Draft TERMS OF REFERENCE AUDIT COMMITTEE Version: 5 Sponsor: Approval authority Chairman of the Audit Committee Board of Directors Date of approval: Date of Issue: Date of next review: Page 1 of 7
AUDIT COMMITTEE Terms of Reference These Terms of Reference are used as evidence for: Care Quality Commission Standard Outcomes: NHSLA Risk Management Standards for Acute Trusts: NHSLA CNST Maternity Clinical Risk Management Standards: Other (please specify): 1. Accountability 1.1 The board resolves to establish a committee to be known as the Audit Committee. 1.2 The committee is a non executive committee accountable to the board and has no executive powers other than those specifically delegated in these terms of reference. It is, however, authorised by the board to investigate any activity within the Trust and all employees are directed to co operate with any and all requests it makes. 1.3 The committee is authorised by the board to obtain outside legal or other independent professional advice and to secure the attendance of outsiders with relevant experience and expertise if it considers this necessary. 2. Purpose 2.1 The primary role of the Audit Committee is to conclude upon the adequacy and effective operation of the organisation s overall internal control system. In addition it is responsible for providing assurance to the Board of Directors relation to the financial systems and controls of the organisation. 3. Membership 3.1 The Committee shall be appointed by the board from amongst the non executive directors of the Trust and shall consist of four members, at least one of whom shall have substantial financial expertise. 3.2 One of the members will be appointed Chairman of the committee by the board to sit for three years. In the absence of the Audit Committee Chairman, the members attending shall appoint one of their number to Chair the meeting. 3.3 The Chairman of the Trust shall not be a member of the committee. Page 2 of 7
3.4 Members of the committee will normally be required to attend at least one half of the meetings held each year; any member failing that requirement will continue to be a member only at the discretion of the Chairman of the committee. 3.5 The Audit Committee Meetings will also be attended by: Director of Finance External Audit Internal Audit Local Counter Fraud Specialists 4. A Quorum 4.1 A quorum shall be three two members. 5. Procedures 5.1 The Director of Finance and appropriate internal and external audit representatives shall normally attend meetings. Additionally, at least once a year the committee will meet privately with the external and internal auditors to learn whether they have encountered any resistance to the proper discharge of their duties or become aware of any conduct capable of bringing the Trust into disrepute. Such meetings will not normally be minuted but will be the subject, at least initially, of an oral report to the Chief Executive or Chairman or governors as appropriate. 5.2 The Chairman of the Trust will be invited to attend for discussion of the annual report and published financial statements and may request attendance at other committee meetings as appropriate properly to discharge the duties of a Trust Chairman. 5.3 The Chief Executive and other executive directors will be invited to attend when the committee is discussing areas of risk or operation that are the responsibility of that director. In particular, the Chief Executive will be invited to attend discussions involving; the Trust s statement of internal control internal audit reports external audit reports, and the annual report and published financial statements 5.4 The committee shall appoint a secretary, who will normally be the Trust secretary, to convene meetings, attend to take minutes, advise the committee on pertinent areas and, generally, provide the support the Chairman and committee members require for the proper discharge of their obligations. The secretary shall be responsible for ensuring that all board members receive minutes prior to the board meeting next after the committee meeting to which they relate. Because of the relative infrequency of meetings of the Audit Committee, these minutes will normally be in draft form. (REPLACED BY 6.16) Page 3 of 7
5.5 Any member of staff may raise an issue with the Chairman of the committee, normally by written submission. The Chairman will decide whether the issue shall be included in the committee s business and whether the individual raising the matter may be invited to attend. 6. Frequency of Meetings 6.1 Meetings shall be held not less than three four times a year. Further meetings may be requested by the Trust Chairman, any other director, the external auditor and the head of internal audit. 7. Duties and Responsibilities Governance, risk management and internal control 7.1 The committee shall review the establishment and maintenance of an effective system of integrated governance across the whole of the organisation s activities (both clinical and non clinical), that supports the achievement of the organisation s objectives. 7.2 In particular, the committee will review the adequacy of: all risk and control related disclosure statements (in particular the statement on internal control and declarations of compliance with the Standards for Better Health until April 2010 and declarations of compliance with the Essential Standards of Quality and Safety) together with any accompanying head of internal audit statement, external audit opinion or other appropriate independent assurances, prior to endorsement by the board the underlying assurance processes that indicate the degree of the achievement of corporate objectives, the effectiveness of the management of principal risks and the appropriateness of the above disclosure statements the policies for ensuring compliance with relevant regulatory, legal and code of conduct requirements, and the policies and procedures for all work related to fraud and corruption as set out in Secretary of State Directions and as required by the counter fraud and security management service 7.3 In carrying out this work the committee will primarily utilise the work of internal audit, external audit and other assurance functions, but will not be limited to these audit functions. It will also seek reports and assurances from directors and managers as appropriate, concentrating on the overarching systems of integrated governance, risk management and internal control, together with indicators of their effectiveness. This will be evidenced through the committee s use of an effective Board Assurance Framework (BAF) to guide its work and that of the audit and assurance functions that report to it. 7.4 The committee will attach especial importance to the monitoring and management of risks seen by the board to be fundamental to the strategy and sustainability of the Trust. They are likely to be ten to fifteen in number and to be chosen because of the high risk rating they attract or have the potential to attract. These will be subject to Page 4 of 7
scrutiny and reporting at every meeting of the committee the first meeting considering audit plan and in a mid year review. Internal Audit 7.5 The committee shall ensure that there is an effective internal audit function established by management that meets mandatory NHS internal audit standards and provides appropriate independent assurance to the Audit Committee, chief executive and board. This will be achieved by: consideration of the provision of the internal audit service, the cost of the audit and any questions of resignation and dismissal review and approval of the internal audit strategy, operational plan and more detailed programme of work, ensuring that this is consistent with the audit needs of the organisation as identified in the assurance framework consideration of the major findings of internal audit work (and management s response), and ensuring co ordination between the Internal and external auditors to optimise audit resources ensuring that the internal audit function is adequately resourced and has appropriate standing within the organisation, and annual review of the effectiveness of internal audit External Audit 7.6 The committee shall: review and monitor the external auditor s independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK professional and regulatory requirements develop and implement policy on the engagement of the external auditor to supply non audit services, taking into account relevant ethical guidance regarding the provision of non audit services by the external audit firm, and make recommendations to the board of governors in relation to the appointment, re appointment and removal of the external auditor and to approve the remuneration and terms of engagement. 7.7 Further, the committee shall review the work and findings of the external auditor appointed by the governors and consider the implications and management s responses to their work. This will be achieved by: discussion and agreement with the external auditor, before the audit commences, of the nature and scope of the audit as set out in the annual plan, and ensure coordination, as appropriate, with other external auditors in the local health economy discussion with the external auditors of their local evaluation of audit risks and assessment of the PCT and associated impact on the audit fee, and reviewing all external audit reports, including agreement of the annual audit letter, before submission to the board and any work carried outside the annual audit plan, together with the appropriateness of management responses Page 5 of 7
Other Assurance Functions Annex A 7.8 The Audit Committee shall review the findings of other significant assurance functions, both internal and external to the organisation, and consider the implications to the governance of the organisation. 7.9 These will include, but will not be limited to, any reviews by Department of Health arms length bodies or regulators/inspectors (e.g. Audit Committee, Monitor, Care Quality Commission, NHS litigation authority, etc.), professional bodies with responsibility for the performance of staff or functions (e.g. royal colleges, accreditation bodies, etc.) 7.10 In addition, the committee will review the work of other committees within the organisation, whose work can provide relevant assurance to the Audit Committee s own scope of work. This will particularly include the Governance Committee and its management of the Trust s risk register. In reviewing the work of the Governance Committee, and matters to do with clinical risk management, the Audit Committee will wish to satisfy itself as to the assurance that can be gained from the clinical audit function. Further, it will review the work of committees which the board might determine from time to time shall be accountable to it. 7.11 The committee will also: review proposed changes to standing orders and standing financial instructions examine the circumstances associated with each occasion when standing orders are waived or reported to the Audit Committee as being contravened, and monitor the implementation of policy on standards of business conduct for members and staff (the codes of conduct and accountability). This will include the arrangements by which staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting and control, clinical quality, patient safety or other matters. Management 7.12 The Committee shall request and review reports and positive assurances from directors and managers on the overall arrangements for governance, risk management and internal control. They may also request specific reports from individual functions within the organisation (e.g. clinical audit) as they may be appropriate to the overall arrangements. Financial Reporting 7.13 The Audit Committee shall review and, if thought appropriate, recommend to the board adoption of the annual report and financial statements, focusing particularly on: specific enquiry into the question of whether the Trust keeps proper books of account the integrity of the financial statements the wording in the statement on internal control and other disclosures relevant to the terms of reference of the committee Page 6 of 7
changes in, and compliance with, accounting policies and practices unadjusted mis statements in the financial statements major judgemental areas, and significant adjustments resulting from the audit 7.14 The committee will also ensure that the systems for financial reporting to the board, including those of budgetary control and the preparation of business plans, are subject to review as to completeness and accuracy of the information provided to the board. Trust Board of Directors Reporting Arrangements 7.15 The committee will report annually in writing to the board against each of its major obligations as set out in these terms of reference and will express an opinion on the: fitness for purpose of the assurance framework completeness and embeddedness of risk management in the organisation integration of governance arrangements, and appropriateness of the self assessment against the Standards for Better Health Care Quality Commission appropriateness of the self assessment against the Essential Standards of Quality and Safety related to the Health and Social Care Act 2008 (Regulated Activities) Regulations 2009 and the Care Quality Commission (Registration) Regulations 2009 7.16 The Chair of Audit Committee will provide a written report highlighting the key issues arising from the Committee to the meeting of the Board of Directors that directly follows the Audit Committee. The minutes of the Audit Committee will also be presented to the Board of Directors. 8. Monitoring the effectiveness of the Committee/Group/Forum 8.1 Annually, the committee will assess the processes it has put in place to discharge its duties as outlined in these terms of reference and will implement changes if required. In turn, the Board of Directors Trust board will commission annually a review of these terms of reference to ensure that they draw on best practice and remain fit for purpose. Typically, that review will be carried out by a committee appointed by the board which will give consideration to its work being informed by the Trust s external and internal auditors, by an external assessor from another foundation trust and by an assessor from without the healthcare sector. 8.2 The Committee, supported by the Internal Auditors, will undertake an annual review of its performance against its work plan in order to evaluate the achievement of its duties. The review will assess the effectiveness of the Audit Committee in accordance with the recommendations specified in the NHS Audit Committee Handbook 2005 and the Taking it on Trust, a review of how boards of NHS Trusts and foundation Trusts get their assurance April 2009. This review will inform the Committee s annual report to the Trust Board. Page 7 of 7