0036859_firescru 05.09.03 11.30am item04

8/2/2019 0036859_firescru 05.09.03 11.30am item04

1/20

External Audit Planning MemorandumScrutiny Committee5 September 2003

1

22.1

3

3.13.2

44.1

Purpose of reportTo review the P lanning Memorandum received from the external auditor.SummaryThe 2002/2003 Planning Mem orandum lays out the m ain areas of work to becovered by the external auditors relating to the yea r to 31 March 2003 andhow they intend to resource this work.Main ReportThe Scrutiny Committee has agreed that its remit will include the review of allmatters relating to externa l audit.The External Audit P lanning Memorandum received from the external auditoris attached in Appendix 1.RecommendationThe Scrutiny Committee notes the contents of the Planning M emorandum

Appendices Appendix 1 2002/2003 Audit Planning MemorandumCon actlTe Ian Stirton, Chief Interna l AuditorTel; 0131 469 31 94Background NonePapers

8/2/2019 0036859_firescru 05.09.03 11.30am item04

2/20

Linda Porter CPFA, Senior Audit ManagerAudit Services (East Region)Osborne House, 115 Osborne TerraceEdinburgh EH 12 5HGTelOl31 623 8300

LOTHIAN BORDERS FIREBOARD

AUDIT PLANNINGMEMORANDUM2002/03 AUDIT

23 April 2003

8/2/2019 0036859_firescru 05.09.03 11.30am item04

3/20

Lothian & Borders Fire Board 2002/03 AuditAudit Planning Memorandum Private & ConfidentialContents

Section 1 PageBackground 1

aa Audit engagementa Facts andfiguresa Functions of the Boarda Organisation and committee structurea Main financial systems

Accounts Commission & Audit Scotland

Section 24Audit resources

Section 3Audit objectives and testing 6

aaaaaaaaaa

Statutory dutiesAudit approachCorporate governance arrangementsSystems of internal controlInternal auditPerformance auditLegalityFin an cia1 statemen tsGrant claimsNature of audit testing

Section 4Audit reporting 12

Section 5Audit plans 13

a Planning considerationsa Long term plana 2002/03 annual auditplan

AppendixFee proposal 17

23 April 2003 Audit Services -Audit Scotland

8/2/2019 0036859_firescru 05.09.03 11.30am item04

4/20

Lothian & Borders Fire Board 2002/03 AuditAudit Planning Memorandu m Private & ConfidentialSection 1: Introduction

IntroductionAccounts C omm ission and Audit Scotland1.1

1.2

1.3

The Accounts Com mission for Scotland is a statutory, independen t body which is responsiblefor appointing auditors to all of Scotlands local authorities (and associated joint boards) anddetermining their terms of appointment. The Com mission approves a Code of Audit Practicewhich sets out the fram ewo rk within which aud itors are required to carry out their functions.Audit Scotland is a statutory body that provides services to the Acco unts Com missio n, providesguidance and support to auditors on technical matters and monitors their performan ce through aquality control process.The A ccounts Co mm ission appoints auditors to local authorities for a fixed period of time fromeither private firms or Audit Scotland staff (Audit Services Directorate). Onc e appointed,auditors act independently in carrying out their responsibilities and in the exercise of theirprofessional judgem ent.

Audit engagem ent1.4 The A ccounts Com mission has appointed Linda Porter (Senior Audit Mana ger, Audit S ervices -East Region) as the Boards ex ternal auditor for the period 2001/02 to 2005/06.1.5 The respective responsibilities of the Board and the Senior Audit Manager are outlined in a

Statement of Responsibilities of Auditors and of Audited Bodies which was approved by theAcc oun ts Com missio n in July 2001 following consultation with a wide range o f stakeholders.

1.6 An audited bo dys responsibilities are summ arised in the Statement as to be: .. responsible fo r the conduct of public business and the handling of publ ic money and, assuch, is ully accountablefor the conduct of that business in accordance with the law and prop erstandards, ens uring that public money is safeguarded and properly accounted fo r , and usedeconom ically, ef ici ently and effectively. Given this accountabil ity to the public fo r the conductof public business and stewardship of fu nd s under i ts control, the audited body therefore has aresponsibil i ty to establish prop er corporate governance arrangements, manag e i ts affairs tosecure econom ic, eff icient and efe ctive use of resources, maintain accounting records, prep arefina ncia l statements, safeguard assets and take reasonable steps fo r the prevention anddetection of ra ud and other irregularities.

