SOUTH EASTERN REGIONAL COLLEGE
Governing Body – Audit Committee
Minutes of the meeting of the Governing Body Audit Committee held on Tuesday 18th November
2014 at 6 p.m. in the Bangor Campus.
1.
Attendance and Apologies
Present: Mr D Lamb, Ms L Martin, Mr G Hetherington, Mr A Henry
In attendance: Mr K Webb (Principal), Dr R. Davison (Chair of the Governing Body), Mr T.
Keating (Director of Corporate and Economic Development), Mr T. Martin (Head of Finance), Ms
D Smyth (Secretary to the Governing Body), Ms M. McAleer (DEL), Mr R. Ross (NIAO), Mr A.
O’Brien (KPMG), Ms M. Magennis & Ms L Kelly (Grant Thornton)
Apologies: Mr S. Gallaher, Mr N. Bodger.
In the Chair: Mr D. Lamb.
The Chair welcomed everyone to the meeting and extended a particular welcome to Ms
Magennis and Ms Kelly who were attending their first meeting of the Audit Committee.
2.
Declarations of conflicts of interest
The Chairman asked if any member had an actual, potential or perceived conflict of interest with
any item on the agenda. Mr O’Brien declared an interest in item11. There were no other
declarations of conflicts of interest.
3.
Minutes of the meeting held on 16th September 2014
Mr Hetherington proposed the adoption of the minutes as a true record and Mr Henry seconded
with the following amendments:
10.1 had an incorrect title; also under 10.1 “financial position in 2013/14” should be “2012/13”;
“indicted” should be “indicated”. The Head of Finance suggested an alternative wording under
item 13. “The main benefits of being a charity would be non-payment of rates and corporation
tax” should be replaced with “The main benefits of being a charity included non-payment of
corporation tax and could potentially lead to zero or reduced rates bills. However, the payment
of rates was a statutory requirement for the FE sector”.
4.
Matters arising
4.1 Registration of College Charitable Status
The Head of Finance said that the registration had been lodged with the Charity Commission by
the deadline of 30th September. The Charity Commission had indicated that it would revert back
to the College within a three month period.
5.
Chairman’s Business
There were no items to be taken.
6.
Correspondence:
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There were no items to be taken.
7.
7.1 Presentation of the Annual Report and Financial Statements for the year ended
31st July 2014
The Head of Finance said the draft Financial Statements had just been received the previous day
from the Northern Ireland Audit Office (NIAO) and there were now a few changes from the
information contained in the cover sheet. He continued that audit field work had now been
completed and the audit files were with the NIAO. He said that the final version of the Report
To Those Charged With Governance had not yet been issued, but the draft version recorded that
the financial reporting and accounting of the College appeared to be of a high standard and the
financial statements represented an effective and transparent reflection of the College’s affairs,
and the financial statements were free from misstatements. The Head of Finance continued that
there was initially one priority 1 issue, which had been downgraded to a priority 2 issue. This
was a residual issue regarding the pay remit approval process and came into this year’s accounts
as well as the previous year because of the difference in financial years between DEL and SERC.
He said a second priority 2 issue was in relation to funding and both these issues were sector
wide issues.
The Head of Finance continued that the preparation of the financial statements commenced with
the issue of the Accounts direction which was issued by DEL. He continued that year-end
Management Accounts were prepared by the Finance team and reviewed by the College
Management Team and the Finance & General Purposes Committee at its September meeting.
He said that the Annual Report and Financial Statements were drafted on the basis of the
accounts direction, the Financial Memorandum, and the “Accounting for Further & Higher
Education” SORP. The Head of Finance said that there were three levels of review of the
Financial Statements: Management Accountant, Deputy Head of Finance and the Head of
Finance. A draft was submitted to DEL at the end of September, following a review by the
Finance & General Purposes Committee. The finalised Annual Report and Financial Statements
must be signed off by the Governing Body before submission to DEL by 28th November.
The Head of Finance said that the College recorded a small historic cost deficit of £64k for the
year which was considered to be a break-even result. He continued that there was a
significantly reduced level of income from tuition fees, Steps to Work and TfS income which was
offset by a £918k increase in other grant income. He said that staff costs were up but this was
linked to the increase in volume of employer engagement activity and income. He added that
the figures included costs of £193k as a result of the Pension Auto-Enrolment Programme.
