SFC/15/29 Agenda item 17 19 June 2015 Committee annual reports: Audit and Compliance Committee The paper provides the Council with a report of the work of Audit and Compliance Committee for the period August 2014 to June 2015. Recommendations The Council is invited to note the Audit and Compliance Committee annual report. Financial implications There are no programme fund or running cost implications associated with this paper which have not already been accounted for with the Council s current budget and budgetary planning.
Committee annual reports: Audit and Compliance Committee Purpose 1 To provide the Council with a report of the work of Audit and Compliance Committee for the period August 2014 to June 2015. Strategic Plan implications 2 The Audit and Compliance Committee provides advice to the Council on a wide range of work relating to Outcome 1, Efficient and effective regional college structures, Outcome 6, Sustainable colleges and universities and the change programme with particular input to the regionalisation agenda in relation to the college mergers. Further, the committee supports the Council in terms of its own corporate governance, specifically though oversight of all aspects of internal control and financial reporting. Background 3 The Council requires its regulatory committees to report on an annual basis, on the main activities of the Committee, and to highlight and identify any forthcoming issues and mechanisms to engage with them, where appropriate. 4 The Audit and Compliance Committee has organisational and regulatory responsibilities, considering the financial health and related governance and management matters relating to the internal operations of the Council s executive, specifically those relating to risk management, corporate governance, internal and external audit, and compliance with legislation and regulations. The Committee s remit is attached at Annex 1. Areas of focus 5 The annual report outlines the work of the Audit and Compliance Committee and includes an overview of: Committee membership and meetings The Committee s main activities effectiveness and financial control of institutions and internally; risk management; and legal and regulatory compliance The Committee s self-evaluation 1
Internal and external audit function and performance. Membership and meetings 6 The Committee comprises four Council members. Committee membership is attached as Annex 2. 7 Members experience includes senior financial management/audit; senior industrial/business management; current working knowledge of governance and management practice; and current working knowledge of the university sector. 8 Representatives from SFC s internal and external auditors and SFC s Chief Executive attend all meetings of the Committee. Members of the Council executive who support the work of the Committee also attend meetings, where appropriate. 9 The Committee met on four occasions during the reporting period and the minutes of each meeting were submitted to the Council Board. Main activities 10 The Committee s main activities are described below. Audit and Compliance Committee remit 11 The Committee agreed it had met the terms of its remit but proposed it to be amended to remove: Consider the Council s corporate governance arrangements, as this function is undertaken by the Board. This amendment will be presented to the June 2015 Council Board meeting for approval. Effectiveness and financial control Institutions 12 The Committee considered the key outputs from Council executive s monitoring of the financial sustainability and governance, and management of colleges and universities. 13 The analysis of the university sector s Strategic Plan Forecasts presented to the September 2014 meeting indicated that the sector was expected to remain liquid for the period from 2012-13 to end of 2016-17. 14 The university sector s financial sustainability was being maintained with, in 2012-13 and 2013-14, one institution having an actual or forecast underlying operating deficit, increasing to four in 2014-15 for 2
one year only and then back to two institutions in 2015-16 and one institution in 2016-17. 15 The analysis of the university sector s Financial Statements, presented to the March 2015 meeting, indicated that there were no concerns about the financial sustainability of the sector. 16 The analysis of the colleges Financial Forecast Returns indicated that, for 2013-14, total borrowing increased. 17 At the March 2015 Audit and Compliance Committee meeting, the Committee received a summary of the college and university sector s actual financial results for 2013-14. Seven out of ten colleges reported an operating deficit in 2013-14 which were largely the result of colleges donating surplus cash to Arms-length foundations (ALFs). After adjusting for these donations and other non-recurring costs and income, four colleges were showing underlying operating deficits. 18 From 1 April 2014, colleges required budget cover before being permitted to spend cash. For this reason, colleges donated any surplus cash to an ALF prior to 1 April 2014 which impacted on the strength of colleges balance sheets. 19 In December 2014, the Committee considered SFC s whistleblowing policy and fraud response and were assured that appropriate responses are in place to deal with any potential incidences. 20 VFM was considered through internal and external audit and the internal audit plan covered workforce planning, payroll, financial controls and grant funding administration, as noted below. Also, in December 2014 the Committee received a summary report for 2014-15 on SFC s arrangements for promoting and achieving Value for Money. Office for National Statistics reclassification 21 Throughout the year, the Committee also received comprehensive briefings concerning the potential implications for colleges arising from the Office for National Statistics (ONS) reclassification of colleges as central government public sector entities. Governance in multi-college regions 22 Throughout the year the Committee received updates on the governance structures and processes in the multi-college regions, Glasgow, Lanarkshire and the Highlands and Islands, including updates 3
on the work undertaken by the SFC executive to assess governance structures prior to transferring funding to the Regional Strategic Bodies. Financial Controls Self-Assessment 23 The March 2015 meeting considered the internal audit report on the detailed self-assessment of the Council s financial controls. The Council s self-assessment did not identify any major control weaknesses over the key financial control areas and testing of a sample of controls supported the results of the self-assessment and confirmed that there were no major control weaknesses. Effectiveness and financial control Internal 24 The Committee considered the SFC draft financial statements for the year ended 31 March 2015 and recommended approval of the accounts to the Chief Executive and Council Chair. 25 The Statement of Internal Control summarising SFC s system of assurances and statements of internal control for the year ended 31 March 2015 was considered to be satisfactory by the Committee. Risk management 26 As the primary responsibility for risk management lies with the Council, the Committee is required to consider, and advise the Council, on the adequacy of the arrangements for the assessment and management of risk in relation to the achievement of SFC objectives, with particular regard to the Council s top-level risks. To this end, the Committee received an update on risk assessment and the top-level risks at each meeting. Legal and regulatory compliance 27 The Committee considered the annual report on legal compliance which reported on SFC s main legal compliance requirements. 28 The Committee concluded that that SFC has adequate arrangements in place to manage compliance with legislation and regulation. Self-evaluation of performance 29 In compiling the Committee s annual report, self-evaluation questionnaires were completed by Committee members. The evaluation questionnaires were also completed by the internal and 4