1.7 The auditors responsibilities are summarised as to: .. form an independent and object ive view of the discharge by the audited body of itsstewardship responsibil i t ies. In so doing, the auditor may wish to obtain representations fr o mmanag ement, both orally and in writ ing, on important matters.

23 April 2003 Page I Audit Sewices -Audit Scotland

8/2/2019 0036859_firescru 05.09.03 11.30am item04

5/20

Lothian & Borders Fire Board 200 2/03 AuditAudit Planning Memorandum Private C ConfidentialSection 1: Introduction

Facts and figures1.8 Lothian & Borders Fire Board manag es one of Scotlands 8 Fire Brigades. The Brigade serves apopulation of 890,000 and covers an area of over 2,500 square miles.1.9 The Brigade employs approximately 1,300 staff. The Board complrises 18 democraticallyelected councillors from each of the constituent authorities of City of Edinburgh Council, EastLothian Council, Midlothian Council, Scottish Borders Council and West L othian Council. TheBrigades main admin istrative premises are at Lauriston Place, Ed inburgh.1.10 Net revenue expenditure to be m et from constituent council requisitions for the year ending 3 1Ma rch 2002 totalled E34.591million.1.11 Capital expenditure in 2001 /02 totalled E3.116 million and was fund ed by a combination ofcapital receipts of E0.026 million an d borrowi ng of E3.090 million.1.12 Further inform ation on the Boa rds income and expenditure is contained in the audited FinancialReport and A ccounts 200 1 02 and in the Bo ards budget for 2002/03.Functions of the Board1.13 The 2003 Service Profile outlines the Boards vision, purpose and values:

Vision To excel at provi ding a high-quality se w ic e that contributes to a safercommunity.

Purpose To reduce the impact upon the commun ity and the environment offire s and otheremergencies and, in doing so , improve com munity safety and engender a senseof well being within the popu lation living within its Boundary by:e the provision of an e f f icient and e fe ct ive response to ire s and other

emergencies;e reducimg the incidence off ir e by the provision of an e f f icient and e fect ive f i re

safety education, advice and legal enforcement sewic e.Values e ensuring the health and safety of all Board personnel, and of those who ar e

affected by the service provided by the Board;e achieving Best Value in service provision;e maintaining a policy of equal opportunity.

Organisation and committee structure1.14 The overall governance of the Board is the responsibility of elected members who areresponsible for setting policy. Each public sector body is accountable for the way in which itdischarges its stewardship of public funds. Stewardship is a function of both executive and non-executive management and, therefore, responsibility for effective stewardship rests with bothmem bers and officers of a public sector body.

23 April 2003 Page 2 Audit Services -Audit Scotland

8/2/2019 0036859_firescru 05.09.03 11.30am item04

6/20

Lothian & Borders Fire Board 2002/03 AuditAudit Planning Memorandum Private & ConfidentialSection 1: Introduction

1.15 Lothian & Borders Fire B oard is com prised of 18 elected members, 9 of whom are appointedfrom City of Edinburgh Council, 2 from East Lothian Council, 2 from Midlothian Council, 2from Scottish Borders Council and 3 from West L othian Council. The B oard is currentlyestablishing a Com mittee, to be known as the L othian and B orders Fire Board ScrutinyCom mittee, which will discharge the Boards audit comm ittee finctio ns as w ell as scrutinisingthe running of the Brigade. Mr K enneth Harrold, City of Edinburgh Council, is the Co nvenor ofthe Board.1.16 The conduct of the Boards proceedings is regulated by Standing Orders which also include ascheme of delegation to officers and financial regulations to ensure the proper adm inistration ofthe Brigades affairs.1.17 In 2002/03 the Boa rd consists of the following officers:

Firemaster Brian AllawayClerk to the Board T.N.Aitchison,Treasurer Donald McGougan,

Main financial systems1.18 The Brigades main financial systems are:

budgetary control 0 main accounting systempayroll 0 paymen t of creditorscapital income and expenditure 0 fixed asset controldebtors accounts cash income and bankingstock

1.19 The Brig ade participates in the local government pensio n scheme which is administered by Cityof Edi nburg h Council and will be reviewed by the appointed auditors of that body.