The Head of Finance said that DEL had been informed at the end of Quarter 3 that an historic
cost deficit of £164k was anticipated. The primary factor which had created the positive
variance was the disposal of surplus land at Castlewellan Road for £93k more than anticipated.
The Head of Finance continued that the College’s cash reserves at 4.3% were below DEL’s Key
Performance target for the sector of between 5% and 10% and the College’s focus would be to
build cash reserves.
7.2 Presentation of the Report To Those Charged With Governance
Ms Kelly said that there had been a change in the management team from Grant Thornton as Mr
Bennett had left the company. She said Ms Magennis would take members through the draft
report and commented that it was a very clean audit, with no issues, which was a testament to
the work of the Head of Finance and his team.
Ms Magennis drew members’ attention to p1 where the recommendation to the Comptroller and
Auditor General would be that he should certify the 2013-14 financial statements with an
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unqualified audit opinion. On p2, she said that no significant audit adjustments had been made
and the financial statements were free from misstatements.
Ms Magennis then reported on the significant risks:
Risk 1 – Employee remuneration. She commented that they were reasonably assured that the
wages and salaries cost in the financial statements were materially correct.
Risk 2 – Fixed Assets. Ms Magennis said that an indexation adjustment was processed by the
College at 31st July 2014, based on the indices provided by Land and Property Services. She
continued that the indices saw an uplift in the value of buildings of 12.66%. The effect of these
adjustments on the net book value of the College’s fixed asset base was an increase of £13.3m.
Risk 3 – Procurement. Ms Magennis said that, based on the work performed, it appeared that
the procurement guidelines were being correctly adhered to by the College.
Risk 4 – Regularity of Transactions. Ms Magennis commented that they had reviewed the
minutes of the Governing Body and its Committees throughout the year to ensure that significant
or unusual transactions were reviewed by those charged with governance.
Risk 5 – Management override of controls. Ms Magennis said that no issues were identified from
the audit work carried out in this area.
Risk 6 – Income – risk of fraud through revenue recognition. Ms Magennis commented that they
did not identify any issues in relation to income received during the year.
In relation to the audit findings on p9, Mr Ross said that although the pay remit issue also
impacted on this financial year, it had been addressed in the previous financial statements and
would not result in a qualification of the accounts. He said that there would be a paragraph
outlining the issue, but there would be an unqualified opinion.
Ms Magennis said that on p11 the total unapproved amount as a result of the pay remit issue
was £311,010. She said that this had been classed as a priority 2 issue and the management
response had confirmed that processes were in place to avoid a recurrence of this issue and the
College had actively participated in the FE sector pay remit approval process which is coordinated by Colleges NI.
Ms Magennis continued that there was a second priority 2 issue which was in relation to funding
in the current economic climate as there was uncertainty over funding levels. The
recommendation was that College management continued to monitor the income and
expenditure of the College to ensure that the forecast breakeven result would be achieved. She
said that the cash position at the end of the 2014 year was £2.01m which represented 4.3% of
total income. She asked members to note that £1.7m of this balance related to a cash advance
from the Department which would be repaid by 31 March 2015. She commented that the cash
position at the year-end was outside the Department’s target range of 5% - 10%.
Ms Magennis said management’s response was on p13 and focussed on the substantial cash
outflows associated with the College’s PPP contracts. It was noted that the College had met its
historic cost break-even targets in four of the last five years, but cash reserves had declined
significantly. The College paid £8.46m under its contractual obligations in 13/14 and received
£5.9m back in PPP funding from DEL. This represented a net cash outflow of £2.6m in the
13/14 year. She continued that the technical accounting of PPP meant that approximately £1m
of SERC’s cash outflows did not go through the Income and Expenditure account, but were only
visible as a reduction in the PPP creditor on the balance sheet. This meant that the College
essentially had £1m of “hidden” expenditure. She commented that this “hidden” £1m was
included in the College’s NDPB forecasting returns to DEL, which meant that DEL had the budget
to cover it.
