audit 2002/2003
Interim Audit Memorandum
Salford City Council
INSIDE THIS REPORT
PAGES 2-5
Summary Report



Introduction
Main conclusions
Status of our reports to the Council
PAGE 6
Appendix 1

Audit approach
PAGES AP1–AP12
Action Plan
Reference:
SA002-07-2003
Date:
August 2003
audit 2002/2003
SUMMARY REPORT
Introduction
The Code of Audit Practice, approved by Parliament in March 2000, requires the external
auditor to give, amongst other things, an independent assessment of whether the
statements of accounts present fairly the financial position of the Council. We have,
therefore, examined the processes which we consider are core to the production of the
financial statements, namely

the main accounting system

the budgetary control system

the accounts closedown procedures at the year end
and established the extent to which we can rely on them in giving our opinion on those
statements.
We have also carried out work towards the Code of Audit Practice objective relating to
financial aspects of corporate governance, which requires us to check the Council’s
arrangements for:

ensuring that systems of internal control are adequate and effective (including risk
management arrangements)

ensuring proper standards of financial conduct and preventing and detecting fraud and
corruption

ensuring that financial standing is soundly based

securing the legality of transactions that have significant financial consequences.
Our responsibilities and audit approach to this work are summarised in Appendix 1. It is
designed to focus on key risk areas identified as part of the audit planning process. Our work
has been integrated with that of Internal Audit to, where possible, avoid duplication. Before
commencing any work of our own, we have reviewed their coverage and sought to place
reliance on their work where relevant.
We have already issued, or are about to issue, separate reports covering some important
elements for the above. These relate to risk management and income collection procedures
for sundry debtors and council tax. We are also planning to issue a separate report on the
Authority’s financial standing, including proposals for applying the draft Prudential Borrowing
Code, in the autumn. The remainder of this report therefore concentrates on those issues
that have not been covered elsewhere.
This summary report highlights the main conclusions from our interim audit work. Our
detailed findings and the Authority’s comments on them are contained in the attached
agreed action plan.
Interim Audit Memorandum – Audit 2002/2003
Salford City Council – Page 2
audit 2002/2003
SUMMARY REPORT
Main conclusions
Opinion audit
Main accounting system
In the past we have reported that regular control account reconciliations have not been
undertaken throughout the year. During 2002/2003 the bank reconciliation was performed
once at the end of December 2002 although this contained an unexplained balance that was
not cleared. A full reconciliation at 31 March 2003 will be carried out as part of the final
accounts closure. Therefore we cannot yet conclude that we will be able to rely upon the
controls operating within the main accounting system for opinion purposes and we will have
to carry out further testing of the year end figures as part of our final accounts audit. In
particular we will have to ensure that the unexplained imbalance of £36,316 in the December
reconciliation has been resolved.
We understand that the decision was taken to concentrate on implementing the new cash
receipting system rather than monthly reconciliations from December 2002. However we
have been informed that since our interim visit a full reconciliation at 31 March 2003 has
been carried out and that reconciliations at the end of June and July 2003 have also been
completed.
Following last year’s recommendations, the Council has established a monitoring procedure
to ensure that all balance sheet accounts are reconciled regularly. Essentially this is through
a schedule that allocates responsibility for particular accounts to individual officers. Our
testing showed that it was not always clear from the monitoring schedule when
reconciliations were due to be done or when they were actually done. We have therefore
suggested some improvements to the monitoring schedule’s design. We also found that the
evidence retained to support the reconciliations was variable and have recommended that a
full audit trail is maintained in future.
Budgetary control
We have gained assurance, from the work undertaken, that we should be able to rely upon
the budgetary control system to support the production of materially accurate figures for the
accounts. This is subject to the completion of some further work at the final accounts audit
to ensure that the results reported in the statement of accounts are in line with those
reported through the budgetary control system.
Whilst we are able to rely on the current budgetary control system to ensure that the annual
accounts are free from material error, the system could be strengthened further by:

introducing formal corporate guidelines on the frequency of reporting as at the time of
our audit it varied between directorates. The Authority has already planned to address
this by presenting monthly budget monitoring reports to Lead Members and Budget
Committee from April 2003.

