Preston College Audit Committee 6 December 2007

Preston College – Audit Committee 6 December 2007

Minutes

AUDIT COMMITTEE

MINUTES of a meeting of the Audit Committee held on Thursday, 6 December 2007 at 5.30 pm. The Meeting was quorate for the first four items.

Present:Mrs C WilsonChair

Mr H Rose

Mrs C Saunders (by telephone conference for items 1, 2, 3, 4)

(one vacancy)

Also in attendance:Mrs J HughesDeputy Principal

Mrs S WoolfordFinance Director

Mr F LeeClerk

Mrs L HackerGrant Thornton

Mrs S DewhurstBaker Tilly

Unable to attend:Mr S A Patal

QUORATE

1DECLARATION OF INTEREST

The following declaration was made:

Procurement of Internal and External Audit ServicesMrs S Dewhurst

2INTERNAL AUDIT - ANNUAL REPORT 2006/07

An internal audit of the College had been undertaken by Baker Tilly for the year ending 31 July 2007. The audit enabled a statement to be made on the adequacy and effectiveness of the College’s risk management, controls and governance processes, in accordance with the Audit Code of Practice. A review and evaluation had been carried out into eleven business areas, ten of which achieved a rating of either ‘good’ or ‘satisfactory’. One area (Reprographics) provided ‘limited’ assurance due to the fact that the Print Strategy had been adopted prior to a full review of its implications being carried out and no post implementation monitoring procedure being in place to assess success in achieving its aims and objectives.

The opinion of the Auditors was that Preston College had adequate and effective risk management, control and governance processes in place to manage the achievement of the College’s objectives and that management had taken or planned appropriate and timely action to implement the recommendations.

RECOMMENDATIONthat the Internal Audit Annual Report 2006/07 be approved.

3ANNUAL REPORT OF THE AUDIT COMMITTEE – 2006/07

The Chair of the Committee presented the Annual Report of the Committee’s work during 2006/07. The Committee had met on four occasions during that period but unfortunately on two occasions the meetings were inquorate. The report highlighted the following activities that had been undertaken during the year:

• Internal audit reviews on sixteen assignments carried out by Baker Tilly and Financial Statements and Regularity by RSM Robson Rhodes LLP which became Grant Thornton UK LLP
• Financial statements audit to ensure that the Board carried out its responsibilities with regard to corporate governance and the preparation of financial statements
• Funding audit/LEE audit
• Risk management

The Committee was of the opinion that the adequacy and effectiveness of the College’s systems of internal control and its arrangements for control and governance processes, and for securing economy, efficiency and effectiveness were all sufficient. It was also the Committee’s opinion that the Board’s responsibilities, including those in the annual financial statements, had been satisfactorily discharged and the Auditors had provided an unqualified opinion on the financial statements.

RECOMMENDATIONthat the Annual Report of the Audit Committee for 2006/07 be approved.

4FINANCIAL STATEMENTS 2006/07

The draft financial statements for 2006/07 were submitted to the meeting. The statements and a report on financial performance for the year had been presented to the Finance Committee at its meeting on 29 November for detailed consideration prior to submission to the Board for approval.

The Committee noted that changes that had occurred in the Income and Expenditure account since the last Board meeting and the Accounts showed that the College had an operating surplus of £45,000 before technical adjustments were made to the final accounts. The Finance Committee had discussed the issue of requesting the auditors to restate the accounts to extract the FRS17 adjustment and the provisions on redundancy and the Director of Finance would take that matter forward. The audit had now been completed and the draft management letter had been received.

The Director of Finance reported that following final review by Grant Thornton the final draft of the statements would be presented to the Board on 13 December 2007.

The Auditor took Members through the accounts, reported that no significant issues remained outstanding, and then presented the report to management. The Committee looked in detail at the accounts and report to management. The Director of Finance indicated that she was content with the recommendations made by the Auditors and that the actions proposed were practical and achievable. The College’s financial position was improving and that was also evident in testing against the performance of like establishments.

RECOMMENDATIONthat the Financial Statements for 2006/07 be approved.

