Local Authority Internal Audit Virtual Forum

26 May 2021  

Please note:

• All Institute responses are boxed and highlighted blue
• Where the Chair comments in that capacity, the box is highlighted in yellow
• For confidentiality, the identities of all delegates/attendees are anonymised 

Key takeaways

David Hill, CEO, SWAP Internal Audit Services

Internal audit should understand that a good audit committee chair:

• controls the agenda, solicits input from others and are not simply led by others
• is focused, reads information ahead of time and ensures others do to
• is independent with the skills and courage to challenge where applicable
• nurtures other members to ask questions and contribute effectively
• promotes balance, an apolitical and unbiased attitude
• holds regular meetings with key people not just the standard four times a year
• recognises the value of independent committee members.

A question to ask is do we, as HIAs, want an effective audit committee chair?

The answer should be yes, but there are still some unfortunately who don’t seem to mind when the meetings are gentle and a tick in the box.

Extraordinary audit committee chairs have a keen sense for their role. They understand its strategic significance, and they invest ample time and energy to be the best they can be. This strategic approach includes an implicit commitment to continually growing in the position and seeking additional experience, knowledge, and skills. Today’s dynamic and volatile business environment demands business leaders continually reinvent themselves to be effective in their roles as board members and audit committee chairs. (extract of a SWAP blogpost)

Managing the expectations of how the audit committee chair and internal audit work together is important.

• Too many meetings between the AC chair and the HIA can be unhealthy – balance is key to avoid actual or perceived comfort.
• The AC needs to understand the three lines model - IA is a limited tool and just one tool regarding governance, risk and control.
• The AC must recognise and use IA’s advisory role – not simply focus on delivery of the annual plan.
• A HIAs role is not to please the AC chair - constructive challenge is often necessary.
• It’s vital HIA’s take their AC chair with them as they evolve the function particularly using data analytics, automation, robotics etc.
• Today’s IA is less about audit days and budgets and more about the cost of service delivery.
• Our increased use of audit technology is a key enabler that the AC chair requires help to understand - keep them updated on everything – don’t assume they know anything.

Neil Pitman, Head of Southern Internal Audit Partnership

A foundation block for a good relationship is focusing the audit committee chair to engage at the right level.

• AC chairs should operate at a strategic level – skilful chairing and well planned agendas facilitates this.
• If AC asks for too low level of detail, for example full audit reports or unnecessary metrics – this can lead them to miss the important points – HIAs should push back and seek to educate.
• Use closed sessions to facilitate training needs.
• Combined audit and scrutiny committees can cause confusion in this role and needs careful management by internal audit.

The audit committee must fully understand the role of internal audit.

• If AC challenges IA about failures this should be redirected to management.
• Encourage the AC chair to call into the meeting officers/directors from across the organisation to discuss operational matters and answer questions.
• CAEs should be principle focused, determined and resolute in expectations of your AC chair and mould them into the role

Our member days where we bring people together from different LAs across the partnership are highly useful, engaging people in training, talking about what happens in other areas, networking and sharing good practice.

What might be the potential impact of the (Sir Tony) Redmond Report?

• Currently no legislative requirement for an AC in local government.
• AC can be perceived as lower priority within LAs than other committees which sometimes shows in the knowledge and acumen of members.
• The Redmond Report advocates for independent members in local authority audit committees, many are taking proactive steps already.
• Elections are a fantastic opportunity to induct our new AC chairs and members in good practice and provide training to ensure that the AC is effective and purposeful as they can be.

Click here for the full Sir Tony Redmond report and also the key takeaways from when Sir Tony spoke directly to this forum.

Speaker slides are available here.

Q&A  

Q How do you deal with the AC chair who is unclear about the role of IA but nevertheless demanding of IA?
A Patience and constant training. Those that think they know about IA require hard work on the part of the HIA, sometimes you might be on the same page but not realise. Annual training is not enough – at every meeting there is an opportunity to deliver something. Even something as simple as a session on the benefit of a one-page report.

Q How do we engage our ACs in taking the time for training?
A Make it exciting. The onus has to be on internal audit to make it interesting, sometimes even we can make things sound boring and IA is not boring.

Q Often the first audit committee can be a shock – do you enable your team to attend?
A Yes, they can see how their reports are received and the questions asked. They are also best placed to answer questions the detail.

A Agree, have also experienced push back from an AC chair as it being a waste of resource
A Yes, it’s good experience for members of the senior team in reporting writing/presentation and to answer questions on the detail of audits, important to brief the AC chair first so they understand rationale. We have also taken our apprentices to broaden their understanding.  

Chat box comments

• AC members often ask questions to improve their understanding, recently I was challenged on my audit methodology for rating findings, I needed to stand my ground on my professional judgement. It’s what we are there to do and sometimes that needs to be enough.
• We have a lot of membership change in our committees due to the nature of our boards. AC members grow into their roles, induction is the beginning following up with short/sharp training on topics on the agenda has been helpful. It is about building their confidence to refresh, refocus and guide them on their role. 
• Relate key points to the terms of reference of the audit committee – relate what you are saying to their role to get the point across.
• Important to stand your ground at Committee - sometimes it feels a bit like questions from Committee are scrutiny of Internal Audit, but I think in most cases members are showing engagement and improving their understanding.
• Our committee recently gave us some ideas about how to prepare to ensure the committee has the right people/skills mix after elections in May 2022 when things will change. It started with briefings for candidates before the election and covered how members would be selected for appointment to the committee and induction topics.
• Totally agree on member training - but recognise the investment of time, particularly as committees change and you have to start again.
• Yes, agree it can be difficult when the chair changes regularly just when you’ve formed a relationship with the last one.