Audit Committee 2014 Annual Report. Department of Agriculture, Food and the Marine

Transcription

1 Audit Committee 2014 Annual Report Department of Agriculture, Food and the Marine April 2015

2 Audit Committee 2014 Annual Report Department of Agriculture, Food and the Marine Contents Page Chairman s Statement 2 1 Membership of the Audit Committee 5 2 Role of the Audit Committee 6 3 Presentations to the Audit Committee 7 4 Audit Committee Objectives for 2014 and Related Outcomes 8 5 Audit Environment of the Department 13 6 Review of Internal Audit Unit Work in Priorities for

3 Statement by the Chairman of the Audit Committee of the Department of Agriculture, Food and the Marine I am very happy to present the Annual Report of the Audit Committee of the Department of Agriculture, Food and the Marine for the year ended 31 st December The role of the Audit Committee is to independently and objectively advise on the suitability of the internal control systems within the Department through monitoring the work of the internal audit function and to monitor the implementation of the Department s risk management strategy. The Charter for the Audit Committee clearly states that the Committee has no executive role and is not responsible for any executive functions. This is in keeping with the approach set out in the Guidelines for Audit Committees, which was published by the Department of Public Expenditure and Reform during As part of the relevant consultation process, the Committee submitted views on the content and structure of these Guidelines and contributed towards the final document, which is primarily aimed at audit committees in central government. Based on its work during the year, the Audit Committee is satisfied that the controls in place in the Department of Agriculture, Food and the Marine are, in general, operating satisfactorily. The Committee is satisfied that the Internal Audit Unit (IAU) continues to make a significant contribution to the overall governance environment in its evaluation and improvement of controls across the Department. The Certifying Body in its report for the 2013 financial year has issued an unqualified audit opinion in relation to the administration of the EAGF and EAFRD funds, with no major findings. This is in-keeping with the view of the Committee that the control systems within the Department are operating in a generally satisfactory manner. The Committee notes that the Certifying Body made particular recommendations regarding the control environment in the areas of debt management, on-farm inspections, the REPS Scheme, control statistics and also the LEADER Programme which, although managed by the Department of Environment, Community and Local Government, falls within the Paying Agency functions of the Department of Agriculture, Food and the Marine as it is part of the Rural Development Programme. Towards the end of the year, the Committee met with representatives of the Comptroller and Auditor General (C&AG) and discussed the findings in relation 2

4 to the controls operated by the Department. The C&AG issued an unqualified opinion on the Department s 2013 Appropriation Account. The Audit Committee set out a number of priorities for its work in These included: Monitoring the impact of resource constraints on controls and delivery of service. (See Section 4.1) Focusing on improvements in debt management and follow up. (See Section 4.2) Reviewing the work of the Internal Audit Unit and ensuring that the Unit is sufficiently resourced to carry out an appropriate work programme (See Section 4.3) Monitoring the controls in place in the administration of the LEADER Programme (See Section 4.4) Reviewing the progress of interactions with the EU bodies on their audit outcomes and potential disallowances under the various EU schemes and programmes (See Section 4.5) Monitoring the development of appropriate controls in implementation of the revised CAP arrangements (See Section 4.6) I am satisfied that the Audit Committee has achieved the objectives that it set itself for the year. Section 4 of this report outlines the outcomes in relation to each of these priorities. Priorities for 2015 are included in Section 7. The Committee continues to be satisfied that the IAU works to a high standard and that its recommendations are addressed by management. The Audit Committee received presentations from a variety of key units of the Department at its meetings. These made a very important contribution to the Committee s work and assisted in providing appropriate oversight of operations throughout the Department. They also provided the Committee with an opportunity to stay abreast of developments within the Department and follow-up on issues raised in audit reports. The Committee held one meeting in the Department s office in Clonakilty and received a number of very useful presentations on the work of the Marine Divisions and Agencies who are based in that location. Further details of the topics covered in 2014 are provided in Section 3 of this report. I would like to express my thanks to Mr Philip Carroll, Assistant Secretary General with responsibility for Corporate Functions, who retired from the Department at the end of the year, for his constant support in facilitating the work of the Committee. I also want to wish Mr Tom Moran, former Secretary 3

