Ministers’ Deputies
CM Documents

CM(2010)117rev31 3 December 20102
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1102 Meeting, 12 January 2011
11 Administration and Logistics

11.1 Audit Committee
- Proposal for revised terms of reference

Document prepared by the Directorate of Internal Oversight

Item to be considered by the GR-PBA by written procedure3
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Introduction

1. At their 1015th meeting (16 January 2008, item 11.2), the Ministers’ Deputies adopted Resolution CM/Res(2008)2 establishing an independent Audit Committee. They decided to review the terms of reference of the Audit Committee after the first two years of its functioning, with a view to taking a decision at least six months before the end of the first term of office of its members. The three members of the Audit Committee were appointed on 2 April 2008 for the period from 3 April 2008 to 2 April 2011.

2. The Audit Committee recommends “the continuance of the committee as a permanent establishment” considering that it “is part of good governance”. The Secretary General supports this proposal.

3. Audit Committees are an important element of today’s corporate governance, in that they give an assurance that internal controls are functioning effectively. For this reason the existence of an Audit Committee is considered best practice. The main advantage of an Audit Committee lies in its independence and expertise. It provides an objective oversight of internal and external control systems and of the follow-up given to internal and external audit recommendations.

4. Since its creation the Audit Committee has brought forward important governance issues, strengthened the follow-up of audit recommendations and fostered coordination between external audit and internal audit.

5. In line with its mandate, the Audit Committee has given valuable advice on the scope, adequacy, efficiency and effectiveness of the Organisation’s system of internal and external controls; it has assessed the annual internal audit plan and its implementation; it has also assessed the independence of audit functions.

6. The Benchmarking results from a sample of 15 international organisations in Europe show that 11 have an audit committee (of which the name may vary from Audit Committee, Advisory Committee on Audits, Audit Advisory Board, Audit Progress Committee, Finance and Audit Committee, Independent Advisory Oversight Committee, Independent Audit Advisory Committee of Experts) and in seven, the Audit committee plays a role in the selection of the External Auditor.

Recommendation

7. It is recommended to confirm the existence of the Audit committee permanently and, at the same time, amend the terms of reference to reflect recent developments. These are:

- the creation of the new Directorate of Internal Oversight, being responsible for internal audit and programme evaluation: it is proposed to change the name of the committee to “Oversight Committee” to reflect that it deals with both audit and evaluation issues;

- the Deputies’ decision of 8 July 2009 amending the procedure for the appointment of the External Auditor providing that “the Audit Committee shall provide an advisory opinion to the Committee of Ministers on the candidatures received of their conformity with the selection criteria”4. It is proposed to reflect this clause in the revised terms of reference.

Budgetary implications

8. Budgetary provisions would remain unchanged. Travel and subsistence costs for the members would continue to be borne by the Council of Europe and are estimated at €20 000 per year (based on 3 meetings of 2 days for 3 persons). Secretarial support would also continue to be provided by the Council of Europe (Directorate of Internal Oversight), as appropriate.

9. The proposed amendments to the terms of reference are presented below.

***

Appendix

Draft Resolution CM/Res(2010)..
Revised terms of reference of the Audit Committee

(Adopted by the Committee of Ministers on …
at the 10..th meeting of the Ministers' Deputies)

The Committee of Ministers,

Determined to strengthen further internal and external control mechanisms which are essential for ensuring effective and efficient management and governance of the Council of Europe;

Having regard to the recommendations and comments of the External Auditors regarding further improvement of management and governance in the Council of Europe;

Having regard to Resolution CM/Res(2008)2 establishing an independent Audit Committee which has been reviewed by the Committee of Ministers after the first two years of its functioning;

Considering that the Audit Committee should be continued;

Recognising the need for enhancing the Council of Europe appraisal mechanisms to provide the member states with assurances that the Organisation’s controls are in place and operating properly through, inter alia, independent reviews of the work performed by the Council of Europe system of internal and external controls, including Internal Oversight, the External Auditor, and the administration and management of the Organisation;

Considering that the terms of reference should encompass evaluation, as well as the system of internal and external controls;

1. Agrees to rename the Audit Committee as the Oversight Committee and Adopts the revised terms of reference of the Audit Committee contained in the appendix to this resolution;

2. Decides that the administrative costs of the Audit Committee shall be funded through the Ordinary Budget;

3. Agrees that Resolution CM/Res(2008)2 will be replaced by the present Resolution from the date of its adoption.

Appendix to Resolution CM/Res(2010)..

