Audit and Inspection Plan 2002-04

Currently Under Review

Quick links

• Introduction,
• Our responsibilities,
• Inspection,
• Appendix 1,
• Appendix 2.

Introduction

The Audit Commission has a responsibility to help reduce the burden of regulation in local government. One of its first visible actions is to integrate its functions of audit and inspection from April 2003. This will impact on future audit and inspection work but requires transitional action before the changes can be fully implemented.

This plan includes the mandatory requirements of the Audit Commission and consists of:

• Audit Plan for 2002/03,
• Audit and Inspection Plan for 2003/04.

As explained in the Commission’s fees letter, we are changing our year end from October to March to synchronise the annual work programme and audit fees with local authorities’ financial year. In addition, it assists the introduction of joint audit and inspection planning from 2003/04, starting with the Comprehensive Performance Assessment (CPA) process.

A transitional arrangement will therefore apply to the audit for 2002/03:

• our work on the accounts will be unchanged,
• we will still carry out risk-based work to meet our other Code of Audit Practice objectives but, where possible, we may reduce our performance management work in 2002/03,
• the next BVPP audit will form part of the 2003/04 audit,
• inspection work for 2002/03 has already been planned and charged so it has been excluded from this plan.

The impact is reflected in the fees shown on page 3 for the statutory audit.

As also stated in the Commission’s fees letter, the Audit Commission has decided to appoint a relationship manager to help you receive a tailored, seamless service integrated with the work of other inspectorates. They will plan and co-ordinate the delivery and reporting of the work. This appointment is separate from the role of the statutory auditor although both roles may be performed by the same person in some instances. The cost is expected to be kept within existing costs.

The Commission has appointed Edwina Child as your relationship manager from February 2003.

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Our responsibilities

Quick links

• Audit,
• Inspection,
• The Fee,
• Accounts,
• Performance,
• Financial aspects of corporate governance.

Audit

Our principal objective as your appointed auditor is to carry out an audit which meets the Audit Commission’s Code of Audit Practice.

To ensure our audit is relevant to Babergh District Council, we must design a programme of work to address the significant operational and financial risks you face which impact on our responsibilities.

In addition, we have to review whether you have adequate arrangements for:

• ensuring the legality of transactions with a significant financial consequence,
• ensuring your financial standing is soundly based,
• satisfying yourselves that your systems of internal financial control are both adequate and effective,
• ensuring proper standards of financial conduct and to prevent and detect fraud and corruption,
• securing economy, efficiency and effectiveness in the use of your resources.

We must also give an opinion as to whether your Accounts present fairly the financial position of the Council.

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Inspection

The Audit Commission has a duty to audit local authority plans for improvement and to inspect local services.

This inspection responsibility will be discharged for 2003/04 by delivering gap filling and targeted inspection work.

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The Fee

Your fee has been determined on the basis of:

• the audit risks we have identified, using both national risks identified by the Audit Commission and our local risk assessment,
• the inspection programme set out in the CPA methodology.

The work we have agreed with you, that we should undertake to address the audit risks, is set out on pages three to five. Inspection work is set out on pages five and six.

Changes to the Plan may be required if any significant new risks emerge or if additional inspection work is required for any reason. No changes will be made without first discussing and agreeing them with you.

The fees for the 2002/04 Code of Practice audits and the 2003/04 Inspection (excluding VAT) will be:

The lower audit fee for 2002/03 reflects the reduced level of performance audit work required in this transitional year. The combined two year fee of £139,000 will be charged in 17 instalments from November 2002.

You should also note that the Inspection fee reflects only the amount to be paid by the Council. This is only 20% of the full fee as the remaining 80% is met by grant from the Office of the Deputy Prime Minister.

In addition to the total fee above, we are required to certify your Government grant claims and returns, for which we charge at skill related fee rates. We estimate the annual cost to complete this work will be £45,000 plus VAT.

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Accounts

We are required to give an opinion on your Annual Accounts for 2002/03 and 2003/04. We will do this in each year by reviewing your core processes, namely:

• the main accounting system,
• the budgetary control procedures,
• the final accounts closedown procedures.

We will then undertake detailed testing of the figures in each year’s Statement of Accounts.

We will undertake the following additional work to address the risks we have identified for 2002/03:

In addition the audit plan assumes that:

• agreed recommendations from our 2001/2002 reports are implemented,
• working papers in support of the financial statements are of a good standard.

Additional audit resources will need to be agreed with your Head of Finance and Performance Review for any issues that arise during the year which require additional audit input.

We will update our risk assessment before commencing the 2003/04 accounts audit and discuss the results with you.

It should be noted that our accounts audit does not seek either to obtain absolute assurance that the financial statements present fairly your financial position or assurance that they are accurate in every regard.

