GOVERNANCE HANDBOOK COMMUNITY REHABILITATION COMPANIES PUBLIC SECTOR OWNERSHIP MAY May

Transcription

1 GOVERNANCE HANDBOOK COMMUNITY REHABILITATION COMPANIES PUBLIC SECTOR OWNERSHIP MAY 2014 May

2 CONTENTS 1. Introduction 3 2. Community Rehabilitation Companies Background and Legal Basis 3 3. NOMS Engagement 4 4. Accountability 4 5. Delegation of Powers 5 6. The Board of the CRC 6 7. Company Secretary 8 8. Meetings of the CRC 8 9. Committees of the CRC Declarations of Interest 9 Annex A Annual Governance Statement Guidance 11 Annex B Model Delegation Principles 12 Annex C Audit and Risk Assurance Committee Terms of Reference 13 May

3 1. Introduction 1.1 This is the Governance Handbook for Community Rehabilitation Companies (CRCs) and will be effective up until share sale. It specifies the minimum standards for relevant areas of activity and seeks to identify best practice. It also explains the accountability relationships between the CRCs as providers, NOMS and the Secretary of State. Finally it provides a template for the mandatory Governance Statement required of a CRC. These arrangements should be considered in conjunction with the CRC s Articles of Association document together with the requirements of the Companies Act Community Rehabilitation Companies Background and Legal Basis 2.1 The Secretary of State has established 21 CRCs under the Companies Act The Companies Act requires at least one Director to be appointed for any company, who must fulfil the statutory duties specified in the Act. There are also governance arrangements set out in the Financial Reporting Council s UK Corporate Governance Code This code sets out a number of principles for good governance of companies. These are not mandatory, however, the Code identifies that companies should comply or explain i.e. either comply with the code, or set out a clear explanation to shareholders (in this case, the Secretary of State) why elements have not been complied with. Paragraph 2.3 sets out the key elements of this code and how they are being applied to high level CRC governance requirements. 2.2 The MoJ, through NOMS, provides funding to CRCs in line with their contracts. As CRCs are both publicly owned and receive public funds to deliver the contracted services, they are subject to the requirements set out in the HM Treasury publication Managing Public Money. The key rules and requirements can be found within the CRC Financial Manual, annexed to this Governance Handbook. Please refer to the Finance Manual for the definitive guide to delivering financial arrangements and financial governance in particular. 2.3 The key points of the Corporate Governance Code of relevance for the governance structures of the CRCs are as follows: Leadership each company should be headed by an effective board, responsible for the long-term success of the company. Non-executive directors should sit on this board and constructively challenge and help develop proposals on strategy. The code advises that these boards should in most circumstances be non-executive led. However, it has been decided that, bearing in mind the wider accountability structures of NOMS and the MoJ up until share sale, it will in most cases be more appropriate for CRC boards to be led by Chief Executives during this time (see section 6.3 below) Effectiveness the board and its committees should have the appropriate balance of skills, experience, independence and knowledge of the company to enable them to effectively discharge their responsibilities. Relations with Shareholders there should be a dialogue with shareholders based on the mutual understanding of objectives. The board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place. May

4 2.4 NOMS and the MoJ are required to account for the expenditure of funds provided to CRCs in the form of both contractual payments and start-up assets. The financial arrangements and contract for the CRC will identify how the CRC must work with NOMS and the MoJ to achieve this. 2.5 In accordance with Managing Public Money, CRCs are required to have in place a Governance Statement and to publish regular information about their plans, performance and their use of public resources. The Governance Statement has three components governance, risk management and, as appropriate, oversight of certain responsibilities. Essential features include: The governance framework across the organisation, including information about the CRC s structure; The CRC s performance on corporate governance; An account of Corporate Governance, including the CRC s assessment of compliance with the Corporate Governance Code, with explanations of any departures; and; Any relevant special share holder issues. 2.6 Guidance for producing the Annual Governance Statement can be found at Annex A. 3. NOMS Engagement 3.1 Each CRC, as a provider of services to NOMS, will have a contract with the Secretary of State to deliver the relevant probation services. This contract will be subject to the relevant contract management arrangements. There are also governance oversight and partnership relationships that must be undertaken with NOMS and with the MoJ. 3.2 Governance oversight rests with NOMS, which will be responsible for ensuring that governance functions are delivered and appropriately supported. This will include the appointment of Non-Executive Directors, provision of appropriate support mechanisms, and guidance on issues of probity and propriety. 4. Accountability 4.1 CRCs are public sector bodies governed by a number of requirements and documents including: H M Treasury s Managing Public Money; H M Treasury Guidance for Audit and Risk Committees; and Cabinet Office Guidance on Corporate Governance for Non-Departmental Public Bodies. One of the primary sources of such regulations is the CRC s Articles of Association. These have been referenced, though mostly not replicated, in the Governance Handbook. In addition CRCs are required to reference the CRC Finance Manual. May

