Statement of internal control - quarterly update

Report: 7
Date: 7 December 2007
By: the Treasurer and Commissioner

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 2006/07.

A. Recommendation

That members note the progress in addressing the significant internal control issues included in the 2006/07 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 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 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 2006/07 three issues have been included in the MPA SIC.

5. The Audit Commissions’ interim systems audit identified a number of weaknesses within the Authority’s key material systems. The main weaknesses identified included:

• Insufficient evidence of appropriate controls in respect of accounting for fixed assets
• A lack of evidence in the operation of key controls in pensions and payroll monitoring
• Weaknesses in the preparation, timeliness and evidencing of bank reconciliations performed
• Control account reconciliations not being performed and reviewed on a timely basis
• Contract regulations need to be followed at all times to ensure value for money is achieved when awarding contracts.

6. Whilst Internal Audit have generally found adequate and effective operating procedures within the MPS, key controls have either not been applied, applied inappropriately or not applied in time to provide an effective control environment. Therefore, the average assurance score on internal control has not changed during 2006/07 and remains at 2.9. The main areas of concern are as follows:

• Delegated authorities - The MPS have yet to put in proper arrangements.
• Procurement of services – there continues to be concerns around contracts being tendered in accordance with Public Contract regulations and MPA regulations
• BOCU Financial Control framework – number of areas of weakness need to be addressed
• Information and Data Quality – whilst there have been significant improvements reviews have identified major data quality shortcomings in some key MPS systems.

7. An action plan to address these issues has been produced and is attached at Appendix 1. This includes an update on progress made in implementing actions which overall is positive as reflected by the following:

• The Annual Governance letter (which was approved by Corporate Governance Committee in September) reflects the positive work undertaken since the production of the earlier interim systems report.
• The new contract regulations are now in place and should help in addressing compliance issues.
• As highlighted in the Internal Audit update report to be considered by Members at this Committee, follow up audits are showing an improvement in internal control. Overall, the assurance score currently stands at 2.7, a small improvement on that of 2.9 reported at the end of 2006/07.

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

• Background Papers: Statement of Internal Control 2006/07

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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