Internal audit annual report 2000/01

Report: 10
Date: 26 July 2001
By: Clerk

Summary

The Internal Audit Annual Report 2000/01 has been circulated separately to all members. This report sets out the concerns of the Audit Panel arising from the Annual Report.

A. Recommendations

1. That the Authority notes the key points of the Internal Audit Annual Report.
2. That the Authority reaffirm its support for implementation of the Treasurer's action plan for restructuring the Finance Department and clarifying the financial control framework.
3. The Authority support the action proposed by the Audit Panel in securing implementation of internal audit recommendations.
4. That the Authority request a report from the Commissioner setting out how financial management can be integrated with service management within the MPS.

B. Supporting information

Introduction

1. Under the Accounts and Audit Regulations 1996 the Authority is required to secure an adequate and effective internal audit. The Audit Panel discharges that responsibility on behalf of the Authority.

2. Prior to 3 July 2000 the Internal Audit section reported to the Receiver of the MPS and is the only group of existing MPS staff to transfer under the direct control of the Authority. Internal Audit is now under the management of the Treasurer, but the Director of Internal Audit has independent access to members through the Audit Panel and reports in his own right.

Annual report

3. The Director of Internal Audit produces an annual report that summarises the work of the section for the year and, based upon that work, provides his overall opinion of the adequacy of internal controls within the MPS. The Audit Panel at its last meeting on 26 June 2001 considered the draft Internal Audit annual report for 2000/01 and the final version of has since been circulated to all members.

4. The Panel was very concerned at the conclusions of the Annual report and wished to draw them to the Authority's attention. Relevant extracts from the Annual Report see Appendix 1.

Overall opinion

5. The Director of Internal Audit states that:

'I can offer little assurance on the adequacy of internal control in the MPS. Although there is an increasing awareness of the need for adequate controls, there is an issue around the lack of accountability and acceptance of responsibility in a number of areas of the MPS. Additionally, the pace of organisational change has had an impact on the quality and effectiveness of controls'.

6. This is similar in tone to the opinion provided in recent years prior to the formation of the MPA. There is an acknowledgement of some improvement, eg: 'increasing awareness of the need for adequate controls' and 'efforts continue to be made to correct identified weaknesses, particularly within the Finance Directorate'. Nevertheless this does not alter the unacceptable inadequacy of the state of internal controls.

7. The perspective provided by the Director of Internal Audit's opinion is not an isolated view. KPMG management letters produced on behalf of the National Audit Office in respect of recent years' audits and the HMIC inspection report just published point in the same direction. Indeed at the first meeting of the MPA itself the Treasurer expressed his concern at the need to improve internal control. The messages are likely to be repeated later this year when the District Auditor issues his first management letter based on the audit of the 2000/01 accounts.

Management response to internal audit

8. The Panel was also particularly concerned that internal audit recommendations are not always treated with the necessary urgency. The Annual Report states that 'for the calendar year 2000, a third of high risk accepted recommendations had not been implemented … in June 2001'. Note that these are recommendations accepted by management where there is a high risk of loss, waste or abuse if the identified control weakness is not rectified. The delay in implementing recommendations of this nature is quite unacceptable.

9. The Panel has already agreed a process for monitoring the implementation of internal audit recommendations. Within the MPS the Director of Resources will be informed of recommendations not actioned at the six monthly or yearly follow up audit so that he can take the matter up with the responsible Management Board member. Where high-risk recommendations have not been implemented at the time of the follow up audit the Audit Panel will be informed. If the situation persists, without satisfactory explanation, then the relevant manager will have to attend in person before the Audit Panel to account for his actions.

Measures to improve the position

10. The Authority will share the Panel's concern that effective measures are put in place to secure a measurable improvement in financial control within the MPS. Some steps have been taken and the Panel believes that the Authority should give its full backing to developments along the following lines.

11. The professional finance leadership in the organisation has been substantially strengthened by the appointment of the Director of Resources in the MPS, working closely with the MPA Treasurer.

12. The Treasurer submitted an action plan to the Authority in July 2000 that comprised two principal strands: (a) restructuring the MPS Finance Department to improve capacity and skills, and (b) putting in place a documented control framework. It was subsequently agreed that (b) would be developed as part of (a). Unfortunately the Finance restructuring was delayed because the necessary additional funding was not included in the approved budget for 2001/02.

13. The Audit Panel took the initiative in March 2001 in requesting that the case for investment in the finance function be re-presented to the Finance Planning and Best Value Committee with the result that the Authority has approved the investment of £1.5 million (£900,000 in the current year) to recruit additional accountants. The recruitment process is now under way but it will be 3-6 months before the new structure will be filled.

14. Work to clarify the necessary financial control framework cannot wait that long and the Treasurer will be identifying resources to ensure that this is now taken forward as quickly as possible.

15. MPS management must ensure that appropriate priority is accorded to internal audit recommendations. All high risk recommendations should normally be implemented within six months.

16. The most fundamental change required is that financial management must be seen as an integral part of the police service manager's role so that financial implications are taken fully into account in decisions taken throughout the service. The Authority may wish to ask the Commissioner to report back on how this can be achieved within the Metropolitan Police.

C. Financial implications

None arising directly from this report.

D. Background papers

• Internal Audit Annual Report 2000/01

E. Contact details

The author of this report is Peter Martin, MPA.

For information contact:

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

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