Part One
ITEM NO.8
REPORT OF THE STRATEGIC DIRECTOR OF CUSTOMER & SUPPORT
SERVICES
TO THE: BUDGET & AUDIT SCRUTINY - AUDIT SUB COMMITTEE
ON Monday, 27th March, 2006
TITLE: INTERNAL AUDIT PLAN 2006/2007
RECOMMENDATIONS:
Members are asked to approve the Internal Audit Plan for 2006/2007.
EXECUTIVE SUMMARY:
The purpose of this report is to seek Member’s approval of the 2006/2007 Internal Audit
Plan.
BACKGROUND DOCUMENTS:
(Available for public inspection)
Audit Management Information System, Risk Registers, Internal Audit Planning Module.
ASSESSMENT OF RISK:
The Internal Audit Plan is primarily determined from Directorate Risk Registers, key
concerns raised by Directorates, and requirements placed on Internal Audit by
regulation. This approach is aimed at giving assurance regarding the management of the
City Council’s key business risks.
SOURCE OF FUNDING:
Existing revenue budget.
COMMENTS OF THE STRATEGIC DIRECTOR OF CUSTOMER AND SUPPORT
SERVICES (or his representative):
1.
LEGAL IMPLICATIONS
Provided by: Deputy Director of
Customer & Support Services and City Solicitor
2.
FINANCIAL IMPLICATIONS
PROPERTY (if applicable): N/A
HUMAN RESOURCES (if applicable): N/A
Provided by: Head of Finance
CONTACT OFFICER:
Andrew Waine Audit Manager
Tel: 0161 793 3357
andrew.waine@salford.gov.uk
WARD(S) TO WHICH REPORT RELATE(S): N/A
KEY COUNCIL POLICIES: N/A
DETAILS: See report attached.
Introduction
This report provides details of the planned activity to be undertaken by the Internal
Audit service for Salford City Council. The details below provide details of planned
work attributable to Directorates, which is known as Chargeable Days and forms the
basis of the Service level Agreement between the Audit & Risk Management Unit
and client directorates. Similarly, account is taken of annual leave and sickness and
other non-productive time, which cannot be directly charged to our clients; these are
known as Non-Chargeable Days.
Both of these elements are managed on a continuous basis by the Unit Managers
and reported to this Committee on a quarterly timescale.
Plan Details
Appendix A provides details of the planned work to be undertaken by the various
disciplines within the Audit & Risk Management Unit, (ARMU).
This document details the planned number of days which will be delivered by the
Salford Internal Audit Team, which incorporates mainstream audit and computer
audit, under the heading Salford Audit Work, in total1487 days. This approach has
been taken to provide clear distinctions between internal audit services and other
disciplines within ARMU, and enables effective management and monitoring of
targets to be undertaken. It also enables benchmarking data to be readily available.
Appendix A also distinguishes between other Salford City Council services provided
under the ARMU umbrella, such as Corporate Governance including special
investigations and Risk Management, Energy Audit, and Insurance. Corporate Core
relates to other directly chargeable time to client directorates.
Planned work for external services is reported under the heading of External Work.
This relates to services provided to Greater Manchester Police Authority, Urban
Vision, New Prospect Housing Limited, Salford Community Leisure Limited, North
West Learning Grid, and services to other local authorities under the Joint Computer
Auditing banner.
A total of 6976 days has been determined as chargeable days.
In respect of non-chargeable days, this relates to annual leave, sickness (5%), and
other unpaid leave. A total of 3093 days has been determined across the whole of
the Unit.
Provision for work undertaken on Trust Funds, 17 days, has been included in the
proposed Plan. This has been separately identified, as it is work that has been
historically undertaken by Internal Audit, and is presently the subject of debate as to
the authority of Internal Audit to undertake such work.
Changes in the Audit Environment for 2006/2007
Members should note that there are 3 main changes that will affect the audit
environment for the coming financial year.
1.
International Standard of Auditing 315 (ISA 315)
This Standard mainly affects external auditors from the March 2005/6 year-end.
Members will remember the Enron scandal that hit the private sector a few years
ago. This Standard seeks to address the perceived weaknesses in the external audit
methodologies that enabled the Enron auditors to sign off on their accounts.
Basically the Standard requires that all external auditors should make themselves
familiar with the operation of the key controls over all the material financial systems.
For 2005/6 the Audit Commission are using Internal Audit documentation where it is
available to help them in this process, however, because we have only recently had
guidance on what the Standard means in practice, they have informed the Authority
that they are going to increase their fee for the 2005/2006 year-end audit to cover
any extra work they need to do.
