FURTHER EDUCATION CORPORATION
AUDIT COMMITTEE
Minutes of the Meeting held on Wednesday, 19 November 2014
at 6.30pm in the Town Hall, Letchworth Garden City
Present: Lesley Saunders Chair
Chris Jackson
Tariq Khan
Geoff Cleverdon ) NHSST Directors
Alan Euinton )
In Attendance: Patricia Phillipson Group Finance and Resource Director
Chris McLean Deputy Principal
Bernadette Wallis Clerk to the Corporation & Company Secretary
Anna Lancefield Grant Thornton, Internal Audit
Ben Stapleton KPMG, External Audit
Summary of Decisions and Action Points
Item / Decision/Action Point / Who / When14.11.7 / Internal Auditors to follow up on whether or not they would provide internal audit position for the year. / Anna Lancefield
14.11.10 / Internal Audit Plan – agreed in principle subject to further discussion and work / Internal auditors and management / By end December 2014
14.11.1 Membership and Apologies for Absence
The Chair welcomed Geoff Cleverdon and Alan Euinton (Directors of the North Hertfordshire Studio School Trust) to their first meeting of the NHC Audit Committee.
The Committee noted that the Trust Audit Committee would be holding its first meeting immediately after the NHC Audit Committee meeting.
Apologies for absence had been received from Sophia Fuller (KPMG) and Omer Tauqir (Grant Thornton).
14.11.2 Draft Minutes of the Audit Committee Meeting held on 2 July 2014
The minutes of the meeting held on 2 July 2014 were agreed as an accurate record of the proceedings and signed by the Chair as such.
14.11.3 Matters Arising from the Minutes of the Audit Committee held on 2 July 2014
The Committee noted the Action Follow up table. There were no outstanding items that were not covered in the agenda.
14.11.4 Annual Report of the Audit Committee
The Committee received the Annual Report of the Audit Committee for approval and submission to the Corporation Board.
The Clerk drew attention to specific items in the Annual Report which required finalisation at the meeting.
It was noted that under the JACOP Part II the Internal Auditors were no longer required to submit an audit opinion in their Annual Audit Report, the responsibility for this had passed to the Audit Committee.
The Annual Report included draft statements reflecting the Audit Committees view of its own effectiveness and also of the effectiveness of the College’s systems of internal control.
The Committee reflected that its role was to seek assurance from a number of different sources including internal and external audit.
It was noted that the Annual Report, if agreed by the Committee, would be submitted to the Corporation Board for approval at its meeting on 8 December 2014. Sections of the report which required finalisation were highlighted in red.
Anna Lancefield (Grant Thornton) and Ben Stapleton (KPMG) confirmed that they considered the Committee’s statement as follows to be sufficient for the purposes of the report:
The Audit Committee is of the opinion that the College’s audit arrangement, its framework of governance, risk management and control and its processes for securing economy, efficiency and effectiveness are adequate and effective.
The Audit Committee RECOMMENDED that the Annual Audit Report 2013/14 including the statements on the Committee’s own effectiveness and the effectiveness of the College’s controls be submitted to the Corporation Board for approval.
14.11.5 Report and Financial Statements for the year ended 31 July 2014
The Audit Committee received the 2013/14 Report and Financial Statements including the Corporate Governance Statement and also the Auditor’s Management Report.
The Committee noted that a further report was being prepared by Allan Tyrer. This would focus on the 2013/ budget management and processes with a view to identifying improvements that could be made. The Committee noted that a very robust system of budget management and monitoring had now been put in place. Chris McLean added that as part of this he would be meeting each of the Assistant Principals to ensure that there was reconciliation between area budgets and actual spend.
Going forward, the Committee noted that members of the Senior Executive Group would be involved in reconciliation work and it was the College’s intention to start the budget process for 2015/16 earlier.
The Audit Committee noted specific aspects of the Financial Statements 2013/14 including the Governance Report.