Terms of reference of the Audit Committee of the Council of Europe

1. Guiding principle

An Audit Committee shall be established by the Committee of Ministers to exercise an independent appraisal function as defined in Article 2 below. It shall perform this function through independent appraisal of internal and external control systems and of follow-up given to Internal Oversight and External Audit recommendations. The work of the Audit Committee shall be conducted in accordance with internationally accepted best practices and in compliance with Council of Europe policies, rules and regulations. It shall avoid any duplication of its work with that of the internal oversight and external audits functions.5

2. Role of the Committee

The Audit Committee shall have a consultative function and report to the Committee of Ministers and may advise the Secretary General, as appropriate within the limits of his or her responsibilities,

(i) on the scope, adequacy, efficiency and effectiveness of the Organisation’s system of internal and external controls, as well as risk management, including the evaluation and internal audit functions, the external audit functions and the implementation of their recommendations;

(ii) on all corporate governance issues relating to the system of internal and external controls and its performance;

(iii) on any matters of policy requiring corrective action and improvements in the area of controls, including appraisal of policies, procedures, evaluation, audit, investigation and risk management;

(iv) on the conformity of candidatures received with the selection criteria for the appointment of the External Auditor, as set out in the procedure for selection adopted by the Committee of Ministers.

In accordance with the Deputies’ decision of 8 July 2009 (CM/Del/Dec(2009)1063/11.2) amending the procedure for the appointment of the External Auditor, the Audit Committee shall provide an advisory opinion to the Committee of Ministers on the conformity of the candidatures received of their conformity with the selection criteria. 6

3. Membership of the Committee

The Audit Committee shall be composed of three members who shall be evaluation and audit professionals of high standing in the international oversight community, and between them represent qualified experience from evaluation, internal and external audit functions primarily in the public sector, and as far as possible, in the private sector. They shall be fully independent of the Council of Europe and national governments of the Council of Europe member states. The Committee of Ministers shall appoint the three members of the Audit Committee upon proposal of member states; the Secretary General may propose one candidate. The members of the Committee shall elect the Chairperson. Other parties may be requested to attend the meetings of the Committee for specific agenda items but they shall not be members of the Committee.

4. Terms of appointment

The members shall serve for terms of three years, renewable once.

5. Rules and procedures

(i) The Audit Committee shall decide on its own rules of procedure and communicate it to the Committee of Ministers. It shall meet for its regular sessions at least twice a year. Additional meetings may also be scheduled on an ad hoc basis as necessary. The chairperson of the Committee shall determine the timing of meetings and the need for any additional meetings in the course of the year. He/she shall also set the agenda of the meetings, taking into account relevant requests of the Committee of Ministers. The Audit Committee shall be able to call upon Council of Europe officials and request meetings with other parties as it deems necessary to obtain information relevant to its work. In particular, the Director of Internal Oversight and the External Auditor shall be readily available to respond to inquiries and make presentations to the Committee. The Director of the Internal Oversight shall meet with the Committee at least once a year without the presence of the management; such restricted meetings can also take place with the external auditor and other parties, as appropriate. In performing their functions, the members of the Committee shall neither seek nor receive instructions from any government authorities. They shall act fully independently of any individual Council of Europe bodies and structures, and shall be guided solely by their expertise and professional judgement, with due regard to the relevant decisions of the Committee of Ministers.

(ii) The annual work programme and related budget of the evaluation and internal and external audit functions shall be brought to the attention of the Audit Committee.

(iii) The Audit Committee shall adopt recommendations on a consensual basis. In the case of dissent among Committee members, the conclusions of the chairperson in charge of the meeting, together with the dissenting opinion, shall be presented in the subsequent Committee report.

6. Access to documents

The Audit Committee shall have access to all records and documents of the Organisation, including audit and evaluation reports, investigations, and work documents of the Directorate of Internal Oversight as well as the reports and management letters from the External Auditor. Committee members shall sign non-disclosure statements at the beginning of their tenure.

7. Reporting

(i) The Audit Committee shall submit an annual report to the Committee of Ministers.

(ii) The Audit Committee may also submit ad-hoc reports to the Committee of Ministers as necessary.

(iii) The Secretary General shall be given the opportunity to comment on all reports prior to their submission. Comments of the Secretary General, which he/she deems necessary, shall be incorporated in the relevant reports.

8. Resources

(i) The Audit Committee shall be provided with administrative and secretarial support as and when required.

(ii) Members of the Audit Committee shall be reimbursed travel and subsistence costs in accordance with Council of Europe administrative rules and regulations; they will receive no fees.

Note 1 Revised in the light of observations made at the GR-PBA meeting on 18 November 2010 and comments received to date (cf. DD(2010)612 and DD(2010)613.
Note 2 This document has been classified restricted until examination by the Committee of Ministers.
Note 3 Deadline for submitting comments: 1 p.m. on 8 December 2010 at the latest.
Note 4 CM/Del/Dec(2009)1063/11.2
Note 5 Deletion proposed by Switzerland (cf. DD(2010)613).
Note 6 Amendment proposed by France (cf. DD(2010)612).


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