Internal audit budget

Report: 8
Date: 28 September 2000
By: Treasurer

Summary

The report sets out the current position on Internal Audit staffing and budget and makes proposals for next year’s budget.

A. Supporting information

Introduction

1. The attached Appendix 1 sets out the history and current position of the staffing of the Internal Audit Directorate. A staffing complement of 43 has been agreed through the previous management arrangements. This level of staffing has been deemed necessary to deliver the five year programme of systems audits and to meet the forensic audit workload.

2. At present, I have no independent basis for verifying this. The impending review by external audit should provide some validation and in due course, the issues of efficiency and effectiveness in delivering the desired outputs will be addressed through Best Value.

Budget

3. It is clear that the budget for Internal Audit has never made full provision for the agreed staffing. There is approval for 43 posts but funding for only 36. This position has only been reconciled because in practice there has been a high level of vacancies. Even so, the budget has come under pressure because more costly contractors have been used in order to carry out the systems audit programme. The budget for 1999/2000 was overspent by £153,000.

4. If 43 posts are required to fulfil the internal audit programme, it cannot be acceptable for the budget not to provide the necessary funding. The Authority would be patently failing in its statutory duty to ensure an adequate and effective internal audit. It also places management in a false position if they are expected to deliver the programme without the necessary resources.

5. I am therefore proposing to the Panel that we should seek to start the MPA’s stewardship on a sound budgetary basis. The budget for 2001/02 should be based on 43 staff, costed at £1,392,000. This is an increase of £247,000 over the current year’s staffing budget.

6. If the approved establishment is filled without significant vacancies then the requirement to use contractors diminishes. The consultancy budget for Internal Audit can be reduced accordingly by £150,000.

7. The net effect of these two adjustments is to increase the budget for Internal Audit by £97,000. Clearly it may not be possible to recruit the full staffing establishment and staffing shortfalls could be made good by increasing consultancy days but only within the total budget for Internal Audit.

B. Recommendations

1. That the Internal Audit budget for 2001/02 is based on funding 43 staff with a corresponding reduction in the funding for external consultancy at a net addition of £97,000.
2. That additional consultancy days may be employed to meet shortfalls in staffing within the total Internal Audit budget.

C. Financial implications

The proposed budget increase will need to be incorporated in the MPA’s overall budget submission for 2001/02.

D. Review arrangements

Internal Audit staffing and budget will be reviewed following the external audit review and under Best Value arrangements.

E. Background papers

The following is a statutory list of background papers (under the Local Government Act 1972 S.100 D) which disclose facts or matters on which the report is based and which have been relied on to a material extent in preparing this report. They are available on request either to the contact officer listed below or to the Clerk to the Police Authority at the address indicated on the agenda.

F. Contact details

The author of this report is Peter Martin.

For information contact:

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

Appendix 1

1. Background

• In 1994 the MPS discovered that a former deputy head of Finance had stolen over £5 million from a covert operation. In anticipation of the subsequent Public Accounts Committee hearing, an Audit Committee was set up within the MPS for the first time, the post of Director of Internal Audit (DIA) created and the scope of Internal Audit was widened to cover the whole of the MPS, including covert expenditure. This was to give Parliament the confidence that the MPS was taking adequate measures to ensure that such a major fraud could not happen again.
• The appointment of the Director of Internal Audit in November 1995 placed the emphasis within Internal Audit on high level risk based systems audits and advice on control to those running or developing systems or processes within the MPS. An independent review of the need for Internal Audit by Price Waterhouse reported to the MPS Audit Committee in April 1996 recommending between 40 and 45 Internal Audit staff for systems audits, advice and reviews of the then OCUs. After discussion with the Audit Committee the Receiver agreed the case for an increase to 30 staff plus the use of the existing contract with Price Waterhouse.
• The DIA identified an investigation gap between the work undertaken by CIB, the Fraud Squad (SO6) and senior management in relation in particular to civil staff and contractors early in 1996. CIB had the task of investigating errant police officers and paid little attention to civil staff fraud or corruption. In consequence, many cases had either not been progressed or the discipline boards had been held up for years awaiting police enquiries. The Audit Commission report 'Protecting the Public Purse' -'Combating Fraud and Corruption in Local Government' (published in 1993 and updated in 1998) also charged Internal Audit departments to develop anti-fraud/corruption strategies and to investigate allegations of fraud prior to referral to the police.
• In order to fulfil these responsibilities the Forensic Audit Branch was created in June 1997, with the appointment of a retired Fraud Squad Detective Superintendent to manage the branch. In the 1998 budgetary round it was agreed that the Internal Audit budget for 1999/2000 should be increased from 30 staff to 36 staff, to allow for 6 posts in the Forensic Audit Branch.
• At the request of the Permanent Secretary of the Home Office, following a presentation by the DIA on 23 October 1998, a case was made for the resources for more investigative staff within the Forensic Audit Branch. This case was subsequently agreed and Internal Audit’s staffing level was set at 43. However, no additional funding was provided for these posts and the DIA agreed to fund them from within the budget based on 36 staff. This was possible as the Directorate has experienced considerable difficulty in filling posts and was carrying a number of vacancies.

2. Current Staffing

• The DIA has recently re-structured the Directorate within the staff level of 43. The main changes were the creation of a Deputy Director post at Grade 6, relinquishing a Grade 7 post and creating a Grade 9 Administration and Support Manager. The Proactive Research Unit (part of the Forensic Audit Branch) was also re-allocated to the IS/IT Systems Audit Branch to deal primarily with the work that will be generated by the National Fraud Initiative.
• The Directorate is structured in line with the Internal Audit Strategy. The Systems Audit Branches carry out the system audits reviews, BOCU audits and provide control and systems development advice with the Forensic Audit Branch conducting investigations into fraud and abuse. The current organisational structure is shown at Annex A.
• The systems audit staffing level is based on the audit need, which is determined by using a risk assessment methodology. The twenty three systems auditors are required to give 100% systems audit coverage within the five year cycle, provide the necessary control advice and to audit each of the BOCUs over a five year period.
• The need for the work conducted by the ten members of the Forensic Audit Branch continues to increase. A total of 231 cases have been reported since its inception of which 59 are in progress. The Directorate is also now committed to participating in the National Fraud Initiative managed by the Audit Commission. The level of resources for this activity will be dependent on the number of potential cases of fraud that are highlighted and will need to be revised as time goes on. However, at this stage the DIA intends to manage this work using the resources of the Proactive Research Unit and the Forensic Audit Branch.
• The Directorate also has a contractual agreement with PwC for the provision of audit services. This agreement encourages the partnership approach and has helped to restrict the impact of recruitment difficulties. Agency staff are also used and two staff are on secondment to the Directorate from other government departments.

Send an e-mail linking to this page

Feedback