Risk Register. Accounting: Risk Management Framework No Risk Gross Score. training/publications, Attendance at Accounts as a true and accurate

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1 Risk Register 27th March 2015 Accounting: Risk Management Framework No Risk Gross Controls A1 That we do not obtain an 22 Qualified Accountant to produce the unqualified audit opinion and accounts, CIPFA cannot rely on the Statement of training/publications, Attendance at Accounts as a true and accurate Pensions Officers Group Meetings, record. Based on latest Code of Practice, robust in year monitoring / reconciliation processes. Internal review of accounts with Senior A2 A3 A4 A5 A That internal controls are not in place to continually review processes to ensure that they are appropriate. That we do not undertake robust internal monitoring and reconciliation processes meaning that the figures in the accounts could be incorrect. That we incur financial penalties from HMRC for late payment of tax on CEP reclaims. That we account for an incorrect market value in the Statement of Accounts, leading to a material misstatement which could ultimately lead to a qualified audit opinion. That poor monitoring of income due leads to cash flow problems. Manager. 22 Internal audit plan exists with dedicated hours for pensions. Pensions feed into the process by identifying areas where improvements are required. 20 We have a checklist of all reconciliations that need to be completed monthly/quarterly. These are signed off by the Fund Accountant. 1 This process is included as part of the quarterly sign off task so should not be overlooked. 1 Reconciliation of book cost and market values to the custodians book of records. Additional reconciliation between the custodian and investment managers records. We will also introduce posting unrealised profits into the general ledger so that we can report on market value directly from Oracle. 1 We monitor the payment of contributions regularly and chase non/late payers. The non/late payers are usually smaller organisations who would not affect cash flow. Any non/late payments from large employers would be identified quickly and we would contact the employer to chase payment. We have introduced the monitoring spreadsheet as a monthly sign off (rather than quarterly). We now produce performance indicators to measure how much contributions income has been received by the 22nd of the month as a percentage of the total due (to assess how much income as a percentage is late/not paid) Current

2 A7 A A9 That employers pay an incorrect rate for their contributions leading to a larger deficit for the employer or a surplus which cannot be refunded to them. That the fund fails to recover the maximum amount of income due to it which could add to the size of the deficit and the funds would need to be paid by employers. That the fund does not manage the administration expenditure and overspends against the budget resulting in funds which should be used to pay pensions being diverted to fund expenditure 24 We send all employers a contribution form at the start of each year and confirm the correct rates to be paid. We then monitor the rates paid quarterly and contact employers about any discrepancies and agree payment methods for any shortfall. 24 All expenditure incurred by the fund on behalf of employers is recharged. Invoices are itemised and all recoverable items are identified. All income recoverable on investments is itemised in the custodian reports. We will monitor the recovery and timing of this to ensure the maximum amount is recovered in a timely manner. 24 The administration budget is monitored on a monthly basis using the Collaborative Planning (CP) system which is approved by the Head of Corporate Finance on a monthly basis. The budget is allocated to Tier 5 managers who set the budget and forecast expenditure at the start of the year and update the forecast each month. Any requests for additional expenditure will be presented to the Committee for approval.

3 Administration: Risk Management Framework No Risk Gross A1 Failure to act within the appropriate legislative and policy framework could lead to illegal actions, complaints against the fund and appeals A2 A3 A4 A5 Pension structure is inappropriate to deliver a first class service Insufficiently trained or experienced staff leading to knowledge gaps Administration system is not adequate to deliver complex historical pension calculations and new look 2014 Scheme Pension administration system has inaccuracies leading to incorrect calculations being run Controls 33 Trained staff. Appropriate checking processes. Professional advice. Close working with other Funds. Policies kept up to date and discussed at PCF. 1 New structure implemented from April Impact to be monitored by Pension Management Team 3 Training programme for staff including CIPP qualification in some places. Regular briefings and updates on LGPS changes. 3 Where systems fail, staff have the skills to adopt manual calculations and spreadsheets. The Fund is a member of a multi-authority group (CLASS) which allows for the sharing of technical expertise and knowledge. 44 Introduction of a "known error list group" to ensure all AXISe errors understood and briefed to the team. Current A ICT systems go down for a prolonged period leading to an inability to access data and run calculations A7 Pension payroll pay the wrong values through system/human error A Staff unable to get to work e.g. widespread flu epidemic or building off limits A9 Not dealing properly with complaints leading to escalation that ends ultimately with the ombudsman A Growth in the number of employers in the Fund leads to less pensions knowledge within each employer. New employers fail to understand LGPS obligations. This causes a drain on Fund resources A Insufficient time to respond to changes especially 2014 Scheme - e.g. regulation changes are enacted retrospectively 22 Business Recovery Plan in place Quarterly and annual mismatch reports. Regular meetings with ESC Payroll 12 Business Recovery Plan in place 7 27 Use of expert legal advice in IDRP cases. 33 Training for new employers, development of Communications strategy, review of internal processes to ensure effectiveness 3 Active engagement in the development of LGPS 2014 through consultations, sharing of knowledge with other Funds, LGA and professional advisors. Training and preparation of staff to ensure readiness 20 9

