Audit Committee 2010 Annual Report

Department ofAgriculture, Fisheries and Food

Department of

\\ ji Agriculture, yi# Fisheries and Food

A n Roinn

Talmhafochta, Iascaigh agus Bia

April 2011

Audit Committee 2010 Annual Report

Department of Agriculture, Fisheries and Food

Contents

Section 1 Membership o f tlie Audit Committee

Page

2

Section 2 Chairman's Statement 3-4

Section 3 Role of the Audit Committee 5

Section 4 Operation of the Audit Committee 6

Section 5 Audit (Committee Objectives for 2010 and Related Outcomes 7

Decentrahsation

The Integration of Fisheries

The Impact of Budget Cuts on Priorities and Standards o f

Control

Reviewing the work of l A U and the Risk Management Process

Section 6 Audit Environment of the Department 8-9

Section 7 Review o f Internal Audit Unit Work in 2010

Programme of Work

Strucmral Funds

Scrutiny

Staffing and Training

10-11

Section 8 Priorities for 2011 12

1

Section 1: Membersiiip of tiie Audit Committee

The Audi t (x)mmittee o f the Department o f Agricuhure, Fisheries and Food

consists o f six members. Five o f tliese members are external to the Department

itself. The composition of the (Committee at the end of 2010 was as follows:

Ms Helen Nolan, Chairman of the Committee. Ms Nolan is a Chartered

Accountant and is the Group Secretary with Bank of Ireland.

Mr Bill Cunningham. M r Cunningham is a (Tiartered Accountant and is a former

partner o f PricewaterhouseCoopers Ireland.

Ms Grainne McGucldn. M s M c G u c k i n is a Principal Off icer in the Department

of P'inance, Sectoral Pohcy Division. She has responsibihty for the Agriculmre

Vote.

Ms Claire O'Connor. Ms O'Connor is Chief Operating Off icer and Chief Finance

Off icer o f E A i \ Covered Bond Bank pic. She is a former Director of the National

Disabihty Authority, ICCBank pic, and the Sustainable Energy Authoiity of

Ireland.

Mr Paddy O'Shaughnessy. M r O'Shaughnessy is a Principal Off icer m the Off ice

of the Revenue Commissioners, l i e has responsibihty for the administrative budget

o f the Revenue Commissioners.

Mr Martin Heraghty. M r Heraghty is an Assistant Secretary General in the

L^cpartmcnt o f Agriculmre, Fisheries and Food ( D A F F ) with responsibihty for

Livestock Products, Corporate Affairs, Food Safety and State Body Coordination.

Mr Tony Burke, Assistant Secretary General in D A F F with responsibility for

Finance, attends the Committee meetings as an observer.

Mr Mark Quinlan, Higher FLxecutive Off icer , D A F F , is the Secretary of the (Committee.

2

Section 2: Cliairman's Statement

Statement by the Chairman of the Audit Committee of the Department of

Agriculture, Fisheries and Food

It gives me great pleasure to present the Annual Report o f the Audit Committee of

the Department of Agriculmre, Fisheries and Food for the year to 31" December

2010.

It is the role o f the Audit Committee to advise on the operation o f the internal

audit function witltin the Department and to examine and monitor the

implementation of the Department's risk management strategy.

In line with those of most other (jovernment Departments the Audi t (Committee

Charter clearly states that the Audit (Committee has no executive role and is not

responsible for any executive functions. It therefore does not have any

responsibility or involvement in the review and approval (on behalf of

management) of annual financial statements (either national or F U ) . The Audit

Committee conducted a self-assessment performance review during the year, using

a template pubhshed by the Off ice o f the Auditor-General, N e w 'Zealand, for self

assessment by public sector audit committees and was satisfied that the role as set

out in the Audit Committee Charter was fulfilled.

The Audi t Committee is satisfied with the controls operated by the Department ot

Agriculture, Fisheries and Food. A n effective Internal vVudit Unit supports the

management o f the Department's programmes. I am satisfied that the Internal

Audit Uni t is making a significant contribution to the evaluation and improvement

of controls in the Department.

The Certifying Body in its latest report has issued an unqualified audit opinion m

relation to the administration of the F A G F and E A F R D funds, with no major

findings. This demonstrates that the financial controls within the Department arc

operating in a generally satisfactory manner. The Committee notes that the

Certifying Body found weaknesses in the control environment in the Farm

Improvement Scheme. The Department has put in place a comprehensive action

plan to address die issues raised.

