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Audit Committee Minutes of Meeting – 17 March 2005

Attendees:

  • Bill Griffiths (Chair)
  • Mark Lowcock
  • Joy Hutcheon
  • Graham Steggman
  • Richard Calvert
  • Mike Noronha
  • Martin Daynes
  • Mel Charles
  • Elinor Wakefield.

Minutes and Matters Arising 1. The Minutes of the 21 January 2005 meeting were approved, with one amendment related to the entities included in DFID's whole of government accounts (WGA) (paragraph 15): 'Crown Agents' should be replaced by 'Crown Agents Holding and Realisation Board'.

2. Audit arrangements for the Global Conflict Prevention Pools are currently being clarified by the Head of Internal Audit Department (IAD) with his counterparts in the Foreign and Commonwealth Office (FCO) and Ministry of Defence (MoD).

3. The Head of IAD gave an update on the Fraud Strategy, including on the suspected fraud within an non-governmental organisation (NGO) receiving DFID money, discussed at the last meeting. The NGO in question has agreed that its Partnership Programme Agreement (PPA) funding will not be increased and that it will reform its internal systems. The Committee was also notified of the existence of 'ghost' pensioners on the Overseas Pensions Department (OPD) pension payroll. The scale of the problem is currently being assessed by IAD and OPD.

4. A summary of the first Audit Committee Communication, on Fraud, was circulated for comment. The Communication is due to be released in April.

Update on Activities Reporting Information E-System (ARIES)

5. Ian MacIntosh presented an update on the ARIES tendering process and the performance of the short-listed suppliers against required criteria. The ARIES team are currently conducting site visits for each supplier and comparing their record in working with Other Government Department (OGDs). This should enable two frontrunners to be identified by the end of April. A preferred supplier will be chosen by the end of June and a contract awarded by mid August.

6. In discussion, the following points were made:

  • a. All short-listed software packages are capable of performing the required tasks. The supplier's approach to implementation, therefore, is likely to be the key variable affecting the success of the project. Site visits will provide a useful insight into suppliers' past performance in this area. However, both DFID and the final supplier will carry responsibility for ensuring successful implementation: suppliers need to be realistic about the number of consultant days that are needed; DFID needs to ensure that adequate staff time is dedicated to the implementation.
  • b. It is important that mechanisms for ensuring the continuity of the final supplier's project team are discussed with all suppliers in advance, and built into the contract. This is with a view to ensuring the ARIES project is prioritised in their internal staffing decisions. We also need to develop links to a senior (Managing Director-level) contact in each supplier, to ensure that we can hold them to delivery if implementation goes off-course. Action: ARIES team
  • c. While the requirements for the finance and procurement functions are well defined, a strategic decision is needed on whether sophisticated Project Management tools are also built into the system.
  • d. All four short-listed suppliers are confident that difficulties in rolling out and maintaining the system for overseas offices can be overcome. They are currently carrying out satellite simulation tests to this end.
  • e. It would be valuable to receive an update on ARIES at each Audit Committee meeting. Action: Resource Management Group (RMG)/ARIES team

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Review of IAD finalised work programme

7. The Head of IAD presented IAD's finalised work programme for 2005/06 and asked for the Committee's approval. He outlined the process by which the work programme was developed and highlighted areas of high priority. He also noted that the demands upon IAD's Fraud Response Unit were taking away resources from mainstream Internal Audit work.

8. The Committee requested that comments on audit activity on Poverty Reduction Budget Support (PRBS) be added to the programme document, but otherwise gave their approval to the work programme. Action: IAD