23 April 2003 Page 3 Audit Services - Audit Scotland

8/2/2019 0036859_firescru 05.09.03 11.30am item04

7/20

Lothian & Borders Fire Board 200 2/03 AuditAudit Planning M emorandum Private & ConfidentialSection 2: Audit Resources~~ ~~ ~~

Audit resources2.1

2.2

2.32.4

2.5

2.6

2.7

A letter from Audit S cotlands Director of Audit Strategy, dated 6 Decemb er 2002, specifies theindicative fee for the au dit as E15,OOO. This i s a prov isional fee which may be increased ordecreased within a range of 10 % with the agreement of the TreasurerF iremaste r (range E13,500to &16,500).In determining the agreed fee, the following factors hav e been co nsidered:

the standard of the Boards corporate governance arrangements, the control environmentand the experience o f senior management;the results of the Boards risk assessment procedures covering corporate and activity levelobjectives;changes in the framework o f authorities (e.g. governing legislation);the standard of internal controls in main financial systems and whether auditrecommendations are promptly acted upon;the standard of internal audit and the reliance that can b e placed o n its work;the extent to which comprehensive schedules and working papers are to be provided insupport of the financial statements.

The fee agreed with the Treasurer for 2002103 is &15 ,300.In agreeing the fee for the audit, the co-operation of Internal Audit has been secured to preventduplication of effort and to maximise the overall internal and external audit resource. Areaswhere we plan to place specific reliance on the work of Internal Audit are outlined at Section 5 .In the event that additional work is required that was not provided for in the audit plan (forexample, where working papers do not meet the required standard or Internal Audit fail tocomplete work in areas where it was agreed reliance would be placed on their work) the agreedfee may require to be revised, within the specified fee range, during the year. All amendmentswill be notified to and agreed with the Brigade. The prior agreement of Audit Sco tland isrequired for any adjustment outwith the specified 10 % flexibility.In som e cases, additional work may be necessary which would require the deployment of staffwith particular experience or special skills. In the event of such additional work being required,a separate fee based on grade related rates (specified in the letter of appointment) will benegotiated w ith the Firemaster.A key feature of the public sector audit regime is that auditors are paid by Audit Scotland for thework undertaken, not the audited body. Audit Scotland, in turn, levies charges on the auditedbodies to cov er the auditors remuneration an d an appropriate share of Audit Scotlands othercosts. Audit Scotland have levied a central charge of &5,300on Lothian & Borders Fire Boardfor 2002 /03 which is fixed and does not vary in accordance with the direct element. Thecharge covers a range of Audit Scotland central costs and administrative overheads, including


8/2/2019 0036859_firescru 05.09.03 11.30am item04

8/20

Lothian & Borders Fire Board 2 002/03 AuditAudit Planning Memorandum Private & ConfidentialSection 2 : Audit Resources

2.82.9

2.10

2.11

auditors travel and subsistence costs which are pooled to ensure that no organisation isdisadvantaged due to the location of their app ointed aud itors.In total, therefore, the B oard will be charged E20,600 by Audit Scotland for the 2002 /03 audit.It is a condition of engagement that a combined total of not less than 15% of total input on allaspects of the audit must be unde rtaken by audit staff of Au dit Manager grade and above. Theinput by other professionally qualified and specialist staff is at the discretion of each certifyingauditor. We intend that over 60% of the audit will be und ertake n by professionally qualified orspecialist staff.Th e core audit team w ill consist ofSenior Audit Man ager : Linda PorterAudit Senior Peter MooreAssistant Auditors : Leslie FarrerSystems audit will largely be undertaken during the period March to June 2003. From July2003, we will concentrate on the financial statements in order to meet Audit Scotlandsprescribed sign off date of 30 Septem ber.

