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          MINUTES OF THE AUDIT & RISK MANAGEMENT COMMITTEE MEETING
                               HELD 23rd JUNE 2011


Present      G Casson – Chair (GC), Mrs. L Beaumont (LB), A C S Clarke (ACSC),
             R J Hargreaves (RJH), K C Norton (KCN).
             Attendance: 71.43%

In         Officers: Ms. B Steadman (BS), A C Tyley (ACT)
Attendance Auditors: Mrs. A Buick (AB) – RSM Tenon (from item 23/06/11/9)
                      Ms. K Bellingall (KB) – Grant Thornton
           Clerk: W E Hitchen

23/06/11/1   Apologies
             Members: D P Evison (DPE), Mrs. E McQueen (EMcQ).
             Auditors: Ms. L Randall – RSM Tenon (LR).

23/06/11/2   Declarations of Interest
             None.

23/06/11/3   Minutes of Meeting of 3rd March 2011 (Document A)
             The minutes were approved as a true and accurate record and signed by
             the Chair.

23/06/11/4   Matters Arising (Document B)
             3/03/11/5 Audit Tracking Report
             Reasons for delay added and dates for implementation updated.
              3/03/11/7 Internal Audit Progress Report
             Typographical error – ‘High’ recommendation referred to Payroll not
             Fixed Assets & Inventory.
             3/03/11/12 Appointment of Internal Auditors 2011-14
             RSM Tenon appointed by the Board (7/04/11/8.2)

23/06/11/5   Audit Tracking Report (Document C)
             The Director of Finance told members that the list of outstanding
             recommendations had been reduced to half a page with 7 implemented and
             4 added since the last meeting. Two relating to Disaster Recovery are
             being tackled by the newly appointed Information Technology Services
             Controller.. The remaining three recommendations all involve the Human
             Resources Manager who has been in hospital and will be dealt with as
             soon as she is able to return to work.
             The Chair said members were delighted with the progress and asked that
             members’ best wishes for a speedy recovery be passed to the Human
             Resources Manager.
             Members received and noted the report with pleasure.



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23/06/11/6  Risk Management Report (Document D)
             The Director of Finance referred members to those risks graded ‘red’:
            Risk 5 Failure to achieve budget targets for the College Farm: Based on
            the latest estimate the Senior Leadership Team decided to re classify this
            risk as red as it is looking unlikely the farm will achieve its financial target
            for 2010/11.
            Risk 6 Failure to meet learner responsive recruitment and funding
            targets: As the target is a difficult one to achieve and data processing and
            recruitment is ongoing throughout the year it has been classified as red
            until funding targets have been met. Latest estimates confirm Adult
            Learner Responsive target is likely to be met and additional allocation for
            this area has been received. The current issue is 16-18 headcount being
            behind target.
            KCN asked when this might be achieved and was told it was unlikely to be
            fully recovered.
            Risk 7 Failure to respond to demand from unemployed learners: The Six
            Month Provision (SMP) project is now finished and progress with future
            programmes for the unemployed is at an early stage of development
            Based on this the risk remains red..
            Risk 9 Impact of public funding cuts on College funding: Due to the
            reduction in funding for next year and beyond this risk has been classed as
            red.
            Risk 11 Failure to recruit, retain and develop staff: Due to the potential
            merger which may impact on staff uncertainty this risk has been classed as
            red.
            Risk 13 Risk of wholesale closure of Train to Gain: Train to Gain will
            cease but it has not yet been announced when. Adult apprenticeships will
            become the new focus and it is imperative that the College seizes this
            opportunity.
            Risk 14 Failure to secure capital receipts from asset disposals (former
            animal care barns): The barns are up for sale with some interest but no
            sign as yet of a sale, hence the reason for classing as a red risk.
            Risk 16 Under performance of outreach centres: Recruitment numbers at
            Aspire Centre have become a concern for next year so this risk is now
            classed as red.
            Risk 42 Poor Staff Morale: Following the announcement of staffing
            efficiency savings across the college it was felt that this could have a
            major impact on staff morale. The efficiency review was handled
            efficiently and effectively. However following the announcement of
            merger talks it was felt this may impact on staff morale hence the decision
            to retain this risk as red. The Chair asked about the current state of morale
            and was told it was mixed, possibly borderline amber. The Principal &
            Chief Executive said that despite uncertainty caused by the efficiency
            review and merger talks, he ws not anticipating strong local support for the
            planned industrial action scheduled by the three unions (National Union of
            Teachers, University & Colleges Union and Association of Teachers and
            Lecturers) against government plans for pensions The red risk designation
            did not reflect a breakdown in relationships between management and
            staff. The weekly staff newsletter and meetings of the Staff Forum were
            used to keep staff informed together with the cascade of information
            through the monthly middle management meetings and the Principal’s
            ‘state of the nation’ talks at the termly Staff Development Days. Senior
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             Managers maintained an open door policy and were active in ‘walking the
             floor’ and being seen by all staff.
             The Chair commended the team on their actions and congratulated them
             on maintaining positive relationships despite difficult circumstances.        GC
             Proposed: ACSC; Seconded: KCN; Agreed: nem con to recommend
             the risk register 2010-11 to the Board for approval.