The Committee APPROVED the Financial Statements 2013/14 including the Corporate Governance Statement and agreed to RECOMMEND to the Corporation that they were entitled to sign these statements.
14.11.6 External Auditors – Audit Highlights Memorandum
Ben Stapleton, KPMG, drew attention to the Audit Highlights Memorandum which had been circulated with the agenda. Ben Stapleton said that the audit process had gone more smoothly this year and the auditors had been pleased with the degree of information provided and the level of communication.
The College’s Group accounts were in a good state. Ben Stapleton added that controls testing had also been good.
There were a couple of items that work needed to be completed on. Some of the initial costs for the COE Saudi project had not yet been reimbursed and there was also an outstanding issue relating to the Blueprint Software that had originally been owned by Clarity. With the dissolution of the Company, the ownership of the software had transferred to the College and it sat in the College’s accounts as an intangible asset. The value of this asset was tested by the auditors each year.
Ben Stapleton also drew attention to the financial position of the College and some specific costs which had been flagged separately as exceptional costs, for example, in respect of the fraud.
KPMG’s core audit opinion was clear but the auditors had decided to consider the Regularity Opinion separately and a draft statement was circulated to Committee members in respect of this as follows:
In our opinion the College’s Statement on Regularity, Propriety and Compliance is fairly stated in respect of whether the transactions underlying the College’s financial statements are in all material respects regular for the year ended 31 July 2014.
Without qualifying our opinion above we draw attention to the Statement on Regularity, Propriety and Compliance on page ( ) of the annual report which provides details of a significant fraud perpetrated against the College in October 2013. Under the requirements of the Financial Memorandum the College has informed the SFA of the fraud.
The Committee were comfortable with this statement and the approach that the external auditors had adopted.
Finally, Ben Stapleton set out some issues which would be key going forward, for example, the COE project Saudi would be critical for the 2014/15 audit in respect of the approach to the project and planning. Page 8 of the Statement was set out general points for colleges with significant loans. It was noted that the College’s loan had increased to £10m and it was important that the loan was compliant with the new Loan Company SORP which was coming into effect in July 2016. Ben Stapleton recommended that the College ensure that they followed up on this with their bankers.
The Committee RECEIVED the External Auditors’ Audit Highlights Memorandum.
14.11.7 Internal Audit Annual Report 2013/14
Anna Lancefield, Grant Thornton, introduced the Internal Audit Annual Report 2013/14 which had been circulated with the papers for the meeting.
The report was in draft as the VAT Review which was still in progress. The field work on VAT would be complete in the next couple of weeks after which the report would be drafted. It was not anticipated that this would materially affect the wording of the Internal Audit Report.
As indicated earlier, the onus was now on the Audit Committee to provide assurance and internal audit just one source for that opinion.
Page 2 reflected the outcomes from the reviews that year and the number of recommendations that had been made.
Anna Lancefield said that the report also noted the Management Responses to the internal audit recommendations and that Grant Thornton considered that these responses were appropriate.
The Audit Committee was interested to know whether or not Grant Thornton would be prepared to provide an audit opinion even if they were no longer obliged to. Anna Lancefield said that this was not a decision that she could take but that she would refer this back to her managers if the Committee thought this was helpful. The Audit Committee asked Anna Lancefield to do this.
Action: Anna Lancefield
The Audit Committee NOTED the draft Internal Audit Plan 2013/14.
14.11.8 Internal Audit Reports
The Audit Committee received the following internal audit reports:
· Risk Management
· Budget Setting and Control
Anna Lancefield introduced the Risk Management Internal Audit Report. The review had focused on the framework around risk management, particularly the policy and the process for identifying and scoring risks and for monitoring risks on a day to day basis.
Anna Lancefield said that the Policy and the Register needed a little bit of refinement but the key thing was about defining the College’s risk appetite in the policy.