4 A12 Inefficient processes leading to inconsistency, error or delays in processing A13 Data protection procedures nonexistent or insufficient leading to poor security for member data 1 Regular review of processes to ensure efficiency 33 Staff trained in data protection and regularly reminded of its importance. Use of Egress Switch secure , secure waste bins and password protection A14 Fraud by members 24 Compliance with audit recommendations. Use of NFI, FSA advice and life certificates. Verification of data before payment is made. Policy is to report fraud to CWAC's fraud officer. A15 Fraud by staff 24 Compliance with Audit recommendations. Robust accounting checks and adherence with best practice. A1 Risk that the Fund's new Administration Software System is not in place by 1 Jan 2015, when the existing software arrangement comes to an end. 4 Project Plan for delivery of new system is in place. Initial scoping sessions have been held with the software provider in order to identify key milestones and resource implications

5 Communication: Risk Management Framework No Risk Gross Controls C1 Members don t make an informed 12 Communication Strategy in place to decision when exercising their ensure appropriate communication pension options whilst Employers media is used. Benefit Crystallisation cannot make informed decisions Event - member provided with when exercising their discretions explanatory notes and guidance to leading to possible complaints and enable them to make informed appeals against the Fund decision and given access to further pension support. Current C2 Pension Fund does not reach the target audience and full exposure of information not achieved. 5 Obtain customer satisfaction through feedback form, enables Fund to identify service improvement options. Website updated for Members and Employers. Access for technical specialist support for Employers and Members. 4 C3 Communication is overcomplicated and technical leading to a lack of engagement and understanding by the user (including members and employers). Members and Employers are provided with explanatory notes, factsheets, access to a pension help desk and a dedicated Communications Team. In addition the Fund's website provides a one stop shop for information about the Scheme and benefits. C4 Employer doesn t understand or carry out their legal responsibilities under relevant legislation. 1 Ensure information communicated to Employers is clear and relevant by using simple understandable wording C5 Apathy from members and employers if communication is irrelevant or lacks impact leading to uninformed users. 1 Ensure all communication and literature is up to date and relevant and reflects the latest position within the pensions environment including LGPS regulations and other relevant overriding legislation. C Employers don t meet their statutory requirements leading to possible reporting of breaches to the Pension Regulator. 1 Provide training to Employers relating to their roles and responsibilities in the LGPS. Employer access to a secure Employer Portal with regular updates in line with legislation. C7 Lack of information from Employers impacts on the administration of the Fund, places strain on the partnership between Fund and Employer. 1 All forms available on our website and Employer has access to specialist support from Fund Officers.

6 C C9 Members don t make an informed decision when exercising their pension options including potential loss of new members and also higher opt-out rates. Employer cannot make informed decisions when exercising their discretions leading to possible complaints and appeals against the Fund Pension Fund does not reach their target audience and full exposure of information is not achieved. 1 Communication Strategy in place to ensure appropriate communication media is used for all members including those who aren't currently in the scheme. Obtain customer satisfaction through feedback form, enables Fund to identify service improvement options. Website updated for Members and Employers. Access for technical specialist support for Employers and Members. 4

7 Governance & Legislation: Risk Management Framework No Risk Gross Controls G1 Frequent and/or extensive 1 Member training plan in place for turnover of committee members. existing and new members in line G2 G3 G4 G5 Members have insufficient knowledge of regulations, guidance and best practice to make good decisions. Member non-attendance at training events. Officers lack the knowledge and skills required to effectively advise elected members and/or carry out administrative duties. Committee members have undisclosed conflicts of interest. with CIPFA guidance. 33 Member training plan in place for all members. At least four committee training days arranged per year. Professional advisors engaged when appropriate. 22 Monitoring of member attendance, diary management and member knowledge and skills. 33 Officer training programmes in line with CIPFA guidance. Professional qualifications. Attendance to regional and national forums by senior staff. Staff training needs identified and addressed through the appraisal process. 33 Conflicts of interest as a standing item on all committee agendas. Current 12 4 G G7 G G9 The Committee's decision making process is too rigid to allow for the making of expedient decisions leading to an inability to respond to problems and/or to exploit opportunities. Governance framework is flawed meaning it does not support effective decision making. Decisions are not implemented properly Known risks not monitored leading to adverse financial, reputational or resource impact. G Failure to recognise new Risks and/or opportunities. 24 The committee is able to use an electronic decision making process to speed up urgent decisions. 33 Governance framework reviewed in light of expert external advice and signed off by committee. Existence of governance statement, compliance statement and compliance with Myners' principles. 33 Regular review of all decisions. Progress against all actions is reported to Committee. 33 Risk management framework developed and key risks and changes reported to Committee quarterly. 33 Quarterly management meeting to identify new risks/opportunities. Professional advice sought where appropriate. Attendance at regional and national forums. Appropriately trained staff. 9 7

