Preston College – Audit Committee3 December 2009
Minutes
AUDIT COMMITTEE
MINUTES of a meeting held on 3 December 2009 at 6.00 pm.
Present:Mr D S ConnollyChair
Mr H Rose
Mr C Speight
Also in attendance:Mrs S WoolfordDirector of Finance
Mrs J HughesDeputy Principal
Mr F LeeClerk
Mr T ReesKPMG
Mr H MunsonGrant Thornton
Mrs V KellyGrant Thornton
Unable to attend:Mrs A J Barton
Mr T Thompson
Mrs S WignallAssistant Clerk
09/31DECLARATION OF INTEREST
There were no declarations made.
09/32MINUTES
The Minutes of the meeting held on 3 September 2009 were accepted as a true record and were signed by the Chair.
09/33INTERNAL AUDIT REPORTS
The Internal Auditors, Grant Thornton, had submitted reports on the matters listed below and copies of the reports had been circulated to Members in advance of the meeting. The Director of Finance submitted a summary report which indicated the degree of risk identified in each report. High and medium risks were reported in Estates Management and a low risk in Risk Management.
Mr H Munson outlined the main issues which had arisen during the audit work and the areas reported were:
a)Risk Management
The College's strategic risk register captured 40 risks each of which were underpinned by a risk sheet recording the keycomponents of an effective risk management process. The auditorshad selected eight risks which were reviewed and issued a clean report. Overall it was concluded thatthe activities and controls weresuitably designedto achieve the objectives required by management. Those activities and controls were operating with sufficient effectiveness to providereasonable, but not absolute, assurance that the related risk management objectiveswere achieved during the period under review.
The Committee recognised that the process was one of prevention and detection and ensured that robust controls were in place to provide good practice in the audit system which was a sound basis of protection for Corporation. The Committee commended the Deputy Principal for her work in this field over the last two years in bringing about an effective Risk Management System that had withstood a robust audit.
DECISIONthat the report be received and the recommendations and action plan be approved.
b)Estates Management
This was a review of arrangements to manage the risks associated with Estates Management and looked at utilisation of teaching space, occupancy levels, expenditure plans, and the lifecycle of significant assets together with replacement strategies. With the exception of understanding current space utilisationthe risk management activities and controls that were examined were suitably designed to achieve the objectives required by management. Those activities and controls were operating with sufficient effectiveness to provide reasonable assurance that the related risk management activities were achieved during the period under review.
The report had highlighted the need for an urgent review of space utilisation, i.e. the space available and the numbers of staff and students evidenced. The Committee was aware that the costs of the Property Strategy was impacting on the College’s ability to improve the estate and that the Estates review would be linked with the change management process.
A further review would be carried out in the year following the College’s revision of its Estates Strategy to confirm the implementation of the recommendations and to assess the impact on the revised Estates Strategy.
DECISIONthat the report be received and the recommendations and action plan be approved.
09/34FINANCIAL STATEMENTS 2008/09
The Financial Statements document was the formal audited record of the financial performance of the College for the year ended 31 July 2009 and representeda summary of trading performance. A document had been presented to the Finance and Property Committee on 19 November 2009 along with an analysis of the financial outturn position.
However, the Director of Finance reported that since that meeting there had been a change to the statements which was to reduce the Employer Responsive net income. The impact of that change was that the operational surplus, before FRS17 and property strategy costs,was now £356K and not £420K as previously reported.
The Committee received a revised set of draft Financial Statements with that adjustment included and made a number of further amendments to the Statement of Corporate Governance.
Mr T Rees, KPMG, reported that the external audit had been completed and no significant issues had been raised. The external auditors had issued a management letter indicating that an unqualified opinion would be given when the Financial Statements were signed.
In the light of the revised Financial Statements there was a need for the Finance and Property Committee to meet prior to the Board meeting in order for Statements to be adopted before submission to the Board.