(Mrs L Hacker left the meeting at this point)

INQUORATE

5MINUTES

The Minutes of the meeting held on 20 September 2007, which had been presented to the Board at its meeting on 4 October, were accepted as a true record and signed by the Chairman.

6PROVIDER FINANCIAL REVIEW AND OFSTED INSPECTION

The College had been subject to a full LSC Financial Provider Assurance Review during the week 5 – 9 November 2007 together with an OFSTED Inspection.

The last inspection had taken place in 2003 when the College had been judged to be weak in both its frameworks of assurance to the Board in respect of systems of financial management and governance and in the effectiveness of those frameworks.

A summary of informal feedback from the recent audit was submitted to the meeting which indicated that the College was now judged to be satisfactory in terms of its frameworks of assurance and good in terms of the effectiveness of those frameworks. In addition the OFSTED inspectors had listed ‘good financial management’ as one of the strengths of the College. Both assessments had concurred with the College’s own self-assessment.

The Committee was pleased with the results reported and looked forward to the detailed report of the Inspections and the plans for the College to raise its operations to the next higher level. The Director of Finance reported that measures were now in place to enable the College to monitor its achievements against the Strategic Plan.

A report, with an action plan for further improvements, would be agreed with the Auditor and presented to the Committee in due course.

DECISION

(a)that the feedback from the LSC Financial Provider Assurance Review and the OFSTED inspection be noted;

(b)that the staff be thanked for their contribution to the two reviews.

7INTERNAL AUDIT REPORT

The Internal Audit Report on the College’s Fraud Response Plan 2007/08, prepared by Baker Tilly, was submitted to the meeting.

The work undertaken involved a review of the policies and procedures relating to fraud and corruption, the plans in place to respond to instances of fraud and corruption should they occur, and the procedures in place for reporting to the Board. The fraud response plan currently in place was approved by the Board in July 2007 and that set out the requirements for recording and reporting alleged frauds.

The report highlighted that:

• the internal controls and systems were adequate to ensure that activities and procedures were operating to achieve the College’s objectives for the system;
• testing had shown the controls to be operating in practice;
• there were no significant risks to the performance of the system;
• some opportunities for improvement in the performance of the system had been identified.

The overall assessment was that the College’s control systems provided a satisfactory assurance that the risks to the College achieving its objectives were being managed adequately and effectively. However, in respect of the latter item above the Committee’s attention was drawn to three control weaknesses which required attention, two presenting a ‘medium’ risk and one a ‘low’ risk. Those related to the need to have in place reporting mechanisms to deal with alleged fraud and incidents of theft in respect of matters which fell below the level reportable to the Board and the LSC. A review of security systems and reporting mechanisms had been undertaken which would enable an assessment to be made of the scale of the problem and what actions would be appropriate in that regard.

DECISION

a)that the report be received;

b)that the Committee note the actions proposed to deal with the items referred to above and that details of matters arising from this be reported to the Committee in due course.

8PROVIDER FINANCIAL ASSURANCE REPORTS

A recommendation arising from the recent PFA review was that, in addition to normal internal and external audit requirements, the audits undertaken by the PFA review team of specific types of LSC-funded provision, should be reported to this Committee with any recommendation agreed being added to the Audit Register.

Reports on the most recent reviews were therefore submitted to the meeting and those related to:

Work Based Learning (WBL)

• Train2Gain
• External Funding Project 88

The Committee gave consideration to the contents of the reports and the recommendations contained therein.

The Director of Finance reported that the PFA report on WBL had not been reported to senior management at the College at the time of its publication in December 2005 and that the issues raised had only recently come to light to enable appropriate action to be taken. The Principal had commenced investigations into aspects relating to the Work Base Learning Income and the methods of reporting undertaken by the LSC. That area was high risk in the internal audit plan and as such was subject to internal audit annually. Baker Tilly were also requested to review their previous reports in that area and to report their findings to the Committee. It was hoped that the investigations would be concluded and reported upon by end-December and form the subject of a Special meeting of the Committee in due course. In the meantime all the action points arising from that report had been added to the Audit Register.