5 4.2 Each public sector body must have an Accounting Officer operating within a hierarchical structure across Government. The Permanent Secretary at the Ministry of Justice, as Principal Accounting Officer, has designated the Chief Executive of NOMS as the Accounting Officer for the NOMS agency. The Chief Executive of NOMS will designate an employee of each CRC as the Accounting Officer for that CRC; this will normally be the Chief Executive Officer. 4.3 The Principal Accounting Officer is accountable to Parliament for the performance of CRCs as public sector bodies and is also responsible for advising the responsible minister: on an appropriate framework of objectives and targets for the CRC, in the light of the Ministry s wider strategic aims; on an appropriate budget for the CRC; and on how well the CRC is achieving its strategic objectives including whether it is delivering value for money. 4.4 The Chief Executive Officer as the Accounting Officer for the CRC will: ensure that all contracted funds are used for the purpose for which they were intended by Parliament, and that such funds, together with the assets, equipment and staff, are used economically, efficiently and effectively; ensure that adequate internal management and financial controls are maintained, including effective measures against fraud and theft; and provide a statement on the system of internal financial control for inclusion in the annual report and accounts; establish a comprehensive system of internal delegated authorities, which will be notified to all staff, together with a system for regularly reviewing compliance with these delegations; ensure that appropriate employment laws and HR policies are maintained, and that the CRC complies with wider Government policy on public sector pay; be responsible for signing the accounts; for ensuring that proper records are kept relating to the accounts; and that the accounts are properly prepared and presented in accordance with any directions from the Secretary of State, with the approval of the Treasury; and sign a Statement of Accounting Officer s responsibilities for inclusion in the annual report and accounts; provide support, as required, to the Ministry of Justice s Principal Accounting Officer when she is summoned before the Public Accounts Committee (or before any other Parliamentary Select Committees) on the use to which public funds have been put by the CRC; and ensure that effective procedures for handling complaints about the CRC s service provision are established and made known. 5 Delegation of Powers 5.1 The board of the CRC can delegate its powers and make arrangements for delegation. The Articles of Association note that the Directors may delegate any of the powers conferred on them to: May

6 (i) (ii) (iii) (iv) (v) such person or committee; by such means (including power of attorney); to such an extent; in relation to such matters or territories; and on such terms and conditions, as they think fit. 5.2 The Directors of the CRC must determine and set out those powers to be delegated in a scheme of delegation. This scheme of delegation should be reviewed regularly and operate in line with relevant governance principles and financial delegation limits. A template model of delegation principles is provided at Annex B which CRCs may use. 6. The Board of the CRC: Composition, Tenure and Roles 6.1 Article 5 of the Articles of Association confirms that subject to the articles, the directors are responsible for the management of the company s business, for which purpose they may exercise all the powers of the company. Shareholders of the company (in this case the Secretary of State for Justice) may, by special resolution, direct the directors to take or refrain from taking specified action. 6.2 The rules and procedures governing the appointment of Directors and termination of their appointments are set out in Articles 21 to 23 of the Articles of Association. 6.3 The presumption is that CRC Board will normally be chaired by the CRC Chief Executive. If, exceptionally, the Chief Executive and the Board of the CRC conclude that an alternative arrangement would be more appropriate given all the circumstances, then NOMS (on behalf of the Secretary of State) will consider the case made. If the case is agreed, then the expectation is that one of the Non Executive Directors would take on the role of Board Chair. Chief Executive 6.4 The Chief Executive shall be responsible for the overall performance of the CRC. He or she will normally be the Accounting Officer for the CRC and shall be responsible for ensuring the discharge of obligations under Financial Directions, as set out in the CRC Finance Manual, effective use of resources and compliance against the CRC Contract with the Secretary of State. Executive Directors 6.5 One further Executive Director will be appointed to the CRC Board, subject to the requirements set out in the Articles of Association. This will normally be either the CRC s Finance Director or Director of Corporate Services. The responsibilities of CRC employees as Directors will be set out in their job description. 6.6 The responsibilities of all Directors are set out below: To act in accordance with the company s constitution (the Articles of Association) To only exercise powers for the purposes which they are conferred May