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Ms Magennis continued by saying that the issue of how PPP cash flows were reflected in SERC’s
actual cash drawn down from DEL, rather than the College’s ability to meet its historic cost
break-even targets (or indeed remain within its NDPB budget), is at the heart of SERC’s ability to
maintain sufficient operational cash reserves. She noted that these issues were currently being
discussed with DEL with a view to finding a solution.
The Chair asked if members were content to recommend approval of the Annual Report and
Financial Statements for the year ended 31st July 2014 to the Governing Body. Mr Hetherington
so proposed and Mr Henry seconded.
7.3 Audit Committee Annual Report 13/14
The Chair said that a draft report had been circulated to members but several sections needed
completion following the receipt of the Financial Statements and the Report To Those Charged
With Governance.
The Chair commented on the Internal Audit Reviews for the 13/14 year stating that the
achievement of two satisfactory assurance ratings, four substantial ratings and an overall
substantial assurance rating was an excellent result. He said that the work done during the year
to achieve such a positive result for the additional review Monitoring Performance Against
Budget had been recognised by both the Finance and General Purposes Committee and the Audit
Committee. He said that the Principal and the Senior Management team had done a magnificent
job during the year to achieve this result. He asked if members were content with the Audit
Committee Report which would be circulated to the Governing Body. Mr Henry so proposed and
Mr Hetherington seconded.
The Chair continued that RTTCWG was a first class result. He said he would specifically like to
record the Committee’s thanks to the Head of Finance and his team. He said the renewed focus
on the Integrated Monthly Performance Management System (IMPMS) had paid dividends. He
said that against the backdrop of trying to ensure a break-even result it was a testament to the
Finance Team that processes and controls had not slipped. The Principal said that, as
Accounting Officer, he wished to echo the comments of the Chair. He wished to record his
thanks to the budget holders who had played a significant role in delivering a break-even
budget.
8.
Risk Management Report
The Director of Corporate and Economic Development reported on the risks as follows:
Risk R074 – Managing the Financial viability of the College, he reported that the break-even
result for 14/15 remained on target.
Risk R075 – Failure to manage the level of sickness absence within the College, he reported that
the College would be procuring a Healthcare Scheme for staff in the New Year.
Risk R076 – Management of the remainder of Steps to Work, he reported that this continued to
be managed.
R077 – Ability to manage impact of financial cuts, he reported that the FE sector had submitted
a modelling exercise paper to DEL.
R078 – Ability to manage the number of enrolments, he reported that applications would be
opened earlier in 14/15.
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R079 – Failure to introduce and manage the Steps to Success contract, he reported that there
were a number of new staff in place. He added that the volume of referrals was higher than
expected
The Director of Corporate and Economic Development concluded by saying that there were now
six active risks, which were all category A. No new risks had been identified at the recent Risk
Management meeting and all DFP guidance had been considered.
Mr Ross commented that the sickness absence percentage figures did not mean anything and
said that average days absent would be more easily understood. The Principal replied that there
were many part-time staff and the lecturers’ contract was in annualised hours, not days. He
added that using a percentage figure was a method of benchmarking figures across the sector.
9.
Internal Audit Reports:
9.1 Progress Against Audit Plan 14/15
Mr O’Brien said that no Internal Audit Reviews had taken place since the last meeting and
highlighted the reviews which would take place over the coming months.
10.
Policies for Approval
There are no policies to be considered.
11.
NIFE Internal Audit Contract Extension
Mr O’Brien left the meeting. The Head of Finance said that KPMG had been awarded the sectorwide contract for the period 1st August 2012 – 31st July 2015 and this had been ratified by the
Audit Committee. The three year contract contained the option of two, one-year extensions. The
daily rate agreed for SERC at that time was £301 (ex VAT) with an agreed annual uplift of 3%.
For 15/16 this would be £329 and for 16/17 would be £339. Audit Committee members agreed
to the rate and the extension of the contract for two years on the proposal of Mr Hetherington
seconded by Ms Martin.
12.
Any other notified business
13.
Date and time of next meeting
The next meeting will be held on Tuesday 20th January 2015 at 6.00 pm in the Lisburn Campus.
There being no further business, the meeting ended at 7 p.m. The Chair thanked everyone for
their attendance and contribution.
Signed
…………………………………………… (Chairman)
Date
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