Audit and risk committees: The value of differing views

The value of having an effective audit and risk committee – or should that be risk and assurance committee? Kristin Aitken from our Local Government team explains why councils should consider having an audit and risk committee.

Photo by Antenna on UnsplashEarlier this year, I presented at the Local Government New Zealand Zone 2 meeting in the beautiful little town of Te Aroha. I was asked if I could inject a bit of humour into my presentation so I googled ‘auditor jokes’ and the best I could find was, “I heard recently that auditors are accountants who can’t stand the excitement”. It made me chuckle – I tested this out with the auditors in my team and luckily they thought it was funny too.

I joined the Office’s Local Government team three years ago, with a background in policy and planning. I’ve found it challenging to engage with some of my colleagues on a level playing field, in part because I’m not familiar with some of the language they use as accountants and auditors. However, this has enabled me to ask some ‘dumb’ questions and to hopefully bring a different perspective to the work that we do.

Different perspectives come from having people in an organisation with a mix of skill sets and backgrounds. It also requires a culture where different views are valued.

Being challenged and questioned by people with a diversity of backgrounds can add real value to your council, and help both elected members as governors and council management to gain confidence that decisions are well-informed and future-focused. This is a core role of an audit and risk committee.

Audit and risk committees are perhaps better described as risk and assurance committees. Their primary focus should be on risk, and their main purpose should be to provide assurance to elected members that risk is being well managed. A good description of risk I heard recently was that it is anything that would get in the way of achieving your organisation’s objectives – so it’s important that audit and risk committee members have a good understanding of what the council is trying to achieve now and in the long-term.

Audit and risk committees can help your council by:

  • providing assurance to elected members and your chief executive on your council’s financial management and the key systems your council has in place – like controls to manage risks such as fraud;
  • providing assurance that your council’s strategies are achieving their intended objectives;
  • helping elected members test and challenge new ideas, and business-as-usual operations, to ensure that council is improving, as well as meeting intended objectives; and
  • providing an opportunity for the chief executive to test ideas in a smaller forum.

So what makes an audit and risk committee effective?

We’ve produced some guidance that identifies four principles to use as the foundation for an effective audit and risk committee:

  • independence;
  • clarity of purpose;
  • competence; and
  • open and effective relationships.

We would like every council to have an effective audit and risk committee. If an audit and risk committee is effective, it supports and enhances good governance and accountability to your communities, which in turn builds trust and confidence in your council. Audit and risk committees created solely for compliance reasons are unlikely to be effective and add value to your council.

In our next blog, we will look more closely at the make-up of effective audit and risk committees with a particular focus on independence and competence. Until then, if you have any questions, don’t hesitate to contact me or a member of the Local Government team.

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