By Diana Melville, Lead Advisor, Better Governance Forum
It would be hard to see how an audit committee could be effective in its role if it couldn't rely on good quality internal audit. Increasingly heads of internal audit are looking to the audit committee to play its part in supporting internal audit’s compliance with professional standards. For the organisation the combination of an effective internal audit service and an effective audit committee means there is a sustained focus on governance, risk and control matters and clear assurance to support the organisation.
So what are the key ways that an audit committee can and should support internal audit?
- By helping the head of internal audit to safeguard the independence of the service.
- By supporting audit compliance with the Public Sector Internal Audit Standards (PSIAS) by providing access for the head of internal audit to the board.
- Meetings with the committee provide an opportunity for the head of internal audit to raise any concerns or new developments such as resourcing plans.
- Audit committee meetings can raise the profile of significant control issues or audit recommendations that are outstanding.
- The committee can provide constructive challenge to the internal audit team and support improvement through the quality assurance and improvement programme and participation in the external quality assessment.
Critical resource for the committee
From the audit committee’s point of view the assurance provided by internal audit goes beyond the internal audit section of their terms of reference. When they review the annual governance statement, consider the effectiveness of risk management arrangements or evaluate the counter fraud strategy it is likely that they will also be drawing on internal audit’s assurance work.
In addition the head of internal audit is likely to be a critical resource for the committee, supporting its development or providing guidance or feedback. For example many heads of internal audit will provide or facilitate briefings and training for the committee. They may also contribute to an evaluation such as a committee self-assessment.
This critical relationship may not always run so smoothly though. New committee members may lack knowledge about internal audit and professional standards so it may take time before they can offer meaningful challenge or support. Whilst some committees may be proactive in addressing control issues others may hold back. Some committees may feel they need more support from their head of internal audit. Sometimes both internal audit and the audit committee may face barriers where the culture of the organisation is not open to internal challenge.
Leading role
CIPFA plays a leading role in supporting internal audit as one of the standard setters behind the PSIAS and providing the secretariat for the Internal Audit Standards Advisory Board (IASAB). It also sets out the framework for audit committees operating in local authorities and police. Finally as the standard setter for governance in local government, CIPFA makes it clear that both an effective internal audit service and an effective audit committee are essential to support good governance.
On the horizon for 2016 is an update of the CIPFA Statement on the Role of the Head of Internal Audit. The consultation document will be launched at the CIPFA Internal Audit Conference in Nottingham on 28 April by CIPFA Chief Executive Rob Whiteman. The new statement will emphasise the importance of the relationship between the audit committee and the head of internal audit and outline how good governance arrangements should facilitate that.
CIPFA is also conducting a survey on heads of internal audit and chairs of audit committees in local authorities which will give a valuable insight into the operation of this essential relationship. The survey is being conducted in March. If you are a head of internal audit for a local authority and haven’t received the survey please contact E: research@cipfa.org with your contact details.