5 General well in his retirement and to thank him for his support over the years. Mr Aidan O Driscoll was appointed as Secretary General in early 2015 and I want to wish Aidan well in his new and onerous posting and look forward to working with him as Chairman of the Department s Audit Committee. I want to thank Mr Colm McKiernan, the Director of Internal Audit in the Department and the staff of the Audit Unit as well the many Department staff across a number of Divisions who assist in the delivery of the audit programme. I would also like to again express my gratitude to my fellow members of the Audit Committee. Their continued commitment and the generous sharing of their experience and advice ensures that the highest level of expertise is available to the Department at all times. Bill Cunningham Bill Cunningham Chairman 23 rd April

6 1. Membership of the Audit Committee The Audit Committee of the Department of Agriculture, Food and the Marine consists of six members. Five of these members are external to the Department itself. The composition of the Committee at the end of 2014 was as follows: Mr Bill Cunningham, Chairman of the Committee. Mr Cunningham is a Chartered Accountant and is a former partner of Price Waterhouse Coopers Ireland. Mr Leo Martin. Mr Martin served as Chief Operating Officer of Grafton Group from 2006 to 2011 and was previously Group Chief Executive of Heiton Group. Mr Martin is a Chartered Accountant and served on the Council of the Institute of Chartered Accountants in Ireland. Ms Dairine Walsh. Ms Walsh has worked and held board positions with Johnson & Johnson and Dunnes Stores. She has an MBA from the Harvard Business School and is also a qualified solicitor. She is a nonexecutive director of Tote Ireland. Mr Aidan Dunning. Mr Dunning is the former Secretary General of the Department of Communications, Energy and Natural Resources. Mr Finbarr Kelly. Mr Kelly is a Principal Officer in the Department of Public Expenditure and Reform. He has responsibility for the Agriculture Food and the Marine and the Transport, Tourism and Sports Votes. Mr Brendan Gleeson. Mr Gleeson is an Assistant Secretary General in the Department of Agriculture, Food and the Marine with responsibility for Livestock Products, Food Safety and State Body Co-ordination. The following attended the meetings but are not members of the Committee. Mr Philip Carroll, Assistant Secretary General in DAFM with responsibility for Corporate Functions attended the Committee meetings as an observer. Mr Colm McKiernan, Principal Officer, DAFM, is the Director of Internal Audit for the Department. Mr Mark Quinlan, Higher Executive Officer, DAFM, is the Secretary to the Committee. 5

7 2. Role of the Audit Committee The Audit Committee was established to independently advise the Secretary General and the Minister on the internal audit policies and the management of risk, appropriate to the functioning of the Department of Agriculture, Food and the Marine. The Committee operates under a Charter for Internal Audit which clearly defines the purpose, authority, roles, responsibilities and reporting relationships of the Audit Committee, Internal Audit and management of the Department. This charter is periodically reviewed by the Committee. The Committee has responsibility for the following: Reviewing and advising on the proposed programme of work for Internal Audit within the Department. Monitoring the implementation of the audit plan. Assessing the content and impact of completed internal audit reports, evaluating the effectiveness of internal controls and advising the Secretary General and the Minister of its conclusions thereon. Advising the Secretary General and the Minister on the effectiveness of the Internal Audit function. Requesting special reports from Internal Audit as considered appropriate. Assessing the implementation of agreed corrective actions by management having regard to follow-up audits. Advising on whether adequate resources and skills are available for the internal audit function of the Department and making recommendations on the allocation of resources where it considers this desirable. Fostering the development of best practice in the internal audit function. Monitoring the implementation of the Department s risk management strategy and advising the Secretary General and the Minister on the effectiveness of this process. The Audit Committee has no executive role in the Department and accordingly is not responsible for any executive functions. It has no role in the detailed audit process or in the signing off of audit reports. Neither does it have any responsibility or involvement in the review and approval of the national or EU annual financial statements on behalf of management, nor in the ongoing implementation of the Risk Management programme. 6

