 

1.       CROSS-CUTTING ISSUES AND IMPLICATIONS

 

Issue

Implications

Sign-off

Impact on Corporate Priorities

We do not expect the recommendation will by itself materially affect achievement of corporate priorities.  However, it will support the Councilís overall achievement of its aims by enhancing its governance.

Rich Clarke

Head of Audit Partnership

 

4 September 2019

Cross Cutting Objectives

The recommendation is not directly relevant to the cross cutting objectives, but will enhance the Councilís overall governance.

 

Risk Management

See body of report.

 

Financial

The proposals set out in the recommendation are all within already approved budgetary headings and so need no new funding for implementation.

Staffing

We will deliver the recommendation with our current staffing.

Legal

Accepting the recommendations help will fulfil the Councilís duties under the Accounts & Audit Regulations 2015.  Failure to accept the recommendations without agreeing suitable alternatives may place the Council in breach.

Privacy and Data Protection

Accepting the recommendation will increase the volume of data held by the Council.  We will hold that data in line with our retention schedules.

Equalities

The recommendation does not propose a change in service therefore will not require an equalities impact assessment

Public Health

The recommendation will not negatively impact on population health or that of individuals.

Crime and Disorder

The recommendation will not in itself have any impact on crime and disorder.

Procurement

The recommendation requires no new procurement to implement.

 

 

 


 

2.††††† INTRODUCTION AND BACKGROUND

 

2.1†††† Public Sector Internal Audit Standards (the ďStandardsĒ) prescribe a Charter that sets out the purpose, authority and responsibility of the Councilís internal audit service.† The Charter also affirms and accepts the professional standards governing the practice of internal audit at the Council.

 

2.2†††† This Committee approved a previous version of the Internal Audit Charter.† The Council must review and update the Charter periodically to reflect changes in Standards and practice, most notably the 2017 update to Standards.† The Charter attached for approval draws from a model document published by the Institute of Internal Audit (IIA), adapted for the Councilís circumstances and edited for clarity.

 

2.3†††† An Audit Charter is prescribed by Public Sector Internal Audit Standards (Standard 1000) and is a foundational document setting out the size and scope of the service.†† A partial extract, describing the Standards requirement is below:

 

Screen Shot 2015-02-16 at 11

 

2.4†††† Later this year the internal audit service will undergo an External Quality Assessment on conformance with the Standards.† Ahead of that assessment provides a good opportunity to revisit the Charter and update it for changes to Standards and development of audit practice.† We have also taken the opportunity to clarify and simplify the Charter.

2.5†††† Notable sections of the Charter include:

 

-       Confirmation of adherence to the Standards and various other regulatory and professional guidance (paragraphs 3-5 of the Charter)

-       Description of the Committeeís role in support internal auditís independence and effectiveness (paragraphs 8-10 of the Charter)

-       Confirmation of Mid Kent Auditís operational independence and details of how to identify and resolve conflicts of interest (paragraphs 12-19)

-       The quality standards of internal audit and how these will be maintained (paragraphs 21-25)

-       Responsibilities of the Head of Audit Partnership for the service (paragraphs 26-27).

 

2.6†††† We also draw to Membersí attention the final bullet point under paragraph 8 in the Charter: ď[The Committee will support the work of internal audit by] requiring suitable explanations of planned actions from lead officers, including through attendance in person, following adverse engagement opinionsĒ.

 

2.7†††† This section, an addition to previous Charters, reflects discussion at the previous Committee.† In that discussion, Members expressed a desire to help support improvement in the Councilís operation and governance by engaging directly with areas receiving adverse (that is, weak or poor) audit opinions.

 

2.8†††† The Charter sets out that expectation but is not prescriptive on how it is exercised.† This is because the circumstances of adverse audit opinions, of which we see 2-4 in a typical year, will vary between those with quickly remedied technical issues to those with more deep-rooted or pervasive weaknesses.† Accordingly, we expect the nature and extent of Members engagement will vary but will have a baseline assumed level of seeing the audit report in full, receiving a report in person from a relevant service officer and at least one follow up note subsequently when matters reach resolution.

 

2.9†††† Therefore, how we expect to see the process work is that on issue of a draft adverse audit report the Head of Audit Partnership will contact the Chair and Vice Chair of the Committee.† This will begin a discussion about when and how the report might come to Committee after its final issue.

 

2.10†† Sometimes a service will provide additional evidence that satisfies audit concerns so that the final report receives a positive assurance opinion (that is, Sound or Strong).† In that instance the Head of Audit Partnership will advise the Chair and Vice Chair of the Committee and the report will not typically come to the Committee save as in summary as part of scheduled overall reporting on audit progress.

 

2.11†† If the final report receives an adverse opinion, it will typically appear in full at the next suitable meeting of the Committee accompanied by a report from the relevant lead officer setting out the way forward on addressing concerns raised by the audit.

 

 

3.   AVAILABLE OPTIONS

 

3.1     Having an internal audit charter is a duty set by the Accounts & Audit Regulations in their direction to adhere to the Standards.

 

3.2     The Council currently has a Charter. That remains valid unless and until replaced.† However it has fallen somewhat behind developments in Standards and also no longer accords to the practice of internal audit at the authority.† For example, it does not clearly set out the required quality standards.† The current Charter also does not set out clearly the Committeeís expectations following adverse audit opinions.

 

 

4.        PREFERRED OPTION AND REASONS FOR RECOMMENDATIONS

 

4.1     We recommend the Committee approves the attached Charter. This will ensure continued adherence to professional Standards and the Council holds a Charter which fully and accurately sets out the purpose, authority and responsibilities of internal audit at the Council.

 

 

5.       RISK

5.1† The risks associated with this proposal, including the risks if the Council does not act, have been considered in line with the Councilís Risk Management Framework. We are satisfied that the risks associated are within the Councilís risk appetite and will be managed as per the Policy.

 

6.       CONSULTATION RESULTS AND PREVIOUS COMMITTEE FEEDBACK

 

6.1     The Charter reflects discussion in previous Committee meetings, especially on the role of the Committee following issue of adverse audit opinions. †More broadly, the Charter has been shaped by continuing discussions with officers and Members and reflects the current position of internal audit within the Council.

 

 

7.       NEXT STEPS: COMMUNICATION AND IMPLEMENTATION

 

7.1     The Charter will become effective once approved.

 

 

 

8.        REPORT APPENDICES

 

         Appendix 1: Internal Audit Charter (September 2019)

 

 

9.        BACKGROUND PAPERS

 

The Charter draws on various sources of external professional guidance and standards.† These are hyperlinked within the document.