23 April 2003 Page 5 Audit Sewices -Audit Scotland

8/2/2019 0036859_firescru 05.09.03 11.30am item04

9/20

Lothian & Borders Fire Board 200 2/03 AuditAudit Planning Memorandum Private & ConjidentialSection 3: Audit Objectives & Testing

Audit objectives and testing3.1 External audit is an activity statutorily superimposed on an audited bodys accountability

framework in order to provide an independent and objective check on the stewardship function.Its overall purpose is to undertake an independen t appraisal of the discharge by management ofits stewardship responsibilities to enable an assurance to be given to the public that thoseresponsibilities have been reasonably d ischarged.3.2 In general, an external auditors responsibilities are to:

provide an opinion on (to the extent required b y the relevant authorities) the audited bodysfinancial statements:review and report on, to the extent required by relevant legislation and the Code of AuditPractice, the audited bodys corporate governance arrange ments as they relate to:+ the system of internal control+ the prevention and detection of fraud and irregularity+ standards of conduct, and prevention and detection of corruption+ its financial positionreview and report on, to the extent required by relevant legislation and the Code of AuditPractice, aspects of an audited bodys arrangements to manage its performance and secureeconomy, efficiency and effectiveness in the use of resources.

3.3 In many respects, the duties and responsibilities placed on public sector auditors are wider thanthose of their private sector counterparts, stemming from the acknowledged public interest inboth the propriety and the economic, efficient and effective use of public fund s. Key features ofthe pub lic sector audit regime in Scotland include:a statu tory basis for the audit;the independence of public sector auditors from the organisation being audited;the wider scope of the audit as outlined in the Code of Audit Practice;the ability to report in public and to elected representatives.


8/2/2019 0036859_firescru 05.09.03 11.30am item04

10/20

Lothian & Borders Fire Board 2 002/03 AuditAudit Planning Memorandum Private & ConfidentialSection 3: Aud it Objectives & Testing

Statutory duties3.4 The auditor has certain statutory responsibilities whic h are contained principally within the localGovernment (Scotland) Act 1973. These responsibilities include:

satisfying herself that the accounts have been prepared in accordance with statutoryrequirements;satisfying herself that prop er accoun ting practices have been observed in the preparation ofthe accounts;satisfying herself that the Bo ard has mad e proper arrangem ents for securing value for moneyin the use of resources;satisfying herself that the Board has made adequate arrangements for collecting, recordingand publishing prescribed performance d ata;hearing any interested persons objection to th e accounts;placing a certificate on the accounts to the effect that the audit has been conducted inaccordance with PartVI1of the 1973 Act.

Audit approach3.5 Our audit approach complies in all material respects with the Code of Audit Practice and theAudit Services Directorates Au dit Manual and will seek to gain assurance that:

the system of recording and processing transactions provides an adequate basis for thepreparation of financial statements and the effective man agemen t of the brigades assets andinterests;there are adequate corporate governance arrangements in place which reflect the threefundam ental principles of openness, integrity and accountability;the systems of internal control provide an adequate means of preventing or detectingmaterial mis-statement, error, fraud or corruption;transactions have been processed and recorded in accordance with statutory andmanagement requirements;the financial statements are fairly presented;the Board has made proper arrangements for securing value for money in its use ofresources;the B oard has properly considered and acted upon all matters of legality.

23 April 2003 Page 7 Audit Sew ices -Audit Scotland

8/2/2019 0036859_firescru 05.09.03 11.30am item04

11/20

Lothian & Borders Fire Board 2002/03 AuditAudit Planning Mem orandum Private & ConfidentialSection 3:Audit Objectives 62 Testing

Corporate governan ce arrangements3.6 Our review of the Boards corporate governance arrangements will include completion of astandard checklist covering issues relating to systems of internal control, arrangements for the

prevention and detection of fraud and corruption, standards of conduct and the Brigadesfinancial position.3.7 Our work on corporate governance will also include a review of the Brigades risk assessmentand management procedures. In addition, the organisations risk assessment will be used toinform our own audit plan.