8 3. Presentations to the Audit Committee The Committee met four times during The Committee received updates during the year in relation to: Implementation of CAP Reform Measures Certifying Body Presentation Responsibilities of the Marine Divisions Work of the Sea Fisheries Protection Authority BIM Seafood Development Centre facilities visit EU audit updates Operation of the Risk Management System Departmental interaction with the State Bodies under its aegis Debt management Comptroller and Auditor General Annual Report These presentations were in addition to the quarterly reports, plans and other information received from the Internal Audit Unit. The Committee appreciates the continued support that it receives from both the Minister, the Secretary General and staff within the Department. 7

9 4. Audit Committee Objectives for 2014 and Related Outcomes The 2013 Annual Report of the Committee set out a number of priorities for its work in These were: Monitoring the impact of resource constraints on controls and delivery of service. Focusing on improvements in debt management and follow up. Reviewing the work of the Internal Audit Unit and ensuring that the Unit is sufficiently resourced to carry out an appropriate work programme. Monitoring the controls in place in the administration of the LEADER Programme. Reviewing the progress of interactions with the EU bodies on audit outcomes and potential disallowances under the various EU schemes and programmes. Monitoring the development of appropriate controls in implementation of the revised CAP arrangements. 4.1 Monitoring the impact of resource constraints on controls and the delivery of service The Civil and Public Service modernization and reform programme continued during The Employment Control Frameworks, which were issued by the Department of Public Expenditure and Reform, set ceilings on staff numbers in the Department and in the 6 non-commercial state agencies under its aegis. At the end of 2014 staff numbers in the Department were at 3,027 full time equivalents (FTEs) which was a reduction of 127 from the 3,154 FTEs at the end of Restructuring and staff reduction have been a feature of the Department since early 2005 and overall numbers have decreased by some 1,750 in that time. This represents a 36.9% reduction in overall Departmental staff numbers across the organisation. The continued effective delivery of services and performance during this time and in the face of such significant staff reductions was enabled by the introduction of a broad range of changes to structures and work practices, improvements to business processes and increased use of technology. 8

10 The Committee continued to monitor the management of these reforms and advised that key positions needed to be filled to ensure that management processes and controls are maintained, and strengthened where required. It was also noted that in some cases, delays in filling posts adversely impacted on the speed in addressing lower ranked Internal Audit Unit recommendations. However, the work of the Unit did not identify any areas where resource constraints led to an increase in the number of medium or high findings. 4.2 Focusing on improvements in debt management and follow up. The Department continued to take steps to improve its debt management practices. A Central Debt Management Group has been formed during 2014 chaired by an Assistant Secretary General with representatives from Accounts Division, Finance Division and Legal Services Division which meets periodically to: o Monitor ongoing level of DAFM debt o Advise Divisions on areas such as credit terms, guarantee bonds, suspension of services, escalation and legal action. o Recommend the revision of workflows to improve the efficiency of billing and debt collection. The Debt Management Policy and Procedures document has been updated and consolidated during the year. It has been circulated to all areas of the Department and is available on the intranet. A significant effort has also been made on training in this area with 50 officers from key areas being provided with guidance on collection skills and techniques and on general debt related issues. A further on-line course is being rolled out to facilitate this group in fine tuning their knowledge and skills in this area. Some automated improvements were introduced to existing procedures whereby accounts are blocked for payments and are reviewed where there is a history of any write-offs and accounts receivable debts are automatically deducted from any payments due to a customer. While welcoming the further progress in the management of debt within the Department, the Committee will continue to monitor this area during 2015 to ensure that an effective framework for debt management is delivered. 9

11 4.3 Reviewing the work of the Internal Audit Unit and ensuring that the Unit is sufficiently resourced to carry out an appropriate work programme. The work of the Internal Audit Unit was subject to review by the Committee during At its quarterly meetings the Committee monitored the implementation of the audit plan, reviewed audit reports which had been finalised and looked at progress in the implementation of recommendations from earlier audit reports. The Committee continually impressed upon senior management the importance of filling the vacancies that had arisen across the Unit in previous years. By the beginning of 2015, all but one vacancy had been filled which was significant progress, given the resource constraints across the Department and is a sign of the importance attached to the work of the Unit in evaluating and improving controls in the Department. The Committee continues to be satisfied that the IAU works to a high standard and that its recommendations are addressed by management. 4.4 Monitoring the controls in place in the administration of the LEADER Programme The LEADER Programme is administered by the Department of Environment, Community and Local Government (DECLG) but as the funding involved is part of the Rural Development Programme, it therefore comes under the Paying Agency functions of the Department. The Department and the Internal Audit Unit are in constant contact with DECLG on all significant matters relating to the running of the LEADER Programme and are updated on any issues that have been identified and monitor the handling of such cases. The LEADER area was referred to in the Certifying Body report as having a high number of minor findings in relation to the control environment and some instances were identified where Local Action Groups had not complied with procurement guidelines. The Committee were updated on this area and monitored the progress made in dealing with the issues. 10

12 4.5 Reviewing the progress of interactions with the EU bodies on their audit outcomes and potential disallowances under the various EU schemes and programmes The Department is subject to audit and scrutiny from a number of sources which are set out in Section 5 below. The Committee were briefed on the progress and outcomes of audits by the EU Court of Auditors and by the European Commission during the year. During 2014, the European Commission proposed a financial correction of some 181 million for deficiencies identified in the land parcel data and the related control mechanisms associated with the Single Payment Scheme. The Committee were informed of this issue and were constantly updated on the efforts being made by the Department to resolve this matter and to reduce the scale of any correction. These efforts included a formal meeting of the Department and the EU Commission with the relevant EU Conciliation Body in December Discussions are continuing between the Department and the Commission on this matter and further examination by the Department of land parcels is ongoing at this time. In relation to EU Schemes, the Audit Programme of the Internal Audit Unit for 2014 included seven audits with an EU aspect to them, including the Single Payment Scheme which is by far the largest scheme operated by the Department. 4.6 Monitoring the development of appropriate controls in implementation of the revised CAP arrangements. The latest reform of the Common Agricultural Policy covers the period 2014 to 2020 and 2014 was the final year of the Single Payment Scheme. It will be replaced by a number of new schemes and measures. This transition represents a significant challenge for the Department in terms of the implementation of the new schemes, the development of the necessary IT systems as well as the presentation of these schemes to the farming community. The Internal Audit Unit sat in on the discussions at the Implementation Group meetings in relation to the new schemes throughout 2014 and kept up to date with developments as the year progressed ahead of the launch of the new schemes in This will leave the Unit in a stronger position as it begins its audit work in this important area. 11

13 The Audit Committee are very aware of the scale of the challenges ahead in this area and are keen to ensure that all issues identified in the administration of schemes over recent times are kept in focus and that the instances of these reoccurring are eliminated or at least greatly reduced. Overall the Committee is satisfied that it has achieved the objectives that it set itself for the year. 12