The Audit Comntittee set out a number o f priorities for its work in 2010. These

included:

• Reviewing the management o f budget cuts and the moratoiium on staff

recruitment.

• Monitoring the management o f the risk o f E U disallowances.

• Reviewing the work of the Internal Audit Unit including the implementation

o f the recommendations o f the External Quahty Assessment

The Audi t Committee addressed these objectives during the year and Section 5 of

this report outhnes the outcomes in relation to these priorities.

3

The Audi t Committee continues to receive presentations f rom various key units o f

the Department at its meetings. These presentations form a verv-̂ important

contribution to the Committee's work and assist appropriate oversight o f best

practice throughout the Department.

I would like to pay tribute to my fellow members o f the Audit Committee. T'heir

commitment, knowledge and expert advice were essential to the effective discharge

of the Audit Committee's functions during the course o f the year.

lkA:^_A^:^!^

Flelen Nolan

Chairman

^iO''" A p r i l 2011

4

Section 3: Role of the Audit Committee

The Audit Committee was estabhslied to advise the Secretary General and the

Minister on the internal audit pohcies and the management o f risk, appropriate to

the functioning of the Department of Agriculmre, Fisheries and Food. T'he Charter

o f the Audit Committee sets out its role and terms of reference. The Committee

has two main roles, namely:

• T o advise on the operation of the internal audit function within the

Department.

• T o examine and monitor die implementation of the Department's risk

management strategy.

The Committee has responsibihty for the following:

• Approving, and periodically reviewing, a charter for Internal Audit wliich

clearly defines the purpose, authority, roles, responsibihties and reporting

relationships o f the Audit Committee, Internal Audit and management of

the Department.

• Reviewing and advising on the proposed programme of work for Internal

iVudit within the Department.

• Monitoring the implementabon of the audit plan.

• Assessing the results of completed internal audit reports, evaluating the

effectiveness o f internal control and advising the Secretary General and the

Minister o f its conclusions thereon.

• Advis ing the Secretary General and the Minister on the effectiveness of the

Internal Audit function.

• Requesting special reports f rom 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 sldlls arc available for the

internal audit function of the Department and making recommendations on

the allocation o f resources where it considers this desirable.

• T'ostering the development of best practice in the internal audit function.

• Monitoring the implementation o f the Department's risk management

strategy and advising the Secretary General and the Alinister on the

effectiveness o f this process.

The Audit Committee has no executive role and accordingly is not responsible for

any executive functions. It has no role in the detailed audit process or in the signing

o f f o f audit reports. Neither does it have any responsibihty or involvement in the

review and approval (on behalf of management) o f annual financial statements

(either national or E U ) .

5

Section 4: Operation of the Audit Committee

The Committee met five times during 2010. The Committee received presentations

during the year in relation to: Departmental response to the dioxin contamination

incident; IT audit activities; IT developments in the Department, the Veterinary

and Agriculmral inspectorate audit units; Departmental staffing and local office

reorganisation; the agri-environment schemes; the corporate procurement plan;

Fisheries issues; and E U audit developments. Representatives f rom the Certifying

Body and the Off ice o f the Comptroller and Auditor General also made

presentations to the Committee during the year. These presentations were m

addition to the quarterly reports, plans and other information received from the

Internal Audit Unit.

In November the Comntittee and the Internal Audit Uni t joindy hosted an Audit

Seminar. T'he seminar was attended by Internal Audit Unit staff, members of the

Committee, Departmental management and auditors f rom other Government

Departments. A range of topics was covered at the sentinar, including presentations

on the Code of Practice for Governance of State Bodies, Audi t Committees in the

Public Sector, an update on the 2007-2013 Rural Development Programme and an

oudine o f the Food Flarvest 2020 proposals.

The Committee appreciates the continued support that it receives f rom both the

Minister and the Secretary General.

6

Section 5: Audit Committee Objectives for 2010 and Related Outcomes

The 2009 Annual Report o f the Committee set out a number o f priorities for hs

work in 2010. T'hese were:

• Reviewing the management o f budget cuts and the moratorium on staff

recruitment.

• Monitoring the management o f the risk o f B U disallowances.

• Reviewing the work of the Internal Audit Uni t including the implementation

of the recommendations o f the External Quahty Assessmeni.