Systems of internal control3.8 Reviews of systems of internal control have a dual purpose in that they contribute to both:

the assessment of the Boards corporate governance arrangements in respect of systems ofinternal control and arrangemen ts for the prevention and detection o f fraud and corruption;the process of arriving at an appropriate audit opinion on the financial statements byestablishing the extent to which the information provided by the financial systems can berelied upo n.

3.9 Due to resource constraints, it is not possible (or cost effective) to review all main financialsystems every year. We wou ld, however, intend to review all main financial systems over theterm of a five year appointment.3.10 The final decision on work to be undertaken in any one year will depend on factors such as

materiality, risk and the results of previous audit work undertaken. A standard Audit Servicesrisk assessment model is used and particular risk factors are classed as high, medium or low riskfor each financial system The risk factors considered are:

MaterialityControl Environment

Management concerns

[mpact of con trol weaknesses on the financial statements.Previous frauds in the system.Lack of past reviews by e ither internal or external audit.Absence of controls.Staff factors - changes in management and operations, experienceand competence of staff, training, sickness levels, turnover.ICT system factors - new systems, level of outsourcing, central ordevolved, availability of audit trails, adequacy of system output.Security factors - disaster recovery, back up procedures, securityaccess, security policy, third party access issues.Management reliance on system output.Problem areas.Follow-up - progress in implementing previous recommendations,rectifying control weaknesses in areas where frauds have been

23 April 2003 Page 8 Audit Sewices -Audit Scotland

8/2/2019 0036859_firescru 05.09.03 11.30am item04

12/20

Lothian & Borders Fire Board 2 002/03 AuditAudit Planning M emorandum Private & ConfidentialSection 3: Audit Objectives & Testing1 identified. 1

Internal audit3.11 The Boards Internal Audit service is provided by the City of Edinburgh Cou ncils in-houseteam, headed by the Principal Auditor and with five members of audit staff. Internal Auditsreports will be presented to the new F ire Scrutiny Co mmittee from July onwards.3.12 Th e main duty of internal audit is to provide an assurance to management o n the accounting andinternal control systems within the organisation. Th e procedures used to provide that assuranceare broadly similar to those used by e xternal audit in a number o f areas of our work. As a result,we attempt to place as much reliance as possible on internal audit both to reduce our input andavoid unnecessary duplication of audit effort.3.13 If we are to place reliance on work done by internal audit to review main fma ncial systems orother areas of key external audit activity we require to:

be satisfied with the adequacy of internal audit in terms of quality of work, coverage,independence and effectiveness;0 undertake a detailed review of the work d one o n the particular system on which reliance oninternal audit is to be placed.

3.14 A cop y of our Audit Manual and standard programm es for the review of financial systems willbe supplied to Internal Audit.

Performance audit3.15 Our review of the Boards arrangements to secure value for money from the use of resourcesincludes four main activities:

0 appraisal of the Boards arrangements to secure best value through an integratedinspectionlaudit process developed in conjunction with HM IFS;0 undertaking local fieldwork on topics which form part of Audit Scotlands PerformanceAudit Directorates centrally directed studies programme;

local projects to review value for money which are developed in agreement withmanagement;reviewing arrangements for collecting, recording and publishing directed performanceinformation.

Legality3.16 W e are required to keep under review the legality of significant transaction and events and havean awareness of the key requirements of relevant statutory provisions. The legality of items ofaccount are co nsidered by the:


8/2/2019 0036859_firescru 05.09.03 11.30am item04

13/20

Lothian & Borders Fire Board 2002/03 AuditAudit Planning Mem orandum Private & Con3dentialSection 3: Audit Objectives & Testinginclusion of all significant legal requirements in audit programmes and c hecklists used in theconduct of the audit;deployment of staff who have substantial experience of the public sectors legal framework;

assessment of the arrangements the audited body has in place to ensure compliance with,and obtain adv ice on, legal matters;consideration of the impact of new legislation and guidance when planning the audit;review of minutes, making further enquiries where necessary;provision of written confirmation by the audited body that staff are not aware of anypossible non-compliance with the law or regulations which could have a material effect onthe organisations operations.

