AUDIT COMMITTEE

Annual Report for 2002-03

Introduction and Background

1. The House of Lords Audit Committee was established in July 2002 following a recommendation of the Report by the Working Group on Management and Services (the "Tordoff Group") designed to reform the management structure for the provision of services and domestic management in the House of Lords. The Group's recommendations were agreed by the House in the form of the Offices Committee Report (5th Report, 15 May 2002).

2. That Report recommended, inter alia, "the establishment of an Audit Committee to review the scope and results of the audit function (internal and external) and to advise the Accounting Officer. The Committee should be small, and should include an external element. The Peers concerned should hold no form of office within the House, and there should be no overlap between the membership of the Audit Committee and that of the House Committee or the domestic committees. The Audit Committee should report annually, and its report should be incorporated into the Annual Report."

3. The Audit Committee's membership and terms of reference are shown on page 39.

Review of the Year 2002-03

4. From the outset the Committee has sought to build a positive and constructive working relationship not only with House officials but also with officials of the National Audit Office (NAO) who act as external auditors for the House. This has allowed the Committee to gain a solid understanding of the governance structure and decision making processes within the House essential to its work.

5. The Committee met twice during the financial year 2002-03 (in October and December) and has met twice to date during 2003-04. As a new Committee, much of the initial work has involved developing working practices and defining our agenda and terms of reference; and during this time, we have deliberately confined our work to examining politically-neutral elements of the House's expenditure. However, the Committee has begun to set its own priorities and agenda, balancing an ongoing audit agenda with investigations into particular areas.

Internal Audit

6. We welcomed the addition of a further member of the internal audit team in January 2003 which allowed the Committee to approve a fuller internal audit programme for 2003-04. The Committee has agreed ground rules on how it will consider internal audit reports as part of its ongoing agenda of work, and has encouraged the Internal Auditor to bring forward regular reports on Offices' responses to internal audit reports and their implementation.

7. Risk management is a key part of the House's administration. The Audit Committee discussed and approved the corporate risks drawn up by the Management Board and will develop its work in this area in the forthcoming year.

8. Value for money underlies much of the work of the Committee and, as well as approving a value for money study on procurement, the Committee has given advice on achieving value for money across several areas, particularly in the provision of security services.

External Audit

9. The Resource Accounts of the House of Lords for 2001-02 were published in February 2003. The Accountant gave the Committee a presentation on the move from cash to resource accounting and the Committee discussed with House officials and the NAO difficulties which arose in the production of this first set of Accounts under the new system. We discussed how these might be improved on in forthcoming years and the development of the Committee's role in signing off the Resource Accounts for 2002-03 and subsequent years.

Advice to the Accounting Officer

10. The Committee advised the Clerk of the Parliaments on the exercise of his responsibilities on the provision of PCs to the Opposition Whips Offices and the Convenor of the Cross Bench Peers.

Security Services

11. At its second meeting, the Committee invited Black Rod to give a briefing on how security arrangements were managed in the House. Discussions arising from this briefing focussed on three areas:

a. the Metropolitan Police Service (MPS) contract for security services to Parliament and performance levels under the contract,

b. the mechanisms by which decisions about levels of security were taken by the two Houses, and

c. value for money and audit arrangements for security in the House of Lords.

12. As a result, the Chairman wrote to the Chairman of Committees setting out the Committee's recommendations on the renegotiation of the MPS contract and the arrangements for the informal joint committee on security. The House Committee responded positively to the Committee's recommendations.

The Year Ahead: 2003-04

13. We now look forward to making further progress in our work during 2003-04. The Committee received a full briefing on control of works expenditure at its meeting in July and this provided further opportunity to make a substantive contribution to the effective control of expenditure in this area. This is one of several areas which have been identified in which cooperation with the House of Commons Audit Committee would be extremely useful.

14. In May 2003, the Chairmen of the House of Commons and House of Lords Audit Committees met to discuss areas where cooperation could contribute to best practice and the application of constructive rigour in audit committee work. We hope to take this forward in the coming year.

15. We also welcome suggestions by other Members of the House for issues within the terms of reference which might merit our consideration; and welcome the views and comments of Members on this report.

ALEXANDER OF WEEDON

(Chairman)

BEST
CHRISTOPHER
SHUTT OF GREETLAND
DAME VALERIE STRACHAN

Membership:

Lord Alexander of Weedon (Chairman)
Lord Best
Lord Christopher
Lord Shutt of Greetland
Dame Valerie Strachan (External Member)

Terms of Reference † :

The Audit Committee is appointed by the House Committee. Its terms of reference are:

1. To consider internal and external audit reports and other material, and to assess management responses thereto;

2. To recommend to the Accounting Officer a suitable annual internal audit work programme and to monitor progress against the audit plan;

3. To provide advice to the Accounting Officer in the exercise of his responsibilities;

4. To evaluate the adequacy of the risk management system and the suitability of the control arrangements reported to it, and to advise the Management Board accordingly;

5. To monitor value for money, good financial practice, appropriate internal controls, and effective governance throughout the administration of the House;

6. To make an annual report to the House, to be submitted, in the first instance, to the House Committee and to be published with the House of Lords' Annual Report.

† The Terms of Reference were agreed by the House of Lords Finance and Staff
Sub-Committee in July 2002.

Declarations of Interest:

The relevant financial interests of internal Members of the Committee are listed in the Register of Lords Interests. An up-to-date version of the Register can be found at: www.parliament.uk