Internal audit annual report 2000/01

Report: 5
Date: 25 June 2001
By: Treasurer

Summary

This report introduces the draft Annual Report of the Director of Internal Audit (Appendix 1, see Supporting material) on the work of Internal Audit in 2000/2001 (Annex 1, see Supporting material).

The Annual Report gives the Director of Internal Audit's opinion on the adequacy and effectiveness of internal control within the MPS. The report sets out the use of Internal Audit resources (including budget and staff), summarises audit performance and highlights final audit reports and significant advisory work and audit investigations during the last financial year.

A. Recommendation

The Audit Panel is asked to:

1. Approve the attached Annual Report of the Director of Internal Audit for circulation to all members of the MPA.

B. Supporting information

1. Internal Audit transferred under the direct control of the MPA, through the line management of the Treasurer, on 3 July 2000. To ensure consistency in measuring the performance of Internal Audit this report covers the full financial year from 1 April 2000 to 31 March 2001.

2. Although there was a high* turnover of staff during the year numbers employed in Internal Audit have remained constant at or around 32 staff out of the complement of 43. Internal Audit covered 66 per cent of the agreed programme of systems audit work for the year. These staff shortages and the learning curve for new staff contributed to the shortfall against the programme. More time than originally planned was spent on advice on developing systems. A major review at the request of the Director of Resources in the last quarter of the year also had a significant impact.

*Nine staff joined in the year and eight staff left, including three retirements.

3. Highlights from the Director of Internal Audit's Annual Report include:

The audit opinion:
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.

Systems audit activity:
In addition to improvements in control, potential savings by implementing systems audit recommendations were identified of around £860,000.

Forensic audit activity:
As a result of Forensic Audit Branch activity savings or losses stemmed during the year were approximately £187,000 and recoveries made were £237,361.

Internal audit performance:
Key areas of audit work are tested through a quality questionnaire at the end of each audit. 61 per cent of auditees were concerned about the amount of consultation they had during the audit. However, 77 per cent of auditees found overall that Internal Audit's work was worth at least eight out of ten for overall value. 85 per cent found audit recommendations worth at least four out of five for value. Two specific quotes from auditees are reproduced below.

"The object of the [Premises Licensing] audit report is to ensure that the financial and other arrangements involved in the licensing process are beyond reproach, and I should say at the outset that I have found their work to be both thorough and very useful." (Superintendent Jauch).

"The investigation was professionally handled with sensitivity and understanding. The final report was received in good time from the start of the investigation and the conclusions were clear and concise." (Trevor Sleet, Head of OTSU).

MPS line management accepted 100 per cent of audit recommendations classed as high-risk last year. All recommendations accepted are intended to be subject to a follow-up audit, at approximately six months after the issue of the final agreed report for high risk audits, to determine the level of effective implementation. Although the level of implementation has improved from last year it is not yet good enough. For the calendar year 2000 a third of high risk accepted recommendations had not been implemented at the time of writing this report in June 2001. Representations have been made to responsible line management in these instances and, with the active support of the MPS Director of Resources, we expect to see a marked improvement.

Internal audit budget

4. The budget for Internal Audit for 2000–2001 was set at £1,281,000. Overall the budget was overspent at the year-end by £35,000 (2.7 per cent). This mainly related to the increased costs of using contract audit staff to make up the shortfall in in-house staff.

Looking forwards

5. As reported elsewhere on the agenda I have commissioned a review of Internal Audit's salaries to help improve recruitment and retention and thus address the shortfall in audit resources that has had an impact on their work over the last year.

6. The Director of Internal Audit's opinion on the adequacy of internal control emphasises the scale of the task facing us in seeking to raise the standards of financial management within the MPS. It must reinforce the need to press ahead with the actions identified in my initial advice to the Authority, including improving the skills and capacity of the Finance Function and securing an appropriate financial control framework.

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 off-set against budgets.

D. Background papers

None.

E. Contact details

The author of this report is Peter Martin.

For information contact:

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

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