STATEMENT ON INTERNAL CONTROL

Scope of Responsibility
This statement is given in respect of the accounts for the Scottish Parliamentary Contributory Pension Fund (SPCPF). We, the Managers, acknowledge our responsibility for ensuring that an effective system of internal control is maintained and operated to safeguard the public funds and assets connected with the SPCPF. The SPCPF is a statutory scheme and operates within a legislative framework. Officials from the Scottish Parliamentary Corporate Body (SPCB) and the Scottish Public Pensions Agency (SPPA) provide a full secretariat and administrative service to the Managers. The Audit Advisory Board (AAB) of the SPCB at its meeting of 27 August 2004 agreed to extend its role to cover corporate governance of the SPCPF.

Purpose of System of Internal Control
The system of internal control is based on an ongoing process designed to identify the principal risks to the achievement of the organisation’s policies, aims and objectives, to evaluate the nature and extent of those risks and to manage them efficiently, effectively and economically. This process has been fully implemented in the year ended 31 March 2005 and has been in place up to the date of approval of the annual accounts and accords with guidance from the Scottish Public Finance Manual.

The system of internal control is designed to manage rather than eliminate the risk of failure to achieve the organisation’s policies, aims and objectives; it can therefore only provide reasonable and not absolute assurance of effectiveness.

The approval of pension awards for routine retirement (i.e. due to age or non-return to the Parliament) is delegated to the SPPA. The Managers only approve pension awards in other circumstances (e.g. ill health).

Appointed officials of the SPCB make payment of all awards.

Managing Risk
The system of internal control and risk management is based on a framework of regular management information, financial regulations, administrative procedures including segregation of duties, and a system of delegation and accountability. In particular it includes:

• all funds are controlled by the appointed officials of the SPCB through a designated Bank of Scotland account;
• the Managers delegated responsibility for the investment management of the SPCPF entirely to Baillie Gifford. Custody of the investments, the receipt of income and the recovery of tax remain the responsibility of the Managers;
• regular reconciliations of the funds with the investment monies transferred are conducted by the appointed officials of the SPCB. The Investment Managers produce monthly reports on stock transactions and valuations;
• regular reconciliations are conducted by the appointed officials of the SPCB of the designated Bank of Scotland account;
• separation of duties exists between appointed officials of the SPCB whereby the official initiating a payment cannot authorise the production of the payable instrument or despatch the instrument; and
• the Managing Trustees have free access to all documents and records.

Review of the Effectiveness
The SPCB and the Scottish Executive are both subject to review by internal audit who operate to standards defined in the Government Internal Audit Manual. The work of internal audit units is informed by an analysis of the risk to which the SPCB and the Scottish Executive are respectively exposed and annual internal audit plans are based on this analysis.

Our review of the effectiveness of the system of internal control is informed by the work of the internal auditors and the senior managers within the SPCB and the Scottish Executive who have responsibility for the development and maintenance of the internal control framework. We are also informed by our external auditors, Audit Scotland, on matters of internal control through their management letter and reports. Based on their recommendation, the SPCB took action to tighten up a number of its financial processes in 2004-05.

The SPCB’s Advisory Audit Board (AAB) met 5 times in the year ended 31 March 2005. In previous years the AAB was composed of two independent members and one member of the Corporate Body. An additional member of the Corporate Body joined the AAB in 2004-05 bring the SPCB representation to two. The Board is chaired by one of the independent members. The AAB receives reports from both external and internal auditors and provides guidance to the Principal Accountable Officer and the SPCB on corporate governance issues.

Approved on behalf of the Managers on by: