PSAA Corporate Governance Framework – December 2021

Part 2 – PSAA Board Members’ roles and responsibilities

Public Sector Audit Appointments Limited

  1. PSAA is a private company established under the Companies Act 2006, without share capital and limited by guarantee. It is a wholly owned subsidiary of the Improvement and Development Agency (IDeA), which in turn is a subsidiary of the Local Government Association (LGA). The primary duty of the Company’s Board is to discharge the statutory objects and powers set out in its Articles of Association in accordance with the Companies Act 2006 and the Company’s founding documents.
  1. The non-executive Director who is to act as Chairman of the Board is appointed by the IDeA. The other non-executive Directors are appointed by the Chairman with the approval of the IDeA. The Articles of Association allow for a Board consisting of a non-executive Chair and up to four other non-executive Directors (Board members). Up to two non-Board members may be appointed to sit on the Audit Committee.
  1. The Chairman and the other non-executive Directors are each appointed for a term of office of no more than three years. Appointments may be renewed, subject to satisfactory assessment of performance. Any renewal taking a non-executive Director’s expected continuous service beyond six years will be contingent on a rigorous review process confirming highly satisfactory performance, and taking account of the need for progressive refreshing of Board membership. In accordance with the Cabinet Office Governance Code on Public Appointments, the continuous service of a Director should not exceed ten years in total. The IDeA/LGA is responsible for nominating a person to conduct the annual appraisal and review of the performance of the Chairman, and the Chairman is responsible for appraisals of Board members.

The Board

  1. The Board as a whole is legally responsible for the management and stewardship of the Company in the discharge of its purpose and powers which are set out in its Articles of Association. The Board alone is responsible for agreeing the Company’s strategy, and for determining its budget.
  1. The Board’s responsibility includes:

a) monitoring the company’s performance;

b) ensuring that PSAA acts within its legal powers and remits;

c) ensuring that PSAA is properly managed, and remains independent from the leadership of the LGA;

d) ensuring that proper systems are maintained to ensure propriety and value for money; and that performance is monitored;

e) ensuring that effective arrangements are in place to provide assurance on risk management, governance and internal control; and

f) ensure that the risks that it faces are dealt with in an appropriate manner, in accordance with relevant aspects of best practice in corporate governance;

g) approving the risk management strategy and setting the risk appetite.

  1. The Company’s powers and remit are set out in Part 3 of this document, which also describes those powers that are delegated from the Board to the Audit Committee and the Chief Executive. The following is a summary of the Company’s main powers and remit:

a) Auditor appointment – appointment of the external auditors to bodies subject to audit as defined in relevant legislation, including local authorities, police bodies, fire authorities, and other local government bodies.

b) Setting fees – setting scales of fees to be paid by bodies subject to audit.

c) Managing the audit contracts – overseeing the provision by appointed auditors of consistent, high-quality and effective external audit services to bodies subject to audit and ensuring effective management of contracts with audit firms for these external audit services.

The Chairman

  1. The Chairman is the leader of the Board. The Chairman will work closely with the Board, the Chief Executive and the staff to provide:

a) Leadership – to provide strategic leadership to ensure that the Company pursues its functions and objectives as set out in its Articles, complies with its governing documents, company law, any other relevant legislation or regulations and the principles of effective and efficient management of public money.

b) External communications – to steer the Company’s key relationships with appointed auditors, audited bodies, senior sector leaders in other organisations and the media; representing the views of the Board to the general public.

c) Corporate governance – to deliver high standards of regularity and propriety and promote the efficient and effective use of staff and other resources throughout the Company. The Chairman presides at Board meetings, ensures that these are held at regular intervals throughout the year and are accurately minuted. The Chairman will ensure that all Board members are able to be involved fully in the work of the Board, and that they are fully briefed and well informed about the terms of their appointment and on their rights, duties and responsibilities. In accordance with best practice, the Chairman will make arrangements for a review of the Board’s effectiveness to be carried out at the end of each calendar year, and will also conduct annual appraisals to assess the performance of individual non-executive Board members and ensure regular dialogue about training and development needs.

  1. In conducting Board members’ annual appraisals, the Chairman will seek views and invite inputs from other interested parties, including other Board members, the Chief Executive and representatives of the LGA and IDeA. In formulating any recommendations for renewal of Board members’ terms of office, the Chairman will have regard to the requirements set out in paragraph 8 and to the need to refresh Board membership from time to time while also maintaining a level of continuity. This will take account of the fact that the company has two demanding business cycles – an annual cycle aligned to the annual audits for which it is responsible for making auditor appointments and setting scale fees, and a five-year cycle linked to the term for which local government and police bodies opt into the Company’s Appointing Person scheme and to the term of contracts let with audit firms. Recommendations which would have the effect of extending a Board member’s expected continuous tenure beyond six years will be preceded by a rigorous appraisal confirming highly satisfactory performance to date.
  1. Similar arrangements to those set out at paragraph 13 for non-executive Directors apply to appraisals of the Chairman, which will be led by a person nominated by the IDeA/LGA.
  1. The Chairman agrees the objectives and undertakes appraisals of the Company’s Chief Executive, following consultation with other non-executive Directors.
  1. In the absence of the Chairman, a nominated deputy acts, as necessary, to ensure the continuity of Company business.
  1. The overarching role of the IDeA, as founder of the Company, is to support PSAA in successfully discharging the functions delegated to it by the Secretary of State and achieving its objectives.
  1. The IDeA acknowledges the independence of the Company and the responsibility for running the company as that of PSAA and its Board.
  1. The Chairman of PSAA will:

a) report on the Company’s activities to the Board of the IDeA at 6-monthly intervals; and
b) ensure that the IDeA receives copies of the Company’s Annual Report and audited Financial Statements, and an annual report from the Chairman of the Audit Committee.

Corporate responsibilities of the Board

  1. The Board as a whole is legally responsible for the management and stewardship of the Company in the discharge of its functions and objectives and its powers are set out in its Articles.
  1. The Board regulates its own proceedings and has approved Standing Orders for that purpose (see Appendix 2).
  1. Board members act collectively: they do not have individual executive authority. The specific functions and decisions that are reserved to the Board are set out in Part 3.

Responsibilities of individual Board members

  1. In addition to their duties under the Companies Act 2006 and the Company’s Articles, individual non-executive Board members should at all times comply with the principles and responsibilities described in this document and in the Code of Conduct for Board Members of Public Bodies issued by the Cabinet Office in June 2011 and updated in June 2019. They should act in good faith and in the best interests of the Company and should follow the Seven Principles of Public Life set out by the Committee on Standards in Public Life (the ‘Nolan Principles’). Those principles are set out in Appendix 1.
  1. Board members must not use information gained in the course of their service to the Company for personal gain; nor seek to use the opportunity of their public service to promote their own, or other parties’, private interests. They should not disclose information or documents obtained through their position as Board member without the consent of the Chairman.
  1. All Board members should ensure that they are familiar with the Company’s rules and practices on declarations, and avoidance of conflicts of interests. Details of these, and the Company’s rules on gifts and hospitality, are at Standing Orders 8-12.
  1. In accordance with the provisions of the Companies Act 2006 and on grounds set out in the terms and conditions of appointment, a Board member may be removed by the Board in consultation with the IDeA if they are considered unable or unfit to discharge the functions of a member, including not meeting their obligations and responsibilities as described in this document.

Personal liability of Board members

  1. Although any legal proceedings initiated by a third party are more likely to be brought against the Company, in exceptional cases proceedings (civil or criminal) may be brought against the Chairman or other individual Board members. For example, a Board member may be liable if he or she makes a fraudulent or negligent statement, which results in loss to a third party. A Board member who misuses information gained by virtue of his or her position may be liable for breach of confidence.
  1. However, an individual Board member who acts honestly and in good faith should not normally incur any civil liability in an individual capacity, unless he or she has acted recklessly. The Company indemnifies its officers in such circumstances against any action taken or threatened against them (see article 42 of the Articles of Association) and may insure directors in respect of any relevant loss (see article 43 of the Articles of Association).
  1. The Chairman and Chief Executive of the Company will ensure that legal advice is provided to any Board members who want further clarification of their legal position.

Committees

  1. The Board may appoint committees with such memberships and terms of reference as the Board deems appropriate. Committees exercise functions delegated to them, providing more detailed consideration of specific work areas and advising the Board accordingly.

Complaints

  1. The Board approves, publishes and maintains a complaints procedure.
  1. The Chief Executive reports annually to the Board about the nature and number of complaints and about the Company’s handling of complaints. Complaints in relation to audit firms are dealt with under the compliance and quality review process.
  1. The Chairman is responsible for responses to complaints against Board members.
  1. In the event of a complaint against the Chairman personally, a nominated deputy and the Chair of the Audit Committee (or, if they are the same person, another Board member selected by the nominated deputy) shall consider whether there is a sufficiently serious prima facie case, and if so, shall inform the IDeA, as founder of the company.

Audit Committee

  1. Board members are formally Those Charged With Governance (TCWG) and have delegated some aspects of their responsibilities to the Audit Committee. The Scheme of Delegation reflects those delegated responsibilities where the Audit Committee acts in the capacity of
    TCWG. The Audit Committee will comprise no fewer than three members and will meet at least twice each year.
  1. The Audit Committee’s quorum will be three members.
  1. Independent members of the Audit Committee are appointed for a term of no more than three years. Appointments may be renewed, subject to satisfactory assessment of performance. Any renewal taking an independent member’s expected continuous service beyond six years will be contingent on a rigorous review process confirming highly satisfactory performance and taking account of the need for progressive refreshing of committee membership. Continuous service should not exceed ten years in total.
  1. The Chair of the Audit Committee is responsible for appraisals of independent members of the committee in order to monitor performance and ensure a regular dialogue about training and development needs. In doing so the Chair will seek views and invite inputs from other interested parties including other members of the committee and the Chief Executive. In formulating any recommendations for renewal of independent members’ terms of office, the Chair, in consultation with the Chairman of the Company, will have regard to the requirements set out in paragraph 36 and to the need to refresh committee membership from time to time while also maintaining a level of continuity.
  1. The Committee’s terms of reference are:

i) to review the Company’s annual accounts, specifically to consider whether appropriate accounting policies have been followed, and to recommend them to the Board for approval;

ii) in respect of external audit:

a) to recommend to the Board the appointment of the Company’s external auditors;
b) to review the results of the external audit, including the auditor’s management letter;
c) to monitor the implementation of recommendations and the response by management.