23/06/11/7  Draft Risk Register 2011-2012 & Risk Management Policy (Document
            E)
            Draft Risk Register 2011-2012:
             The Director of Finance said the draft register proposed combining risks 9
            (Impact of public spending cuts on College funding) and 46 (Impact of
            changes in government policy on funding, priorities and provision) and
            removing the following risks:
            Risk 20 Failure to comply with awarding body requirements
            Risk 26 Loss of HE partner support or funding for HE courses due to
            funding cuts
            Risk 28 Impact of the new Qualifications and Curriculum Framework on
            provision
            Risk 29 Removal or reduction in funding for PCDL
            Risk 32 Failure to capture and utilise management information effectively
            to drive quality improvement.
            Risk 35 Failure to implement new diplomas successfully across the
            relevant forums
            Risk 37 Loss of site due to major incident.
            Risk 39 Serious incident involving inappropriate behaviour of a member
            of staff.
            Risk 43 Failure to ensure staff understand and support the College's
            values, targets and criteria for success.
            The Chair asked if risk 9 should be replaced by a contingency plan and the
            Director of Finance said that the draft budget contained several
            contingency elements that could be removed if necessary.
            Proposed: RJH; Seconded: KCN; Agreed: nem con to recommend the                   GC
            combining of risks 9 & 46 and the deletion of risks
            20,26,28,29,32,35,37,39 and 43 from the risk register for 2011-12 to the
            Board for approval.
            The Principal & Chief Executive referred to the earlier discussions
            regarding the merger negotiations and told members that a separate risk
            register relating to merger was proposed due to the need for
            confidentiality. The Merger Steering Group and the Chair of Audit &
            Risk Management Committee had shared the details and the register was
            an agenda item for the next meeting of the Steering Group on 5th July. If        ACT
            the register was to be considered by the Audit & Risk Management
            Committee it would need to be a confidential agenda item. The Chair
            agreed with the Principal’s comments, but said his preference would be for
            the merger risk register to come to the Committee. RJH suggested that
            the Merger Steering Group could report any concerns to the Audit & Risk
            Management Committee.
            Risk Management Policy:
            The Director of Finance said the only changes proposed were in response           BS
            to recommendations by the College’s internal auditors; Departmental Risk
            Registers have been setup in two areas for 2010-11 (Learning Resources            BS
                                                                                          rd
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              and Marketing). KCN pointed out a typographical error in item 9 last
              bullet point on page 5. The Principal & Chief Executive suggested that an         GC
              additional paragraph be added regarding the proposal to institute a merger
              risk register.
              Proposed: RJH; Seconded: KCN; Agreed: nem con subject to the
              foregoing to recommend the Risk Management Policy for approval by
              the Board.

