Audit Committee minutes: 26 June 2018

Lee Newman (LN) Mazars, Katy Thomas (KT), with ECS and DB delayed due to train difficulties.

None.

Agreed that the minutes be approved and the Chair of that meeting (ECS) be authorised to sign them.

This item was taken first as both DB and ECS were delayed. PC introduced the paper, and referred the Committee to the Annual Opinion summary box onpage 2. He reminded the Committee that ‘adequate’ was the highest rating given by Mazars, and that they happy with the controls in place. He also indicated that their assessment was that the Commission has a good control environment, and that it was significant that there was no audit or individual recommendation marked red, or ‘limited’. He also noted that corporate governance came out green overall, and that this was the overall indicator that Commission has a good internal control environment.

The Committee considered the internal audit annual report and noted the overall opinion proposed. The report and opinion were referred to the
Commission Board meeting to be held on 27th June 2018 in support of the Governance Statement within the Annual Report and Accounts.

Noted and agreed.

TB introduced the paper indicating that figures in the graphic found on pages 9-10 were subject to updates that will be completed by the close of business that day. She also noted that the Committee paper did not include a paragraph on page 63 outlining the final judgment of the ICO. SB suggested that, as this had been received, the disclosure should be updated.

The Committee considered whether any post balance sheet event disclosures were required and agreed to delegate a final decision to CB as Accounting Officer after consultation with DB. [Note subsequently agreed that no additional disclosures were required.]

AM noted the report read much more positively, and was pleased to note the response to his views on the report at the last Commission board.

AM noted also that the 3rd last paragraph of the foreword had inaccurate wording; the Commission has no powers to ensure electoral law keeps up with changing political campaigning.

SB indicated that she would like to take to board the question of whether targets are appropriate if the Commission is consistently overachieving. CB said it was on the agenda for discussion but also noted that targets would always be harder to set to measure outcome versus performance.

SB noted that the report told a positive story, and commended the work of staff.

DB introduced the paper, stating that the NAO were intending to proceed to an ‘unqualified’ audit opinion. However in considering the accounts the Committee should note five particular items, namely:

• reporting on parliamentary supply, which must consider the needs for early discussion and training
• policy development grants: where evidence from beneficiaries was still outstanding [note: this was subsequently received.]
• EU referendum accruals
• immaterial errors identified in relation to year end accruals
• uncertainty over the estimated provision for dilapidations

He also noted the one significant risk considered in all audits, management override of control processes, has been satisfactorily addressed.

DB acknowledged that the EU referendum accrual balance was an acceptable estimate. Some minor items of additional evidence were required but this was not an obstacle to forming the NAO’s opinion. It was agreed that the Commission would continue to pursue this evidence with ECU and the authority concerned.

A discussion followed on end-year accruals. It was accepted that these highlighted a need for administrative staff involved in the process to be
provided with additional training. DB also suggested that a judgment be taken on de minimis options with regards less substantial invoices.

In relation to dilapidations, DB advised that despite the uncertainty no adjustment to the accounts was required. However it was agreed that this uncertainty must be addressed during 2018/19. DB advised that the year-end process highlighted the need to address material judgmental items earlier in the year. This would allow AME adjustments to be included in the Supplementary Estimate when required.

AM sought clarification on the cost of expert advice on dilapidations. It was agreed that it was particularly pertinent to consider expert advice this year, as the Commission’s lease was coming to an end for Bunhill Row. Agreed that the management letter of representation to be noted, and that the Annual Report and Accounts, be recommended to the Commission board to be signed by the Accounting Officer and submitted to the Comptroller and Auditor General for certification.

SB introduced paper and invited comment.

DB indicated that the variation in the cost of audit services indicated in paragraph 4.4 should instead identify that ‘additional work was required’. He also suggested that the document would be strengthened by the inclusion of the NAO’s conclusions in their draft Audit Completion Report, and the fact the Committee had approved the annual accounts.

Agreed to revise the report for Commission Board’s consideration at the 27 June board meeting to include these suggestions.

GS indicated that the strategy and plan had only been slightly revised from last time. He proposed that he would on subsequent occasions bring an amendment sheet rather than the whole document.

Agreed and noted.

GS outlined the report, noting particularly that there were definitional differences between Mazars view on implementation of recommendations
versus how the Commission understood it.

KR acknowledged these issues and provided assurance that the material differences would be addressed in subsequent presentation to the Committee to provide necessary clarity.

AM asked about the date for the implementation of training on low levelexpenditure procurement (ref 4.6). A discussion followed on the future rollout of e-procurement, and whether this meant the recommendation was superseded. KR acknowledged the need to investigate the scope for an interim solution before the e-procurement rollout.