There had been some variation in how the risk registers were used across the College and this had resulted in a higher rated recommendation. It was important that risk registers were consistent in terms of items in the registers. This reflected a need for training. In terms of the risk appetite, there was a need for this to be updated to reflect the College’s real risk appetite. The Policy should be reviewed on an annual basis.
Patricia Phillipson said that the new risk register that would be shared across the College would include a risk appetite according to each item on the risk register.
There was a need for risk scoring to be quantified – for example, in terms of level of financial disaster, significance of reputational risk etc.
Patricia Phillipson said that there was a revised risk management policy on the agenda and that she had taken on board all the comments.
Budget Setting and Control: This had looked at the processes for setting the budget and the level of control. There were a couple of high rated recommendations, one in respect of the budget monitoring meetings. Although budget monitoring meetings were being held, it was not always understood what the purpose of these were so the recommendation was that there should be more structure to those meetings. It was important also that meetings were documented. There was also a recommendation about the scrutiny and level of accuracy of reports. Anna Lancefield noted that the College was already making its processes more robust in terms of budget setting and monitoring.
There was a medium rated recommendation around budget monitoring. Patricia Phillipson said that the College was ensuring that there was no possibility of budget monitoring meetings for areas not taking place. Chris McLean said that some areas were better prepared than others but that it was important that all areas were up to the mark in this respect. Patricia Phillipson added that she was planning to do some group sessions on the budget for managers and teams and also some individual coaching.
14.11.9 Assurance Mapping Framework
In introducing this item Patricia Phillipson drew the Committee’s attention to the Baker Tilley proposal that had been circulated. The Committee was reminded that at the July meeting, it had requested further work to the done on the Internal Audit Plan 2014/15 to provide further information on why items had been selected or not selected for an audit. This information was presented in the revised Internal Audit Plan 2014/15 which was on the agenda for the meeting.
After further discussion, Management considered that additional work was needed to strengthen the support for the requirement of the Board to provide an opinion on governance, risk and control in the annual accounts in the future.
The proposal recommended the development of a Board Assurance Framework which would be a logical extension of the College’s existing control and risk management arrangements.
Patricia Phillipson added that the College needed to take into account the fact that Internal Audit were no longer responsibility for giving an Audit Opinion and it was important that the Audit Committee had assurances that the College had robust systems and processes in place. It was noted that Baker Tilley was working with the AoC in drawing up an assurance mapping framework. Ben Stapleton commented that a number of colleges were currently looking at undertaking an assurance mapping exercise which reflected the view colleges were seeking assurance from a number of different sources.
In response to a question from the Committee Patricia Phillipson confirmed that the mapping exercise would be a ‘one off’ exercise.
The Committee agreed that it was prudent for the College to undertake the assurance mapping exercise and supported the Group Director Finance & Resources in taking this forward.
14.11.10 Internal Audit Plan 2014/15
The Audit Committee received the updated Internal Audit Plan 2014/15 which included a section on Audit Universe: Assurance ‘gaps’ and alignment with the proposed audit plan which was RAG rated.
The Audit Plan provided for 42 days of work and total fees proposed were £27,300 excluding VAT.
Anna Lancefield reminded the Committee that Grant Thornton had been asked to enhance the plan at the last Audit Committee meeting. As a response, some detail had been added into the Plan on what the other sources of assurance were and whether there was gap, why areas suggested for the plan.
The Chair said that she felt that she was not convinced that the conversation between Grant Thornton and Tariq Khan, member of the Audit Committee, had been fully completed and said that it was felt that the Internal Audit Plan may require some more work to satisfy the Committee’s requirements. It was agreed that further work would be done on the plan within a 2-3 week deadline and as part of the process Grant Thornton would meet with Tariq and the Group Director Resources and Finance. Once the process was completed and the College and Tariq were content with the report, the Audit Committee would be informed.
The Audit Committee AGREED in PRINCIPLE the Internal Audit Plan 2014/15 subject to the proviso that further work be undertaken in a short 2-3 week timespan to complete the report to the College’s and Committee’s satisfaction.