ARAC Minutes - 7 September 2021

Present

Chair's welcome

The Chair welcomed everyone present to the meeting.

Apologies

Nick Bennett, Audit Partner Azets submitted apologies. 

Declarations of interest

There were no new declarations of interest.

Minutes of the previous meeting, matters arising and audit log

ARAC considered the draft minutes from its meeting on 8 June 2021 and approved these as an accurate record of the meeting.

ARAC considered the matters arising and audit action logs. 

SW reported that the Scottish Government’s Public Body unit circulated a notice to all public bodies seeking interest in a forum for Audit Committee Chairs and had received a favourable response, which it is progressing.

SW also reported that a new code of audit practice was published in June 2021, updating the 2016 version, which is more aligned with other UK codes and offers more flexibility to adapt to changing circumstances. 

CN confirmed that the Assurance Map would be refreshed for consideration by ARAC in December 2021 and that she will consult internal auditors in advance. 

ARAC considered two audit recommendations with rescheduled targets and noted:

• GDPR work on records management plans will be carried out during 2021/22 if resources allow or if it becomes a higher business priority; and
• further discussions on workforce planning will be picked up under agenda item seven, noting the continuing issues that SHR and others using Scottish Government’s HR services are experiencing with recruitment.

Internal Audit Update

JT reported that Internal Audit work is going to plan and she is currently completing the fieldwork on working effectively during the pandemic, which will allow her to draft a report in the coming weeks.

JT also reported:

• that the new Internal Audit Directorate’s Head of Counter Fraud is reviewing best practice and producing new procedures, which she will share when they are available with ARAC;
• that the Directorate for Internal Audit and Assurance’s annual report 2020/21 and the Audit Scotland Review of Internal Audit 2020/21 both confirm that Internal Audit conforms with standards and that its work can be relied upon. She explained that there are some recommendations, which will be taken on board; and
• on a cross Government insight report focussed on Cyber Security, sharing the output with ARAC.

ARAC considered the update and discussed:

• fieldwork on working effectively, noting the focus on regulatory work will follow the current focus on the corporate response and carry into 2022;
• reference to manual systems in the Directorate for Internal Audit and Assurance’s annual report noting this related to budget processes and that SW would discuss this further with JM out with ARAC;
• comfort with the reasonable rating for shared services, noting it is considered to be at the lower end of the rating and that Internal Audit has welcomed the investment and transition programme after many years of recommendations, but recognises this will take time to deliver. It noted that SHR is attending sessions about the transition and the issues are also being discussed at the Delivery Bodies Group meetings; and
• the outputs from the SG review of fraud procedures, with IM noting that these would provide a good platform for SHR to review its own processes.

 Action: JM to update SW on Internal Audit’s manual budget process referred to in annual report. 

Risk Management

CN presented SHR’s risk register to ARAC.  She confirmed that the register was last considered by SHR’s Board on 31 August 2021 and that there were no recommendations for consideration.  She explained that SHR’s Management Team has not had an opportunity to consider the register again since then.  CN reported that although the scores remain unchanged at the last review by MT, there had been detailed discussion around the ongoing recruitment issues and the impact on SHR’s resources and capacity.   

ARAC considered the risk register and discussed:

• if risks are increasing due to the significant challenges with recruitment as well as levels of regulatory casework, noting these are reasons why Management Team agreed to maintain some of the high scores;
• if delays to on-boarding could result in loss of candidates, noting that this continues to be a risk and is being experienced by all who use the Scottish Government shared HR services;
• if issues are emerging as landlords return to offices, noting the continuing challenges placed on landlord governance;
• SHR Board’s recent discussion including fire safety and site standards for Gypsy Travellers;
• the impact of slower than planned recruitment on SHR’s budget for 2021/22 and future years, agreeing SW as ARAC Chair should write to Scottish Government to express concerns; and
• SHR Board’s encouragement to explore commissioning work in 2021/22, noting that the Internal Audit Directorate has already had to use that route as a mitigating action.

Action: SW and MC to prepare a letter to Scottish Government expressing concerns about the pace of HR shared services and the impact this is having on SHR. 