iii) to consider the effectiveness of the Company’s risk management arrangements including reviewing the risk management policy and strategy to recommend to the Board for approval, and to review the corporate risk register at each meeting, seeking assurances that action is being taken on risk-related issues.

iv) on behalf of the Board, to scrutinise any aspect of the work of the Company against a benchmark of best practice and to report as appropriate. The Audit Committee will review, and challenge where appropriate:

a) the Company’s financial policies and procedures and IT policies, practices and processes;
b) the Company’s internal control systems, including those which relate to areas that have been outsourced;
c) the arrangements for controlling and reporting Company expenditure;

v) to keep under review the Company’s governance arrangements and consider the framework of assurance to ensure that it adequately addresses the Company’s risks and priorities.

vi) to report annually to the Board on assurances received, significant control issues, the Committee’s performance in relation to the terms of reference and the effectiveness of the Committee in meeting its purpose;

vii) to review annually the Company’s treasury management policy, including the criteria used to define those bodies on the approved lending list, and to recommend this to the Board for approval;

viii) to review annually the corporate governance framework (CGF) and recommend any necessary changes to the Board for approval;

ix) in respect of internal audit;

a) to appoint the internal auditors and to approve any changes to the Company’s internal audit arrangements,
b) to approve the internal audit work plan,
c) to review internal audit reports and monitor implementation of recommendations and the responses of management.

x) to review the counter- fraud strategy and recommend to the Board for approval.

  1. The Audit Committee will present the minutes of its meetings to the Board as soon as possible after each Committee meeting. The Audit Committee will make recommendations to the Board as it considers appropriate.
  1. The Chief Executive and Chief Finance Officer will attend Audit Committee meetings.

Responsibilities of independent Audit Committee members

  1. Independent Audit Committee members should at all times comply with the principles and responsibilities described in this document. They should act in good faith and in the best interests of the Company and should follow the Seven Principles of Public Life set out by the Committee on Standards in Public Life (the ‘Nolan Principles’). Those principles are set out in Appendix 1.
  1. Independent Audit Committee members must not use information gained in the course of their service to the Company for personal gain; nor seek to use the opportunity of the public service to promote their own, or other parties’, private interests. They should not disclose information or documents obtained through their position as independent Audit Committee members without the consent of the Chair of the Audit Committee.
  1. All independent Audit Committee members should ensure they are familiar with the Company’s rules and practices on declarations, and avoidance of conflicts of interests. Details of these, and the Company’s rules on gifts and hospitality, are at Standing Orders 8-12.
  1. An independent member of the Audit Committee may be removed by the Chair of the Audit Committee, in consultation with the other members of the Audit Committee, if the independent member is considered unable or unfit to discharge their functions as a member of the Audit Committee, including not meeting their obligations and responsibilities as described in this document.

Review of the Board’s effectiveness

  1. Each calendar year, the Chairman will facilitate a formal review of the Board’s effectiveness.
  1. A review will include consideration of the Board as a whole, the operation of any committees and the contributions of individual Board Members.
  1. A review will also take account of the Audit Committee’s annual report to the Board.

PSAA Chief Executive

  1. The Company’s Chief Executive has executive responsibility to the Board for the work of the Company and for its staff, and ensures that the Chairman and Board have timely, accurate and clear information, as required, to carry out their responsibilities.
  1. The Board has delegated authority to the Chief Executive for the day-to-day management of the Company, with responsibility for the overall organisation, management and staffing and for its procedures including conduct and discipline.
  1. The Chief Executive is authorised to delegate matters to other Company staff. The Company’s powers are set out in Part 3 with the Scheme of Delegation.
  1. The Chief Executive’s responsibilities in respect of HM Treasury’s publication Managing Public Money are set out in more detail in the Financial Policies at Appendix 4.

The Company as employer

  1. The Company will seek to set an example of best practice as an employer and is committed to offering all staff equality of opportunity. It will ensure that its employment practices are designed to promote diversity and to treat all individuals equally.
  1. The Company will ensure that it employs suitably qualified staff who will discharge their responsibilities in accordance with the highest professional standards. All staff will be made aware of the Company’s plans and objectives, and all relevant internal management and control systems relating to their field of work.
  1. The Company has a Code of Conduct for staff, and maintains and publishes a ‘whistleblowing’ procedure, to ensure that concerned staff have a formal means through which their concerns can be voiced.
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