Accountant in Bankruptcy s1

ACCOUNTANT IN BANKRUPTCY AUDIT COMMITTEE MINUTES OF MEETING Tuesday 11 August 2015 at Kilwinning

Present: Kate Dunlop Non-Executive Board Member (Chair) Yvonne MacDermid Non-Executive Board Member Lee Shedden Independent External Committee Member In attendance: Richard Dennis Chief Executive John Cook Executive Director – Case Operations Rebecca Crook Head of Finance Lisa Shaw Head of Governance Asif Haseeb Audit Scotland Gordon McAllister Audit Scotland Billy Wilkie SG Internal Audit Stuart Riddell Business Support Manager (Secretary) Apologies: Les Henderson SG Internal Audit

Welcome, introduction, apologies and acceptance of previous minutes and ma tters arising from previous minutes

1. The Chair welcomed everyone to the meeting. The Chair welcomed Yvonne MacDermid to the Committee and asked all present to introduce themselves.

2. The minutes of the previous meeting were accepted as a true record.

3. Formal congratulations were extended to Gordon McAllister on gaining promotion.

Updates on the previous action points were provided as follows:

1. For action point 1, Kate Dunlop’s contact details were provided to all members on 12 May 2015. Details to be re-issued to Lee Shedden. Lisa Shaw stated she

1 would provide a verbal update on action point 2, the risk deep dive, later in the meeting. All remaining actions from the previous meeting had been completed.

2. Yvonne MacDermid sought confirmation that the control risk raised around a reconciliations backlog (paragraph 9 of previous minute) had been addressed. Rebecca Crook confirmed this had been done and no further action was required.

3. Richard Dennis noted (paragraph 6 of previous minute) the AiB Board would now comprise himself and John Cook as executives, three non-executives, and a senior management team would provide additional support in the operation of the business. John Cook has been confirmed as the Deputy Chief Executive. Asif Haseeb confirmed the new management structure as good practice.

4. The room discussed the summer meeting schedule at the rear of the agenda. Richard Dennis noted that the portfolio risk to Enterprise, Environment and Digital (EED) was being considered under the revision of the Agency Framework document and that the annual report to the EED committee may not be required. There was some uncertainty around this. Two further actions were to be removed from the summer schedule, one for internal audit which was covered in the spring meeting and one for the Audit Scotland planning update which is not appropriate for the summer meeting.

Action Point: Stuart Riddell to confirm any reporting requirements to the Enterprise, Environment and Digital Audit Committee and make any required amendments to meeting schedule.

Action point: Kate Dunlop’s contact details to be re-issued.

AiB Chief Executive Update

5. Richard Dennis discussed the Agency’s forward looking financial plan and noted that this depended upon the outcome of the UK Government spending review in November, and that subsequently the Scottish Government would likely set their own budget after this in December or January.

Internal Audit Progress Report AC(15-16)05

6. Billy Wilkie introduced the report. Timings for the Strategic Financial Governance review were to be formalised with Rebecca Crook. Planning had commenced for the information assurance and data handling and organisational communications reports. Follow-ups to the 14/15 Contract Management and PTD Supervision reviews will be completed by year-end. The 2014-15 work had been completed and reports finalised. The new interim head of Internal Audit, Kristine Dickson was in post. Billy Wilkie confirmed that minutes, indicating the status of the outstanding recommendations, would be issued after the completion of scheduled follow-ups, and detailed in the progress reports to the ARC, where appropriate, which would make the status of reviews much clearer to avoid any confusion over actions that were open or closed.

7. John Cook provided some clarification on the progress of the audit review of PTD supervision. Work was ongoing on the repair of the ASTRA reports. The risk around potential data loss during transit when documents/forms sent in an

2 unprotected format had several mitigations in place. A secure file transfer protocol is in place and the main risk falls mainly with the stakeholders sending unsecure information to AiB rather than vice-versa. There was also work ongoing on an Application Programme Interface (API) on ASTRA which allows for secure log-ins. John Cook expressed confidence that any risks were being mitigated.

8. Brief discussion was held over the requirement for internal audit to recruit additional auditors and trainees etc. in order to address capacity issues. Billy Wilkie noted that Audit staff had worked hard to ensure the completion of work in light of recent austerity impacts.

Annual Report and Accounts AC(15-16)10

9. Rebecca Crook introduced the 2014-15 Annual Report and Accounts and invited comments. Richard Dennis noted that although the document was fairly lengthy at over 100 pages, that it was essentially three separate documents in one, with the report, accounts and statistical annex being the main parts. He further observed that there was a requirement to provide certain statistical information. He also questioned the meaning of the statement of changes in taxpayers equity. Asif Haseeb informed that although the statement was perhaps better suited to private sector organisations this section of the accounts was mandatory. The report format followed the requirements of the Financial Reporting Manual which is due to change from next year.

External Audit update / Interim Audit Report AC(15-16)06

10. Asif Haseeb introduced the proposed annual audit report pending approval and sign-off of the aforementioned annual report and accounts, drawing attention to the independent auditor’s report and to the Accountable Officer’s letter of representation.

11. Brief discussion was held over paragraph 6 and the mechanisms for ongoing assessment and monitoring of audit progress. John Cook noted that the Agency used to maintain an action plan tracker and that it was a very useful tool. It was also noted that the Audit Committee itself served as mechanism for the ongoing monitoring of audit plan matters.