23/06/11/8    Financial Management Control Evaluation (FMCE) (Document F)
               The Director of Finance said the one change referred to 2.1 Long-Term
              Financial Planning (page 2) where the grade had been changed from
              ‘Satisfactory’ to ‘Good’ 1.3 Sub-contracting Arrangements had been left
              as ‘Satisfactory’ as the contract was not sufficiently detailed. KCN asked
              if legal advice was being sought, but the Director of Finance said a good
              example had been obtained that could be modified.
              Members received and noted the report.

              Due to the late arrival of AB the Chair requested members’ agreement to
              amend the order of the agenda and leave items 23/06/11/9 and
              23/6/11/10.1 until later in the meeting.

23/06/11/10 Performance Indicators (Document I)
                1. External Auditors (To approve)
            The Director of Finance took members through the performance indicators
            for the external auditors Grant Thornton. KB expressed her satisfaction
            with the outcome.
            Proposed: ACSC; Seconded: LB; Agreed: nem con to approve the
            performance indicators for Grant Thornton for 2010-11.

23/06/11/11 External Audit Strategy (Document J)
            KB introduced the draft external audit strategy for 2010-11 and said the
            number of risks identified related to their forming an audit opinion, but did
            not mean that the College’s management had not put adequate controls in
            place. She then referred members to section 2:
            Income recognition
            Auditing standards require the external auditor to specifically consider
            whether income has been appropriately recognised based on the right to
            the consideration; this is particularly relevant given the complexities of the
            FE funding methodology. KB said this risk is both mandatory and
            generic.
            Going concern
            KB noted that the College's cashflow forecasts indicate that the existing
            overdraft facility will be exceeded in March 2012 and that the overdraft is
            due for renewal in December 2011. KB said this risk is common in
            colleges because of the financial health of the sector, but is more of an
            issue for the College due to its cash position. The Principal & Chief
            Executive pointed out that the College was well within the 5% limit set by
            the Skills Funding Agency and that the overdraft agreement would be
            reviewed in the autumn as the Banks will not commit more than a year
            ahead and the facility level falls when not required. The cash flow
            statement for March 2012 shows a short term overdraft requirement well
            below the 5% of annual turnover. KB agreed to discuss and clarify this
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              with the Principal & Chief Executive and Director of Finance outside the
              meeting.                                                                      KB/ACT/BS
              Capital and operating cost - cut off
              Purchases will occur pre-year end that are settled post year end. This
              creates the risk of expenditure being recognised in the wrong year.
              Restructuring costs
              The College is continuing to review its establishment costs and, as a result,
              a number of employees are currently working their notice period and will
              leave in August 2011.
              Future of the College
              KB said they were aware from discussions with management that merger
              plans are being taken forwards with Reaseheath College and that this
              would need to be disclosed in the opening financial review statement. She
              added that this would be a judgement call for raising attention, but would
              not affect the granting of an unqualified opinion.
              KCN asked about government proposals to classify Colleges as
              Government Sector. KB drew members’ attention to Section 4.2:
              4.2 International Financial Reporting Standards
              The accounting framework in the UK is moving towards an IFRS basis,
              with most commercial entities moving either to full IFRS or IFRS for
              SMEs within the next few years. She said the government wished to
              report a UK Plc position, but was hesitant to include colleges’ debt on the
              UK Balance Sheet.
              Proposed: KCN; Seconded: LB; Agreed: nem con to recommend the
              external audit strategy for 2010-11 to the Board for approval.                   GC


              (KB withdrew from the meeting for the following item)

23/06/11/12 Appointment of External Auditors
             The Director of Finance said the College was very satisfied with the
            performance and relationship with Grant Thornton and she was pleased to
            commend them to the Committee. She added that the proposed merger
            would probably bring about a change as Reaseheath employ Mazars.
            Proposed: ACSC; Seconded; KCN; Agreed: nem con to recommend                         GC
            that the Board approve Grant Thornton as External Auditor for
            2011-12.

