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The purpose and role of an audit committee

The purpose and role of an audit committee. Neeta Major Chief Internal Auditor. Areas to cover today. Changing role of Economic Scrutiny Increasing focus on controls Purpose and functions of an audit committee. Terms of reference. Economic Scrutiny - June 2003

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The purpose and role of an audit committee

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  1. The purpose and role of an audit committee Neeta Major Chief Internal Auditor

  2. Areas to cover today Changing role of Economic Scrutiny Increasing focus on controls Purpose and functions of an audit committee

  3. Terms of reference • Economic Scrutiny - June 2003 • Scope (Article 6, Constitution) “Control, policy and finance, to discharge the functions of an Audit Committee including agreeing the External Audit Annual Service Plan, regeneration and economic development and customer services”

  4. Why the change and the need for an audit committee? Comprehensive Performance Assessment • Standards of financial conduct and the prevention and detection of fraud • “Inadequate” score if the authority does not have arrangements for discharging functions of an audit committee • Real focus by Government

  5. Focus on governance & controls What has brought governance & internal controls to the forefront? • Scandals • Private sector & public sector

  6. Private Sector scandals Polly Peck BCCI Maxwell Enron Worldcom Scandals

  7. Enron • Vision - “BETTER, FASTER, SIMPLER” • Focus on selling more, trading more, more profits • Lack of core controls - scrutiny, accountability • New business, better service delivery etc must go hand in hand with controls

  8. Scandals (cont) Public sector • Lancaster • Kingston upon Hull • Lincolnshire • Bromley school • Canvey school

  9. What did the Government do? • Committees - Cadbury, Hampel, Turnbull, Nolan, Smith, Higgs, Sarbanes-Oxley • Guidance - Combined Code, NHS Corporate Governance framework, CIPFA/SOLACE guidance on corporate governance

  10. What is good governance? Embraces 3 principles of openness, integrity & accountability in the following dimensions • Community focus • Service delivery arrangements • Structure & processes • Risk management & internal controls • Standards of conduct

  11. What are Internal Controls? Systems an organisation has in order to : • conduct business in accordance with objectives • safeguard its assets • secure the accuracy, reliability and validity of its records • adhere to internal policies/legislation • achieve value for money and avoid waste/inefficiency

  12. Examples of Internal Controls • Organisational - provide framework under which system of controls can operate • Financial - accuracy and adequacy of financial records and safeguard against loss due to fraud or error • Operational - efficiency and effectiveness of operations • Compliance - compliance with legislation, best practice guidance and internal policies

  13. Why are controls important? Message is simple. Poor internal controls can lead to • loss of assets • increased waste • losses, errors or fraud • breaches of law • reputation of business & staff Lack of controls reduces what can be done once a problem is highlighted

  14. What are the features of a sound system of Internal Control? • Owned by managers and staff • Documented and well communicated • Embedded in culture of organisation • Responds to change • Reviewed and continuously improved

  15. How can an audit committee help? To help ensure that an organisation’s resources are safeguarded and value for money secured by • promoting internal control • focusing audit resources • monitoring audit performance

  16. Promoting internal control systematic appraisal of internal controls develop an anti fraud - culture review financial procedures Promoting internal control

  17. Focusing audit resources agree audit plans monitor audit delivery Focusing audit resources

  18. Monitoring performance ensure auditor/officer collaboration within agreed timescales ensure timely preparation and response to audit reports monitor the finalisation of annual accounts ensure implementation of audit recommendations Monitoring audit performance

  19. Way Forward? • Ensure all staff working in a proper controlled environment • Famous last words“It will never happen to us” • Change culture so that don’t think of controls as “another lot of work” but rather as something which is intrinsic to the job • Balance between service delivery and control

  20. THE END MEMBERS, MANAGEMENT & STAFF WORKING TOGETHER TO ENSURE THE PROPER STEWARDSHIP OF PUBLIC FUNDS DEMONSTRATING COMMITMENT TO THE STANDARDS OF: • OPENNESS • INTEGRITY • ACCOUNTABILITY

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