7 To act in the way which, in good faith, you consider would be most likely to promote the success of the company for the benefit of the purposes its members (i.e. the shareholders in this case the Secretary of State). In doing this you must have regard to: (a) the likely consequences of any decision in the long term, (b) the interests of the company's employees, (c) the need to foster the company's business relationships with suppliers, customers and others, (d) the impact of the company's operations on the community and the environment, and (e) the desirability of the company maintaining a reputation for high standards of business conduct, To exercise independent judgement To exercise reasonable care, skill and diligence in the running of the company To avoid a situation in which you have or can have a direct or indirect interest that conflicts or possibly may conflict with the interests of the company, unless authorised by the Directors of the company the process for this is set out in more detail in the Articles of Association. Not to accept a benefit from a third party which is conferred because of your company Directorship or your doing (or not doing) anything in this capacity unless the benefit cannot be reasonably regarded as likely to give rise to a conflict of interest. To declare any interest in a proposed transaction or other arrangement before the company enters into it (unless you are not aware of it and could not be reasonably expected to be aware of it). Non-Executive Directors 6.7 Each CRC will have two Non-Executive Directors (NEDs) appointed by the Secretary of State for Justice. These NEDs will be appointed and removed in accord with their terms of appointment, which in any event will terminate at the point that ownership of the Company passes from the Secretary of State. They will be subject to the Nolan Principles, and the requirements of the CRC Articles of Association. In accepting the role of NED they are confirming that they are not disqualified from being a Company Director. It is the responsibility of every NED to inform the CRC Chief Executive and NOMS immediately should this circumstance change. Where necessary, NOMS and the CRC will establish the requisite approach to the Registrar of Companies in relation to such a change in circumstances. 6.8 One of the NEDs will be appointed as the lead NED for the CRC. This role mirrors the Non Executive Board approach of the MoJ, and other government departments. The role provides personal assurance to the Secretary of State in relation to the effective management of risk and corporate governance activities. The lead NED will be required to liaise with NOMS to provide assurance or raise concerns in relation to risk management and robust corporate governance arrangements. 6.9 Key accountabilities for all NEDs are established as: Providing support and challenge to the CRC Chief Executive and executive team in meeting the aims and objectives of the contract with the Secretary of State; May

8 Working with the executive team to ensure delivery of the Secretary of State s strategic priorities; Working with NOMS to provide ongoing assurance on the CRC operation and governance arrangements; Ensuring that the CRC Board demonstrates high standards of corporate governance at all times including ensuring high standards of regularity and propriety in the running of the CRC and working with the executive team to ensure that the CRC s affairs are conducted with probity; Ensuring that the CRC, in reaching its decisions, takes proper account of guidance provided by the Principal Accounting Officer for the Ministry of Justice and the responsible Minister or Department as well as the CRC Chief Executive; Working with the executive team to ensure constructive relations exist between the CRC Board and CRC staff including ensuring the communication and dissemination of relevant actions or policies; Working with the executive team to ensure the CRC communicates effectively with Ministers, NOMS, service users and other key stakeholders or delivery partners; Working with the executive team to promote the efficient and effective use of CRC staff and other CRC resources; Providing feedback to the Chief Executive on the efficacy of his/her performance, ensuring that this is also provided to NOMS Directorate of Probation; Working with the executive team to ensure that the Secretary of State is kept informed of any changes which are likely to have an impact on the strategic direction of the CRC or attainability of its targets, and working with the full board to determine the steps needed to deal with such changes; and Working with the executive team to ensure that the CRC Board receives and reviews regular financial information concerning its management; is informed in a timely manner about any concerns about the activities of the CRC; and provides positive assurance to the Department that appropriate action has been taken on such concerns Key responsibilities of the CRC NEDs are: Acting as a Director of the Company; Participating in any hearings or appeals relating to grievance and disciplinary issues as they affect the Chief Executive of the CRC if appropriate. Participating in such hearings and appeals for another CRC if required by NOMS; Participating in any appeals in relation to CRC staff; and Participating in a national transition advisory panel, if required by NOMS or the Rehabilitation Programme Should a CRC NED have a concern in relation to the operation of the CRC they should raise the query with the rest of the CRC Board of Directors in the first May

