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Diversity of thinking

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IN THIS ISSUE:
NEWS
Save the date! 2013 Internal Audit Conference
FEATURES
Anti-money laundering essentials: how internal audit can add value
Why internal audit can be a springboard for your career
Internal audit within charities and the NHS: a comparison
Auditing carbon sustainability
Eight things you need to know as a new head of internal audit
In conversation with a ‘thought leader’
Internal audit within charities and the NHS: a comparison

Khushboo Bajaria shares her experiences of being an internal auditor in both a charity and the NHS – and reveals which area she prefers.


Having worked as an internal auditor for three years my experience is based largely in the National Health Service involving large acute trusts, specialist foundation trusts, strategic health authorities and primary care trusts and charities. It is increasingly important to have internal audit within NHS bodies and charities, especially with the changing landscape and responsibilities within the NHS.

 

In a charity, the trustees are responsible for management and general control. They can come from many backgrounds but have a united interest to create a change for the better. The decision to appoint internal auditors for a charity lies with the trustees and the audit committee. It is not required by statute but is part of good corporate governance.  

 

In a NHS organisation the board is responsible for overseeing internal controls. Internal audit reports to the audit committee. The audit committee will challenge internal audit’s work and hold NHS management to account where internal controls are not effective to meet organisational objectives. 

 

Both the NHS and charities have a number of regulatory bodies and various statutes/guidance as shown below (internal auditors should be familiar with these to ensure they can provide an effective service): 

Charities Commission
The Charities Commission is an independent regulator for charities based in England and Wales. A registered charity based in England and Wales must follow guidance published by the Charities Commission. There are currently about 180,000 charities registered with the Charities Commission. These range from small local community groups to larger charities such as Oxfam and Comic Relief. The Charities Commission uses a risk based framework to regulate the charities. Parliament has given the Commission five statutory objectives: 

  • to increase public trust and confidence in charities
  • to promote awareness and understanding of the operation of the public benefit requirement
  • to promote compliance by charity trustees with their legal obligations in exercising control and management of their charities
  • to promote the effective use of charitable resources
  • to enhance the accountability of charities to donors, beneficiaries and the general public. 

 

HMRC
For tax purposes a charity can be eligible for tax exemptions and reliefs on income and gains and in some cases profits. The charity must complete a tax return or self-assessment depending on whether the charity is set up as a trust or company. Tax exemptions and relief for charities include: 

  • income and corporation tax
  • capital gains tax
  • business rates relief
  • stamp duty land tax
  • generous relief against VATable purchases.

 

Charities Act 2011
The Charities Act 2011 came into effect in March 2012 and replaces Charities Acts 1993, 2002 and 2006 as well as the Recreational Charities Act 1958. It is an Act of Parliament which sets out how charities in England and Wales are registered and regulated. 

The NHS
The NHS was developed with three core principles in 1948 which guided the NHS for more than 60 years. The NHS Constitution, published in March 2011, highlighted seven key principles which are being used to change the structure of the NHS. Going forward the role of internal audit is uncertain but this should be clearer by April 2013.  

There are various governing bodies such as the Department of Health, Care Quality Commission, Monitor, NHS Litigation Authority (NHSLA) and so on. Each NHS organisation follows different rules and regulations. Regulatory bodies such as the NHSLA have a risk management standards framework. If criteria are not met the organisations could lose millions of pounds. There are also NHS Internal Audit Standards which were published by the Department of Health in July 2012.  

Internal audit
Audit plans for both charities and the NHS are risk-based and cover a wide range of financial and non-financial areas. An NHS body requires a board assurance framework (risk register) which covers the high level risks it faces. The audit plan is largely based upon this framework. A charity may or may not have such a document so plans can be developed on the basis of discussions with directors and management.

 

The audit plans for a charity range from one to two years and audits undertaken are performed on a rotational basis, eg finance audits such as accounts payable and accounts receivable may be undertaken every two years. Sector specific audits can cover areas such as Gift Aid, grants making and management and regulations compliance. Other general audits such as HR and payroll would be part of both the audit plan within a charity and an NHS organisation. The number of audit days in a charity is significantly lower than for an NHS organisation.

 

Audit plans for an NHS organisation usually range from one to three years and require approval from the audit committee. Internal audit should attend these audit committees which usually take place around five times a year to present the work they have undertaken. Audits covered can be the standard financial audits, governance, clinical areas and other key business systems.

 

From my experience, the NHS organisations have a robust governance structure with many groups and committees overseeing various arrangements. In a charity, there are fewer committees and managers take a laid back approach. For example, the finance team within an NHS body can be from 20-60 staff with documented policies/procedures for almost everything, whereas a charity may have only 5-10 staff and a lack of documented policies/procedures. A lower number of staff in charities also means that sometimes duties are not strictly segregated.

 

Of course, the risks facing a charity are based around its reputation as donations can be affected by personalities rather than operational or strategic risks. NHS organisations do have reputational risks but the majority are around patient care and quality of its services.

 

In terms of technology, the NHS appears to be adapting more slowly to new technology (non-medical) and is more paper-based therefore less green. The use of technology such as iPads rather than printing off reams of paper for meetings is growing in charities.

  

In my opinion it is much more interesting auditing a charity. They are easier to relate to with a greater amount of public awareness. They are also more approachable, friendly and responsive to audit recommendations.

 

Khushboo Bajaria – senior auditor, internal audit, Parkhill

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