Revievidng the management of budget cuts and the moratorium on staff

recruitment

The Committee was updated on progress in relation to the local office

reorganisation plan agreed in 2009, which wiU reduce the number of local

Departmental offices to sixteen and lead to a reduction of four hundred staff T'he

Committee also noted that recent grant schemes introduced by the Department

have clearly defined objectives and target groups. Applications for grant aid are

evaluated against objective criteria to ensure that optimum value for money is

obtained f rom the grant aid available. T'he Committee discussed the effect the

moratorium on staff recmitment is having on Departmental activities and the risks

that are arising as a consequence of vacancies not being filled T'he Committee wiU

receive further updates on developments in relation to these areas during the

current year.

Monitoring the management of the risk ofEU disallowances

The Committee received a number o f presentations on Departmental responses to

recent E U audits and how the Department is ensuring that the risk o f E U

disallowances is minimised. The Committee noted the increased frequency and

rigour in E U audits which is evidenced by an increase in disallowances in a number

o f Member States in recent years. T'he Committee wil l continue to review how the

Department is addressing the risks in this area.

Reviewing the work of the Internal Audit Unit including the implementation of the recommendations of the Extemal Quality Assessment

The Committee closely monitored the work of the Internal Audit Unit. The

Committee continues to be satisfied with the quahty of work carried out by the

Unit. The Committee received updates on the implementation of the

recommendations contained in the external quaht)' assessment that was conducted

in 2009. The (Committee monitored the follow-up of issues that arose f rom the

internal audit activity and requested management attendance at meetings and

additional audits where it considered this necessary.

T'he Committee is satisfied that it has achieved the objectives that it set itself for the year.

7

Section 6: Audit Environment of tlie Department

The Department spends approximately €3 billion each year, a significant

proportion o f wliich 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, D A F F has five sources

of independent external audit and it is also subject to scrutiny by the E U ' s Food

and Veterinary Off ice in relation to animal and pubhc health and the animal welfare

aspects o f its work. The number o f audit bodies arises primarily f rom the large

percentage o f the Department's expendimre that is funded by the FLU. The role of

these external auditors is oudined in the following paragraphs:

Tbe Comptroller & Auditor General

The Comptroller & Auditor General has a full time staff presence based in the

Department, who audit all Departmental expenditure. The Comptroller & Auditor

General reports annually to the Pubhc Accounts Committee on findings arising

f rom Itis audits. Tl ie primary responsibihty o f the Comptroller & Audi tor General

is in relation to national expendimre.

The Certifying Body

F^U Regulations require that an audit certificate and a report on the internal

controls o f D y \ F F from an independent 'Certifying Body' must accompany tiic

Annual Accounts that are submitted to the K\J Commission. Deioitte were re­

appointed as Certifying Body in 2010 following a pubhc tendering process.

The Court of Auditors

Tlie Court of Auditors is required to give a statement of assurance (similar to a

certificate given by the Comptroller and yVuditor General) on the reliabilit)^ o f the

European Communities' accounts and die legahty and regulanty o f the transactions

underlying those accounts.

OLAF (EU Anti-Fraud Office)

O L A F is the Imropean Anti-Fraud Off ice . The Off ice has responsibihty for

conducting administrative anti-fraud investigations in all member states and also

outside the F^U. Tlie Department co-operates fully with O L A F and assists in any

missions that this body undertakes in Ireland.

Commission Audit Services

Audit Services f rom the E U Commission also carry out a number o f audits annually on the Department's expendimre of E U funded schemes and the related controls.

8

A n indication o f tlie extent of audit coverage during the year is shown in the

following table.

Approximate Audit Coverage in Person Days

Audit Body 2010 2009 2008

Comptroller & Auditor General 347 404 358

Certifying Body 678 585 569

Court o f Auditors - mission days in Ireland 9 11 41

E U Commission - mission days in Ireland 13 20 27

Internal Audit 2,156 2,584 2,386

T O T A L 3,203 3,604 3,381

9

Section 7: Review of Intemal Audit Unit work in 2010

Programme of work

The 2010 Internal Audit Plan was agreed both by the Audit Committee and by the

Department's Management Advisory Committee. Progress in unplemenring 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 large body of audit work in 2010, with twenty

one audit reports finahsed and issued during the year.

T'he Internal Audit Unit is represented in a number of different audit networks,

including the Heads of Internal Audi t I 'omm, E U network of audit bodies and the

U K Interdepartmental Internal Audit Group. The Director of Internal Audit also

attends the Department's Accreditation Review Group and Risk Management

Committee meetings.