External Audit Update & SHR’s Annual Report & Accounts

NM presented the draft 2020/21 Annual Audit Report to ARAC.  She explained this was the 5^th year of appointment to SHR and set out the different look to this report from previous ones.  NM highlighted that the key finding is an unqualified audit opinion.  She reported that one area is ongoing, which is assurances from Audit Scotland over Scottish Government services used by SHR, but nothing significant is expected.  NM explained the report remains draft and work continues right up to when the annual report and accounts are signed at the October meeting of SHR’s Board.  She reported that there were no material adjustments to the financial statements and only one small amendment around intangible assets in connection with SHR’s Business Intelligence system. 

NM highlighted the recommendation around workforce planning, which has been carried over from previous years and explained that this may assist with succession and resource planning and could be a useful input to discussions with Scottish Government around future budgets. 

NM thanked the SHR staff team for their assistance with the audit. 

ARAC thanked NM, considered the report and discussed:

• work to finalise the report, noting NM will update with Audit Scotland’s feedback and a fresh version will be circulated ahead of SHR’s Board meeting;
• year-end accruals - noting typical accruals for SHR are mainly later invoices, overtime and any travel and subsistence due to payroll systems. It noted revenue recognition is a presumed risk, like expenditure, due to the potential impact on the bottom line and that accruals are judgement based, reflecting that they style of representation in the draft report could be misinterpreted;
• intangible assets, noting that the high risk assessment labelling is a new approach for the audit report, but that audit had not identified any material misstatements. It also noted how SHR valued intangibles;
• accounting standards, noting that NM does not expect any significant new standards, but there are likely to be different areas of wider scope under the Code of Audit Practice. NM also confirmed that this was a transition year and audit work should return to normal timeframes in 2022/23; and
• work that SHR has done around workforce planning, including a focus on resilience and planning for the recruitment programme. It noted that much of the workforce planning work was paused due to the pandemic and now the future approach to work will be incorporated, which could not have been if done at an earlier stage.  It noted SHR is exploring seeking external support to progress this work stream and agreed that any workforce planning needs to be flexible and adaptable. 

ARAC thanked NM and her team and noted the findings in the draft audit report and SHR’s annual report and accounts.  ARAC agreed to recommend these for signing by the Accountable Officer at SHR’s Board meeting on 5 October 2021. 

Annual Report on Fraud, Security and Whistleblowing

CN presented an annual report on incidents of fraud and security breaches during 2020/21.  She highlighted that there had been no cases of fraud and that there had been one data loss in connection to the BI system, which was reported directly to SHR’s Board at that time. 

ARAC considered the report and discussed SHR’s whistleblowing policy noting that there is route to the ARAC Chair if any staff do not wish to deal with the officers identified in the policy.  It noted the policy is due for refresh and this will provide an opportunity to incorporate the new Scottish Government Directorate. 

ARAC noted the report and thanked all involved including the shared Data Protection Officer.

2020/21 Statement of Assurance from ARAC to the Accountable Officer and SHR’s Board

CN presented a summary of the work of ARAC for 2020/21 explaining the assurance this offers SHR’s Board and Accountable Officer.

The Committee considered and approved the statement and asked SW to present it to SHR Board and Accountable Officer. 

 Action: SW to present the 2020/21 Statement of Assurance from ARAC to SHR’s Board and Accountable Officer. 

Approach to ARAC Self-Assessment

ARAC considered proposals for its approach to self-assessment and discussed:

• a forthcoming review of the Audit Committee Handbook, noting this is expected to be a light refresh and it will take place after ARAC has carried out its self-assessment;
• the importance of discussing how ARAC worked during the pandemic; and
• the choice of checklists available to audit committees, noting the self-assessment questions proposed derive from the Audit Committee Handbook and that CN will prepopulate the handbook based checklist and provide this in advance to help inform discussions.

 The Committee agreed a discussion based approach to self-assessment for 2021/22. 

AOB

Agenda Planner: ARAC considered the agenda planner. It noted best value is scheduled for December 2021 and CN is expecting to prepare for this with assistance from the new Finance Officer.  ARAC also noted that a normal audit schedule has been reflected for 2022 agenda plans, subject to audit planning which is still to take place.  It asked CN to insert the final Internal Audit report for March 2022. 

2022 dates: SW reported she had agreed provisional dates with CN and these will shortly be shared with members and auditors. 

Action: CN to update Agenda Planner and circulate proposed 2022 meeting dates.

DONM

14 December 2021

Private Session

ARAC members held a private session with SHR’s Auditors.