Finance, Risk & Audit Committee (FRAC) Terms of Reference

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Terms of reference (ToR) set out the working arrangements for the Committee and can list vital information about the group, such as its purpose, chair and membership, meeting schedule, level of administrative support, and dispute resolution processes. Below is the ToR for the Finance, Risk & Audit Committee.

The purpose of FRAC will provide strategic direction and leadership to ensure that Agamemnon Housing Association “Focus on money-related issues, accounts, audits, borrowing, risk management and governance”.  The FRAC sets out to achieve: (the outcomes)

• Oversee the financial performance of the Association
• Minimise the financial risk to the Association
• Undertake internal audits and Highlight areas of perceived financial risks
• Receive and act on audit / accountant reports and regulatory recommendations
• Recommend the external audit (if required) / accountant company to the Board
• Oversee the investment of the Association and ensure there is minimal risk in all investments
• Oversee the cash flow performance needs of the Association
• Implement and embed good governance as directed by the regulator and the NHF.

This ToR is effective from October 2022 and will be ongoing until terminated by agreement between the members. The Chair of the FRAC will rotate on a 12-month basis between Director’s sitting on the FRAC or unless a further extension is agreed by members.

The Committee will comprise of:
• Nick Beasley – (Chair of the FRAC)
• Capt Nick Fletcher RN – Agamemnon Chair
• Mark Newton – Director
• Dean Adams – Director
• Steve Lambert – Director
• Lee Buss – Blair – Director
• To be appointed – Finance Manager

The FRAC is accountable for:

• Provide assurance to the Association that there is a suitable mechanism in place for budget setting for each financial year
• Review and challenge as appropriate the proposed budget in advance of each financial year and report its opinion to Board prior to sign off
• Review and challenge as appropriate the quarterly financial reforecasts, providing assurance to the Board as to their content and advising members of any issues of which it should be aware, and any action required
• Routinely review the adequacy of and changes to the following finance related policies and procedures by ensuring each is effective, consistent with the Associations view and provides assurance as to the appropriateness and robustness of each before recommending their approval by the Board:

o Delegated Authorities Schedule
o Contracts and procurement
o Reserves; and
o Working capital and investment.

• The committee shall review any other statements requiring Board approval which contain financial information first, where to carry out a review prior to the board’s approval would be practicable and consistent with any prompt reporting requirements under any law or regulation.

The membership of the FRAC will commit to:

• Attend all scheduled FRAC meetings
• Champion the FRAC within and outside of the Association
• Share all communications and information across all FRAC members
• Make timely decisions and taking action so as not to hold up FRAC business
• Notify members as soon as practical, if any matters arising may be considered to affect the development or running of the FRAC
• Put tenants and colleagues at the heart of financial and governance decisions.

Members of the FRAC will expect:

• That each member will be provided with complete, accurate and meaningful information in a timely manner
• To be given reasonable time to make key decisions
• To be alerted to potential risks and issues that could impact the FRAC or Association as they arise
• To have honest and open discussions, without resorting to any misleading assertions
• Ongoing “health checks” to verify the overall statues and “health” of the FRAC.

The FRAC shall:

• Consider and make recommendations to the Association, to be put to members for approval at the following board meeting, in relation to the appointment, reappointment and removal of the Associations external auditor / accountants
• Develop and oversee the selection procedure for the appointment of the external auditor in accordance with applicable legal and regulatory requirements, ensuring that all tendering organisations have access to all necessary information and individuals during the tendering process
• If the external auditor resigns, investigate the issues leading to this and decide whether any action is required
• Satisfy itself that there are no relationships between the external auditor and the Association (other than in the ordinary course of business) which could adversely affect the external auditor’s independence and objectivity
• Monitor the level of fees paid by the Association to the external auditor compared to the overall fee income of the firm, office and partner and assess these in the context of relevant legal, professional, and regulatory requirements, guidance, and the ethical standard
• Assess annually the qualifications, expertise and resources, and independence of the external auditor and the effectiveness of the process, which shall include a report from them on their own internal quality procedures; and evaluate the risks to the quality and effectiveness of the financial reporting process in the light of the external auditors’ communications with the committee.

In relation to oversight of the relationship with the external auditor, the committee shall:

• Approve their remuneration, including both fees for audit and non-audit services, and ensure that the level of fees is appropriate to enable an effective and high-quality audit to be conducted; approve their terms of engagement, including any engagement letter issued at the start of each audit and the scope of the audit; and
• Assess annually the external auditor’s independence and objectivity taking into account relevant law, regulation, the Ethical Standard and other professional requirements and the Associations relationship with the auditor as a whole, including any threats to the auditor’s independence and the safeguards applied to mitigate those threats including the provision of any non-audit services and guidance on the rotation of audit partner and colleagues.