There were no issues of concern in respect of Train2Gain but concerns had been expressed in respect of the EFP88 project in that the College had not made satisfactory use of LSC funding. An action plan had been drawn up in that regard and the matter entered on the Audit Register.

The Committee considered that in future all reports on funding issues relating to the College should be submitted to the Director of Finance

DECISION

a)that the report be received;

b)to note that the recommendations contained in the report relating to the WBL issues had been added to the Audit Register;

c)that all reports on funding issues relating to the College be submitted to the Director of Finance;

d)that the actions of the Principal in respect of internal investigations be noted;

e)that a special meeting of the Committee be held to consider the findings of that investigation.

9LEARNER EXISTENCE AND ELIGIBILITY (LEE) AUDIT

The College, along with the majority of FE institutions, was now in plan-led funding which meant that it was no longer held financially to account for the totality of its annual earnings from the LSC against the funding guidance. New audit arrangements, the LEE audit, had been introduced to address risks concerning learner existence and eligibility under the LSC’s broad legal powers to fund.

The College’s first LEE audit had been undertaken by Grant Thornton and a report of the findings was submitted to the meeting. The Auditor attended the meeting to aid discussion on this matter and to clarify issues raised.

The opinion given by the auditors was that the systems of controls in operation at the College were satisfactory for the purposes of providing assurance to the LSC in respect of the residual risks presented by:

• learner non-existence;
• learner ineligibility.

The latter point was subject to the satisfactory implementation of the audit recommendations detailed in section two of the report with regard to the documentation of learner eligibility. The Director of Finance reported that that matter had already been implemented by the College.

DECISIONthat the report be received.

10AUDIT REGISTER

A copy of the Audit Register was submitted to the meeting which summarised all current items which had been completed, partially completed and those that remained outstanding.

The current status was:

Current Status / September 2007
Outstanding / 15 / 1
Partially Complete / 9 / 3
New and not yet due for report / 21 / 22
Completed since last review / 10 / 11

DECISIONthat the details contained in the Audit Register be noted.

11RISK MANAGEMENT PLAN – 2007/08

Following a report, in April 2007, by the external audit team a new Risk Management Plan had been developed to align more closely with the Strategic Plan. A copy of the Risk Management Plan was presented to the meeting which indicated to the College whether any further controls and activities needed to be developed. The Committee reviewed the levels of risk identified in the Plan and the Deputy Principal reported that an action plan would be developed in respect of each risk identified. The Committee was pleased that this Plan had been developed and were happy with the way forward to implement its finding.

DECISION

a)that the details contained in the Risk Management Plan be noted;

b)that details of matters identified as ‘high risk’ be reported to each meeting of the Committee.

(Mrs S Dewhurst left the meeting at this point)

12INTERNAL AND EXTERNAL AUDIT SERVICES - PROCUREMENT

Audit contracts were due to expire by 31 July 2008 and new contracts needed to be let. Previously, such contracts had been for a five year period but the Director of Finance recommended that for the future those contracts be for a period of three years.

The value of the internal audit contract for a three year period would be well within the EU tendering limits but the contract for external audit services could exceed the threshold figure. It was reported that Crescent Purchasing Consortium (which supported member colleges with procurement services) was currently developing a framework contract for audit services. That would establish a list of firms, who will all have been through the EU tendering process, from which the College would be able to conduct a mini-tendering exercise to select an external auditor. That framework was expected to be in place by February 2008.

RECOMMENDATION

a)a three year contract for Internal Audit be procured on a restricted tender basis;

b)a three year contract for External Audit be procured, possibly through the framework contract of the Crescent Purchasing Consortium;

c)a selection panel be formed comprising:

Chair of the Audit Committee,

one other member of either the Audit Committee or the Finance Committee,

Clerk to the Corporation,

Director of Finance, and

Head of Finance.

d)that both contracts be agreed by 31 May 2007.

(Meeting finished at:7.50 pm)

SPECIAL MEETING OF THE COMMITTEE TO BE ARRANGED

DATE OF NEXT ORDINARY MEETING14 FEBRUARY 2008

(NB:change of date from the diary which placed the February meeting in half term)

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