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Learning from governance failures Damian Murray The Audit Commission’s Trust Practice Northern Region Lead Recent headlines… "NHS finance chief jailed for fraud" "NHS FDs forced into 'tricks'" Learning from governance failure “At least when the Titanic went

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learning from governance failures

Learning from governance failures

Damian Murray

The Audit Commission’s Trust Practice

Northern Region Lead

recent headlines
Recent headlines…

"NHS finance chief jailed for fraud"

"NHS FDs forced into 'tricks'"

learning from governance failure
Learning from governance failure
  • “At least when the Titanic went
  • down the lights were still on.”
  • Enron: The Smartest Guys in the Room
learning from governance failure4
Learning from governance failure
  • Need for hindsight
  • is inversely related to
  • Presence of foresight
learning from governance failure5
Learning from governance failure
  • Correct procedures necessary
  • but not sufficient
  • to ensure an effective Board or
  • Audit Committee
public interest reports
Public Interest Reports
  • “…where auditors consider a matter is sufficiently important to be brought to the notice of the audited body or the public as a matter of urgency.”
  • Some common themes
  • Rarely result of fraud, corruption etc
public interest report themes
Public interest report themes
  • Underlying financial position deteriorating over years
  • Obscured by ‘non-recurrent support’
  • Political pressures of organisational change (FTs, mergers) and investment projects (PFI)
  • High turnover of key managers and directors
  • Poor relationships between trusts and commissioners
public interest report themes8
Public interest report themes
  • Service level agreements chronically in dispute
  • Business and cost improvement plans unrealistic
  • No risk assessment or contingency
  • Unforeseen cost pressures
  • In-year financial reporting late, erroneous and difficult to understand
  • Annual accounts inconsistent with in-year reports
public interest report themes9
Public interest report themes
  • Accounting ‘fixes’ used to improve reported financial position
  • Audit reports disregarded and not acted upon
  • Audit amendments blamed for financial out-turn
in hindsight the audit committee could have
In hindsight the Audit Committee could have...
  • Read strained relationships as indicator of underlying problems
  • Questioned dependency of financial performance on accounting devices or single transactions
  • Focussed on capacity of assurance framework to control business risk
in hindsight the audit committee could have12
In hindsight the Audit Committee could have...
  • Maintained more critical distance from executive directors
  • Taken audit reports as indicator of serious underlying problem
  • Questioned projected break-even in light of service budget overspends
  • Required explanation of technical accounting adjustments and relation to cash position
in hindsight finance managers could have
In hindsight finance managers could have…
  • Acknowledged real economic and business issues
  • Provided projections, especially cash flow, with sensitivity and scenario analysis
  • Presented fuller, prioritised reports in plain language
  • Proposed practical and achievable solutions with related risk assessments
  • Explained underlying causes of behavioural problems
accounting policies matter
Accounting policies matter
  • Need to understand what your policies are and what they mean
  • Accounting knowledge on Audit Committee desirable
  • Clear explanation in lay terms by DoF as minimum
  • Need to manage risk of dependence upon executive to explain their own decisions and behaviours
learning from governance failures15

Learning from governance failures

Damian Murray

The Audit Commission’s Trust Practice

Northern Region Lead