Contents

Report 15 of the 15 December 2006 meeting of the Corporate Governance Committee and provides an update on progress in addressing the significant internal control issues included in the statement of accounts for 2005/06.

Statement of internal control – quarterly update

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Statement of internal control – quarterly update

Report: 15
Date: 15 December 2006
By: Treasurer

Summary

The MPA has been required to include a Statement of Internal Control (SIC) in its financial statements since 2003/04, including details of the system of internal control and risk management, the key controls, and how effectively they are being deployed, highlighting any significant internal control issues and the relevant actions being taken to address them. In addition the MPS produce their own SIC, which provides details of controls they have in place to support internal control and risk management.

This report provides an update on progress in addressing the significant internal control issues included in the statement of accounts for 2005/06.

A. Recommendation

That members note the progress in addressing the significant internal control issues included in the 2005/06 Statement of Internal Control for the MPA.

B. Supporting information

Statement of internal control

1. In accordance with the Accounts and Audit Regulations, 2003 there is a statutory obligation on the MPA to publish a Statement of Internal Control (SIC) in the annual accounts, setting out details of the MPA/MPS system of internal control and risk management, the key controls and how effectively they are being deployed.

2. The Authority is also responsible for ensuring that there is a sound system of internal control which facilitates the effective exercise of the Authority’s functions and which includes arrangements for the management of risk. In exercising this responsibility, the Authority places reliance on the Commissioner to support the internal control and risk management process as the majority of the MPA’s controls are deployed within the MPS. Hence in exercising its statutory responsibilities under the regulations, the Authority places reliance on the commissioner to deploy, maintain and monitor internal control and risk management processes.

3. The MPS evidence these controls through the production of it’s own internal SIC. This is then consolidated with the MPA’s own SIC (which also identifies risks it faces on its own account) to produce an overarching statement for inclusion in the statement of accounts.

Significant issues

4. In line with the regulations the SIC includes details of any significant internal control issues and the actions to be taken to deal with these. In 2005/06 six issues have been included in the MPA SIC. Details of each of the issues and progress made in addressing the significant issues are provided below:

Issue	Progress
The MPS’s system of Corporate Governance is new and not yet embedded throughout the organisation	An MPS Key Internal Control Framework has been completed and launched MPS-wide. A more all-embracing corporate governance framework is currently being worked up
All relevant contract regulations need to be followed at all times when letting contracts	The procurement scrutiny function is currently being strengthened within the MPA. CIPFA have recently issued best practice contract procedure rules. These will be used in revising MPA regulations. The Contract regulations working group is due to reconvene in the new year to take the review forward. Internal Audit are intending to hold a seminar with senior members of the MPS in January 2007 to discuss the current issues around procurement and agree a way forward.
The average assurance score on internal control is 2.9, significantly lower than the score of 2, needed to indicate that there are adequate systems of control in place	The current average assurance score of 3.0 indicates a small worsening of the position to that reported in 2005/06. The worsening assurance score is mainly due to a high number of first-time audits of BOCUs and OCUs.
Resource and financial planning needed to be more closely aligned	The integrated business / financial planning framework reflects a developing process which aims to ensure that resource decisions are driven by strategic priorities and business need. The MPS has made great strides in working towards this, both in terms of progress made in approving new investment and in business/financial planning The 2007/08 business planning process required every business group to write a business plan in which they were asked to outline their main activities and to demonstrate how these supported the strategic priorities and outcomes. They were also expected to align their financial and human resources to their delivery plan. One of the outputs of this planning process is the three-year corporate business plan (budget submission) which was presented to Full Authority on 30 November 2006, which outlines what the MPA/MPS plans to deliver in support of the priorities, together with the resources required. The business planning process continues to evolve and will be further developed in subsequent years to achieve its aims. In view of the need to commence planning for next year's budget round it is essential that lessons learnt from the current round are identified quickly. It is therefore proposed to report back to committee in January with a review of the present process and proposals for any improvements.
There are weaknesses within the processes of accounting for fixed assets	The Fixed Asset Project Group is meeting every six weeks to review the overall system for processing and managing fixed assets in the MPA. The group has identified the key issues to be addressed as well as the future regulatory changes to impact on the system. Internal audit are currently performing mid-year reviews of fixed asset systems and has provided details of the Audit Commission suggested testing, so the fixed assets team are now able to develop systems and procedures needed to provide a robust framework within which to control fixed assets. Systems and procedures are expected to be in place before the end of the current financial year.
Risk management is not yet fully embedded throughout the organisation	Good progress has been made in various areas including: visits to all Operational Command Units, continuing delivery of the risk training programme, development of a cadre of senior officers in all Business Groups trained in risk management technique, deployment of risk management 'bow-tie' technique including embedding in standard operating procedures, creation of a Corporate Risk Review Group with DAC and equivalent membership, corporate risk management research and benchmarking and refreshing of MPS Corporate Risk Register. Work also continues on quality assuring the risk register process however this is a long-term project in view of the limited resource available to the Business Risk Management Team. Internal Audit are currently reviewing the Corporate Risk Assessment and Management Process and that the report will subsequently be submitted to the Corporate Governance Committee.

C. Race and equality impact

The MPA will ensure that equality and diversity issues are fully considered in completing the SIC.

D. Financial implications

There are no additional resource issues arising from this report.

E. Background papers

Statement of Internal Control 2005/06

F. Contact details

Report author: Annabel Adams, MPA

For information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

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