DECISION
a)that the Financial Statements, as further amended at the meeting, be approved and submitted to the Board;
b)that the Committee recommends that the Finance and Property Committee meet prior to the Board to adopt the revised Financial Statements.
09/35ANNUAL REPORT 2008/09
The Annual Report of the Audit Committee was submitted to the meeting and that contained a summary of the activities of the Committee for the year ended 31 July 2009. The LSC Audit Code of Practice required that the Committee produce an annual report for the governing body and accounting officer. That document included the Committee’s advice on the effectiveness of the College’s risk management, control and governance processes, and any significant matters arising from the work of the Internal Audit Service, funding auditors and the financial statements auditor.
The Committee made a number of amendments to the Report which would now be submitted to the Board at its next meeting.
DECISIONthat the report, as amended at the meeting, be approved and submitted to the Board.
RECOMMENDATION
That the Annual Report of the Audit Committee, as set out in Appendix 1 to these Minutes,be received.
09/36FINANCIAL LEDGER UPGRADE
An opportunity had arisen for the College to replace the existing financial ledger system with a Microsoft product provided via Tribal UK at very low cost. To take advantage of that offer a decision was needed by February 2010 and the new system implemented by August 2010.
The Finance and Property Committee had given consideration to this matter and had declined the offer. The Committee considered the details of the product on offer but agreed with the findings of the Finance and Property Committee that without a clear specification of need with regard to financial systems development and evaluation of all options, there was a risk that the College would acquire a system that was fundamentally flawed and did not meet essential requirements.
DECISION
a)that the Tribal offer be declined;
b)that a formal project be initiated to review the current financial system specification against the College’s current and future requirements.
09/37FINANCIAL MANAGEMENT AND CONTROL EVALUATION
The College was required to submit to the Learning and Skills Council an annual Financial Management and Control Evaluation which would contribute towards the 2009/10 Framework For Excellence score. The evaluation questionnaire examined four key areas; Accountability, Financial Planning, Internal Control and Financial Monitoring. Each area was graded to be Outstanding. Good, Satisfactory or Inadequate and those grades were brought together in an overall grade for the College.
The FMCE was required for the first time in 2008/09 when the College’s overall grade was judged as “Good”. The Director of Finance submitted the completed evaluation which did not change the overall self-assessed grade for the College. However the 2008/09 financial statements would technically lead to an “Inadequate” score for Financial Health because of the weak cash position and it was not yet known whether the LSC would take account of the impact of the Property Strategy on cash when moderating scores.
DECISIONthat the Financial Management and Control Evaluation be approved.
09/38RISK MANAGEMENT
The Risk Management Plan was last updated in July 2009. There had been no re-assessments to the risks in the plan since the last meeting on 3 September 2009.
DECISIONthat the situation be noted.
09/39AUDIT REGISTER
Acopy of the Audit Register was submitted to the meeting which summarised all current items, those outstanding and also those completed since the last meeting.
The current status was:
Current Status / September 2009Outstanding / 6 / 2
Partially Complete / 2 / 5
New and not yet due / 15 / 14
Completed since last review / 12 / 39
DECISIONthat the report be received and that urgent action be taken to ensure that training was provided in respect of Freedom of Information (no 252) which was now long outstanding in the Register.
09/40ADDITIONAL LEAVE POLICIES – A REVIEW
A need to review the College’s policies for paid and unpaid leave had been highlighted during the preparatory discussions for the forthcoming internal audit review of curriculum staffing efficiency. That additional work was outside the current Audit Plan. Management has undertaken to conduct an internal review of those policies and the extent to which they contributed towards effective use of the salary budgets.
The Director of Finance submitted a report which set out the current arrangements for paid and unpaid leave in addition to contractual annual leave. The Director of Strategy and Planning would lead a review of those arrangements which would benchmark those policies against sector practice and the wider public sector, consider the College’s legal obligations as an employer, evaluate the effective use of the College’s financial resources and the extent to which each policy contributed towards strategic objectives.