8 G Lack of robust procurement process leads to legal challenge or failure to obtain new goods/ services at the lowest cost. G12 Failure to review existing contracts means that opportunities are not exploited. G13 Lack of mechanisms and polices for communicating with Scheme members and employers means that decisions are not available for scrutiny. G14 Lack of engagement from employers/members means that communicating decisions becomes a "tick box" exercise and accountability is not real. G15 Public Service Pensions Act governance requirements are insufficiently clear or timescales are too short to allow proper arrangements to be made. L1 L2 L3 L4 L5 L Lack of access to appropriate legislation, best practice or guidance could lead to the Fund acting illegally. Lack of understanding of key changes means the impact is not fully understood. Lack of skills or resource to understand complex regulatory changes or understand their impact. Lack of a coherent strategy for communicating with Scheme members and employers. Lack of resource and/or skills to effectively communicate changes. Transitional Provisions required to link old and new schemes together, only received March There are still a number of outstanding issues to be resolved and guidance is required from the Government Actuary on key calculations. 24 All procurement carried out in line with CWAC's principles and guidance. Expert legal and procurement advice sought where appropriate. 27 Soft market test carried out annually on all contracts. 30 Summary of all committee and PCF minutes to be published within days. Annual review of both elected member and officer decisions. Publication of an annual report. 27 Communications strategy to ensure employer engagement. Biannual PCF and employer meetings. 24 Fund officers are engaging with advisors to understand the governance position post The Fund is also represented on 2 sub-committees of the shadow National Pension board. 33 Access to LGA material, use of specialist advisors, membership on national and regional forums. Collaborative working with other Funds. 33 Regular management meetings to consider impact. Use of project teams when necessary. Expert advice and collaborative working with other authorities. 22 Restructure Pension Team to ensure appropriately skilled staff in key positions 30 Communications strategy signed off by Committee. 20 Team restructure to ensure appropriate skills and resource within Communications team. 24 Engage with LGA and DCLG to understand latest position and regulatory "intention"

9 Investments and Liability Management: Risk Management Framework No Risk Gross Controls I1 That the assumptions underlying 33 Close liaison between the Fund's the Investment and Funding actuary and strategic investment Strategies are inconsistent. adviser. Current I2 That Fund liabilities are not correctly understood and as a consequence assets are not allocated appropriately. 33 Actuarial and Investment advice provided by qualified professionals and subject to peer review to ensure that it is fit for purpose. I3 I4 That the Investment Strategy may not be suitable for all employers. Incorrect understanding of employer characteristics e.g. strength of covenant. 32 The Fund has introduced tailored investment strategies to meet the requirements of different employer groups. 33 Actuarial and Investment advice provided by qualified professionals and subject to peer review to ensure that it is fit for purpose. I5 The Fund doesn't take expert advice when determining Investment Strategy. 4 The Fund currently utilises the services of Mercer as Strategic Investment adviser to the Fund. I Strategic investment advice received from Investment Consultants is either incorrect or inappropriate for Fund. 33 Investment advice provided by qualified professionals and subject to peer review to ensure that it is fit for purpose. I7 Investment Manager Risk - this includes both the risk that the wrong manager is appointed and /or that the manager doesn't follow the investment approach set out in the Investment Management agreement. 3 Rigorous selection process in place to ensure that Fund appoints only "best of breed" investment managers. Expert professional advice provided by Investment Consultant supporting manager selection exercise. It is a requirement of the Fund that all Investment Managers are FSA registered. The Fund also employs the services of Investment Consultant to undertake "Manager Monitoring". The performance of all investment managers is also formally monitored and reported on a quarterly basis to Investment Sub- Committee.

10 I Relevant information relating to investments is not communicated to the Committee in accordance with the Fund's Governance arrangements. 30 Investment Sub-Ctte receives formal quarterly reports on both the overall performance of the Fund and individual investment managers. Included within this report is a manager monitoring section prepared by external investment consultants (currently Mercer) advising on developments / issues of concern that have arisen during the period. Where appropriate the Fund also utilises an electronic decision making to allow the Committee to make timely decisions. I9 Poor performance of Investment Managers relative to that asset class peer groups. 40 Rigorous selection process in place to ensure that Fund appoints only "best of breed" investment managers. Expert professional advice provided by Investment Consultant supporting manager selection exercise. It is a requirement of the Fund that all Investment Managers are FSA registered. The Fund also employs the services of Investment Consultant to undertake "Manager Monitoring". The performance of all investment managers is also formally monitored and reported on a quarterly basis to Investment Sub- Committee. 1 I The risks associated with the Fund s assets are not understood resulting in the Fund taking either too much or too little risk to achieve its funding objective. 44 Full Investment Strategy review undertaken by Investment Consultant on triennial basis with Annual Strategy "Health check" undertaken in intervening years to ensure the Strategy is still appropriate to achieve long term funding objectives. I Actual asset allocations move away from strategic benchmark. 32 Asset Allocations formally reviewed as part of quarterly report to Investment Sub-Cttee and advice of Investment Consultant sought in relation to re-balancing mandates that have moved outside of their control range. 14