9 instance and, if their concern remains, raise this with the relevant NOMS Account Manager. Remuneration of Directors 6.12 A CRC Directors Remuneration Committee, chaired by the NOMS Director of Probation, will determine the pay and related contractual conditions of service for CRC Chief Executives during the period of public ownership. The Remuneration Committee will also determine the remuneration and expenses arrangements for CRC non-executive directors. 7 Company Secretary Role 7.1 A Company Secretary is an individual who is registered as an officer of the company, responsible for ensuring that the company complies with legal and financial rules, and maintains good standards of corporate governance. The Company Secretary does not have any statutory powers, but can complete and sign many of the forms which Companies House requires, and can be delegated responsibility to enter into contracts or other agreements on behalf of the company. 7.2 Each CRC must appoint a Company Secretary. The Company Secretary s duties will be set out in their job description if they are employed by the CRC, or specified in their contract for services. 8. Meetings of the CRC 8.1 The CRC Articles of Association set out the requirements for meetings of the CRC Directors but do not specify a minimum number of meetings. This handbook assumes that for the pre-sale share period CRCs will meet on at least a monthly basis; reflecting the newly established nature of the organisation and the planned move from public to private ownership. 8.2 Proposals cannot be voted on unless the meeting is quorate. The Articles of Association establish that the quoracy for voting at meetings is never less than two eligible directors. Eligible directors are defined as a director who is entitled to vote on the relevant matter at a directors meeting and allows for a Director to be ineligible on the basis of conflict of interest. 8.3 Decisions are made on the basis of a majority decision at a collective meeting unless Directors have previously signalled their common view on a matter. In the event of a meeting being unable to reach a majority decision the status quo prevails. 8.4 Directors meetings should follow good governance practice as well as the requirements set out in the Articles of Association. This means that minutes of meetings, notices of meetings and additional papers for meetings should be produced and circulated to all Directors in a timely fashion. Minutes should particularly reference attendance at meetings and any dissent in relation to decisions made. The notes of meetings must record any conflict of interest noted by Directors either before the meeting starts or during proceedings where a conflict of interest becomes apparent. Directors should be asked to declare any known conflict of interest at the beginning of a meeting and be prepared to identify such conflict where it arises throughout the course of the meeting (in accordance with section 10.1 below). May

10 8.5 Article 19 of the Articles of Association require the CRC to retain a record in writing for at least 10 years (from the date of the decision recorded) of every unanimous or majority decision taken by the Directors. 9 Committees of the CRC 9.1 The board of the CRC shall appoint an Audit and Risk Assurance Committee which is chaired by the NED appointed to undertake this role. The requirements of the Audit and Risk Assurance Committee will follow those laid out in relevant governance documentation such as Managing Public Money. A template Terms of reference for the Audit and Risk Assurance Committee is attached at Annex C. 9.2 The role of the Audit and Risk Assurance Committee Chair is as follows: Chairing the CRC Audit and Risk Assurance Committee, to assess and seek to ensure that the CRC s key financial, and other risks are addressed; and Liaison, as appropriate, with internal and external auditors, NOMS Audit and Risk Assurance Committee and other relevant parties 9.3 The Directors may establish any additional committees considered relevant to the provision of the services required under contract. The rules, practices and procedures governing such additional committees can be varied by the Directors through the development and application of Rules of Procedures as set out in Article 9 of the Articles of Association. 10 Declarations of Interest 10.1 Articles 16 to 18 of the Articles of Association cover the requirement to deal effectively with any conflict of interest issues that arise. The Articles allow for individual Directors to become ineligible to vote on proposals under those circumstances. All CRC Directors must familiarise themselves with the relevant sections of the Articles of Association. The Chair of Directors (and Committee) meetings should raise the issue of conflict of interest at the beginning of meetings where it is obvious. If, during the course of a meeting, a conflict of interest manifests itself this should be noted in the minutes of that meeting and the affected Director should withdraw for that agenda item. May