profiling budgets on the main accounting system

introducing the discipline of monthly closedowns, including accruals, to reduce the
number of amendments that currently take place outside the main accounting system.
Interim Audit Memorandum – Audit 2002/2003
Salford City Council – Page 3
audit 2002/2003
SUMMARY REPORT
Closedown procedures
We are satisfied that the closedown plan produced for the 2002/2003 accounts should
provide a sound basis for the preparation of this year’s financial statements and are pleased
to note the bringing forward of the process moving toward future timetables for whole of
government accounts. One factor that could impact on the closure timetable is the long term
sickness absence of the Corporate Services Principal Group Accountant, who is key to the
final accounts process. We understand that the Authority has made contingency plans to
cover for his absence. Nevertheless, officers need to closely monitor the progress against the
plan to ensure that the timetable is achieved.
This year we have liaised closely with the Authority to try to ensure that potential problem
areas within the accounts are highlighted and discussed at an early stage. In particular, we
held a technical training session for key finance staff in February 2003. We have also liaised
with officers to discuss progress on the issues arising from last year’s final accounts audit
such as the capitalisation of grey areas, internal debtors and creditors and schools’ balances.
The capitalisation of grey areas has been the subject of a separate report.
Financial aspects of corporate governance
It is the Authority’s responsibility to put in place arrangements to ensure the proper conduct
of its financial affairs and to monitor their adequacy and effectiveness in practice. It is our
responsibility to review those arrangements.
Internal Financial Control
An effective internal audit section is central to an authority’s internal financial control
system. Last year we carried out a detailed review of Salford’s Internal Audit Section and
concluded that it complied with statutory guidance and professional standards. We also
found many examples of good practice. We made some recommendations for improvement,
the main ones being to ensure that:

management responded promptly to Internal Audit’s reports

coverage of the key financial controls was sufficient to ensure that they had been
operating throughout the whole year.
We have followed up progress on our recommendations as part of the current year’s audit.
We found that good progress has been made with most of the recommendations being either
implemented or in the process of being implemented. In particular Internal Audit has made
considerable efforts, including the employment of agency staff, to ensure that all the key
financial systems were examined during 2002/2003.
Our main area of concern is that the speed of management response to some reports,
particularly those on the new financial systems, is still slow. Despite our raising of concerns,
it took between 10 and 12 months to respond to the 2000/2001 reports and between 5 and
7 months to respond to the 2001/2002 reports. Internal Audit have issued the draft report
on accounts receivable for 2002/2003 and at the time of our audit this had been outstanding
for 6 weeks although we understand that this was due to exceptional circumstances in the
Accounts Receivable Section. However we have been informed that responses to more recent
Internal Audit reports issued since our interim work have been much speedier as outline in
the attached action plan.
Whilst the controls within these systems have improved since they were first introduced, the
slow responses to Internal Audit’s recommendations means that some weaknesses will not
have been addressed as promptly as they could have been although officers advise that
Interim Audit Memorandum – Audit 2002/2003
Salford City Council – Page 4
audit 2002/2003
SUMMARY REPORT
action was being taken on a number of the issues before a formal response to Internal
Audit’s recommendations was given.
Conduct, fraud and corruption
The Authority must ensure that its affairs are managed in accordance with proper standards
of financial conduct. In addition there should be arrangements for the prevention, detection
and investigation of fraud and corruption. We identified no significant weaknesses in the
Authority’s overall arrangements in this area.
As part of our work on conduct, fraud and corruption we followed up progress on the
recommendations from last year’s report on interests, gift and hospitality. We found that in
the main the recommendations had been implemented. The Council is currently introducing
an on-line registration system which should significantly improve the efficiency of the
process.
The Council takes part in the National Fraud Initiative (NFI). Under this initiative the Council
provides data from various sources eg housing benefit records and payroll records which is
compared to data from other sources to identify matches that may indicate frauds. We have
looked at the arrangements in place to investigate these identified matches. We found that
the Benefit Fraud Unit was dealing well with the data matches requiring investigation but
other sections were not as active with their matches. Since our initial review there have been
some improvements in the actions that are being taken.
Legality
Towards the end of 2002 the Head of Law strengthened the Authority’s arrangements for
ensuring the legality of transactions that have significant financial consequences. Essentially
this has been done by nominating specific legal officers to liaise with directorates and to
review their agendas for potential legal issues. Detailed testing of the new arrangements
revealed that, whilst they are generally being applied, some issues are being taken forward
without the required legal input. We would therefore stress the importance of
re-emphasising to legal and directorate staff the need to adhere to the new procedures.
We understand that the Head of Law is planning to strengthen the arrangements further by
changing the role of the committee administration staff so that they focus on the more
significant meetings and become ‘custodians of the constitution’. This role will include
holding a watching brief for any potential legal issues. We support these proposals.
Status of our reports to the Council
Our reports are prepared in the context of the Statement of Responsibilities of Auditors and
Audited Bodies issued by the Audit Commission. Reports are prepared by appointed auditors
and addressed to non-Executive Directors/Members or officers. They are prepared for the
sole use of the audited body, and no responsibility is taken by auditors to any
Director/Member or officer in their individual capacity, or to any third party.
Interim Audit Memorandum – Audit 2002/2003
Salford City Council – Page 5
audit 2002/2003
APPENDIX
APPENDIX 1
Opinion audit
Responsibilities
Auditors are required to audit the financial statements and to give an opinion, including:
whether they present fairly the financial position of the audited body and its expenditure and
income for the year in question
whether they have been prepared properly in accordance with relevant legislation and
applicable accounting standards.
Audit approach
Opinion audit
(Statement of accounts)
Assess the strength and reliability of the control environment by undertaking a
review of the processes we consider core to the production of the financial
statements:
The main accounting system
The budgetary control process
Closedown procedures.
Identify the elements that can only be tested as part of the full review of the
financial statements at the final accounts audit.
Interim Audit Memorandum – Audit 2002/2003
Salford City Council – Page 6
audit 2002/2003
APPENDIX
Financial aspects of corporate governance
Responsibilities
It is the responsibility of the audited body to put in place arrangements to ensure the proper
conduct of its officers in relation to financial matters, and to monitor their adequacy and
effectiveness in practice. Auditors have a responsibility to review and, where appropriate,
report on the financial aspects of the audited body’s corporate governance arrangements.
Audit approach
Internal financial
controls
An assessment of the arrangements put in place by the Council to satisfy itself
that its systems of internal financial control are both adequate and effective in
practice. This includes reviewing:
Standing orders and standing financial instructions
Internal audit
IT strategy and control procedures
Procedures in place to control business-critical systems and the collection of
major sources of income
Tax-related management arrangements
Risk management arrangements.
Detailed work in risk areas not already addressed by the Council or Internal
Audit.
Standards of financial
conduct and
prevention and
detection of fraud and
corruption
An assessment of the Council’s overall arrangements for maintaining proper
standards of financial conduct and the prevention and detection of fraud and
corruption.
Financial standing
Assessment of the Council’s arrangements for ensuring it is able to meet its
financial obligations, including statutory requirements. This includes reviewing:
Review the work carried out on the Audit Commission’s warning bulletins
Detailed work in risk areas not already addressed by the Council or Internal
Audit.
Budget setting procedures
Budget monitoring procedures at all levels
Responses to financial hotspots, major developments and liabilities
We monitor the Council’s financial standing with key staff throughout the audit
year.
Legality
Assessment of the arrangements in place to ensure the Council:
acts within its legal powers especially in relation to local transactions that might
have a significant financial consequence
responds effectively to new legislation and national legal issues.
We monitor and review any potential legal issues that might have a significant
financial consequence by discussions with key staff throughout the audit year.
Interim Audit Memorandum – Audit 2002/2003
Salford City Council – Page 7