Tuesday, September 25, 2012

Academies and audit committees: where to start with terms of reference

The Academies Financial Handbook issued last week by the Department for Education nudges Academy Trusts (ATs) towards audit committees but allows other committees to incorporate the role of an audit committee into their remits.

The Handbook states:

All ATs must establish either an audit committee or a committee which fulfils the functions of an audit committee (ie it could be an addition to the terms of reference to an existing committee, other than the finance committee, and have an overlapping or fully integrated membership).

The apparent block on combined finance and audit committees may pose a challenge to some ATs. It will not be a surprise who are familiar with audit codes of practice in the college sector.

The audit code of practice introduced for colleges in 2004 (pdf) offers a useful template for setting out the role of an audit committee. Below I have modified its terms of reference to suit an AT:

The Audit Committee will consider matters relating to internal control and auditors. In particular the Committee is to:

  • advise the governing body on the adequacy and effectiveness of the Academy Trust’s systems of internal control and its arrangements for risk management, control and governance processes, and securing economy, efficiency and effectiveness (value for money) ;
  • review the statement on internal control and make appropriate recommendations to the governing body;
  • advise the governing body on the appointment, reappointment, dismissal and remuneration of auditors (both external auditors and internal audit);
  • monitor the effectiveness of auditors, including the use of auditor performance indicators;
  • ensure effective coordination between auditors;
  • ensure that additional services undertaken by the auditors is compatible with the audit independence and objectivity;
  • agree the work programme of internal audit including the checking of financial controls, systems, transactions and risks;
  • consider the reports of the auditors and, when appropriate, advise the governing body of material controls issues;
  • monitor the implementation of agreed audit recommendations;
  • ensure that all allegations of fraud and irregularity are appropriately investigated and controls weaknesses addressed;
  • recommend the annual financial statements to the governing body for approval
  • review the committee’s membership and effectiveness on a annual basis to ensure that it has appropriate skills and relevant experience.
This wording assumes that the Academy Trust refers to its assurance function as internal audit rather than a Responsible Officer. The wording can be tweaked on this and other Academy Trust specifics. Otherwise it can be adopted for a standalone committee or inserted into the terms of reference for another committee.

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