11 ANNEX A Annual Governance Statement 1 Guidance For each CRC to produce: Name of CRC and paragraph identifying key information (geography, caseload etc). Identification of Key Executives and Directors plus details of particular remit. Details of Board Structure, committees, attendance records and coverage of work for committees. CRC Board statement on their performance especially in relation to how they have met the relevant governance standards. Brief report from the Audit and Risk Assurance Committee plus information about any additional committees established by the CRC. Précis of the CRC Risk profile including assessment and significant issues over reporting period. 1 Based on best practice guidance from the National Audit Office May

12 Annex B Model Delegation Principles 1. Introduction 1.1 These principles are designed to apply to a CRC in determining how to ensure the appropriate delegation of financial responsibilities. 2. General Principles 2.1 Authority levels must be operated in conjunction with the financial limits of authority for [name] CRC. 2.2 Compliance with these principles is mandatory. 2.3 Any expenditure in excess of [figure to be decided] must be notified to the relevant [name] CRC financial Director 2.4 Variation of these principles must be agreed by the relevant Executive Directors. In the case of [name] CRC these are [identify roles]. 3. Additional CRC requirements 3.1 Any queries in relation to delegated limits or expenditure should be referred to the relevant Executive Director. 3.2 [name] CRC will require a business case before agreeing expenditure outside of the appropriate budgetary controls or delegations. May

13 Annex C Audit and Risk Assurance Committee Terms of Reference 1. Introduction 1.1 [name] CRC has established an Audit and Risk Assurance Committee whose principle role is to ensure that the [name] CRC delivers it s responsibilities for risk management and financial control. In so doing the Audit and Risk Assurance Committee seeks to meet the relevant requirements of: The Companies Act 2006; The [name] CRC s Articles of Association; and; The HM Treasury document Managing Public Money 2. Chairing & Membership 2.1 The Chair of the committee will be [name] CRC Non Executive Director appointed to the role. 2.2 The Audit and Risk Assurance Committee cannot be chaired by any of the [name] CRC executive directors. 2.3 Membership of the committee will consist of the [name] CRC non-executive members, one of whom will Chair the committee, and an additional independent person. 2.4 This additional independent person will normally be co-opted from a neighbouring CRC. This additional member will receive remuneration from the [name] CRC but will not be a Director of [name] CRC. 2.5 The [name] CRC Director of Finance or Corporate Services may be required to attend the committee as will the Chief Executive Officer. NOMS Internal Audit and External Audit representatives will be invited to attend the committee. 3. Meetings 3.1 The Audit and Risk Assurance Committee will meet at least four times a year, but will determine a relevant schedule of meetings that reflect the relevant audit requirements. 3.2 Support for the meeting, including development of the Agenda will be provided by [name] CRC. 3.3 The meeting will determine issues such as quoracy and attendance. These decisions will be recorded in the minutes of the first meeting and set the standard for future meetings. May

14 4. Reporting 4.1 The Audit and Risk Assurance Committee of [name] CRC will ensure minutes of the committee meetings are produced and that these minutes are an accurate reflection of the proceedings. 4.2 In addition the Audit and Risk Assurance Committee will produce a report as required by [name] CRC in relation to financial regularity and probity. This report will be timed to coincide with the CRC requirements for financial probity and reporting 4.3 Reporting any significant identified weaknesses in control to the NOMS Audit and Risk Committee. 5. Responsibilities 5.1 The Committee will advise the Accounting Officer on: Strategic processes for risk, control and governance The statement of Internal Control Accounting policies, accounts and any annual report of the [name] CRC Planned activity and results of internal and external audit Adequacy of management responses to audit related issues Assurance in relation to [name] CRC corporate governance Assurance in relation to the management of [name] CRC risks 5.2 In addition the Committee will consider and advise upon other matters as agreed with [name] CRC. 6. Information Requirements 6.1 The Committee will require information from the [name] CRC on a number of areas including: Significant changes to the risk register Any audit activities undertaken Management responses to audit recommendations 6.2 The Audit and Risk Assurance Committee will be entitled to access those documents it believes necessary to fulfil its function. May