3. Minutes of Governance and Audit Committee Meeting held on 16 April 2013 GAC 36/2013

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1 NORTHERN IRELAND HEALTH AND SOCIAL CARE BUSINESS SERVICES ORGANISATION GOVERNANCE AND AUDIT COMMITTEE Minutes of the Governance and Audit Committee (GAC) which took place on Tuesday, 28 May 2013 at 2:00pm in the Boardroom, BSO, 2 Franklin Street, Belfast. Present: Brian McMurray (Chair) In Paddy Anderson (Director of Finance) Hilary McCartan Attendance: Catherine McKeown (Head of Internal Audit) Robin McClelland Jenny McCaw (Assistant Head of Internal Audit) Catherine O Hagan (NIAO) Denver Lynn (NIAO) Arthur O Brien (KPMG) Stephen Boyd (PWC) Emma Murray (PWC) Janine Watterson (Committee Secretary) 1. Apologies There was an apology for absence from Geraldine Fahy. 2. Conflicts of Interest Declaration There were no conflicts of interest declared. 3. Minutes of Governance and Audit Committee Meeting held on 16 April 2013 GAC 36/2013 The minutes of the meeting held on 16 April 2013 were approved and signed subject to a minor amendment. 4. Action Points arising out of Minutes of 16 April 2013 GAC 37/2013 The Committee received the following reports in respect of Action Points which were still outstanding. Action Point 2, Finalise protocol between internal and external audit in respect of NAO Self Assessment. HIA advised that the protocol had now been considered by NIAO and required final agreement by both parties. Action Point 3, Backlog of superannuation payments. The Director of Finance advised that he would report progress on this action point under paper GAC 47/

2 Action Point 4, ITS Audit Report. Ms O Hagan, NIAO reported that work on the IT audit was ongoing. A final report would be presented to the Committee in due course. 5. Chair s Business (a) Proposed Dates for future GAC meetings GAC 38/2013 The Committee agreed that this matter should be discussed under Agenda item 7 External Audit progress report on 2012/13 accounts. (b) Draft GAC Annual Report to the BSO Board GAC 39/2013 The Committee agreed that consideration of the draft GAC Annual Report to the BSO Board should be deferred until all relevant reports from auditors had been received. The Secretary undertook to arrange for consideration of this report at a future meeting. (c) Note of an ALB Audit Committee Chairs Event on 25 February 2013 GAC 40/2013 The Committee noted a Note of an ALB Audit Chairs Event which took place on 25 February (d) Completed 2012/13 NAO Self Assessment Checklist and 2013/14 Action Plan GAC 41/2013 The Committee agreed that discussions on completion of the NAO self-assessment should be deferred. The Secretary agreed to arrange for completion of the Checklist at a future meeting. (e) Complaint from Public Health Authority (PHA) The Chair alerted the Committee to a letter he had received from Julie Erskine, Chair of the PHA Audit Committee, which stated that PHA were unhappy with the service currently provided by BSO. He explained that the complaint emanated from the introduction of BSTP systems and that the issues raised in the letter were already known to members. He advised that he had responded to Ms Erskine and would keep members informed of any further communication. The Committee noted the position. 6. Internal Audit (a) Progress Reports as at 28 May GAC 42/2013 The Head of Internal Audit (HIA) gave a progress report on Internal Audit work undertaken since the last meeting. She informed the Committee that she was presenting six reports for consideration: Bank and Cash, Non Pay Expenditure, ITS Business Continuity and Disaster Recovery, BSTP Central Administration Current FPL Interim Arrangements, Pals Follow Up and Controls Assurance. HIA referred to the HRPTS ITS Go Live audit and advised that a final report was not available for presentation to the Committee as BSO management had requested 2