Discussions have taken place between Internal Audit and the Audit Commission and
it appears that best practise for 2006/2007 onwards will be that Internal Audit
document and test the key controls in all the material financial systems every year.
Members will understand that this is a major change in the financial work performed
by Internal Audit as for many years now we have been working on a risk based
approach to all work, including those for the financial systems. The key difference will
be that Internal Audit will no longer be able to tailor our audits to only those that are
in a perceived high-risk area and only the high-risk areas within each system.
However, the Audit Commission has indicated that if Internal Audit performs this
“best practise” work then they may be able to reduce their audit fee for subsequent
years.
2.
Dedicated Schools Grant
Members who are involved in finance or Children’s Services will know that from
2006/2007 the Authority is to receive the funding for schools in the form of a separate
grant known as the Dedicated Schools Grant (DSG). This grant is based on pupil
numbers.
As grant funding, Members will appreciate that the grant will come with conditions
over the way the money is spent and accounted for. The two main conditions are that
the money must be spent on the Schools’ Budget and secondly that schools will be
expected to comply with the Financial Management Standard (FMS) produced by the
DfES. For 2006/2007, compliance with the FMS is limited to Secondary Schools.
This grant will not be subject to certification by the Audit Commission, however the
Chief Financial Officer (CFO), will have to sign off in his S52 outturn statement that
the above conditions have been met. This is also expected to be noted in the
Statement on Internal Control for 2006/2007. Members will appreciate that Internal
Audit will be required to perform some additional work both within the Authority and
within Schools, to provide the assurance that the CFO will need to sign off the s52
outturn statement.
Members should note that this work is likely to increase in future years when the
FMS becomes compulsory for primary and special schools.
3.
Urban Vision
During 2005/2006, Salford Internal Audit undertook audit work for the newly formed
Urban Vision. Members will appreciate that over the last year this has given rise to a
conflict of interest for the Salford audit team, as this team has the responsibility for
both the client (Salford City Council), and the contractor, (Urban Vision) and it has
been decided to relocate the Urban Vision work to the External Contracts Team.
Members should note that all risks faced by Salford City Council in relation to work
performed on our behalf by Urban Vision will remain in the remit of the Salford City
Council Internal Audit team. This will include such matters as contract audit and BVPI
reviews.
Internal Audit Approach
In determining an Audit Plan, Internal Audit assesses the level of risk relating to the
systems identified within each Directorate. Key indicators are used to identify
priorities such as CPA, ISA, etc, and a scoring mechanism applied. All of the
processes are ranked in order of risk and compared to available resources to
produce an Audit Plan. This is known as a Risk Based approach.
Details of this exercise are reported in Appendix B, Assessment of Risk.
From the analysis of key risk areas, and other priorities, Members will note that a line
has been drawn at the Risk Assessment score of 69. This is based on the current
human resource level available; however, it should also be noted that the
requirement for Internal Audit to consider all of the Council’s material systems under
ISA 315, would move the line upwards to a score of 77. In other words, those items
below the respective lines will not be subject to review during 2006/2007. Members
need to satisfy themselves that they are comfortable with the matters that have been
identified for review and those which fall outside of the resources available.
For each directorate, a contingency sum of 10% has been included. This is to cater
for unexpected requests from client management or for work that we consider to
merit Internal Audit’s involvement; this approach also allows for the scope of
individual audits to be greater than that originally anticipated.
Members will be kept advised of any changes to the proposed audit plan during the
course of the year. Requests for work and/or changes to existing policies and
procedures, or systems, will be reported to this Committee by production of revised
Assessment of Risk reports as at Appendix B.
Provision of External Services
ARMU continues to provide internal audit services to a variety of external clients, as
mentioned above.
With regard to the continued success of the AGMA Joint Computer Audit service,
which requested that Salford’s Internal Audit service takes the lead on the provision
of Computer Audit throughout Greater Manchester, and beyond, it is pleasing to
report that clients have again committed themselves to the service for the
forthcoming year.
The provision of services to Urban Vision has been transferred to the External
Services team to avoid a conflict of interest. By the same criteria, New Prospect
Housing will continue to be subject to audit by the External Contracts team, and the
client side of both organisations will be undertaken by Salford Internal Audit.
Recommendations
Members are requested to approve the formulation of an operational plan for the
provision of Internal Audit and other services from the Audit & Risk management Unit
for the financial year 2006/2007.