The committee shall develop and recommend to the Association formal policy on the provision of non-audit services by the auditor, including prior approval of non-audit services by the committee and specifying the types of non-audit service to be preapproved, and assessment of whether non-audit services have a direct or material effect on the audited financial statements.

The policy should include consideration of the following matters:

• Threats to the independence and objectivity of the external auditor and any safeguards in place
• The nature of the non-audit services
• Whether the external audit firm is the most suitable supplier of the non-audit service
• The fees for the non-audit services, both individually and in aggregate, relative to the audit fee; and
• The criteria governing compensation.

In relation to engagement with the external auditor, the committee shall:

• Meet with the external auditor as needed (including once at the planning stage before the audit and once after the audit at the reporting stage) and, at least once a year, meet with the external auditor
with management being present, to discuss the auditor’s remit and any issues arising from the audit
• Discuss with the external auditor the factors that could affect audit quality and review and approve the annual audit plan, ensuring it is consistent with the scope of the audit engagement, having regard to the seniority, expertise and experience of the audit team

In relation to the external audit report the committee shall:

• Review the findings of the audit with the external auditor. This shall include but not be limited to, the following:

o A discussion of any major issues which arose during the audit
o The auditor’s explanation of how the risks to audit quality were addressed
o Key accounting and audit judgements
o The auditor’s view of their interactions with senior management; and
o Levels of errors identified during the audit
o Review any representation letter(s) requested by the external auditor before it is signed by management
o Review the management letter and management’s response to the auditor’s findings and recommendations; and
o Review the effectiveness of the audit process, including an assessment of the quality of the audit, the handling of key judgements by the auditor, and the auditor’s response to questions from the committee.

The committee shall review the management of risk and advise the Board whether risk is being managed in a manner that best enables the delivery of the strategy and:

• Review the Corporate Risk Register on a quarterly basis, focusing on the highest risk areas, and advise the Board on any current risk exposures (identified and potential), changes to risk scores and the adequacy of proposed action/mitigations in order to assure the Associations that the management of risk as described in the register is operating effectively
• Review the underlying strategic aim risk register on an annual basis and advise the Board on any concerns i.e. advise the Board of the overall risk appetite, tolerance and strategy and the principal and emerging risks the Association is willing to take in order to achieve its long-term strategic objectives
• Seek assurance on the risks the committee identifies as those to which the association may be exposed. The risks will be specific to the Association’s circumstances and other risks relating to the sector and operations
• Advise the Board on the likelihood and the impact of principal risks materialising, and the management and mitigation of principal risks to reduce the likelihood of their incidence or their impact; and
• Advise the board on the risk aspects of proposed changes to strategy and strategic transactions including acquisitions or disposals, ensuring a due diligence appraisal of the proposition is undertaken, focussing in particular on implications for the risk appetite, tolerance and strategy of the Association, and taking independent external advice where appropriate and available.

The committee shall:

• Review the adequacy of and changes to the risk management policy ensuring the changes are effective, consistent with Associations views and provide assurance as to the appropriateness and robustness of each before recommending approval by the Board
• Monitor and review the effectiveness of the committee’s risk management procedures to manage or mitigate principal risks and to identify emerging risks, to assist in the committee’s assessment; and
• Review and assess procedures to develop risk appetite and associated stress testing.

The committee shall oversee and seek suitable assurance from the Board, senior leadership team (SLT) and other colleagues regarding:

• The risk exposures of the Association, including risk to the business model, and solvency and liquidity risks
• The adequacy and effectiveness of the Associations processes and procedures to manage risk, including the design, implementation, and effectiveness of those systems
• The ability in risk management to identify the risks facing the Association and enable a robust assessment of principal risks
• The Associations capability to identify and manage new and emerging risks
• The Associations ability to reduce the likelihood of principal risks materialising and the impact on the business of risks that do materialise; and
• The appropriateness of the Associations values and culture and reward systems for managing risk, and the extent to which the culture and values are embedded at all levels of the Association.