The outcome of the review would be reported to the Employment Policy Committee at its meeting in May 2010.
DECISION
a)that plans to undertake a Review of additional leave arrangements be noted;
b)that the objective of the Review be to determine the extent to which those policies contributedtowards effective use of financial resources;
c)that the findings of theEmployment PolicyCommittee be reported to the Committee in due course.
09/41DATA PROTECTION
The Director of Finance reported that there had been a breach of data protection in the College and a report would be presented to the next meeting on the issue.
(The meeting finished at 7.55pm)
DATE OF NEXT MEETING:4 MARCH 2010
APPENDIX 1
ANNUAL REPORT OF THE AUDIT COMMITTEE 2008/09
1INTRODUCTION
This report describes the work of the Audit Committee during the period 1 August 2008 to 31 July 2009. It explains how the work undertaken has led to the Committee forming the opinion that the adequacy and effectivenessof the College’s systems of internal control and its arrangements for control and governance processes, and for securing economy, efficiency and effectiveness (value for money) are all sufficient.
2MEMBERSHIP
There were a number of changes to the membership of the Committee during this period.
The Committee started the year with a membership of 5 and a quorum of 2. At the start of the year the membership was:
Mrs C. Wilson (Chair)
Mr E. Bassa
Mr D.S. Connolly
Cllr T. Thompson
(one vacancy)
At the meeting of the Board on 2 October 2008, the size of the Committee was increased to 6 members, with the intention that this would help towards ensuring a quorum was maintained for meetings throughout the year.
During the year changes to Committee membership occurred as follows:
- Mr. H Rose was reappointed to the Committee on 2 October 2008, following his reappointment to the Board following the recent staff elections
- Mr. D. Lowe was appointed to the Committee on 2 October 2008, following his appointment to the Board following the recent staff elections
- Mr. E. Bassa left the Committee to join the Finance Committee. This was approved by Chairman’s action and endorsed by the Board on 18 December 2008
- Mr. C. Speight was appointed to the Committee by Chairman’s Action and this was endorsed by the Board on 18 December 2008.
- Mrs C. Wilson resigned as Chair of the Committee on 14 May 2009 and Mr. D.S. Connolly was appointed as Chairman at that meeting
- Mrs C. Wilson left the Committee on 9 July 2009 to chair the Finance Committee
The membership of the Committee on 31 July 2009 was as follows:
Mr D.S. Connolly (Chair)
Mr D. Lowe
Mr H. Rose
Mr C. Speight
Cllr T. Thompson
(one vacancy)
All the above named served as Board Members on the Committee.
Mr. F. Lee served as Clerk to the Audit Committee throughout the year.
3CONSTITUTION
At a meeting of the Corporation Board on 18 December 2008 the constitution of the Committee was agreed as follows:
Membership6
Quorum2
Chair of the Board and the Principal shall not be members of this Committee.
Members of this Committee shall not serve on:
Finance Committee
Search and Governance Committee
Remuneration Committee
Meetings shall be held at least 3 times each year (once per term).
4MEETINGS
The Committee met on the following dates:
4 September 2008
4 December 2008
5 February 2009
14 May 2008
All meetings were quorate.
5SUMMARY OF AUDIT WORK DURING THE YEAR
The following firms worked as audit providers throughout the period:
Service / Firm / Fees (Inc. VAT)Internal Audit / Grant Thornton UK LLP / £38K
Financial Statements and Regularity / KPMG UK LLP / £40K
Other work:
- There were two audits led by the LSC Provider Financial Assurance team, one of Work Based Learning and one of Train2Gain.
- The Finance Director commissioned Grant Thornton UK LLP to assist with a reconciliation of debtors’ data on the learner records database and the financial ledger which had been a recommendation in an internal audit review of debtors. The additional work was let competitively (by seeking quotations) and cost £7K
6INTERNAL AUDIT WORK
Strategy, scope and objectives - The Internal Audit Service Annual Report 2007/08 prepared by Baker Tilly was reviewed by Audit Committee on 4 December 2008. All assignments relating to the 2007/08 year were discussed in that report.
