1. #CPACONGRESS B2 – Public Sector Audit Committees: What is all the fuss about? Jenny Morison FCA Director – Morison Consulting Pty Limited Thursday 20 November 2014 2.10pm – 3.00pm

2. #CPACONGRESS Public Sector Audit Committees: What is all the fuss about? Introduction: History of Commonwealth Public Sector audit committees Membership and Audit Committee functions The changing role of the independent member What does a high performing Audit Committee look like? Challenges facing Audit Committees

3. #CPACONGRESS History of Commonwealth Public Sector Audit Committees Pre Public Governance, Performance and Accountability Act 2013 Audit Committees- increasing legislative basis: Prescribed by Section 46 of FMA Act 1997- Departments Prescribed by Section 32 (Authorities) and Section 44 (Companies) of the CAC Act 1997. CAC Regulations 1997-focused on membership 1 July 2011 -FMA Regulation 22C- covered membership and 12 functions Supported by ANAO Better Practice Guide -2005 Revised ANAO Better Practice Guide -2011

4. #CPACONGRESS History of Commonwealth Public Sector Audit Committees Public Governance, Performance and Accountability Act 2013 (PGPA) Continued legislative growth- who are we providing assurance to? Prescribed by Section 45 of PGPA and PGPA Rule 2014 Section 17- Corporate and Non-Corporate Commonwealth Entities Prescribed by Section 92 of the PGPA and PGPA Rule 2014 Section 28- Commonwealth Companies Department of Finance Resource Management Guide No 202 JCPAA April 2014 review Revised ANAO Guide Charter – August 2014

5. #CPACONGRESS Membership and Audit Committee functions- PGPA Rule Section 17 Membership – very prescriptive - 3 persons - post 1 July 2015-majority of members “independent” - not CFO, CEO or head of the accountable authority +

6. #CPACONGRESS Membership and Audit Committee functions- PGPA Rule Section 17 Functions- reduced to four from previous 12 under FMA Reg 22 C - financial reporting – refer PGPA Section 42 - performance reporting- refer PGPA Section 39 - system of risk oversight and management- refer PGPA Act Section 16, PGPA Rule Section 10 (fraud) and Commonwealth Risk Management Policy - system of internal control- refer PGPA Act Section 16- approaches to compliance and assurance +

7. #CPACONGRESS Changing role of independent members Complying with PGPA Rule Section 17 - options for achieving majority independent membership of the Audit Committee The case for skill based independent members Are independent Chairs the best model? Independent Chairs- how to move to trusted advisor status Challenges +

8. #CPACONGRESS What does a high performing PGPA Audit Committees look like: Ten years ago: -Large numbers of members including CFO -Representational membership, very few independents -Focussed on financial statements and external audit -Internal Audit Functions of varying standards -Internal Audit Reports, little linkage to risk or understanding of role in broader assurance -No visibility of the CEO to the Audit Committee -Poor understanding of AC’s role in governance structure +

9. #CPACONGRESS What does a high performing PGPA Audit Committees look like: Today: -Smaller committees (may reverse with PGPA) with blend of senior executive/ solid independent members, solid observer attendance -Increased focus on assurance, risk removed from Committee name for clarity of functions -CEOs attend ACs who in turn expect strong tone from the top to support AC activities -AC’s role in governance structure better understood and respected +

10. #CPACONGRESS What does a high performing PGPA Audit Committees look like: Today (cont’d): -Internal Audit Functions have matured, blended or outsourced internal audit functions. New providers have entered the market -Internal Audit Reports, better linkage to risk, broader assurance and ANAO activities. Focus of audit activity on second, rather than first line of defence assurance activities. -Use of AC sub-committees to explore areas in depth eg Financial Statements and IT +

11. #CPACONGRESS What does a high performing PGPA Audit Committees look like; In response to PGPA: Expect “strong tone from the top” to support AC endeavours Recalibrating AC Charters and work-plans- to reflect priorities of the entity not a continuation of old FMA task based Charters Membership and activities of the Committee are totally focussed on providing assurance to the accountable authority, not other interested parties A maturing of the relationship with the ANAO in regard to AC dialogue on Performance Audits Taking a leadership position on assurance, repositioning internal audit to be forward facing +

12. #CPACONGRESS Challenges facing Audit Committees + Still a challenge for Chief Internal Auditors to be at a senior enough level to be able to influence Continuing to protect the internal audit budgets in a fiscally tight environment Length of time to undertake audits- KPI 20 weeks often exceeded Getting the right internal audit provider Role in embedding risk management with entities- a challenge

13. #CPACONGRESS Questions???? Now let us have a conversation?? Any questions/comments??