3 further clarification of the findings and recommendations included in the draft report. She verbally reported however that the draft report contained four priority ones with an unacceptable level of assurance and agreed to send members a copy of the report once finalised. The Committee noted each of the Reports presented and raised the following issues: i. Bank and Cash HIA reported a Satisfactory level of assurance. There were no issues raised by the Committee in respect of this report. ii. Non Pay Expenditure HIA reported a Limited level of assurance. In response to a question from Mrs McCartan, the Director of Finance gave an update on the current position within the Finance Directorate since the audit was performed. He advised that good progress had been made in respect of the introduction of a duplicate payments report and that significant work had been undertaken to reduce the invoice backlog. He also drew attention to fundamental changes in finance processes following implementation of the Finance Procurement and Logistics (FPL) systems, all of which required finance staff to adapt to a new way of working. Mrs McCartan further enquired as to who was responsible for executing training in new systems. The Director of Finance responded that competing priorities had resulted in the Lead Officer for training being reassigned to urgent stock accounting issues. This reassignment would continue until BSO was in a position to complete its year end accounts for 2012/13. As a consequence training was delayed and is now being delivered by the central team. He also acknowledged the weaknesses in the lack of introductory training provided to staff but stated that this was being addressed. Mrs McCartan cautioned that proper time must be allocated for any additional training required to bring staff knowledge up to the required standard. This was reiterated by the Chair. Mr McClelland added that technical issues in the system need to be resolved to enable staff to move forward. In response to a question from the Chair, the Director of Finance advised that BSO had communicated with suppliers prior to the introduction of new systems. This he advised had led to better engagement with suppliers and ultimately assisted in resolving any payment issues. The Director of Finance also drew attention to the introduction in March 2013 of the Late Payment of Commercial Debt Legislation which requires payment to suppliers to be made within 30 days. He advised that BSO is committed to delivering on this requirement. iii. ICT Business Continuity and Disaster Recovery HIA reported a Satisfactory level of assurance. There were no issues raised by the Committee 3

4 iv. Controls Assurance Report HIA presented the Controls Assurance Report which set out the results of her independent verification of BSO s self-assessment in respect of the following Controls Assurance Standards: Governance, Risk Management, Financial Management, Management of Purchasing and Supply, Waste Management and Health and Safety Management. HIA reported that whilst all Standards had received substantive compliance a reduction in the overall compliance of the Financial Management Standard had been noted. She explained that the reduction in compliance with this Standard is reflective of the issues experienced on implementation of BSTP systems. A discussion ensued on the limitation of assurances provided by Controls Assurance Standards and it was acknowledged that the Standards do not test the effectiveness of the systems but state that frameworks are in place. With this in mind, the Committee stressed that the wording in the governance statement should explain and justify the assurances provided in relation to controls assurances. v. Year End Follow Up on Previous Audit Recommendations relating to Departmental Audit Review of Direct Award Contracts Managed by PaLS (incorporating BSO commissioned Substantive Review of PalS Contracts 2012/13 HIA reported that the results of the Year End Follow Up on Previous Audit Recommendations relating to Departmental Audit Review of Direct Award Contracts Managed by PaLS, incorporating BSO commissioned Substantive Review of PaLS Contracts 2012/13, had shown that 25 (83.3%) of the 30 recommendations examined were fully implemented, a further 4 (13.3%) were partially implemented at the time of review, and 1 (3.3%) was not implemented. As a result of this progress she was providing a satisfactory assurance on PaLS as a Centre of Procurement Expertise. Mrs McCartan paid tribute to the level of commitment shown by internal audit staff in carrying out this audit in a short space of time. HIA suitably responded. vi. BSTP Central Administration Current FPL Interim Arrangements At the outset, HIA explained that a level of assurance had not been provided with this report as this review focused on FPL interim central administration roles and responsibilities which will, or already have, devolved. HIA reported that the audit had concluded that central structures and processes were not yet in place to effectively manage the Central administration functions of FPL. Further, she reported that while interim measures were in place the review had raised issues with the interim arrangements. The Director of Finance responded, stating that the Director of Operations is currently reviewing the central administration structures within Shared Services. He advised that a Head of Business Services had now been appointed and a proposal for a phased transfer of activities from existing interim arrangements to shared services was being taken forward. He also acknowledged the weaknesses in governance arrangements highlighted by HIA which had arose out of unforeseen difficulties experienced during implementation of BSTP systems. These issues, he explained, had resulted in interim arrangements remaining in place longer than anticipated. 4

5 In response to a question from Mrs McCartan, the Director of Finance confirmed that lessons had been learned. He advised that whilst some technical issues remain within HRPTS the approach to staff training had changed based on the experience gained from FPL migration and a much more comprehensive and intensive suite of training had been adopted by BSO to improve delivery. The Committee noted the findings of the report. vii. HIA Annual Report - GAC 43/2013 HIA presented her draft Annual Report for the Year ended 31 March In doing so she thanked her Team for the work they had carried out and made special mention of PalS staff whom she had worked with during the year on Management of Contract issues. The Committee thanked HIA for her audit work during the year and her prompt reporting to GAC. A final report would be issued in due course viii. Internal Audit Strategy and Audit Plan 2013/14 - GAC 44/2013 HIA presented the Internal Audit Strategy and Audit Plan 2013/14 for the Business Services Organisation. She explained that normally a three year audit plan would be developed but with the planned introduction of shared services, which will significantly impact on the internal audit plan, it was agreed with management that an Internal Audit Plan would be developed for the 2013/14 year only. The Committee noted that the proposed draft plan exceeded the available funded SLA days and additional funding and/or a reduction in the number of audits proposed would be required to deliver the proposed plan. The increase in audit days required derived from additional BSTP/Shared Services audit assignments for which funding was to be sought from DHSSPS. Also, a number of additional audits had been proposed by Directors during the planning process and if approved by SMT would also require additional funding. The Committee in approving the Plan requested that they were kept informed of developments. ix. Internal Audit Charter - GAC 45/2013 The Committee approved the Internal Audit Charter for BSO. 7. External Audit (a) Progress Report on 2012/13 Annual Accounts Mr Denver Lynn reported that the audit of the BSO account had been rescheduled to commence on 17 June 2013 as a result of difficulties experienced in implementation of new BSTP systems and in particular weaknesses encountered in respect of the accuracy and integrity of stock accounting data. He explained that this delay would result in the BSO annual accounts being laid before the NI Assembly after the summer recess. Further, he advised that a Comptroller and 5

6 Auditor General report would be appended to the accounts to provide an update on the 2011/12 PaLS Management of Contracts issue and potentially to explain the Organisation s failure to meet faster closing and difficulties experienced with the introduction of new BSTP systems. Mr O Brien highlighted to the Committee, that as a result of the weaknesses in stock accounting, KPMG would now conduct the financial audit using a different method to that set out in the BSO s Audit strategy presented to the Committee in April He explained that the audit would now require additional transactional testing to enable an appropriate opinion to be formed. Ms O Hagan reported that the fieldwork on the IT audit was now complete. The Committee noted the position /13 Annual Accounts (a) Progress Report The Director of Finance gave a progress report on work undertaken to complete draft accounts for the 2012/13 financial year. He highlighted the additional work which had been undertaken by the Finance Directorate to validate both the stock balance and related accruals within the BSO General Ledger at 31 March He advised the Committee that he anticipated that draft 2012/13 accounts for BSO would be submitted to DHSSPS no later than 31 st May 2013, four weeks after the original deadline. (b) Draft Statement of Losses and Special Payments - GAC 46/2013 The Committee reviewed the draft Statement of Losses and Special Payments for the 2012/13 year and raised no issues. The Committee noted that the draft Statement of Losses and Special Payments would now be included in the draft Annual Accounts. 9. Business Matters (a) Progress Report on outstanding audit recommendations as at 17 May GAC 47/2013 The Committee noted the BSO s progress report as at 17 May 2013, which provided details of actions taken against audit recommendations received from internal and external audit. (b) BSO Fraud Register - GAC 48/2013 The Committee noted that one new potential fraud had been passed to Counter Fraud and Probity Services since the last meeting. The Secretary provided a progress report in respect of ongoing potential and actual frauds. 6

7 (c) Register of 2013/14 Departmental Circulars/Guidance - GAC 49/2013 The Committee noted the Register of Circulars which provided members with an overview of the Financial circulars received from the Department during the 2013/14 financial year. 10. Notified Any Other Business Mr Denver Lynn advised the Committee that following a reorganisation of responsibilities within NIAO that he would be transferring to a different Department within NIAO in the near future. He further advised that his current responsibilities would be passing to Dorinnia Carville. The Committee thanked Mr Lynn for his guidance and assistance during the past few years. 11. Date of Next Meeting The date of the next meeting was arranged for Tuesday, 24 September Chair Date 7