A discussion was had on the T&S reporting (ref 5.3) with Mazars confirming that as eBis was unable to automatically produce reports, fulfilling this recommendation was too burdensome. They were content that the circulation of guidance was a reasonable substitution under the circumstances. The report was noted, and the decision taken to implement the recommendations.

At 14.50 ECS joined the meeting and asked for clarification on the reporting of outstanding fines in the Annual Report. It was explained that non-payment of fines would lead to a party being deregistered, but also that the annual report did not make any distinction between outstanding and overdue fines.

BP and LE were unavailable to join the meeting and indicated that they would circulate a written note outside of the meeting. [now appended to minutes]

SB introduced the paper, highlighting the fact that the effectiveness of the Committee was hampered by the illness of the outgoing Chair, and the other  changes of membership, though this did not prevent the Committee from fulfilling its duty.

SB raised the issue addressed in paragraph 2.3, namely the consideration of how the delegation of fines and referrals are monitored: should this be considered by the audit Committee or the board? The decision was taken to discuss this issue outside of the meeting.

DB indicated the willingness of the NAO to provide additional training and support to new Commissioners, and to lead on a meeting for Commissioners of the various parliamentary bodies to discuss best practice. Mazars offered to support this endeavour.

The Committee agreed that they should have a workshop and/or a strategy session to look at best practice and the new accounting rules, with the Strategic Planning and Resourcing team to provide support. The report was noted.

The Committee noted the revised risk register and assurance map. A
discussion was had on the usefulness or otherwise of letters of assurance
from directors. While it was agreed that such assurances are useful when
there are significant financial delegations, in the Commission these
delegations are undertaken in reference to projects rather than directorates. It
was decided that delegation letters would impede the good functioning of the
project-led approach at the Commission and assurance would be managed
via projects.
12.2 It was noted by AM that under risk three, public dissatisfaction might be
related to the necessary delay required by a thorough investigation. CB
agreed that this was accurate and the risk register would be updated..
12.2 A discussion followed as to the relationship between the risk score and the
overall assurance score, with the decision taken that the paper would be
reviewed again at ET, with support from Mazars, before coming back to the
Committee for further review.
12.3 ECS enquired about the absence of devolution from risk 2 around the risks of
election polling. CB explained that it had previously been brigaded with risk 2
but had been split out as risk 4 to fully capture all the implications of
devolution.
12.4 AM then noted that the risk holder for risk 4 might need to consider the
possibility of a further Scottish referendum. CB explained that it had
previously been included in the risk register, and further monitoring would
bring it back in if necessary.
12.5 SB noted that the depth and complexity of thought going into the risk register
was reassuring.

Agreed that an updated risk register would be brought to the next Audit
Committee.

PW introduced the paper, noting that the RAG rating for progress had been strictly applied, hence the high number of amber and red ratings.

The Committee discussed the checking of financial returns, with clarifications as to the failure rate in those checked. This was characterised as a ‘significantminority’ though the degree of failure varied dramatically. It was also clarified that the Commission took a risk-based approach to checking financial returns, and checked a broad range of parties.

AM asked if there had been a date assigned to recommendation 4.4 on the disposal of information assets. KR replied that a revised date would be entered into the register now that relevant staff were in post.

Noted.

It was noted that the Chair had written to Dean Parker to thank him for his service.

SB noted that interests should be logged as either remunerated or pro bono; this was put forward to the 27 June Board.

It was also noted that all gifts received by the Commission were shared by the staff, and that this should be reflected in the register.

Noted with amendments.

The date for the next audit Committee was discussed, and set for 18 September 2018, with a focus on a strategic discussion. The next substantive audit Committee meeting was set for 4 December 2018.

The Committee noted their thanks to TB and her team, and to the auditors for their work on preparing the Annual Report and Resource Accounts.

When the Committee looked at this about a year ago we had as part of responding to the audit moved to a more proportionate risk based approach on permissibility checking. In practice that means we have been checking up to circa 25% of donations, based on a selectively sampled approach. That has worked well from a regulatory approach perspective, but is still time-consuming and does not mitigate the intensive staff time task of obtaining, collating, uploading and maintaining as up to date all the data that comprises electoral registers and monthly updates from across the UK, so we can carry out the permissibility checks.

With this in mind - as the Committee knows, we are now taking forward a wider and much more fundamental change in our financial reporting processes. That is the PFR Online project, which is a complete rebuild of the now aged and limited capability current Commission PEF online system. We have procured an ITdeveloper and commenced work with them (using an AGILE approach) to build this new state of the art system. As part of that our agenda with the developers includes looking at if and how we can ‘automate’ aspects of permissibility checking via the new PFR Online system. Further, we are with the Commission Research Team looking at current developing private sector initiatives to create a useable IT database of all of the electoral registers, which we can potentially use.

In summary we are hopeful we are on track for further efficiencies in our processes.