external auditors who were in post during the reporting period and one member of the Council executive. 30 Committee members were of the view that the Committee had focussed on the central issues relevant to the remit of the Committee successfully, and had fulfilled its remit adequately. They also felt that there was adequate expertise on the Committee to allow for effective scrutiny, as evidenced throughout the year by the level of challenge provided by members. Internal and external audit function and performance Internal audit 31 During 2014-15, Scott Moncrieff carried out internal audit reviews of: Risk Management Workforce Planning Payroll Performance Management Financial controls self-assessment Grant funding administration compliance Outcome Agreements Strategic Projects Nursing Funding Allocation Follow up of previous internal audit recommendations 32 Based on work done, no control objectives were assessed as BLACK (fundamental failures) and there were no grade 5 actions raised during the year. 33 Four internal audit recommendations were outstanding at 31 March 2015. 34 Responses gathered from the Council executive regarding the internal audit performance of Scott Moncrieff indicated that Scott Moncrieff had carried out the audit function in a professional manner producing reports of high quality timeously. 5
External audit 35 Responses gathered from the review of the external audit performance carried out by Grant Thornton indicated that that there had not been any major issues of concern relating to the external audit function carried out by Grant Thornton. Strategic issues and priorities [ ] x 1 paragraph Risk assessment 36 There are no risks associated with this paper. Equality and diversity assessment 37 An equal opportunity and diversity assessment has not been carried out. Recommendation 38 The Council is invited to note the Audit and Compliance Committee annual report. Financial implications 39 There are no programme fund or running cost implications associated with this paper which have not already been accounted for with the Council s current budget and budgetary planning. Publication 40 This paper will be published on the Council website in edited form following the Council meeting. The text not published is withheld from publication under the Freedom of Information (Scotland) Act 2002, Section 30, Prejudicial to the effective conduct of public affairs. Further information 41 Contact: Brian Baverstock, Deputy Director, Learning, Governance and Sustainability (direct line: 0131 313 6630, email: bbaverstock@sfc.ac.uk), or Sheila Meehan, Audit and Compliance Committee Clerk (direct line: 0131 313 6619, email: smeehan@sfc.ac.uk). 6
Remit of the Audit and Compliance Committee Responsibilities Annex 1 1. The Committee will consider financial health and related governance and management matters of colleges and universities. The Committee will also consider the SFC annual accounts and matters relating to the internal operations of the executive, in particular those relating to risk management, corporate governance, internal audit, external audit and compliance with legislation and regulation. 2. The specific duties of the Committee are listed under the headings below: Effectiveness and financial control Consider and report to the Council the key outputs from the executive s monitoring of the financial health and governance and management of colleges and universities Consider and advise the Council on all external reports relevant to the above Consider SFC s annual financial statements prior to submission to the Council Review the effectiveness of the Council s financial and other control systems Consider the Council s corporate governance arrangements Consider the Council s policies on whistle-blowing and fraud and irregularity Monitor the Council s arrangements to secure VFM, whether these are made via internal or external audit or other means. Risk management Consider and advise the Council on the adequacy of the arrangements for the assessment and management of risk in relation to the achievement of SFC objectives, with particular regard to the Council s top-level register of risks Monitor the Council executive's management of the top-level register of risks. 7
Internal audit Consider and advise the Council on the annual and longer term operating plans for internal audit and the resourcing of the internal audit function to deliver these plans Consider and advise the Council on internal audit reports and to monitor the implementation of approved recommendations Monitor the effectiveness of internal audit. External audit Consider and advise the Council on external audit reports and, where appropriate, report to the Council any issues from the external audit of the Council, and any matter that the external auditors bring to the attention of the Committee Monitor the implementation of approved recommendations Monitor the effectiveness of external audit. Legal and regulatory compliance Consider and advise the Council on the adequacy of the arrangements for the management of the Council's compliance with legislation and regulation, focussing on data security, freedom of information and health and safety, and covering other aspects as part of the Committee's risk management responsibilities. Mergers of institutions Other Consider and advise the Council on proposed mergers of institutions, particularly in relation to the issues of financial sustainability and governance. Consider and report to the Council any other matters remitted to the Committee by the Council. 3. The Committee is an advisory body with no executive powers. However, it is authorised by the Council to investigate any activity within its terms of reference, and to seek any information it requires from staff in the conduct of its enquiries. The Committee is authorised to obtain independent professional advice if it considers this necessary. The Committee should be mindful of the cost of such resources. 8
Audit and Compliance Committee membership Annex 2 Membership Robin Crawford (Chair) Keith Nicholson Alan Stannett Marlene Wood In attendance Representatives from Grant Thornton Representatives from Scott Moncrieff Laurence Howells, Chief Executive, Accountable Officer SFC executive support Riona Bell Brian Baverstock Sheila Meehan Director of Finance and Corporate Resources Audit and Compliance Committee Secretary; Deputy Director, Learning Governance and Sustainability Audit and Compliance Committee Clerk; Clerk to the Council Other members of the Council executive provide support as appropriate 9