The Audit Needs Assessment and annual Internal Audit Plan for 2008/09 were approved by the Audit Committee on 4 September 2008. This plan was amended on 3 September 2009, where it was agreed to replace a planned review of capital expenditure procedures with two new reviews. The capital review had originally been planned as part of the preparation for a major redevelopment of the College’s estate, which is not now likely to go ahead.
Internal Audit Assignments – The Internal Audit Service carried out ten new assignments during the year plus one follow up review. Copies of the actual assignment reports are available on request from the Clerk to the Corporation.
For each audit where an opinion is given, two separate statements are made;
- Whether the activities and controls that examined aresuitably designed to achieve the objectives required by management; and
- Whether those activities and controls are operating with sufficient effectiveness to provide reasonable, but not absolute, assurance that the related objectives were achieved during the period under review
Recommendations made are categorised as High, Medium or Low risk.
The assignments and their resulting grades and action points were reported to the Audit Committee as set out in Table 1
Table 1 / Reported to Committee / Opinion: That there are suitably designed activities and controls and that those activities and controls are operating with sufficient effectiveness? / RecommendationsHigh / Med' / Low
Core Financial Controls
High level review of financial controls / Feb-09 / Yes / 10 (no risk rating given)
Debtors / May-09 / Yes (subject to the implementation of the two High Risk recommendations) / 2 / 4 / 0
Cash Collection / Feb-09 / Yes (subject to the implementation of a Medium Risk recommendation) / 0 / 6 / 3
Expenses / Sep-09 / Yes / 0 / 1 / 4
Business Risk Reviews
Retention / May-09 / Yes / 0 / 4 / 5
Performance Management / Sep-09 / Development review (no opinion given) / 2 / 5 / 0
Employer Engagement / May-09 / Yes / 0 / 1 / 2
Other Reviews
Learner Number Systems / Sep-09 / Yes / 0 / 1 / 1
Risk Management / Dec-08 / Yes / 0 / 2 / 3
Corporate Governance / Sep-09 / Yes / 0 / 1 / 5
Review of Follow-up Arrangements / Sep-09 / Yes / 0 / 0 / 0
Two reports were only able to give conditional assurance.
The first was the report on Debtors. There were two high risk recommendations, to undertake a global reconciliation between the learner records database and the financial ledger in respect of debtors records and to review the roles and responsibilities of the central data services and finance teams with regard to debt management to ensure that duties are only undertaken where there is adequate responsibility, authority and accountability. The global reconciliation of data and the review of team roles and responsibilities were reported as resolved to the Committee on 3 September 2009. Further developmental work on debtors management will continue during 2009/10.
The other conditional assurance given was for the review of cash collection procedures and related to one medium risk recommendations, to undertake a review of all local level cash procedures and to instil clear segregation of duties in certain areas. This was reported as resolved to the Committee on 3 September 2009.
Value For Money - No value for money reviews were undertaken in the year.
Internal Audit Opinion - The IAS Annual Report 2008/09 was received by the Audit Committee on 3 September 2009. Their overall opinion is given as follows:
We are satisfied that sufficient internal audit work has been undertaken to allow us to draw a reasonable conclusion as to the adequacy and effectiveness of the College’s risk management, governance and control processes.
There is nothing that has come to our attention, either as a result of audit activity we have undertaken since 31 July 2009 or by other means that affects the audit opinions we give at the date of this report.
Overall, in the area of risk management:
- the risk management activities and controls that we examined were suitably designed to achieve the objectives required by management; and
- those activities and controls were operating with sufficient effectiveness to provide reasonable, but not absolute assurance, that the related risk management objectives were achieved during the period under review.
Overall, in the area of corporate governance: