Internal Assurance – Is it time to separate the audit committee?

With emphasis increasing in academies on the need for more robust internal assurance work, is it worth considering the separation of the finance and audit committee, if indeed they are currently arranged as one?

In many academy trusts the functions of the audit and finance committee are combined. The finance committee is part of the control process and structure for budgetary control, whilst the audit committee should be able to stand back and scrutinise the effectiveness of the process.

To be truly effective the role of the audit committee is a full one. It addresses controls and safeguards, procedures, planning and oversight of these functions.

The finance committee, on the other hand, has a complex role of overseeing the budgeting, financial performance and monitoring of the trust, together with the demands that this places on the trust. This gives little room to consider the audit committee role.

In today’s trusts, with so much pressure and emphasis on the finance function, surely the time is right to reconsider whether these two can operate successfully under one.

There is the challenge of making sure the terms of reference are complete, in the first instance, whilst secondly making sure there is the required oversight and scrutiny for effective financial governance.

The question is, having all this within the remit of one committee, is there really enough time to address all matters required?

Academies Financial Handbook

The Academies Financial Handbook requires the audit committee to advise on “the adequacy of financial and other controls and risk managements, to direct a programme of internal scrutiny and to consider the results and quality of external audit”.

This is a significant task, and to address it appropriately one needs to ask whether it is effectively achievable when combined with the demands of the finance committee.

New reporting requirements

By 31 December 2020 and every anniversary thereafter, trusts are required to file a summary report of the areas reviewed, along with the outcomes, recommendations, conclusions and work programme to deliver the internal scrutiny.

With the start of the new calendar year, is it time to reconsider your committees with these roles?

There are very specific criteria for an audit committee, including, but not limited to:

• The audit committee’s role must include directing internal scrutiny and reporting to the board on the trust’s financial and other controls and management of risk
• Any trust with an income of over £50 million must have a dedicated audit committee
• Any other trust must have an audit committee, but can combine it with another e.g. finance
• The audit committee should meet at least three times per year
• The chair of trustees should not be chair, and although this is not a “must”, it is best practice and highly desirable.
• No staff should participate as members, but the Accounting Officer and Chief Financial Officer should attend and participate in discussions
• Have specific terms of reference to describe its remit
• Agree on a programme of work to deliver internal scrutiny across the year
• Review the risk register to inform the program of work
• Agree who will perform the work
• Have access to the external auditor, as well as those carrying out internal scrutiny

The above is not exhaustive of the requirements, but serves to highlight some key features.

If you would like any help with audit committee arrangements or review of terms of reference, please contact a member of our Education team.