3.17 We are also required to submit annual fraud returns to Audit Scotlands Directorate of AuditStrategy and will liaise with the brigade to e nsure that app ropriate system s are in place to supplyus with the required information.

Financial statements3.18

3.19

Management are responsible for ensuring the preparation of financial statements by 30 Junewhich present fairly the financial position of the Board at the year end and its income andexpenditure for the year. Thereafter, the appo inted auditor is required to provide an independentopinion on the financial statements by 30 Septem ber.Standard Audit Services final accounts programmes will be used during the audit, tailored tomeet the particular needs of the Board. A summ ary list of the working papers and supportingschedules needed to enable the audit of the financial statements to be comp leted will be suppliedto the Board. Audit work on the financial statements will not comm ence until the financialstatements, and supporting working papers, have been comp leted.

Grant claims3.20 Each year w e require to certify the Section 94 grant claim made by the Board to the ScottishExecutive. The claim has a prescribed date by which the unaudited and audited versions shouldbe submitted.

Nature of audit testing3.21 Th e most efficien t and effective method of obtaining the assurances outlined at paragraph 3.2 isa risk based audit approach which takes account of the existence and efficacy of key internalcontrols. As a result, reviews of financial systems will be controls focused and involve:

identification of control objectives and the controls expected to achieve those objectives;identification an d assessment of the design of actual controls in place;


8/2/2019 0036859_firescru 05.09.03 11.30am item04

14/20

Lothian & Borders Fire Board 2002103 AuditAudit Planning Mem orandum Private & ConfidentialSection 3: Audit O bjectives & Testingtesting of the operation of those controls and substantive testing of the underlyingtransactions if controls are absent or ine ffective;

recording and reporting on the ove rall standard of internal control in the system .3.22 To assist in the process we w ill utilise standard Audit S ervices docum entation outlining controlobjectives, expected controls and su ggested tests for a range of main financial systems.3.23 As highlighted at paragraph 3 .13, we will attempt to place as much reliance as possible oninternal audit both to reduce our input and avoid unnece ssary du plication of audit effort.3.24 Provided internal control in a particular system is found to be operating satisfactorily, assurancewill be taken for the audit of the financial statements. Substantive procedures at the finalaccounts stage can then be reduced and substantive assurance will be gained from analyticalprocedures. Analytical procedures system atically analyse and comp are related figures, trends,ratios and other data with the aim of providing evidence to support the audit opinion.3.25 Wh ere possible, the use of CAATs (com puter assisted audit techniques) will be incorpo ratedinto audit tests to allow a more focused sam ple to be selected. Exam ples of CAATs may includeove rtimeh onu s p aymen ts over a prescribed level or creditors invoices over a certain level.

23 April 2003 Page I 1 Audit Services -Audit Scotland

8/2/2019 0036859_firescru 05.09.03 11.30am item04

15/20

Lothian & Borders Fire Board 2002 /03AuditAudit Plann ing Memorandum Private & Conj?dentialSection 4: Audit Reporting

Audit reporting4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9 as to the Scrutiny Com mittee when this is established.

Reports from the auditor are the primary means by which the results of audit activity arebrought to the attention of senior management, elected members and other stakeholders(including the Accounts Com mission, the Sc ottish Parliament an d the public).The m ain products from the audit will be:

the auditors report on the finan cial statements to be supplied by 30 September;0 the annual Report to Mem bers;

