Presentation to CIPFA Audit Conference in May 11 on tips for Audit Committee effectiveness

1. CIPFA Audit Conference 2011
Improving your audit committee effectiveness
Paul Hughes - 11 May 2011
©2011 Grant Thornton UK LLP. All rights reserved.

2. Content
Introduction
Context - the public sector audit committee
The current challenge
What can go wrong - examples
Assurance gathering
The importance of the AGS
Making a difference
Good practice examples
Conclusion - top tips for effectiveness
©2011 Grant Thornton UK LLP. All rights reserved.

3. Introduction
The public sector is key
market for Grant
Thornton and we have
the large pool of
expertise and a proven
track record.
©2011 Grant Thornton UK LLP. All rights reserved.

4. Introduction
Assurance Director and public sector specialist
17 years - Audit Commission and Grant Thornton
Lead relationships with large LG and NHS clients
Interest in good governance
Audit and advisory reviews
Grant Thornton Governance Institute
National report on LG Corporate Governance
©2011 Grant Thornton UK LLP. All rights reserved.

5. Context - the public sector audit committee
similarities with the
“The purpose of an audit committee
private sector is to provide independent assurance
of the adequacy of the risk
differing public sector management framework and the
associated control environment,
models independent scrutiny of the authority’s
financial and non-financial
principles of public audit performance to the extent that it
affects the authority’s exposure to risk
and weakens the control environment,
specific factors for local and to oversee the financial reporting
process.”
government (From a London Borough constitution)
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6. The public sector audit committee - role
Role to provide independent assurance to the Board (or equivalent)
over over
Financial reporting Risk management and
(i.e. the annual internal control (including
accounts) scrutiny of performance)
Discharged by: Discharged by:
Assurance and
Approving accounting policies commissioning Recommending AGS adoption
Approving annual accounts role re Internal
and External Receiving risk management,
Considering External Audit Audit Internal Audit, External Audit,
report regulatory and other reports
throughout the year to gain
Considering wider control reasonable assurance to
issues recommend the AGS
Monitoring action plan
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7. Characteristics of assurance gathering
For the two main areas of Audit Committee responsibility
Financial reporting Risk management / internal control
Simple to scope boundaries of Tougher to define boundaries of
responsibility responsibility
Objective Subjective
Committee work loaded towards Year round gathering of assurance
year end
Few reports and sources of evidence Lots of reports and sources of
to consider evidence to potentially consider
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8. Unprecedented times making the audit
committee agenda more challenging…
large funding reductions over SR period
pressure on senior officer pay
demand for greater transparency
major organisational change
outsourcing and shared services
loss of capacity and capability
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9. What can go wrong - some examples
panic response - 24 items and 3 inch thick papers
gaps/duplication - unclear boundaries with
executive/scrutiny / management
party politics - 'wood for the trees'
proportionality - meals on wheels example
agenda management - 'ground rush'
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10. Obtaining assurance over financial reporting
Audit Committee responsibilities clearer, however:
progress updates on issues and resolution
early review of accounting policies
training on interpreting the accounts
financial expertise
challenging finance team resources
follow up of ISA260 recommendations
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11. Obtaining assurance over risk management and
internal control
More complicated…
audit committees have limited time
"reasonable assurance"
most efficient means of obtaining the required assurances
start with AGS and work back to design workplan
clarity over flows of assurance into the committee
©2011 Grant Thornton UK LLP. All rights reserved.

12. Importance of the AGS
In LG, AGS are largely:
• still in the "compliance phase"
• not at the heart of governance processes
• weak in clearly articulating annual assurances
• unclear in reporting "significant weaknesses."
To add real value we believe the AGS should:
• have greater status as the key document that records the planned and obtained
assurances over achievement of the vision and strategic objectives
• be owned from the top, used to plan and monitor internal and external assurance
gathering throughout the year
• be fundamentally reviewed each year so that it clearly includes what is significant
and excludes what is not
• have only significant weaknesses recorded with SMART action planning
• provide a robust, transparent and honest assessment of the governance
framework for the year.
©2011 Grant Thornton UK LLP. All rights reserved.

13. Making a difference in challenging times
Some messages from our March 2011 workshop with Audit and Scrutiny Members:
Where joint When major Audit committees
arrangements or organisational can increase their
shared services change is being effectiveness by:
are being undertaken • ensuring that their
introduced, audit an audit committee members have
committees can: can: access to
• seek a clear • ensure that a appropriate
statement as to robust risk training
what outcomes assessment has • including lay
are envisaged, to been carried out members
provide a • ensure that the • ensuring that they
benchmark internal audit plan take the
against which covers the perspective of "demonstrate impact from your work"
performance can changes relevant
be judged • demand robust stakeholders into
• ensure that assurances over account. "focus on what really matters"
appropriate areas of concern.
internal controls
are in place.
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14. Audit Committee effectiveness - some examples
'cracking the whip' - implementing recommendations
flexing the agenda to reflect new risks - Iceland
strategic risk driving the agenda in social housing
'board secretary' keeping meetings on track
briefings, training and walking the floor
fresh challenge on debt collection
"guess the party" - minimising the politics
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15. Conclusion - top tips for effectiveness
Establishing or reviewing the committee:
• appropriate, tailored, up to date terms of
reference, reviewed alongside scrutiny
• membership - good chair supported by
audit and financial expertise (including
lay members and planning for future role)
• officer support - 'board secretary' role.
Subjective
Planning for the year:
• focus on end point of assurance for AGS
• members to own the agenda and ensure that this
reflects key risks facing the organisation
• workplan and meeting schedule to flow from
this, as well as required training and briefings.
©2011 Grant Thornton UK LLP. All rights reserved.

16. Conclusion - top tips for effectiveness
During the year:
• pre-meetings (including audit) to
organise and prioritise agenda
• obsessive focus on assurance gathering
for the AGS and speaking up / call
officers in if not getting what is needed Year end:
• hard challenge on anything that threatens • challenge the effectiveness
to soak up committee time that is not key of the AGS
to assurance gathering (interesting
• ensure explanations on the
distractions / too much detail)
accounts are clear and
• awareness of tendency to drift into satisfactory
scrutiny/executive/management roles
• prepare a report on the
(policing role but assurance that it is
effectiveness of the
being covered in the appropriate place)
committee during the year
• willingness to flex workplan / additional
• feed improvements into
meeting / subgroup to deal with
next year's plan.
emerging important issues and risks.
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