Statement of internal control - quarterly update

Report: 5
Date: 14 March 2008
By: 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.

Action Plan

4. 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 in overall terms continues to be positive as reflected by the following:

• As reported in the previous update the Annual Governance letter (as approved by Corporate Governance Committee in September) reflected the positive work undertaken since the production of the earlier interim systems report.
• The purchase to pay project, which will improve compliance with central contracts in a devolved spend environment, is about to enter the second phase. 63% of expenditure is currently under system control, this is due to increase to 70% of expenditure by April 2008.
• 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.
• A MPS wide project steering group (chaired by Director of Strategic Finance) aimed at achieving strong internal control has been established.
• Improvements continue to be made to front end validation of operational systems.

Significant Issues

5. The action plan has been drafted in response to the three significant control issues included in the 2006/07 Statement of Internal Control (SIC), drawn up in line with the Audit regulations. Three issues were included in the 2006/07 MPA SIC as highlighted below.

(a) 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

(b) Contract regulations need to be followed at all times to ensure value for money is achieved when awarding contracts

(c) Whilst Internal Audit had generally found adequate and effective operating procedures within the MPS, some key controls had 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 did not change during 2006/07 and remained at 2.9. The main areas of concern were as follows:

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

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 2006/07 - Corporate Governance Committee reports:

• 14 September 2007 Report 7
• 7 December 2007  Report 7

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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