9. In discussion, the following points were made:

  • a. It would be desirable for the lessons of key internal audits to be shared across DFID, and with other donors. Budget Support was cited as a good example of this being done in practice, and joint audits have been carried out with other donors on Sector Wide Approaches (SWAps) in Zambia and Uganda.
    • i. Where there is a risk that fiduciary discharge of PRBS may not be possible (the example of Mozambique was discussed), this should be identified early and steps taken to develop a mechanism by which fiduciary discharge can be achieved. However, this should be done with sensitivity to the overall aims of PRBS, and without counter-productive requirements being placed on recipient-country systems.
    • ii. The absence of fiduciary discharge for a given instance of PRBS should not in itself affect the credibility of DFID's accounts, but may need to be considered for inclusion in the disclosure note. It is important that that such cases are understood in the wider context of risks and potential benefits of PRBS, and the intention and direction of change of the recipient country, particularly as indicated by World Bank and International Monetary Fund (IMF) benchmarks.
  • b. In response to questions on whether IAD output has increased in line with the growth in the team and whether he had the right human resources to deliver the programme, the Head of IAD replied positively. Output has increased with growth in the team: many more overseas visits are completed, and advice and consultancy services are offered. The Head of IAD agreed to share metrics on this with the Committee. (Action: IAD). Human resources were tight, especially given the demands on the Fraud Response Unit noted above, but there was some scope for complementarity with the National Audit Office's (NAO's) overseas audits.
  • c. The Head of Internal Audit noted interest in the upcoming audit of Procurement, and in methods for monitoring and controlling output-based contracts.

Directors Statements 2004/05

10. The Head of Resource Management Group (RMG) presented the suggested template and guidance for the Directors Statements 2004/05. These will be commissioned in April, with returns requested by June. He notified the Committee of changes that had been made to the template and guidance since 2003/04, and requested the Committee's view on possible further amendments.

11. In discussion, the following points were made:

  • a. The Directors' Statements are a very valuable mechanism for creating traction within the system. Over the last few years, Directors have become increasingly accountable for what they write in the Statements, which are linked to their annual performance reviews. The strength of the system used by DFID has been noted around Whitehall.
  • b. It was suggested that the template was altered to put more emphasis on Project Completion Reports (PCR) data, perhaps with comparative historical/DFID-wide data. It would also be useful to record the value of suspense over 12 months old. Action: RMG
  • c. Although Directors are free to change the wording in the template to match their particular circumstances, the paragraph (6) on Resource Allocation, in particular, may not be appropriate in all cases.
  • d. In 2005/06, the Statements should reflect the overarching framework of the Blue Book.

Management Board Review

12. The Head of RMG presented the draft assessment report on the Audit Committee's performance over the last year and asked for comments. The report will be presented to the Management Board at their review of sub-Committees on 28 April.

13. In discussion, the following points were agreed (Action: RMG):

  • a. Changes to objectives:
    • i. There should be a headline objective relating to the role of the Committee in supporting DFID's reputation in Whitehall for good financial and risk management and compliance; and in providing assurance to the Board on the organisation's finance and efficiency. All other forward tasks should cascade from this.
    • ii. The 2004/05 objective relating to the Committee's review of the NAO financial risk assessment and NAO's terms of reference is no longer needed.
    • iii. The 2005/06 objective related to reviewing Service Level Agreements (SLAs) can be omitted as these are now incorporated into Directors Delivery Plans (DDPs). This could be replaced with an objective to oversee performance against the Efficiency Review Targets.
    • iv. Oversight of the ARIES project should be added as an objective in 2005/06.
  • b. Addition of a 'Highlights' section at the top of the report. This should contain:
    • i. Detail of the part the Audit Committee played in the preparation of Accounts, and in Risk Management (with supporting data on performance versus OGDs, and feedback from Board on whether they felt the work of the Committee useful).
    • ii. Indications of the Committee's improved communications across the organisation.
    • iii. Point out the need for rationalised objectives for 2005/06: there were too many discrete objectives in 2004/05.
    • iv. Review internal and external audit strategy and identify any room for improvement.

IAD Progress Report

14. Committee noted the IAD progress report, including the imminent publication of the Departmental Finance Officer (DFO) Network audit report.

NAO Progress Report

15. NAO have been invited to participate in a conference on the audit of funds directed towards tsunami relief. This will be held in Jakarta on 25-27th April. DFID will supply the NAO with contacts within DFID to provide briefing. Action: RMG.

Corporate Risk Register

16. The Committee noted the update report on the Corporate Risk Register. It was noted that the presentation by the Permanent Secretary to NAO/Her Majesty's Treasury (HMT) conference on 'Driving Delivery: Managing Risks and Culture Change' had been very well received.