Reports to M anagement.The annual Report to Members is addressed to both M embers and the Controller of Audit andwill include issues con cerning the financial accounts, significant deficiencies in internal controlarrangements and findings from value for money work which are considered sufficientlyimportant to be brought to the notice of Mem bers and the Con troller. Th e report also provides asummary of the audit work undertaken during the year.The Report to Members will include an action plan of substantive issues on which managementaction is required. The action plan will summarise the remedial action agreed with managementor the reasons why agreement has not been reached. Implementation of the action plan will bemon itored and progress reports submitted to Audit Scotlands Directorate of Audit Review.Best practice requires the Report to Mem bers to be subm itted to the Board and the Controller ofAudit with the certified copy of the financial statements.Reports to Management will be prepared and submitted within one month of the completion ofeach substantial area of audit work. Reports will include an action plan which summarises auditrecommendations, details managements comments, outlines the officer responsible forimpleme ntation of the recommendation and the timescale for implementation. Each action planrecommendation will be rated as being of high, medium or low priority to the system underreview. Action plans will b e followed up in subsequent audit years to ensure that agreedrecomm endations have be en implemented or satisfactorily progressed.Draft Reports to Management will be discussed with relevant officers to c o n f m factualaccuracy, an d obtain a response to the action plan, prior to formal submission. We request thatthe Bo ard ensu re that this process is completed within one month of the submission of the draft.Final versions of Reports to Managem ent will be subm itted to the:0 Treaurer0 Internal Auditor 0 Director of Corporate Services0 Directorate of Audit ReviewAll formal reports w ill also be made available to Board Members for their consideration as well


8/2/2019 0036859_firescru 05.09.03 11.30am item04

16/20

Lothian & Borders Fire Board 2002/03AuditAudit P lanning M emorandum Private & ConfidentialSection 5: Audit Plans

Audit plans5.1 In summary, planning is the process of identifying what should be done, by whom , and i n whattimescale and should assist in ensuring that audit effort is appropriately resourced, focused,prioritised, directed and controlled.

Planning considerations5.2 Wh en planning the audit the following matters are taken into account:

statutory and professional requirements;factors which are external to the audited body;local considerations.

Statutory and professional requirements5.3 One of the main purposes of the audit plan is to enable us to discharge our statutory duties inaccordance with best professional practice. The plan is, therefore, prepared in accordance with:

all relevant legislation;the Code of Audit Practice:

0 the letter of engagement.5.4 W e also take account of guidance issued by A udit S cotland, such as:

guidance issued by the Director of Audit Strategy in, for example, the annual letterrequesting submission of the audit plan;Technical Bulletins and other guidance issued by our Technical Services Unit. Th e Board isrequired to include a statement of internal financial control in the fmancial statements forthe first time in 2002/03;information from the Performance Audit Division on local contributions to national valuefor money studies. Fire authorities are subject to a national value for money study in2002/03 on early retirement.

External environment5.5 Prior to the preparation of the plan, audit staff familiarise themselves with the externalenvironment in which the Board operates:

relationships with other organisations, including funding relationships;


8/2/2019 0036859_firescru 05.09.03 11.30am item04

17/20

Lothian & Borders Fire Board 2002/03AuditAudit Planning Memorandum Private & ConfidentialSection 5: Audit Plans

0 parliamentary and public interest, and the political environmen t;0 the legal and regulatory framew ork. Particular attention is paid to the impact of newlegislation.

Local considerations5.6 The consideration of local matters involves au dit staff gaining an understanding of the Bo ard toassist in the identification of events, transactions and practices which could have a significanteffect on the audit process. This is achieved through:

an overall review of organisational structure, including recent or proposed changes in keypersonnel, system s and organisation;an overview of corporate governance arrangements, including the control environment andrisk assessm ent processes;analytical review to establish trends and compare the Board to other authorities;an overview of the Internal Audit function to enable a decision to be taken as to how muchreliance can be placed on their work;an assessment of information and communications technology (ICT) arrangements to forman early opinion on the area s of audit concern;discussing the concerns and expectations of management.

5.7 All aspects of the planning process are intended to assist in the identification of areas of auditrisk.Long term plan5.9 W e prepare a long term plan from which our annual plan is drawn. The long term plan has beendeveloped using a risk based approach and has been influenced by factors such as new systemsto be introduced. This plan, however, is not fixed and will be reassessed each year in the lightof actual au dit work undertaken, m ajor new developments and changing priorities.2002/03 annu al audit planReview of systems5.10 Follow-up audits will be undertaken to ensure that recommendations made in 2001/02 havebeen implemented. Each follow-up review will involve meetings with staff to assess progressagainst th e agreed action plans and collationhesting of supporting evidence.


