Final Assurance Plan. Annual Performance Reporting

Transcription

1 Final Assurance Plan Annual Performance Reporting

2 Page 2 Southern Water Final Assurance Plan Contents Page 3 1. Overview 3 2. Final Assurance Plan 5 3. Summary 6 Appendix: Our approach to assurance

3 Southern Water Final Assurance Plan Page 3 1. Overview For the period , our regulator, the Water Services Regulation Authority (Ofwat) has developed a new Company Monitoring Framework for ensuring the quality and accuracy of information that water and wastewater companies provide to their customers and stakeholders. As part of this framework, Ofwat has specified the minimum level of information that companies are required to report in an Annual Performance Report (APR). It has also undertaken an assessment, placing companies into one of three categories: self-assurance; targeted assurance; or prescribed assurance. In line with the majority of water companies, Ofwat assessed Southern Water as requiring targeted assurance. This means we are required to engage with stakeholders to identify key risks and areas of weakness against which additional targeted assurance will be required and to publish a final assurance plan. As a result, on 30 November 2015, we published a Statement of Risks, Strengths and Weaknesses that set out: how we assure the quality and accuracy of key performance information; the results of a stakeholder engagement exercise into our reported information and possible improvements we could make to this; and a draft assurance plan for that builds on our strong assurance framework incorporating the engagement feedback. The statement invited responses on its content by 31 December 2015, and based on this we committed to publish our final assurance plan for the financial year ending 31 March 2015 by 31 January Final Assurance Plan detail As part of the consultation on our Statement of Risks, Strengths and Weaknesses, stakeholders did not identify any specific weaknesses with our performance reporting. In response to our draft assurance plan for the only comments received were: i. that our draft assurance plan was high-level and more detail would provide greater transparency to stakeholders; and ii. that the plan should provide details of the broader range of assurance activities that the company plans to undertake in addition to those associated with the Annual Performance Report. In this section we set out our proposed assurance plan for which seeks to address the comments received. The section focuses on the independent assurance activities. We have included details in the Appendix. Similarly, the section outlines key company activities that require assurance, including results from the engagement exercise, rather than all areas that are assured. It should also be noted that most assurance processes are already underway as we progress through the fourth quarter of the financial year and will be completed prior to the publication of the Annual Performance Report. As well as commissioning the external sources of assurance listed in the table on page 4, we will also enlist further independent scrutiny and challenge from our independent Customer Advisory Panel (CAP). Our CAP is chaired by Anna Bradley, an expert in consumer advocacy, with members drawn from Age UK, the British Youth Council, Sussex Chamber of Commerce, Waterwise, East Sussex County Council, the South Downs National Park, and Ofgem. We have asked the CAP to monitor and report on the delivery of our Business Plan promises and performance commitments. The final challenge, review and sign-off of all key performance data rests with the Southern Water Board.

