002/2012: Establishment of an Independent Audit Committee – 22 November 2012

Establishing the Independent Audit Committee

Executive Summary and recommendation:

The Financial Management Code of Practice introduced as part of the Police Reform and Social Responsibility Act 2011, requires the Police and Crime Commissioner and the Chief Constable to establish an Audit Committee, comprised of people independent from them, to support and advise them and their respective Chief Finance Officers on internal audit and financial governance matters.

This seeks the approval of the Police and Crime Commissioner to the initial arrangements for such an Audit Committee developed by the Former Police Authority. The Chief Constable has already given his approval to these arrangements, subject to the PCC’s views.

Police and Crime Commissioner decision:

Approved, subject to the expenses scheme being amended to provide for no payment of a daily allowance rate for undertaking the duties and the adoption of the HMRC rate for the payment of mileage expenses.

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22 November 2012

Unrestricted facts and advice to the PCC

Introduction and background

The Home Office Financial Management Code of Practice (the Code) provides clarity around the financial governance arrangements within the Police Service in England and Wales. The code is issued under the Police Reform and Social Responsibility Act 2011 and PCCs and Chief Constables must have regard to the code when carrying out their functions.

The Code states that the PCC and Chief Constable should establish an independent Audit Committee. It is recommended that this be a combined body which will consider the internal and external audit reports of both the PCC and the Chief Constable. This committee will advise the PCC and Chief Constable according to good governance principles and advise them to adopt appropriate risk management arrangements in accordance with proper practices. In setting up the Audit Committee, the PCC and the Chief Constable should have regard to the Chartered Institute of Public Finance and Accountancy (CIPFA) guidance on Audit Committees. This has been used in devising the terms of reference of the Audit Committee..

The guidance recommends that an audit committee should have a statement of purpose, with formal terms of reference covering its core functions. In order to be effective, an audit committee needs a chair and membership that has knowledge, experience and interest in the field. The committee will also benefit from members with financial awareness, independence of thinking and a balanced approach to significant issues. Members must recognise and understand the value of the audit function.

The Code states that the committee should comprise between three and five members who are independent of the PCC and the Force. There is no definition of independence in the Code, and the means of recruitment of members and remuneration is left as a matter for local discretion.

CIPFA guidance suggests that meetings be held quarterly but with flexibility to convene additional meetings if necessary. The Code is clear that the PCC and the Force should be represented at the audit committee.

Matters for consideration

In order to maintain continuity of experience and knowledge, the former Police Authority established a shadow Audit Committee in September from among the existing members of the Authority, initially for a twelve month period but subject to review by the PCC and Chief Constable at any time. Should there be a desire to move to external recruitment of members in line with Nolan principles in due course post November, sufficient time should be allowed to put new arrangements in place, to ensure that the PCC and Chief Constable are not left in the position of being without a properly constituted audit committee, which is a requirement of the Code and an important part of the overall governance environment.

As set out in the proposed statement of purpose and terms of reference, the Committee will act in an advisory capacity to the PCC and Chief Constable. In order to ensure adequate scrutiny and resilience, a membership of four (there are currently only 3 members) is proposed with a quorum of three. At the time of establishment, it was always recognised that the PCC would wish to revisit the composition once elected..

A draft schedule of meetings is proposed for an annual cycle of meetings in September, December, March and June. It is envisaged that the majority of the business of the Committee will be open to the public, although there may be occasions where there is a need for informal private debate. The two statutory Chief Financial Officers, the Head of Internal Audit and the External Auditor will have a right of access to the Committee and in particular to the chair of the Committee in line with best practice guidance.

In the interests of efficiency, representation from the OPCC and Force should be determined based on the agenda for each meeting, to ensure that it is appropriate. Internal and external audit will also attend as necessary.

The support and scrutiny function of the PCP over the PCC and the advisory role of the Committee in relation to effective governance and risk management arrangements for both the PCC and the Chief Constable are important elements of the overall accountability framework. It is critical that that any potential duplication or confusion is avoided and constructive working relationships are established from the outset between the Audit Committee and the PCP. It has been agreed that papers (including forward work plans) will be shared as part of regular liaison between the two secretariats, to ensure that there is effective communication between these two important bodies.

The detailed arrangements for the operation of this body are set in the ‘Handbook’ prepared by the Shadow Audit Committee for recommendation to the Police and Crime Commissioner. These arrangements comprise

  • Statement of Purpose and Terms of Reference
  • Committee Membership
  • Calendar of Meetings and Forward Workplan
  • Report Template
  • Role of the Audit Committee Chair and Agreed Ways of Working
  • Members’ Allowances and Expenses Scheme
  • CIPFA Self Assessment Framework
  • HM Treasury Audit Committee Handbook

Other options considered, if any

Various forms of arrangement for this statutory obligation on the PCC and the CC were considered, including doing nothing at all until the PCC was in office.

Contribution to Police and Crime Plan outcomes

The establishment of the Independent Audit Committee will be an integral element of the overall governance arrangements in place within the police service.

Consultations carried out

These arrangements have been put in place in full consultation with the Chief Constable (who has already approved the arrangements, subject to the views of the Commissioner), the two Chief Finance Officers, External Audit and the Police and Crime Panel.

Financial Implications/Value for money

It is anticipated that the cost of operating the Audit Committee will be c£10k per annum in Member expenses. Support for its activities will be provided by the Office of the Police and Crime Commissioner.

Legal Implications

There is a statutory obligation on the PCC and the Chief Constable to secure the establishment and maintenance of an Independent Audit Committee.

Equality Implications

It is recommended that, so far as possible and within the constraints of the need for members to have relevant experience and background, the need for diversity in the membership of the Committee is recognised.

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