Internal Audit Annual Report

Report: 7
Date: 27 May 2004
By: Treasurer

Summary

The attached draft Annual Report of the Director of Internal Audit on the work of Internal Audit in 2003/2004 gives the Director of Internal Audit’s opinion on the adequacy and effectiveness of internal control within the MPS. The covering report provides a brief overview.

A. Recommendation

The Audit Panel is asked to Approve the attached draft Annual Report of the Director of Internal Audit for circulation to all members of the MPA.

B. Supporting information

1. The Annual Report of the Director of Internal Audit is attached as Appendix 1. The report summarises the work of Internal Audit in 2003/2004 and sets out the Director of Internal Audit’s opinion on the adequacy of internal control.

Internal Audit Performance

2. Significant savings have arisen as a result of audits and investigations carried out in 2003/2004 adding to the amounts that Internal Audit helped the MPS save last year. In total in the last two years Internal Audit have been able to cause savings and stem losses of around £8million. They have also managed to stem losses from fraudulent activity by individuals employed or used by the MPS and are taking steps through civil court actions recover monies fraudulently obtained by these individuals from the MPA.

3. As a result of Forensic Audit activity savings or losses stemmed during 2003/2004 were approximately £3.8 million and recoveries made approximately £39,000.

4. Internal Audit has met the target that I set for 2003/2004 and has completed 90% of the planned systems audit programme for the year (i.e. audit fieldwork completed and a draft or final report issued). This is further progress following last year’s improvement from 67% to 81% achievement of the plan. A number of significant reviews and investigations were conducted by Internal Audit during the year and their work overall continues to support the MPA and the MPS in promoting greater accountability and control.

Internal Audit Staffing

5. Numbers of staff employed in Internal Audit grew during 2003/2004 and for several months they were the closest to those needed to achieve the identified audit work since the appointment of the Director of Internal Audit in 1995. Although, Internal Audit remained understaffed by about 10% of the identified need and this did impact on the completion of the planned programme, Internal Audit were able to achieve more than in previous years. Thirty follow-up audits and seven of the planned ten BOCU reviews were carried out, a significant increase on last year. Internal Audit also reached their target on time spent on audit advice to the MPS.

Internal Audit Budget

6. The budget for Internal Audit was set at £1,720,000 for 2003/2004 and this was overspent by £40,000 compared to an underspendinig of £73,000 last year. A slight overspend had been planned with the agreement of the Treasurer to allow for additional consultancy work to aid on-going investigations and this was effectively doubled by a central re-allocation of pension costs.

Quality Assurance

7. The Audit Commission have confirmed their continued reliance on the work of Internal Audit and recent assessments by the Audit Commission have rated MPA Internal Audit overall on a scale of 1 to 4 as 4 i.e. “more than adequate”.

Management Response

8. 96% of Internal Audit recommendations were accepted by management in 2003/2004 against a target of 90%. All high risk recommendations were accepted. Information on the implementation of recommendations should be available by the time the Panel meet.

Opinion on Internal Control

9. The Director of Internal Audit introduced in 2001/2002 a grading system to indicate the relative adequacy of controls in the systems audited. The average of the results across all the year’s audits enables the Director to add a quantitative measure to his opinion on the overall adequacy of internal control. This also provides a benchmark against which future improvement can be assessed.

10. On a five point scale where 1 represents controls performing well, a score of 2 indicates that controls are adequate. An average score of 2 would therefore mean that controls overall were adequate and this should be the target.

11. The average score for those systems reviewed in 2003/2004 was 2.9 a clear improvement on the 3.3 score of last year. While the average score shows that the MPS has some way to go before control can be considered adequate it is an encouraging trend. High-risk systems had an average score of 3.1, much improved over the 3.9 scored last year. Follow-up audit reviews showed a marked improvement in internal control from the original audit visit with an average score of 2.1(2.6 last year). This indicates that the majority of systems reviewed as part of the follow-up programme had an adequate level of control.

12. On the basis of the average overall score the Director of Internal Audit gives his opinion as follows: “The adequacy of controls and the effectiveness of systems within the MPS have improved for the third successive year. The overall level of internal control within the MPS is, however, still short of an acceptable level, although it is getting nearer.”

Looking Forwards

13. We will begin the next financial year with a realistic chance of continuing the improvement in achievement of our programme and an opportunity to build further on relationships with the MPS and our external partners. This was our most successful year since formation of the MPA and there is the opportunity to improve the effectiveness of Internal Audit further still, thereby helping the MPS towards an improved control framework and better corporate governance.

C. Equality and diversity implications

Internal Audit conitnued to reflect the diverse community within which the MPS and MPA operate. Out of the thirty-six staff in post at 31 March 2004, twelve were from visible ethnic minorities. Internal Audit also continued to employ several staff with disabilities. Although only eight staff were female, five of these held managerial posts, including the Deputy Director of Internal Audit. Those employed in MPA Internal Audit represent a wide age range, up to and beyond the age of sixty.

Internal Audit have also made a valued contribution to the MPA’s drive towards achieving the Local Government Equality Standard.

D. Financial implications

• The risk of loss through fraud, abuse, waste or inefficiency if Internal Audit recommendations are not effectively implemented.
• Savings and recoveries that where appropriate can be off-set against budgets.

E. Background papers

None

F. Contact details

Report author: Peter Martin, MPA.

For information contact:

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

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