Appendix A
Audit & Risk Management Unit – Planned Activity 2006/2007
Salford Audit Work
Chief Executive's
Children's Services
Community Health & Social Care
Customer & Support Services
Environment
Housing & Planning
Trust Funds
Salford Audit Work Total
Other Salford Work
Corporate Governance Work
Energy Work
Insurance Work
Corporate Core
Other Salford Work Total
External Work
GMPA
Joint Computer Auditing
New Prospect Housing
NWLG
SCL
Urban Vision
External Work Total
Chargeable Total
Non-chargeable
Non-chargeable
Non-Chargeable Total
Grand Total
ANNUAL PLAN
95
453
301
455
51
115
17
1487
330
728
595
1730
3383
1004
530
327
30
50
165
2106
6976
3093
3093
10069
Appendix B
Salford Internal Audit - Assessment of Risk
Audit Name
Customer and Support Services: Council tax
Customer and Support Services: Housing benefits
Community, Health and Social Care: Foster Care Payments System
Corporate Core: SIC
Customer and Support Services: Debtors
Customer and Support Services: Treasury
Customer and Support Services: Main Accounting System
Children's Services: DSG plan changes
Customer and Support Services: PARIS cash receipting
Children's Services: LPSA 1
Customer and Support Services: Payroll
Community, Health and Social Care: CPA/ BVPI
Children's Services: Schools - PIR
Housing and Planning: CPA / BVPI
Customer and Support Services: NNDR
Environment: CPA / BVPI
Customer and Support Services: Creditors
Children's Services: CPA / BVPI
Corporate Core: Lead member briefings and liaison meetings
Chief Execs: CPA / BVPI
Children's Services: Schools - Primary
Children's Services: Schools - High
External Audit: Bridgewater Canal Trust
External Audit: Salford Children's Holiday Camp
External Audit: Greaves Trust
Customer and Support Services: Fixed Assets
Customer and Support Services: CPA / BVPI
Chief Execs: ESF and ERDF admin controls PIR
Chief Execs: Local Strategic Partnerships
Housing and Planning: partnerships - client side
Community, Health and Social Care: Museum archiving
Housing and Planning: Urban regeneration company
Chief Execs: Neighbourhood renewal fund
Housing and Planning: Rethinking construction - employment
Housing and Planning: NPHL Stock Options Appraisal
Housing and Planning: HMR PIR
Community, Health and Social Care: Adult Placements PIR
Corporate Core: Attendance Management
Housing and Planning: Supporting People PIR
Environment: Licencing PIR
Corporate Core: Members Decision making process
Children's Services: Sure Start
Housing and Planning: Homelessness PIR
Housing and Planning: property sale and purchase PIR
Housing and Planning: Rethinking construction - quality
Children's Services: Ethnic Minority and Traveller service
Risk
Assessment
180
165
120
113
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
84
80
78
78
77
77
77
77
77
75
75
74
74
74
72
72
72
72
71
Budgeted
Days
15
20
15
30
10
10
10
20
15
8
20
9
20
20
15
12
10
5
30
3
170
40
15
7
2
15
8
20
15
25
20
20
20
15
30
10
7
25
5
6
15
15
0
5
15
15
Community, Health and Social Care: Mental Health Budget Monitoring
Corporate Core: Partnerships
Children's Services: PFI 2
Community, Health and Social Care: Adult Protection
Customer and Support Services: Staff vetting PIR
Environment: Citywide
Housing and Planning: Contract audit work
Children's Services: Children's homes PIR's
Community, Health and Social Care: Domiciliary care PIR
Children's Services: Education Accountants
Environment: Grounds maintenance PIR
Housing and Planning: NPHL client side PIR
Corporate Core: Equalities policies
Chief Execs: Safer and stronger communities funding
Corporate Core: corporate complaints PIR
Customer and Support Services: Payment to contractors PIR
Customer and Support Services: HR SAP module
Customer and Support Services: Control of Cheques PIR
Community, Health and Social Care: Transport
Environment: Parks management fee PIR
Customer and Support Services: E-purchase cards
Customer and Support Services: Members training PIR
Customer and Support Services: Commercial Rents PIR
Children's Services: Youth Service
Corporate Core: Elections
Corporate Core: Records Management
Customer and Support Services: Unpaid Cheques PIR
Community, Health and Social Care: Day centres PIR
Community, Health and Social Care: community centres PIR
Children's Services: Student Awards PIR
Community, Health and Social Care: community committee grants
71
70
70
70
69
69
69
69
68
68
68
67
64
64
64
63
62
62
61
60
59
58
58
55
54
54
52
51
43
40
34
15
20
20
20
5
15
20
15
7
15
7
5
15
15
10
7
15
5
10
3
15
7
3
20
20
15
2
20
5
3
15