8/2/2019 0036859_firescru 05.09.03 11.30am item04

18/20

Lothian & Borders Fire Board 2002/03AuditAudit Planning Memorandum Private & ConJidentialSection 5 : Audit Plans

5.11

5.12

5.13

In this, the second year of our audit appointment, w e shall conduct an overview o f the Boardscorporate governance arrangemen ts. Ou r overview will include completion of standardchecklists and programmes which cover structures and processes for decision making; riskmanagement and systems of internal control; processes for the prevention and detection of fi-audand irregularities; standards of conduct, integrity and openness; reporting arrangements; and theBoards financial position.A checklist will also be completed as part of our assessment of the Boards arrangements for theprevention and detection of fraud. This checklist covers the existence of policies andprocedures for preventing and investigating fraud and corruption; the history of fraud andcorruption within the Board; checks undertaken prior to the recruitment of staff; and coverageby internal audit of systems with a hig h fraud and corrup tion risk.Given the size of the Board audit, we intend that reliance will b e placed on the work of InternalAudit to evaluate the key systems in place within the organisation and, to the extent that thisevaluation allows, place reliance on the internal controls within those systems. These systemsare outlined in paragraph 5.14 below.

Reliance on Internal A udit5.14 In addition to an annual overview of Internal Audit, we plan to place reliance in 2002/03 onwork undertaken by Internal Audit as follows:

payroll.stores - tock control (follow-up);

Performance A udit5.12 Through out the term of the five year appointment the Performance Audit Division of AuditScotland will, from time to time, require auditors to undertake work on topics which form partof Audit Scotlands centrally directed value for money studies programme. In 2002103 we arerequired to und ertake local fieldwork in the following centrally directed study:

Early retirement5.13

5.14

5.15

5.16

The A ccounts Com mission published a national report Bye Now, ay Later in 1997. The reportmade a number of recommendations to improve the management of early retirement in localauthorities.The managem ent of early retrials from an organisation is important as the costs are borne by theauthority in the short-term through charges on the revenue account and in the long-term throughthe em ployers contribution rate to the pension fund.The 2002/03 study is a follow-up of the national report, reviewing the management of earlyretirement a nd looking at the extent of implementation of the recommendations.The study foc uses on the Local Government Pension Sch eme and has 3 main objectives, to:


8/2/2019 0036859_firescru 05.09.03 11.30am item04

19/20

Lothian & Borders Fire Boa rd 2002/03AuditAudit Planning Memorandum Private & ConJidentialSection 5: Audit Plansre-assess procedures used to manage early retirement;assess how far the Board has responded to the Commissions 1997 recommendations;an dreview trends in early retirement since 1997 .

Performance indicators5.17 In accordance with our statutory duty, we will also review during 2002/03 the Boardsarrange men ts to collect, record and publish the p erform ance indicators required by the A ccountsComm issions annual direction and give an opinion on the reliability of the indicators.

23 April 2003 Page 16 Audit Services - Audit Scotland

8/2/2019 0036859_firescru 05.09.03 11.30am item04

20/20

Lothian & Borders Fire Board 2002/03 AuditAudit P lanning MemorandumPrivate & ConfidentialAppendix

Fee proposal

A1.2.3.4.5.6.7.8.

B

outputAudit Planning MemorandumMeetings with ManagementAuditors Report on the Financial StatementsAnnual Report to MembersCertification of Grant Claim (Section 94)Report to Management (corporate governance overview; arrangements for prevention anddetection of fraud and conuption; overview of internal auditData Returns to Audit Scotland-Performance IndicatorsReport to Management - Early retirement

Analysis of Proposed Fee by Professional GradeSenior Audit ManagerAudit SeniorAssistant Auditor

C Indicative Fee RangeMinimumMidpoint (indicative fee)Maximum

D Com parison of proposed fee against indicative feeMidpoint (indicative fee)Additions due to deficiencies in final accounts working papersFirst year planning overhead (part)Proposed fee per above

TimingApril 2003OngoingSept 2003Nov 2003Sept 2003July 2003June 2003May 2003

3,9107,4503,940

15,300

13,50015,00016,500

15,000800

(500)15,300

0036859_firescru 05.09.03 11.30am item04

Documents