Contents
Report 11 of the 22 March 2007 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.
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Statement of internal control – quarterly update
Report: 11
Date: 22 March 2007
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-progress in addressing the significant internal control issues included in the 2005/06 Statement of Internal Control for the MPA; and
- note the proposed process for producing the statement of internal control for 2006/07.
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 its 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 published 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 | A meeting has been held between the MPA and MPS to discuss MPS Corporate Governance. At the meeting, it was agreed that the next step in the development of an overarching corporate governance framework was the preparation of a policy framework. This will be based on the new CIPFA/SOLACE framework on Corporate Governance, which is yet to be finalised. |
| All relevant contract regulations need to be followed at all times when letting contracts | The contract regulations are currently being revised in line with CIPFA’s best practice contract procedure rules and are due to be presented to Full Authority in July. Internal Audit’s procurement seminar will take place 13 March 2007 at which senior officers within the MPS and MPA will meet to discuss current procurement issues and agree a joint 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 2.9 is equivalent to that reported in 2005/06. Internal Audit continue to work with senior managers in the MPS to improve the level of internal control across business groups and have recently met with Business Group Managers and established a key point of contact to help facilitate the role of Internal Audit and increase awareness around internal control issues. Internal Audit is also working with representatives from Territorial Policing and MPS Finance Services to implement a strategy for strengthening controls at a local level. |
| Resource and financial planning needed to be more closely aligned | The 2008/09 business and financial planning process has already commenced with the development of a multi-disciplinary group tasked with identifying clear milestones for delivery and the
production of a new timetable bringing forward the process by about 2/3 months. A performance framework is being developed to underpin the development of the business planning process and this is
being steered by senior colleagues in Strategy, Modernisation and Performance Directorate and Finance. As part of the ongoing review of Strategic Finance, a dedicated senior finance resource has been identified within the Financial Planning team to provide a clear link between developing the financial strategy on one hand and the corporate business plan on the other. Colleagues from the corporate Business Planning team will be working alongside the Financial Planning team throughout the process and a joint approach to informing members will be embedded. The lessons learned from the business planning process of 2006/07 have been considered and key changes are being implemented. Planning templates are being reviewed to enable a better engagement with business groups and several corporate working groups have been established to focus on the key issues, including the financial landscape and the productivity agenda. |
| There are weaknesses within the processes of accounting for fixed assets | The Fixed Asset Project Group continues to review and develop the Fixed Asset register. The latest developments include the roll out of the local inventory register to all boroughs and
departments. This standardises the methodology for maintaining control over local assets and facilitates the reconciliation of local asset records to the central fixed asset register. The team has visited a number of other local authorities to find out how they are operating the fixed asset module within SAP (the financial system used by the MPS). These visits have been an invaluable experience, which have informed staff how the present system could be improved to give enhanced performance. The intention is to hold a fundamental review of the fixed asset system on SAP in the first quarter of 2007-08 to identify ways of improving the operation of the system in the MPA. |
| Risk management is not yet fully embedded throughout the organisation | Phase 2 of the risk management engagement programme continues, with quality assurance and visits to OCUs. The risk management training has been completed and the deployment of risk bow ties
continues across the MPS. The Corporate Risk Review Group continues to meet and be the conduit for corporate risks between the Business Groups and Management Board. Management Board have recently considered a report on Business Groups approach to managing corporate risks. |
Proposed process for 2006/07
5. The final version of CIPFA’s proposals for a new corporate governance framework was due to be published in the Autumn of 2006 and the intention was to use it in preparing the statement of internal control for 2006/07. However to date the final document has not been published and there is currently no indication of when it will be published.
6. Therefore, the intention is to use the same process as has been used in previous years. The MPS will look at 10 control areas they have identified as being key to internal control. These areas are:
- Facilitating effective strategy, policy and decision making
- Performance management
- Change management
- Compliance management
- Risk management
- Financial management
- Information management
- Community/partnership working
- Individual professional standards
- People management
7. The MPS SIC will be signed off by the Commissioner and will provide the MPA with the assurance that the MPS have in place a sound system of internal control and risk management. It will be used to form the foundations of the MPA’s own SIC which they are statutorily obliged to publish as part of the statement of accounts.
8. The MPA Treasury Team will be preparing the MPA SIC in consultation with Internal Audit and SMT, using (for consistency) the same 10 control areas as the MPS. The SIC will also contain a summary of the Director of Internal Audit’s review of effectiveness on the system of internal control of both the MPA and MPS.
9. The overarching SIC will be reported separately to Corporate Governance Committee for approval on 15 June, and will also be included in the draft statement of accounts to be considered at Committee on that day.
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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