Public Sector Audit Committees: let’s make 2017 a year that counts
10 January 2017
As we settle back into work after the holiday season, what can we learn from 2016 for the year to come?
- Trust in public institutions has been tested - the electorate once again delivered a verdict that surprised commentators and pundits. How can you be sure that your organisation is really in tune with the public’s agenda and serving their needs?
- Recent elections have led to increased business uncertainty. We have seen greater forex exchange volatility and predictions of rising inflation and raw material costs to come. With most public bodies still dealing with austerity, how resilient are you in planning for these new financial risks?
- And once Article 50 is triggered, the brave new post EU world comes ever closer. Are you fully engaged with the new opportunities and risks arising, the legislative requirements and the impact on people and resources?
So what does this mean for the Audit Committee agenda for 2017? There will (undoubtedly) be more complicated accounts in 2017, with forex losses, contingencies and commitment disclosures, more extensive. With so much cynicism around, more focus on transparency and openness in reporting will help to restore public trust. So further time spent reviewing the annual report will be essential – but what about the assurance you need over wider risks, controls and governance arrangements?
Certainly the risk register needs a thorough review and challenge – are these really the risks that will prevent us from achieving our strategic objectives? And are we focused on the upside risks in these times of change, as well as the potential downside? Key strategic risks are worthy of a private conversation with the Accounting Officer and stakeholders (such as the Director of Internal Audit) early in the New Year. Emerging risks in innovative areas such as digital, cyber security and data deserve specific attention; but financial and fraud risks in commercial management and across extensive capital programmes and supply chains are also becoming more prevalent.
With the prospect of Brexit increasingly absorbing management attention, it is important not to take your eye off the ball and to keep focused on business as usual. Are you really confident about spotting and mitigating the risks in the areas above, especially if your best and brightest talent are tied up in Brexit programmes? And are you getting the level of independent challenge and insight from auditors that you need across your key strategic risks?
It can be so easy to be lulled into a false sense of security on internal controls. Internal auditors too close to the issues and management optimism bias, can combine to muddy the waters. Do we really have a comprehensive control and assurance framework in place, across the ‘three lines of defence’? And have we stress tested this framework? For example, report after report from the National Audit Office flag inadequate control over programmes (particularly those involving innovative technology), Value for Money (VfM) opportunities missed and poor commercial management of contracts. Some deep dives in these areas will provide fresh insight for Audit Committee in 2017 - and help set the agenda for management assurance and audit as we move forward.
Many organisations are managing significant transformations, and keeping an eye on the strength of governance at all levels will be of increasing importance. Audit Committees will need to press more on root causes of issues and the underlying corporate culture to ensure that ethics are not overlooked - particularly in complex commercial relationships, major procurements or fast growing organisations. Other areas of focus include:
- Ensuring business plans and horizon scanning processes are robust, with scenario planning being used to test key assumptions;
- Considering the impact of devolution and how far will it change relationships with your stakeholders; and
- How to openly demonstrate accountability to the public, users and customers.
The fact is, you will no doubt conclude, 2017 is going to be an exciting and challenging year for the Audit Committee. By engaging with rapidly changing agendas, Audit Committees can provide strong leadership on governance, risk and controls, supporting management to further improve public trust, and navigate the new opportunities arising from the decisions of what proved to be a remarkable year.
Nick Haigney | Director
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