In this context we adopt a concept of materiality. We seek, in planning and conducting our audit of the Accounts, to identify material errors in your financial statements. Material errors are those which might be misleading to a reader of the financial statements.

Our initial calculation of an overall materiality is £1m, however we may determine that certain items of account should be subject to a lower materiality due to their political or numerical sensitivity. We will update this calculation of overall materiality when we receive your draft accounts.

An unqualified opinion may not be given on financial statements which contain material misstatements. In the course of our work we may also identify non material misstatements which we will report to officers for amendment, unless they are clearly trifling.

Where these non trifling misstatements in the accounts have not been adjusted by officers we will report them to the Council, so there is an opportunity for them to be amended before we issue an opinion.

If the Council concludes that adjustments are not necessary we will require a written representation explaining the reasons for not adjusting.

We will also report in the Final Accounts Memorandum any misstatements that have been adjusted where we feel that bringing them to the attention of the Council will assist them in fulfilling their duties particularly in relation to internal financial control.

Before the financial statements are approved by the Council, we will communicate any findings which are relevant to the financial statements that have arisen from our audit work to that date.

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Performance

We will review whether you have adequate arrangements to secure economy, efficiency and effectiveness in the use of your resources.

We will undertake a review of your Best Value Performance Plan for 2003/04 to ensure it meets the statutory requirement in respect of its content. We will issue an opinion on the BVPP.

We will also review and comment on your:

• systems for collecting performance information and in particular BVPIs,
• arrangements for performance management.

We will undertake the following work to address a risk we have identified for 2002/03:

The provisional risks to be addressed in 2003/04 are as follows.

We will examine Babergh’s system for monitoring the implementation of previous audit and inspection findings. In addition we will follow-up selected audits from previous years on a sample basis.

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Financial aspects of corporate governance

We are required to determine whether you have adequate arrangements for:

• legality of financial transactions,
• financial standing,
• internal financial control,
• standards of financial conduct and preventing and detecting fraud and corruption.

We will build upon our cumulative knowledge of the financial aspects of your corporate governance arrangements when undertaking work to discharge our duties in this code area in 2002/03 and 2003/04. In particular we will be using evidence based criteria to shadow score your performance across the Code of Practice areas and feed these into Auditor Scored Judgements ahead of next year’s formal CPA review to provide some early comment on your performance.

We will also address the following risks we have identified for 2002/03:

In addition to continuing risks, the provisional risks to be addressed in 2003/04 are as follows:

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Inspection

Quick links

• Service reviews,
• Comprehensive Performance Assessment,
• Other Audit Commission Requirements,
• Further details of our respective Code responsibilities,
• Work outside the Code,
• The team,
• Status of our Reports to the Council

Service reviews

You have carried out your own Best Value reviews of Leisure and Community and Planning, Policy and Economic Development both of which are important to local people. Therefore, in 2003/04 we intend to carry out full inspection of the Leisure and Community review and a ‘Light Touch’ inspection of Planning, Policy and Economic Development.

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Comprehensive Performance Assessment

In Suffolk the CPA process will dominate inspection work during 2004/05, with a strong influence on audit work. Based on current consultation proposals, there will be a corporate assessment after a self assessment by the Council. This will be fed by performance information as well as the results from two cross cutting service diagnostics:

Decent Homes Standard– will focus on the Council’s work to ensure all the homes it owns meet the standard by 2010.

Public Space – the local environment is often a major concern for citizens and it features as a major issue in the Central Local Partnership shared priorities. This diagnostic will evaluate how good the council is at identifying the priorities for its public space and the impact the Council has in terms of service outcomes and experiences for local people.

This will then provide a view of the performance and capacity of the council to improve services, leading to improvement planning.

Full details of the CPA methodology and approach are set out on the Commission’s website at www.audit-commission.gov.uk.

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Other Audit Commission requirements

The following returns are required by the Audit Commission:

• National Risk Assessment Tool,
• Annual return on fraud and corruption,
• Stewardship & governance,
• Integrated Data Return.

These returns will be compiled from our audit, upon which our Annual Audit Letter will be based. The results will help inform the national Stewardship and Governance Report produced by the Audit Commission.

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Further details of our respective Code responsibilities

The Audit Commission’s publication ‘Statement of Responsibilities of Auditors and Audited Bodies’ gives further information on our respective responsibilities under the Code of Audit Practice.

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Work outside the Code

You have not indicated that you require any further work outside of our responsibilities under the Code and inspection work. We are available to undertake such work if you require it and we will be happy to provide you with a quote, which must be treated in accordance with your Financial Regulations. Please note that VAT on any additional work would be recoverable under the contracted out services rules.

