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APPENDICESAUDIT COMMITTEES: PRACTICAL GUIDANCE FOR LOCAL AUTHORITIESAppendix 3: Position Statement on Audit Committees in Local GovernmentThis statement reflects the views of CIPFA’s Audit Panel on the role of audit committees in local government. It emphasises the importance of audit cees being in place in all principal local authorities.Audit committees are a key component of corporate governance. They are a key source of assurance about the organisation’s arrangements for managing risk, maintaining an effective control environment, and reporting on financial and non-financial performance. Guidance on implementing and running audit committees in local government lags behind other sectors. CIPFA will therefore be publishing further guidance drawn from practical examples and experience of other parts of the public sector in 2005. The way in which an audit committee is organised will vary depending upon the specific political and management arrangements in place in any local authority. CIPFA’s further guidance will explore how audit committees relate to local authorities’ different arrangements for managing and governing themselves. It is not therefore appropriate to prescribe any particular model. But there are features that should be common to all: 1 A Statement of Purpose2 Core Functions3 Features4 Structure and Administration1 A STATEMENT OF PURPOSEThe local authority should formally approve a Statement of Purpose, along the ...

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Appendix 3:
Position Statement on Audit Committees
in Local Government
This statement reflects the views of CIPFA’s Audit Panel on the role of audit
committees in local government. It emphasises the importance of audit
committees being in place in all principal local authorities.
Audit committees are a key component of corporate governance. They
are a key source of assurance about the organisation’s arrangements for
managing risk, maintaining an effective control environment, and reporting
on financial and non-financial performance.
Guidance on implementing and running audit committees in local
government lags behind other sectors. CIPFA will therefore be publishing
further guidance drawn from practical examples and experience of other
parts of the public sector in 2005.
The way in which an audit committee is organised will vary depending upon
the specific political and management arrangements in place in any local
authority. CIPFA’s further guidance will explore how audit committees
relate to local authorities’ different arrangements for managing and
governing themselves. It is not therefore appropriate to prescribe any
particular model. But there are features that should be common to all:
1
A Statement of Purpose
2
Core Functions
3
Features
4
Structure and Administration
1
A STATEMENT OF PURPOSE
The local authority should formally approve a Statement of Purpose, along
the following lines:
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The purpose of an audit committee is to provide independent assurance of
the adequacy of the risk management framework and the associated control
environment, independent scrutiny of the authority’s financial and non-
financial performance to the extent that it affects the authority’s exposure
to risk and weakens the control environment, and to oversee the financial
reporting process.
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CORE FUNCTIONS
Audit committees will:
Consider the effectiveness of the authority’s risk management
arrangements, the control environment and associated anti-fraud and
anti-corruption arrangements.
Seek assurances that action is being taken on risk-related issues
identified by auditors and inspectors.
Be satisfied that the authority’s assurance statements, including the
Statement on Internal Control,
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properly reflect the risk environment
and any actions required to improve it.
Approve (but not direct) internal audit’s strategy, plan and monitor
performance.
Review summary internal audit reports and the main issues arising,
and seek assurance that action has been taken where necessary.
Receive the annual report of the head of internal audit.
Consider the reports of external audit and inspection agencies.
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“The Accounts and Audit Regulations 2003 state that the relevant body is
responsible for ensuring that the body (authority) has ‘a sound system of
internal control’. Members and member committees should therefore
establish procedures to provide sufficient assurance for them to be able
to attest to this”. Source: The Statement on Internal Control in Local
Government – Meeting the Requirements of the Accounts and Audit
Regulations 2003 (CIPFA, 2004).
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Ensure that there are effective relationships between external and
internal audit, inspection agencies and other relevant bodies, and that
the value of the audit process is actively promoted.
Review the financial statements, external auditor’s opinion and
reports to members, and monitor management action in response to
the issues raised by external audit.
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FEATURES
Good audit committees will be characterised by:
A strong chair – displaying a depth of skills and interest.
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Unbiased attitudes – treating auditors, the executive and management
equally.
The ability to challenge the executive (leader/chief executive/mayor or
whatever combination) when required.
A membership that is balanced,
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objective, independent of mind, and
knowledgeable.
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STRUCTURE AND ADMINISTRATION
Although no single model of audit committee is prescribed, all should:
Be independent of the executive and scrutiny functions.
Have clear reporting lines and rights of access to other committees/
functions, for example scrutiny and service committees, corporate
risk management boards and other strategic groups.
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There are many personal qualities needed to be an effective chair, but key
to these are promoting apolitical open discussion, managing meetings to
cover all business and encouraging a candid approach from all participants.
An interest in and knowledge of financial and risk management, accounting
concepts and standards, and the regulatory regime are also essential. A
specialism in one of these areas would be and advantage.
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The political balance of a formal committee of an authority will reflect the
political balance of the council. However, balance in terms of apolitical
attitudes is as important.
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Meet regularly – about four times a year, and have a clear policy on
those items to be considered in private and those to be considered in
public.
Meet privately and separately with the external auditor and head of
internal audit.
Include, as regular attendees, the chief finance officer or deputy,
head of internal audit and appointed external auditor and relationship
manager. Other attendees may include the monitoring officer (for
standards issues), chief executive and the head of resources (where
such a post exists). These officers should also be able to have access
to the committee, or the chair, as required. The committee should
have the right to call any other officers or agencies of the council as
required.
Be properly trained to fulfil their role.
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Further guidance will be available on the skills, knowledge and personal
attributes required of committee members but key areas for training would
include financial and risk management, auditing and accounting concepts
and standards, regulatory requirements for financial reporting, and corporate
governance.
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