Structural Funds

The 2010 Strucmral Fund audit plan focused on completing the 5% sample checks

required under Regulation 438/01 and Closure o f die 2000-2006 Round of

Strucmral Funds. The Strucmral P'unds Control Uni t is a dedicated section within

l A U , wltich carries out this work for the on-farm investment schemes. Forestry

Guidance schemes and Fisheries Guidance schemes managed within D A F F . In the

case o f the Leader and P E A C E programmes this task has been outsourced to the

internal audit functions o f the Department o f Community, Equaht}^ and Gaeltacht

Affairs, the Department o f Environment, Heritage and Local Government as well

as the S E U P B (Special E U Programmes Body). A l l checks were completed in 2010,

the Leader programme was closed in March 2010 and the other programmes in

September. In total, seven programmes were closed in 2010, all with unquahfied

opinions, in hne with regulatory requirements.

Scrutiny

D A F F is required by E U Regulations to submit specific information annually to the

Commission and to haise with other Member States in relation to mumal

assistance. As in all previous years, deadhnes for submission to the Commission of

annual programmes, annual reports, quarterly reports on mumal assistance and risk

analysis criteria relating to die Scmtiny Regulation have been met. The 2009/10

annual work programme was completed on schedule and it is expected that the

2010/11 programme, which ends on 30'^ June 2011, wil l also be completed on

time.

The 2009/10 scmtiny audit programme comprised of scmtiny audits o f twenty

commercial organisations, which were carried out by both Department and

Revenue teams. The calculated minimum number o f scmtinies prescribed by the

Regulation for the programme was thirteen.

10

Revenue teams. The calculated minimum number o f scmtinies prescribed by die

Regulation for the programme was tlhrteen.

Close co-operation with other Member States and with the CCommission services

continued during the year under mumal assistance arrangements provided for in

Article 7 o f Regulation 485/08. Five mumal assistance requests were received from

other Member States and Ireland raised seven requests with other Member States

dunng 2010.

StafBng and Training

The Comirtittee continues to closely monitor the staffing resources available to the

Unit, particularly in relation to the staff changes that will occur as a result o f the

decentrahsation process. The Internal Audit Unit comprised a total of eighteen

staff at the end of 2010.

The (Committee is pleased to note that the Unit continues to undertake a

substantial level o f training. Formal training of staff in the Unit in 2010 amounted

to 112 staff days. T he major part o f the 2010 training programme related to internal

audit modular courses run by the Instimte o f Pubhc Adnunistration, IT audh

courses, computer skills and various other relevant courses, including those held by

the Institute o f Internal Auditors, Association of Chartered Certified Accountants

and the Instimte o f (Chartered Accountants.

11

Section 8: Priorities for 2011

Each year, the Committee sets out a number o f priority issues for its own worl?:

programme in addition to its normal functions as oudined in the Charter. The

prionties identified for 2011 are set out below.

Reviewing the management of the moratorium on staff recruitment

The moratorium on staff recruitment and ongoing budget cuts wil l continue to

impact on the work of the Department. Over the past two years, there has been a

large reduction in the number o f senior staff within the Department. The

Committee will continue to monitor how the Department manages this issue and

addresses any consequential control risks that arise.

Monitoring the management of the risk ofEU disallowances

The Committee is conscious o f the increased level o f E U disallowances, following

audits, across Member States in recent years. The Committee wil l continue to

review how the Department is ensuring that the risk o f E U disallowances is

miitimised and that its good record in this regard is maintained.

Monitoring the management of debtors

The Committee has noted that the results o f external and internal audit reports

have drawn attention to the need for the Department to improve its debt

management procedures. The Department has undertaken to implement revised

debt management pohcies and stmcmres in 2011 and the Committee will monitor

this process during the year.

Reviewing the work of the Internal Audit Unit and monitoring the

implementation of the Department's risk management strategy

The Committee will continue to monitor, on a quarterly basis, the work of the

Internal Audit Unit to ensure that a comprehensive body o f quaht)^ audit work is

completed. The Department's risk management strategy will also be momtored to

ensure that it is appropriate and that all risks identified are addressed in a suitable

manner.

Helen Nolan , Chairman Bi l l Cunninghar

/ Martin Heragnt}'

Ckainne M c G u c l d n Claire O 'Connor Paddy O'Shaughnessy

12