So that you are fully aware of the extent of our financial relationship with the Council, we are required to disclose the amount of fees that we have earned from the provision of services over and above our Code of Practice audit.

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The team

 Under the requirements of the Statement of Auditing Standards (SAS) 610, we are not aware of any relationships that may bear on the independence and objectivity of the team which are required to be disclosed.

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Status of our reports to the Council

We will provide reports, or other output as agreed, to the Council for each of the areas identified above. Our key milestones are set out in Appendix 1 which will be updated regularly and submitted to the Head of Finance and Performance Review.

In simple terms the status of our reports will be:

• inspection reports and our Annual Audit Letter must be made available to the public,
• audit reports are generally prepared for the Council although the Council may decide to make them available to the public.

The Commission publishes public reports summarising every inspection. These are made available on the Audit Commission website and are announced via a press release.

To comply with SAS 610 Communication of audit matters to those charged with governance, we would remind you that our audit reports are:

• prepared for the sole use of the Council,
• written without assuming any responsibility by ourselves to any other person, including members and officers, or to any third party.

SAS 610 also requires us to report governance (including accounting) issues to those charged with governance. We have agreed this responsibility will be discharged by submitting our final governance and accounts reports to the xxx Committee and full Council where appropriate (to discuss).

In relation to the audit of your financial statements we will comply with the Commission’s requirements in respect of independence and objectivity as set out at Appendix 2.

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APPENDIX 1

Planned outputs

APPENDIX 2

The Audit Commission’s requirements in respect of Independence and Objectivity

The following currently relates to auditors. The Commission is currently considering how this will be extended to cover all staff.

Auditors appointed by the Audit Commission are subject to the Code of Audit Practice (the Code) which includes the requirement to comply with Statements of Auditing Standards (SAS) when auditing the financial statements. SAS 610.3 requires auditors to communicate to those charged with governance, at least annually, all relationships that may bear on the firm’s independence and the objectivity of the audit engagement partner and audit staff.

The SAS defines ‘those charged with governance’ as ‘those persons entrusted with the supervision, control and direction of an entity’. In the case of Babergh District Council it has been agreed that the appropriate addressee of communications from the auditor to those charged with governance is the relevant regulatory Committee (to discuss). The auditor reserves the right, however, to communicate directly with the board/authority on matters which are considered to be of sufficient importance.

Auditors are required by the Code to:

In addition, the Code specifies that auditors, or any firm with which an auditor is associated, should not carry out work for an audited body, which does not relate directly to the discharge of the auditors’ functions if it would impair the auditors’ independence or might give rise to a reasonable perception that their independence could be impaired. If auditors are satisfied that performance of such additional work will not impair their independence as auditors, nor be reasonably perceived by members of the public to do so, and the value of the work in total in any financial year does not exceed a de minimis amount (currently the higher of £25,000 or 20% of the annual audit fee), then auditors (or, where relevant, their associated firms) may undertake such work at their own discretion. If the value of the work in total for an audited body in any financial year would exceed the de minimis amount, auditors must obtain approval from the Commission before agreeing to carry out the work.

The Code also states that the Commission issues guidance under its powers to appoint auditors and to determine their terms of appointment. The Standing Guidance for Auditors includes several references to arrangements designed to support and reinforce the requirements relating to independence, which auditors must comply with. These are as followsany staff:

• involved on Commission work who wish to engage in political activity should obtain prior approval from the Partner or Regional Director;
• audit staff are expected not to accept appointments as lay school inspectors;
• firms are expected not to risk damaging working relationships by bidding for work within an audited body’s area in direct competition with the body’s own staff without having discussed and agreed a local protocol with the body concerned;
• auditors are expected to comply with the Commission’s statements on firms not providing personal financial or tax advice to certain senior individuals at their audited bodies, auditors’ conflicts of interest in relation to PFI procurement at audited bodies, and disposal of consultancy practices and auditors’ independence;
• auditors appointed by the Commission should not accept engagements which involve commenting on the performance of other Commission auditors on Commission work without first consulting the Commission;
• auditors are expected to comply with the Commission’s policy for both the District Auditor/Partner and the second in command (Senior Manager/Manager) to be changed on each audit at least once every five years with effect from 1 April 2003 (subject to agreed transitional arrangements);
• audit suppliers are required to obtain the Commission’s written approval prior to changing any District Auditor or Audit Partner/Director in respect of each audited body; and
• the Commission must be notified of any change of second in command within one month of making the change. Where a new Partner/Director or second in command has not previously undertaken audits under the Audit Commission Act 1998 or has not previously worked for the audit supplier, the audit supplier is required to provide brief details of the individual’s relevant qualifications, skills and experience.

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