4 Page 4 Southern Water Final Assurance Plan Table 1: Established and new assurance processes driven by our Statement of Risks, Strengths and Weaknesses. Significant Areas for Assurance Annual Performance Report (APR) Performance Commitments and Outcome Delivery Incentives (ODIs Explanation for Inclusion Our Annual Report & Accounts is the primary way that we document our annual performance and hold ourselves publicly to account The Annual Report & Accounts includes: our Statutory Accounts audited separately by Deloitte LLP; our Annual Performance Report and our Performance Commitments (as detailed below) as well as other information to explain more broadly our commitments and responsibilities to our stakeholders and customers. Our Business Plan for the period made 26 promises to our customers with a clear set of targets to deliver by Ofwat also set out a number of additional target or performance commitments in its determination of our price limits for this period, some of which included financial rewards and penalties. In addition, our stakeholder engagement exercise highlighted opportunities to improve reporting in specific areas namely; 1. the help we provide to customers struggling to pay water bills; 2. comparative performance data for key areas; 3. delivering under the National Environment Plan; 4. reporting on our management of Sites of Special Scientific Interest (SSSIs) and delivery of our Water Resources Management Plan; and 5. improved clarity around the service received by customers with a different water supplier. We also agreed to review how to best describe performance in the APR with a clear narrative way to complement the data shown. The points 1 to 5 above will be specifically included within the Annual Performance Report. Assurance Responsibility and Activities Corporate Auditors (Deloitte LLP) audit of APR according to Ofwat scope of work and audit requirements. Corporate Auditors (Deloitte LLP) agreed upon procedures assurance on reported performance data and the presentation of information and risks. Corporate Auditors (Deloitte LLP) agreed upon procedures assurance on reported performance data and the presentation of information and risks. Third Party Certifier of non-financial information (Halcrow Management Sciences Ltd). Cost Allocation and Segmental Reporting Market Reform 2017 Tariffs and Charges The allocation of costs between business units and segments is subject to significant management judgement. As a result, and with the pending introduction of competition, this is an area that will require assurance. From April 2017, non-household customers can opt to change their water retailer. New reporting requirements and assurance will be required to demonstrate a level playing field to ensure market confidence and fairness for all customers. For the company is required to put in place a comprehensive programme plan to ensure our readiness within this initiative. The regulatory governance framework requires us to provide assurance to our market stakeholders on our readiness for market opening. Water companies are required to publish their tariffs and charges to comply with legal obligations and to have appropriate systems of control in place. Corporate Auditors (Deloitte LLP) review of methodologies and application of regulatory accounting guidelines as part of Ofwat APR assurance requirements Assurance: Southern Water Internal Audit review of the internal programme (completed). PricewaterhouseCoopers (LLP) Open Water Market plan assessment (completed). Corporate Auditors (Deloitte LLP) assurance of charges according to agreed procedures (completed).

5 Southern Water Final Assurance Plan Page 5 3. Summary In assessing the risks, strengths and weaknesses of our performance reporting we consulted with all of our key regulatory stakeholders during October and the first half of November 2015 Ofwat, the Consumer Council for Water (CCW), the Environment Agency (EA), Natural England, and the Drinking Water Inspectorate (DWI). In our discussions with regulatory stakeholders, we shared details of our current approach to performance reporting, our regulatory assurance framework and our Business Plan proposals to enhance the reporting and assurance of our data, including how we would work with our independent Customer Advisory Panel (CAP). Our conversations focused on gathering feedback on the scope and form of the performance information we provide as well as the levels of assurance our performance data is subject to. We used the feedback we received from stakeholders to draft our Statement of Risks, Strengths and Weaknesses and our draft assurance plan. This document was published for consultation on 27 November The consultation closed on 31 December The consultation on our Risks, Strengths and Weaknesses Statement did not identify any specific weaknesses with our performance reporting. Stakeholders provided a number of helpful suggestions to enhance the accessibility of our performance reporting. We will take these into account as we further develop our proposals around both the look and feel of our reporting. We will also ask our customers how they would like to receive information regarding our performance and use their responses to inform the content, presentation and communication channels used for our annual performance report. This will ensure that our annual performance reporting is as accessible, understandable and clear as it can be and meets our customers expectations. We expect our Annual Performance Report to be published on 15 July Finally, we would like to take this opportunity to thank our stakeholders as well as our external assurers for their feedback and input to date. Any comments on this document should be sent to: regcorrespondence@southernwater.co.uk.

6 Page 6 Southern Water Final Assurance Plan Appendix: Our approach to assurance Our current approach to assuring performance data In this section we describe our current approach to the assurance of our performance data. Further details of our corporate risk management process, which underpins the framework described here, are provided in Appendix 2 of our Statement on Risks, Strengths and Weaknesses, available on our website. The assurance framework described here formed the basis of the proposals we set out in our Business Plan for assuring the quality, accuracy and reliability of our performance reporting. In its final determination of our price limits in December 2014, Ofwat was content that our assurance proposals were appropriate, stating that: Southern Water has provided sufficient evidence demonstrating the approach it will undertake to ensure the PCs [Performance Commitments] will be measured and reported consistently, and the proposed governance and assurance processes. Therefore, we have accepted the company s proposal. 1 Our current assurance framework All regulatory performance reporting is subject to the same robust system of internal controls and quality assurance. This ensures that the reporting of performance against regulatory performance targets is measured and recorded consistently within a framework of appropriate governance and quality control which includes Board challenge, scrutiny and sign-off. Our framework uses the best practice three lines of defence model, which is illustrated in Figure 1 below. The key features of our three lines of defence framework of internal control and assurance are: Documented processes, procedures and systems, which we will continue to use for reporting performance against our targets. These procedures cover the controls on data quality, reporting and review of the information. Confidence grades, which describe the margin of error around particular data, are used to reflect the quality of the information we report Figure 1. Our three lines of defence assurance model Lines of defence Activities Governance 1st line of defence Business operations Management process and controls Controls monitoring and measures Methodology statements for performance commitment measures Data quality monitoring Ofwat KPI reporting and review Responsible business directorates and responsible director 2nd line of defence Oversight functions Regulation HSE Financial control Legal HR Oversight teams policy and procedure setting, and ongoing challenge, monitoring and assurance Monthly performance reporting to Executive Management Team and Board for review and challenge Regulatory compliance function and other oversight functions Our Board and sub-committees IT security Risk management 3rd line of defence Independent assurance Internal audit Internal audit review of systems, processes and control monitoring External risk based assurance of financial and regulatory accounts Third party technical auditor working on behalf of internal audit to assure Ofwat KPIs External financial auditor External audit Our Board and sub-committees 1 Pg.194, Final price control determination notice: company-specific appendix Southern Water, December 2014 ofwat.gov.uk/wp-content/uploads/2015/10/det_pr srn.pdf

7 Southern Water Final Assurance Plan Page 7 Management and director scrutiny with sign-off of data as a key control to ensure the performance we report is complete, accurate and reliable. In the future, this key control will also define accountability for the delivery of the promises in our Business Plan and will provide a process to escalate issues Reporting procedures and quality assurance processes are subject to an ongoing programme of internal and external reviews and continual improvement in order that they remain fit for purpose A risk and compliance statement signed by the Board continues to form a key part of our Annual Report. The governance and assurance processes which underpin our Board s ability to make this statement are based on defined accountability and escalation processes within the business, which comprise: Top-level challenge of business performance that allows for action to be taken where improvement is required. This is enabled through our framework of monthly performance reporting to the Board and Executive Management Team (EMT) Robust internal compliance processes and procedures including an obligation on the EMT and senior managers to provide a written declaration that they are fully compliant with company procedures and controls every six months, or otherwise record any areas of non-compliance for areas of the business for which they are accountable. Areas of significant noncompliance are escalated to the Board and require clear action plans to rectify the position The Board s Audit and Risk Review Committee (ARRC) monitors assurance activities during the year including thorough reviews of processes and controls undertaken by internal and external audit teams. These reviews cover the design and operating effectiveness of controls and processes, together with audit trails of reported data. It is a statutory requirement that annual accounting statements, i.e. our financial information, are audited and an independent auditor s report is given. We believe customers should see the same principle applied to reporting on the delivery of our non-financial business performance. Following the introduction of risk-based regulation by Ofwat in 2012, Southern Water has continued to use independent external assurance providers to complete reviews of our regulatory compliancereporting processes and associated data. We see this as important and will continue to use independent experts in customer service, asset management and operations to complete assurance work on our performance reporting. Our independent external auditor (Deloitte LLP) audits our financial statements annually and, based on its own independent financial materiality assessment, provides a true and fair view statement of our annual financial statement. All subject matter experts, senior managers, and members of the EMT are required to report any issues with procedures and with information being reported A comprehensive risk framework for the identification, assessment, management and communication of key risks to our business (see Appendix 2 of our Statement on Risks, Strengths and Weaknesses, for a fuller description of our corporate risk framework)

8 Any comments on this document should be sent to: 4022_02.16