14 5. Audit Environment of the Department The Department spends approximately 3 billion each year, a significant proportion of which is funded by the European Union. The Department is highly decentralised, with major facilities in Backweston, Cavan, Clonakilty, Portlaoise and Wexford, as well as a network of local offices. As well as having its Internal Audit and Scrutiny functions, DAFM has five sources of independent external audit and it is also subject to scrutiny by the EU s Food and Veterinary Office in relation to animal and public health and the animal welfare aspects of its work. The number of audit bodies arises primarily from the large percentage of the Department s expenditure that is funded by the EU. The role of these external auditors is outlined in the following paragraphs: The Comptroller & Auditor General The Comptroller & Auditor General audits all Departmental expenditure and has a full time staff presence based in the Department. The Comptroller & Auditor General reports annually to the houses of the Oireachtas on findings arising from his audits. The primary responsibility of the Comptroller & Auditor General is in relation to Central Government expenditure and this is examined and reported on by the Public Accounts Committee. The Certifying Body EU Regulations require that an audit certificate and a report on the internal controls of DAFM from an independent Certifying Body must accompany the Annual Accounts that are submitted to the EU Commission. Deloitte were re-appointed as Certifying Body in 2010 following a public tendering process for a three year period. During 2014, following a competitive tendering process, BDO were appointed to carry out this function for the 2014 financial year. Commission Audit Services Audit Services from the EU Commission also carry out a number of audits annually on the Department s expenditure of EU funded schemes and the related controls. 13

15 The Court of Auditors The Court of Auditors is required to give a statement of assurance on the reliability of the European Communities accounts and the legality and regularity of the transactions underlying those accounts. OLAF (EU Anti-Fraud Office) OLAF is the European Anti-Fraud Office. The Office has responsibility for conducting administrative anti-fraud investigations in all member states and also outside the EU. The Department co-operates fully with OLAF and assists in any missions that this body undertakes in Ireland. An indication of the extent of audit coverage, measured in audit days per year, is shown in the following table. Audit Body Comptroller & Auditor General Certifying Body Court of Auditors - mission days in Ireland EU Commission - mission days in Ireland Internal Audit 1,392 1, 437 1,312 TOTAL 2,595 2,763 2,493 14

16 6. Review of Internal Audit Unit work in 2014 The Committee reviewed the following aspects of the Unit s work in 2014: Programme of work The 2014 Internal Audit Plan, as prepared by the Internal Audit Unit, was agreed both by the Audit Committee and by the Department s Management Advisory Committee. Progress in implementing the plan was monitored by both Committees by means of quarterly progress reports that were presented by the Internal Audit Unit. The Internal Audit Unit carried out a considerable body of audit work in 2014, with 14 audit reports finalised and issued during the year. The Internal Audit Unit is represented in a number of different audit networks, including the Heads of Internal Audit Forum, EU network of audit bodies and the UK Interdepartmental Internal Audit Group. The Director of Internal Audit also attends the Department s Accreditation Review Group and Risk Management Team meetings. Scrutiny DAFM is required by EU Regulations to submit specific information annually to the Commission and to liaise with other Member States in relation to mutual assistance. As in all previous years, deadlines for submission to the Commission of annual programmes, annual reports, quarterly reports on mutual assistance and risk analysis criteria relating to the Scrutiny Regulation have been met. The 2013/14 annual work programme was completed on schedule and it is expected that the 2014/15 programme, which ends on 30 th June 2015, will also be completed on time. The 2013/14 scrutiny audit programme comprised of audits of nine commercial organisations, all of which were carried out by the Unit s Scrutiny Audit Team. The calculated minimum number of scrutinies prescribed by the Regulation for the programme was six. Staffing and Training The Committee continues to monitor closely the staffing resources available to the Unit. The Internal Audit Unit comprised a total of 15 staff at the end of 2014 with a further vacancy being filled in January This is a notable improvement as a number of vacancies had arisen over the previous two years. 15

17 The Committee is pleased to note that the Unit undertakes an on-going programme of training including Continuous Professional Development for relevant qualified staff members. Overall formal training of staff in the Unit in 2014 amounted to 72 staff days. The major part of the 2014 training programme related to internal audit modular courses run by the Institute of Public Administration, IT audit courses, data protection, computer skills and various other relevant courses, including those held by the Institute of Internal Auditors, Association of Chartered Certified Accountants and the Institute of Chartered Accountants. 16