The committee shall:

• Review the adequacy of and any changes to the (anti-bribery, money laundering, fraud, theft and terrorist financing tbc) policies ensuring the changes are effective, consistent with Associations view and provide assurance as to the appropriateness and robustness of each before recommending their approval to Board
• Oversee how the effectiveness of the SLT internal financial controls systems that identify, assess, manage, and monitor financial risks, and other internal control systems are monitored and reviewed
• Oversee the adequacy and security of the SLT’s arrangements for its employees, contractors, and external parties to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters. The committee shall ensure that these arrangements allow proportionate and independent investigation of such matters and appropriate follow up action:

o Oversee the procedures for detecting fraud
o Oversee the systems and controls for the prevention of bribery; and
o Receive regular reports on the adequacy and effectiveness of compliance with relevant policies and processes.

The committee shall oversee and seek suitable assurance regarding:

• The adequacy and effectiveness of the Associations processes and procedures to manage the internal control framework, including the design, implementation, and effectiveness of those systems
• The ability of the Associations internal control systems
• The effectiveness and relative costs and benefit of controls; and
• The appropriateness of the Associations values & culture and reward systems for managing internal controls, and the extent to which the culture and values are embedded at all levels of the Association.

The committee shall receive a quarterly exceptions report, which will cover:

• Breaches of or exceptions to any of the policies that are approved by The Board or its committees
• Non-financial theft or loss which has created or may create a significant rise
• Security incidents which have created or may create a significant risk
• Data breaches requiring reporting to the Information Commissioner’s Office
• Incidents requiring reporting to the Health and Safety Executive
• Trends from corporate or internal complaints and any significant complaints which could have an adverse impact on the Associations reputation
• New or intended litigation
• Waiver of standing orders
• Exceptional financial actions such as losses being written off or special payments being made
• Financial crimes such as fraud, theft or money laundering
• Significant financial loss
• Large donations from an unknown or unverifiable source or suspicious financial activity
• New insurance claims
• Links to terrorism or extremism, including proscribed organisations or individuals subject to an asset freeze; and other significant incidents such as insolvency; forced withdrawal of banking services; suspicions, allegations, or incidents of abuse; or actual/suspected criminal activity.

The Board shall receive the minutes of FRAC meetings after each meeting, so it is informed of all matters. In addition, the following specific issues shall be brought to Boards attention when relevant:

• The significant issues that FRAC considered in relation to the financial statements and how these were addressed
• FRAC’s assessment of the effectiveness of the external audit process, the approach taken to the appointment or reappointment of the external auditor, length of tenure of audit firm, when a tender was last conducted and advance notice of any retendering plans; and any other issues on which the Board has requested the committee’s input.

The committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed.

The committee shall:

• Have access to sufficient resources to carry out its duties, including access to the Operations & SLT team for advice and assistance as required
• Be provided with appropriate and timely training, both in the form of an induction programme for new members and on an ongoing basis for all members
• Give due consideration to all relevant laws, regulations and published guidance, and any other applicable rules, as appropriate
• Oversee any investigation of activities which are within its terms of reference
• Work and liaise as necessary with the other Associations committees ensuring interaction between committees and with the Board is reviewed regularly, taking account of the impact of risk management and internal controls being delegated to different committees
• Ensure that a periodic evaluation of the committee’s performance is carried out; and
• At least annually, review its constitution and terms of reference to ensure it is operating at maximum effectiveness and recommend any changes it considers necessary to the Board for approval.

The committee is authorised to:

• Complete actions in accordance with the Delegated Authorities Schedule
• Seek any information it requires from any colleague of the Association in order to perform its duties
• Delegate any matter to another committee or person(s) as it deems appropriate; and
• Obtain, at the Associations expense, independent legal, accounting or other professional advice on any matter if it believes it necessary to do so.

All meetings will be chaired on a rotating basis between Directors sitting on the FRAC for a period of 12 months or unless a further extension is agreed by members. A meeting quorum will be three members of the FRAC. Decisions made by consensus (i.e. members are satisfied with the decision even though it may not be their first choice). If not possible, the FRAC chair makes the final decision.

Meeting agendas minutes will be provided by Carl Dixon (CEO), this includes:

• Preparing agendas and supporting papers
• Preparing meeting notes and information.

The FRAC will meet at least 3 times per year and:

• Prior to a face-to-face Board meeting
• When the Board requires financial information to deal with exceptional circumstances.

If further subgroup meetings are required these will be arranged outside of these times at a time convenient to subgroup members.

This ToR’s may be amended, varied or modified in writing after consultation and agreement by the FRAC members.

1. NHF Together with Tenants Charter: https://www.housing.org.uk/globalassets/files/together-with-tenants/together-with-tenants-charter.pdf