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):
- LEGAL IMPLICATIONSProvided by: Deputy Director of Customer & Support Services and City Solicitor
- FINANCIAL IMPLICATIONSProvided by: Head of Finance
PROPERTY (if applicable): N/A
HUMAN RESOURCES (if applicable): N/A
CONTACT OFFICER:
Andrew Waine Audit Manager
Tel: 0161 793 3357
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
ANNUAL PLANSalford Audit Work / Chief Executive's / 95
Children's Services / 453
Community Health & Social Care / 301
Customer & Support Services / 455
Environment / 51
Housing & Planning / 115
Trust Funds / 17
Salford Audit Work Total / 1487
Other Salford Work / Corporate Governance Work / 330
Energy Work / 728
Insurance Work / 595
Corporate Core / 1730
Other Salford Work Total / 3383
External Work / GMPA / 1004
Joint Computer Auditing / 530
New Prospect Housing / 327
NWLG / 30
SCL / 50
Urban Vision / 165
External Work Total / 2106
Chargeable Total / 6976
Non-chargeable / Non-chargeable / 3093
Non-Chargeable Total / 3093
Grand Total / 10069
Appendix B
Salford Internal Audit - Assessment of Risk
Audit Name / Risk Assessment / Budgeted Days
Customer and Support Services: Council tax / 180 / 15
Customer and Support Services: Housing benefits / 165 / 20
Community, Health and Social Care: Foster Care Payments System / 120 / 15
Corporate Core: SIC / 113 / 30
Customer and Support Services: Debtors / 100 / 10
Customer and Support Services: Treasury / 100 / 10
Customer and Support Services: Main Accounting System / 100 / 10
Children's Services: DSG plan changes / 100 / 20
Customer and Support Services: PARIS cash receipting / 100 / 15
Children's Services: LPSA 1 / 100 / 8
Customer and Support Services: Payroll / 100 / 20
Community, Health and Social Care: CPA/ BVPI / 100 / 9
Children's Services: Schools - PIR / 100 / 20
Housing and Planning: CPA / BVPI / 100 / 20
Customer and Support Services: NNDR / 100 / 15
Environment: CPA / BVPI / 100 / 12
Customer and Support Services: Creditors / 100 / 10
Children's Services: CPA / BVPI / 100 / 5
Corporate Core: Lead member briefings and liaison meetings / 100 / 30
Chief Execs: CPA / BVPI / 100 / 3
Children's Services: Schools - Primary / 100 / 170
Children's Services: Schools - High / 100 / 40
External Audit: Bridgewater Canal Trust / 100 / 15
External Audit: Salford Children's Holiday Camp / 100 / 7
External Audit: Greaves Trust / 100 / 2
Customer and Support Services: Fixed Assets / 100 / 15
Customer and Support Services: CPA / BVPI / 100 / 8
Chief Execs: ESF and ERDF admin controls PIR / 84 / 20
Chief Execs: Local Strategic Partnerships / 80 / 15
Housing and Planning: partnerships - client side / 78 / 25
Community, Health and Social Care: Museum archiving / 78 / 20
Housing and Planning: Urban regeneration company / 77 / 20
Chief Execs: Neighbourhood renewal fund / 77 / 20
Housing and Planning: Rethinking construction - employment / 77 / 15
Housing and Planning: NPHL Stock Options Appraisal / 77 / 30
Housing and Planning: HMR PIR / 77 / 10
Community, Health and Social Care: Adult Placements PIR / 75 / 7
Corporate Core: Attendance Management / 75 / 25
Housing and Planning: Supporting People PIR / 74 / 5
Environment: Licencing PIR / 74 / 6
Corporate Core: Members Decision making process / 74 / 15
Children's Services: Sure Start / 72 / 15
Housing and Planning: Homelessness PIR / 72 / 0
Housing and Planning: property sale and purchase PIR / 72 / 5
Housing and Planning: Rethinking construction - quality / 72 / 15
Children's Services: Ethnic Minority and Traveller service / 71 / 15
Community, Health and Social Care: Mental Health Budget Monitoring / 71 / 15
Corporate Core: Partnerships / 70 / 20
Children's Services: PFI 2 / 70 / 20
Community, Health and Social Care: Adult Protection / 70 / 20
Customer and Support Services: Staff vetting PIR / 69 / 5
Environment: Citywide / 69 / 15
Housing and Planning: Contract audit work / 69 / 20
Children's Services: Children's homes PIR's / 69 / 15
Community, Health and Social Care: Domiciliary care PIR / 68 / 7
Children's Services: Education Accountants / 68 / 15
Environment: Grounds maintenance PIR / 68 / 7
Housing and Planning: NPHL client side PIR / 67 / 5
Corporate Core: Equalities policies / 64 / 15
Chief Execs: Safer and stronger communities funding / 64 / 15
Corporate Core: corporate complaints PIR / 64 / 10
Customer and Support Services: Payment to contractors PIR / 63 / 7
Customer and Support Services: HR SAP module / 62 / 15
Customer and Support Services: Control of Cheques PIR / 62 / 5
Community, Health and Social Care: Transport / 61 / 10
Environment: Parks management fee PIR / 60 / 3
Customer and Support Services: E-purchase cards / 59 / 15
Customer and Support Services: Members training PIR / 58 / 7
Customer and Support Services: Commercial Rents PIR / 58 / 3
Children's Services: Youth Service / 55 / 20
Corporate Core: Elections / 54 / 20
Corporate Core: Records Management / 54 / 15
Customer and Support Services: Unpaid Cheques PIR / 52 / 2
Community, Health and Social Care: Day centres PIR / 51 / 20
Community, Health and Social Care: community centres PIR / 43 / 5
Children's Services: Student Awards PIR / 40 / 3
Community, Health and Social Care: community committee grants / 34 / 15