              (KB rejoined the meeting)

23/06/11/14 Bribery Act 2010 report (Document K)
             The Director of Finance said the document identified the offences,
            sanctions/penalties and potential liability for the College together with
            some possible defences. The policy had been updated accordingly
            together with the Anti-Fraud, Corruption and Bribery Policy and
            Procedure (Agenda item 23/06/11/15) and the Financial Regulations
            would also been amended. A risk assessment would be carried out.                      BS
            RJH asked how the implications of the Act would be circulated. BS said
            that information would be on the College Intranet and in the Staff
            Newsletter. RJH then asked if a Hospitality Register should be maintained
            and was told that there is one, but with a limit of £40 typically only the
            free tickets from Shrewsbury Town Football Club qualify for recording.
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             Members approved the updating of the policies and procedures as set
             out above.

23/06/11/15 Anti-Fraud, Corruption and Bribery Policy and Procedure 2011-12
            (Document L)
             The Director of Finance said this policy reflected the comments made
            immediately prior.
            Proposed: RJH; Seconded: ACSC; Agreed: nem con to recommend
            the Anti-Fraud, Corruption and Bribery Policy and Procedure 2011-                GC
            12 to the Board for approval.

23/06/11/9   Internal Audit:
                 1. Internal Audit Progress Report (Document G)
             In the absence of AB, the DoF referred members to pages 3 & 4 of the
             Progress Report, which showed that
                  Information Technology Disaster Recovery Planning had been
                      given an ‘amber verging on red’ assurance level with 5
                      recommendations that had all been agreed by management.
                  Financial Controls of Fixed Assets, Inventories and Payroll had
                      been given an assurance level of ‘amber verging green’ with 4
                      recommendations all agreed.
                  Estates Management of the Caradoc project had a maximum
                      ‘green’ assurance level with no recommendations.
                  Learner Number Systems- arrangements and monitoring for
                      maximising the achievement of recruitment & retention targets had
                      been awarded a maximum ‘green’ assurance with only a single
                      recommendation given & agreed.
                  Human Resources arrangements for Criminal Records Bureau
                      checks and Recruitment received an assurance level of ‘green’
                      again with no recommendations.
                  Corporate Governance & Risk Management Assurance Stocktake
                      was an advisory report with 5 uncategorised, but agreed
                      recommendations
                  The Follow Up of previous internal audit recommendations
                      showed ‘Good Progress’ with one medium recommendation. to the
                      recommendation in the action plan on page 9ZZZIT Disaster Recovery
             The Chair referred to the recommendation 3.2b in the action plan on page
             9 of the report:
             “The Audit and Risk Management Committee should consider
             undertaking an in-depth review of the assurances documented for high
             level risks at each meeting to ensure that the Committee is satisfied with
             the information provided. This could be done on rotation for each risk,
             with the Committee reviewing two risks per meeting for example.” GC
             said the Committee should review 2 risks in detail at each meeting.
             ((                                                                            BS/Clerk
             ((AB arrived at 5.07pm)
             The Director of Finance then referred to action point 3.3a (page 10):
             “A full version of the risk register should be received by the Board of
             Governors annually to demonstrate that consideration has been given to all
             risks at Board level and the Board should consider receiving an abridged
             version of the Risk Register during the year which should include but

