Internal audit exception reporting

Report: 4
Date: 8 March 2001
By: Director of Internal Audit

Summary

This report sets out the proposed system to monitor the progress of MPS line management in responding to Internal Audit reports and the subsequent implementation of accepted audit recommendations. It recommends the process by which failures to take appropriate action on higher risk audit recommendations will be brought to the Audit Panel.

The report also sets out arrangements for identifying potential savings as the result of Internal Audit's work

A. Recommendations

1. The intended process for ensuring that MPS line management have responded in an appropriate and timely manner to reports issued by Internal Audit be approved.
2. The process by which audits are reported to the Panel be agreed.
3. The system whereby failure to implement internal audit recommendations will be reported to the Panel be endorsed.
4. The proposed arrangements for dealing with internal audit recommendations that identify potential or actual savings be endorsed.

B. Supporting information

Internal audit reports and follow up action

Discussion drafts

1. Discussion draft reports are issued within 3 weeks of completion of audit fieldwork. They give local management an early opportunity to confirm the accuracy and content of the report, before receipt of a formal draft. This should ensure that the formal draft report contains no surprises or factual inaccuracies, leaving management free to concentrate their efforts on responding to any recommendations made by Internal Audit.

Formal drafts

2. Formal draft reports are issued within one week of the discussion with local management to clear any points on the discussion draft. A response deadline of 3 weeks is given to the Auditee. The formal draft report goes to senior MPS or MPA management as well as the line manager of the area reviewed by Internal Audit at this stage.

3. If a valid extension of time is not requested or the report is not received one week after the deadline the Director of Internal Audit (DIA) sends a formal reminder to the senior line manager, seeking a response within the next week.

4. Any unsatisfactory delays that continue after the DIA has sent a reminder will be reported to the MPA Treasurer and the Director of Resources, who will raise the issue at Management Board. Persistent late responses will be reported to the Audit Panel.

Final reports

5. Final reports should be issued by Internal Audit within a week of receiving an acceptable response. The Auditee's response to each recommendation is included in the final report.

Progress in implementing audit recommendations

Acceptance of internal audit recommendations

6. Every final Internal Audit report includes a table setting out the auditee's response together with deadlines for the implementation of accepted recommendations. Internal Audit has an overall target acceptance rate for recommendations of 90 per cent. Where recommendations are classified as "high risk", every effort is made to ensure line management accepts the recommendation.

Follow-up of recommendations

7. Internal Audit follows-up the implementation of recommendations of high risk systems within 6 months and Medium/Low risk systems within 12 months.

8. Where recommendations have not been implemented at the time of follow-up they are subject to a further report and the matter is drawn to the attention of the Director of Resources, for discussion with the Management Board member ultimately responsible.

9. Internal Audit will report progress on the implementation of accepted recommendations to the Audit Panel. Full executive summaries will be provided of all audit reports for audits currently assessed as high risk and on a selective basis for medium and low risk audits. Where line management fail to take action on high risk recommendations for high risk audits by the time a follow-up report has been issued the details will be reported to Audit Panel members. For medium and low risk audits summary details will be provided of any significant recommendations that were accepted but have yet to be implemented.

Dealing with general internal audit recommendations or investigations that identify actual or potential savings

11. Recommendations will be tracked separately in addition to their inclusion in the processes set out in paragraphs 8 to 12 above. There are broadly three categories of actual or potential savings. They are:

• investigations where, by our actions or discovery of a fraud an on-going loss is stemmed or at a later date recovery of monies or assets is achieved;
• reports or recommendations that identify monies due to the MPA that have not been collected or expenditure by the MPA that should be recovered from a third party;.
• recommendations that, if implemented, will generate a potential quantifiable saving to the MPA in future.

12. Item (a) has generally a one-off element (the recovery) and an on-going saving from stemming the loss. Item (b) will generally be a one-off but any change in practice should identify future gains that otherwise would have been lost. Item (c) only generates on-going future gains once implemented.

13. Item (a) material will not be reported in detail to the Audit Panel as until cases are closed this could prejudice disciplinary or criminal proceedings. However, known recoveries and losses stemmed will be identified by business area. Item (b) and Item (c) material will be reported to the Audit Panel at the relevant quarter's meeting and progress tracked at each subsequent meeting until the item is discharged.

C. Financial implications

The risk of loss through fraud, abuse, waste or inefficiency if Internal Audit recommendations are not effectively implemented.

Occasional savings that where appropriate can be offset against budgets.

D. Background papers

None.

D. Contact details

The author of this report is Peter Tickner.

For information contact:

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

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