12. Gordon McAllister discussed the annual audit report, noting no areas of concern and one significant finding. He brought attention to paragraph 18 and the revision of their materiality figure to £0.126 million. Paragraphs 19, 20 and 21 noted three misstatements in the annual accounts had been noted during the audit, the first a non-adjustment around net expenditure (£4,408), the second capital payables and accruals that had not been removed from the statement of cash flows (£170k), and the third a report timing issue on the balance of third party monies held in bank accounts (£600k).

13. Paragraph 24 was discussed. The method of recording number of third party assets has been fully reviewed and assurance given by Rebecca Crook following a reporting error in the previous year’s annual report and accounts. Brief discussion was held around paragraph 25 on forthcoming revision of the Financial Reporting Manual which would alter the future content of the annual report and accounts.

3 14. For governance and transparency, no concerns were raised. Richard Dennis gave further assurance that the Agency Framework document was currently undergoing the final stages of review. He further noted that the SG’s On Board guidance, as noted in paragraph 51, was aimed at NDPBs but that the Agency would comply “where applicable” Lee Shedden highlighted the inclusion of the first bullet point under paragraph 48 where” Audit Scotland believes in transparency of financial reporting … including a clear reconciliation between expenditure and the outturn against Scottish Government Resource budget”.

Action Point: Audit Report to be amended at paragraph 51 to reflect the Agency is complying “where applicable” with the SG’s On Board guidance.

15. Significant Audit risks, as per Appendix I, were discussed by the group. Kate Dunlop questioned the powers of the executive directors under the new management structure with regards override of management controls. Substantial assurance was given that there were various safeguards in place to minimise the risk in this area.

16. The Committee recommended to the Accountable Officer to formally sign-off the Annual Report and Accounts. Asif Haseeb explained the sign-off process and the streamlined process of Auditor General’s notification. Gordon McAllister thanked AiB for the support they had been given in conducting the audit. Kate Dunlop returned these thanks to Audit Scotland.

Financial Monitoring Report AC(15-16)07

17. Rebecca Crook discussed the report. She noted a surplus to date due to greater than budgeted refunds to the public purse from a higher number of cases being discharged than anticipated. She noted that a negative variance from debtor application and creditor petition fee income exists due to low application numbers in the first four months of the year.. Positive variance on direct operational costs partly resulted from insolvency practitioner fees and outlays where costs are 10% below budget.

18. A forecast was planned for the next report and it was anticipated that the Agency would be under the resource budget and on budget for capital expenditure.

19. Discussion was held around payment performance and it was noted that Scottish Government are working hard to reduce use of any non-standard processes. Assurance was given that AiB follow the required purchasing processes and that internal mechanisms were in place to support these. John Cook noted that these internal mechanisms allowed additional internal governance control.

Quarterly Fraud Update AC(15-16)08

20. There were no incidents of fraud in the quarter. Rebecca Crook discussed some future training options for staff and the potential for RBS to deliver a session.

Corporate Risk Register AC(15)09

21. Lisa Shaw noted that the corporate risk register had undergone considerable streamlining with the number of risks reduced from 17 down to 9, some of the

4 previous risks having been amalgamated. This was welcomed by attendees as a positive change and brought the size of the register in line with most other organisations. Lisa also informed that the register design had been changed to give a clearer audit trail of past and future actions planned. The Committee observed that the register remained ‘safe’ but that this was reflective of the current position of the Agency.

22. As per action point 2 of the previous meeting, Lisa Shaw discussed the deep dive exercise that had been undertaken on risk 2, the recruitment and retention of key staff, particularly in specialised roles. She confirmed that the pro-forma questionnaire provided by Les Henderson (and also by Richard Dennis) had been followed and each part of the risk scrutinised. The exercise had proved very useful as it allowed a much needed revision of the key causes and triggers for the risk, thus allowing for better mitigation. It was noted that this could be a useful internal exercise for all risks.

Action Point: Lisa Shaw to issue deep dive questionnaire to Yvonne MacDermid.

23. Kate Dunlop asked for discussion on risk 4, income realisations and impact on AiB’s budget, and whether it was reflected the difficult trading environment. Gordon McAllister informed that this risk was recognised in the annual audit plan. Richard Dennis noted that the lower current risk level was representative of the time of year and that assurance had been taken from income and expenditure in the first four months that insufficient income levels would not be an issue this financial year. John Cook agreed and saw no major concerns for the current year as despite the recent decrease in applications and awards, there remained the income from the existing case live load. The real risk was a future one presently unknown and would depend on whether the application numbers continued to decrease. Yvonne MacDermid observed safeguards were clearly in place.

AOB, Actions, Next meeting and Thanks

The Audit Committee self-assessment is to be revisited at the winter meeting.

There was no other business.

Action Point 1: Kate Dunlop’s contact number to be re-issued

Action Point 2: Stuart Riddell to confirm any reporting requirements to the Enterprise, Environment and Digital Audit Committee and make any required amendments to meeting schedule.

Action Point 3: Lisa Shaw to issue deep dive questionnaire to Yvonne MacDermid.

Action Point 4: Gordon McAllister to amend paragraph 51 of Audit Report to reflect the Agency complying “where applicable” with the SG’s On Board guidance.

Date of next meeting to be rescheduled (was 11 November).

Stuart Riddell

5 Secretary 13 August 2015