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         not be limited to the following risks:
         _ High Level (Red) Risks;
         _ Medium Level (Orange) Risks;
         _ Risks that have changed levels since
         the previous meeting; and
         _ Strategic risks which Management need to escalate to the Board for
         monitoring purposes.
         Receiving only high level strategic risks will assist with focusing the
         Members on the most important risks facing the College.”
         BS reminded members that the Board had previously expressed its desire
         to see the whole risk register as members felt it important to identify
         emerging risks. The Committee agreed to continue its present                     BS
         practice.AB
         Action point 3.4a “The College should ensure that the descriptions of
         assurances rerecorded in the ‘Reporting’ column of the Risk Register
         are actual assurances. In addition, where assurances are stated in the Risk
         Register, the College should ensure that where action is required e.g.
         an annual review, that this is undertaken in accordance with the assurance
         description.” BS asked if an additional column should be added to the
         risk register to show actions or if the present ‘comments’ column sufficed.
         Members said the label ‘Comments’ should be changed to ‘Actions’                 BS

         The Director of Finance said that the Further Education Benchmarking
         Report by RSM Tenon showed the College to have received 100%
         Substantial Assurance from audits during 2009-10 compared with a sector
         average of 74.39% for RSM Tenon clients. Similarly, the College
         received no Fundamental or Significant Recommendations against a sector
         of 4 and 7.7 respectively. The Clerk was asked to circulate the report.        Clerk

        AB said the audit team had found no major issues and was pleased to
        identify good practice. She added that a report on Train2Gain would be
        available for the next meeting.
            2. 'Strategy for Internal Audit 2011/12' (Document H)
        AB said the draft strategy had been prepared with both sector and local
        issues in mind, especially the proposed merger. The strategy assumed that
        the College would continue in its present form. However, since RSM
        Tenon also supplies internal audit services to Reaseheath College there is a
        possibility of synergies.
        She then said that the audit team membership would continue with LR as
        Head of Internal Audit & Risk Management Committee, AB as Senior
        Manager and JB as Assistant Manager.
        Appendix A on page 5 sets out the 3 Year Strategy for the College and the
        detailed plan for 2011-12 is in Appendix B. The Chair questioned the
        number of days (4) allocated for Governance. AB said it is a key area
        especially with the proposed merger and the imminent release of the
        Further Education Code. The Principal & Chief Executive commented
        that a lot of coverage is given to Governance and Risk Management given
        they have achieved ‘substantial assurance’. He suggested that they be
        combined in an audit of say 5 days in total. AB was content with the               AB
        proposal.
        GC questioned whether the merger would require extra work. The
        Principal & Chief Executive said the overall total number of audit days
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            was high relative to the size of the college and management could
            commission more days if required. GC suggested that the 2 days saved
            could be added to contingency and AB agreed, saying they would only be
            billed if used.
            The Principal & Chief Executive then challenged the fee quoted for
            contingency days saying it was higher than for other audit work. AB said
            it assumed the involvement of higher grade staff such as LR or herself, but
            that would not necessarily be the case.                                            GC
            Proposed: KCN; Seconded: ACSC; Agreed: nem con subject to the
            foregoing to recommend the Internal Audit Strategy for 2011-12 to
            the Board for approval.
23/06/11/10 Performance Indicators (Document I)
            Internal Auditors:
            The Director of Finance took members through the proposed Performance
            Indicators. AB was content with the proposal.
            Proposed: ACSC; Seconded: LB; Agreed: nem con to approve the
            performance indicators for RSM Tenon for 2010-11.

23/06/11/13 Information Update:
            Tenon Client Briefings (Document G)
               1. Fines Issued By The Information Commissioner
               2. Bribery Act 2010 Update
               3. Corporate Websites – Use Of Cookies

23/06/11/16 Any Other Business
             The Principal & Chief Executive advised members that, in agreement
            with the Chair of Audit & Risk Management Committee, he had
            commissioned additional work from RSM Tenon to seek to maximise the
            funding claim. The fee would be a fixed sum rather than a commission
            and the work would be conducted by a separate division of the company
            and noted in the Annual Report and Accounts.

              (ACT & BS left the meeting at 5.26pm)

23/06/11/18 Next Meeting – Thursday 4th November 2010                                       All Note

    There being no further business, the Chair thanked the auditors and members for their contribution
    and declared the meeting closed at 5.30pm




    Chair:…………………………………………..                              Date:……………




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