11 I12 No modelling of liabilities and cash flow is undertaken. 3 Annual cash flow monitoring at Fund level undertaken by actuary and utilised to inform Investment Strategy. E1 Funding Strategy and Investment considered in isolation by Officers, Committee and their separate actuarial and investment advisors. 3 Funding Strategy statement has explicit links to the investment strategy. Both the actuarial advisor and the investment advisor advise Officers and the Committee and work in partnership to ensure that the two strategies are compatible. E2 Inappropriate Funding Strategy set at Fund and employer level despite being considered in conjunction with Investment Strategy. 3 Fund commissions stochastic modelling from the fund's actuary to test the likelihood of success of achieving 0% solvency across 00's of different economic scenarios. E3 E4 E5 E Processes not in place to capture or failure to correctly understand risk characteristics of employers and setting inappropriate investment/funding strategies. Inappropriate Investment and Funding Strategy set that increases risk of future contribution rate increases. Processes not in place to capture or failure to correctly understand changes to risk characteristics of employers and adapting investment/funding strategies. Processes not in place to capture or review when an employer may be leaving the LGPS. 3 Employer monitoring database developed and updated quarterly to capture key metrics that drive an employers liabilities. Formal set of meetings with employers to fully understand their particular characteristics as part of setting the funding strategy. 33 Fund commissions probabilistic modelling from the fund's actuary to test the likelihood of success of achieving 0% solvency across 00's of different economic scenarios. 27 Employer monitoring database developed and updated quarterly to capture key metrics that drive an employers liabilities. Formal set of meetings with employers to fully understand their particular characteristics as part of setting the funding strategy. 30 Employer monitoring database developed and updated quarterly to capture key metrics that drive an employers liabilities. Formal set of meetings with employers to fully understand their particular characteristics as part of setting the funding strategy. Both will allow Officers to identify when an employer may be leaving the scheme. 14 9

12 E7 Processes not in place to capture or review funding levels as employer approaches exiting the LGPS. 27 Online Funding level update tool available to provide daily funding levels for individual employers to monitor their funding levels as they near exit from the LGPS. 1 E Investment strategy is static, inflexible and does not meet employers and the Fund's objectives. 30 De-risking strategy was approved by Committee on 2 March 2014 and is now live. So far this has resulted in a reduction in allocation to growth assets of 12% for Growth Strategy B. 1 E9 Process not in place to ensure new employers admitted to the scheme have appropriate guarantor or bond in place. 30 LGPS REGS and Admission Agreements wording require both TABS and CABs to have a guarantor/bond in place. All new employers must have some security in place. E Level of bond not reviewed in light of change in employers pension liabilities. E Processes not in place to capture or review covenant of individual employers. E12 Funding Strategy and Investment Strategies are static and not subject to continual and regular review. E13 Processes not in place to capture and understand changes in key issues that drive changes to pension liabilities. 30 Employer monitoring and online funding updates in place to capture changes to employers risk profile and adequacy of bond level. 30 Employer monitoring database developed and updated quarterly to capture key metrics that drive an employers liabilities. This includes covenant. Formal set of meetings with employers to fully understand their particular characteristics as part of setting the funding strategy. 30 Investment Consultant regularly advises on appropriateness of investment strategy in light of current market conditions. 30 Employer monitoring database developed and updated quarterly to capture key metrics that drive an employers liabilities. Knowledge and skills framework and use of advisors ensure Committee and Officers are aware of and understand the drives of pension liabilities and identify when events change. 1 1

13 Special Projects: Risk Management Framework No Risk Gross Controls SP1 Pension software is not in 22 New software provider has proven compliance or is inefficient, track record in delivering LGPS resulting in late or incorrect Admin Systems. Contract in place pension benefits paid. to provide upgrades for new SP2 The Fund is unable deliver its obligations and affects every aspect, valuation, paying pensioners, calculating members benefits and data disclosure. SP3 Fund Officers don't understand or are unable to administer the scheme so the Fund meets its legal obligations legislation. 3 Project Plan and Board in place, resource allocated to the project and key milestones are being met. 3 The Fund officers will undergo extensive training, training documents and on-going support prior to and after the introduction of the new software. Current