Session 5: Risk Management, Assurance and AuditClaire Lea, Friday 7 October 2016, 4pm

My microphone is currently muted

Today’s plan

• Recap and introduction

• Principles and significance of risk management

• Effective risk management systems

• Board of director responsibilities for internal control

• Audit Committee and external audit

• Concluding remarks

Recap on last session

• Definitions of governance

• Complexity and diversity of

stakeholders

• Management vs governance

• NHS Structure & Constitution

• Governance and the Law

• Theoretical frameworks

• Board structure and

committees

• Directors duties and liabilities

• The effective board

• Role of the Chair, Executive

Directors, Non-Executive

Directors and the Company

Secretary

Risk management

Effective risk management can be

likened to that of the survival of a living

organism.

In Darwin's Theory of Evolution many

people interpret this with the phrase

‘the survival of the fittest’

However the most important element

is ‘the capacity of adaptation’.

Effective risk management is therefore

not only a system of processes but it

is also a series of behaviours.

FRC Guidance on risk management, internal control and related business reporting

Snappy title for the latest guidance (2014) on risk management! However, it

introduces a step change –

• New strategic report in corporate sector – require boards to report

annually on their principal risks

• Challenge is to include behavioural and organisational risk

• Risk has a higher profile in the NHS with work of Audit Committee and

the Board Assurance Framework

• Need to consider downside and upside risk

Board’s responsibilities

• Ensuring design/implementation of risk management and internal control

systems that identify risks and enables a robust assessment of the

principal risks;

• Determine the nature/extent of the principal risks faced and risks which

the organisation is willing to take to achieve its strategic objectives

(determining its ‘risk appetite’);

• Ensuring that culture and reward systems have been embedded

throughout the organisation;

• Agreeing how principal risks are managed/mitigated to reduce the

likelihood or impact;

Board’s responsibilities

• Monitoring and reviewing the risk management and internal control

systems, and the management’s process of monitoring and reviewing,

and satisfying itself that they are functioning effectively and that

corrective action is being taken where necessary; and

• Ensuring sound internal and external information and communication

processes and taking responsibility for external communication on risk

management and internal control.

Types of risk

What risks can you name?

Types of risk

• Financial risk

• Operational risk

• Reputational risk

• Behavioural risk

• Third-party or competition risk

• External risks

Risk management system

• Risk registers and risk identification

• Risk evaluation and scoring

• Risk management measures and mitigation

• Risk control and review

Risk management and governance

Internal control systems

• Financial controls

• Operational controls

• Compliance controls

• In-year reports and annual review

• Head of Internal Audit Opinion

Assurance

Performance reporting

• Single Oversight Framework replacing TDA, Monitor and CCG

assurance frameworks

Quality Governance

• CQUINs

• Quality Accounts

• CQC rating

Financial reporting

• Annual report and accounts

• Monthly reporting

• Directors duties and responsibilities – break even and going concern

Assurance statements

• Corporate governance statement

• Annual governance statement

• Board Assurance Framework

• Integrated reporting

The role of audit

• Function and scope of external audit – external scrutiny, true and fair

view, unqualified opinion.

• Independent

• Function and scope of internal audit – independent review of risk

management and internal control processes.

• Directors still responsible for preventing and detecting fraud and for the

information in the annual report and accounts.

Independence of external audit

• Self-interest threats:

• Self-review threat:

• Advocacy threat:

• Familiarity threat:

• Intimidation threat:

• Debate: non-audit work prohibited or restricted

regular rotation of audit firm or audit partner

• How do they protect the independence of the auditors?

Audit Committee

• HFMA Handbook for NHS Audit Committees extends role beyond

financial controls

• Membership is solely non-executive directors

• Chair is not allowed to be a member

• Training, induction and remuneration of members

• Appointment and removal of auditors

• Assessment of independence

• Non-audit work

• Whistleblowing/raising concerns/Freedom to Speak Up

Concluding remarks

• Assurance is a key mechanism for holding management to account.

• It also provides a regular assessment on progress towards an

organisation’s strategic objective.

• Assurance should be forward looking as well as backward looking.

Following this session

• Session slides and content

• Test your knowledge questions from the study guide

• Session 6: Foundation Trusts. Friday 14 October 9:30 am

• Results of Task 1 will be sent via email to you individually on Thursday 13

October by 5pm.

• Further questions

Thank you