Contact: Ejner Knudsen, ext 01962 847403, email: [email protected]
Jeff Pattison, ext 01962 847321, email: [email protected]

1 Summary

1.1 This report proposes that the emerging requirements for developing the Authority's corporate governance framework, including the role of an audit committee, be added to the terms of reference for the Standards Committee.

2 Background

2.1 The District Auditor's Annual Audit Letter for 2002/03 recommended that the Authority develop arrangements to discharge the functions of an audit committee. Although still not mandatory it has become increasingly clear that in future external inspection regimes will measure all public sector organisations by the level of compliance with best practice as expressed in guidance originally designed to improve the impact of internal audit in some under-performing local authorities. It is therefore considered prudent for the Authority to implement this recommendation during the current year.

2.2 In 2001, a working group comprising representatives of CIPFA and SOLACE published its original guidance on the establishment of a framework for Corporate Governance within each local authority. Essentially the requirement was to identify and publish the arrangements for exercising proper management control of an organisation's use of resources to achieve its stated objectives, in accordance with Best Value principles.

2.3 The development of Comprehensive Performance Assessments (CPA) for local authorities has since overtaken to some extent the Best Value regime for demonstrating cost effectiveness and CPA uses the level of compliance with the CIPFA/SOLACE guidance as the yardstick for measuring good governance. With the prospect of similar assessments applying to the fire and rescue services it is important to review existing arrangements to ensure they will comply with the known and current expectations of inspectors.

2.4 A further mandatory requirement for local authorities has emerged from the Accounts and Audit Regulations 2003 which involves the annual publication of a Statement of Internal Control with the final accounts, with effect from the 2004/05 financial year. The evidence for this statement will very much depend on the work of internal audit and the arrangements in place to monitor the effectiveness of corporate governance.

3 Audit arrangements

3.1 Internal audit

Internal audit is provided by the Treasurer to the Authority's own staff as part of his statutory role as the designated responsible financial officer, and charged through a Service Level Agreement. It operates to a reasonable degree of independence and is subject to professional standards defined in a new code of practice for internal audit in local government, published by CIPFA. The development of corporate governance has increased the reliance of many more stakeholders on the work of internal audit and therefore introduced the need for additional reporting lines including the designated audit committee. It is intended that the annual report from internal audit should also include an opinion on the Authority's system of internal control to support the preparation of the eventual assurance statement.

3.2 External audit

The Audit Commission appoints the external auditor (formerly known as the District Auditor) and also operates to its own defined code of practice to ensure consistency between organisations. It does however liaise with internal audit and, subject to satisfaction with the work meeting professional standards, places reliance in particular on the outcome of the evaluation of controls. It is expected that the Audit Commission will apply the CPA regime to fire and rescue authorities progressively from 2004/05.

3.3 Future reporting requirements of the Standards Committee.

It is proposed initially to submit the following regular reports to the Committee to enable its new responsibilities to be discharged, although of course members may wish to suggest variations in the light of experience.

4 Corporate governance

4.1 Definition

The term corporate governance came into more common use after the Cadbury Report in 1992 and is defined as "the system by which organisations are directed and controlled". Since then it has risen in prominence within the public sector, as a result of the first report of the Committee on Standards in Public Life (the Nolan Report), a raft of White Papers and legislation designed to improve quality and accountability of public services, and most recently the introduction of CPA.

The CIPFA/SOLACE guidance referred to earlier identifies the principles underpinning good governance as being openness and inclusivity, accountability, and integrity. These should be reflected in all aspects of a local authority's business and the guidance suggests that each authority should draw up a local code of corporate governance and be able to demonstrate publicly that they comply with it.

The guidance also provides a framework showing how the principles of corporate governance should be reflected in a local authority's affairs in the following five dimensions:

- community focus

- service delivery arrangements

- structures and processes

- risk management and control

- standards of conduct.

It further recommends that the review of corporate governance is reported to an appropriate committee and it is proposed that this should be the Standards Committee as it already has responsibility for conduct issues and can demonstrate a degree of independence from the executive function.

4.2 Workplan 2004/05

The Authority's approach to establishing a suitable and compliant corporate governance will commence with a thorough review of existing policies and procedures since experience elsewhere has often found that most of the requirements are already in place. It is therefore suggested that the work should be completed in two distinct phases and involve both senior management and members to an appropriate degree which will also help to promote greater awareness of the issues from the outset.

Phase 1

Briefing of senior managers and Standard Committee members.
Analysis of existing framework/assignment of responsibility for key areas.
Draft the local Code of Corporate Governance for adoption by HFRA.
	(first progress report to Standards Committee)

Phase 2

Managerial review of practice using questionnaires.
Evaluation and testing by Clerk and Internal Audit.
Draft Assurance Statement for the HFRA.
	(second report to Standards Committee)

Recommendations

1 That the proposed arrangements for the monitoring and review of corporate governance and internal audit be approved, with immediate effect.

2 That the terms of reference of the Standards Committee be amended to include the following:

- the adoption, review and amendment of the corporate governance framework for the Hampshire Fire and Rescue Authority

- to receive and consider reports from the Treasurer on internal audit strategy, planning and delivery.

Section 100 D - Local Government Act 1972 - background papers

The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.

NB the list excludes:

Published works.

Documents which disclose exempt or confidential information as defined in the Act.

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