Review of recruitment and retention difficulties in the Internal Audit Directorate

Report: 5
Date: 19 September 2001
By: the Treasurer

Summary

Cornwell Affiliates, as an extension of work previously carried out for the MPS Finance Department, have recently completed a short review on behalf of the Treasurer focusing on recruitment and retention difficulties in the Internal Audit Directorate, and comparing current salaries with the market rates for similar roles. The review found that salary levels for all internal audit staff were well below market levels.

Without a full staffing complement the full internal audit programme, which directly supports the Authority’s responsibility for the financial integrity of the MPS, cannot be achieved even with the buying-in of additional resources from external firms at significantly higher cost.

In order to ensure consistency, Hay Management Consultants were asked to conduct a similar evaluation for the Internal Audit Directorate as they conducted for staff in the Secretariat. Their findings broadly supported the Cornwell Associates findings. The aim now is to ensure that staff in the Internal Audit Directorate are paid a salary that is commensurate with salaries in the Secretariat, i.e. upper quartile for the public sector in London, in order to recruit and retain high quality, qualified staff.

A. Recommendations

1. That the Audit Panel support the proposals outlined in this paper concerning the pay arrangements for Internal Audit Directorate staff.
2. That the Audit Panel support the proposals to recruit to fill current vacancies on the new salary ranges.
3. That the Audit Panel support the proposal to co-locate Internal Audit directorate staff with the MPA Secretariat.

B. Supporting information

1. Under the Accounts and Audit Regulations 1996 the Police Authority is responsible for securing an adequate and effective internal audit. Executive responsibility for internal audit has been delegated to the Treasurer.

2. The programme of internal audit systems review is established according to a risk assessment and assumes that all systems will be reviewed over a five year period. In practice the annual programme has never been completed. In each of the last two years 66% of the programme was achieved, an improvement in performance over previous years.

3. There are a number of factors contributing to this shortfall against the planned programme. There is probably scope to improve Internal Audit’s own efficiency. The length of time taken to complete individual reviews is also affected by MPS management’s failure to meet deadlines for responses. There is a tendency for Internal Audit time to be diverted away from the systems audit programme by the requirements of ad hoc investigations. However the major cause of the shortfall against the programme is the continuing level of vacancies.

4. The average level of vacancies through the financial year 2000/01 was 25%. Although vacancies can be supplemented to some extent by buying in external support, this is at a cost over twice that of directly employed staff. Furthermore, some of the external resource is providing specific skills which would not normally be retained in-house.

5. The Audit Panel supported the preparation of the Internal Audit budget for 2001/02 on a basis which would allow the funding of the full establishment of 43 staff. This was largely achieved by reducing the provision for external resources, recognising that the budget might have to be vired back to fund contractors if full establishment could still not be recruited.

6. There are currently 13 vacancies representing 30% of total establishment which indicates that the recruitment and retention problems remain. Trainees are being recruited to fill some systems auditor posts, but we still need to be in a position to secure their retention as they achieve qualifications. This issue has to be addressed if we are to secure a significant improvement in internal audit’s performance against its programme.

7. Cornwell Affiliates were asked to investigate the reasons for these problems and to suggest ways to overcome them.

8. Cornwell’s final report is attached at Appendix 1. The key points are summarised below:

• Information on market salaries for internal auditors has been derived from the Barclay Simpson (Recruitment Consultants) Market Report 2000. Specific reference is made to salaries in Central London at the 80% level, i.e. the level at which 80% of potential applicants would be likely to apply.
• Salary levels for all currently employed internal audit staff are well below market levels. The shortfall is most marked at senior levels. Existing salary ranges at the grade 8/9 levels are closer to market levels.
• The most common reasons that existing staff gave for dissatisfaction were low pay and the location of the workplace in Putney.
• New salary ranges should be adopted based on the 80% levels for London
• Existing staff should be assimilated appropriately.
• Additional staff should be recruited within the new pay ranges.
• An appropriate bonus scheme should be introduced to reward good performance.
• Pay rates for forensic auditors should be comparable with other staff.
• Relocation from Putney should be a high priority.

9. In order to ensure consistency, Hay Management Consultants were asked to conduct a similar evaluation for the Internal Audit Directorate as they conducted for staff in the MPA Secretariat. Their findings broadly supported the Cornwell Affiliates conclusions.

10. The consultants’ findings and recommendations are generally accepted. However a number of points need to be taken into account in considering implementation.

11. The post of Director of Internal Audit is compared directly with the Head of Finance in the MPS (in Appendix 1) which, as Treasurer, I consider is not appropriate. It would be more appropriate for this post to be comparable to the Deputy Treasurer. The Director of Internal Audit has a larger management role but operates in a relatively narrower and well defined sphere. On balance I consider the two jobs should broadly equate. This view is supported by the Hay evaluation. To achieve this the proposed range for Director of Internal Audit would be amended to £55,000-£70,000. The maximum of the Deputy Director would also be reduced to maintain an appropriate differential, producing an amended range of £45,000-£60,000.

12. The proposed salary ranges are therefore as follows:

13. The Human Resources Committee was informed of these proposals at its meeting on 6 September 2001 and has endorsed them as consistent with the broad pay bands being adopted for the MPA support staff, subject to consultation with existing staff and the Audit Panel receiving this more detailed report.

14. Existing staff should be assimilated to the new ranges according to the following:

• The existing allowances of staff are assimilated into basic pay, e.g. Market Related Allowances (MRAs), location allowances, ADP allowances
• The 3.5% pay award made to Internal Audit Directorate staff as part of the MPS civil staff pay round is assimilated into basic pay with effect from 1 August 2001
• Forensic Auditor pay ranges and salaries are brought in line with systems auditors
• All staff move into the new salary ranges, receiving an increase of at least 5% but in any event no more than 15%. (The majority of staff will receive 5%).
• Existing differentials that are primarily based on experience, qualifications and past performance are maintained.
• the new pay ranges and salaries are effective from 1 October 2001 .

15. The majority of the current Internal Audit staff transferred to the MPA from employment by the Receiver, under TUPE conditions. Changes to pay and conditions are therefore subject to consultation. This has taken place through meetings with staff and the constituent union. All staff have also received written details of the proposals.

16. The Human Resources Committee has adopted a performance pay scheme which will be applied to Internal Audit staff.

17. Accommodation requirements for Internal Audit are now being actively explored as part of the search for new premises for the MPA. The present location at Putney was highlighted as a major disincentive for existing staff to remain with the MPA.

18. It is proposed, with the agreement of the Audit Panel, to take urgent steps to advertise the current Internal Audit vacancies at the revised salary ranges.

C. Financial implications

1. The estimated cost of the revised salaries is £1,352,200 in a full year, compared with the current budget, after allowing for the current years pay award and the increase in location allowances of £1,254,800, an increase of £97,000. This function directly supports the Authority’s responsibility for securing the financial integrity of the MPS. I would therefore propose that the increase in next year’s budget be met from the ongoing savings (arising from the transfer of court warrants execution and reduced employers national insurance contributions) which have been used to create the MPA contingency in the current year. Part year costs of the implementation of the revised salaries in 2001/02 can be met within the existing Internal Audit budget out of the savings resulting from the high level of existing vacancies.

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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