ARAC Minutes - 14 March 2023

Present

Chair’s welcome, apologies and declarations

The Chair welcomed everyone present to the meeting, including observers NK, GW, and LP and SHR’s new External Auditor LY. There were no apologies submitted.

There were no declarations of interest.

Minutes of the previous meeting, matters arising and audit log

ARAC considered the draft minutes from its meeting on 13 December 2022 and approved these as an accurate record of the meeting, subject to a minor correction.

ARAC considered the matters arising and audit action logs. It noted:

• JM will provide further information around the UK Government’s Functional Standard in connection with fraud;
• SW and LY – SHR’s new external auditor - have met; and
• SHR Board recently approved a proposal for LP to join ARAC when BG retires, inclusion of a reference to Best Value in the Board paper template and ARAC’s terms of reference.

ARAC discussed assurance mapping and noted that IM will provide an update at the June meeting.

IM reported that Registers of Scotland has confirmed SHR will not be asked to submit its record management plan in 2023/24, but that work to review all related policies will take place during the year, so it is ready for a future submission request. ARAC also discussed actions outstanding in relation to GDPR and noted these have been superseded by UK GDPR and will be incorporated into the work around records management policy review.

ARAC noted the updates.

Internal Audit Update

GG presented an update on Internal Audit work. He highlighted the Annual Internal Audit Plan for 2023/24, explaining how this was developed with IM and SW. GG reported the focus will be on reviewing the application of the provisions for the deregistration of RSLs in the first quarter and later in the year a review of the processes supporting the forthcoming review of SHR’s Regulatory Framework. GG reported he will provide an updated Audit Charter to ARAC in June for information. ARAC considered the plan and discussed:

• development of the plan, noting input from SW and IM; and
• the timing of work around deregistration, noting this is supported by the Regulation Group and is separate from the work to prepare SHR’s accounts. It also noted that Internal Audit closely monitors workplans and plans to minimise slippage and associated additional resources.

GG presented a progress report on Internal Audit work. He highlighted that fieldwork around cyber security has been completed and he has shared a draft report with IM, which he will bring to ARAC in June 2023. GG reported that the emerging findings are very positive, and the assurance rating is likely to be substantial. 

GG updated ARAC on changes at a senior level within Internal Audit.

GG also updated ARAC on the Scottish Government’s corporate transformation programme, explaining that some phasing has been revised, with HR now October 2023 and Finance April 2024, but that there is little provision for further slippage. IM reported on his early experience of communications around the transformation project. He explained that SHR staff are now involved in user testing and development. ARAC noted that the transformation is also a welcome opportunity to deliver modernised systems. ARAC noted the updates on the transformation programme and that at times in the past, service levels have prompted letters to Scottish Government from both SW and GW.

ARAC noted the updates, welcomed the emerging findings around cyber and thanked GG and JM.

Actions:

• JM to provide ARAC with clarity around the application of the UK Government’s Functional Standards.

External Audit

LY introduced herself as SHR’s new External Auditor for the following five years. She presented the audit plan for 2023/24. LY highlighted work that will take place around significant risks of material misstatement to financial statements in connection with fraud and the value of intangible assets. She explained she will also consider income and expenditure and financial sustainably, as well as some other wider scope themes.

LY reported that SHR will provide the annual report and accounts in May 2023 and the audit will work towards the ARAC in June 2023 and SHR Board meeting in August 2023. She also detailed the audit fees highlighted have increased across the public sector.

ARAC considered the audit plan and discussed:

• work that SW, IM and NG have considered around timescales;
• the audit fee, noting fee levels to other organisations and that this is incorporated into SHR’s budget and is slightly less than that budgeted for at mid-year; and
• Best Value, noting that Audit Scotland will take a high-level view and welcomed the work SHR is doing around demonstrating consideration.

ARAC thanked LY and noted the Audit Plan.

Risk Management

IM presented the risk register to ARAC. He noted it will be considered by Management Team (MT) on 16 March 2023 and was also provided to SHR’s Board in February 2023. IM set out key movements in the register since ARAC last considered it and areas the MT expect might trend down. IM also explained that due to the movement, MT had recently considered the overarching risk scores, but concluded that it was not the right time to change these, but that they may reduce in the future.

ARAC considered the risk register and discussed if there are any new risks on the horizon. It discussed and noted that:

• SHR’s positive budget settlement brings the ability to recruit and so has has strengthened SHR’s position;
• MT is keeping a close eye on the impact of shared service transformation and welcomes the perspective gained from Internal Audit;
• the consequences of the forthcoming Regulatory Framework review could impact across a number of risks on the register and will be resource-intensive;
• risks and challenges in the operating context for regulated organisations remain to the fore, with the need for a strategic conversation on Scottish Government delivery priorities which SHR will need to take into consideration when forming work plans;
• SHR’s office, noting that SHR has left Buchanan House and the interim move is underway but has and continues to be resource intensive and particularly challenging and that once completed, work will then focus on the move to 177 Bothwell Street.

ARAC asked MT to consider its discussion when it next reviews the register on 16 March 2023, welcoming consideration of the overarching risk scores.

 Actions:  Management Team to consider ARAC feedback when it next reviews the register.

Fraud, antibribery & whistleblowing policies

CL presented a review of SHR’s:

• Anti-fraud policy and Response Plan;
• Anti-bribery policy; and
• Whistleblowing policy.

CL highlighted that there were only minor updates proposed with no changes proposed for the Whistleblowing policy. She reported that Scottish Government is currently reviewing its policies to which SHR is aligned and if there are any material changes, she will update ARAC. CL confirmed that there have been no cases of fraud, bribery, or whistleblowing at SHR.

The Committee considered the policies and plans and discussed:

• references to external audit, noting that the roles of internal and external audit are set out and focus in around SHR’s response to incidents. It also noted that discussions that take place between internal and external auditors around fraud risk;
• Whistleblowing, noting the policy is internal about whistleblowing by SHR’s staff as defined by legislation and does not cover third parties seeking to raise concerns about SHR. It noted that third party concerns should be considered under SHR’s complaints policy. It asked Internal Audit to review how other public bodies approach this issue.

ARAC thanked CL and agreed to recommend the Anti-Fraud and Anti-Bribery Polices and Anti-Fraud Response Plan to SHR’s Board for approval.

 Actions:

• ARAC to recommend the policies and response plan to SHR Board for approval.
• JM & GG to review other public bodies approach to handling concerns raised by third parties.

Agenda Planner, AOB, DONMs & Effectiveness of meeting and papers

Agenda Planner

ARAC noted the agenda planner and that meeting dates are confirmed for 18 September 2023 and 19 December 2023.

AOB

Best Value

ARAC noted and welcomed that changes have been made to SHR Board’s template to include consideration of Best Value. It agreed to also include this were relevant in ARAC papers.

Observers

The observers thanked ARAC for the opportunity. GW welcomed the insight to the important and detailed assurance work that ARAC does for the Board and thanked members and all others involved.

Bob Gill

GW and SW paid tribute to Bob Gill, explaining that this was his last ARAC meeting before retiring from SHR Board at the end of March 2023. They thanked him for his work and support over the last six years with ARAC and wished him well for the future. BG thanked everyone involved with ARAC, particularly the staff team, highlighting the quality of papers provided.

GW and SW also welcomed LP to ARAC.

Action: IM to include consideration of Best Value in relevant future ARAC papers.

DONM

14 June 2023