18 7. Priorities for 2015 Each year, the Committee sets out a number of priority issues for its own work programme in addition to its normal functions as outlined in the Charter. The priorities identified for 2015 are: Reviewing the work of the Internal Audit Unit and ensuring that the Unit is sufficiently resourced to carry out an appropriate work programme The Committee will continue to monitor, on a quarterly basis, the work of the Internal Audit Unit to ensure that a comprehensive body of quality audit work is completed. While noting the progress made by the Department in filling the vacancies in the Unit during 2014, the Committee will seek to ensure that the high proportion of new and inexperienced staff assigned to the audit area are given proper training and support to allow them to develop and become effective auditors within the Department. The Committee will continue to focus on the timely implementation by management of audit recommendations. The audit plan for 2015 which has been approved by the Committee has ambitious targets and covers a wide range of areas in a large and diverse Department. The Committee will monitor and also support the Unit in its efforts to deliver this plan. Reviewing the progress of interactions with the EU bodies in relation to the outcome of their audits of the various EU schemes and programmes. The Department is in continuous dialogue with a wide range of EU institutions on audit outcomes and potential disallowances on EU funded programmes. The potential financial correction in relation to the land parcel data associated with the Single Payment Scheme is an on-going issue and the Department is still working on reviews in an effort to convince the European Commission that its proposal is a disproportionate response to the situation. The Committee will expect to be updated regularly on the progress of these discussions and will respond to any request for advice from the Secretary General and the Department as required. The Committee believes that all efforts should be made to minimise the risk of significant corrections being applied in other scheme areas. Particular effort should be made to address the findings set out in the Certifying Body report. 17

19 Monitor the development of appropriate controls in implementation of the revised the CAP arrangements. Implementation of the revised CAP arrangements across both Pillars is one of the main challenges facing the Department in As well as the replacement of the Single Payment Scheme referred to above in Section 4, a range of other schemes, including the new GLAS agri-environmental scheme will be introduced during the year. A draft Rural Development Programme was submitted to the EU Commission for approval in July Following discussions between the Department and the Commission, the GLAS scheme was approved. This 5 year agri-environmental scheme aims to deliver a range of benefits in terms of the rural environment and to address issues of climate change mitigation, water quality and the preservation of habitats and species. The scale and complexity of what needs to be delivered by the Department in 2015 is significant. The focus of the Committee will be to ensure that the appropriate level of attention is given to developing and implementing a robust control framework around all of the schemes and measures to deliver these in a satisfactory manner in order to reduce the likelihood of future sanctions in this area. Reviewing the progress being made in dealing with the issues raised in the report of the Comptroller and Auditor General s report on the 2013 Appropriation Account The Committee met with staff from the Office of the Comptroller and Auditor General at its final meeting in 2014 to discuss the audit of the 2013 Appropriation Account. While the Account was unqualified, the associated management letter contained a number of findings, some of which were similar to findings from earlier years. The audit plan for 2015 contains audits in areas relevant to this focus such as asset management, procurement procedures and a review in the payroll area. 18

20 Focus on the operation of the Risk Management System within the Department The effective operation of a risk management strategy is a key element in managing the challenges faced by an organisation operating at the scale of the Department. A well established risk management system is in place in the Department which was subjected to a review by the Internal Audit Unit in The Department has subsequently implemented a revised approach to identifying and monitoring key risks. The Risk Management Programme will continue to identify and assess the key risks (strategic, operational, financial, reputational) facing the Department in achieving its objectives and to outline measures, at Department and divisional level to minimise such risks. The Committee will monitor the operation of this approach during Bill Cunningham, Chairman Aidan Dunning Brendan Gleeson Finbarr Kelly Leo Martin Dairine Walsh 19